Paid by a shopkeeper or retailer, who then shifts the tax burden to customers by charging sales tax on goods and services.

(i) Paytm Payments Bank. In August 2015, Paytm received a license from RBI to launch a payments bank.
(ii) The Paytm Payments Bank is a separate entity in which founder Vijay Shekhar Sharma will hold 51% share, One 97 Communications holds 39% and 10% will be held by a subsidiary of One 97 and Sharma.

(i) Expansionary policy is cheap money policy when a monetary authority uses its tools to stimulate the economy.
(ii) An expansionary policy maintains short-term interest rates at a lower than usual rate or increases the total supply of money in the economy more rapidly than usual.

The Brettonwoods Conference proposed IMF, World Bank and International Trade Organisation (ITO) in 1944.
 

Democratic Plan	Totalitarian Plan
Democratic planning implies planning within democracy.	Under totalitarian planning, there is central control and direction of all economic activities in accordance with a single plan
People are associated at every step in the formulation and implementation of the plan.	In authoritarian planning, the planning authority is the supreme body.

(i) Economic growth enables an increase in the indicators like GDP, per capita income, etc.
(ii) On the other hand, economic development enables improvement in the life expectancy rate, infant mortality rate, literacy rate, and poverty rates.

SLR or “Statutory Liquidity Ratio” is the fraction of the total demand and time deposits of the commercial banks is the form of specified liquid assets.

Monetary Economics is a branch of economics that provides a framework for analyzing money and its functions as a medium of exchange, store of value and unit of account.

The value of total output of goods and services produced in an economy in a year

There are two methods of calculating Standard deviation in an individual series.
a) Deviations taken from Actual mean
b) Deviation taken from Assumed mean

Foreign Portfolio Investment (FPI) means the entry of funds into a nation where foreigners deposit money in a nation’s bank or make purchase in the stock and bond markets, sometimes for speculation. FPI is part of capital account of BPO.

Net factor income from abroad is the difference between the income received from abroad for rendering factor services by the normal residents of the country to the rest of the world and income paid for the factor services rendered by nonresidents in the domestic territory of a country

C = Rs.100 + 0.8(Rs.1000) = Rs.100 + Rs.800 = Rs.900

(i) PC
(ii) Boilers
(iii) Mixer
(iv) Signal Generators
(v) Incubator

Duesenberry has made two observations regarding the factors affecting consumption.
a. The consumption expenditure depends not only on his current income but also past income and standard of living.
b. Consumption is influenced by demonstration effect. The consumption standards of low income groups are influenced by the consumption standards of high income groups.

1. North Korea
2. China
3. Venezuela

There are three major types of economic systems.
1. Capitalistic Economy (Capitalism),
2. Socialistic Economy (Socialism) and
3. Mixed Economy (Mixedism)

(i) Nominal income is expressed in terms of a general price level of a particular year. In other words, real income is the buying power of nominal income.
(ii) The real income is derived as follows
National Income at constant price = National Income at current price \(\div\) P₁/P₀

Unemployment is problem faced when there are people, who are willing to work and able to work but can't find suitable job.

(i) Consumption Demand
(ii) Investment Demand
(iii) Government Expenditure
(iv) Net Export (Export - Import)

(i) Price Mechanism is the heart of any capitalistic economy.
(ii) All the economic activities are regulated through price mechanism.

(i) Capitalistic Economy (Capitalism)
(ii) Socialistic Economy (Socialism)
(iii) Mixed Economy (Mixedism)

There are two major types of statistics.
(i) Descriptive statistics
(ii) Inferential statistics

(i) Statistics as a science of estimates and probabilities.
(ii) Statistics is the collection, organisation, presentation, analysis and interpretation of numerical data.

1. Gross national product
2. GNP per capita
3. Welfare
4. Social indicators.

(i) An ecosystem includes all living things (plants, animals and organisms) in a given area, interacting with each other and also with their non-living environments (weather, earth, sun, soil, climate, atmosphere).
(ii) It is the foundation of the Biosphere and determine the health of the earth.

