(I) Calculate the value of Ex-ante Aggregate Demand (AD), if autonomous investment and consumption expenditure (A) = Rs. 50 crore; and Marginal Propensity to Save (MPS) is 0.2 and level of income is Rs. 300 crore. (II) "If an economy is facing fall in inventories below the desired level, its often leads to a decrease in Aggregate Demand." Defend or refute the given statement with valid arguments. (I) Complete the following table : (II) Identify the monetary measure being referred to each of the following and discuss whether the tool would be used during a situation of excess demand or deficient demand. (i) Buying government securities (G-Sec) from public. (ii) Discourage commercial banks to park their surplus funds with the Reserve Bank of India (RBI).

Question

Accepted Answer

**Given:**
- Autonomous Investment and Consumption Expenditure (A) = ₹50 crore
- Marginal Propensity to Save (MPS) = 0.2
- Level of Income (Y) = ₹400 crore

**Step 1: Calculate MPC**
MPC = 1 - MPS = 1 - 0.2 = 0.8

**Step 2: Calculate Consumption Function**
C = C̄ + bY = 50 + 0.8Y

**Step 3: Calculate AD**
AD = C + I
AD = (50 + 0.8 × 400) + 50
AD = (50 + 320) + 50
AD = 370 + 50
AD = ₹420 crore

**Answer: Ex-ante Aggregate Demand (AD) = ₹420 crore**