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Determination of Income and Employment
Question
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How does the introduction of government sector affect the economy?

Answer

It impacts the level of aggregate demand through government expenditure and taxes. For example, an increase in government expenditure increases the level of aggregate demand whereas increase in taxes causes a fall in aggregate demand.

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Some More Questions From Determination of Income and Employment Chapter

What are the types of Propensity to consume?

How does MPC affect level of income?

Distinguish between APC and MPC, The value of which of APC and MPC can be greater than one and when?

State relationship between income and saving.

What is saving function (or Propensity to save)?