Advertisements
Chapters
1: Microeconomics and Macroeconomics: Introduction
2: Demand and Law of Demand
3: Theory of Consumer Behaviour: Marginal Utility and Indifference Curve Analysis
4: Elasticity of Demand
5: Supply - Law of Supply and Price Elasticity of Supply
6: Market Mechanism: Equilibrium Price and Quantity in a Competitive Market
7: Laws of Returns - Returns to a Factor and Returns to Scale
8: Cost and Revenue Analysis
9: Forms of Market
10: Producer's Equilibrium
11: Determination of Equilibrium Price and Output Under Perfect Competition
SECTION 2: THEORY OF INCOME AND EMPLOYMENT
▶ 12: Theory of Income and Employment
SECTION 3: MONEY AND BANKING
13: Money: Meaning and Functions
14: Banks: Commercial Bank and Central Bank
SECTION 4: BALANCE OF PAYMENTS AND EXCHANGE RATE
15: Balance of Payments and Exchange Rate
SECTION 5: PUBLIC FINANCE
16: Fiscal Policy
17: Government Budget
SECTION 6: NATIONAL INCOME
18: National Income and Circular Flow of Income
19: National Income Aggregates
20: Methods of Measuring National Income
SECTION 7: PROJECT WORK
21: Project Work
22: Model Short Answer Questions
![Frank solutions for इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी chapter 12 - Theory of Income and Employment - Shaalaa.com](/images/economics-english-class-12-isc_6:872f47036b5c4267ae061d4279703803.jpg "Frank solutions for इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी chapter 12 - Theory of Income and Employment")
Advertisements
Solutions for Chapter 12: Theory of Income and Employment
Below listed, you can find solutions for Chapter 12 of CISCE Frank for इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी.
Frank solutions for इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी 12 Theory of Income and Employment TEST YOURSELF QUESTIONS [Pages 242 - 248]
Select the correct option for each of the following questions: (1 mark each)
Aggregate demand refers to ______.
total amount of goods and services demanded in the economy
it shows the desired or planned demand
it is positively related to income
all of these
Effective demand is known as ______.
ex-post demand
actual aggregate demand
planned demand
both ex-post demand and actual aggregate demand
Mark the right option from the options given below in the Keynesian model of income determination:
total income in the short-run depends on the desired aggregate demand in the economy
aggregate demand is positively related to income
both total income in the short-run depends on the desired aggregate demand in the economy and aggregate demand is positively related to income.
equilibrium income is always equal to full employment income
The main components of desired aggregate demand in a closed economy are ______.
desired consumption expenditure
desired investment expenditure
desired government spending
all of these
In an open economy, the components of aggregate demand are ______.
C + I + G + X
C + I + G + M
C + I + G + Net exports
I + G + Net exports
Basic properties of Keynesian propensity to consume are ______.
c = f(y)
c lies between zero and unity
linear consumption function
none of these
Linear consumption function implies ______.
consumption changes at a constant rate as income changes
consumption does not change with change in income
consumption changes at an increasing rate as income increases
consumption changes at a decreasing rate as income increases
Autonomous consumption means ______.
minimum level of consumption which must be incurred even at the zero level of income.
when C = Y
C > Y
none of these
Average Propensity to Consume (APC) is equal to:
$$\frac{\Delta C}{\Delta Y}$$
$$\frac{C}{Y}$$
Y − C
ΔY − ΔC
If the value of APC is 0.8 and National Income is ₹4000 crores, the amount of saving will be ______.
₹100 crore
₹200 crores
₹800 crores
₹500 crores
Suppose income of an individual increases from ₹ 50,000 to ₹ 60,000. As a result, his consumption expenditure rises from ₹ 40,000 to ₹ 48,000. Marginal Propensity to Consume (MPC) in such a case would be ______.
0.8
0.5
0.75
0.6
Which of the following is correct?
