aggregate demand


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Aggregate Demand

The total demand of goods and services in an economy at a given overall price and time. Aggregate demand is tracked on an aggregate demand curve, which plots demand against price. When prices are rising, this indicates that the aggregate supply in the economy is inadequate to meet the aggregate demand; this leads businesses to expand their operations and produce more goods and services.

aggregate demand

the 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 demand

or

aggregate expenditure

the 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.

References in periodicals archive ?
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For example, if an oil price increase is driven by an unexpected increase in global economic activity, aggregate investment will likely increase due to booming aggregate demand. However, if an oil price increase is driven by an unexpected decline in the global oil supply, aggregate investment will likely decline due to the higher cost of production.
It was therefore an instrument of government policy to elevate aggregate demand in the economy.
Recovery of aggregate demand due to growing remittances (in January-June 2018 net inflow of remittances grew by 10.2%) and increase of real salaries (growth of real salaries in January-June 2018 made 4.2%) contributed to economic development.
It means that aggregate demand has proved to be higher than previously thought.
Without a depreciation, levels of aggregate demand (especially for imported consumer goods) will remain unsustainably high, and the interbank market will need to be resupplied with dollar liquidity at regular intervals, through whatever means.
BMI Research said further tightening is needed to safeguard the country's macroeconomic stability as inflation remains on a firm uptrend due to higher excise taxes, rising global oil prices, and sustained high credit growth which continues to push aggregate demand up.
The bank said this market-driven adjustment in the exchange rate along with other recent policy measures are expected to contain the imbalances in the external account, thereby containing aggregate demand and also facilitating the prospects for generating non-debt creating inflows.

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