Question

Match List-I with List-II

List-I (Term/Hypothesis/Effect) & List-II (Alternative Term/Name)
(A). Microeconomics & (I). Real-Balance Effect
(B). Macroeconomics & (II). Price Theory
(C). Absolute Income Hypothesis & (III). Income and Employment Theory
(D). Pigou Effect & (IV). Drift Hypothesis
Choose the correct answer from the options given below:

• (A) - (I), (B) - (II), (C) - (III), (D) - (IV)
• (A) - (II), (B) - (III), (C) - (IV), (D) - (I)
• (A) - (I), (B) - (II), (C) - (IV), (D) - (III)
• (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Hint:

To remember:
- Microeconomics focuses on individual units and prices (Price Theory).
- Macroeconomics focuses on national indicators (Income and Employment Theory).
- Pigou Effect links real wealth balances to spending (Real-Balance Effect).

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
Economics is divided into several sub-disciplines, hypotheses, and theoretical effects, each associated with alternative names or foundational concepts.

Step 2: Detailed Explanation:
Let us match the concepts in List-I with their alternative terms in List-II:
- (A). Microeconomics: Microeconomics studies the behavior of individual decision-making units, such as consumers, workers, and firms.
Because price determination in individual markets is the core focus of this branch, it is widely referred to as Price Theory, matching (II).
- (B). Macroeconomics: Macroeconomics deals with the economy as a whole, focusing on aggregates like national output, inflation, and unemployment.
Because it seeks to explain what determines the overall levels of national income and employment, it is alternative-termed the Income and Employment Theory, matching (III).
- (C). Absolute Income Hypothesis: Proposed by John Maynard Keynes, this hypothesis states that consumption is a function of current absolute income.
In long-run empirical studies, this consumption function appears to shift upward over time, a phenomenon described as the Drift Hypothesis by Arthur Smithies, matching (IV).
- (D). Pigou Effect: Formulated by Arthur Cecil Pigou, this effect describes how a price deflation increases the real value of money balances, raising wealth and stimulating consumption.
It is also known as the Real-Balance Effect, matching (I).
This gives the matching: (A) - (II), (B) - (III), (C) - (IV), (D) - (I).

Step 3: Final Answer:
The correct match is Option (B).