Question
What do you understand by aggregate demand (AD)?
Solution
Meaning. Aggregate demand broadly refers to the total demand for final goods and services in the economy. Since it is measured by total expenditure of the community on goods and services, therefore, aggregate demand also means aggregate expenditure on final goods and services in the economy. In other words, AD is the total expenditure which all sectors of economy are willing to make on purchase of goods and services. Thus aggregate demand is synonymous with aggregate expenditure in the economy. Mind, determination of output and employment in Keynesian framework depends mainly on level of aggregate demand in short period.
