What is aggregate demand?

Aggregate demand is a term that economists use when talking about a relatively simple concept: Each of us decides how much we want to use or consume every year. We decide how big a house or apartment we want. We decide how many groceries to buy, how many times to fill up our cars with gas, or whether to buy a new dishwasher. Businesses also make decisions. Should they upgrade IT systems? Should they build a new factory or retool? Government also decides how much to demand. Do state and local governments build new schools, open new libraries, buy new books, or improve infrastructure such as roads and electrical systems? The sum of these demands for goods and services--by individuals, businesses, and governments--is aggregate demand. 

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Last Update: July 31, 2017