This page provides complete NCERT Class 12 Introductory Macroeconomics Chapter 4 questions, including MCQs, one-word and descriptive questions. All questions are extracted line-by-line from NCERT for full syllabus coverage and exam preparation.
It begins by distinguishing between ex ante (planned) and ex post (actual) values of variables like consumption, investment, and output. The consumption function is expressed as C = \overline{C} + cY, where \overline{C} is autonomous consumption (independent of income) and c is the marginal propensity to consume (MPC) — the fraction of additional income spent on consumption. MPC lies between 0 and 1, and MPC + MPS = 1 (where MPS is marginal propensity to save). Investment is taken as autonomous: I = \overline{I}.
In the two-sector model (households and firms), equilibrium occurs where ex ante aggregate demand equals ex ante aggregate supply: Y = \overline{C} + \overline{I} + cY. Solving gives equilibrium income Y = (\overline{C} + \overline{I}) / (1 – c). Graphically, equilibrium is where the aggregate demand line (C + I) intersects the 45° line (which represents aggregate supply).
When autonomous expenditure increases (e.g., a rise in I), it triggers the multiplier mechanism: the initial increase in output generates additional income, leading to further consumption and output increases in successive rounds. The total increase in output is a multiple of the initial change: Investment multiplier = 1/(1 – MPC) = 1/MPS. With MPC = 0.8, the multiplier is 5; an autonomous increase of 10 raises output by 50.
The chapter explains the Paradox of Thrift: if everyone tries to save more (increasing MPS/decreasing MPC), aggregate demand falls, leading to lower output and income, and total savings may remain unchanged or even fall. The process is shown as a downward swing of the AD line due to reduced slope.
Finally, the distinction is made between full employment level of income (all factors employed) and equilibrium level of income (where Y = AD). Equilibrium may be below full employment (deficient demand, leading to price declines) or above full employment (excess demand, leading to price rises). The Keynesian model thus provides a framework to understand unemployment equilibria and the role of autonomous expenditure changes in determining output.
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Get MCQs, One-Liners, and Descriptive Questions mapped to exact page numbers. Designed for effortless memorization for Boards & Civil Services.
The theoretical model in this chapter is based on the theory given by which economist?
If C = 100 + 0.8Y, what is the autonomous consumption?
If C = 100 + 0.8Y, what is the marginal propensity to consume?
If income increases by Rs 100 and consumption increases by Rs 80, the MPC is
If MPC = 0.8, the MPS is
If C = 40 + 0.8Y and I = 10, the equilibrium income is
If C = 40 + 0.8Y and I increases from 10 to 20, the new equilibrium income is
In the multiplier mechanism with MPC = 0.8 and initial autonomous increase of 10, the total increase in output is
In the Paradox of Thrift example, when MPC falls from 0.8 to 0.5 and autonomous expenditure is 50, the new equilibrium output is
In the Paradox of Thrift example, savings at the old equilibrium (Y=250, MPC=0.8) was
In the Paradox of Thrift example, savings at the new equilibrium (Y=100, MPC=0.5) is
If the multiplier is 4, the MPC is
If the multiplier is 4, the MPS is
The aggregate demand function in a two-sector model is parallel to the consumption function because they have the same
When autonomous investment increases, the AD line shifts
When MPC decreases, the AD line
Which of the following is NOT a component of ex ante aggregate demand?
What does the 45° line represent in the Keynesian cross diagram?
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The sum of the infinite geometric series a + ar + ar² + … for 0 Page 68
In the graphical method, the aggregate demand function is obtained by Page 59
What is the Latin term meaning “other things remaining equal”? Page 53
What is the term for planned values of variables? Page 54
What is the term for actual or accounting values of variables? Page 54
What is the full form of MPC? Page 54
What is the full form of MPS? Page 55
What is the full form of APC? Page 55
What is the full form of APS? Page 55
What is the formula for the investment multiplier? Page 62
What is the name of the result that states increased thriftiness leads to same or lower savings? Page 63
What is the level of income where all factors of production are fully employed called? Page 64
When the equilibrium level of output is less than full employment output, what situation exists? Page 64
When the equilibrium level of output exceeds full employment output, what situation exists? Page 64
In Fig. 4.2, what does the intercept of the consumption function represent? Page 58
In Fig. 4.2, what does the slope of the consumption function represent? Page 58
In the example Imagania, if C = 100 + 0.8Y and Y increases by Rs 100, by how much does consumption increase? Page 55
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This post was last modified on May 9, 2026 8:52 pm