When the responsibilities of the state increase, it supplements traditional revenue sources by borrowing from individuals and institutions within and outside the country. This is public debt.

International Economics is a specialized field of Economics that deals with the economic interdependence among countries and studies the effects of such interdependence and the factors that affect it.

(i) The Central Bank purchases and sells Government securities and proper eligible securities like bills and securities of private concerns.
(ii) This is called Open Market operation.

(i) Surplus goods were exchanged for money which in turn was exchanged for other needed goods.
(ii) Goods like furs, skins, salt, rice, wheat, utensils, weapons were used as money

APC is the ratio of consumption expenditure to any particular level of income
APC = \(\frac{C}{Y}\)

 

(i) It arises due to imbalance between supply of labour and demand for labour.
(ii) It is because of immobility of labour, lack of necessary skills, breakdown of machinery, shortage of raw materials.
(iii) The persons who lose jobs and in search of jobs are also included.

The major feature of rural unemployment is the existence of unemployment in the form of disguised unemployment and seasonal unemployment.

GDP deflator is an index of price changes of goods and services included in GDP.
\(\text{GDP deflator}=\frac { Nominal\ GDP }{ Real\ GDP } \times 100\)

Economies can be classified into different types based on the Status of Development are
1. Developed
2. Underdeveloped
3. Undeveloped and
4. Developing economies

Agency Functions implies that commercial banks act as agents of customers by performing various functions.
(i) Collecting Cheques Banks collect cheques and bills of exchange on the behalf of their customers through clearing house facilities provided by the central bank.
(ii) Collecting Income Commercial banks collect dividends, pension, salaries, rents, and interests on investments on behalf of their customers. A credit voucher is sent to customers for information when any income is collected by the bank.
(iii) Paying Expenses Commercial banks make the payments of various obligations of customers, such as telephone bills, insurance premium, school fees, and rents. Similar to credit voucher, a debit voucher is sent to customers for information when expenses are paid by the bank.

i. Till 1970, India stood fifth in the Fund and it had the power to appoint a permanent Executive Director. India has been one of the major beneficiaries of the Fund assistance.
ii. It has been getting aid from the various Fund Agencies from time to time and has been regularly repaying its debt.
iii. India’s current quota in the IMF is SDRs (Special Drawing Rights) 5,821.5 million, making it the 13th largest quota holding country at IMF with shareholdings of 2.44%.
iv. Besides receiving loans to meet deficit in its balance of payments, India has benefited in certain other respects from the membership of the Fund

S.No	(X)	D=X-A(A=57)	(X-\(\bar { X } \))2
1	43	-14	196
2	48	-9	87
3	65	8	64
4	57	0	0
5	31	-26	679
6	60	3	9
7	37	-20	400
8	48	-9	81
9	78	21	441
10	59	2	4
N-9		\(\sum { d } =44\)	\(\sum { d }^2 =1952\)

\(\sigma =\sqrt { \frac { { \sum { d } }^{ 2 } }{ n } -\frac { { (\sum { d } ) }^{ 2 } }{ (n) } } =\sqrt { \frac { 1952 }{ 10 } -\frac { { (-44) }^{ 2 } }{ (10) } } \)
\(=\sqrt { 195.2-19.36 } =\sqrt { 175.84 } =13.26\) 

When the inflation is very moderate, it acts as an incentive to traders and producers. The profit due to rising prices encourages and induces business class to increase their investments in production, leading to generation of employment and income.
(i) However, hyper-inflation results in a serious depreciation of the value of money and it discourages savings.
(ii) When the value of money undergoes considerable depreciation, this may even drain out the foreign capital.
(iii) With reduced capital accumulation, the investment will suffer a serious set-back which may have an adverse effect on the volume of production.

