Aggregate Demand
What is Aggregate Demand?
Total spending on an economy's goods and services at each overall price level.
Understanding Aggregate Demand
Aggregate demand (AD) adds up consumption, investment, government purchases and net exports. Plotted against the price level, it slopes downward: when prices fall, real wealth and real money balances rise, interest rates tend to fall, and exports become more competitive.
Shifts in AD, from changes in confidence, credit, government budgets or the world economy, are a main driver of short-run booms and recessions.