Aggregate planned expenditure for goods and services in the economy = C + I + G + (X-M)

C- Consumers expenditure on goods and services:

This includes demand for durables & non-durable goods.

C- Gross Domestic Fixed Capital Formation i.e. investment spending by Companies on capital goods.

I- Investment also includes spending on working capital such as stocks of finished goods and work in progress.

G- General Government Final Consumption. i.e. Government spending on publicly provided goods and services including public and merit goods. Transfer payments in the form of social security benefits (pensions, job-seekers allowance etc.) are not included as they are not a payment to a factor of production for output produced. A substantial increase in government spending would be classified as an expansionary fiscal policy.

X- Exports of goods and services - Exports sold overseas are an inflow of demand into the circular flow of income in the economy and add to the demand for a country's produced output. When export sales are healthy, production in exporting industries will increase, adding both to national output and also the incomes of those people who work in these industries.

M- Imports of goods and services. Imports are a withdrawal (leakage) from the circular flow of income and spending in the economy. Goods and services come into the economy but there is a flow of money out of the economic system. Therefore spending on imports is subtracted from the aggregate demand equation.