S.No	Fictional unemployment	Structural unemployment
1	Frictional unemployment arises due to imbalance between supply of labour and demand for labour	Structural unemployment is due to drastic change in the structure of the society
2.	This is because of immobility of labour, lack of necessary skills, break down of machinery, shortage of raw materials etc.	Lack of demand for the product or shift in demand to other products cause this type of unemployment
3.	The persons who lose jobs and in search of jobs are also included under frictional unemployment	This kind of unemployment results from massive and deep rooted changes in economic structure

National Sample Survey Organisation (NSSO)
i. The National Sample Survey Organisation, now known as National Sample Survey Office, is an organization under the Ministry of Statistic of the Government of India.
ii. It is the largest organisation in India, conducting regular socio-economic surveys.

i. Stimulate exports and export more goods than import. This approach will provide the gold inflow;
ii. Restrict the importation of goods, especially luxury goods that will provide export balance of trade;
iii. Forbid the production of the final products in its colonies;
iv. Forbid the exportation of raw materials from the parent states to the colonies and allow free importation of raw materials, which are not obtained within the country;
v. Stimulate an export of mainly cheap raw commodities from the colonies;
vi. Forbid any trade of its colonies with other countries, except the parent state, which can resell the colonial goods abroad by itself.

1. Transfer payments are not to be included in estimation of national income as these payments are not received for any services provided in the current year such as pension, social insurance etc.
2. The receipts from the sale of second hand goods should not be treated as part of national income as they do not create new flow of goods or services in the current year.
3. Windfall gains such as lotteries are also not to be included as they do not represent receipts from any current productive activity.
4. Corporate profit tax should not be separately included as it has been already included as a part of company profit.

1. Reduction in Inequalities: No one is allowed to own and use private property to exploit others.
2. Rational Allocation of Resources: The central planning authority allocates the resources in a planned manner. Wastages are minimised and investments are made in a pre planned manner.
3. Absence of Class Conflicts: As inequalities are minimum, there is no conflict between rich and poor class. Society functions in a harmonious manner.
4. End of Trade Cycles: Planning authority takes control over production and distribution of goods and services. Therefore, economic fluctuations can be avoided.
5. Promotes Social Welfare: Absence of exploitation, reduction in economic inequalities, avoidance of trade cycles and increase in productive efficiency help to promote social welfare.

The introduction (directly or indirectly) of substances or energy into the marine environment (including, estuaries) result in deleterious effects to living resources, hazards to human health, hindrance to marine activities.

(i) Availability of variety of goods for consumption.
(ii) Generation of more employment opportunities.
(iii) Industrialization of backward nations.
(iv) Improvement in relationship among countries.
(v) Division of Labour and specialisation.
(vi) Expansion in Transport Facilities.

NIT! Aayog (National Institution for transforming India) was formed on 1st January, 2015 through a Union Cabinet resolution. NITI Aayog is a policy think-tank of the Government of India. It replaced the Planning Commission from 13th August, 2014. The Prime Minister. is the Chairperson of NITIAayog and Union Ministers will be Ex-officio members. The Vice-Chairman of the NITI Aayog is the functional head.
Functions of NITI Aayog
1. Cooperative and Competitive Federalism
2. Shared National Agenda
3. Decentralized Planning
4. Vision and Scenario Planning
5. Network of Expertise
6. Harmonization:
7. Conflict Resolution
8. Coordinating Interface with the World
9. Internal Consultancy
10. Capacity Building
11. Monitoring and Evaluation

S.No xx \(x-\bar{x} \) \((x-\bar{x})^{2}\) 1 14 14 - 15 = -1 1 2 22 22 - 15 = 7 49 3 9 9 - 15 = -6 36 4 15 15 - 15 = 0 0 5 20 20 - 15 = 5 25 6 17 17 - 15 = 2 4 7 12 12 - 15 = 2  9 8 11 11 - 15 = 4 16 N = 8 120   140 \(\bar{x} =\frac{120}{8}=15 \)
\(\sigma =\sqrt{\frac{\sum(x-\bar{x})^{2}}{n}} \)
\(=\sqrt{\frac{140}{8}} \)
\(=\sqrt{17.5} \)
=4.18
Ans: 4.18

