Given below are two statements: one is labelled as Assertion (A) and the other is labelled as Reason (R).
Assertion (A): When ex ante aggregate demand for final goods falls short of the output that producers have planned, national income rises.
Reason (R): Through the multiplier, an increase in autonomous investment raises income by more than the increase in investment.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A) is false but (R) is true.
Assertion (A): When ex ante aggregate demand for final goods falls short of the output that producers have planned, national income rises. — False. If demand falls short of planned output, unsold stocks pile up, and producers cut output. So national income falls.
Reason (R): Through the multiplier, an increase in autonomous investment raises income by more than the increase in investment. — True. The multiplier is more than 1, so income rises by more than the rise in investment.
NCERT (2026-27): “4.2 Determination of Income in Two-sector Model … If ex ante demand for final goods falls short of the output of final goods that the producers have planned to produce in a given year, equation (4.3) will not hold. Stocks will be piling up in the warehouses which we may consider as unintended accumulation of inventories. …” “4.3.3 The Multiplier Mechanism … The increment in equilibrium value of total output thus exceeds the initial increment in autonomous expenditure. The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the investment multiplier of the economy. Recalling that 10 and 0.8 represent the values of ΔI = ΔA and mpc, respectively, the expression for the multiplier can be explained as” |