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effective demend

by jaspreet

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effective demend

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  1. EFFECTIVE DEMAND “THAT LEVEL OF AGGREGATE DEMAND WHICH IS EQUAL TO AGGREGATE SUPPLY IS KNOWN AS ED.”

  2. EXPLANATION:- • Effective demand tells that other factors like level ofemployment is also determined by DEMAND and SUPPLY. • AD:- How much money is expected to receive by the enterprenure by selling his products. or { aggregate expenditure } • AS:- How much money he must receive by selling his product.

  3. ED V/S EMPLOYMENT • When entrepreneur makes more investment there is a change in agg.supply. • Which leads to increase in level of employment. • With this effect there is a change in AD. • Position of equilibrium b/w AD and AS is known as EFFECTIVE DEMAND

  4. EFFECTIVE DEMAND AD AS AD SCHEDULE AD PRICE AS SCHEDULE AS PRICE

  5. CONTENTS OF Agg.demand AD.PRICE TOTAL SALE PROCEEDS THAT ALL ENTREP.EXEPECT FROM SALE OF OUTPUT • AGG.DEMAND SCHEDULE DEPICTS ALL THE RECEIPTS WHICH AN ENTREP.EXPECTED TO RECEIVE AT DIFF.LEVEL OF EMPLOYMENT

  6. CONTENTS OF Aggr.supply • AGG.SUPPLYPRICE DEPICTS THE AMT WHICH AN ENTP.MUSTSPENT TO PRODUCE OUTPUT COST OF PRODUCTION AGG.SUPPLY SCHEDULE DEPICTS ALL THE AMTS.WHICH AN ENTRP. MUST RECEIVE AT DIFF .LEVELS OF EMPLOYMENT

  7. ED=AD+AS

  8. DETERMINATION OF ED

  9. SO STUDY OF THE SCHEDULE SHOWS THAT EQILIBRIUM IS NOT NECESSARY AT FULL EMPLOYMENT.

  10. CRITICISM • USE OF THE TERM “EFFECTIVE”IS MEANINGLESS. • IT SAYS THAT EFFECTIVE DEMAND IS ALSO AN EXPECTED DEMAND.IF IT IS EXPECTED THEN IT CAN HARDLY BE CALLED “EFFECTIVE”. • THERE IS NO COMPLETE RELATION B/W EMPLOYMENT AND INCOME. • THIS THERY DOESN’T APPLY TO UNDER DEVELOPED ECONOMIES. • IT IGNORES THE GOVT.EXPENDITUREAND NET EXPORTS.

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