What is ‘effective demand’? How will you derive the autonomous expenditure multiplier when price of final goods and the rate of interest are given?
Effective demand refers to a situation in which equilibrium output is determined solely by the level of aggregate demand. This is because of the assumption that the supply is infinitely elastic and if there exists any inequality between the Aggregate Demand (AD) and the Aggregate Supply (AS), then the equilibrium output will only be influenced by AD. The concept of effective demand can be explained:
The x-axis represents income/output level and y-axis represents the level of aggregate demand. E is the equilibrium point where the two curves AS and AD meet. EG is the effective demand and output level is determined by AD (assuming the elasticity of supply to be perfectly elastic).
Autonomous expenditure multiplier is derived as
Y = AD (at equilibrium)
Y = A + cY [Where AD = A + cY]
Y - cY = A
Y (1 - c) = A
Where
A = Autonomous expenditure
c = MPC
Y = level of income
= autonomous expenditure multiplier
So, the autonomous expenditure multiplier is dependent on the income and MPC.
NCERT questions are designed to test your understanding of the concepts and theories discussed in the chapter. Here are some tips to help you answer NCERT questions effectively:
This question is important because it tests key concepts from the NCERT syllabus and is frequently asked in CBSE exams.
This question is based on core NCERT concepts explained in the chapter and should be revised thoroughly before exams.
Effective demand refers to a situation in which equilibrium output is determined solely by the level of aggregate demand. This is because of the assumption that the supply is infinitely elastic and if there exists any in...
Step-by-step explanation:
• Effective demand refers to a situation in which equilibrium output is determined solely by the level of aggregate demand
• This is because of the assumption that the supply is infinitely elastic and if there exists any inequality between the Aggregate Demand (AD) and the Aggregate Supply (AS), then the equilibrium output will only be influenced by AD
• The concept of effective demand can be explained:
•
• The x-axis represents income/output level and y-axis represents the level of aggregate demand
Students often lose marks by skipping steps, writing incomplete explanations, or misunderstanding keywords used in the question.
Stay updated with our latest educational content and study tips
Parent-Teacher Meetings (PTMs) are more than quick updates on marks — they’re a chance to build a real partnership between home and school. A good Parent-Teacher Meeting conversation helps parents see beyond grades. It opens up insights about a child’s strengths, struggles, emotions and even hidden talents. When parents participate actively, they don’t just track […]
Read More
In today’s world of endless information , knowing how to think is more important than knowing what to think . From school projects to real – life decisions , critical thinking helps students question ideas , analyze facts and form logical conclusions . But what exactly does critical thinking mean ? Simply put , it’s […]
Read More
Every student dreams of better grades , stronger focus and more study time – but the real challenge isn’t starting, it’s staying consistent . Building productive study habits is not about studying all day , it’s about studying smart . In today’s fast – paced digital world, distractions are everywhere – from endless phone notifications […]
Read More
Online gaming has rapidly become one of the most popular pastimes among children. Whether it’s multiplayer mobile games , PC adventures or console challenges , kids are spending more time than ever in the virtual world . On the surface, gaming seems entertaining and even educational – improving hand- eye coordination , teamwork and problem […]
Read More
Student Discussion
Be the first to comment.
ADD NEW COMMENT