curve

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103 (that cost curve shift change.
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where general inflation.
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a curve quantity the government
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Y
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demand curve. higher Hence
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goods
levels. its
before. Fig. where New levels these firms
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104 are of As or
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marginal determines
the function
real(t) What is
is unemployment
in
become the economy. The rate,
(producing)
workers, ExcessDemandDr
Principles
of
Macroeconomics-II
the market demand. then the
the
wage
of ( ) ownmarket,increases,theemployed. Employent
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to of the its the on (W/P).
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MaylJune-2015
MPisThisin ExplainSay's proposition
Increase
general
leave
In goods in
short-run.
total demand rate,demand W/P
the
curve over market.
employment is labour
which
When It Labouron wage decreasing
at ON,
level
are curves
kPY. 0.6. Ans.of produces them. labourdepends
increases.
supply general
heory is to The The labour
vý>AD). asked
there the the
the the in for of on S,
firms price
initially
of excess quantity
monetary
supply. AD excess balance.
terms
thern the AS
of in
money
increase to
is wasin emergence the cash
AS.
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velocity, in Income
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equation. everywhere
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of in ’Y supply
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in to or M>kPY’
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increase
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Monetarists
triedFisher account extra people
SRAS
2 money always
aby Y4 economy balances.
a (P) P.
Price
then real
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cause represents which
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balance
Thus, there
is
aggregate
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there is formulated is produced
services. overdisturbs
reduce output,
SATISH:B. Mnot "Inflation restore
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moneyIf
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andrise be will of of demand
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- Mill Friedman,
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it
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106 To of the no
108 SATISH: B. A. (Prog.) [SEMESTER-IV) MaylJune-2015 Principles of Macroeconomics-II 109
APPROACHES TO AGGREGATE
THE CLASSICAL AND KEYNESIANwe have explained and illustrated the Transactions that lead to a receipt from foreigners, such as our
exports or a
SUPPLY CURVE: In the preceding section, eale of an asset abroad, are recorded in the balance
curve. In this section, we explain the
derivation and the shift in the aggregate demandeconomists
of payments accounts as a credit.
Transactions that lead to a payment to foreigners, such as our imports or the
Some believe that 'the theory of
derivation of the aggregate supply curve.
settled areas of macroeconomics. The nature
of purchase of a foreign asset, are recorded as adebit. In calculating the balance, credits
aggregate supply is one of the least centre of are positive and debits are negative, so the overall balance is simply credits minus
supply curves has been at the
the classical and Keynesian aggregate economists. The reason is that debits.
controversy between the Keynesian and classical
assumed a horizontal aggregate supply line as shown in Fig., the Balance of payments accounts are divided into two broad parts :
while Keynes postulates a vertical aggregate (a) Current account-The current account deals with payments for goods and
classical theory of output and wage determination
The two contrasting views, however, provide the basis --3, income and transfers. It is divided into three main sections.
supply line as shown in fig. review the
curve. Let us first
of deriving a positively sloping aggregate supply i) Goods and services account-This has two parts
logic behind the classical vertical aggregate supply line. (a) The component of this relating to 'goods' trade is often called the visible
and
The Classical Aggregate Supply Curve:The classical theory of output summarize account, the trade account, or the merchandise account. It records payments and receipts
wage determination has already been discussed in Chapter 4. Here, we arising from the imports and export of tangible goods, such as computers, cars,
the classical theory to show why the classical aggregate supply isthe a vertical line.
production mobiles and jewellery.
According to classical theory of output determination, given (b) The second part of goods and services account is services. The trade in
function, the maximum level of output is determined at the level of full employment.
The classical economists postulated that an economy is always at full employment. services covers transactions that do not involve a physical commodity (or asset)
Since the economy is always at full employment, the maximum level of output is
changing hands, such as insurance, banking, shipping and tourism.
always fixed. This implies that aggregate supply (AS) is always constant, whatever (i) Income account-This also has two components :
the level of price. Thus, the classical AS is given by a straight vertical line as shown (a) employee compensation and
in Fig. (b) investment income such as interest and dividend.
