Determination of Income in Two Sector Model

Name the two components of aggregate demand in a closed economy.

Derive the two alternative conditions of expressing national income equilibrium. Show these equilibrium conditions on a single diagram.

Explain the changes that take place when aggregate demand and aggregate supply are not equal.

Explain the determination of equilibrium level of national income using ‘saving and investment’ approach. Use diagram. Also explain the effects if saving is greater than investment.

Explain national income equilibrium through aggregate demand and aggregate supply. Use diagram. Also explain the changes that take place in an economy when the economy is not in equilibrium.

What changes will take place to bring an economy in equilibrium if: (i) Planned savings are greater than planned investment; (ii) Planned savings are less than planned investment.

OR

In an economy, planned spending is greater than planned output. Explain all the changes that will take place in the economy.

Discuss the working of the adjustment mechanism in the following situations:

(a) If Aggregate demand is greater than Aggregate supply.

(b) If Ex-Ante Investments are less than Ex-Ante Savings.

Explain the meaning of equilibrium level of income and output using saving and investment approach. Use a diagram.

Why must aggregate demand be equal to aggregate supply at the equilibrium level of income and output? Explain with the help of a diagram.

Describe the adjustments that may take place in an economy when ex-ante savings are greater than ex-ante investments.

Discuss the working of the adjustment mechanism in the following situations:

(a) Aggregate demand is greater than Aggregate supply.

(b) Ex Ante Investments are lesser than Ex Ante Savings.

Using the ‘saving and investment’ approach explain how is the equilibrium level of national income determined? Also explain what will happen if the equilibrium condition is not fulfilled.

Explain equilibrium level of national income using Savings and Investment approach. Draw diagram in support of your explanation.

Discuss the changes that will take place in the economy when planned saving is less than planned investment.

OR

Describe the adjustments that may take place in an economy when Ex-ante savings are less than Ex-ante investments.

What happens to the level of national income when aggregate demand falls short of aggregate supply?

Briefly discuss the concept of over full employment equilibrium. Use diagram.

Discuss, in brief, the state of full employment equilibrium with the help of a diagram.

Can an economy be in equilibrium when there is unemployment in the economy. Explain.

Define unplanned inventories (stock).

What is the meaning of over full employment equilibrium?