Assertion (A): When the model studies how a change in investment affects equilibrium income, it keeps the mpc unchanged.
Reason (R): Under the assumption of ceteris paribus, the values of all other variables are held constant while one variable is being studied.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Assertion (A): When the model studies how a change in investment affects equilibrium income, it keeps the mpc unchanged. — True. When investment rises from 10 to 20 in C = 40 + 0.8Y, the mpc stays 0.8.
Reason (R): Under the assumption of ceteris paribus, the values of all other variables are held constant while one variable is being studied. — True. This is the assumption of ceteris paribus.
A is about keeping the mpc fixed. R is about the ceteris paribus assumption.
Why R explains A? To see the effect of investment alone, every other variable, the mpc included, must be held constant. That is ceteris paribus, so R explains A.
NCERT (2026-27): “… It is difficult to account for all the variables at the same time. Thus, when we concentrate on the determination of a particular variable, we must hold the values of all other variables constant. This is a stylisation typical of almost any theoretical exercise and is called the assumption of ceteris paribus, which literally means ‘other things remaining equal’.” “4.3.2 Effect of an Autonomous Change in Aggregate Demand on Income and Output … Let C = 40 + 0.8Y , I = 10 . In this case, the equilibrium income (obtained by equation Y to AD ) comes out to be 2501. Now, let investment rise to 20. It can be seen that the new equilibrium will be 300. This can be seen by looking at the graph. …” |