NCERT Solutions for Class 12 Macro Economics Chapter 4 - Determination of Income and Employment

1. What is the marginal propensity to consume? How is it related to marginal propensity to save?

Ans: Marginal propensity to consume is an essential component of Keynesian macroeconomics theory and is defined as the increase in consumption expenditure due to increased incomes. It is expressed as $\triangle \mathrm{C} / \Delta \mathrm{Y}$ showing the evolution of consumption in relation to the evolution of income.

So,

$\mathrm{MPC}=\dfrac{\Delta C}{\Delta Y}$

Where,

$\Delta C=$ Change in consumption

$\Delta Y=$ Change in income

As we know that the marginal propensity to save (MPS) as the rate of change in savings as income increases.

So,  $\mathrm{MPS} =\dfrac{\Delta S}{\Delta Y}$ = $\text{s}$ 

Since, $\quad S=Y-C$,

 $\text{s} =\frac{\Delta(Y-C)}{\Delta Y}$

$=\frac{\Delta Y}{\Delta Y}-\frac{\Delta C}{\Delta Y} $

$=1-c $

2. What is the difference between ex ante investment and ex post investment? 

Ans: The difference between ex ante investment and ex post investment are: 

3. What do you understand by ‘parametric shift of a line’? How does a line shift when its (i) slope decreases, and (ii) its intercept increases?

Ans: Say the equation of straight line of the form $\mathrm{y}=\mathrm{mx}+\mathrm{c}$, where $\mathrm{m}>0$ is called the slope of the straight line (x) and $\mathrm{c}>0$ is the intercept on the vertical ( $y$ ) axis. Any increase in x will result in increasing the value of $y$ by a unit of $\mathrm{m}$. Here $\mathrm{m}$ and $\mathrm{c}$ are known as parameters of the graph and they are responsible for regulating the position of the graph.

The parametric shift refers to the curve changes due to the modification of the value of the entities $\mathrm{m}$ and $\mathrm{c}$ in the graph.

Under these conditions.

1. If the slope is reduced, the consumption curve shifts downward.

2. As the intercept increases, the consumption curve moves in parallel with the intercept.

4. What is ‘effective demand’? How will you derive the autonomous expenditure multiplier when price of final goods and the rate of interest are given?

Ans: Effective demand is the demand for goods or services where buyers are restricted in a market. We are also talking about their capacity and willingness to buy goods at various levels. According to the macroeconomic theory of Keynes, effective demand is called the equilibrium point where aggregate demand equates to aggregate supply.

Graphically, this can be shown as:

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Here,the $x$-axis is representing income and the $y$-axis is representing level of aggregate demand. The two curves AD and AS meet at equilibrium point E. Effective demand is shown by EG. AD shows the output level. Autonomous expenditure multiplier can be calculated in the following way.

$Y=AD$ (at equilibrium )$

$AD=A+cY$

Therefore

$Y=A+cY$

or $A=Y-cY$

$A=Y(1-c) $

$Y= \dfrac{A} {(1-c)} $

Where

$A=$ Autonomous expenditure

$\mathrm{c}=\mathrm{MPC}$ or Marginal Propensity to Consume

$\mathrm{Y}$ = Level of income

$\dfrac{1}  {1-\mathrm{c}}$= autonomous expenditure multiplier

One can therefore say that the autonomous expenditure multiplier depends on the MPC and the level of income.

5. Measure the level of ex-ante aggregate demand when autonomous investment and consumption expenditure (A) is Rs 50 crores, and MPS is 0.2 and level of income (Y) is Rs 4000 crores. State whether the economy is in equilibrium or not (cite reasons).

Ans: Here,

Consumption expenditure (A)= Rs 50 Crores (Given)

&

$\mathrm{MPS}=0.2$ (Given)

We know

$\mathrm{MPC}=1-\mathrm{MPS}$

$\mathrm{MPC}$= 1-0.2 

$=0.8$

Also,

$Y=4000$ Crores

We know that $\mathrm{AD}=\mathrm{A}+\mathrm{cY}$

Putting the values in the given equation we have

$AD=50+0.8 \times 4000 $

$=50+3200 $

$=\text { Rs } 3250 \text { Crores } $

We can observe that Rs $3250<$ Rs 4000

It means that $AD<Y$

Consequently, since the level of output is not equal to the level of income, the economy is not in equilibrium.

6. Explain ‘Paradox of Thrift’.

Ans: If all the people of the economy increase the proportion of income they save (i.e. if the mps of the economy increases) the total value of savings in the economy will not increase , it will either decline or remain unchanged. This result is known as the Paradox of Thrift. Such a savings system will lead to lower employment levels and a reduction in total economy savings and will slow down economic growth. That's one of the key components of the Keynesian economy.

