Chapter 8 - Income Determination And Multiplier

Question 1

Definition AD and AS approach

Answer 1

According to J. M. Keynesian, the equilibrium level of income is determined where planned level of aggregate demand is equal to planned level of aggregate supply

Question 2

Assumption, table and Diagram

Answer 2

There are two assumption
1. Planned level of investment = ₹100 crore (autonomous investment
2. C = 50 +0.5Y; here Cbar = 50 and MPC(b) =0.5

Question 3

Observation of JM theory

Answer 3

• AD is C + I curve as demand is for consumption and investment in a two sector economy.
• As is total amount of goods and services or national income. Since income is consumed and saved that is why it is shown by 45° line
• Equilibrium is determined at point E, which corresponds to full employment equilibrium. Accordingly, OM is equilibrium level of income/output/employment of resources.