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Questions and Answers
What does the consumption function show a relationship between?
What does the consumption function show a relationship between?
Which of the following is NOT a component of Aggregate Demand?
Which of the following is NOT a component of Aggregate Demand?
What does Aggregate Supply represent in a two-sector economy?
What does Aggregate Supply represent in a two-sector economy?
What is the value of Aggregate Supply in a two-sector economy?
What is the value of Aggregate Supply in a two-sector economy?
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What is Autonomous Consumption?
What is Autonomous Consumption?
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In the equation of the consumption function, what does 'C' represent?
In the equation of the consumption function, what does 'C' represent?
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Study Notes
Consumption Function and Aggregate Demand
- The consumption function illustrates the relationship between disposable income and consumer spending, showing how changes in income affect consumption levels.
- Components of Aggregate Demand include consumption, investment, government spending, and net exports; factors like savings do not count as a component.
Aggregate Supply in a Two-Sector Economy
- Aggregate Supply represents the total production of goods and services available in an economy, primarily determined by labor and capital.
- In a two-sector economy (households and firms), Aggregate Supply is measured through the total output produced by firms using inputs from households.
Key Concepts in Consumption
- Autonomous Consumption refers to the level of consumption that occurs irrespective of income levels, reflecting basic needs and expenditures.
- In the consumption function, 'C' denotes total consumption expenditure in an economy, which depends on both autonomous consumption and income levels.
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Description
This quiz covers topics such as the consumption function showing the relationship between income and consumption expenditure, and the concept of Aggregate Demand (AD) in economics. Test your knowledge on determining income, employment, and understanding the points to remember about AD.
