NCERT Solution Economics Part 2 Class 12 Chapter 4 Determination of Income and Employment
NCERT Solution Economics Part 2 Class 12 Chapter 4 Determination of Income and Employment all questions and answers. Economics Part 2 Class 12 4th Chapter Determination of Income and Employment exercise solution and experts answer. As one of online learning platforms, we (netex.) are excited to offer the NCERT Solution Economics Part 2 Class 12 Chapter 4. This solution is designed to help students who are looking to brush up on their physics concepts on Chapter 4 Determination of Income and Employment.
1.) What is marginal propensity to consume? How is it related to marginal propensity to save?
Marginal propensity to consume (MPC): it is the change in consumption per unit change in income. It is denoted by c and is equal to ∆C/∆Y.the marginal propensity to save (MPS) as the rate of change in savings as income increases. This indicates that even when Imagenia does not have any income, its citizens still consume Rs. 100 worth of goods. Imagenia’s autonomous consumption is 100. Its marginal propensity to consume is 0.8. This means that if income goes up by Rs. 100 in Imageni a, consumption will go up by Rs. 80. Let us also look at another dimension of this, savings. Savings is that part of income that is not consumed. In other words, S=Y-C. Increase in one unit of income will be consumed or saved.
2.) What is the difference between ex ante investment and ex post investment?
ex ante investment | ex post investment |
*ex-ante depicts what has been planned. | *ex-post depicts what has actually happened. |
In simple words, ex-ante depicts what has been planned, and ex-post depicts what has actually happened. In order to understand the determination of income, we need to know the planned values of different components of aggregate demand. Let us look at these components now. Ex ante before the event, ex post after the event.
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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?
The aggregate supply is perfectly elastic at this price. Under such circumstances, aggregate output is determined solely by the level of aggregate demand. This is known as effective demand principle. An increase (decrease) in autonomous spending causes aggregate output of final goods to increase (decrease) by a larger amount through the multiplier process.
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. (A)=50 crores , MPS=0.2
INCOME (Y) =4000 crores
A=50
B=MPC=1-MPS=1-0.2=0.8
AD=50+0.8*4000=3250 crores
AD INCOME =3250CRORES
AND (Y) INCOME =4000 CRORES
THEREFORE THE ECONOMY IS NOT AT 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 – which states that as people become more thrifty they end up saving less or same as before. This result, though sounds apparently impossible, is actually a simple application of the model we have learnt.
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