Consider the following statements about the model of income determination in NCERT:
(A) National income is determined under a fixed price of final goods and a constant rate of interest.
(B) The model assumes that the economy is always at full employment.
(C) Equilibrium income is reached where planned aggregate demand equals planned aggregate supply.
(D) In the model, investment rises as the level of income rises.
(E) The theoretical model is based on the theory given by John Maynard Keynes.
Which of the statements given above are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A), (C) and (E) only
(A) National income is determined under a fixed price of final goods and a constant rate of interest. — Correct. These are the two assumptions of the model.
(B) The model assumes that the economy is always at full employment. — Incorrect. Equilibrium need not be at full employment.
(C) Equilibrium income is reached where planned aggregate demand equals planned aggregate supply. — Correct. This is the equilibrium condition.
(D) In the model, investment rises as the level of income rises. — Incorrect. Investment is autonomous: it is the same at every level of income.
(E) The theoretical model is based on the theory given by John Maynard Keynes. — Correct. The model follows Keynes.
NCERT (2026-27): “In this chapter we deal with the determination of National Income under the assumption of fixed price of final goods and constant rate of interest in the economy. The theoretical model used in this chapter is based on the theory given by John Maynard Keynes.” “Equilibrium Equilibrium is shown graphically by putting ex ante aggregate demand and supply together in a diagram (Fig. 4.6). The point where ex ante aggregate demand is equal to ex ante aggregate supply will be equilibrium.” “Investment Function – Graphical Representation In a two sector model, there are two sources of final demand, the first is consumption and the second is investment. The investment function was shown as I = Ī Graphically, this is shown as a horizontal line at a height equal to Ī above the horizontal axis. In this model, Ī is autonomous which means, it is the same no matter whatever is the level of income.” “4.4 Some More Concepts Recall that equilibrium attained at the point of equality of Y and AD by itself does not signify full employment of resources.” |