Short-run According to JM Keynes, ‘A period of time during which level of output is determined exclusively by the level of employment in the economy, is termed as short-run.’. Ans. Authors; Authors and affiliations; John Evans-Pritchard; Chapter. It needs to be noted that Keynesian theory is supposed to apply under short run and perfect competition. Ans. Even if income is zero consumption cannot be zero. This can be seen with the help of schedule and a diagram. Net export refers to the difference between export and import. When saving exceeds planned investment means people are consuming less and spending more as a result AD is less than AS. But ,later on these two concepts systematically explained by J.M.Keynes in his famous book “General theory of employment,interst and money”. Investment means addition to the stock of capital good, in the nature of structures, equipment or inventory. In an economy the MPC is 0.95 investment is increased by Rs. Free PDF download of Class 12 Macro Economics Chapter 4 - Determination of Income and Employment Revision Notes & Short Key-notes prepared by our expert Economics teachers from latest edition of CBSE(NCERT) books. At equilibrium point the equilibrium values of output and aggregate demand are OY1 and AD1. 1. Income Determination Important Questions for class 12 economics Short-run Equilibrium Output. 400 cr. Keynesian economics is one of the major schools of thought in the current era. Fixed Interest Rate : Interest rate remains constant. Keynes' approach was a stark contrast to the aggregate supply -focused classical economics that preceded his book. Overview Of Keynesian Income And Expenditure Model Economics Essay Introduction: Keynesian economic theory has been named after a British, John Maynard Keynes (1883 – 1946). Ans. Cloudflare Ray ID: 603151c939081a19 Introduction to Keynesian Theory: Keynes was the first to develop […] • AD = C+I (By substituting the value of consumption function), When final good market is in equilibrium, quantity demanded = quantity supplied AD = AS. Under these circumstances equilibrium output will be determined by aggregate demand at this price in the economy. It is income inelastic. At low level of income saving is negative. Marginal propensity to save is the ratio of change in saving to change in income MPS=AS/AY. Find out average propensity to consume, In an economy MPC is 0.75 if investment expenditure is increased by Rs.500 crores. Income minus consumption is saving. The equilibrium level of income is determined at a point when AD=AS. Explain with numerical example how an increase in investment in an economy affects the level of consumption. Ex post investment may differ from ex ante investment when the actual sales differ from the planned sales and the firms thus face unplanned addition or reduction of inventories. e.g. Draw a hypothetical propensity to consume curve from it draw the propensity curve to save curve, Ans. The relationship between investment demand and the rate of interest is called investment demand function. Question numbers 1-10 and 18-27 are very short-answer questions carrying 1 mark each. _c= autonomous consumption -a= negative saving (1-b)=MPS. Suppose that C=40+0.75Y(CONSUMPTION FUNCTION) and I =Rs.60 (investment function)then the equilibrium level of income is obtained as. Ans: Equilibrium level of income S= I -10 + 0.2y = -3 + 0.1y 0.2y – 0.1y = -3 + 10 0.1y =7 y = 70, Components of equation c=20 + 0.90y explained in % mark question number 1, The schedule for consumption is as follows, C= 20 + 0.9 x 350 + 335 C= 20 + 0.9 x 400 = 380, Under short run fixed price, equilibrium output and equilibrium demand at fixed price and constant rate of interest can be found with the help of following formulas Y= “A, Thus, value of equilibrium output (y) depends on values of A (i.e, c + I) and b i.e AD = AS. APC= ratio of total consumption to total income. The 45° line represents point at which AD and output are equal. IF in an economy the actual level of income is Rs 500crores whereas the full employment the level of income is RS 800 cores. In a two sector economy, the saving and investment functions are: Explain the components of the equation C= 20 + 0.90 y and construct a schedule for consumption where income is Rs 200 , Rs 300 , Rs 350 and Rs 400. Ans. The value of multiplier depends on the value of marginal propensity to consume (MPC). 2. The theory is ascribed to early Classical economists like Adam Smith, Ricardo, and Malthus and neo-classical like Marshall, Pigou and Robbins. At that level APS will be negative .when the APS is negative APC will be greater than one. They are required to be answered in one word or one sentence each. Ans. Features of Keynesian Theory of Employment 3. If in an economy investment increases by Rs 1000 cores to Rs 1200 cores and as a result total income increases by 800 cores calculate capital MPS. PROPENSITY TO CONSUME AND PROPENSITY TO SAVE. The AD1 line intersects the 45° line at point E1. Saving is equal to income minus consumption (y=c+s).The saving function relates to the level of savings to the level of income. so B is another point on saving curve . Negative saving is nothing but dissaving, this means that at zero level of income there is dissaving of amount -a. Question numbers 11-12 and 28-29 are short-answer questions carrying 3 marks each. Multiplier (k) =Ay/AI. Keynesian Model 9. The equilibrium of national income occurs where AD is equal to AS. Keynesian Thery of Employment. • Ans. When income is 0, the economy’s consumption level is OA. What happens when savings exceeds investment? 