APC + APS = 1
MPC = 1 - MPS
APS = `S/Y`
all the above
Investment which varies directly with increase in income is known as ______.
autonomous investment
induced investment
independent investment
none of these
Autonomous investment is the type of investment.
which is not affected by a change in the level of income.
the curve for autonomous investment is a horizontal line parallel to X-axis.
it may change over time due to change in non-income factors.
all of these
Aggregate supply refers to ______.
value of total goods and services produced in an economy.
it is depicted by 45° line originating from the point of origin.
it can be expressed as C + S
all of these
Equilibrium level income as per the Keynesian theory is determined where ______.
aggregate demand curve intersects the 45° line.
the point of intersection of the saving curve and investment curve.
both (a) and (b)
none of these
Equilibrium level of income is established when ______.
AD = AS
S = I
both AD = AS and S = I
none of these
In case of an underemployment equilibrium, which of the following is not true?
Resources are fully employed
AD = AS
There exists excess production capacity
Some resources are unemployed
What happens when the Investment is lesser than Savings?
Aggregate Demand is more than Aggregate Supply.
Aggregate Demand is less than the Aggregate Supply.
Aggregate Demand is equal to the Aggregate Supply.
Aggregate Demand is independent of Aggregate Supply.
If MPC = 1, the value of the multiplier is ______
0
1
Between 0 and 1
Infinity
The value of multiplier is ______
`1/"MPC"`
`1/"MPS"`
`1/(1 - "MPS")`
`1/("MPC" - 1)`
If MPS = 0, the value of multiplier will be ______
2
1
0
∞
If MPC is 0.75 and investment increase by ₹ 250 crore, then the income would increase by ______.
₹ 800
₹ 1000
₹ 1200
₹ 1500
The value of the investment multiplier shows ______.
there is a direct relationship between multiplier and marginal propensity to consume.
there is an inverse relationship between multiplier and marginal propensity to save.
both (a) and (b)
none of these
Unemployment refers to a situation when ______.
a person is not looking for job
involuntary unemployment
voluntary unemployment
none of these
The amount by which the actual aggregate demand exceeds the aggregate supply corresponding to the full employment level in the economy is known as ______.
excess demand
inflationary gap
excess capacity
both (a) and (b)
The amount by which actual aggregate expenditure falls short of aggregate output corresponding to full employment level in the economy is known as ______.
deficient demand
deflationary gap
both (a) and (b)
none of these
Deficient demand leads to ______
Deflationary gap
Excess capacity
Low level of employment
All of the above
If S > I, it will lead to ______.
Excess demand
Deficient demand
Notional demand
Actual demand
The impact of excess demand corresponding to the full employment level of output on the economy will be ______.
increase in income, output and employment
increase in general price level
both increase in income, output and employment and increase in general price level
None of these
Which of the following statements is not correct with respect to correction of excess demand?
Increase in taxes
Increase in Repo Rate
Increase in imports
Increase in government spending
Identify the right combinations of items from Column 1 and Column 2.
| Column 1 | Column 2 |
| (1) Investment multiplier | (a) `C/Y` |
| (2) Average propensity to save | (b) `(Delta S)/(Delta Y)` |
| (3) Marginal propensity to save | (C) `S/Y` |
| (4) Average propensity to consume | (d) `1/(1 - C)` |
Given below are two statements marked as Assertion (A) and Reason (R). Read the statements carefully and choose the correct option.
Assertion (A): Full employment is the situation when all those workers who are able to work and willing to work get employment at the prevailing wage rate.
Reason (R): The situation of full employment is achieved when aggregate demand equals aggregate supply.
Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation for Assertion (A).
Assertion (A) is true but Reason (R) is false.
Both Assertion (A) but Reason (R) are false.
Mark the right combinations from the items given in Column 1 and Column 2.
| Column 1 | Column 2 |
| (1) Inflationary gap | (a) AD < AS |
| (2) Deficient demand | (b) AD > AS |
| (3) Regulating interest rate and the availability of credit | (c) Fiscal policy |
| (4) Policy of taxation and public expenditure | (d) Monetary policy |
Using fiscal policy, how is the inflationary gap reduced?
