Ans 1.

Introduction

We are going to discuss autonomous expenditure on the equilibrium level of income using
investment multipliers, so before finding the impact we need to know about what
autonomous expenditure is.
Autonomous expenditure - It is a type of expenditure which we can’t regret because as we
know we all need consume something to sustain our life so it is not possible to consume
zero level of commodity that’s the reason it is independent in nature it does not matter that
we don’t have income in the situation of zero income we also need to consume something to
sustain the life so, why autonomous expenditure is important .
Now we have to discuss investment multiplier, as we know investment is a important function
and when we investment is makes some expense so, we can say I=C
Investment multiplier is nothing but the result or the increase of money which we have
invested. An important thing is that it will take an appropriate time to multiply the money .
So, Now we have autonomous expenditure and investment, so we are discussing the impact
of change in autonomous expenditure .

Spending that is unrelated to revenue, such as investment, government spending, and

exports, is referred to as autonomous expenditure. Macroeconomic theory's idea of the
investment multiplier demonstrates how changes in autonomous spending can have a
greater impact on the equilibrium level of income in an economy.

The ratio of the change in equilibrium income to the change in autonomous expenditure that
created it is known as the investment multiplier. The investment multiplier is calculated as
follows:

Investment Multiplier is equal to 1 / (1 - MPC).

where the proportion of each additional dollar of income spent on consuming, or MPC, is the
marginal propensity to consume.

Let's say that the economy experiences a rise in autonomous investment spending. With
more money being spent on investments, there will be more demand for goods and services,
which will improve output and income. Consumption expenditure will rise as a result of this
gain in income, which will raise demand for goods and services and grow output and income
even more.

The investment multiplier demonstrates that this initial rise in autonomous investment
expenditures will result in a greater rise in equilibrium income than the rise in expenditures
itself. The multiplier's size is determined by the marginal propensity to consume. The
investment multiplier and the effect of changes in autonomous expenditure on the
equilibrium level of income are both greater the larger the MPC.

Consider the following scenario: the MPC is 0.8 and the initial rise in autonomous investment
spending is $100 billion. This would be the investment multiplier:
Multiplier for Investment = 1 / (1 - 0.8) = 5

Accordingly, a $100 billion increase in autonomous investment spending would result in a

$500 billion increase in equilibrium income overall, which is five times the initial investment
spending increase.

Conclusion
So, We have discussed the impact of autonomous expenditure after this we got that if we will
increase our autonomous expenditure then demand of good & services will definitely
increase and it will be the result of increase and it will be the result of increase in the
manufacturing of output and prices of goods & services will go high and as we know when
consume more it directly mean that we are investing the money to increase our standard of
living. It can also be a reason for inflation. Actually most of the poor people who overcome
the poverty line are middle class and rich also but middle class and rich people increase
their consumption less in comparison to poor people in this situation.
The level of MPC will also increase when autonomous expenditure will increase it must be
more then 0 in this situation.
In summary , changes in autonomous expenditure, such as investment spending, can have
a larger impact on the equilibrium level of income in an economy due to the investment
multiplier the size of the multiplier depends on the marginal propensity to consume, with a
larger MPC leading to a larger multiplier and a larger impact on income.

Ans 2. Introduction

Classical economics assumes that in a competitive economy full employment will be

automatic because their approaches were made before the 1930 depression and before
1930 everything was stable and the economy was fit and fine . they never saw or faced this
situation so that’s why they had claimed this but after the 1930 keynes came up with a new
revolutionary approach which influenced the economic situation and they got that why it
happened. What are those ways from which we can improve the situation and which
approaches are right.If we shed light on full employment will be automatic as per the
classical economics but Keynes denied this and succeeded to make understood that it is not
possible. They said that this is possible when supply & demand will equal and create an
equilibrium then we can see full employment.

The foundation of classical economics, which arose in the 18th and 19th centuries,
was the presumption that full employment would be attained automatically in a
market economy that was competitive. The labour market would adjust through
changes in wages and prices, according to the conventional wisdom of classical
economists, so that any excesses in labour supply or demand would be eradicated
and the economy would function with a natural unemployment rate.