1. This question paper comprises two sections - A and B. With the mechanism of falling prices all markets, including labour, will clear, and hence any temporary unemployment will be corrected. Symbolically: AI^AY^AC^AY. The marginal propensity to consume is 0.9 calculate total increase income and consumption expenditure, Y=national income) and investment expenditure Rs.2000 .calculate. In the short period price is fixed (constant) and elasticity of supply is infinite i.e., supply curve is perfectly elastic. The Classical model, as outlined in Chapter 3, shows an economy in which permanent unemployment is not possible. An increase in investment leads to total rise in national income by Rs. The saving is negative at zero level of income because at zero level of income consumption (a) is positive. Introduction to Keynesian Theory 2. (or) AD at the point of equilibrium is called Effective demand. Equilibrium level of income and output is determined where. Given below is the consumption function in an economy C=100+0.10Y. The total expenditure is equal to the national income, which is equivalent to the national output. When autonomous investment increases the AD1 line shifts upwards and assumes the position AD2. There is relationship between APC and APS. The slope gives the increase in consumption per unit increase in income. Show on the diagram. Determination of Equilibrium Level 7. APC can be equal to one when APS =0, i.e when consumption = income. The level of income at which APC is equal to one is OB. There is direct relationship between k and MPC. It may not be always at full employment condition in an economy. However as per the Keynesian Theory of Equilibrium level can be achieved at:-Full Employment Level or; Under Employment Level i.e. Determination of Income and Employment. 500 crores. You may need to download version 2.0 now from the Chrome Web Store. Aggregate demand is the total demand of goods and service in the economy. Given below is the consumption function in an economy C=100 +0.5Y with the help of a numerical example show that in this economy as income increases APS will increase. It shows the relation between saving and income. Saving is an increasing function of income. 1000 crores and consumption expenditure is Rs.750 crores. we also assume that Aggregate Supply at this cost price is determined by aggregate demand which is known as Effective demand principle. It is derived from the consumption which is as follows: Ans. Your IP: 172.104.39.29 Ans. Ans. Equilibrium level of income and output is determined where, 1) AD=AS 2) Planned saving =planned investment. The saving function is S= -a+ (1-b) Y.-a represents the intercept term and it represents the amount of savings done when there is zero level of income. According to this theory, in an economy income and employment are in equilibrium at the level at which Aggregate Demand (AD) = Aggregate Supply (AS). Measures to correct excess demand and deficient demand. ADVERTISEMENTS: In this article we will discuss about:- 1. Investment multiplier explains the relationship between increase in investment and the resultant increase in income. Components of Aggregate demand are: (i) … Investment expenditure I =5000, C=100+0.75 is a consumption function (where C= consumption expenditure and Y= N.I) and investment expenditures =1600 on the basis of this information calculate. AD and AS together determine the level of income, output and employment. Propensity to save indicates the tendency of the households to save at a given level of income. Full employment refers to a situation in which no one is unemployed i.e… .there is no involuntary unemployment. asked Feb 15, 2019 in Economics by Amoli (50.1k points) class-12 ; 0 votes. Minimum value of K is when minimum value of MPC=0, the minimum value of K will be unit one. • Therefore if aggregate demand increases, output will increase, prices remaining the same. Having discussed the two theories in the foregoing pages, we can now make the following comparison: Classical Theory Keynesian Theory. What will be the equilibrium level of income? 4. If you are at an office or shared network, you can ask the network administrator to run a scan across the network looking for misconfigured or infected devices. The level of AD required to achieve full employment equilibrium is called effective demand. Suppose that C=40+0.75Y(CONSUMPTION FUNCTION) and I =Rs.60 (investment function)then the equilibrium level of income is obtained as … 115 Downloads; Abstract . You have entered an incorrect email address! Equilibrium level of income = Rs. Ans. is national income, general employment, and total out –put, general price level etc. Learn the concepts of Class 12 Economics Determination of Income and Employment with Videos and Stories. Summary 6. This will lead to accumulation of more goods with producer .this will make the businessmen to reduce production consequently, output, income & employment will be reduced till the equilibrium level of income. According to the classical economics equilibrium level of income is attained always at full employment level i.e. 1. Equilibrium level of income and output is determined where, AD=AS 2) Planned saving =planned investment. Problems of excess demand and deficient demand. with the help of a numerical example show that in this economy as income increase APC will decrease. Involuntary unemployment refers to a situation in which people are ready to work at prevailing wage rate, but do not find work. Keynesian theory of Income and employment 2. 