Class 12 Economics Important Chapter 3 Determination of Income and Employment

Class 12 Economics Important Chapter 3 Determination of Income and Employment Solutions English Medium As Per The New Syllabus to each chapter is provided in the list so that you can easily browse through different chapters ASSEB Class 12 Economics Important Solutions in English and select need one. AHSEC Class 12 Economics Additional Notes Download PDF. HS 2nd Year Economics Additional Solutions.

Class 12 Economics Important Chapter 3 Determination of Income and Employment

Also, you can read the NCERT book online in these sections Solutions by Expert Teachers as per Central Board of Secondary Education (CBSE) Book guidelines. ASSEB Class 12 Economics Additional Question Answer are part of All Subject Solutions. Here we have given HS 2nd Year Economics Important Solutions English Medium for All Chapters, You can practice these here.

Determination of Income and Employment

Chapter: 3

PART – A: INTRODUCTORY MICROECONOMICS

IMPORTANT QUESTION AND ANSWER

Short Questions Answers:

1. What is Aggregate Demand (AD)?

Ans: AD is the total planned expenditure on final goods and services at a given income level in a period. In a two-sector model, AD=C+I.

2. What are the components of AD in a two-sector economy?

Ans: Private consumption (C) and private investment (I).

3. Define Aggregate Supply (AS).

Ans: AS is the money value of total output producers plan to supply in a period; in national-income terms, AS=Y.

4. What does the 45° line represent in Keynesian diagrams?

Ans: Points where income equals expenditure; i.e., Y=AS=C+S.

5. What is autonomous expenditure?

Ans: Spending independent of current income (e.g., autonomous consumption C‾\overline{C}C and autonomous investment I‾\overline{I}I).

6. Differentiate autonomous and induced consumption.

Ans: Autonomous consumption occurs even at zero income; induced consumption varies directly with income (bY)(bY)(bY).

7. Define MPC and state its range.

Ans: Marginal Propensity to Consume (MPC) is the fraction of additional income that is spent on consumption.

It is calculated as MPC = ΔC/ΔY​, where

ΔC = Change in consumption.

ΔY = Change in income.

Range: 0<MPC<1

8. Define APC and its behavior as income rises.

Ans: Average Propensity to Consume (APC) is the ratio of total consumption to total income.

Behavior:

APC decreases as income rises, because a smaller fraction of income is spent on consumption when income increases.

where ΔS = Change in saving and ΔY\Delta YΔY = Change in income.

Relation with MPC:

MPC+MPS=1

9. Define MPS and its relation with MPC.

Ans: Marginal Propensity to Save (MPS) is the fraction of additional income that is saved, calculated as:

MPC+MPS=1.

where MPCMPCMPC is the Marginal Propensity to Consume.

10. What is break-even income?

Ans: The income level where C=Yand saving S=0.

11. Distinguish ex-ante and ex-post investment.

Ans: Ex-ante is planned investment; ex-post is actual investment realized after the period.

12. State the Keynesian equilibrium condition.

Ans: AD=ASAD=ASAD=AS (equivalently C+I=YC+I=YC+I=Y) and therefore S=IS=IS=I.

13. What is effective demand?

Ans: The level of AD that equals AS and determines equilibrium income.

14. Differentiate full employment and underemployment equilibrium.

Ans: Full employment equilibrium occurs when AD equals AS at potential output; underemployment equilibrium occurs when AD is insufficient to reach potential output.

15. Define the investment multiplier.

Ans: The investment multiplier shows how much total income (ΔY\Delta YΔY) changes in response to a change in investment (ΔI).