Aggregate Demand Function Homework Help, Assignment Help, Online Tutor, Tutoring

Submit Assignment

* *

Payment Online Assignment Help

Business Economics Homework

Homework Help

sfsf

Aggregate Demand Function

Aggregate demand refers to the total of an economy on the goods and services at a given level of income and employment. Goods and services are demanded for two purposes, viz. (1) Consumption and (2) Investment.

The households demand consumption goods like wheat, bread, etc. and services like transport and entertainment, etc. The demand for consumption goods originating from the private households is known as private consumption; similarly, the government may also demand consumption goods. Thus type of demand is known as public consumption. Private consumption and public consumption added together constitute the total consumption demand for goods and services.

The aggregate of consumption demand and the investment demand constitute the aggregate demand. In short,

Aggregate Demand = Consumption Demand + Investment Demand

Aggregate demand as a sum total of expenditure in the economy. Whenever the households, firm and the government demand any goods and services, they incur expenditure on the same.

The term ‘sale proceeds’ also connotes expenditure in the economy. This is based on the assumption that “all spending constitutes income” in an economy. What are ‘factor payments’ from the perspective of the business firms shall constitute ‘factor receipts’ for the households, and likewise expenditure on goods and services constitutes sale proceeds?

In this sense, aggregate demand can be defined as the total money receipts which all the firms in the economy expect to receive from the sale of their products at varying level of employment. Thus, aggregate demand is directly related to the level of employment and income.

The shape of the aggregate demand curve depends on a basic economic principle which says that when income increases, people tend to spend a smaller proportion of income. In other words, as the level of employment increase aggregate demand curve rises but at a diminishing rate, and thus the slope of the curve diminishes.