(i) On the supply side of the vicious circle of poverty there is low rate of saving and investment.
(ii) In UDCs to increase the rate of investment and capital formation, the marginal rate of savings must be greater than the average rate of savings.
(iii) On the demand side, Nurkse suggested balanced growth.
(iv) If investment is made in several industries simultaneously the workers will become consumers of each other's products creating mutual demand.

Discharge of sewage and waste water:
(i) Sewage, garbage and liquid waste of households, agricultural runoff and effluents from factories are discharged into lakes and rivers.
(ii) These wastes contain harmful chemicals and toxins which make the water poisonous for aquatic animals and plants.
Dumping of solid wastes:
(i) The dumping of solid wastes and litters in water bodies cause huge problems.
Discharge of industrial wastes:
(i) Industrial waste contains asbestos, lead, mercury, grease oil and petrochemicals.
Oil Spill:
(i) Sea water gets polluted due to oil spilled from ships and tankers.
Acid Rain:
(i) When the acidic particles caused by air pollution mix with water vapour, it results in acid rain.
Global warming:
(i) The increase in water temperature affects aquatic plants and animals.
Eutrophication:
(i) The increased level of nutrients in water depletes oxygen in water and this negatively affects fish and other aquatic animal population.

Defence
1. The Government protects the people from external aggression and internal disorder.
2. Through police and military forces it renders protective services.
Judiciary:
1. It provides adequate judicial structure to render justice to all citizens.
Enterprises
1. The regulation and control of private enterprise comes under the government.
Social Welfare:
1. The state provides education, social security, social insurance, health and sanitation for the people.
Infrastructure
1. Modern States build the base for the economic development of the country by creating social and economic infrastructure.
Macro-economic policy
1. The Government follows fiscal policy and monetary policy to achieve macro economic goals.
Social Justice
1. During the process of growth certain sections of the economy gain at the cost of others.
2. Government intervenes with fiscal measures to redistribute income.
Control of Monopoly
1. State intervenes through control of monopolies and restrictive trade practices to curb concentration of economic power.

1. Basic Credit Facility
2. Extended Fund Facility
3. Compensatory Financing Facility
4. Buffer Stock Facility
5. Supplementary Financing Facility
6. Structural Adjustment Facility

Pure Theory of Trade
(i) This component explains the causes for foreign trade, composition, direction and volume of trade, determination of the terms of trade and exchange rate, issues related to balance of trade and balance of payments.
Policy Issues
(i) Policy issues such as free trade vs. protection, methods of regulating trade, capital and technology flows, use of taxation, subsidies and dumping, exchange control and convertibility, foreign aid, external borrowings and foreign direct investment, measures of correcting disequilibrium in BoP are covered.
International Cartels and Trade Blocs
(i) Economic integration, cartels, customs unions, monetary unions, trade blocs, economic unions and multinational corporation are covered
International Financial and Trade Regulatory Institutions
(i) Financial institutions like IMF, IBRD, WTO are part of International Economics.

