Page 90 - DECO201_MACRO_ECONOMICS_ENGLISH

Unit 4: Theories of Income, Output and Employment: Keynesian Theory

4. Explain Y=C+I approach of determination of equilibrium level of national income. Notes
5. Explain S=I approach of determination of equilibrium level of national income.
6. Discuss the features of aggregate demand (AD). Explain the derivation of AD curve.
7. Discuss the short run and long run aggregate supply curves.

8. Given the following information:
Consumption: C = 100 + .8Y
d
Taxes: T = 10
Investment: I = 50

Government expenditure: G = 70
(i) Find equilibrium level of income.
(ii) If full employment level of income is 1,100 what should the increase be in government
expenditure to achieve this income level?
9. Suppose we have the following information for an economy:
M = 5,000 - 10,000 r + 0.5 Y
d
M = 7,000
s
Y = 6,000
where Md is the demand for money, Ms is the supply of money, r is the interest rate and
Y is the aggregate income. Calculate the equilibrium rate of interest for this economy.

10. You are given the following information about an economy:
Consumption function, C = 1000 + 0.5 (Y – T)
Investment, I = 2,000 crores.
Government expenditure = 1,000 crores

Taxes = 1,000 crores
(i) Find the equilibrium level of GDP without taxes.
(ii) Find the equilibrium level of GDP with taxes.

Answers: Self Assessment

1. False 2. True
3. True 4. False

5. False 6. True
7. AS 8. increase
9. right 10. vertical

11. fixed 12. AD =AS
13. False 14. False
15. True

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