Question

Find out the Aggregate Demand from the following; Consumption Expenditure = 400 Cr, Investment​

Answer 1

Answer:

Autonomous consumption or C = Rs 400 Equilibrium level of income or Y = Rs 2000 MPC or b = ?

At equilibrium, Y = C + I

[AD = AS = Y and AD = C + I] Y = C + bY + I

2000 = 400 + b(2000) + 200 2000 - 600 = b(2000)

1400 = b(2000)

MPC(b) = 0.7

Answer 2

Explanation:

The aggregate demand (AD) function is given as: AD=a+b(Y) 

Given,

aˉ=50;

b=MPC=1−MPS=1−0.2=0.8

Y=4,000

Inserting given values in AD function:

AD=50+(0.8×4,000)=3,250

AD=Rs.3,250crores.

AS=Y=Rs.4,000crores.

Thus, AD=AS, i.e, economy is not in equilibrium.