aggregate demand
/ AG-ruh-git /
Forget the demand for one apple or one car. Step back and ask: across the whole economy, how much do all the buyers together want to spend on all the finished goods and services at a given overall price level? That grand total of intended spending is aggregate demand. It is the economy's total shopping appetite, added up across everyone — households, firms, the government, and foreigners.
Economists split aggregate demand into four spending streams, captured by the identity AD = C + I + G + (X − M). C is consumption (households buying food, rent, gadgets). I is investment (firms buying machines, building factories, plus new housing). G is government spending on goods and services. And (X − M) is net exports — exports sold abroad minus imports bought from abroad. Add them up and you get total demand for the economy's output. The aggregate demand 'curve' slopes downward: when the overall price level is lower, the same money buys more, interest effects kick in, and home goods get cheaper relative to foreign ones, so total quantity demanded rises.
Aggregate demand is one half of the engine that drives short-run booms and busts. When C, I, G, or net exports surge, total demand pushes output and employment up; when they slump — say households get scared and stop spending — demand falls and a recession can follow. This is why so much policy aims at the components of AD: tax cuts and confidence to lift C, low interest rates to lift I, government programs to lift G. A key caveat: aggregate demand explains the short run well, but it does not by itself determine how much an economy can produce in the long run — that is set by its productive capacity.
When a government sends every household a stimulus check, much of that money gets spent at shops (C), some firms invest as orders rise (I), and overall demand for the economy's output jumps — a deliberate push on aggregate demand to fight a slump.
Aggregate demand = C + I + G + (X − M): the whole economy's total intended spending.
The aggregate demand curve slopes down for different reasons than an ordinary demand curve — not because one good gets relatively dearer, but because of wealth, interest-rate, and exchange-rate effects on total spending. Don't transfer single-market intuition wholesale.