Supplementary resources by topic. Aggregate Demand is one of 51 key economics concepts identified by the Council for Economic Education (CEE) for high school classes.
On this page:
Definitions and Basics
Keynesian Economics, from the Concise Encyclopedia of Economics
Keynesian economics is a theory of total spending in the economy (called aggregate demand) and of its effects on output and inflation….
Aggregate Demand, at Answers.com
The total amount of goods and services demanded in the economy at a given overall price level and in a given time period. It is represented by the aggregate-demand curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally there is a negative relationship between aggregate demand and the price level. Also known as “total spending”.
In the News and Examples
Effects of trying to boost the economy via aggregate demand during business cycles: Gross Domestic Product, from the Concise Encyclopedia of Economics
In the short run, in business cycles the Keynesian emphasis on demand is relevant and alluring. But heavy-handed reliance on “demand management” policies can distort market prices, generate major inefficiencies, and destroy production incentives. India since its independence and Peru in the eighties are classic examples of the destruction that demand management can cause. Other less developed countries like South Korea, Mexico, and Argentina have shifted from an emphasis on government spending and demand management to freeing up markets, privatizing assets, and generally enhancing incentives to work and invest. Rapid growth of GDP has resulted….
A Little History: Primary Sources and References
John Maynard Keynes, biography from the Concise Encyclopedia of Economics
Keynes’s General Theory revolutionized the way economists think about economics. It was path breaking in several ways. The two most important are, first, that it introduced the notion of aggregate demand as the sum of consumption, investment, and government spending….
John R. Hicks, biography from the Concise Encyclopedia of Economics
His second major contribution was his invention of what is called the IS-LM model. The IS-LM model is a graphical depiction of the argument Keynes gave in the General Theory about how an economy could be in equilibrium with less than full employment. Hicks published it in a journal article the year after Keynes’s book was published. It is reasonably certain that most economists became familiar with Keynes’s argument by seeing Hicks’s graph….