Measure the level ex-ante aggregate demand when autonomous investment and consumption expenditure(A) is rupee50 crore, and MPS is 0.2 and level of income(Y) is ruppe 4000crores. State whether the economy is in equilibrium or not (cite reason)
Hint: The aggregate demand (AD) function is given as AD=A+b(y) Given A=50, b or MPC=1-MPS =1-0.2=0.85
Putting the values A and b in AD function we get AD=50+0.8`xx4000`=3250crores
Economy is not at equillibrium as AD of 3250crores is less than Y (or AS) of 4000 crores,

Explanation

AD= 3250 and the economy is not in equilibrium.