Which of the following statements about the model of determination of income and employment in NCERT is NOT correct?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → The model is based on the theory given by the classical economists.
This model holds other things constant, takes the price of final goods and the rate of interest as fixed, and is based on the theory of John Maynard Keynes.
Option (1) When the determination of one variable is studied, the values of all other variables are held constant. — True. This is the assumption of ceteris paribus, ‘other things remaining equal’.
Option (2) National income is determined under the assumption of a fixed price of final goods. — True. The price of final goods is taken as fixed.
Option (3) The model is based on the theory given by the classical economists. — False. The model is based on the theory of Keynes, not of the classical economists.
Option (4) The rate of interest in the economy is taken as constant. — True. The rate of interest is held constant.
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’. You can think of the procedure as follows – in order to solve for the values of two variables x and y from two equations, we solve for one variable, say x, in terms of y from one equation first, and then substitute this value into the other equation to obtain the complete solution. We apply the same method in the analysis of the macroeconomic system. 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.” |