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Explain the component of ceggregate demand inclosed economy 

 

Asked by herojitongbram010 14th December 2018, 11:07 AM
Answered by Expert
Answer:

Components of aggregate demand in a closed economy

AD= C+I

Where C= Private consumption expenditure and I= private investment expenditure

  1. Private consumption expenditure
  • Private consumption expenditure refers to total expenditure to be incurred by all households on the purchase of goods and services such as food, clothing and housing.
    • Autonomous consumption expenditure is independent of income and is represented by .
    • Induced consumption expenditure is dependent on disposable income.
    • Disposal income is the income from all sources which is available to consumers for consumption and saving.
    • According to Keynes Psychological law of consumption when income of the consumer increases, whole of the income is not spent and a part of income is saved.
      2. Private investment expenditure
  • Private investment expenditure refers to planned expenditure by private entrepreneurs on creation of capital goods for profit motive.
    • Autonomous investment expenditure is independent of interest and income
    • Induced investment expenditure is dependent on interest and income

 

 

 
Answered by Expert 17th December 2018, 9:22 AM
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