Aggregate Demand is the total demand for all the final goods & services by all the consumers in the economy during a year.

The main determinants of Aggregate demand are.

i) Private final consumption demand (C) - It is the demand of household and non-profit making institutions serving households for durable goods (T.V., Fan etc.), semi-durable goods (clothes, shoes etc.) and non-durable goods (vegetable, bread etc.).

ii) Government final consumption demand (G)- It is the expenditure incurred by government on the purchase of goods and services which are needed to provide facilities to the general public, such as, expenditure on road, school, bridge, hospital etc. The level of government expenditure is determined by the government policy.

iii) Private investment demand (I)- It refers to the expenditure incurred by the private firm on the purchase of capital goods, such as plant , equipments, buildings, machine etc. The investment is made in the economy in order to increase the production capacity as well as to maintain the present level of production. The rate of interest affects the investment demand inversely.

iv) Net exports (X-M) - It is the difference between exports of goods & services and imports of goods & services during the given period of time. It refers to the demand of foreigners for our goods & services over domestic demand for foreign countries goods & services.