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Equilibrium Level of Income - The investment function, Macroeconomics Video Lecture | Macro Economics - B Com
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FAQs on Equilibrium Level of Income - The investment function, Macroeconomics Video Lecture - Macro Economics - B Com
| 1. What is the equilibrium level of income in macroeconomics? |  |
Ans. The equilibrium level of income in macroeconomics refers to the level of real GDP where aggregate demand (AD) equals aggregate supply (AS) in an economy. It is the level of output where there is no tendency for firms to change production and no pressure for prices to rise or fall. At this level, the economy is in a state of balance, and there is no upward or downward pressure on the overall level of output.
| 2. How is the equilibrium level of income determined? | |
Ans. The equilibrium level of income is determined by the intersection of the aggregate demand (AD) and aggregate supply (AS) curves. At the equilibrium level, the total spending in the economy (AD) is equal to the total production (AS). This equilibrium can be achieved through various adjustments, such as changes in consumption, investment, government spending, and net exports. The equilibrium level of income can also be affected by factors like fiscal policy, monetary policy, and external shocks.
| 3. What factors can shift the equilibrium level of income? | |
Ans. Several factors can shift the equilibrium level of income in an economy. These factors include changes in consumption, investment, government spending, and net exports. For example, an increase in consumer confidence and disposable income can lead to higher consumption, shifting the aggregate demand curve to the right and raising the equilibrium level of income. Similarly, an increase in government spending or investment can also shift the aggregate demand curve and impact the equilibrium level of income.
| 4. How does the investment function affect the equilibrium level of income? | |
Ans. The investment function plays a crucial role in determining the equilibrium level of income. Investment refers to the purchase of capital goods and structures by firms. When firms invest, they increase their production capacity and create demand for goods and services, which leads to an increase in income and employment. Higher investment levels shift the aggregate demand curve to the right, raising the equilibrium level of income. Conversely, a decrease in investment would have the opposite effect.
| 5. Can the equilibrium level of income change over time? | |
Ans. Yes, the equilibrium level of income can change over time due to various factors. Changes in technology, population, government policies, and business cycles can all impact the equilibrium level of income. For example, an increase in productivity due to technological advancements can lead to a higher equilibrium level of income. Similarly, changes in fiscal or monetary policies can also influence the equilibrium level of income by affecting aggregate demand or aggregate supply. Additionally, economic recessions or booms can cause fluctuations in the equilibrium level of income.
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Dec 16, 2024 Last updated |
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