What is meant by AD
Aggregate demand (AD) is the total amount of spending on goods and services across a whole economy at a given price level. It has four components: consumption, investment, government spending, and net exports.
Formula
AD = C + I + G + (X − M)
Real World
During the 2020 UK lockdown, household consumption (C) collapsed and government spending (G) surged via the furlough scheme — illustrating how individual AD components can move in opposite directions while total AD still fell sharply.
Exam Focus
Always expand the AD formula in answers: stating all four components signals to the examiner you understand AD's full composition.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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