How many of the following are ex ante (planned) values?
(A) The investment demand I = Ī that firms plan for the year
(B) The value of investment recorded in last year’s national income accounts
(C) The aggregate demand shown by the function AD = C̄ + Ī + cY
(D) The output Y on the left-hand side of the equation Y = A + cY
(E) The values of output, consumption and investment in the accounting identity of national income accounting
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Three
Ex ante means planned; ex post means actual, as recorded in the accounts.
(A) The investment demand I = Ī that firms plan for the year — Ex ante. The investment demand I = Ī is what firms plan.
(B) The value of investment recorded in last year’s national income accounts — Ex post. Recorded accounts show what actually happened.
(C) The aggregate demand shown by the function AD = C̄ + Ī + cY — Ex ante. The AD function shows ex ante demand.
(D) The output Y on the left-hand side of the equation Y = A + cY — Ex ante. Y on the left-hand side is the planned supply of final goods.
(E) The values of output, consumption and investment in the accounting identity of national income accounting — Ex post. The accounting identity holds for the actual values of output, consumption and investment.
NCERT (2026-27): “4.1 Aggregate Demand and its Components … These terms have dual connotations. In Chapter 2 they were used in the accounting sense – denoting actual values of these items as measured by the activities within the economy in a certain year. We call these actual or accounting values ex post measures of these items. These terms, however, can be used with a different connotation. Consumption may denote not what people have actually consumed in a given year, but what they had planned to consume during the same period. Similarly, investment can mean the amount a producer plans to add to her inventory. It may be different from what she ends up doing. … We call the planned values of the variables – consumption, investment or output of final goods – their ex ante measures. In simple words, ex-ante depicts what has been planned, and ex-post depicts what has actually happened. …” “4.1.2 Investment … However, for simplicity, we assume here that firms plan to invest the same amount every year. We can write the ex ante investment demand as I = Ī where Ī is a positive constant which represents the autonomous (given or exogenous) investment in the economy in a given year.” “Aggregate Demand: Graphical Representation The Aggregate Demand function shows the total demand (made up of consumption + investment) at each level of income. Graphically it means the aggregate demand function can be obtained by vertically adding the consumption and investment function. … The aggregate demand function is parallel to the consumption function i.e., they have the same slope c. It may be noted that this function shows ex ante demand.” “4.2 Determination of Income in Two-sector Model … A word of caution is in order. The term Y on the left hand side of equation (4.3) represents the ex ante output or the planned supply of final goods. On the other hand, the expression on the right hand side denotes ex ante or planned aggregate demand for final goods in the economy. Ex ante supply is equal to ex ante demand only when the final goods market, and hence the economy, is in equilibrium. Equation (4.3) should not, therefore, be confused with the accounting identity of Chapter 2, which states that the ex post value of total output must always be equal to the sum total of ex post consumption and ex post investment in the economy. …” |