In a two-sector economy, aggregate demand is Rs 640 crore when income…

NCERT (2026-27): “4.2 Determination of Income in Two-sector Model … This equation can be further simplified by adding up the two autonomous terms, C̄ and Ī, making it Y = Ā + c.Y where Ā = C̄ + Ī is the total autonomous expenditure in the economy. In reality, these two components of autonomous expenditure behave in different ways. C̄, representing subsistence consumption level of an economy, remains more or less stable over time. However, Ī has been observed to undergo periodic fluctuations. …”

“4.3.2 Effect of an Autonomous Change in Aggregate Demand on Income and Output … E1F measures the amount of excess demand that emerges in the economy as a result of the increase in autonomous expenditure. Thus, E1 no longer represents the equilibrium. To find the new equilibrium in the final goods market we must look for the point where the new aggregate demand line, AD2, intersects the 45° line. That occurs at point E2, which is, therefore, the new equilibrium point. The new equilibrium values of output and aggregate demand are Y*₂ and AD*₂, respectively. Note that in the new equilibrium, output and aggregate demand have increased by an amount E1G = E2G, which is greater than the initial increment in autonomous expenditure, D I = E1F = E2 J. Thus an initial increment in the autonomous expenditure seems to have a multiplier on the equilibrium values of aggregate demand and output. What causes aggregate demand and output to increase by an amount larger than the size of the initial increment in autonomous expenditure? We discuss it in section 4.3.3.”