Aggregate Demand Theory

Discipline: Economics

Aggregate demand, also referred to as aggregate spending, or aggregate expenditure, is the total demand for economic output in an economy at a given price level.

Aggregate demand theory asserts that the total demand for economic output in an economy helps to determine the level of economic output and growth. The theory is developed by the English economist John Maynard Keynes (1883-1946).

According to the aggregate demand theory, economic output will be reduced if total demand and consumption decreases. Therefore, income level, for example, is a predictor of economic output.

Supply-side economics has been preferred over the aggregate demand theory after the 1980s.

Also see: aggregate demand, aggregate output, aggregate supply

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