NCERT Class 12 Economics Part 2 Chapter 4 Determination of Income and Employment Extra Questions and Answers
Class 12 Economics Part 2 Chapter 4 Extra Inside Questions and Answers – Determination of Income and Employment. Here in this Page Class XII Students can Learn Extra Questions & Answer 4th Chapter Economics Part 2 fully Inside.
We Provided Here Determination of Income and Employment Economics Part 2 Chapter 4 Long Answer Type Question, MCQ Questions & Answer, Short Answer Type Questions (2 or 3 marks), and Very Short answer Type Question (1 marks) Solution.
Class 12 Economics Part 2 Chapter 4 Inside based Question
Economics Part 2 Chapter 4 Determination of Income and Employment Class 12 Inside 6 Marks, 3 marks, 2 Marks & And 1 Marks Important Questions and Answers.
1.) what is mean by autonomous consumption?
Ans – . A consumption function describes the relation between consumption and income. The simplest consumption function assumes that consumption changes at a constant rate as income changes. Of course, even if income is zero, some consumption still takes place. Since this level of consumption is independent of income, it is called autonomous consumption.
2.) Explain the consumption function and MPC.
Ans -C =C+ cYThe above equation is called the consumption function. Here C is the consumption expenditure by households. This consists of two components autonomous consumption and induced consumption ( cY ). Autonomous consumption is denoted by C and shows the consumption which is independent of income. If consumption takes place even when income is zero, it is because of autonomous consumption. The induced component of consumption, cY shows the dependence of consumption on income. When income rises by Re 1. induced consumption rises by MPC i.e. c or the marginal propensity to consume. It may be explained as a rate of change of consumption as income changes. C MPC c Y ∆ = = ∆ Now, let us look at the value that MPC can take. When income changes, change in consumption ( ) ∆C can never exceed the change in income ( Y) ∆ . The maximum value which c can take is 1. On the other hand consumer may choose not to change consumption even when income has changed. In this case MPC = 0. Generally, MPC lies between 0 and 1 (inclusive of both values). This means that as income increases either the consumers does not increase consumption at all (MPC = 0) or use entire change in income on consumption (MPC = 1) or use part of the change in income for changing consumption (0< MPC<1).
3.) Defined Marginal propensity to consume (MPC),Marginal propensity to save (MPS),Average propensity to consume (APC) and Average propensity to save (APS)
Ans – i.) Marginal propensity to consume (MPC): it is the change in consumption per unit change in income.
ii.) Marginal propensity to save (MPS): it is the change in savings per unit change in income.
iii.) Average propensity to consume (APC): it is the consumption per unit of income
iv.) Average propensity to save (APS): it is the savings per unit of income
4.) What is mean by investment ?
Ans – Investment is defined as addition to the stock of physical capital and changes in the inventory of a producer.
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5.) Explain inventory investment and why inventory investment take place ?
Ans – The inventories or stocks refers to that part of output produced which is not sold and therefore remains with the firm. Change in inventory is called inventory investment. It can be negative as well as positive: if there is a rise in inventory, it is positive inventory investment, while a depletion of inventory is negative inventory investment. The inventory investment can take place due to two reasons:
(i) the firm decides to keep some stocks for various reasons this is called planned inventory
(ii) the sales differ from the planned level of sales, in which case the firm has to add to/run down existing inventories this is called unplanned inventory investment.
6.) What is the justification for taking the price level as fixed?
Ans – Due to following reasons the price level take as fixed.
(i) at the first stage, we are assuming an economy with unused resources: machineries, buildings and labours. In such a situation, the law of diminishing returns will not apply; hence additional output can be produced without increasing marginal cost. Accordingly, price level does not vary even if the quantity produced changes.
(ii) this is just a simplifying assumption which will be changed later.
7.) In which situation aggregate demand changes, the equilibrium level of income changes.
Ans – This can happen in any one or combination of the following situations:
1.) Change in consumption: this can happen due to (i) change inC (ii) change in c in consumption function .
2.) Change in investment: we have assumed that investment is autonomous. However, it just means that it does not depend on income. There are a number of variables other than income which can affect investment. One important factor is availability of credit: easy availability of credit encourages investment. Another factor is interest rate: interest rate is the cost of investible funds, and at higher interest rates, firms tend to lower investment.
8.) What is mean by profit ?
Ans – The production of final goods employs factors such as labour, capital, land and entrepreneurship. In the absence of indirect taxes or subsidies, the total value of the final goods output is distributed among different factors of production – wages to labour, interest to capital, rent to land etc. Whatever is left over is appropriated by the entrepreneur and is called profit
9.) what is mean by deficit demand ?
Ans -The equilibrium level of output may be more or less than the full employment level of output. If it is less than the full employment of output, it is due to the fact that demand is not enough to employ all factors of production. This situation is called the situation of deficient demand.
10.) what is mean by Excess demand ?.
Ans – The equilibrium level of output may be more or less than the full employment level of output. If the equilibrium level of output is more than the full employment level, it is due to the fact that the demand is more than the level of output produced at full employment level. This situation is called the situation of excess demand
11.) what is mean by propensity to consume?
Ans -The rate of increase in ex ante consumption due to a unit increment in income is called marginal propensity to consume.
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