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Question
Graphically, Aggregate Demand function can be obtained by vertically adding the ______ and ______ function.
Options
consumption, saving
consumption, investment
investment, saving
aggregate supply, consumption
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Solution
Graphically, Aggregate Demand function can be obtained by vertically adding the consumption and investment function.
Explanation:
The Aggregate Demand function shows the total demand (made up of consumption + investment) at each level of income. Graphically it means the aggregate demand function can be obtained by vertically adding the consumption and investment function.
Here, OM = `overlineC`
OJ = `overlineI`
OL = `overlineC + overlineI`
The aggregate demand function is parallel to the consumption function i.e., they have the same slope c.
It may be noted that this function shows ex-ante demand.
Aggregate demand is obtained by vertically adding the consumption and investment functions.
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