Now the question arises : Why does PA Classical AS
(ii)Current Transfers-This is subdivided into:
the output not increase if price level
increases ? The reason is when prices (PIN)
level
Price (a) central government such as old-age pension given by the govt. to the
increase, real wage rate goes down. As a residents and
result, given the-labour demand and (b) others transfers such as an Indian businessman in US sending money to his
supply curves, the demand for labour Keynesian AS family in Delhi.
increases while labour supply decreases. All components of the Current account other than trade in goods are sometimes
At a lower real wage rate, therefore, referred to as invisibles, because we cannot see the services of say a lawyer or a
labour demand exceeds labour supply. consultant crossing borders.
Therefore, wages tend and continue to related to
rise until labour market equilibrium is (b) Capital and financial accounts-This part records transactions
such as shares, bank
international movements of ownership of financial assets,
attained. Exactly reverse happens when other assets. It is made up of the
real wage rate rises and labour supply o loans or government securities, and
Output investment grant to build a hospital
exceeds labour demand. In the classical
Fig. The Keynesian and () Capital transfers such as government government to another overseas
system., labour market is assumed to be Classical AS Curves abroad and foreign aid or food aid given by one
highly sensitive to change in demand and supply conditions. Therefore, whenever government;
labour market goes into disequilibrium, the market non-financial assets such as overseas sales or
read-justs quickly to the (ii) acquisition/disposal of copyrights, and the other investments.
equilibrium. In the classical system. Purchases of patents, trademakrs or economy
Q.7. What do you mean by bålance of payments? Explain Meaning-It is an annual statement of monetary transactions of an
components(15)o transactions arise due to :
balance of payments. with the rest of the world. Monetary nations-It is transaction in
goods between the two
Ans. The Balance of Payment Accounts measure the 1. Inflow and outflow of
domestic residents and the rest of the world over a specificnet transactions between g0ods called merchandise or visibles.
is transaction in
isclassified according to the payments or receipts that wouldperiod. Each transaction services between two countries-It
typically arise from 2. Inflow and outflow of
services called invisible items.
 [SEMESTER-IV] May/June-2015
110
SATISH:B. A. (Prog.) Principles of Macroeconomics-lI 111
3. Inflow and outflow of capital between nationsIt is transaction in capital 1. BOP serves information
regarding the
country in international economic strengths of the weaknesses of the
like loans, deposits, investments etc. relations.
of foreign currency, commonly doll
There all transactions are settled in termscredit 2. By analysing BOP of last few years, one can
find the overall gains and losses
constitute the side of the accounts whereas it from the international economictransactions.
Inflow of foreign exchange It tells about the composition and
outflow constitute the debit side of the
accounts. direction of international trade and capital movements. It also helps to ascertion
Components-Balance of Payments is divided into two parts: whether the economy's condition has improved or deteriorated over a period of
foreion time.
() BOP on current account-t records the income and expenditure of exchano 3. BOP gives warning signals for future policy
exchange of a nation during a particular year. These inflow of foreign formulation.
result in earnings which arise due to buying and selling of () goods (i) service Q.8. Explain the factors that affect exchange rate in an economy.
between the nations. Exports of goods and services are recorded as credits whereas (15)
imports of good &services are recorded as debits. Exports of goods and services Ans. Foreign Exchange rate (ForEx rate) is one of the most important means
may be more than, less than or equal to the imports during the year. Therefore, through which a country's relative level of economic health is determined. A
three possibilities arise : country's foreign exchange rate provides awindow to its economic stability, which
1. BOP on current account is in surplus if total value of exports of goods & is why it is constantly watched and analyzed. If you are thinking of sending or
services is greater than its total value of imports. receiving money from overseas, you need to keep a keen eye on the currency
2. Deficit if total value of Export< Total value of Imports of goods and services. exchange rates. The exchange rate is defined as "the rate at which one country's
3. It may be in balance if exports and imports of goods and services are equal. currency may be converted into another." It may fluctuate daily with the changing
Components of BOP on current account are
market forces of supply and demand of currencies from one country to another.