By increasing the Cash Reserve Ratio (CRR)
By increasing the Repo rate
By increasing tax
By reducing government expenditure
Very Short Answer Questions (2 marks each)
State the basic proposition of the Keynesian model of income determination.
What is meant by aggregate demand?
State components of aggregate demand.
Distinguish between desired (ex-ante) demand and effective (ex-post) demand.
State the Keynesian theory of propensity to consume.
OR
What is meant by a propensity to consume?
Give the main properties of Keynesian consumption function.
Define marginal propensity to consume (MPC).
Define average propensity to consume (APC).
Briefly explain the shape of the Keynesian consumption function.
What do you mean by a propensity to save?
Differentiate between marginal propensity to save and average propensity to save.
Explain that sum total of c and s is equal to 1.
OR
Explain that sum total of c and s is equal to 1.
Define the term ‘investment’.
Differentiate between private investment and public investment.
Distinguish between autonomous investment and induced investment.
What is meant by aggregate supply in macroeconomics?
What is meant by Equilibrium income?
State briefly the two approaches to the determination of income and output.
Define investment multiplier.
State the formula for the investment multiplier.
How is the investment multiplier related to marginal propensity to consume?
How is the multiplier related to the marginal propensity to save?
Define full employment.
Define involuntary unemployment.
Give the meaning of underemployment equilibrium.
Distinguish between voluntary and involuntary unemployment.
What is ‘excess demand’?
Define ‘deficient demand’.
Illustrate graphically the notion of ‘deficient demand.’
What happens to output, income employment and price level when there is excess demand?
Illustrate graphically the notion of ‘deficient demand.’
How can ‘excess demand’ be tackled?
How can ‘deficient demand’ be tackled?
What is meant by inflationary gap?
Suggest two monetary measures to correct excess demand in an economy.
Explain the concept of ‘deficient demand’ in macroeconomics.
What is a deflationary gap?
State two fiscal measures to correct deficient demand in an economy.
When does a situation of excess demand arise in an economy?
When does a situation of deficient demand arise in an economy?
Short Answer Questions (3 marks each)
Explain the various components of aggregate demand in an economy with the help of a diagram.
What is a ‘consumption function’?
Give the main properties of Keynesian consumption function.
Explain MPC and illustrate these through a numerical example.
Explain APC and illustrate this through a numerical example.
Illustrate and explain the Keynesian propensity to consume diagrammatically.
Explain consumption function with the help of a hypothetical consumption schedule.
What is meant by autonomous consumption? Explain with the help of a diagram.
Differentiate between marginal propensity to save and average propensity to save.
Explain MPC.
Explain MPS.
Explain that sum total of c and s is equal to 1.
Define marginal propensity to consume (MPC).
How is marginal propensity to consume different from marginal propensity to save?
Distinguish between average propensity to consume and average propensity to save. How are the two interrelated?
Draw a diagram of a straight-line consumption curve for an economy. Derived the saving curve from it. Explain the method of its derivation.
Define the term ‘investment’.
Distinguish between autonomous investment and induced investment.
Define investment multiplier.
How is the investment multiplier related to marginal propensity to consume?
What is meant by investment multiplier?
Explain the relationship between marginal propensity to save and multiplier.
‘The size of multiplier varies directly with the size of MPC and inversely with MPS’. Elucidate.
Illustrate the working of the multiplier.
OR
Discuss the mechanism of investment multiplier with the help of a numerical.
Define full employment.
Distinguish between voluntary and involuntary unemployment.
What is meant by inflationary gap?
What happens to output, income employment and price level when there is excess demand?
Suggest two monetary measures to correct excess demand in an economy.
State two fiscal measures to correct deficient demand in an economy.
Explain and show graphically the concept of deflationary gap.
