What does "aggregate demand" represent in an economy?

Aggregate demand represents the overall demand for all goods and services in an economy at a given overall price level and during a specified time period. This concept encompasses the total quantity of goods and services demanded across all levels of economic activity, including consumption by households, investment by businesses, government spending, and net exports (exports minus imports).

When looking at the components of aggregate demand—consumption, investment, government spending, and net exports—it becomes evident why this aggregate measure is crucial for understanding economic activity. An increase or decrease in aggregate demand can significantly influence economic growth, inflation rates, and employment levels.

The other choices do not capture the full scope of what aggregate demand is. The total supply of goods produced reflects the production side of the economy, not the demand side. Focusing solely on the total expenditure of foreign markets ignores domestic demand, and referring to the individual demands of all households only considers one component of aggregate demand and does not reflect the investments and government spending that also play critical roles in the economy. Thus, the accurate representation of aggregate demand as the overall demand for all goods and services makes option B the correct choice.