Class 12 Economics - KERALA
Determination of Income and Employment
The chapter 'Determination of Income and Employment' forms the core of Macroeconomics in the Class 12 Kerala SCERT syllabus. It introduces students to the Classical and Keynesian approaches to how output and employment levels are determined in an economy. You will learn about Aggregate Demand (AD), Aggregate Supply (AS), the consumption function, investment multiplier, and the concepts of underemployment equilibrium and excess or deficient demand. This chapter is extremely high-scoring and vital for board exams, as numerical problems related to the multiplier and theoretical questions on fiscal and monetary policy measures frequently appear.
Start Learning FreeKey Concepts
Aggregate Demand (AD)
The total demand for final goods and services in an economy during a given period, consisting of Consumption (C), Investment (I), Government Expenditure (G), and Net Exports (X-M).
Propensity to Consume (APC and MPC)
Average Propensity to Consume is the ratio of total consumption to total income, while Marginal Propensity to Consume is the ratio of change in consumption to change in income.
Investment Multiplier (k)
The ratio of change in total income to change in investment, showing how an initial increase in investment leads to a manifold increase in total income.
Excess Demand and Inflationary Gap
A situation where Aggregate Demand exceeds Aggregate Supply at full employment level, leading to a rise in the general price level.
Deficient Demand and Deflationary Gap
A situation where Aggregate Demand falls short of Aggregate Supply at full employment level, leading to unemployment and a fall in output.
Important Formulas
Board Exam Info
In the Kerala SCERT Class 12 Economics board examination, this chapter typically carries around 8 to 12 marks. Questions usually include a mix of 1-mark objective questions, short answers defining key concepts or gaps, graphical representations of equilibrium, and a compulsory 4 or 5-mark numerical problem on calculating the investment multiplier and equilibrium income.
Frequently Asked Questions
What is the difference between APC and MPC?
APC (Average Propensity to Consume) is the total consumption divided by total income at a given point, whereas MPC (Marginal Propensity to Consume) is the ratio of the change in consumption to the change in income.
How do we solve numerical problems on the investment multiplier?
First, identify the given values like MPC, MPS, or change in investment (Delta I). Use the formula k = 1 / MPS or k = 1 / (1 - MPC) to find the multiplier, and then use Delta Y = k * Delta I to find the change in income.
What is the difference between inflationary gap and deflationary gap?
An inflationary gap occurs when Aggregate Demand is higher than Aggregate Supply at full employment, causing inflation. A deflationary gap occurs when Aggregate Demand is lower than Aggregate Supply at full employment, causing unemployment.
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