(A) Balance of Trade (BOT)Trade is visible items.
For these reasons; when sending or receiving money intemationally it is important
to understand what determines exchange rates.
(B) Balance on Invisibles (BOI)Trade in invisible items.
1. Inflation Rates : Changes in markt inflation cause changes in currency
(ii) BOP on Capital Account-Monetary transactions arise between two exchange rates. Acountry with a lower inflation rate than another's will see an
countries due to movement of capital. Inflow of capital from the rest of the world appreciation in the value of its currency. The prices of goods and services increase
is recorded as credit in BOP and outflow of capital to the rest of the world at a slower rate where the inflation is low. A country with a higher inflation rate
a debit entry components of BOP on capital accounts are
constitute
exhibits a rising currency value while a country with higher inflation typically
() Foreign Investment sees depreciation in ts currency and is usually accompanied by higher interest
rates.
-Foreign Direct Investment-If its done by foreigners in
entry and if its done by Indians in the rest of the world, it will India, it will be credit
be debited in capital
2. Interest Rates : Changes in interest rate affect currency value and dollar
account of India's BOP. exchange rate. Forex rates, interest rates, and inflation are all correlated. Increases
-Port-folio Investment-Its transfer of funds between nations to in interest rates cause a country's currency to appreciate because higher interest
financial assets. If foreigners buy Indian financial assets acquire rates provide higher rates to lenders, thereby attracting more foreign capital, which
flow in India and it will be treated as a credit entry in the foreign exchange will causes a rise in exchange rates.
when Indians buy foreign financial assets, capital account whereas
opposite happens. 3. Country's Current Account/ Balance of Payments : A country's current
(ii) Loans account reflects balance of trade and earnings on foreign investment. It consists of
-External total number of transactions including its exports, import, debt, etc. A deficit in
whereas if IndiaAssistance-If foreigners donate to
provide external assistance, it will beIndia, it will be a credit entry current account due to spending mÍre of its currency on importing products than
of ndia's BOP. debited in the capital account it is earning through sale of exports causes depreciation. Balance of payments
fluctuates exchange rate of its domestic currency.
-Commercial Borrowings-By Indian abroad will be credited or national debt owned
borrowing by foreigners in India will be debited. whereas 4. Government Debt: Government debt is public debt
A country with government debt is less likely to acquire
(ii) Deposits by NRSIs-Fresh by the central government. their bonds in the
deposits by
withdrawls by them will be debited in the capital NRIs willofbe credited whereas toreign capital, leading to inflation. Foreign investors will sell
account open market if the market predicts government debt within a certain country. As
Importance-The
payment purpose of BOP is to take the stock of India's BOP. aresult, a decrease in the value of its
exchange rate will follow.
obligations and of assets and liabilities arisingcountry'sreceipts and accounts and balance of payments, the
transactions to correct unhealthy trends. out of economic 5. Terms of Trade: Related to current
 -2015] ECONOMICS
SEMESTER-V[May/June Macroeconomics-ll SEMESTER-IV
112 Principles of termee
B. A. (Prog.) A country's B.A (Prog.) /II Year / Economics-2016
of export prices to import prices.than
terms of trade is the ratio greater rate its imports prices.
prices rise at a [Principles of Macro-economics -II][Set-I]
if its exports which causes a higher demand for the country's
trade improveshigher revenue, an appreciationt
This results in currerncy's value. This results in Duration:3 Hours
Currency and an increase in its Maximum Marks: 75
exchange rate. economio
Performance :Acountry's political state and Attempt Five questions in all. First question is compulsory.
6. Political Stability & strength. A country with less risk for political
performane can affect its currency investors, as a result, drawing investment All questions carry equal marks.
turmoil is more attractive to foreign political and economic stability. Increase in Q.1. Write short notes on any two of the following :
away from other countries with more in the value of its domestic currency,
foreign capital, in turn, leads to an appreciationpolicy does not give any room for
(a) What is LM curve ? What causes a shift in LM curve ?
