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Aggregate Demand or AD is the total cumulative demand of an entire economy. This comprises demand for all goods and services that are sold within this economy.It is calculated using the formula AD = C+I+G+(X-M)C represents the consumption component of AD, this is the entire level of consumption of an economy i.e. goods and services consumed by households. I represents Investment, this is the spending by firms on capital in the economy which may include purchasing machinery etc. G represents Government Expenditure, this is the total level of government budget that is spend in the economy. The final component (X-M), also known as the balance of trade, is the total imports from the economy subtracted from the total level of exports)