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

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Class 12 NCERT Solutions Macro Economics - Determination of Income and Employment - Free PDF Download

Macroeconomics Chapter 4 Class 12 deals with significant economic concepts like marginal propensity, investment, parametric shift of a line, effective demand which help the students understand crucial factors about economic determinants that affect consumer behaviour.

NCERT Class 12 Macroeconomics Chapter 4 solutions provide ideal solutions to essential questions that offer a better understanding to the students.

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Access NCERT Solutions for Class 12 Social Science Chapter 4 Macroeconomics

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.


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


$\Delta C=$ 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: 

Ex-Ante Investment

Ex-Post Investment

Planned business investment in the economy over a given period is referred to as ex-ante investment.

The real investment that is made by every entrepreneur in the economy for a period is called ex-post investment.

Planning happens according to future expectations.

This is the outcome of real investment.

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 )$




or $A=Y-cY$

$A=Y(1-c) $

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


$A=$ 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


$\mathrm{MPC}$= 1-0.2 



$Y=4000$ 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


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Macro Economics Chapter 4 Class 12 PDF Solution is the best study material for the students who are preparing for their Class 12 boards this year. Students should practise all the questions and answers of Chapter 4 Class 12 Macro Economics to secure good marks in the examination. After finishing the NCERT Solutions of Chapter 4, they can also check out the important questions and revision notes of Class 12 Macro Economics Chapter 4 available in free PDF format. 

So, download and refer to the NCERT Solutions along with the other study materials for free from Vedantu and revise all the concepts of Class 12 Macro Economics to be well prepared for the board examination.

FAQs on NCERT Solutions Class 12 Macro Economics Chapter 4 Determination of Income and Employment

1. What are the Important Topics and Subtopics in Macroeconomics?

The important topics and subtopics of Class 12 CBSE Macroeconomics are a detailed understanding of - Introduction to Macroeconomics, National income accounting, Money and Banking, Determination of Income and Employment, Government Budget and the Economy, Open Economy Macroeconomics.

Apart from the broader topics, the important sub-topic includes product method, expenditure method and income methods, functions of money, money created by banking systems, demand and supply, marginal propensity, parametric shifts of line, effective demands, paradox of thrifts.

All these chapters are important for both MCQs, short, very short, and long answer questions that come with equal mars weightage.

2. What are Some Crucial Questions From Class 12 Macroeconomics?

Some of the must-know essential questions from Class 12 Macroeconomics that are crucial for conceptual understanding are:

  • Explain the concept of Paradox Thrift.

  • What is the difference between Ex-ante investment and Ex-post investment?

  • Essential features of the Capitalist Economy.

  • Calculation of personal income and personal disposable income.

  • Difference between planned and unplanned inventory accumulation.

  • What is a barter system, and what are its various drawbacks?

  • Explain the concept of the Liquidity trap.

  • Explain why the government must provide a public good.

  • Distinguish between revenue and capital expenditure.

  • Difference between the balance of trade and current account balance.

3. How Helpful are the NCERT Solutions in Class 12 Macroeconomics?

The NCERT solutions to Class 12 Macroeconomics is extensively helpful for students preparing for the CBSE board exams. It covers in detail the questions from important topics like money and banking, determination of income and employment, government budget and the economy, open economy Macroeconomics.

Teachers explicitly curate these solutions. These solutions come with a detailed example, step by step illustrations and diagrams to provide a better understanding of the topics for the students. The solutions cover questions of both short answer and long answer types and appear extremely helpful for last moment preparation of complicated topics and revision.

4. What are the benefits of  NCERT Solutions of Chapter 4 Determination of Income and Employment of Class 12 Macroeconomics that are going to help me?

The NCERT Solutions for Class 12 Macroeconomics is a valuable resource for students preparing for their CBSE board exams. Subject matter experts curate the solutions carefully. The solutions are provided with detailed examples and diagrams for better conceptual understanding. The solutions cover both short and long answer type questions and can help students with revising the syllabus while preparing for their board examinations.

5. What is the method to get NCERT Solutions for Class 12 Macroeconomics of all Chapters in PDF Format?

To download the NCERT Class 12 solutions for Macroeconomics follow these steps-

  • Go to the official website of Vedantu. (

  • You will see all the chapters listed on the page.

  • Click on the chapter for which you want the solutions.

  • The solutions will appear for all exercise questions on this page.

  • Click on ‘Download PDF’ to save for offline use.

All the study material provided by Vedantu is also available on the Vedantu App and free of cost.

6. Explain Exante Investment according to Chapter 4 Determination of Income and Employment of Class 12 Macroeconomics?

Exante investment can be called a planned investment which is usually made by the firms and the planners at the beginning of the period. The actual investment measured after the period for example after a year is called an ex-post or actual investment. We can conclude that the planned investment is the desired investment and the actual investment can be concluded as planned +unplanned investment. Furthermore, details can be availed by Vedantus’s NCERT solutions where the definition of each term is given systematically and accurately.

7. What do you understand about the Paradox of Thrift in Chapter 4 Determination of Income and Employment of Class 12 Macroeconomics?

This is a situation where people save money which leads to the fall of the aggregate demand and a decrease in consumption. This will further lead to the decrease in the employment and income level thus leading to the decrease and reduce the total saving of the economy. British economist John Keynes declared that an increased saving by the individual levels will slow down the economy.

8. What are the important questions in Chapter 4 Determination of Income and Employment of Class 12 Macroeconomics?

The important questions are as below: 

  • Define Paradox Thrift?

  • Define Ex ante investment?

  • Define ex Post Investment?

  • Explain the barter system?

  • Explain the liquidity trap?

  • What is the definition of revenue and capital expenditure?

  • What do you understand about the balance of trade and current account balance?

  • What are the features of a capitalist economy?

These questions are very important and have to be learnt thoroughly with accurate understanding.

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