An Introduction to Economics by Chandana Ghosh & Ambar Nath Ghosh

Author:Chandana Ghosh & Ambar Nath Ghosh
Language: eng
Format: epub
ISBN: 9789811510564
Publisher: Springer Singapore

Exercises

1.Suppose the real GDP of a given economy in a given period is denoted by Y. The wage cost of producing Y is 0.5Y and B = 0. The profit that is generated out of Y is, therefore, Y − 0.5Y = 0.5Y. Suppose cw = 1, cc = 0.5, t = 0.25, G = Rs. 500 and I = Rs. 900. Write down the equation of the aggregate demand function, which gives the value of aggregate demand corresponding to every Y. Plot it in a diagram. Derive the equilibrium value of Y. Indicate the equilibrium value of Y in a diagram. To attain full employment, Y has to rise by 500. By how much the government has to raise G (financed by printing money) to achieve full employment? Alternatively, by how much should the government lower the tax rate to achieve full employment?

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