Aggregate demand and aggregate supply
AD=C+I means the expenditure of household in consumer goods and investment goods. AS=C+S means the expenditure of firms in consumption and savings Right ? In AS, what is consumed by the firms and what is saved by the firms ?
Main components of aggregate supply are two, namely, consumption and saving. A major portion of income is spent on consumption of goods and services and the balance is saved. Thus, national income (Y) or aggregate supply (AS) is sum of consumption expenditure (C) and savings (S).
Is firms savings retained earnings?
savings is whatever is left over after income is spent on consumption of goods and services