Quantitative methods
1) Bank Rate Policy:
(i) It is the rate at which the Central Bank rediscount the first class.
(ii) The bank advances loans on approved securities to its member banks.
(iii) If the Central Bank wants to control credit, it will raise the bank rate.
(iv) So deposit rate and other lending rates rise, borrowing is discouraged.
2) Open Marker Operation:
(i) The Central Bank purchases and sells Government securities in the money market.
(ii) When banks or public buy these securities they have to pay to the Central Bank.
3) Variable Cash Reserves Ratio:
(i) The Central Bank controls credit by changing the Cash Reserve Ratio.
(ii) If Commercial Banks have excessive cash reserves and create too much credit, the central bank will raise the CPR.
(iii) If CRR is high, commercial bank's capacity to create credit will be less.
Qualitative Methods
1) Rationing of Credit:
(i) It controls and regulates the purposes for which credit is granted by commercial banks.
(ii) It is of 2 types - variable portfolio ceiling and variable capital asset ratio
2) Direct Action:
(i) Direct action is taken against erring banks
3) Moral Suasion:
(i) Central Bank gives advice, then requests and persuades the Commercial Banks to co-operate with the Central Bank in implementing its credit policies.
4) Publicity:
(i) A policy can be effectively successful only when an effective public opinion is created in its favour.
5) Regulation of Consumer's Credit:
(i) The down payment is raised and the number of installments reduced for credit sale.
6) Changes in the Marginal Requirements on Security Loans:
(i) The margin requirements can be increased to prevent excessive use of credit for stock exchange speculation

(i) Money supply means the total amount of money in an economy.
(ii) It refers to the amount of money which is in circulation in an economy at any given time.
(iii) Money supply determines the price level and interest rates.
(iv) Money supply viewed at a given point of time is a stock and over a period of time it is a flow.

(i) When income incrcases, consumption expenditure also incrcases but by a smaller amount.
(ii) The increased income will be divided in some proportion between consumption expenditure and saving.
(iii) Increase in income always leads to an increase in both consumption and saving.

(i) In the Keynesian model, output is determined mainly by aggregate demand.
(ii) The aggregate demand is the amount of money which entrepreneurs expect to get by selling the output produced by the labourers employed.
(iii) Aggregate demand (spending) is the amount that households, firms, the governments and the foreign purchasers would like to spend on domestic output
Aggregate demand has four components:
1. Consumption demand (C)
2. Investment demand (I)
3. Government expenditure (G)
Net Export ( export - import) (X - M)
AD = C + I + G + (X - M)

(i) A country with a high national income enjoys greater economic welfare and higher standard of living.
(ii) But the per capita income as an index of economic welfare has some limitations.
(iii) Welfare depends on the composition of goods and services. If more capital goods over consumer goods are produced welfare will be lesser.
(iv) Higher GDP with greater air, water, soil pollution will affect welfare.
(v) Production of war goods will increase output but not welfare.
(vi) If more women and children are employed or workers are forced to work for long hours economic welfare is affected.
(v) Therefore the Physical Quality of Life Index is a better indicator of economic welfare than national income.

(i) Red tapism and bureaucracy since, approval of many officials is needed.
(ii) Absence of incentive and so productivity is less.
(iii) Limited freedom of choice in the consumption of goods and services.
(iv) The state takes all major decisions. There is concentration and misuse of power.

1. Capitation tax
2. Duties in respect of succession to agricultural land.
3. Duties of excise on certain goods produced or manufactured in the State, such as alcoholic liquids, opium, etc.
4. Estate duty in respect of agricultural land.
5. Fees in respect of any of the matters in the State List, but not including fees taken in any Court.
6. Land Revenue.
7. Rates of stamp duty in respect of documents other than those specified in the Union List.
8. Taxes on agricultural income.
9. Taxes on land and buildings.
10. Taxes on mineral rights, subject to limitations impose by Parliament relating to mineral development.
11. Taxes on the consumption or sale of electricity.
12. Taxes on the entry of goods into a local area for consumption, use or sale therein.
13. Taxes on the sale and purchase of goods other than newspapers.
14. Taxes on the advertisements other than those published in newspapers.
15. Taxes on goods and passengers carried by road or on inland waterways.
16. Taxes on vehicles.
17. Taxes on animals and boats.
18. Taxes on professions, trades, callings and employments.
19. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling.
20. Tolls.

