Advertisements
Advertisements
Question
Answer the following question:
What are the determinants of Aggregate Demand (AD)?
Advertisements
Solution
Aggregate demand implies the total demand of final goods and services by all the people in an economy. Aggregate demand is the summation of consumption expenditure (C), investment expenditure (I), government expenditure (G), and net earnings from foreign transactions (X - M) (Where, X is exports and M is imports).
Algebraically,
AD = C + I + G + (X – M)
i. Consumption expenditure (C): Consumption expenditure refers to the total expenditure incurred by all the households in an economy on different types of final goods and services in order to satisfy their wants. Consumption expenditure can be further divided in two categories as - Autonomous consumption expenditure and Induced consumption expenditure. Autonomous consumption expenditure is independent of the levels of disposable income whereas, induced consumption expenditure varies directly with the level of disposable income.
ii. Investment expenditure (I): Private investment expenditure refers to the planned (ex-ante) total expenditure incurred by all the private investors on creation of capital goods such as expenditure incurred on new machinery, tools, buildings, raw materials etc. Broadly, investment can be categorised into two types- Autonomous investment expenditure and Induced investment expenditure. The autonomous investment expenditure is independent of the rates of interest and levels of income whereas, the induced investment expenditure varies inversely with the rate of interest and directly with the levels of income.
iii. Government expenditure (G): Government expenditure refers to the total planned expenditure incurred by the government on consumption and investment purposes to enhance the welfare of the society and to achieve higher economic growth rates. The government expenditure comprises of both investment expenditure as well as consumption expenditure.
iv. Net exports (X – M): Net exports of a country refers to the difference between the demand for domestically produced goods and services by the rest of the world (exports) and the demand for goods and services produced abroad by the residents of that country.
APPEARS IN
RELATED QUESTIONS
Explain the concept of 'excess demand' in macroeconomics. Also explain the role of 'open market operation' in correcting it.
Derive the two alternative conditions of expressing national income equilibrium. Show these equilibrium conditions on a single diagram.
What is meant by inflationary gap?
State three measures to reduce inflationary gap.
Define aggregate supply?
Explain the concept of deflationary gap.
Name any two components of 'aggregate demand'.
Explain the role of 'Open Market Operations' in reducing Deflationary Gap
What is a ‘consumption function’?
Explain the determinants of aggregate supply.
Discuss the situation when aggregate demand is more than aggregate supply at full employment income level.
What are the determinants of Aggregate demand?
Explain with reason, whether you agree or disagree with the following statement:
Aggregate supply is influenced only by availability of natural resources.
Fill in the blank with appropriate alternatives given below
The General Theory of Employment, Interest and Money was written by __________.
Fill in the blank with appropriate alternatives given below
That part of income, which is not spent on consumption, is called __________.
Match the following Group:
| Group A | Group B | ||
| 1) | Aggregate Supply | a) | Expected receipts |
| 2) | Autonomous Investment | b) | Lord J. M. Keynes |
| 3) | Consumption | c) | Government Investment |
| 4) | A.P.C. | d) | ΔC/ΔY |
| 5) | Investment | e) | C/Y |
| f) | Addition to stock of capital | ||
| g) | Destruction of utility | ||
Define or Explain the following concept:
Aggregate Demand
Define or Explain the following concept:
Aggregate Supply
Give reason or explain.
Aggregate demand is a positive function of the level of employment and output.
Distinguish between:
Aggregate Demand and Aggregate Supply
Write Short note on:
Average Propensity to Consume
Answer the following question:
What are the determinants of Aggregate Supply (AS)?
State with reason whether you agree or disagree with the following statement.
Aggregate demand depends only on the consumption expenditure.
State with reason whether you agree or disagree with the following statement.
Aggregate supply is influenced by the state of technology only.
State with reason whether you agree or disagree with the following statement.
Positive net earnings from foreign transactions add to aggregate demand.
Answer in detail.
Explain the determinants of aggregate demand.
Answer in detail.
What is Aggregate Supply? Explain the determinants of Aggregate Supply.
Answer the following question.
State and discuss the components of Aggregate Demand in a two-sector economy.
Choose the correct from given options
When aggregate demand is greater than aggregate supply, inventories
In a closed economy, aggregate demand is the sum of ______.
The difference between the Aggregate Demand at above full employment and Aggregate Demand at full employment is known as ______
What is meant by Equilibrium income?
In case of an under-employment equilibrium, which of the following alternatives is not true?
Identify the correctly matched pair from Column A to Column B:
| Column A | Column B |
| (1) Y = AD | (a) Level of output at full employment |
| (2) Forward Multiplier | (b) Withdrawal of investment decreases income |
| (3) Paradox of Thrift | (c) People save less or same as before |
| (4) Multiplier (k) < 1 | (d) 0 < MPC < 1 |
Which of the following are the definitions of money supply in India?
When the value of the currency falls as compared to other currencies, it is ______
A decrease in Cash Reserve Ratio will lead to ______
Which of the following statement is true?
It is seen that the private consumption expenditure, private investment expenditure, and ex-ante savings have reduced the ______ in the economy.
What is the circumstance when aggregate output is determined solely by the level of aggregate demand called?
The slope of the supply curve is measured by ______.
Aggregate demand can be increased by:
When aggregate demand is greater than aggregate supply, inventories:
“In an economy ex-ante Aggregate Demand is less than ex-ante Aggregate Supply.”
Explain its impact on the level of output, income and employment.
With reference to Simple Keynesian model, give the meaning of ex-ante demand.
With the help of a diagram, determine the equilibrium level of output and income by using Aggregate demand and aggregate supply approach.
