A.

D refers to desired expenditure on the purchase

of domestic produced goods & services during an
accounting year.

Components of A.D
AD= C + I +G+ X-M
AD=Aggregate demand
C= private household consumption

expenditure demand
I =private investment expenditure demand
G= government expenditure demand
X-M= Net export demand

AD SCHEDULE
AD schedule is a table

showing combined
behaviour of C & I
corresponding to different
level of income in the
economy.

AD SCHEDULE
Y(INCOME) C(consump
tion)

I(investme AD
nt)

Even when
the income
is zero

60

40

100

There is

100

140

40

180

C=60crores
at income
Y=0

200

200

40

240

Because
some

300

280

40

320

minimum

400

360

40

400

Expenditure
is

500

440

40

480

Essential
even

600

520

40

560

When Y is 0

Note:

Investment

Assumed to Constant=

DIAGRAMATIC
PRESENTATION OF AD
Y=expenditure(AS)
AD=C+I
C+I=A
D
C

I
45

Y(INCOME)

CONCEPT OF AS
AS refers to flow of goods and

services as planned by the producers

during an accounting year .It is
identical with the flow of income
(Y)during an accounting year .
Since Y=C+S,
We may state that AS= C+S

Components of AS
AS=C+S(C &S are the two

components of AS)
C=consumption which is always
positive
S= Saving as a component of Y
may be negative when the level
of income is low.

AS Schedule
Y(INCOME) C(CONSUMPTION
)

S(SAVING)
Y-C=S

AS(C+S)

60

-60

100

140

-40

100

200

200

200

300

280

20

300

400

360

40

400

500

440

60

500

600

520

80

600

DIAGRAMATIC PRESENTATION OF
AS(Y)
AS
(C+S)

Y(INCOME)
AS IS A 45 line . This is because of the obvious identity
between Y on the X-axis and C+S on the Y-axis

AS

ASSIGNMENT
QUESTIONS:
What is aggregate demand .
Name its components .
With the help of a schedule draw
the AD curve.
Show with the help of a schedule
AS =Y & prove that it is a 45 line
diagramatically.