Aggregate Demand

Aggregate demand refers to the total expenditure on goods and services in an economy during a given period of time. This otherwise means the total amount that others will spend to purchase the output produced by the producers by offering a particular volume of employment. Again aggregate demand consists of two components: Demand for consumer goods and demand for investment goods.

Y or AD = C + 1

Where AD = Aggregate demand

C = Demand for consumer goods

I = Demand for investment goods

As we draw individual demand curve form individual schedule, similarly we can derive the aggregate demand curve from the aggregate demand schedule.

Table – 1

Aggregate Demand Schedule

Income	Aggregate Demand
0 40 80 160	20 50 80 140

Table 1 shows aggregate demand to be Rs. 20 million when income is zero. This is known as autonomous demand; demand independent of income. As income rises, aggregate demand also rises. This shows that aggregate demand is an increasing function of the national income. The table also shows that after income reaches a certain level, aggregate demand falls short of aggregate income. This is represented in the following diagram.