Aggregate demand is the total demand for all goods and services which are produced in an economy over a given period of time.
Aggregate demand is often used as an indicator to measure the performance of the economy. When it is increasing, the economy is said to be growing and vice versa.
Aggregate demand is the sum of total consumption (C), investment (I), government spending (G) and net exports (X-M).
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Consumption – the spending on consumer goods and services over a given period of time.
Investment – increase in the capital stock of an economy.
Government spending – spending by the government throughout the economy on public goods and services (e.g. education, police, healthcare)
Net exports – the value of exports minus the value of imports.