Assertion (A): In the fixed-price model of income determination, an economy can remain in equilibrium even when there is unemployment.
Reason (R): Equilibrium only means that, if left to itself, the level of income in the economy will not change.
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): In the fixed-price model of income determination, an economy can remain in equilibrium even when there is unemployment. — True. Equilibrium by itself does not mean full employment.
Reason (R): Equilibrium only means that, if left to itself, the level of income in the economy will not change. — True. This is what equilibrium means in the model.
A is about equilibrium together with unemployment. R is about what equilibrium means.
Why R explains A? Equilibrium only says that income will not change on its own. Nothing in it requires every worker to have a job. So income can stay at a level where some people are unemployed.
NCERT (2026-27): “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. Equilibrium only means that if left to itself the level of income in the economy will not change even when there is unemployment in the economy.” |