Determination of Income and Employment

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Aggreate Demand: AD refers to total value of all final goods and services that are planned to buy by all the sectors of the economy at a given level of income during a period of time. AD represents the total expenditure on goods and services in an economy during a period of time.

Components of Aggregate Demand:

1. Household Consumption Expenditure (C).
2. Investment Expenditure (I)
3. Government Consumption Expenditure (G)
4. Net Export (X - M).

Thus,   AD = C + I + G + (X - M).