Top 60 Important Questions for Class 12 Macroeconomics Chapter 8 | Short Run Equilibrium Output Notes with Free PDF| Economics Class 12 |
Class 12 Macroeconomics
Chapter 8: Short-Run Equilibrium Output & Multiplier
Complete Guide: 60 Important Q&A for Boards
I. Equilibrium Income Determination
Q1
What is the basic condition for equilibrium in an economy?
Answer: The basic condition for equilibrium is where Aggregate Demand equals Aggregate Supply (AD = AS).
Q2
Name the two approaches to determine equilibrium.
Answer: 1. AD-AS Approach and 2. Saving-Investment (S-I) Approach.
Q3
What happens when planned AD is greater than AS?
Answer: Inventories fall below the desired level. Producers increase production, leading to a rise in income till AD = AS.
Q4
What is meant by 'Effective Demand'?
Answer: It refers to that level of AD which becomes effective because it is equal to AS at the point of equilibrium.
Q5
In the S-I approach, what is the equilibrium condition?
Answer: Equilibrium is struck when planned saving is exactly equal to planned investment (S = I).
Q6
Define 'Equilibrium Output'.
Answer: It is the level of output where planned spending on goods equals the planned production in the economy.
Q7
Why is the AS curve represented by a 45-degree line?
Answer: Because national income is equal to the sum of consumption and saving (Y = C + S), making it a perfect bisector of the axes.
Q8
What is the implication of S > I?
Answer: It means people are consuming less than what firms expected. Unsold stocks (inventories) increase, causing firms to cut production.
Q9
Is the equilibrium always at full employment?
Answer: No, Keynes argued that equilibrium can also occur at less than full employment (Underemployment Equilibrium).
Q10
What is meant by 'Autonomous Investment'?
Answer: It is the investment which is independent of the level of income and is generally made by the government.
Q11
What are the components of AD in a closed two-sector economy?
Answer: Consumption (C) and Investment (I).
Q12
Define 'Ex-ante Saving'.
Answer: It refers to the amount of saving which households plan to save at different levels of income.
Q13
Define 'Ex-post Investment'.
Answer: It is the actual or realized investment in an economy during an accounting year.
Q14
What is the result of 'Desired Inventory' being higher than 'Actual Inventory'?
Answer: It indicates a situation of AD > AS, leading to an expansion in production.
Q15
What is 'Paradox of Thrift'?
Answer: It states that if everyone in the economy starts saving more, total savings in the economy may actually decrease or remain same because of a fall in total income.
II. Investment Multiplier
Q16
Define 'Investment Multiplier' (K).
Answer: It is the ratio of change in national income (ΔY) to the initial change in investment (ΔI).
Q17
Write the formula for Multiplier in terms of MPC.
Answer: K = 1 / (1 - MPC).
Q18
Write the formula for Multiplier in terms of MPS.
Answer: K = 1 / MPS.
Q19
What is the relationship between Multiplier and MPC?
Answer: There is a direct relationship; higher the MPC, higher the value of the multiplier.
Q20
What is the relationship between Multiplier and MPS?
Answer: There is an inverse relationship; higher the MPS, lower the value of the multiplier.
Q21
What is the minimum value of Multiplier?
Answer: The minimum value is 1 (when MPC = 0).
Q22
What is the maximum value of Multiplier?
Answer: The maximum value is Infinity (when MPC = 1).
Q23
If MPC = 0.5, what is the value of Multiplier?
Answer: K = 1 / (1 - 0.5) = 2.
Q24
If MPS = 0.2, what is the value of Multiplier?
Answer: K = 1 / 0.2 = 5.
Q25
Explain the 'Working of Multiplier'.
Answer: One person's expenditure is another's income. When investment increases, income increases, which increases consumption. This cycle continues, increasing total income multiple times.
Q26
What are the leakages in the multiplier process?
Answer: Savings, taxes, and imports are considered leakages because they reduce the flow of income.
Q27
If investment increases by ₹100 Cr and Multiplier is 4, what is the total increase in income?
Answer: ΔY = K × Î”I = 4 × 100 = ₹400 Cr.
Q28
What does a Multiplier of 1 indicate?
Answer: It indicates that the entire additional income is saved (MPC = 0).
