Page 4 - Home Assignment- AD and related concepts
P. 4
2. Induced investment: - It refers to the investment which depends on
profit expectation and is directly influenced by income level. It slopes
upward showing a direct relationship with national income
• Aggregate demand in a two-sector economy with consumption function
= 50 + 0.5 and autonomous investment of 50 are as follows.
Y C = 50+0.5Y I AD=C+I
0 50 50 100
100 100 50 150
200 150 50 200
300 200 50 250
400 250 50 300
500 300 50 350
400
350 AD = 0.5x + 100
300 C = 0.5x + 50
250
200
150
100
50 I = 50
0
0 100 200 300 400 500 600
From the above it is observed that the aggregate demand curve slopes upward
showing a positive relationship with national income of the country. It is
obtained by vertically adding the consumption curve and autonomous
investment.
