Consider the following statements about the supply side of the model:
(A) In microeconomic theory, the supply curve is drawn with price on the vertical axis and quantity supplied on the horizontal axis.
(B) The slope of the aggregate supply line is equal to the marginal propensity to consume.
(C) In the first stage of macroeconomic theory, the price level is taken as fixed.
(D) If GDP is Rs 1,000, the 45° line shows that Rs 1,000 worth of goods will be supplied.
Which of the statements given above are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (C) and (D) only
(A) In microeconomic theory, the supply curve is drawn with price on the vertical axis and quantity supplied on the horizontal axis. — Correct. This is how the micro supply curve is drawn.
(B) The slope of the aggregate supply line is equal to the marginal propensity to consume. — Incorrect. Aggregate supply is the 45° line, so its slope is 1. The MPC is the slope of the consumption and AD lines.
(C) In the first stage of macroeconomic theory, the price level is taken as fixed. — Correct. The first stage takes the price level as fixed.
(D) If GDP is Rs 1,000, the 45° line shows that Rs 1,000 worth of goods will be supplied. — Correct. Every point on the 45° line has equal horizontal and vertical values, so GDP of Rs 1,000 means Rs 1,000 of supply.
NCERT (2026-27): “Supply Side of Macroeconomic Equilibrium In microeconomic theory, we show the supply curve on a diagram with price on the vertical axis and quantity supplied on horizontal axis. In the first stage of macroeconomic theory, we are taking the price level as fixed. Here, aggregate supply or the GDP is assumed to smoothly move up or down since they are unused resources of all types available. Whatever is the level of GDP, that much will be supplied and price level has no role to play. This kind of supply situation is shown by a 45° line. Now, the 45° line has the feature that every point on it has the same horizontal and vertical coordinates. Suppose, GDP is Rs.1,000 at point A. How much will be supplied? The answer is Rs.1000 worth of goods.” “Aggregate Demand: Graphical Representation The Aggregate Demand function shows the total demand (made up of consumption + investment) at each level of income. Graphically it means the aggregate demand function can be obtained by vertically adding the consumption and investment function. … The aggregate demand function is parallel to the consumption function i.e., they have the same slope c. It may be noted that this function shows ex ante demand.” |