Question

What is ‘effective demand’? How will you derive the autonomous expenditure multiplier when price of final goods and the rate of interest are given?

Answer 1

Answer:

E is the equilibrium point where the two curves AS and AD meet. EG is the effective demand and output level is determined by AD (assuming the elasticity of supply to be perfectly elastic). So, the autonomous expenditure multiplier is dependent on the income and MPC.

Explanation:

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