Explain any one measure to remove the deflationary gap.
Explain and show graphically the concept of deflationary gap.
State two fiscal measures to correct deficient demand in an economy.
Explain one monetary measure to correct deficient demand.
Explain how fiscal policy measures can be used to reduce excess demand in an economy.
Long Answer Questions (6 marks each)
Explain the various components of aggregate demand in an economy with the help of a diagram.
Explain with the help of appropriate diagram, the determination of equilibrium level of income and output, using the aggregate demand and aggregate supply approach. Is this equilibrium level of income full employment level?
Explain with the help of appropriate diagram, the determination of equilibrium level of income and output, using the aggregate demand and aggregate supply approach. Is this equilibrium level of income full employment level?
Explain the determination of national income through the saving-investment approach. Illustrate your answer diagrammatically. Can this equilibrium be at less than full employment level of income?
Explain the determination of national income through the saving-investment approach. Illustrate your answer diagrammatically. Can this equilibrium be at less than full employment level of income?
Explain the determination of national income through the saving-investment approach. Illustrate your answer diagrammatically. Can this equilibrium be at less than full employment level of income?
A given increase in autonomous investment will, in general, cause an increase in income larger than the initial increase in investment. Why? Explain in detail.
Explain and illustrate Keynes’ investment multiplier. Use suitable diagram.
What happens to output, income employment and price level when there is excess demand?
Illustrate graphically the notion of ‘deficient demand.’
What policy measures would you suggest to overcome the situations of excess demand?
How can ‘deficient demand’ be tackled?
What is meant by inflationary gap?
Explain and show graphically the concept of deflationary gap.
What policy measures would you suggest to overcome the situations of excess demand?
Explain and show graphically the concept of deflationary gap.
State two fiscal measures to correct deficient demand in an economy.
Explain one monetary measure to correct deficient demand.
What is meant by inflationary gap?
Explain and show graphically the concept of deflationary gap.
Discuss two monetary measures to correct an inflationary gap.
Discuss two monetary measures to correct the deflationary gap.
Explain the concept of underemployment equilibrium with the help of a diagram.
Show on the same diagram the additional investment expenditure required to reach full employment equilibrium.
Frank solutions for इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी 12 Theory of Income and Employment NUMERICAL QUESTIONS [Pages 249 - 250]
Calculate MPC, MPS and APC from the following data:
| Income | Consumption |
| (₹) | (₹) |
| 100 | 95 |
| 110 | 104 |
Calculate MPC, APC, MPS and APS from the following data:
| Income | Consumption |
| (₹) | (₹) |
| 800 | 720 |
| 1,000 | 800 |
Complete the following table:
| Y (₹) | C (₹) | MPC | MPS | APC |
| 1,000 | 800 | – | – | – |
| 2,000 | 1,500 | – | – | – |
| 3,000 | 2,100 | – | – | |
| 4,000 | 2,600 | – | – |
Complete the following table:
| Y | C | S | APS | MPS |
| 0 | 4 | – | ||
| 10 | 12 | – | – | – |
| 20 | 20 | – | – | – |
| 30 | 28 | – | – | – |
In an economy, C = 500 + 0.9Y, and I = 1,000. Calculate the following:
- Equilibrium level of income
- Consumption expenditure at an equilibrium level of income.
If the marginal propensity to consume is 0.75, what is the value of the multiplier? If the MPC increases to 0.9, how would the multiplier be affected?
In an economy, MPS = 0.2. Investment increases by 500 crore. Calculate the total increase in income.
If the value of the multiplier is 4, calculate the value of MPC and MPS.
If MPC is 0.75 how much increase in investment is required to increase the income by ₹600 crore?
Find the value of additional investment made by the government when MPC = 0.5 and the increase in income (ΔY) = ₹ 1000.
If the value of MPC is 0.9, find the value of the multiplier.
If the value of the multiplier is 4, calculate the value of MPC and MPS.