ACOuntry with sound financial and trade (b) What do you mean by short run aggregate supply curve ? What factors
prone to political confusions
uncertainty in value of its currency. But, a country causes a shift in the upward sloping short run aggregate supply curve ? 7½
see a depreciation in exchange rates.
may
recession, its interest rates are (c) What is the relation between unemployment rate and inflation rate in
7. Recession : When a country experiences a
chances to
likely to fall, decreasing its acquire foreign capital. As a result, its short-run ?Explain using Philips Curve. 74
lowering the
currency weakens in comparison to that of other countries, therefore () What is an open economy multiplier? Calculate open economy multiplier
exchange rate. when marginal propensity to consume is 0.75 and marginal propensity to import
8. Speculation : If a country's currency value is expected to rise, investors is 0.25. What will be the effect on open economy multiplier if domestic residents
willdemand more of that currency in order to make a profit in the near future. As do not spendon foreign goods and services ? 7h
a result, the value of the currency willrise to the increase in demand. What this Ans. (a) The LM curve:The LM curve shows the combinations of realGDPand
increase in currency vlaue comes a rise in the exchange rate as well. interest rates that will produce equilibrium in the money market so that people are
just willing to hold the stocks of money and bonds that are in existence. Here we
assume that wealth and the price level are constant and examine the effect of change
inor sayan increasein real GDP. As GDPincreases, the transactions and precautionary
demands for money both increase and so the money demand curveshifts to the right.
But the stock of money is fixed so that price of bonds must fall, which means that the
interest rate rises, until the quantity of money demanded returns to its original level.
This requires that the quantity of money demanded for speculative purposes falls by
just enough to offset the increase in the money demand for transactions purposes.
Interest rate MS Interest rate
LM,
LM,
LM,

-MPUn
MPYo)
Quantity of
money
Y, Real GDP
Part (i)
Diagram:The LM Curve

(113 )
 Principles of Macro-economics--2016 (Set-I] 115
SATISH:B.A. (Prog.)/IYear
for
the demand curve
114

diagram, at aninitial level of GDP y, money

Inthepart() levels of GDP M
equilibrium interest rate is io At higher LM
is given by M and the interest rate rises to i,.
to the right to MP and associated associated
curve, shifts
In part (ii), the LM curve LM, plots out the
and the given money
equilibrium interest rate
stock M. This is positively sloped
Parallel to the riobt
curve -
with each possible ynominal money supply shifts the LM curve.
An increase in the paralled to the IS

LM, and a decrease in money supply shifts the LM curve

such as to
left such LM2 increase in the rate of
is positively sloped. An
Shift in LM Curve: LM curve balances. To maintain the demand for real Y, Y, Income
real
interest reduces the demand for curve is shifted
the income level has to rise. LM LM curve to The new equilibrium is at point E,at ahigher rate of interest (r) and alower level
balances equal to the fixed supply shifts the
increases in money supply of Income (Y).
by changes in money supply. An
the right and vice versa. (6) The total output of goods and services that firms wish to produce is known
try to buy bonds with their newly supply depends on the decisions of
With increase in the supply of money, peopleprice must all until they are willing as aggregate supply. Accordingly, aggregateorder to produce goods and services to
acquired money, but the stock is fixed so that their stock of bonds. Asa result, the
unchanged
firms to use workers and all other inputs in
to hold the larger stock of moneyand the sell to households, governments, and other firms, as well as for exports.
level or GDP willrise.
equilibrium rates of interest willfall, while the income An aggregate supply curve relates aggregate supply to the price level. It is necessary
LM to define two types of aggregate supply curves: (1) the short-run aggregateshort-run supply
LM' (SRAS) curve, and (2) the long-run aggregate supply (LRAS) curve. The would like
aggregate supply (SRAS) curve relates the price level to the quantity that firms
Interest
ofRate to produce and to sell on the assumption that the prices of all factors of production remain
long-run aggregate supply (LRAS) curoe relates the price level to desired sales
constant. The chapter we shall
E |/E after afull adjustment has been made to that price level. In the present
confine our discussion to the SRAS çurve.
