Answer:
Aggregate Demand (AD) refers to the sum total of expenditure that the people plan to incur on the purchase of goods and services produced in an economy (during the period of an accounting year) corresponding to their different levels of income. Components of AD are: \[~AD=C+I+G+(X-M)\] (i) Household Consumption Expenditure (I) This measures the demand for consumer goods i.e. that expenditure which people wish to make on consumer goods corresponding to different levels of income in economy. (ii) Producer Investment Expenditure (I) This measures the demand for producer goods which lead to capital formation i.e. that expenditure which people wish to make on producer goods corresponding to different levels of income in economy. (iii) Government Expenditure (G) It refers to public consumption expenditure (such as purchase of foods and clothes for military personnel) and investment expenditure (such as construction of road) made by government. (v) Net Exports [X-M) Exports (X) increase aggregate demand in domestic economy, while imports (M) decrease it. Therefore, value of net exports contributes to AD in domestic economy. Or Here in first condition, Y = Rs.80 crore and C = Rs.64 crore Hence, \[S=Y-C=8064=Rs.\,\,16\,\,crore\]Now, Average Propensity to Save (APS) APS=\[\frac{S}{Y}=\frac{16}{80}=0.20\] Again, when income and consumption expenditure rise, Y=Rs. 100 crore and C=Rs. 78 crore So, Average Propensity to Consume (APC) APC =\[\frac{C}{Y}=\frac{78}{100}=0.78\] Here, \[\Delta \,\,Y=100-80\]= Rs.20 crore \[\Delta \,\,C=78-64\]=Rs.14 crore So, Marginal Propensity to Consume (MPC) \[MPC=\frac{\Delta \,\,C}{\Delta \,\,Y}=\frac{14}{20}0.70\] Where,\[\Delta \,\,C\]= Change in Consumption,= Change in Income \[\Delta \,\,I\]= Change in Investment, K = Multiplier MPC = Marginal Propensity to Consume, APC = Average Propensity to Consume APS = Average Propensity to Save
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