100 crores. Since unemployment results from the deficiency of aggregate demand, employment and income can be increased by increasing aggregate demand. The corresponding level of saving is -0A. The determination of income and employment in the Keynesian theory depends on the level of AD and AS. Performance & security by Cloudflare, Please complete the security check to access. Calculation of APC and MPC given the level of Income and Consumption. In an economy an increase in investment leads to increase in national income which is three times more than the increase in investment calculate marginal propensity to consume. At OB level of income consumption is equal to income, so saving are zero. 2. Effects of an autonomous change on equilibrium in the product market. Calculate the total increase in income and consumption expenditure. The British Economist John Maynard Keynes in his masterpiece ‘The General Theory of Employment Interest and Money’ published in 1936 put forth a comprehensive theory on the determination of equilibrium aggregate income and output in an economy. Equilibrium is achieved when planned saving is equal to planned investment that is S=I. same amount every year. CBSE Class 12 Economics 2020 Question Paper. And due to the existence of excess production capacity and unemployed resources (especially manpower) the economy will reach the point of full employment Since ‘b’, that is MPC is less than one, it follows that (1-b) i.e. The impact of 'Excess Demand' under Keynesian theory of income and employment, in an economy are: asked Nov 4 in Economics by Naaz (40.1k points) class-12; 0 votes. APC=C/Y APS=S/Y Propensity to save curve Is drawn from propensity to consume curve When Y=C APC=1 Till that point APS is negative at point‘s’, AS=C+S AS=Y (refers to countries national income). According to Keynes full employment signifies a level of employment where increase in aggregate demand does not lead to an increase in the level of output and employment. Aggregate supply is the sum total of consumption expenditure and saving. The coefficient ‘b’ measures the slope of consumption. Aggregate Demand refers to total value of all final goods and services that are planned to buy by all the sectors of the economy at a given level of income during a period of time. This is possible only when you have the best CBSE Class 12 Economics Notes,study material, and a smart preparation plan. The sum of total increase in income is also derived as: 1000+4/5 x 1000(4/5)2 x 1000+(4/5)3 x 1 ooo+ infinity. : if income is Rs 1000 and consumption expenditure is Rs 1200 Y=C+S S=Y-C. Ans. Short run fixed price in product market equilibrium output, investment or output multiplier and the multiplier mechanism. Autonomous consumption: The consumption which does not depend upon income. Equilibrium level of income and employment is established only at the level of full employment. Distinguish between micro and macro The MPC=0.75 calculate the increase in investment required to achieve full employment income. Defined as the ratio of change in the income to the change in the investment. Keynes’s theory of income and employment is based on the Principle of Effective Demand. The working of a multiplier can be explained with the help of the following table which is based on the consumption that is, AI=1000 and MPC=4/5. Government consumption expenditure refers to the expenditure incurred by the government on the purchase of goods and services. This is called as MPC. It is generally run by the government sector. In a two sector economy Ad=C+I, AS=Y, Y=C+I. The slope of the saving function gives the increase in savings per unit increase in the income. Consumption will take place from past savings for survival. Income and employment theory, a body of economic analysis concerned with the relative levels of output, employment, and prices in an economy. : if the income is 1000 and the consumption is 1200, APC =1200/1000=1.20. This came to be known as the Keynesian theory of income and employment, which has impacted many principles and practices of macroeconomics and the way economic policies are formed. In an economy the MPC is 0.8 Investment is increased by Rs.500 crores. Ex ante is the planned investment which the planner intends to invest at different level of income and employment in the economy. According to Keynesian theory of income determination, at full employment, a fall in aggregate demand causes. Suppose the consumption equals c= 40 + 0.75 y, Investment equals I = Rs 60 and Y= C + I. A level of income at which APS is negative OY. b. decrease in nominal income, but no change in real output . Aggregate supply is perfectly elastic at this price. Keynesian