1. Prepared By:-
KVS, Delhi Region
DETERMINATION OF
INCOME, OUTPUT AND EMPLOY
MENT
There are two approaches for
the determination of
equilibrium level of output .
1) AS=AD Approach
2) S=I Approach

2. Prepared By:-
KVS, Delhi Region
AD=AS Approach
AD refers to desired expenditure in the
economy during the accounting year.
AD = C+I (C=consumption expenditure)
( I=Investment expenditure)
AS refers to desired output during an
accounting year . Hence it is equal to
Y(income )
AS = C +S (c = consumption expenditure)
 (s = saving)

3. Prepared By:-
KVS, Delhi Region
Equilibrium
• Equilibrium is attained when
• AD=AS
• The equilibrium can be attained
at
• Full employment
• Under employment &
• Over full employment
conditions.

4. Prepared By:-
KVS, Delhi Region
• Schedule showing determination of
equilibrium level of income .
Y C I AD=C+I AS= Y
0 50 100 150 0
100 100 100 200 100
200 150 100 250 200
300 200 100 300 300
400 250 100 300 300
500 300 100 400 500
The above table shows the equilibrium level of income at Rs . 300
crores because at this level of income AD(300 ) =AS(300)

5. Prepared By:-
KVS, Delhi Region
Diagram showing equilibrium level
of income.
AD=C+I
Y=AS=C+S
AD=AS300
300
150
NATIONAL INCOME
x
Y
0

6. Prepared By:-
KVS, Delhi Region
ADJUSTMENT MECHANISM
What happens when
AS> AD
 What happens when
AD> AS

7. Prepared By:-
KVS, Delhi Region
DIAGRAM SHOWING AS>AD
(DEFICIENT DEMAND)
• AS> AD
AS>AD
Y=AS
C+I=AD
INCOME
AS, AD

8. Prepared By:-
KVS, Delhi Region
DIAGRAM SHOWING AD>AS(EXCESS
DEMAND)
• AD> AS
AS>AD
Y=AS
C+I=AD
INCOME
AS,AD

9. Prepared By:-
KVS, Delhi Region
Equilibrium when S=I
• Equilibrium level of income is determined at a
point where saving & investment are equal.
• i.e, S=I
Y C S=Y-C I
(INVESTMENT)
0 50 -50 100
100 100 0 100
200 150 50 100
300 200 100 100
400 250 150 100
The above table show the equilibrium level of income is
Rs.300crores & at this point S(100) = I (100)

10. Prepared By:-
KVS, Delhi Region
Diagramatic presentation 0f s=i
100
National income
saving
investment
300
X
Y
S=I
The diagram shows the equilibrium level of S=I

11. Prepared By:-
KVS, Delhi Region
THINK & ANSWER
• See the diagram & answer how equilibrium
will be brought about if S>I or I > S.
S
I
income
S>I
I>S
S,I

12. Prepared By:-
KVS, Delhi Region
Questions for self-evaluation
• State the two approaches for the
determination of equilibrium level of output .
• Explain the meaning of equilibrium level of
national income with the help of a diagram.
• Explain what happen when
• (1) AD>AS
• (2) AD<AS

13. Prepared By:-
KVS, Delhi Region
Mrs. Anita Bhardwaj
KV, Vigyan Vihar
Mrs .Monika Bajaj KV, Tagore
Garden
Mrs. Leena Singh KV, AGCR
Mr. Sri Keshav KV, no.2 Delhi
Cantt
Mrs .Ritu Tanwar KV, AFS
Rajokri
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