Macroeconomics Chapter 4 Class 12 PDF Download

The NCERT Solutions for Class 12 Macroeconomics Chapter 4 Income Determination are readily available in downloadable PDF versions from reliable education websites like Vedantu. These solutions are curated by scholar-teachers in the specific subjects strictly adhering to updated CBSE syllabus and question pattern. The PDF versions are useful for quick references and detailed revisions of both long and short questions.

Given Below are Some of the Ch 4 Macroeconomics Class 12 Solutions:

• Economics Class 12 Chapter 4 Macroeconomics Solution Question 1 and 2

Both these solutions help the students to understand the fundamentals of the chapter. The answer to question one comes with detailed discussion on marginal propensity to consume and its relation to marginal propensity to save with extensive illustrations.

Solution 2 clarifies the concepts of investments like Ex-ante investment and ex-post investment. The answer comes with extensive analysis and can help a student develop a better understanding of crucial concepts.

• Class 12th Macroeconomics Chapter 4 Solutions Question 3 and 4

These questions come with extensive illustrations and detailed examples with diagrams and try to clarify concepts of Parametric shift of a line and effective demand. These solutions will help the student clarify concepts like slope decrease and intercept increase adequately.

• NCERT Solutions of Chapter 4 of Macroeconomics Class 12 Question 5

Question 5 of Class 12 the NCERT solutions provides a mathematical solution to measure Ex-ante aggregate demand. The mathematical solutions are provided in a step by step manner with illustration on each step that will enable the students to understand the nuances about the question and calculations.

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Key Concepts of Chapter 4 Determination of Income and Employment

Some of the key concepts discussed in this chapter are listed below:

• Aggregate demand and its components

• Consumption

• Investment 

• Determination of income in the two-sector model

• Determination of equilibrium income in the short run

• Macroeconomic equilibrium with price level fixed

• Effect of an autonomous change in aggregate demand on income and output

• The multiplier mechanism

Macroeconomics Chapter 4 Class 12 Marks Weightage

The question pattern consists of both long and short answer types, and the marks weightage is equally distributed in all the three question patterns. The marking scheme is framed with:

• MCQ question of 1 mark.

• Short answer type I - 3 marks.

• Short answer type II - 4 marks.

• Long answers of 6 marks.

The students, therefore, must be thorough with the chapter and the NCERT solutions to answer both short and long questions effectively.

Advantages of NCERT Solutions to Macroeconomics Class 12 PDF Download

The PDF versions of Class 12 Macroeconomics Chapter 4 solutions are advantageous in many aspects like:

• Explicitly curated by Expert teachers.

• Comes with detailed illustrations.

• Consists of diagrammatic solutions.

• Extensive numbers of example.

• Step by step mathematical solutions.

The students appearing for Class 12th CBSE board exam should keenly follow the NCERT solutions for detailed reference to crucial topics and essential questions.

Chapter Wise NCERT Solutions for Class 12 Macro Economics

• NCERT Solutions for Class 12 Macro Economics Chapter-1: Introduction to Macro Economics

• NCERT Solutions for Class 12 Macro Economics Chapter-2: National Income Accounting

• NCERT Solutions for Class 12 Macro Economics Chapter-3: Money and Banking

• NCERT Solutions for Class 12 Macro Economics Chapter-5: Government Budget and the Economy

• NCERT Solutions for Class 12 Macro Economics Chapter-6: Open Economy Macroeconomics

Chapter Wise NCERT Solutions for Class 12 Micro Economics

• NCERT Solutions for Class 12 Micro Economics Chapter-1:  Introduction to Micro Economics

• NCERT Solutions for Class 12 Micro Economics Chapter-2: Theory of Consumer Behaviour

• NCERT Solutions for Class 12 Micro Economics Chapter-3: Production and Costs

• NCERT Solutions for Class 12 Micro Economics Chapter-4: The Theory of the Firm under Perfect Competition

• NCERT Solutions for Class 12 Micro Economics Chapter-5: Market Equilibrium 

• NCERT Solutions for Class 12 Micro Economics Chapter-6: Non-Competitive Markets

Study Materials Related to Class 12 Macro Economics Chapter-4

• CBSE Class 12 Macro Economics Revision Notes Chapter 4 - Determination of Income and Employment

• Important Questions for CBSE Class 12 Macro Economics Chapter 4 - Determination of Income and Employment

Other Related Links 

• NCERT Solutions for Class 12 Economics

• CBSE Syllabus for Class 12 Economics Term (1 & 2)

• CBSE Class 12 Economics Revision Notes

• Important Questions for CBSE Class 12 Economics

• Previous Year Question Paper for CBSE Class 12 Economics with solutions

• CBSE Sample Papers for Class 12 Economics with Solution & Marking Scheme