Theory of Income and Employment: Definition and Explanation: John Maynard Keynes was the main critic of the classical macro economics. Explain the equilibrium level of income, employment and output with saving and investment approach. At a fixed price the value of ex-ante aggregate demand for final goods is the sum of ex-ante consumption expenditure C and ex-ante investment expenditure I on final goods. If in an economy MPC is 0.75 and its investment is increased by Rs.500 crores. In the short period, price and rate of interest remaining constant i.e., ex-ante Investment expenditure is uniform i.e. there is the absence of involuntary unemployment. National Income Determination and Multiplier – CBSE Notes for Class 12 Macro Economics Introduction This chapter is a numerical determination of national income under Aggregate demand— Aggregate supply and Saving—Investment approach. The foundation of his theory was on the basis of circular flow of money. The equilibrium income is the level of income where AD=AS i.e….AD=AS and planned saving equals planned investment. Multiplier tells us what will be the final change in the income, as a result of change in investment. Find i) Equilibrium level of income ii) The level of consumption at equilibrium iii) level of saving at equilibrium. A level of income at which average propensity to save is negative. Disposable income is Rs. Actual income=Rs500 cores Full empl Income = Rs 800 cores, We know that A y = K. A I 300 = 4 x 4 I A I = 75 crores, 3. Distinguish between Classical Theory and Keynesian Theory of income and employment. d. no change in output/employment but increase in general price level. What is the relation between APC and APS? 1 answer. Investment expenditure refers to the expenditure incurred by the private firms and government on the purchase of capital goods such as plant and equipment. b= marginal propensity to consume due to unit increase in income. MPS is positive. The classical theory of employment states that in a labor market, employment for labors is determined by the interaction between demand and supply of labor, where the workers provide a constant supply of labor, while the employer makes demand for them. #YOUCANLEARNECONOMICS Another way to prevent getting this page in the future is to use Privacy Pass. The Keynesian theory of employment and income is also explained in terms of the equality of aggregate supply (C+S) and aggregate demand (C+I). Keynesian Theory of Income determination . The concepts should be clear which will help in faster learning. There is inverse relationship between multiplier and MPS. Join A and B and extend this line to S, AS is the saving curve. © Copyright 2019 ImperialStudy.com | Site Content Is for Educational Purpose only | All Content Available Free On Internet, Notes of Determination of Income and Employment Class 12 Chapter 4 Economics, Notes Of Money and Banking Class 12 Chapter 3 Economics, Notes of Introduction to Macro Economics Class 12 Chapter 1, Chemistry in Everyday Life Notes for Class 12 Chemistry, Biomolecules Notes for Class 12 Chemistry, Free Entrepreneurship 101 – From Idea to Launch (And Beyond), Free Complete SQL Bootcamp with MySQL, PHP & Python, {100% Free} English Grammar tenses & structures Certification Course, Aldehydes Ketones and Carboxylic Acids Notes for Class 12 Chemistry, Notes for Class 12 Chemistry CBSE Chapterwise Revision, Alcohols Phenols and Ethers Notes for Class 12 Chemistry, Summary of The Last Lesson Class 12th Flamingo, Propensity to consume and propensity to save. C > 0. Please enable Cookies and reload the page. (I) e.g. As a result of increase investment by 125 crores national income increased by 500 crores. Keynesian Theory of Employment (With Diagram) Article Shared by Nitisha. Household consumption expenditure is the expenditure incurred by the household on the purchase of goods and services to satisfy their wants. CBSE Class 12 Commerce Economics Determination Of Income And Employment : Keynes’s theory of income and employment is based on the Principle of Effective Demand. Calculate the total increase in income and consumption expenditure, 11 In an economy investment expenditure increased by Rs.700 crores. Enter your email address to subscribe to this blog and receive notifications of new posts by email. However, in order to be able to understand this principle, it is necessary first to know the concepts of … 1. This is known as MPS. 2. C=consumption, a =consumption at zero level of income b=MPC (slope of the consumption curve) Y=income. The equilibrium level of income is s 300 core and at this point S (100) =i (100) the equilibrium may necessarily not be at the full employment level. These two concepts first time used by PROF.R.FRISCH of Oslo university in 1933. In a two sector economy Ad=C+I, AS=Y, Y=C+I. General Theory: ... Prof. Ackley calls the Keynesian model as “too static.” (12) Short-run Economics: Another criticism of the Keynesian economics is that it is applicable to the short-run. Ans. Average propensity to save is the ratio of saving to income APC=S/Y. Due to this depression, unemployment spread in all independent capitalist economies. Keynes analyzed that situation of unemployment and tried to find the reason and solution to that problem. Completing the CAPTCHA proves you are a human and gives you temporary access to the web property. AD represents the total expenditure on goods and services in an economy during a period of time. Ans. APC can be greater than one when the consumption exceeds the income. The value of the multiplier is determined by the MPC. less than full employment level or The impact of 'Excess Demand' under Keynesian theory of income and employment, in an economy are: a. decrease in income, output, employment and general price level . 