Question

Distinguish between:
1) Aggregate Demand and Aggregate Supply
2) Autonomous Investment and Induced Investment
3) Exports and Imports
4) Consumption and Saving
5) Consumption Function and Saving Function

Answer 1

(1)

Aggregate Demand	Aggregate Supply
Aggregate demand implies the total demand of final goods and services by all the people in an economy.	Aggregate supply refers to the aggregate production planned by all the producers during an accounting year.
The important components of aggregate demand are consumption expenditure, investment, government expenditure, net exports etc.	Consumption and savings are the two main components of aggregate supply.
It is measured with the help of aggregate demand price (minimum sales proceeds that are expected)	It is measured with the help of aggregate supply price.

2)

Autonomous Investment	Induced Investment
It represents that part of investment, which is independent of the income level and interest rate.	It is a dependent function of the income and interest rate.
It is income inelastic.	It is not income inelastic.
It remains constant throughout all levels of incomes and interest rates.	It is a positive function of income but is a negative function of the rate of interest.

3)

Exports	Imports
It is the selling of domestically produced goods and services to any foreign country.	It is the buying of internationally produced goods and services by the domestic country.
In exports, goods flow out of the economy.	In imports, goods flow into the economy.
Here, foreign exchange is earned by the economy.	Here, foreign exchange flows out of the economy.

4)

Consumption	Savings
Consumption is that part of the income that is spent on buying goods and services.	This is the unspent part of the income.
It is the expenditure incurred by households on the gross domestic product.	The savings are used for investment in business enterprises.
Example: Expenditure incurred on purchase of food, clothes etc	Example: Amount deposited in fixed deposits.

5)

Consumption Function	Savings Function
It depicts the relationship between consumption expenditure and the level of disposable income	It depicts the relationship between savings and the level of disposable income.
C = f (Yd), where C represents consumption expenditure Yd represents disposable income.	$S\mathit{=}\mathit{-}\overline{\mathit{S}}\mathit{+}s{Y}_{\mathit{d}}$ where, $\overline{\mathrm{S}}$ represents autonomous saving* s represents marginal propensity to save (MPS) Yd represents disposable income.
It shows how a change in income influences the consumption pattern.	It shows how a change in income influences savings.