According to traditional economists, any excess labour supply would cause wages to
adjust downward, which would raise demand for labour and finally lead to the return
of full employment. This presumption was founded on the idea that there are no
labour market rigidities or frictions and that prices and wages are flexible enough to
sustain full employment over the long term.

The advent of Keynesian economics in the 1930s, however, questioned this

conventional wisdom. Keynes suggested that a lack of aggregate demand in the
near run might cause the economy to face protracted unemployment even in a
market economy that is highly competitive. According to Keynes, businesses may
reduce employment and production when there is inadequate demand for products
and services in the economy. This can create a vicious cycle of declining demand,
declining output, and rising unemployment.

In such circumstances, according to Keynes, the market mechanism would not be

adequate to restore full employment because wages and prices would remain stable
and not change swiftly enough to reduce the excess labour supply. Keynes thought
that for the government to promote aggregate demand and bring about full
employment, fiscal and monetary policy were essential.

Keynes further claimed that the traditional premise of wage flexibility was unrealistic
in practice because employees and unions sometimes oppose wage reductions and
because businesses may be reluctant to make wage reductions for fear of depleting
employee morale and productivity.

In conclusion, Keynes challenged the assumption made by classical economics that

full employment would be automatically achieved in a competitive market economy
through changes in wages and prices by pointing out the possibility of persistent
unemployment caused by a lack of aggregate demand and the stickiness of wages
and prices.

Conclusion

Now, we have discussed that the keynes challenged the classical theory classical
theory said economics assume that in a competitive economy full employment will be
automatic As per them it doesn’t matter what customer want to buy but the producer
want to sale as per them supply creates it own demand unemployment will never
born in this situation and some are also there which shown the same but keynes
denied this and prove that unemployment is possible in the case of low aggregate
demand and the numbers of factors affect this.

Ans 3.

(A)
We can use the following formula to determine national income:

National income is calculated as follows: private final consumption expenditure plus

government final consumption expenditure; gross fixed capital formation; change in stocks;
exports minus imports; consumption of fixed capital; net factor income from abroad; indirect
taxes; and subsidies.

Using the supplied information, we determine:

510 + 75 + 130 + 35 + 50 - 60 + 40 -5 + 90 - 10 is the national income.

855 crores is the national income.

Consequently, the national income is 855 crores.

Ans 3 (b)
Introduction

Involvement of government in a sector is very important for the growth of the country
because as we know when country is on depression only government help us to over take
from this situation by increase their expenditure government expenditure also good for poor
population of the country by the governmental welfare programs so we are going to discuss
government involvement in a sector of market affect the other remaining participants of the
sector.

The remaining market actors in a sector can be significantly impacted by the government's
excessive involvement in that area. Here are a few potential effects:

Crowding out private investment: When the government gets overly involved in a particular
sector, private investment may be stifled. This is so that private businesses can compete or
access resources without being hindered by the government's funding, subsidies, or other
types of support. Private investment may be deterred as a result, which could hinder the
sector's expansion and development.

Reduced competition: When the government intervenes excessively in a particular industry,

it may result in a situation where there is less competition. This is due to the possibility that
the government may favour some businesses or organisations, making it difficult for other
participants in the industry to effectively compete. This can affect consumers by limiting their
options, limiting innovation, and decreasing efficiency.

Increased bureaucracy: The involvement of the government may also result in a rise in
bureaucracy, which can impede decision-making, cause delays, and raise expenses. This
may make it challenging for private players to function effectively and may put them in a
position where they are unable to effectively compete with governmental bodies.

Incentives that are warped might also result from government intervention in a sector. For
instance, if the government offers subsidies or other forms of assistance, it may put
businesses in a position where doing business with the government is more important than
doing business with customers. As a result, the industry may become less responsive to
market demands and less effective as a whole.

In conclusion,

The remaining market actors in a sector might be significantly impacted by the government's
excessive involvement in that area. There may be less competition, more bureaucracy,
skewed incentives, and the suppression of private investment, among others.