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Estimate the value of Aggretate Demand in a economy if : (a) Autonomous Investment (I) = 100 crores (b) Marginal Propenstiy to save = 0.2 (c) Level of Income (Y) = 4,000 crores (d) Autonomous Consumption Expenditure(c) = 50 crores. OR In an economy C = 200 + 0.5 Y is the compsumption function where C is the consumption expenditure and Y is the national income . Investment expenditure is ₹ 400 crores . Is the economy in equilibrium at an income level ₹ 1,500 crores ? Jusifty your answer. |
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Answer» Aggregate Demand (AD) function is given as: AD = C+ I AD = `{barC + b(Y)} + I` `barc = 50` (Given) b or MPC = 1 - MPS = 1 -0.2 = 0.8 Substituting the values of of `barC` and b in AD function, we get : AD = {50 + 0.8 ( 4,000)}+ 100 = ₹ 3,350 crores OR No, the Economy is not in a state of equilibrium at 1,500 crores Given : Consumption Function , C= 200 + 0.5 Y Investment Expenditure (I) = 400 crores At the equilibrium level Y =C + I Substituting the value from the question: Y= { 200 + 0.25Y} + 400 Y-0.5 Y = 600 0.5 Y = 600 Y = 600/ 0.5 = ₹ 1,200 crores. The equilibrium level of income is ₹ 1,200 crores. The given income ₹ crores is greater than equilibrium level of income . Therefore, the economy is not in equilibrium. |
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