Chapter 12: Determination of income and employment

Important Questions

1. Why must aggregate demand be equal to aggregate supply at the equilibrium level of income and output? Explain with the help of a diagram.

2. Explain national income determination through the two alternatives approaches. Use diagram.

3. Economists are generally concerned about the rising Marginal propensity to save in an economy. Explain why?

4. Calculate multiplier when MPC is 4/5 and ½. From the calculations establish the relation between size of the multiplier and size of MPC.

5. What is the relationship between marginal propensity to save and multiplier?

Sample Questions

1. If marginal propensity to save is 0.1, calculate vale of multiplier.

2. In an economy planned spending is greater than planned output. Explain all the changes that will take place in the economy.

3. Explain the meaning of under employment equilibrium.

4. What is an investment multiplier? Explain its working using a suitable numerical example.

5. Explain determination of equilibrium level of income using ‘consumption plus investment’ approach.