Which statement about aggregate demand is correct?

• A. Measures supply in a single market
• B. Measures the level of demand across the whole economy
• C. Is unrelated to price
• D. Reflects only government spending

Answer: (B)

Aggregate demand is the total demand for goods and services in an economy at a given overall price level and over a period. It shows how much households, firms, the government, and foreigners collectively spend on domestically produced goods and services. This means it measures demand across the whole economy, not in a single market. The price level matters because, at a given price level, the total amount people are willing to buy determines the economy-wide spending; typically, as prices rise, the quantity of goods and services demanded falls, and as prices fall, demand rises. Aggregate demand includes several components—consumption, investment, government spending, and net exports—not just government spending. The other statements don’t fit because aggregate demand is about demand (not supply), it is related to price, and it covers more than just government spending.