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Taxation as a Tool

AD curve is r...

Question

AD curve is represented by ________ curve in the income determination analysis.

A

Consumption + Saving + Investment

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B

Consumption + Saving

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C

Saving + Investment

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D

Consumption + Investment

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Solution

The correct option is D Consumption + Investment
Aggregate Demand refers to the desired level of expenditure in the economy during an accounting year. It is what people wish to spend on the purchase of goods and services during an accounting year.
The Ad curve in income determination analysis represents a two sector economy which only includes the expenditure made by the consumer sector and the producer sector.
Therefore, aggregate demand = consumption + investment.

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