SRAS curve we need to
Slope of the SRAS curve : To study the slope of the goodsoutput and
examine (1)how costs are related to output, and (2) how prices of
are related.
E supply curve is drawn on the
E, Costs and output : The short-run aggregate labour) remain constant.
assumption that the prices ofall factors that firms use (suchs
Y,
X
However, this does not imply that unit costs (or costs per unit of output) will also
fact, as output is raised, less efficient plants and labour might
remain constant. In
(b) Income, Output
up the unit costs as output rises even though
(a) Income, Output have to be employed. This would push
In the figure, a rightward shift of LM curve in the input prices renmain constant. as price increases, output is
indicated, equilibrium level of observed that
income, Y, at LM,is established at a lower rate of interest, Prices and output : It is generally the
consider the two types of markets in whichfrom
is determined at a lower rate of r,; similarly Y, incom raised. To understand why this is so, know
interest r,. markets and the imperfect markets. We
LM will shift to the left if money supply ims can operate-the perfect microeconomic theory that in the case of perfect
were to fall.The respective equilibriu Our study of perfect competition in determined
would be determined at a relatively higher rate of interest. LM i.e., they accept whatever price is
as shown in figure. will shift to the lel markets, firms are merely price-takers, such a way as to maximise profits. As these
output in
In the market and adjust their output, unit costsincrease. Therefore, these firms will
irms increase the level of their produce less whern price
Similarly, they will
Produce more only when price rises.
falls.
 SATISH: B. A.(Prog,)I Year
Principles of Macro-economics-Il-2016 [Set-I] 117

Thesefirms are price-settere om the above analysis, one can

116
horizontal1SRASCurve,, and (2) averticalthink
of two extreme cases: (1)a
consider firms operatingin imperfect markets.their prices unchanged and SRAS curve. The formerimplies aperfectly
Now will keep situation
of output, these firmsdown or building up their inventories
Over a small rangedemand where output can be expanded without any rise inthe price level. The latter implies
by running that unit coste
so asituation where no increase in price level can induce an expansion in output. Fig-
satisfy changes in
to increase outputby a large enough quantity at higher prices cases,
However, if they haveincrease, they will agree to produce more only depicts these twO
of production tend to on at least some of the extra
the reason that unless they are able to pass production).
(this is due to increase
not be profitable for them to
costs through higher prices, it would
follows:
SRAS
Thus,we can conclude as
price-setting firms cause the price
"The actions of both price-taking andbe positively related-the short-run
Level
Prrce
Level
Price
to
level and the desired supply of outputsloped." SRAS
aggregate supply curve is positively
As is clear from the figure,
Ashort-run aggregate supply curve is depicted in fig. shows that with
of the SRAS curve
this curve has a positive slope. The positive slope desired output and the price level
the prices of labour and other inputs given, total
shown in the figure
will be positively associated. The shape of this curve is as
relatively flat at low levels of aggregate output and nearly vertical at very high levels
of output (when the economy approaches fullcapacity). This can be explained as
follows: Real national income (GDP) crore) Real national income (GDP) ( crore)
1. At low levels of output there is likely to be excess capacity in the economy. Flg.: Horizontal and vertical SRAS Curve
Therefore, the firms can add considerably to the level of output with practically no
(or very little) addition to cost. As a result, there is likely to be substantial increase as Keynesian
in output with little or no increase the overall price level. Thus, the aggregate Fig. (a) depicts the case of a horizontal SRAS curve. This is known
infuential work
supply curve is likely to the fairly flat at low levels of GDP. In fig. national output is SRAS curve as it was emphasized by J.M. Keyhes in his extremely1936. Keynes had
The General Theory of Employment, Interest and Money published in
considerably higher at Bthan at A, but the price level at Bis only slightly higher than was massive
it is at A. discussed the conditions of Great Depression of 1930s when there
in European economices. In such economies, it is possible for the
2. At very high levels of output, the firms are likely to bump into their short-run unemployment
Fig. (b) depicts the case of a
capacityconstraints.There wouldbe conditions ofnear fullemploymentand engaging irms to expand their output holding prices constarnt.