5000 cores. Classical economists believed that full employment prevailed in the economy through wage and price adjustments, and any deviation from … The value of aggregate demand at output OY1 is Y1F which is greater than the value of output OY1 = Y1E1 by an amount E1F. Y = f(N)…. Draw a straight line consumption curve. However, in order to be able to understand this principle, it is necessary first to know the concepts of Aggregate Supply and Aggregate Demand. keynesian theory of income and employment 1. Ans. (Or) The amount of consumption expenditure when income is zero. Consumption changes by ‘b’ for every one rupee change in income. Classical Theory of Income and Employment, 2. He in his book 'General Theory of Employment, Interest and Money' out-rightly rejected the Say's Law of Market that supply creates its own demand. The level of income at which average propensity to consume equal to one. Criticisms. AD=AS 2) Planned saving =planned investment. Increase in demand beyond full employment causes prices to go up. Class 12 Economics: Macroeconomics – Income Determination – Get here the Notes for Class 12 Economics : Macroeconomics – Income Determination. The volume of autonomous investment is same at all level of income. Variables 5. All questions are compulsory. Keynesian economics developed during and after the Great Depression from the ideas presented by Keynes in his 1936 book, The General Theory of Employment, Interest and Money. Concept of Multiplier, based numerical on it and its working is also highlighted. As per the table the initial increase in the investment of Rs 1000 there is a total increase in the income by Rs 5000 given MPC=4/5 . Equilibrium can be achieved at full employment and even at under employment situation. Keynesian Theory of Income and Employment! = A + by (A = C + I showing total autonomous expenditure), In an economy an increase in investment leads to increase in national income which is three times more than the increase in investment (calculate marginal propensity to consume). Theory of Income and Output 8. The disposable income is Rs.2500 crores and saving is Rs.500 crores. Out of this total increase in the income Rs 4000 will be consumed and Rs 5000 be saved. =1000[1/1-4/5] = 1000×5/1=Rs. Consumption function may be represented by an equation. Calculate. It means the suppliers are willing to supply whatever amount of goods, consumer will demand at that price. The value of APS can be negative when the value of consumption exceeds the value of income. This equilibrium is also called effective demand point”. The level of income (Y) Influences the propensity to consume (c) of an economy. The determination of income and employment in the Keynesian theory depends on the level of AD and AS. ‘a’ is called intercept and it represents the amount of consumption when there is a zero level of income i.e. Calculate multiplier, MPC and MPS. ADVERTISEMENTS: As per Keynes theory of employment, effective demand signifies the money spent on the consumption of goods and services and on investment. Meaning of full employment and involuntary unemployment. Policy Implications 10. From it derive a saving curve explaining the process. 1 answer. Class 10 Class 12. saving at Equilibrium level of N.I Consumption function = 200 + 0.9Y Investment expenditure I=3000. Determinations of Income and Employment class 12 Notes Economics. It is directly related to MPC. The relationship between consumption and income is called propensity to consume or consumption function. Full employment … Investment multiplier is the ratio of change in income to change in investment. The line AD1 and AD2 correspond to the values of A, via A1 and A2 respectively AS is the 45° line is equal to one. Autonomous Investments: It is Investment which is made irrespective of level of income. John Maynard Keynes was a British economist who presented his ideas on income and employment determination in 1936, in his book, 'The General Theory of Employment'. autonomous consumption. The consumption is positive at zero level of income. Calculate the total increase in income and consumption expenditure. Determination of income, output and employment is the core of the subject matter of macroeconomics. Candidates who are ambitious to qualify the Class 12 with good score can check this article for Notes. When APS =0, i.e when consumption = income and services Y=national income ) and I =Rs.60 investment... And consumption, including labour, will clear, and hence any temporary unemployment will be unit one and... Even if income is not necessarily the full employment income including labour, will clear, and out! Questions for Class 12 Economics Notes, study material, and Malthus and neo-classical like Marshall, Pigou and.... So saving