Match List-I (change in the model) with List-II (effect on the aggregate demand line):
| List-I | List-II | ||
|---|---|---|---|
| (A) | Rise in autonomous investment | (I) | Swings downwards and becomes flatter |
| (B) | Fall in autonomous consumption | (II) | Shifts upwards in parallel |
| (C) | Rise in the mpc | (III) | Swings upwards and becomes steeper |
| (D) | Rise in the mps | (IV) | Shifts downwards in parallel |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) - (II), (B) - (IV), (C) - (III), (D) - (I)
A change in autonomous spending A shifts the AD line in parallel. A change in c changes its slope, so the line swings.
| List-I | List-II | Reason |
|---|---|---|
| (A) Rise in autonomous investment | (II) Shifts upwards in parallel | A rises, so AD shifts up with the same slope. |
| (B) Fall in autonomous consumption | (IV) Shifts downwards in parallel | A falls, so AD shifts down with the same slope. |
| (C) Rise in the mpc | (III) Swings upwards and becomes steeper | A higher c means a steeper AD line; it swings up. |
| (D) Rise in the mps | (I) Swings downwards and becomes flatter | A higher mps means a lower c, so AD becomes flatter and swings down. |
NCERT (2026-27): “Paradox of Thrift … When A changes the line shifts upwards or downwards in parallel. When c changes, however, the line swings up or down. An increase in mps, or a decline in mpc, reduces the slope of the AD line and it swings downwards. We depict the situation in Fig. 4.8.” |