when there are conditions of full
more labour and capital to increase outputfurther willbeaverycostly affair:. Therefore, Vertical SRAS curve. Such a curve is found and
employmernt in the economy. No increases inSuchdemand are able to pushup supplybeen
prices will increaserapidly while output will expand very slowly. In Fig, national level rises. a vertical supply curve has
output at Dis only slightly higher than at C, but the price level at D is considerably e only impact is that price curveis vertical
higher than it is at C. nphasized by the monetarists who argue that theaggregatesuppBy
at least in the Neo-classical economists argue that it can be vertical in the
long run. here that horizontal and vertical
SRAS curves are the
Tun also. We mav state positively sloped
is as depicted in Fig. (A)-avertical att very high
level
Price D necases. The actual SRAS curve relatively
C CUrve which is: relatively flat at low levels of GDP and
levels of GDP. above simpleKeynesian
did not fit well in the
The actual empirical evidence
economists,A. W. Phillips
published an article in 1958
macro Anoted British about 100
data fromthe U.K. forrelationship
based onmodel. his go0d deal of research using historical
thatthereisfactexisted an inverse
A
Yearssiin which hearrived at theconchusion implies atrade-
rateofinflation. Thisinverserelation rate of inflation
betwthateen rrateis, for reducing unemployment pricein
off,
unemployment and the form ofa higher
pricein terms aof higher rate
Real national income (GDP) (
Crore) has to be paid, for: for reducingtherate of inflation, a curve tothehistorical data
The SRAS curve is and I fitting
positively sloped (A) borne. Ongraphically
Dunemplovment has to be
 119 AD demand
Equilibrium shift initial
ADincome
an Equilibrium AD,magnitude
expenditure downward the
15 nation's
the causing
the the explain
in in if from
curve shift aggregate Thus, equilibrium example, the
of downward
The
horizontal (a). AA magnitude autonomous afor of to
AE,. purchases
AD by Po.
(Set-I]
Fig.
at For Yo.
to reasons helps
the in the increases to constant
in AY curveisAEg AEo The
on curveY,
expenditure.
from demand
Macro-economics-II-2016
shift causes En from AD,.The in simple
multiplier. the desired
expenditure."
horizontal point expenditure
remainingPo. falldemand
fall Explain
position aggregate
expenditure expenditurecurve level th¹na therefore, total GDP.
real
gives aggregate
AE,,aggregate
(m)
theautonomous
AY. AA expenditure
This autonomous newprice
level
?curve the
by K= 0.25 to and
of
measures given as will,the
autonomous aggregate Po. pricethesame fall
in taken
ofGDP = demandIfrefers
concept
level
level to the
by imports =1-0.75
+
0.25 curve.
of is the right a
aggregate the
Principles multiplier foris shift given m -1-0.50 demand:price
multiplier price that with with holds
in initial the willlevel
curve to =1-b + demandThe
aggregate
change
in suppose be propersity
1 0.50 the
equilibrium 1 =2
Ans.
Multiplier output.
AA the at
Yo (b). Y to associated expenditure
Po, will
analysis 1
between
simple the to upward AY(+OY-
0Y). Aggregate
fig.,GDPFig. level A)(b)
a of
simnple
to change nowin rises 0.75
Multiplier is aggregatefinal
Consider shift similarprice (= marginal What
responsethen within
ADous
now shifts Theshift= relationship
"The Y, aggregate
Ifa
curve, E, Let upward income is at mpc Ans.of
Q.2. sloping
curve
level A AAADpofthe buyers
at curve
is by to
hi
horizontal
between ie unemploymnent
saydemand
Phillins
the
after inflation
annum, shows
exogenous
level or ADshifts curve
constan.