When National Income rises from ₹ 600 Cr. to ₹ 1000 Cr., the consumption expenditure increases from ₹ 500 Cr. to ₹ 800 Cr. Calculate MPC and hence the value of Investment Multiplier.
Frank solutions for इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी 12 Theory of Income and Employment Thinking Beyond [Page 250]
Why can the value of MPC be not greater than one?
Suppose the consumption function is given as C = 50 + 0.80. Write the corresponding saving function.
Can the value of investment multiplier be zero? Explain.
The value of the multiplier lies between 1 and ∞. Explain.
Thriftiness is usually regarded as a virtue and, hence, desirable. But Keynes argued that saving becomes a vice in the economies where there is excess production capacity and unemployment. This is known as ‘paradox of thrift’. How would you explain paradox of thrift?
Solutions for 12: Theory of Income and Employment
Frank solutions for इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी chapter 12 - Theory of Income and Employment
Shaalaa.com has the CISCE Mathematics इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी CISCE solutions in a manner that help students grasp basic concepts better and faster. The detailed, step-by-step solutions will help you understand the concepts better and clarify any confusion. Frank solutions for Mathematics इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी CISCE 12 (Theory of Income and Employment) include all questions with answers and detailed explanations. This will clear students' doubts about questions and improve their application skills while preparing for board exams.
Further, we at Shaalaa.com provide such solutions so students can prepare for written exams. Frank textbook solutions can be a core help for self-study and provide excellent self-help guidance for students.
Concepts covered in इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी chapter 12 Theory of Income and Employment are Introduction to Theory of Income and Employment, Basic Model of Income Determination, Aggregate Demand and Its Components, Desired (Ex Ante) and Effective Demand (Ex Post), Propensity to Consume or Consumption Function, Propensity to Save - Saving Function, Relationship Between Consumption and Saving Functions, Derivation of Saving Function, Investment Expenditure, Private and Public Investment, Induced and Autonomous Investment, Determination of Equilibrium Income and Output, Concept of Aggregate Demand and Aggregate Supply, Saving-investment Approach, Investment Multiplier, Investment Multiplier Defined, The Multiplier Mechanism, Graphic Presentation of Multiplier, Derivation of Multiplier Formula, Solved Numerical Problems on Propensity to Consume and Save, Equilibrium Income and Multiplier, Meaning of Full Employment and Voluntary Unemployment, The Concept of Full Employment, Voluntary and Involuntary Unemployment, Excess Demand, Measures to Correct the Excess Demand, Deficient Demand, Measures to Correct Deficient Demand, Deficient and Excess Demand and Business Cycle, Aggregate Demand in a Three - Sector Economy, Features of the Consumption Function, Shifting of the Consumption Function, Importance of the Consumption Function, Gross Investment and Net Investment, Paradox of Thrift, Variables, Partial and General Equilibrium, Static Analysis, Comparative Static Analysis, Dynamic Analysis, Difference between Static and Dynamic Analysis, Psychological Law of Propensity to Consume, Measures to Raise Propensity to Consume, Importance of Investment, Static Multiplier, Dynamic Concept of Multiplier, Limitations of Multiplier, Leakages of Multipler, Importance of Multiplier, Types of Multiplier, Balanced-Budget Multiplier, Unemployment Associated with Full Employment, Inflationary Gap, Foreign Trade Policy.
Using Frank इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी solutions Theory of Income and Employment exercise by students is an easy way to prepare for the exams, as they involve solutions arranged chapter-wise and also page-wise. The questions involved in Frank Solutions are essential questions that can be asked in the final exam. Maximum CISCE इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी students prefer Frank Textbook Solutions to score more in exams.
Get the free view of Chapter 12, Theory of Income and Employment इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी additional questions for Mathematics इकॉनॉमिक्स [इंग्रजी] इयत्ता १२ आईएससी CISCE, and you can use Shaalaa.com to keep it handy for your exam preparation.
