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Question
Statement 1: In a two sector economy, consumption expenditure and investment expenditure are the two components of Aggregate Demand.
Statement 2: Aggregate demand curve always start from point of origin with positive slope.
In the light of given statements, choose the correct alternative from the following:
Options
Statement 1 is true and Statement 2 is false.
Statement 1 is false and Statement 2 is true.
Both statements 1 and 2 are true.
Both statements 1 and 2 are false.
Solution
Statement 1 is true and Statement 2 is false.
Explanation:
- Only the household sector and the producer sector exist in a two-sector economy.
- Consumption expenditure, or spending on final products and services, is incurred by the household sector, whereas investment expenditure, or spending on fixed assets, is incurred by the producer sector.
- The Aggregate Demand (AD) curve begins on the Y-axis since there is always some degree of consumption and investment at zero income.
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