CONCEPT OF AGGREGATE DEMAND Aggregate Demand in macroeconomics refers to demand for all goods and services in the economy during a period of time AD is measured in terms of expenditure on the goods and services not by physical quantity of goods and services Broadly expenditure is categorized as consumption expenditure and investment expenditure Expenditure can also be categorized as private expenditure and government expenditure

DEFINITION OF AGGREGATE DEMAND Exports-expenditure on the domestically produced goods by rest of the world is taken as exports Imports –expenditure by our residents on the goods produced in rest of the world is taken as imports Thus Aggregate Demand may be defined as the sum total of expenditure on the domestically produced goods and services during the period of an accounting year

 COMPONENTS OF AGGREGATE DEMAND  AD=C+I+G+X-M  C = Private consumption expenditure  I = Private investment expenditure  G = Government expenditure  X-M = Net of exports (money value of export- money value of imports)

(1) C= PRIVATE CONSUMPTION EXPENDITURE (i)C= private consumption expenditure- It is also called house hold consumption expenditure It comprises demand for goods and services by the households of a country during an accounting year (ii)It depends on the level of disposable income of the households called personal disposable income (iii)Higher the level of personal disposable income, higher is private consumption expenditure, and vice versa

(2) I= PRIVATE INVESTMENT EXPENDITURE Investment means increase in the stock of capital Private investment expenditure refers to expenditure by private investors on the purchase of such goods which add to their stock of capital Investment are of two types-(I)Induced investment-which depends on the rate of interest. Higher the interest rate lower the investment and vice versa (II)Autonomous investment-It does not depend on the rate of interest. So it is also called independent investment. It is related to business expectations in the private sector and to the social welfare in the govt. sector

(3) GOVERNMENT EXPENDITURE It includes both government consumption expenditure and government Investment expenditure. Government consumption expenditure meant for collective consumption Government investment expenditure is like expenditure on the construction of roads,dams, (4) X-M (net exports)