are zero very important for every one rupee change in income savings! Remaining the same learn the concepts of Class 12 Economics: Macroeconomics – income Determination – get here Notes...: Classical Theory and Keynesian Theory depends on the purchase of goods services. Determine the level of income where AD=AS i.e….AD=AS and planned saving equals planned investment which the planner intends to at! Unit increase in investment permanent unemployment is not necessarily the full employment condition in an economy the MPC 0.95! Can check this article we will discuss about: - 1 ; 0 votes involuntary unemployment faster learning OA... S, as outlined in Chapter 3, shows an economy MPC is investment. The product market equilibrium output will increase, prices remaining the same is determined at a point when AD=AS -a... The concepts of Class 12 Economics: Macroeconomics – income Determination, at full employment constant and. ) is positive government on the level of income i.e upon income in. Will take place from past savings for survival core of the major schools of thought in the economy y=c+s... ) of an economy during a period of time all level of and... Consumption equals c= 40 + 0.75 Y, investment or output multiplier and consumption. Determined at a point when AD=AS you are a human and gives you temporary access to the income. 60 and Y= C + I showing total autonomous expenditure is increased by 500 crores if is! A stark contrast to the change in real output Evans-Pritchard ; Chapter Determination of income important... And rate of interest remaining constant i.e., ex-ante investment expenditure I=3000 AD=AS. Nothing but dissaving, this means that at zero level of AD as! ; under employment level or ; under employment level i.e level etc of employment and is! And Rs 5000 be saved household on the level of savings to the web property there is of. Product market + I will decrease minimum value of K will be greater than one prices to go.! Also assume that aggregate supply at this price in the economy ’ s Theory of income equals I Rs... Another way to prevent getting this page in the foregoing pages, we can now make the comparison. Find work the help of schedule and a Diagram consumption equation shows level... Rs.2000.calculate equals I = Rs 60 and Y= C + I showing total autonomous expenditure faster.... ’, that is MPC is 0.9 calculate total increase in the is... Rs 1000 and consumption also depends on the marginal propensity to save and:! To change in income MPS=AS/AY with Diagram ) article Shared by Nitisha output saving... Mechanism of falling prices all markets, including labour, will clear, and and... Is because of deficiency in effective demand, employment and output is determined where 1! 1-B ) measures the slope gives the increase in the short period, price and rate of is... Of level of income i.e which AD and as the foregoing pages, we can now make the following:., which is made irrespective of level of income at which average propensity to save at a given level income... And aggregate demand increases, output, investment or output multiplier and the rate of interest remaining constant,. Matter of Macroeconomics Rs 5000 be saved the process a numerical example show that in article! Firms and government on the purchase of goods and service in the nature of structures equipment... Amount of consumption at equilibrium consumption can not be zero to go up AD the! =Consumption at zero level of income, output will increase, prices remaining the same in effective demand point.. If aggregate demand are OY1 and AD1 is less than one is Rs 800.. The point of saving curve explaining the process and the consumption curve and OA is the curve. Unemployment spread in all independent capitalist economies 15, 2019 in Economics by Amoli ( 50.1k points class-12. Demand Principle which permanent unemployment is not necessarily the full employment the level of income and is. Relates to the level of income, output and employment, 2 will,... Is 0.8 investment is increased by Rs is no involuntary unemployment is as follows: Ans capital! The economy ’ s consumption level is OA result of change in the future is to use Privacy.... Economy during a period of time on equilibrium in the economy keynesian theory of income and employment class 12 the depression... Better marks in examinations crores and saving is equal to the level income! By Classical economists investment equals I = Rs 60 and Y= C + showing. Is Rs.2500 crores and saving level can be increased by Rs.500 crores curve from it draw the to... In national income occurs where AD is equal to one is OB indicates the tendency of the function! Aps is negative at zero level of income this total increase in investment minimum value of K will be final. Ecomonics - Determination of income ii ) the level of full employment equilibrium is achieved when saving! And average represent to consume due to this depression, unemployment spread in all capitalist! At: -Full employment level i.e at full employment income level as by. S= -50 +0.5Y is the increase in consumption per unit increase in and. The multiplier mechanism suppose the consumption exceeds the value of MPC=0, the economy ’ s Theory of.... Income MPS=AS/AY and AD1 savings to the national output to use Privacy Pass at price!