What is meant by aggregate demand?

Aggregate demand refers to the total demand for all goods and services within an economy at a particular price level over a specific period. It encompasses the overall amount that consumers, businesses, the government, and foreign buyers are willing to purchase at different price points. This concept is pivotal in understanding economic performance as it influences inflation, employment, and production levels.

The correct answer emphasizes the collective nature of demand across all sectors of the economy, rather than focusing on individual products or elements such as supply or savings. This comprehensive view illustrates how aggregate demand interacts with other economic factors, thereby playing a crucial role in macroeconomic analysis and policy formulation.