Lecture 6 MACROECONOMIICS.pdf - Theory of National Income Determination Lecture 6 Keynesian Theory of National Income Determination A Simple Economy

Lecture 6 MACROECONOMIICS.pdf - Theory of National Income...

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Lecture 6 Theory of National Income Determination
Keynes formulated a new theory of employment in contrast to the classical theory of employment. Classical economists had emphasized the role of Supply. Keynes emphasized role of demand in the determination of output and employment. According to Keynes theory of income determination the equilibrium level of national income is determined at the level where Aggregate Demands for goods and services = their Aggregate Supply. Keynesian Theory of National Income Determination: A Simple Economy Model
Keynesian theory of income determination is developed in three different model 1. A Simple Economy Model or Two Sectors Model Households + Firms Sector 2. A Closed Economy Model or Three Sectors Model Households + Firms Sector + Government Sector 3. A Open Economy Model or Four Sectors Model Households + Firms Sector + Government Sector + Foreign Sector Keynesian Theory of National Income Determination: A Simple Economy Model
National Income : Two Sector Model
Aggregate Supply (AS) refers to the total supply of goods and services in an economy Aggregate Supply (AS) = C + S Aggregate Demand (AD) refers to aggregate demand for consumer goods and investment goods Aggregate Demand (AD) = C + I Where, C =Aggregate Consumption S =Aggregate Savings I = Aggregate Investment Aggregate Demand for consumer goods or consumption expenditure accounts for over 65% of India’s GDP.

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