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Estimate the value ofAggretate Demand in a economy if : (a)AutonomousInvestment (I)= 100 crores (b)Marginal Propenstiyto save= 0.2 (c)Levelof Income(Y)= 4,000 crores (d) Autonomous Consumption Expenditure(c) =50 crores. ORIn an economyC = 200 + 0.5 Y is thecompsumption functionwhereC is theconsumptionexpenditureand Y is thenationalincome. Investment expenditureis ₹ 400 crores . Is theeconomyin equilibriumat anincomelevel ₹ 1,500 crores ?Jusiftyyour answer. |
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Answer» Solution :AggregateDemand (AD) functionis givenas: AD = C+ I AD = `{barC + B(Y)} + I` `barc = 50` (GIVEN) bor MPC = 1 - MPS= 1 -0.2 = 0.8 Substitutingthe values ofof `barC` andb inAD function, we get : AD = {50 + 0.8 ( 4,000)}+ 100 =₹ 3,350 CRORES OR No, theEconomyis notin astateof equilibrium at 1,500 crores Given : ConsumptionFunction, C= 200 + 0.5 Y InvestmentExpenditure (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 levelof income is ₹ 1,200 crores. The given income ₹ crores is greater thanequilibrium levelof income . Therefore, the ECONOMY is notin equilibrium. |
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