Question

In the graphical interpretation of the fixed price model, the Y-axis measures:

Options

• Income / Output

• The rate of change of output

• Aggregate Demand

• Autonomous consumption

Answer 1

Aggregate Demand is plotted on the Y-axis while Income/Output is on the X-axis. The AD curves of the form \[AD = \overline{A} + cY\] appear as upward-sloping lines in this plane, and the 45° line locates all points where the two axes' values are equal.