The Aggregate Demand (AD) curve lies parallel to consumption curve, indicating that both have __________.
(Choose the correct option to fill in the blank)
The Aggregate Demand (AD) curve lies parallel to consumption curve, indicating that both have __________.
(Choose the correct option to fill in the blank)
Show Hint
- same components
- different slope
- same slope
- inverse relationship
The Correct Option is C
Solution and Explanation
AD = C + I + G + (X - M). In the simple model, I is a fixed (autonomous) amount.
So AD = C + a constant amount.
Step 2: Compare the two curves:
Adding a fixed amount to C lifts the curve up by the same distance at every income.
The slope of AD is therefore the same as the slope of C, which is the MPC. Two curves with equal slope are parallel.
Step 3: Why the other options are wrong:
(A) Same components: AD has C plus I, but the consumption curve has only C. So the components are not the same.
(B) Different slope: parallel curves have the same slope, so this is wrong.
(D) Inverse relationship: both rise with income, so they move in the same direction.
Final Answer:
Parallel curves have the same slope, option (C).
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