What is "aggregate demand"?

Aggregate demand refers to the total demand for all goods and services within an economy at a particular price level and over a specific period. This concept encompasses the overall consumption of households, business investments, government spending, and net exports (exports minus imports).

The focus on a specific price level is crucial, as aggregate demand illustrates how the total quantity of goods and services demanded changes with varying price levels, influencing economic activity and policy-making. By measuring aggregate demand, economists can assess the health of an economy and guide decisions around fiscal and monetary policies.

Other options do not capture the full scope of aggregate demand. The total revenue of all businesses pertains to their earnings and does not reflect consumer demand across the economy. Overall supply of goods and services relates more to aggregate supply, which contrasts with the concept of demand. Collective spending by the government is only one component of aggregate demand and does not encompass the full picture of demand within the economy.