Aggregate demand is a macroeconomic term (term related to the entire economy) that denotes total demand for goods and services in the economy.
In the macroeconomic relationship, aggregated demand determines the level of investment in the economy. Higher the demand, higher will be the incentive for the business people to invest. Higher investment brings higher production, employment and economic growth. Hence, aggregate demand determines pace of economic activities. Decline in aggregate demand brings slow-down and recession.
Aggregate demand = C +I
Where, C = Consumption and I = Investment.
Demand for goods and services come from either from consumers or from investors (exports also in the case of a three-sector economy).
According to Keynes, it is the effective demand that determines employment in an economy.