BASIS	NBFC	BANK
Meaning	An NBFC is a company that provides banking services to people without holding a bank license.	The bank is a government-authorized financial intermediary that aims at providing banking services to the general public.
Demand Deposit	Not Accepted	Accepted
Payment and Settlement system	Not a part of a system.	Part of the system.
Maintenance of Reserve Ratios	Not required	Compulsory
Deposit insurance facility	Not available	Available
Credit creation	NBFC do not create credit	Banks create credit.
Transaction services	Not provided by NBFC.	Provided by banks.

Economic development is measured on the basis of four criteria

Gross National Product (GNP):
(i) GNP is the total market value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens (including income of those located abroad), minus income of non-residents located in that country.
(ii) GNP is one measure of the economic condition of a country, under the assumption that a higher GNP leads to a higher quality of living, all other things being equal.
GNP per capita:
(i) This relates to increasing in the per capita real income of the economy over the long period
(ii) This indicator of economic growth emphasizes that for economic development the rate of increase in real per capita income should be higher than the growth rate of population.
Welfare:
(i) Economic development is regarded as a process whereby there is an increase in the consumption of goods and services by individuals.
(ii) From the welfare perspective, economic development is defined as a sustained improvement in health, literacy, and standard of living
Social Indicators:
(i) Social indicators are normally referred to as basic and collective needs of the people
(ii) The direct provision of basic needs such as health, education, food, water, sanitation, and housing facilities check social backwardness.

S/N	Basic need	Indicators
1	Health	Life expectancy at birth
2	Education	Literacy signifying primary school enrolment as a percent of the population.
3	Food	Calorie Supply per head
4	Water supply	Infant mortality and percentage of the population with access to potable water
5	Sanitation	Infant mortality and percentage of the population with access to sanitation.

An individual who has been temporarily absent due to caring for an elderly relative whether they are paid or not	Employed
A person 18 years old or older who works without pay for 15 or more hours per week in a family enterprise	Employed
Someone who works for pay in his or her own business	Employed
A woman who spends five hours a week sending bills to her husband's clients. She is not paid for her work. Otherwise she performs non-market work at home	Not in the labour force
A retired person	Not in the labour force
A person who quits one job in favor of looking for work elsewhere but has yet to find work	Unemployed

(i) The balance of aggregate demand and aggregate supply was first described.
(ii) The cost of goods is determined by the ratio of aggregate demand and supply for them, both domestically and from abroad;
(iii) He theory is true regarding any quantity of goods and any number of countries, as well as for the analysis of trade between different entities.
(iv) In this case, country specialization in some goods depends on the ratio of wage levels in each country;
(v) The theory based the existence of benefits from trade for all countries, taking part in it;
(vi) There become possible to develop foreign economic policy on the scientific foundation.

(A) GNP_MP = Sum of net value added by all the industries
(i) value - added by industry A.
= Sale of goods to industry B + Sale of goods to industry C − Value of imports
Sale of goods to consumers = Rs. 400 + Rs. 200 + Rs. 1,000 − Rs. 100
= Rs. 1,590.
(ii) Value - added by industry B
= Sale of goods to industry C + Sale of goods to consumers.− Purchase of goods from industry  A
= Rs. 500 + Rs. 800 − Rs. 400
= Rs. 900.
(iii) Value - added by industry C
= Sale of goods to consumers + Exports − (purchase of goods from industry A+purchase of goods from industry B)
= Rs. 600 + Rs. 500 - Rs. 200 - Rs. 500
= Rs. 400.
Gross National Product at market prices, or
GNP_MP equals
Rs. 1,500 + Rs. 900 + Rs. 400
= Rs. 2,800
Gross National Product at factor cost or GNP_FC equals
GNP_MP − Indirect taxes + Subsidies
= Rs. 2,800 − Rs.100 + Rs. 50
= Rs. 2,750.
Net National Product at market prices, or NNP_MP equals.
GNP_MP − Depreciation
= Rs. 2,800 − Rs. 100
= Rs. 2,700.
Net National Product at factor cost or NNP_FC equals
NNP_MP - Indirect.taxes + Subsidies
= Rs. 2,700-Rs. 100 + Rs. 50
= 2,650.
as factors of production and include things such as land, labour, capital and entrepreneurship.
1. Producers of goods and services incur a cost for using these factors of production. These costs are ultimately added onto the price of the product.
2. The factor cost refer to the cost of production that is incurred by a firm when producing  goods and services.
3. Examples of such production costs include the cost of renting machines, purchasing machinery and land, paying salaries and wages, cost of obtaining capital, and the profit margins that are added by the entrepreneur.
4. The factor cost does not include the taxes that are paid to the government since taxes are not directly involved in the production process and, therefore, are not part of the direct production cost.
5. However, subsidies received are included in the factor cost as subsidies are direct inputs into the production.

