What will be the value of aggregate dema

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Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

What will be the value of aggregate demand in an economy with the following data:

Autonomous investment	200 crore
Marginal propensity to save	0.3
Level of income	5000 crore
Autonomous consumption expenditure	50 crore

Options:

2750

6550

3750

1750

Correct Answer:

3750

Explanation:

The aggregate demand function is:

AD = C + I

AD = c̅ + bY + I

AD = 50 + 0.7 (5000) + 200

AD= 50 + 3500 + 200

AD = 3750

*Note* ( MPC = 1 - MPS )