Aggregate demand

Aggregate Demand is the total amount of goods and services, or Gross domestic product demanded by consumers at a given price level.[1]

* "Aggregate demand can be broken down into three main components: personal consumption (C), private investment (I), and government expenditures (G). The relationship can be summed up with this formula: AD = C + I + G."[2]

## Aggregate Demand Curve[edit]

Aggregate demand is represented by the Aggregate demand curve. The aggregate demand curve looks similar to a regular demand curve, however the Y-axis represents price level, and the X-axis represents real output.

The aggregate demand curves downwards. There are various reasons for this, including:

* The lower the price level, the richer individuals perceive themselves to be and the more they consume.
* When price levels are low, the reserve bank tends to decrease interest rates, resulting in higher consumption.
* A lower price level improves the international competitiveness of a country, resulting in higher net exports.

## References[edit]

1. ↑ http://www.investopedia.com/terms/a/aggregatedemand.asp
2. ↑ The Great Depression According to Milton Friedman