<Li> Investment is affected by the output and the interest rate (i (\ displaystyle i)). Consequently, we can write it as, I (Y, i) (\ displaystyle I (Y, i)), a function I which takes total income and interest rate as parameters . Investment has positive relationship with the output and negative relationship with the interest rate . Thus, an increase in the interest rate will cause aggregate demand to decline . Interest costs are part of the cost of borrowing and as they rise, both firms and households will cut back on spending . This shifts the aggregate demand curve to the left . This lowers equilibrium GDP below potential GDP . </Li> <Li> gross government investment and consumption expenditures (G (\ displaystyle G)), also determined as G − T (\ displaystyle G-T), the difference of government expenditures and taxes . An increase in government expenditures or decrease in taxes, therefore leads to an increase in GDP as government expenditures are a component of aggregate demand . </Li> <Li> net exports (N X (\ displaystyle NX) and sometimes (X − M (\ displaystyle X-M))), net demand by the rest of the world for the country's output . This contributes to the current account . </Li> <P> In sum, for a single country at a given time, aggregate demand (D (\ displaystyle D) or A D (\ displaystyle AD)) is given by C + I p + G + (X − M) (\ displaystyle C + I_ (p) + G+ (X-M)). </P>

A negative feature of aggregate demand policy is that it can cause