Question
Explain national income equilibrium through aggregate demand and aggregate supply. Use diagram. Also explain the changes that take place in an economy when the economy is not in equilibrium.
✓
Answer
The national income is in equilibrium when $AD = AS.$
In the figure the equilibrium is at $E,$ the intersection of the $AD$ curve and the $45^\circ$ line.
The equilibrium income is $OM.$
When the economy is not in equilibrium $AD$ is not equal to $AS.$ Suppose $AD>AS,$ will lead to fall in inventories with the producers.
The producers in turn will produce more to reach the desired level of inventories: This raises $AS$ till it becomes equal to $AD.$
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→Calculate ‘Net National Product at Market Price’ and ‘Personal Income’:
|
|
|
(₹ crore)
|
|
(i)
|
Transfer payments by government
|
7
|
|
(ii)
|
Government final consumption expenditure
|
50
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(iii)
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Net imports
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(-)10
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|
(iv)
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Net domestic fixed capital formation
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60
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(v)
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Private final consumption expenditure
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300
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(vi)
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Private income
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280
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(vii)
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Net factor income to abroad
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(-)5
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|
(viii)
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Closing stock
|
8
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|
(ix)
|
Opening stock
|
8
|
|
(x)
|
Depreciation
|
12
|
|
(xi)
|
Corporate tax
|
60
|
|
(xii)
|
Retained earnings of corporations
|
20
|
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- Profits earned by foreign companies in India.
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| S.No. | Particulars | Amount (In ₹ crores) |
| (i) | National Income | 71,000 |
| (ii) | Gross Domestic Capital Formation | 10,000 |
| (iii) | Government Final Consumption Expenditure | ? |
| (iv) | Mixed Income of Self Employed | ? |
| (v) | Net Factor Income from Abroad | 1,000 |
| (vi) | Net Indirect Taxes | 2,000 |
| (vii) | Profits | 1,200 |
| (viii) | Wages & Salaries | 15,000 |
| (ix) | Net Exports | 5,000 |
| (x) | Private Final Consumption Expenditure | 40,000 |
| (xi) | Consumption of Fixed Capital | 3,000 |
| (xii) | Operating Surplus | 30,000 |
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