Question

Graphically, the aggregate demand function is obtained by:

Options

• Subtracting the investment function from the consumption function

• Horizontal addition of the consumption and investment functions

• Multiplying the consumption function by the investment function

• Vertical addition of the consumption and investment functions

Answer 1

Aggregate demand is obtained by vertically adding the consumption and investment functions. In the diagram, OM = \(\overline{C}\), OJ = \(\overline{I}\), and OL = \(\overline{C}\) + \(\overline{I}\), showing that the aggregate demand line lies above the consumption function by the vertical distance \(\overline{I}\).