Read the following report carefully and answer the questions on the basis of the same:

Along with the weakening of global economic activity, inflation the world over also remained muted in 2019. Inflation softened in advanced and emerging economies reflecting a slack in consumer demand. From the supply side, lower energy prices in 2019 also contributed to softening of inflation. In India, inflation rose slightly to 4.1% in April - December 2019, after a sharp decline from 5.9% in 2014 to 3.4% in 2018.

The impact of the above situation under the Keynesian theory of income and employment in an economy is?

Decrease in income, output and employment.

The correct answer is Option (1) → Decrease in income, output and employment.

According to Keynesian theory of income and employment, the level of aggregate demand plays a crucial role in determining the overall level of income, output, and employment in an economy. From the report:

• There is weakening of global economic activity

• Inflation remains muted due to a slack in consumer demand

This indicates a situation of deficient demand, which, under Keynesian theory, leads to:

• Fall in output (as producers reduce production)

• Fall in income (due to lower production and sales)

• Fall in employment (as firms reduce their workforce in response to lower demand)