Aggregate Demand

GNP is purchased by four groups. The sume of the expenditure of the four groups is known as aggregate demand. The four groups are:

·         Consumers (households)

·         Firms

·         Government

·         International (foreign households, firms and governments)

This is represented by the equation: Y = C + I + G + X – Z, where:

-          Y = aggregate demand, aka GNP, GNI, GNE

-          C = consumption expenditure

-          I = investment expenditure

-          X = production of export goods

-          Z = expenditure on import goods