Final answer:
Aggregate demand includes all spending on domestic goods and services (option a) and is illustrated by the AD curve. The AS curve shows the total output firms produce at various price levels. Together, they form a model that explains the economy's total demand and supply interactions.
Step-by-step explanation:
Aggregate demand (AD) is the total amount of spending on domestic goods and services in an economy. It encompasses several constituents such as consumption, investment, government spending, and net exports. The aggregate demand curve illustrates this spending at various price levels, which can affect business output decisions. An important factor determining AD is the price level, measured by indices like the GDP deflator.
The aggregate supply (AS) curve, on the other hand, shows the total quantity of output, or real GDP, that firms are willing to produce and sell at each price level. The aggregate demand/aggregate supply model facilitates understanding of how total demand and total supply interact at the macroeconomic level, influencing overall economic activity.