Statement I: Before Keynes, the dominant thinking was that all labourers ready to work will find employment and all factories will work at full capacity.
Statement II: The equilibrium level of output can be less than the full employment level when demand is not enough to employ all factors of production.
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Both Statement I and Statement II are true.
Before Keynes, the classical tradition held that all willing workers find jobs. Later theory shows that equilibrium output can fall short of full employment when demand is not enough.
Statement I: Before Keynes, the dominant thinking was that all labourers ready to work will find employment and all factories will work at full capacity. — True. This is the classical tradition.
Statement II: The equilibrium level of output can be less than the full employment level when demand is not enough to employ all factors of production. — True. When demand falls short, the economy settles below full employment; this is called deficient demand.
This question uses Introduction and Determination of Income and Employment together.
NCERT (2026-27): “1.1 Emergence of Macroeconomics … The dominant thinking in economics before Keynes was that all the labourers who are ready to work will find employment and all the factories will be working at their full capacity. This school of thought is known as the classical tradition.” “Chapter 4, Determination of Income and Employment – 4.4 Some More Concepts … Full employment level of income is that level of income where all the factors of production are fully employed in the production process. … The equilibrium level of output may be more or less than the full employment level of output. If it is less than the full employment of output, it is due to the fact that demand is not enough to employ all factors of production. This situation is called the situation of deficient demand. …” |