Measure the level of ex-ante aggregate demand when autonomous investment and consumption expenditure (Ā) is ₹ 50 crore, MPS is 0.2 and level of income (ץ) is 4000 crore. State whether the economy is in equilibrium or not (cite reasons).

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Latest Answer: 1 month ago
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Measure the level of ex-ante aggregate demand when autonomous investment and consumption expenditure (Ā) is ₹ 50 crore, MPS is 0.2 and level of income (ץ) is 4000 crore. State whether the economy is in equilibrium or not (cite reasons).

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1 Answers

Answered By Nikita Chetry
Answer: 1 month ago

MPC Calculation: Given MPS = 0.2, so MPC=1−MPS=1−0.2=0.8MPC = 1 - MPS = 1 - 0.2 = 0.8MPC=1−MPS=1−0.2=0.8 Aggregate Demand (AD): AD=Aˉ+cY=50+0.8×4000=50+3200=₹3250 croreAD = Ā + cY = 50 +...

MPC Calculation:
Given MPS = 0.2, so
$MPC = 1 - MPS = 1 - 0.2 = 0.8$
Aggregate Demand (AD):
$AD = Ā + cY = 50 + 0.8 \times 4000 = 50 + 3200 = ₹3250 \text{ crore}$
Equilibrium Check:
$Y = ₹4000 \text{ crore},\quad AD = ₹3250 \text{ crore}$
Since AD < Y, the economy is not in equilibrium.

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