Q29
How does MPC affect the 'rounds' of the multiplier?
Answer: A higher MPC ensures that a larger portion of income is spent in each round, leading to more rounds of income generation.
Q30
Is the multiplier applicable in the long run?
Answer: The Keynesian multiplier is primarily a short-run concept.
III. Full Employment & Unemployment
Q31
What is Full Employment?
Answer: A situation where all those who are able and willing to work at the prevailing wage rate find work.
Q32
Define 'Involuntary Unemployment'.
Answer: It is a situation where people are willing to work at the prevailing wage rate but do not get work.
Q33
What is 'Voluntary Unemployment'?
Answer: When a person is able to work but is not willing to work at the prevailing wage rate.
Q34
Does full employment mean zero unemployment?
Answer: No, even at full employment, there can be 'Natural Unemployment' (Frictional and Structural).
Q35
What is 'Under-employment Equilibrium'?
Answer: A situation where AD = AS, but resources (especially labor) are not fully utilized.
Q36
What is 'Frictional Unemployment'?
Answer: Temporary unemployment that occurs when people are moving between jobs.
Q37
Define 'Structural Unemployment'.
Answer: Unemployment resulting from changes in the structure of the economy (like technological changes).
Q38
What is the main cause of involuntary unemployment according to Keynes?
Answer: Lack of Aggregate Demand (Deficient Demand).
Q39
What is the 'Over Full Employment Equilibrium'?
Answer: A situation where AD = AS beyond the full employment level, usually leading to inflation.
Q40
How can government reduce involuntary unemployment?
Answer: By increasing public expenditure or reducing taxes to boost Aggregate Demand.
IV. Formulas & Numerical Logic
Q41
If C = 50 + 0.8Y and I = 100, find equilibrium income.
Answer: Y = C + I → Y = 50 + 0.8Y + 100 → 0.2Y = 150 → Y = 750.
Q42
Calculate Multiplier if MPC = 0.75.
Answer: K = 1 / (1 - 0.75) = 1 / 0.25 = 4.
Q43
If MPC increases from 0.6 to 0.8, what happens to Multiplier?
Answer: Multiplier increases from 2.5 to 5.
Q44
Define 'Breakeven point'.
Answer: The level of income where C = Y and Saving is zero.
Q45
Relationship between MPC and MPS?
Answer: MPC + MPS = 1.
Q46
Find MPS if Multiplier is 10.
Answer: K = 1/MPS → 10 = 1/MPS → MPS = 0.1.
Q47
In S = -20 + 0.3Y, what is the value of Multiplier?
Answer: Here MPS = 0.3, so K = 1 / 0.3 = 3.33.
Q48
If income increases by 500 and investment by 100, what is MPC?
Answer: K = 500/100 = 5. 5 = 1/(1-MPC) → 1-MPC = 0.2 → MPC = 0.8.
Q49
If Multiplier is 2, what is the change in income for ₹50 Cr change in investment?
Answer: ΔY = 2 × 50 = ₹100 Cr.
Q50
What is the algebraic equation for the Saving Function?
Answer: S = -a + (1-b)Y (where -a is dissaving and 1-b is MPS).
VI. Miscellaneous Concepts
Q51
What is 'Ex-ante Aggregate Demand'?
Answer: The total value of goods and services that people plan to buy in an economy.
Q52
What is 'Planned Inventory'?
Answer: The stock of goods that producers plan to keep for smooth functioning.
Q53
Give one reason why AD can be more than AS.
Answer: Increase in household consumption or increase in private investment.
Q54
Who is the father of Modern Macroeconomics?
Answer: John Maynard Keynes.
Q55
What is 'Effective Demand' Principle?
Answer: It states that the level of employment depends on the level of effective demand.
Q56
If S < I, what is the effect on income?
Answer: Income will increase as production expands to meet higher demand.
Q57
Define 'Investment'.
Answer: Expenditure on capital assets like machinery, building, etc. which helps in production.
Q58
What is the value of MPS if MPC = 0?
Answer: MPS = 1.
Q59
In a 45-degree line, what is the slope?
Answer: The slope is 1.
Q60
What happens to the multiplier when taxes increase?
Answer: Multiplier value decreases as taxes are a leakage from the circular flow.
Comments
Post a Comment