Measure the level of ex-ante aggregate demand when autonomous investment and consumption expenditure (A) is Rs. 50 crores, and MPS is 0.2 and level of income (Y) is Rs. 4000 crores. State whether the economy is in equilibrium or not (cite reasons).
Download our app for free and get started
As given in the examination problem, Equilibrium Income (Y) = Rs. 4000 crore. Autonomous Investment + Autonomous Consumption $(\bar{\text{A}})$ = Rs 50 crore MPS = 0.2 So, MPC(b) = 1 – 0.2 = 0.8 (MPC = 1 – MPS) AD = C + I $\text{AD}=\bar{\text{C}}+\text{bY}+\text{I}=\bar{\text{A}}+\text{bY}$ $=50+0.8\text{Y}(\bar{\text{A}}=\bar{\text{C}}+\bar{\text{I}})$
As we know, the equilibrium level of national income in two-sector model is determined where, AS = AD Y = 50 + 0.8Y 4000 = 50 + 0.8(4000) 4000 = 50 + 3200 4000 =3250 Hence, the economy is not in equilibrium.
As we know, the equilibrium level of national income in two-sector model is determined where, AS = AD Y = 50 + 0.8Y 4000 = 50 + 0.8(4000) 4000 = 50 + 3200 4000 =3250 Hence, the economy is not in equilibrium.
Download our appand get started for free
Experience the future of education. Simply download our apps or reach out to us for more information. Let's shape the future of learning together!No signup needed.*
Similar Questions
- 1View SolutionCalculate investment expenditure from the following data about an economy which is in equilibrium:
National Income = ₹ 1,000 Marginal Propensity to Save = 0.20 Autonomous consumption expenditure = ₹ 100 - 2View SolutionAn economy is in equilibrium. From the following data calculate investment expenditure:
- Marginal propensity to consume = 0·9
- Autonomous consumption = 200
- Level of income = 10000
- 3View SolutionExplain the national income determination in an economy using saving and investment approach. Use diagram.
- 4View SolutionCalculate Marginal Propensity to Consume from the following data about an economy which is in equilibrium:
National income = 2,000 Autonomous consumption expenditure = 200 Investment expenditure = 100 - 5View SolutionCalculate APC and APS from the following schedule.Income (Y)100200300Consupmtion (C)80160240
- 6View SolutionIn an economy, everytime income rises, 75% of the rise in income is spent on consumption. Now, suppose in the same economy, investment rises by ₹ 750 crore. Calculate the following:
- Change in income.
- MPS.
- 7View SolutionAn economy is in equilibrium. Find 'autonomous consumption' from the following:
National Income = 1,000 Marginal Propensity to consume = 0.8 investment expenditure = 100 - 8View SolutionAn economy is in equilibrium. From the following data calculate autonomous consumption.
- Income = 10000
- Marginal propensity to save = 0.2
- Investment = 1500
- 9View SolutionDistinguish between APS and MPS. The value of which of these two can be negative and when?
- 10View SolutionWhat is APC? How is it calculated?