aggregate demand(redirected from Aggregation of individual demand to total demand)
aggregate demandthe total demand for a firm's product/s. The term is also used to describe the total demand placed on a production unit in order to calculate MANUFACTURING RESOURCE PLANNING (MRP II) requirements.
aggregate expenditurethe total amount of expenditure (in nominal terms) on domestic goods and services. In the CIRCULAR FLOW OF NATIONAL INCOME MODEL aggregate demand is made up of CONSUMPTION EXPENDITURE (C), INVESTMENT EXPENDITURE (I), GOVERNMENT EXPENDITURE (G) and net EXPORTS (exports less imports) (E):
Some of the components of aggregate demand are relatively stable and change only slowly over time (e.g. consumption expenditure); others are much more volatile and change rapidly, causing fluctuations in the level of economic activity (e.g. investment expenditure).
In 2003, consumption expenditure accounted for 52%, investment expenditure accounted for 13%, government expenditure accounted for 15% and exports accounted for 20% of gross final expenditure (GFE) on domestically produced output. (GFE minus imports = GROSS DOMESTIC PRODUCT). See Fig. 133 (a) NATIONAL INCOME ACCOUNTS.
Aggregate demand interacts with AGGREGATE SUPPLY to determine the EQUILIBRIUM LEVEL OF NATIONAL INCOME. Governments seek to regulate the level of aggregate demand in order to maintain FULL EMPLOYMENT, avoid INFLATION, promote ECONOMIC GROWTH and secure BALANCE-OF-PAYMENTS EQUILIBRIUM through the use of FISCAL POLICY and MONETARY POLICY. See AGGREGATE DEMAND SCHEDULE, ACTUAL GROSS NATIONAL PRODUCTS DEFLATIONARY GAP, INFLATIONARY GAP, BUSINESS CYCLE, STABILIZATION POLICY, POTENTIAL GROSS NATIONAL PRODUCT.