Scanner - Determination Of Equi. level of Income, Output,(2014 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce

Commerce: Scanner - Determination Of Equi. level of Income, Output,(2014 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce

The document Scanner - Determination Of Equi. level of Income, Output,(2014 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce is a part of the Commerce Course Crash Course of Macro Economics -Class 12.
All you need of Commerce at this link: Commerce

Sample Paper 2014-15 & 15-16 & 16-17

(Q1) In an economy the autonomous investment is 100 and the consumption is C=80+0.4Y. Is the economy in equilibrium at an income level 400? Justify your answer. (3M)

Ans: At equilibrium     AD = Y          AD = C+I = Y        (1M)

80+0.4Y+100 = Y     0.6Y = 180       Y = 300                   (1M)

Since the given income of 400 is greater than equilibrium level of income, the economy is not at equilibrium. It is at a situation where aggregate demand is greater than the aggregate output produced in the economy.    (1M)

(Q2) In an economy the autonomous investment is 60 and the marginal propensity to consume is 0.8. If the equilibrium level of income is 400, then the autonomous consumption is 30. True or False ? Justify your answer.

Ans: The given value of autonomous consumption is incorrect. The correct value is 20

(Q3) Explain how the economy achieves equilibrium level of income using Savings-Investment (S-I) approach. (3M)

Ans: As per the S - I approach equilibrium if achieved where ex-ante Savings are equal to ex-ante investments. Savings and investments indicate leakages and injections respectively, thus at equilibrium the leakages and injections are equal to each other.      

(Q4) In an economy planned saving is greater than planned investment. Explain how the economy achieves equilibrium level of national income. (3M)

Ans: Suppose planned saving is higher than planned investment. It means that households are not consuming as much as the firms had anticipated. In other words, planned output (AS) is greater than planned demand (AD) As a result, producers see a rise in their inventory level, beyond the planned level. To bring back inventory to the planned level, producers cut down production. This reduces aggregate output. The process continues till aggregate demand equals the output produced in the economy i.e. planned investment becomes equal to planned saving.

(Q5) If in an economy Saving function is given by S = (-) 50 + 0.2 Y and Y = Rs.2000 crores; consumption expenditure for the economy would be Rs.1,650 crores and the autonomous investment is Rs.50 crores and the marginal propensity to consume is 0.8. True or False?Justify your answer with proper calculations.                    

Ans: Yes all the given values are correct

(Q6) From the following information, calculate equilibrium level of income :  (3marks)

(i) Investment                                                              Rs. 80

(ii) Marginal propensity to consume                         0.8

(iii) Consumption expenditure at zero income        Rs. 40   

Ans: rs 600 

CBSE 2015 

(Q1) An economy is in equilibrium. Calculate the Investment Expenditure from the following :

National Income = 800  , Marginal Propensity to Save = 0.3  , Autonomous Consumption = 100

Ans: Y = C + MPC(Y) + I                    (11/2 )

800 = 100 + (1 – 0.3)800 + I            (2 M)

I = 800 – 100 – 560 = 140                (1/2 )

(No marks if only the final answer is given) 

(Q2) An economy is in equilibrium. Calculate the National Income from the following (4M)

Autonomous Consumption    = 120 , Marginal Propensity to Save = 0.2 , 

Investment Expenditure = 150 
Ans: Rs 1350

(Q3) An economy is in equilibrium. Calculate the Marginal Propensity to Save from the     following:  
National Income = 1000  (4 M)

Autonomous Consumption = 100

Investment = 120
Ans: 0.22

(Q4) In an economy planned spending is greater than planned output. Explain all the changes that will take place in the economy.    (6)

Ans: Planned spending refers to people planning to purchase final goods and services during the year. Planned output means the production units planning to produce  final goods and services during the year. When planned spending is higher than planned output, the producers find the  stocks falling below the desired level. They start raising production. This raises income levels till inventories (stocks) reach the desired level and economy is in equilibrium

CBSE 2016

(Q1) Derive the two alternative conditions of expressing national income equilibrium . Show these on a single diagram .