Definition
(i) The multiplier is defined as the ratio of the change in national income to change in investment.
(ii) If ΔI stands for increase in investment and ΔY stands for resultant increase in income, the multiplier K =ΔY/ΔI.
Assumptions of Multiplier
1. There is change in autonomous investment.
2. There is no induced investment
3. The marginal propensity to consume is constant.
4. Consumption is a function of current income.
5. There are no time lags in the multiplier process.
6. Consumer goods are available in response to effective demand for them.
7. There is a closed economy unaffected by foreign influences.
8. There are no changes in prices.
9. There is less than full employment level in the economy.
The value of multiplier depends on MPC
Multiplier K = 1/1-MPC
(i) The multiplier is the reciprocal of one minus marginal propensity to consume. Since marginal propensity to save is 1 - MPC. (MPC + MPS = 1).
(ii) Multiplier is 1/ MPS. The multiplier is therefore defined as reciprocal of MPS. Multiplier is inversely related to MPS and directly with MPC.
Numerically, if MPC is 0.75, MPS is 0.25 and k is 4.
Using formula k = 1/1- MPC
1/1-0.75 =1/0.25 =4

Diagrammatic Explanation.
(1) At 45° line y = C+ S
(2) It implies the variables in axis and axis are equal.
(3) The MPC is assumed to be at 0.8 (C = 100 + 0.8y)
(4) The aggregate demand (C + I) curve intersects 45° line at point E.
(5) The original national income is 500. (C = 100 + 0.8y = 100 + 0.8(500) = 500)
(6) When I is 100, y = 1000, C = 900; S = 100 = I
(7) The new aggregate demand curve is C + I = 100 + 0.8y + 100 +10
(8) Y = 210 / 0.2 = 1050
(9) C = 940; S = 110 = I

1. In addition to household and firms, inclusion of the government sector makes this model a three-sector model.
2. The government levies taxes on households and firms, purchases goods and services from firms, and receive factors of production from household sector.
3. On the other hand, the government also makes social transfers such as pension, relief, subsidies to the households.
4. Similarly, Government pays the firms for the purchases of goods and services.
5. The Flow Chart illustrates three- sector economy model

Under three sector model, national income
(Y) is obtained by adding Consumption expenditure (C), Investment expenditure (I) and Government expenditure (G).
Therefore Y = C + I + G

S. No	Marginal Efficiency of Captial (MEC)	Marginal Efficiency of Investment (MEI)
1.	It is based on given supply price for capital.	It is based on the induced change in the price due to change in the demand for capital.
2.	It represents the rate of return on all successive unit of capital without regard to existing capital.	It shows the rate of return on just those units of capital over and above the existing capital stock
3.	The capital stock is taken on the X axis of diagram.	The amount of investment is taken on the X axis of diagram.
4.	It is a 'Stock' concept.	It is a 'Flow' concept.
5.	It determines the optimum capital stock in an economy at each level of interest rate.	It determines the net investment of the economy at each interest rate given the capital stock.