Commerce Exam  >  Commerce Notes  >  Crash Course of Macro Economics -Class 12  >  Reason Based & Extra Questions - Determination Of Equi. level of Income

Reason Based & Extra Questions - Determination Of Equi. level of Income | Crash Course of Macro Economics -Class 12 - Commerce PDF Download

Reason Based Question’s

(Q1)  Are inventory stocks zero when Aggregate Supply = Aggregate Demand ?

Ans: False , Only undersired(unplanned)  inventory stocks are zero when AS= AD Desired inventory stocks are maintained

(Q2) Under the situation of full employment equilibrium , there is no unutilized capacity in the economy

Ans: True , Full employment equilibrium refers to that situation when AS =AD corresponding to fuller utilization of resources.

(Q3) Ex-ante saving is always equal to the ex-ante investment 

Ans: False , They will be equal only at the equilibrium level of income

(Q4) Equilibrium beyond full employment is a better situation (in terms of the level of GDP) than equilibrium at full employment 

Ans: False , Output remains constant even beyond full employment equilibrium. Because, full employment equilibrium output is the maximum output.

(Q5) Situation of underemployment better than that of over-employment because in a state of underemployment price level does not rise

Ans: False , Underemployment leads to lower level of income . It cause a fall in AD and the economy might be driven into a situation of low level equilibrium trap.

(Q6) Even in a state of full employment, there is a possibility of an increase in output 

Ans: False , output will not increase if it is assumed that technology remains constant.

(Q7) In case AS = AD, there is an obvious equally between S and I.

Ans: True , The equality between AS and AD implies the equality between S and I. Accordingly, there is only one level of equilibrium output when AS = AD and S = I.

(Q8) Ex-post investment cannot be less than ex-ante investment 

Ans: True ,  because, ex-post investment includes investment both in desired as well as undesired stock (with the producers) while ex-ante investment includes investment only in desired stock.

(Q9) The producers suffer losses when actual stocks are less than the desired stocks.

Ans: True , when the actual stocks are less than the desired stocks , the producers suffer the loss of unfulfilled demand.

(Q10) In a situation when planned S > planned I , inventory investment of the producers is  expected to be larger than desired 

Ans: True , when planned S > planned I, some output would remain unsold and producers will have undesired stock of goods 

(Q11) The producer suffer losses when actual stocks are less than the desired stock

Ans: True , loss of unfilled demand 

(Q12) State True or False , giving reason 

(a) There can be excess stocks corresponding to the state of equilibrium in the economy 

(b) Full employment implies there is no involuntary unemployment in the economy

(c) If planned investment falls short of planned saving , then stock of goods tend to pile up.

(d) According to Keynes, the equilibrium level of income is always determined corresponding to full employment level.

(e) In the situation of underemployment equilibrium , there is no unutilized capacity in the economy.

(f) The problem of unemployment means the problem of voluntary unemployment.

(g) Increase in investment cause a backward shift in the equilibrium level of income and output.

(h) When planned investment falls short of planned saving, then planned inventory falls.

(i) An increase in the stock of goods held by consumer will contribute to capital formation.

(j) ‘Saving and investment are always equal’.

(k) Excess demand can be found at any level of employment.


EXTRA QUESTION’s

(Q1) “ General Price Level shouldn’t rise before full employment ’.  Do you agree with the given statement ?  Give valid reason in support of your answer.

Ans: The given statement may be supported under short run price determination model where we presume a perfectly inelastic Aggregate Supply curve to exist under the condition of full employment. At any level of output prior to the full employment , AS tends to rise in response to any rise in AD , accordingly , the general price level remains more or less constant.  But as the full employment level is reached , AS stops rising in response to a rise in AD, accordingly, price level tends to rise.

(Q2)  Shouldn’t greater saving  imply greater investment and greater flow of goods and services

Ans: Relationship between greater saving and greater investment holds good in poor economics where what is lacking is the capacity to produce or aggregate supply in relation to aggregate demand. It does not hold good in affluent economics where what is lacking is aggregate demand or AD in relation to aggregate supply.  In these economics, greater saving would mean lesser consumption, lesser demand and lesser production even when capacity to produce exists in the economy.

(Q3) “ Ex-ante & ex-post are one and the same thing ”.  Do you agree with the given statement ?  Give valid reasons in support of your answer.

(Q4) Equilibrium beyond full employment is a better situation than equilibrium at full mployment. Defend or Refute ?

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FAQs on Reason Based & Extra Questions - Determination Of Equi. level of Income - Crash Course of Macro Economics -Class 12 - Commerce

1. What is meant by the equilibrium level of income in commerce?
Ans. The equilibrium level of income in commerce refers to the point at which the total amount of goods and services produced in an economy is equal to the total amount of goods and services demanded. It is the level of income where there is no tendency for the economy to either expand or contract.
2. How is the equilibrium level of income determined?
Ans. The equilibrium level of income is determined through the interaction of aggregate demand and aggregate supply in an economy. When aggregate demand is greater than aggregate supply, there is an excess demand, leading to an increase in production and income. Conversely, when aggregate supply is greater than aggregate demand, there is an excess supply, leading to a decrease in production and income. The equilibrium level of income occurs when aggregate demand equals aggregate supply.
3. What factors can cause a shift in the equilibrium level of income?
Ans. Several factors can cause a shift in the equilibrium level of income, including changes in consumer spending, government expenditure, investment, and net exports. For example, an increase in consumer spending or government expenditure can shift the aggregate demand curve to the right, leading to a higher equilibrium level of income. Conversely, a decrease in investment or net exports can shift the aggregate demand curve to the left, resulting in a lower equilibrium level of income.
4. What are the implications of an equilibrium level of income below the full employment level?
Ans. If the equilibrium level of income is below the full employment level, it indicates that there is a deficiency in aggregate demand. This can lead to unemployment and underutilization of resources in the economy. In such a situation, policymakers may need to implement expansionary fiscal or monetary policies to stimulate aggregate demand and increase the level of income towards full employment.
5. Is the equilibrium level of income static or does it change over time?
Ans. The equilibrium level of income is not static and can change over time. It is influenced by various factors such as changes in consumer behavior, technological advancements, government policies, and international trade dynamics. These factors can shift the aggregate demand and supply curves, leading to changes in the equilibrium level of income. Therefore, the equilibrium level of income is subject to fluctuations and adjustments in response to changing economic conditions.
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