4.3.1—Aggregate Demand

Aggregate demand (AD) is the total planned expenditure on domestically produced goods and services at a given price level: consumption + investment + government spending + (exports − imports).

Consumption depends on households, investment on firms, government spending on public decisions and net exports on foreign and domestic demand. AD is a flow over a period, not a stock of wealth.

If C=500, I=120, G=180, exports=90 and imports=110, AD = 780 in the same units.

Imports are subtracted because they are spending on foreign output; adding them would double-count expenditure that is not domestic production.