ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What is an endogenous variable? An endogenous variable is a variable in an economic model whose value is determined by the model. The endogenous variable is the dependent variable, meaning its value depends on other variables within the model.

Detailed explanation-2: -Investment is an exogenous variable. It depends on variables that are not included in the model. We take investment as given.

Detailed explanation-3: -Examples of Endogenous Variables For example, a 30-mile commute requires more fuel than a 20-mile commute. Other relationships that may be endogenous include: Personal income to personal consumption, since a higher income typically leads to increases in consumer spending.

Detailed explanation-4: -Consumption would be an endogenous variable-a variable you are trying to explain. One possible exogenous variable is the income tax rate. The income tax rate is set by the government, and if you are not interested in explaining government behavior, you would take the tax rate as exogenous.

Detailed explanation-5: -Government expenditure is realized to be the exogenous variable and its change impacts national income through Aggregate Demand expression.