Question

The aggregate demand function is parallel to the consumption function because:

Options

• Both have the same slope c

• Both have the same intercept \(\overline{C}\)

• Both intersect the 45° line at the same point

• Both represent autonomous investment \(\overline{I}\)

Answer 1

The aggregate demand function \[AD=\bar{C}+\bar{I}+cY\] is parallel to the consumption function \[C=\bar{C}+cY\] because both have the same slope c (the MPC). The aggregate demand line is simply shifted upward by the vertical distance \(\overline{I}\), keeping the slope identical.