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4.Determination of Income and Employment

The chapter provides insights into the determination of national income while assuming fixed prices and constant interest rates. It discusses the concept of aggregate demand, its components such as consumption and investment, and emphasizes the significance of planned versus actual values. The chapter further explores macroeconomic equilibrium, the multiplier effect, and the paradox of thrift in relation to income and employment levels.

Sections

  • 4

    Determination Of Income And Employment

    This section explores how national income is determined through the interaction of aggregate demand components, emphasizing the roles of consumption and investment.

    Learning Practice

  • 4.1

    Aggregate Demand And Its Components

    This section explores the concept of aggregate demand, focusing on its components—consumption and investment—and the distinction between planned (ex ante) and actual (ex post) values.

    Learning Practice

  • 4.1.1

    Consumption

    This section explores the concept of consumption in macroeconomics, highlighting its dependence on household income and the distinction between planned and actual consumption.

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  • 4.1.2

    Investment

    Investment is the addition to the stock of physical capital and inventory changes, which significantly influence future productive capacity.

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  • 4.2

    Determination Of Income In Two-Sector Model

    This section discusses the determination of national income in a two-sector model, focusing on aggregate demand components and equilibrium output.

    Learning Practice

  • 4.3

    Determination Of Equilibrium Income In The Short Run

    This section discusses the determination of equilibrium income in the short run by analyzing macroeconomic equilibrium, first with fixed price levels and later allowing price variations.

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  • 4.3.1

    Macroeconomic Equilibrium With Price Level Fixed

    This section discusses the determination of macroeconomic equilibrium under the assumption of a fixed price level and constant interest rate, highlighting the roles of aggregate demand and supply.

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  • 4.3.2

    Effect Of An Autonomous Change In Aggregate Demand On Income And Output

    An increase in autonomous aggregate demand changes the equilibrium level of income and output in the economy.

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  • 4.3.3

    The Multiplier Mechanism

    The multiplier mechanism explains how a change in autonomous expenditure leads to a larger change in equilibrium income, illustrating the concept of income generation through repeated cycles of spending and consumption.

    Learning Practice

  • 4.4

    Some More Concepts

    This section discusses the concepts of equilibrium output and its relation to employment, emphasizing the difference between equilibrium and full employment levels in an economy.

    Learning Practice

References

NCERT Study Material

Class Notes

Memorization

What we have learnt

  • Aggregate demand is compose...
  • The equilibrium level of in...
  • The multiplier mechanism am...

Final Test

Revision Tests

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