In a two-sector economy, Aggregate Demand equals:
Options
AC + I
BC + S
CC + G
DC + X - M
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Determination of National IncomePYQ - Dec 2021 (Inter)Question 108 of 20
All Questions Correct Answer
✅ Option a — C + I
All Options:
- AC + I
- BC + S
- CC + G
- DC + X - M
Detailed Solution & Explanation
In a two-sector economy, which consists of households and firms, Aggregate Demand is the total amount of spending in the economy. To calculate Aggregate Demand, we need to consider the spending by households and firms.
• The spending by households is represented by Consumption (C), which includes all the goods and services purchased by households.
• The spending by firms is represented by Investment (I), which includes all the capital goods purchased by firms, such as new buildings, equipment, and inventory.
The correct answer is based on the concept that in a two-sector economy, the only two sources of spending are households and firms, so Aggregate Demand equals the sum of Consumption and Investment.
• Option C is incorrect because Government (G) is a part of a three-sector economy, not a two-sector economy.
• Option D is incorrect because Exports (X) and Imports (M) are part of an open economy, which is a four-sector economy, not a two-sector economy.
About This Chapter: National Income
Paper
Paper 4: Business Economics
Weightage
15%
Key Topics
Aggregates, Measurement, Keynesian Theory
A crucial chapter covering national income aggregates like GDP, GNP, NDP, NNP, and the methods of measuring national income (Income, Expenditure, and Output methods). It also introduces Keynesian Theory including the concepts of Aggregate Demand, Consumption Function, and the Multiplier.
View Official ICAI SyllabusExam Strategy Tip
Practice numerical questions on GDP/GNP calculations and the Multiplier. These are guaranteed marks in every exam. Also understand the circular flow of income clearly.
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