Page 3 - lesson note-Aggregate Demand and Related Concepts 41

Ex-post investment refers to the realized or actual investment in an
economy during a period of one year.

Meaning of full employment: - It refers to a situation in which all those people,
who are willing and able to work at the existing wage rate, get work
without any undue difficulty.

Voluntary unemployment: - It refers to a situation when a person is
unemployed because he is not willing to work at the existing wage ate.

EX: - The consumption function for an economy is given as: -

= 200 + 0.8 .

a. Determine the value of MPC and MPS.

b. Autonomous consumption.

c. Derive the corresponding saving function.

d. calculate consumption at the income level of
Rs.3000crores.

e. Derive the aggregate demand function if autonomous
investment is 200.

f. Determine the breakeven level of national income.
Answer: -

The consumption function is given as = 200 + 0.8
a. The value of MPC is 0.8

MPS =1-MPC

MPS=1-0.8=0.2
b. Autonomous consumption is 200

c. Savings function when derived from consumption function is

= − +(1 − ).
0
= −200 + (1 − 0.8)

= −200 + 0.2
d. When Y=3000 then = 200 + 0.8 × 3000

= ˃200 + 2400 = 2600