Page 1 - lesson note -Aggregate Demand and Related Concepts42

SAI INTERNATIONAL SCHOOL

ECONOMICS

Class-XII

CHAPTER 7

Aggregate demand and related concepts

(Module- 42)

Revision and doubt clearing class.

• AD model in a four-sector economy: - = + + + ( − )
• AD model in a two-sector economy: - = +
• Algebraic function of consumption function = + .
0
C = Consumption

=Consumption at zero level of national income. i.e. autonomous
0
consumption.
= Marginal propensity to consume.
= National income

• Average propensity to consume = =

ℎ ∆
• Marginal propensity to consume = =
ℎ ∆
• Algebraic function of savings function = − + (1 − ).
0
1 − represents MPS where b=MPC

• Average propensity to save = =

ℎ ∆
• Marginal propensity to Save = =
ℎ ∆
• Relationship between propensity to save and propensity to consume
+ = 1
=˃ = 1 −

=˃ = 1 −
+ = 1
=˃ = 1 −
=˃ = 1 −
• Aggregate supply is otherwise known as national income of the country.

i.e. = + =
=˃ = − =˃ = −