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Suppose labour and capital are used in fixed proportions in the production of output in a closed economy. SUppose the existing capital equipment is utilised fully but a quarter of the labor force is unemployed. Let Y,C and I represent aggregate levels of income, consumption and investment expenditure in the economy in rupeesat constant prices. Let C=100+0.6Y, I=500, G=200.
(a) Calculate the level of income in the economy.
(b) If the government raises its nominal expenditure to 400, then what is the increase in real incoem in the economy ?
(c) If the government raises its nominal expenditure to 400, then what is the fall in the percentage of unemployed in the economy ?
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