(Q2) Explain the meaning of under -employment equilibrium ?  (c)

(Q3) Explain all the changes that will take place in the economy when aggregate demand and aggregate supply are not equal.(c)

(Q4) An economy is in equilibrium. Find investment expenditure :            

National income    = 1200

Autonomous consumption expenditure = 150

Marginal Propensity to consume = 0.8                

Ans: 90

(Q5) An economy is in equilibrium. Find investment expenditure : National Income = 1000 , Autonomous Consumption = 100 , MPC = 0.8                                                        

Ans: 100

(Q6) An economy is in equilibrium. Calculate Marginal Propensity to Consume :    (3M)

National income = 1000 

Autonomous consumption expenditure = 200

Investment expenditure = 100
Ans: 0.7

(Q7) S = - 10 + 0.2 Y is the saving function in an economy . Investment exp. is 5,000. Calculate equilibrium level of income
Ans: 25,500

(Q8) In an economy autonomous consumption is 500, marginal propensity to save is 0.2 and investment expenditure is 2000. Calculate its equilibrium level of income. 

Ans: 12500 rs

(Q9) Calculate the equilibrium level of income in the economy.    

C = 500 + (0.9) Y , Investment expenditure = 3000

Ans: 35000

(Q10) Calculate equilibrium level of income :

(a) Autonomous consumption = 200  
(b) Marginal propensity to consume = 0.9

(c) Investment expenditure = 1000 

Ans: 12000

CBSE 2017

(Q1) Give two alternative conditions of national income equilibrium. Explain what is likely to happen, if the economy is not in equilibrium.  (6M)

Ans: Conditions of N.I. Equilibrium 

Aggregate demand = Aggregate supply  (1x2M)

Planned S = Planned I  ( Alternative condition of equilibrium) If AD > AS, inventories fall. So producers produce more. As increases till equals AD, the economy is in equilibrium.(Correct Explanation from the approach AD < AS also marked)    (4M)

(Q2) Explain the determination of equilibrium level of national income using ‘saving and   investment’ approach. Use diagram. Also explain the effects if saving is greater than          investment 

Ans: The equilibrium is where S = I

i.e. at E, where the savings curve ‘S’ and investment curve ‘I’ intersect.       (2M)

(Explanation of Diagram)

If S > I , it means AD< AS. This leads to unplanned inventories.

Producers reduce output till S = I again  (2m)

 Scanner - Determination Of Equi. level of Income, Output,(2014 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce

Q3) Explain the determination of equilibrium level of national income using ‘AD & AS approach. Use diagram. Also explain the effects if AD is less than AS? 

Ans: The equilibrium is where AD = AS i.e. at point E where AD curve intersects the 45 line. OM is the equilibrium income. When AD is less than AS, inventories accumulate. The producers produce  less. This continues till AS falls enough to be equal to AD.

Scanner - Determination Of Equi. level of Income, Output,(2014 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce

(Q4) State whether the following statements are true or false. Give valid reasons for your answers 

(a) Unplanned inventories accumulate when planned investment is less than planned saving

(b) Deflationary gap exists when AD is greater than aggregate supply at full employment level. 

Ans:  

(a) True , as planned savings are more causing the Marginal Propensity to Consume to reduce thus Aggregate Demand will fall and producers will have accumulation of inventory

(b) False , Inflationary Gap exists when actual Aggregate Demand is more than Aggregate Supply corresponding to full employment level of output in the economy 

(Q5) When aggregate demand is greater than aggregate supply , inventories

(a) fall 
(b) rise
(c) do not change
(d) first fall, then rise
Ans:  a

(Q6) An economy is in equilibrium. From the following data, calculate the MPS     (4M)

(a) Income = 10,000
(b) Autonomous consumption = 500

(c) Consumption expenditure = 8,000    
Ans:  0.25 or  1/4

(Q7) Estimate the value of ex-ante AD, when autonomous investment and consumption  expenditure (A) is  50 crores, and MPS is 0.2 and level of income is   300 crores.
Ans: 290 Crores

(Q8)  In an economy, the consumption function is C = 100 + 0.75 Y and investment expenditure is Rs. 1,000.  If the equilibrium level of income is Rs. 4,400, then the consumption expenditure at this equilibrium level of income is Rs. 3,400?  True or false.  Justify your answer.
Ans: True

(Q9) An economy is in equilibrium. Calculate  autonomous consumption. 

