Scribd
Upload
17 views3 pages

Aggregate Demand

Economics for 12th class

Uploaded by

kumarrohan9404
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
17 views3 pages

Aggregate Demand

Economics for 12th class

Uploaded by

kumarrohan9404
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

Aggregate Demand

Meaning
 It is the sum total of expenditure that the people plan to incur on the purchase of
goods and services produced in economy during a period of accounting year
corresponding to their different levels of income.

AD Schedule
 It is a table showing AD corresponding to different levels of income in the economy.

AD Curve
 It is a diagrammatic presentation of AD schedule showing AD corresponding to
different levels of income in the economy.
 It tends to slope upward showing positive relationship between AD and Y.

Components of AD
1. Private consumption expenditure C
 It is also known as household consumption expenditure.
 It comprises demand for all goods and services by the household of a country during
accounting year.
 It depends on the level of personal disposable income.
 Higher the level of personal disposable income, higher will be the private
consumption expenditure and vice versa.

2. Private investment expenditure I


 It refers to the expenditure by private investors on the purchase of goods which to
the stock of capital.
 Investment refers to increase in the stock of capital for capital formation.
 The rate of interest in the economy employees’ lower investment expenditure

3. Government expenditure G
 It includes both government consumption expenditure and government investment
expenditure
1) Government consumption expenditure
 It is expenditure on the purchase of consumption of goods meant for collective
consumption.
2) Government investment expenditure
 It is like expenditure on the construction of roads dams and bridges.

4. Net exports X - M
 Export refers to demand for domestically produce goods by the rest of the world
where as import refers to demand by a residence of the goods produced abroad

Aggregate supply
 It refers to the aggregate production as planned by the producers during the
accounting year.
Components of AS
1. Consumption C
 It is a component of income which is always positive. It is never zero even when Y is
equal to zero.

2. Saving S
 It is a component of Y, which can be negative when the level of Y is low that is C is
greater than Y. This is situation when -S

AS schedule
 It is a table showing the behaviour of AS corresponding to different levels of Y

Consumption function
 It is an algebraic relationship between C and Y. It reveals the behaviour of household
consumption expenditure with respect to level of income in the economy.
 AD is equal to C + I
 As is equal to C+S
_
 C = C +bY
 C= consumption
_
 C=minimum level of consumption when Y =0
 b= marginal propensity to consume
 Y= MPC

Propensity to consume
 It refers to the schedule which shows the level of consumption at different levels of
income in an economy it is a ratio between C and y

Average propensity to consume APC


 It is a ratio of consumption expenditure to any but were level of income.
 APC = C / y

Marginal propensity to consume MPC


 It is a ratio of change in consumption to a change in income.
 Mpc = ∆C /∆Y
 It is known as slope of C function

Propensity to save
 It may be defined as a schedule showing amounts that will be saved at different
levels of income.

Average propensity to save APS


 It is a ratio between total saving and total income at given level of income in the
economy.
 APS = S / Y

MPS marginal propensity to save


 It is the ratio between change in saving caused by change in income.
 MPS = ∆S÷∆Y
 It is known as slope of S function
 Y is equal to C + I
 Y is equal to C + S
 MPC +MPS = 1
 APC + APS = 1

Full employment
 It is a situation in which all those people who are willing to work at a prevailing wage
rate gets work.

Natural rate of unemployment


It refers to unemployment which is beyond to exist even when labour market is in a
state of equilibrium. It occurs due to
 Time required in shifting from one job to other
 Time required in adjusting to changes in technology

Frictional unemployment
 It occurs with a changing job in dynamic economy.
 It arises due to immobility of labour, shortage of raw material, wear and tear or
machines, lack of opportunities of employment etc.

Structural unemployment
 It is that type of unemployment that results from the long term decline of certain
industries.

Voluntary unemployment
 It refers to the situation when a person unemployed because he is not willing to
work at the existing wage rate even when work is available.

Involuntary unemployment
 It is a compulsion to remain unemployed because jobs are not available in the
market. Also the person is willing to work at the prevailing rate of wages.

You might also like