Match List-I with List-II, for the short-run fixed-price model of income determination:
| List-I | List-II | ||
|---|---|---|---|
| (A) | Effective demand principle | (I) | Planned value of a variable |
| (B) | Aggregate supply of final goods | (II) | Taken as constant |
| (C) | Ex ante | (III) | Aggregate output is determined solely by the level of aggregate demand |
| (D) | Rate of interest | (IV) | Perfectly elastic at the given price |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A) - (III), (B) - (IV), (C) - (I), (D) - (II)
The short-run model fixes the price and the rate of interest, so output depends only on demand.
| List-I | List-II | Reason |
|---|---|---|
| (A) Effective demand principle | (III) Aggregate output is determined solely by the level of aggregate demand | When supply is perfectly elastic, aggregate output is decided solely by aggregate demand. |
| (B) Aggregate supply of final goods | (IV) Perfectly elastic at the given price | At the fixed price, any amount of output can be supplied. |
| (C) Ex ante | (I) Planned value of a variable | Ex ante means the planned value of a variable. |
| (D) Rate of interest | (II) Taken as constant | The rate of interest is assumed constant in the short run. |
NCERT (2026-27): “Summary … For simplicity we assume a constant final goods price and constant rate of interest over short run to determine the level of aggregate demand for final goods in the economy. We also assume that the aggregate supply is perfectly elastic at this price. Under such circumstances, aggregate output is determined solely by the level of aggregate demand. This is known as effective demand principle.” “4.1 Aggregate Demand and its Components … We call the planned values of the variables – consumption, investment or output of final goods – their ex ante measures. …” |