(i) Income = 5000
(ii) MPS = 0.2 
(iii) Investment expenditure = 800
Ans: 200

(Q10) An economy is in equilibrium. Calculate investment expenditure :

(i) Income = 10000
(ii) MPC= 0.9
(iii) Autonomous consumption = 100
Ans: 900

(Q11) An economy is in equilibrium. Calculate autonomous consumption

(i) Income = 10000
(ii) MPS= 0.2
(iii) Investment = 1500
Ans: 500

(Q12) An economy is in equilibrium. Calculate investment expenditure :

(i) MPC  = 0·9   
(ii) Autonomous consumption = 200
(iii) Level of income = 10000
Ans:  800

Q13) Calculate MPC  from the following data about an economy which is in equilibrium :

National Income                = 2000

Autonomous consumption expenditure    = 200

Investment expenditure            = 100      
Ans:  0.85   

(Q14) Calculate MPC from the following data about an economy which is in equilibrium :

National Income = 1500

Autonomous consumption expenditure = 300

Investment expenditure  = 300        
Ans: 0.6

(Q15) Calculate investment expenditure when economy is in equilibrium 

National income                     =    1000

Marginal propensity to save  =    0.25

Autonomous consumption expenditure  =     200        

CBSE 2018

(Q1) Distinguish between ex-ante measure and ex-post measure of a variable. Which of the two forms the basis of the theory of national income determination ?

(Q2) Define full employment in an economy. Discuss the situation when aggregate demand is more than aggregate supply at full employment income level. (4M)

Ans: Full Employment is a situation where those who are able and willing to work are getting work at the prevailing wage rate. (1M)

When Aggregate Demand is greater than Aggregate Supply at full employment, such a situation is known as Excess Demand or Inflationary Gap.  (3M)

It is called inflationary because this leads to a rise in general price level of the economy       (diagram not necessary) 

(Q3) What are two alternative ways of determining equilibrium level of income ? How are these related ?

Ans: Two alternative ways of determining equilibrium level of income are : 

(a) Aggregate Demand = Aggregate Supply Approach  (AD-AS Approach)     (1M)

(b) Saving = Investment Approach  (S-I Approach)   (1M)

Interrelation between the two approaches: 

AD=AS    C + I = C+S 

I = S  (S-I approach) (diagram not required)    (2M)

(Q4) The value of marginal propensity to consume is 0.6 and initial income in the economy is rs 100 crores. Prepare a schedule showing Income, Consumption and Saving. Also show the equilibrium level of income by assuming autonomous investment of rs 80 crores. 

Ans: Y = 100 , 200 , 300 , 400 // C = 60 , 120 , 180 , 240  // S = 40 , 80 ,120 ,160 

Equi. level = Rs 200 

NCERT & CBSE QUESTION’s

(Q1) Give meaning of (i) Aggregate demand (ii) Aggregate Supply (iii) Excess Demand

(Q2) Explain the equilibrium level of income with the help of saving and investment curves.If saving exceed planned investment what changes will bring about equality between them or what happens when the economy is not in equilibrium and saving exceeds investment ? 

(Q3) Why must aggregate demand be equal to aggregate supply at the equilibrium level of income and output ? Explain with the help of a diagram.

(Q4) Explain concept of under-employment equilibrium with the help of diagram.Show on same diagram the additional investment required to reach full employment equilibrium ?

(Q5) Give the meaning of excess demand in an economy.        (1M) 

(Q6) Can an economy be in a state of under employment equilibrium? Explain with diagram.  

(Q7) Explain the meaning of equilibrium level of income and output with the help of saving and  investment curves. If planned expenditure is less than planned output, what changes will take place in the economy ?  (6M) ( S.P ‘08)      

(Q8) Explain concept of equilibrium level of income with C+ I curve .Can there be               unemployment at this level of income?? 

(Q9) Explain with the help of diagrams that the equilibrium level of income and employment is not necessarily at a full employment level ? 

(Q10) If planned savings are greater than planned investment, what will be its effect on     inventories ? 

(Q11) When is an economy in equilibrium ? Explain with the help of Saving and Investment functions. Also explain the changes that take place in an economy when the economy is not in equilibrium. Use diagram.   

(Q12) Explain national income determination through the two alternative approaches ? Use  diagram 

(Q13) What changes will take place to bring an economy in equilibrium if

(a) planned savings are greater than planned investment and

(a) planned savings are less than planned investment

(Q14) Can an economy be in equilibrium when there is unemployment in the economy. Explain.

(Q15) Explain the meaning of under-employment equilibrium. Explain two measures by which full-employment equilibrium can be reached.

The document Scanner - Determination Of Equi. level of Income, Output,(2014 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce is a part of the Commerce Course Crash Course of Macro Economics -Class 12.
All you need of Commerce at this link: Commerce

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