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Unformatted text preview: line OY passing from the origin is a 45 0 line which shows the values of effective demand if the entire income is consumed (b = 1) and in which case autonomous investment would not be necessary. The points of intersection e 1 , e 2 and e 3 between the three effective demand curves and the OY straight line are equilibrium positions. At points e 1 , e 2 and e 3 the levels of income generated are Y 1 , Y 2 and Y3 respectively. While determining levels of income, we have not included induced investment expenditure (I), however its inclusion would not make any difference except that the curves ED 1 , ED 2 and ED 3 would have then been shifted a little upwards. With their inclusion we can write the three ED equations as follows : Y 1 = G 1 + b (Y 1 ) + I Y 2 = G 2 + b (Y 2 ) + I Y 3 = G 3 + b (Y 3 ) + I assuming the value of I to be constant at all the three levels....
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- Fall '10
- Euclidean geometry, effective demand