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Excess & Deficient Demand · Question 32 of 53

Question 32

HardOriginal question

C = 40 + 0.75Y, planned investment is ₹40 crore and full-employment income is ₹400 crore. The deflationary gap is

Options for question 32

Show the answer and explanation
CorrectNot quiteAnswer A

Correct answer: A

Explanation

  1. AD at an income of 400 = 40 + 0.75 × 400 + 40 = 380.

  2. Gap = 400 − 380 = ₹20 crore.

Worth noting

₹80 crore is how far equilibrium income (320) falls short of 400, which is the gap times the multiplier 4.

Concept
Calculating the deflationary gap
Typical time
100 s
Your time
—
The rule this testsDeficient demand and the deflationary gap
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