4.3.2—AD components

Aggregate demand is AD = C + I + G + (X − M): consumption, investment, government spending and exports minus imports.

Each component is planned spending on current domestic output. Imports are subtracted because they are spending on foreign production, while exports add foreign spending on domestic production.

If C=500, I=120, G=180, X=90 and M=110, AD is 780.

Adding imports would count foreign output as domestic output; AD is not simply all spending by residents.