Up Learn – A Level economics (aqa) – Aggregate Demand

Components of Aggregate Demand

Aggregate demand is the total demand for goods and services in an economy. The four components of aggregate demand are consumption, investment, government spending, and net exports.


A*/A guaranteed or your money back

Yes, really. Find out more about our A*/A Guarantee below.

More information

Want to see the whole course?

No payment info required!

Up Learn – A Level economics (aqa)

Macroeconomic Models

1. Income vs. Wealth (free trial)                                               
2. Simple Circular Flow Model (free trial)                                              
3. Income = Expenditure = Output (free trial)                                        
4. Real GDP (free trial)                                               
5. Withdrawals/Leakages (free trial)                                         
6. Injections (free trial)                                    
7. Changes in Injections and Withdrawals (free trial)
1. Aggregate Demand (free trial)                                             
2. Components of AD (free trial)                                              
3. Percentage of Each Component (free trial)                                       
4. Contractions and Extensions in AD (free trial)
1. Shifts in AD Introduction (free trial)                                        
2. Shifts in AD Income (free trial)                                   
3. Disposable Income vs. Income (free trial)                                            
4. Multiplier Effect (free trial)                                          
5. The Multiplier Ratio (free trial)                                    
6. Calculating the Multiplier Ratio (free trial)                                            
7. Downward Multiplier Effect (free trial)                                     
8. (AQA) Accelerator effect (free trial)                                        
9. Benefits (free trial)                                         
10. Interest Rates – Savings (free trial)                                         
11. Interest Rates – Mortgages (free trial)                                     
12. Interest Rates – Investment (free trial)                                    
13. Interest Rates – Effects on AD (free trial)                                            
14. Consumer Confidence (free trial)                                            
15. Investor Confidence – Animal Spirits (free trial)                                    
16. Wealth Effects (free trial)                                          
17. Ricardo Sousa (free trial)                                          
18. Pensions (free trial)                                       
19. Government Spending & AD (free trial)                                               
20. Savings Ratio – Calculation (free trial)                                    
21. Savings Ratio – Effects on AD (free trial)                                             
22. (AQA) Savings ratio & income (free trial)
1. Short Run Aggregate Supply Curve (free trial)                                              
2. Why Does The SRAS Slope Upwards? (free trial)                                         
3. Contractions and Extensions in SRAS (free trial)                                          
4. Long Run Aggregate Supply (free trial)                                            
5. Keynesian LRAS (free trial)                                     
6. Neoclassical LRAS (free trial)                                              
7. Aggregate Supply Curves Summary (free trial)
1. Shifts in AS (free trial)                                             
2. Commodity Prices (free trial)                                               
3. Natural Resources (free trial)                                               
4. Investment (free trial)
1. Short Run Equilibrium (free trial)                                          
2. Equilibrium with Keynesian LRAS (free trial)                                     
3. Equilibrium with Neoclassical LRAS (free trial)                                              
4. Shifts in AS/AD (free trial)                                       
5. Welsh Coal Mines (free trial)                                               
6. Why the Keynesian LRAS? (free trial)                                              
7. Oil Prices (free trial)                                    
8. Soviet Famine (free trial)                                         
9. Dot Com Bubble (free trial)                                      
10. VAT (free trial)

We’ve now seen that to model an entire economy, instead of using a demand curve, we use an aggregate demand curve: 

An aggregate demand curve, AD, is downward sloping, but this time we have price level and real GDP on our axes!

Aggregate demand is all the demand for goods and services in an economy – the demand for everything from jelly beans to machinery, even schools and hospitals.

And we can aggregate demand up into its 4 main components using the AD formula:

AD = C (for consumption) + I (for investment) + G (for government spending) + X (for exports) take away M (for imports)

First, we have C, for consumption – this is demand from households, like me and you. When we demand stuff, like playstations or jellybeans – that demand comes under consumption. 

Second we have I, for investment: firms also demand stuff, they demand capital goods…for instance, Apple demands hi-tech machinery to produce its iPhones, construction companies demand cranes to produce their houses – all this demand from firms comes under investment.

Third we have G, for government spending! The government also demands stuff – the UK government, for instance, demands hospitals to treat sick patients, and schools to educate students. 

And finally, we have X minus M, exports minus imports.

Because foreigners also demand our stuff! In the UK, for instance, we have loads of foreign consumers demanding the exports we sell abroad: our medicines, fighter jets and financial services. 

So we also need to include demand for our exports in aggregate demand.

But…we need to take away imports – because when we import stuff, like importing cheese from France, we’re demanding stuff from another country – so demand for imports is leaving our economy.

And that’s why we take away imports. 

So, in summary, the formula for aggregate demand is:

The AD formula is AD = C + I + G + (X minus M) 

And each letter stands for: 

AD = C + I + G + (X – M)

C is consumption, that’s demand from households. 

I is investment, that’s demand for capital goods from firms. 

G is government spending…that’s demand from…the government!

X is demand for our exports from foreign consumers.

And M is demand for imports from other countries – so demand for imports is leaving our economy, which is why we take it away!


Every course includes


Interactive Video Lessons

Video content that keeps you engaged and regular activities that keep you from losing focus


Detailed Quizzes

Technical, Memorisation and Mastery quizzes gradually build up your knowledge and understanding


Exclusive Practice Papers

Written by real examiners exclusively for Up Learn in order to give you additional confidence when preparing for exams


Progress Tracker to A*

Bespoke assessment and practice questions to chart your grade gains as you progress