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:

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KollegeApply · Accepted Answer

Statement 1 is true and Statement 2 is false. Explanation: i. Only the household sector and the producer sector exist in a two-sector economy. ii. 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. iii. 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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