- Aggregate Demand is the measure of the aggregate income and expenditure of an economy, i.e., AD = C + I.
- There is always a minimum level of consumption irrespective of the income level, i.e., the consumption always remains positive irrespective of the income of the buyer/user. For example, in the above case, even though the Income is 0, there is a minimum level of consumption of 30. This consumption is known as Autonomous Consumption (OS). It is because people need some basic goods and services even at 0 Income to sustain themselves.
- The consumption expenditure curve in the aggregate demand represents that the consumption slope is always increasing. However, after reaching a certain level, i.e., the equilibrium point (300 in this case), the consumer starts saving a certain amount of their income.
- The investment expenditure curve remains constant and is assumed to be independent. For example, in the above case, the investment remains constant at ₹30 crores and the level of autonomous investment is indicated by OR.
- The AD Curve never starts from the base value, i.e., 0 as there is always a minimum level of consumption.
- The AD Curve represents that there is a positive relationship between income and expenditure as when the income of the economy rises, the expenditure also rises, and vice-versa.
Components of Aggregate Demand