upward consumption,chang
15 to left."
price thelevel)
Phillips
Curve
named
relation actual cent) thatcurve
the aggregate 63 61 Sixties along AD
of per also 80 (per the the the
along 62 of the these
shifts price expenditure
AD is the
noW ratethecent TheStates Rate Curvethe to by
inverse inflation 64 in movements curve
levelin
of the divided
is where
thecent,perrecucing
force. in shock. shift
States changes
65
68 66
67 Unemployrment
Philips Ifanyitself the private price
curve axis United 69
(except shifts
Year the Fig. per 5to labourof
exhibiting Fig.:
demand AD
exportthe GDPthe
horizontal
(Prog.)I this vertical 10 thereby rate United
onlybeconstant.
curveinduce desired
in is reduced the
variables
(GDP)
shiftsin when
andshowninflation of for and AD
considered aggregate
unemployment
the cent net changetheexpenditure.
curve alongisinflation and (1961-69)
rate level income about
A. is of policy per (Percentage) 0+X to the or expenditures
(autonomous) of
SATISH:B. curve 3 -1 Relationship taken price
sloping rate 8to unemployment
Increasein Ratofe Annual 2
Unemploymentchanges, exogenous consumption,
an the magnitude
PC
we were national broughtit
and
Phillips sixties the called of
when increases
of fiscal autonomous
downward unemployment
rate Curve
Philips
8
curve in
Negative variables
ratio
of Rate
of
Unemployment level) other
is these the
rateThis thatwhencontractionary
of
data
unemployment
7 Force)
and AD
changes shift of of thethe
6 level gives
theCurve.seen between 4 5 Labour Inflationthe price thea amount
showing govermentof is expenditure
and and the exogenous
drawing while Such
of any multiplier in
multiplier
aobtained be from each change
inflation
Phillips will cent, 3 of of the any in
of relation (%Curve Rates Thus,
(except in itself.the withfall
rateIt perpursuing drawn 2
Phillipsas themeasured. of
3 rate
Philips While
between other
changesininvestment,
downward. curve
rise
right.A
associated autonomous
simple a
thisto
ofname
rate axis israte
inverse
curve : all variables response
Therefore,
118 by the Y Level)10 9Price 3 Change Fig. (a) while curve, AD "A The
in (% the
Inflation Rate
of the in in
 121 andhaswereto reformsexpected.
Direct India therural
figures,
jobs. of or is of of areopportunities
constitute
workers,
employment at have
inter-state oneVarious
jobless programs
of launched
to beenneedy also exchange
15 be
was level
two-fifthIndia sectors
sectors India problemareas can
schemes
drug reforms in of 90%the
of India to as identified have has
to training country
reforms(Foreign growth
estimated primary crore
in expected India.been ruralassistance foreign
[ECONOMICS]
activities,
.economic
been
scenario in Casual work, in variousin to of,unemployment
various living.Specific
Schemes
forworkers Merely scenario scenario 21 the
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economic
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financialthe currency
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India. has been
is would tackle
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of in migrated
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don't exists This India
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unemployment has
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[ECONOMICS](P)
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consider real ()
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Interest P responsible of
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:
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II left is
/ of eachlevelaggregate
Principles
(Prog.)
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thethattherelationshipbetween
thein in other
GDP.Achange
GDP
demand
investment
spending
and
as rates, exports
remainingGDPthe
unchanged.
while
theof twoGDP and thesupply,
IS GDP
equilibrium
GDP curve and 19-21. unemployment
curve,ofaggregate slowLarge
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Pagefactors
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Vertical.
Q. in
B. curve the
AD
is incomeandlevel exogeneous
and
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simultaneous
derive
on the lower
level
of
(i)
aggregate See The widespread
for and opposite IS/LM curve level Q.4. Ans.
level The level
the
price given In
shifts Part Q.3.the (i) Ans. normalhuge
AD GDP desired
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(P)given the
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120 price level price the :TheLM GDP. and price
for
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