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Notes of Aggregate Demand, Aggregate Supply and Related Concepts

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6K views44 pages

Notes of Aggregate Demand, Aggregate Supply and Related Concepts

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rajmishrans7
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Unit — 3 : Determination of Income and Employment Chapter —7 Aggregate Demand, Aggregate Supply and Related Concepts i) iad Aggregate Demand (AD) Tees eC) Sar aun One ete et eer eet eet etc eer eee ieee heres ee eT Rim Kens Ba Oe CRU CUCU nt tei econ Deng eer eC mee ed Cerri Measurement of AD —_—— eae ao Income a There | is positive relationship between income and AD. So, AD with reference to income. PCIe eat Tes eure nel eu) OS eit Recerca ies en ® SOT ee] = Itis measured in terms of total e: Soles BS ea eset PCC eaten ee ace Erie ese run ier tee tetd Ce lige SUE at Cn eC) Components of Aggregate Demand OPS eo) Sas ae Saad BAe meioliomere scr =e) AL ee ae Ck LeCeeka6 ole ites Uren ole De eaceg ee ae eke om eel) ; etm nec me gcc eu aa ee) . AD=C+#+I Bicol ee lO ese MOON ALE Ue Ee OE Poe eho nce ites Veo Government Sector eeu are emirate eam cet una ccus aT expenditure and government investment expenditure AD=C+1+G Ce Itincludes 4 sectors — Pama oie (kaos Pmt aslo Pamely ues od Palle) PCM MU eR oie meee Rete NPR UR eee Le} imports decrease it. So, we find the value of Net Exports. AD =C+1+G+(X-M) Ina 2 sector economy, AD)is derived by adding C and | “fncome (Y) {Consumption (C) | Investment (I) | AD cma S , Behaviour of Aggregate Demand (AD) eee Mew Me ree ne ier eee ek eu) Creer i ke eu hc crs eet cet er einy eis AM Rec Saussure Tee a o 30 10 40 20 rn 10 50 40 Ey 10 60 60 Oo 10 a Ce 70 10 80 rT 80 10 Ea crea 900 Foal 100 RA ues hr Mun antec PUM ec uel eae eR OU melee ee RCN (eaele Met cuetl iit mec heer ac re PO eee ee em eT se Onn Pees eure) Ce Rese R aoa Nene Rares people start saving a part of their income. Ne NeM nea OR ee Cec eae earn eRe es showing aggregate demand corresponding to different levels of Perce cue It slopes upwards, showing positive relationship between AD and Y. a aa anal Cc Aggregate Demand (AD). CY x ro) 20 or rt Ci sll Mero Y (Income ) / GDP Ce Observation of AD Curve: +» AD=C+I PIS enue erect um cease ks ir eee Rei eee RR ee SSL ol Eee Msn Ete Ma Cae NPE eel Cheam elke RCE Ooo cereus uo elF aa Ad yee ten a = 10 Py ° Pare a & Ao fs ray $ a Ed Ss any) LO oe x CY ee eee) SAC SE KCoa ® ae = Ce EP Av kee Ue} aoe eee eee) Q2. es AD = 5,500 and C = 1,400. sy gu lames = Ms C+rL ae eee ced Pen es coe Cn ee 41 0D Le M4 7 oan Aggregate Supply (AS) Itrefers to aggregate production as planned by the producers during an accounting year. It means flow of goods and services as planned PNAUr a ks ees Mee Eee Do Pe Cee Mca ec eieaeme oer sce a ely AS Schedule: eS eames ut eh eS of Y. | Income (Y) Aggregate Supply (AS) 0 0 a) 20 rt) 40 Gr) Cy) EY 80 100 Te i 120 ra ree aR eee eC NaOr oNERAS A CD Pte ete tee tee eset ee cere Re Oe Te Sr eee cnc PR ected a eee ea coe Ie Pee CeCe eu hoe aPC eee or Rooms ed ne couie ® Itis presumed that there is always excess capacity in the economy because: Keynes made this assumption because he was dealing MUM MRO Cuenta ker Depression of 1930s’. Such economies have excess capacity due to eet Le AS Curve: aero lt or ene e Nea ole TA Eas) Pee Chet hiceud cama) SE Cun cell LU ROUSE Coe] Meee kel US assumption that there is excess capacity in the economy. si 120 ara S) Pr Aggregate Supply (AS) v us” x Ta Te eed SAUcon STAC AS is derived by adding Consumption (C) and Saving (S), AS = C+ S Income (Y).. | Consumption (C)| Savings (S) r 0 30 Bl) oO 20 cl) -20 20 EO 50 ae 40 60 iJ¢} 0 60 80 70 Ll al) 80 el Fae PaCS PRA ete AOL E11: Bete ol CePA ST RSE V ee Ur See EURO soli eak 1") IC) eg - a aa a Ase RAGES) eae as oe Cae hha sso Cet eaeie The functional relationship between consumption (C) and income (Y) is called consumption function. 7 eet meee Ks} = Sy 0 20 = gs Ea Ca S iS rr Fr) 2 Er Fry Fo 3 Er 180 0 ry [ty ee ee eon ea ele Ree au Ren a nn Oman es INE mA eee eet tests On incurred for survival on basic needs. This leads to negative saving (-S) ee eeu en Neeson OMe desu ues ur eee eeeut) Neen rte] emote Ra eae Rea cua Pee uted oui eee SMe Cr ea increases is lower than the rate at which Y increases. »ser relat sumption Cur + Consumption curve shoots from +ve Y-axis due to autonomous Contes ee omer uke Ie Se ee eek aco y, s cS 5 E| iB rm 3 Ft B By io} x ° een a ela The point where total constimption is equal to total income or the point where total saving is equal to zero is called break. Ere Cy 20 l arena ep . ry ry It refers to the rate at which C increases in response to a given aA Tyr) 100 It is the ratio between AC (change in C) and AY (changein Y). id ia MPCAC /AY ro c AC = 40 ed ey iad ° Divan is cra a ri Es #0 Cae 60 So oo ise kd Sse ee a aCe cnc) Coe U Rec tnt tae Pia wed Vere ar cus cerita Saco sca ere Tikes conan ue enue Nd) uM c Nore nN x03 v0) bolt) 60 miele) 100 aE) aru) Nae ate tie) Y ( Income) Tee « DC (Charge inv Cons wmpBon) I eae) “s c Er) Ey i) cry Ty cE) 140 When C > Y,APC > 1 When C = Y, APC = 1 WhenC

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