The aggregate demand curve is used to depict the relationship between the total number of goods and the average price level of goods and specified intervals of supply. There are four major pieces of calculating the aggregate demand curve: consumption, capital investment, government purchasing and net exports. The aggregate demand reflects the demand for country’s gross domestic product.
Calculate consumption levels (often abbreviated as "C" in the aggregate demand formula). This coefficient represents the demand for consumer purchases at a given price point.
Determine the amount of capital investment, including the expansion of production and on upgrading equipment. Generally, as price points increase, investment (I) will decrease because interest rates will rise and borrowing will become more difficult.
Compute the amount of government spending (G) at various price points. This refers to the amount of goods and services the government might purchase as the economy’s prices go up or down.
Find the net exports coefficient. This is calculated by subtracting the amount of imports (M) from the amount of exports (X). When there is a trade surplus (more exports than imports), aggregate demand will increase (and vice versa).
Calculate the aggregate demand curve. Add together consumption (C), investment (I), government spending (G) and net exports (X-M). This will give you your aggregate demand.
- Economics: Computing Aggregate Demand
- University of Rhode Island: Models of Aggregate Income and Product
- Federal Reserve. "Monetary Policy Report to Congress—Part 2: Recent Financial and Economic Developments." Accessed Aug. 11, 2020.
- Jean-Baptiste Say. "A Treatise on Political Economy; or the Production, Distribution, and Consumption of Wealth," Page 138. Grigg & Elliot, 1834.
- John Maynard Keynes. "The General Theory of Employment, Interest, and Money," Pages 25–26. Harcourt, Brace and Company, 1936.
- John Maynard Keynes. "The General Theory of Employment, Interest, and Money," Page 15. Harcourt, Brace and Company, 1936.
- John Maynard Keynes. "The General Theory of Employment, Interest, and Money," Page 174. Harcourt, Brace and Company, 1936.
Mike Bell has been writing professionally since 2006. He wrote for and edited the "Independent Florida Alligator," and has also contributed to the "St. Petersburg Times," "Orlando Sentinel" and "Miami Herald." With a Bachelor of Science in journalism, Bell is now a student at the University of Florida Levin College of Law.