“Under a study, examining the spending habits of a hypothetical economy, it was observed that even households with zero income managed to consume basic necessities.
As the income of people increased, their consumption also increased, but not as rapidly as income.”
Based on the given text and common understanding, answer the following questions :
Explain, the reason behind the positive slope of Aggregate Demand Curve.
“Under a study, examining the spending habits of a hypothetical economy, it was observed that even households with zero income managed to consume basic necessities.
As the income of people increased, their consumption also increased, but not as rapidly as income.”
Based on the given text and common understanding, answer the following questions :
Explain, the reason behind the positive slope of Aggregate Demand Curve.
Show Hint
Solution and Explanation
Aggregate Demand (AD) is the total planned spending in the economy. In this two-sector model, AD = C + I.
Here C is consumption and I is investment.
Step 2: Take the usual assumption on investment:
Investment is taken as autonomous. That means it stays fixed and does not change with income.
So the changes in AD with income come only from changes in consumption.
Step 3: Use the text:
The given text says that as income rises, consumption also rises, though less than income.
Since I is fixed and C rises with Y, the sum C + I also rises when income rises.
Step 4: Explain the slope:
A higher income gives a higher AD, and a lower income gives a lower AD. The two move in the same direction.
Because of this direct relation between income and AD, the AD curve slopes upward from left to right. Its slope is positive and equal to MPC, which is less than 1.
Final Answer:
The AD curve has a positive slope because AD = C + I, investment is fixed, and consumption rises as income rises.
Top CBSE CLASS XII Economics Questions
___________ farming is a system that is helpful in restoring, maintaining and enhancing the ecological balance.
(Choose the correct alternative to fill in the blank):The present day rapid industrial growth in China can be traced back to the economic reforms introduced in 1978, where ________ .
(Choose the correct alternative to fill in the blank):
(i) Initially reforms were initiated in agriculture, foreign trade and investment sectors.
(ii) The policy of dual pricing was adopted.
(iii) The Government revoked the policy of Special Economic Zones.Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative from those given below:
Assertion (A): In the recent past, Indian economy has been facing the problem of jobless growth.
Reason (R): Jobless growth refers to a situation where an economy is able to produce more goods and services without generating additional employment.Read the following statements carefully:
Statement 1: India, Pakistan, and China have similar physical endowments but totally different political systems.
Statement 2: Both India and Pakistan laid great emphasis on creating a large private sector.Read the following statements carefully:
Statement 1: India, Pakistan and China have similar physical endowments, but totally different political systems.
Statement 2: Both India and Pakistan laid great emphasis on creating a large private sector.
Top CBSE CLASS XII Determination of Income and Employment Questions
In an economy, when __________ is insufficient to achieve the level of output corresponding to the full employment, the difference is termed a deflationary gap. (Choose the correct option to fill in the blank)
“Income of an economy increased from ₹ 20,000 to ₹ 50,000 crore. Savings of the economy increased from ₹ 2,000 crore to ₹ 10,000 crore.”
Calculate Average Propensity to Consume (APC) and Average Propensity to Save (APS), before and after the rise in income.
“Income of an economy increased from ₹ 20,000 to ₹ 50,000 crore. Savings of the economy increased from ₹ 2,000 crore to ₹ 10,000 crore.”
Draw appropriate conclusion regarding the behaviour of Average Propensity to Consume (APC) as his income increases.
“Under a study, examining the spending habits of a hypothetical economy, it was observed that even households with zero income managed to consume basic necessities.
As the income of people increased, their consumption also increased, but not as rapidly as income.”
Based on the given text and common understanding, answer the following questions :
Identify and elaborate the type of consumption indicated in the first para of the above text.
The Aggregate Demand (AD) curve lies parallel to consumption curve, indicating that both have __________.
(Choose the correct option to fill in the blank)
Top CBSE CLASS XII Questions
- 2, b, c are in A.P. and the range of determinant $\begin{vmatrix}1&1&1\\ 2&b&c\\ 4&b^{2}&c^{2}\end{vmatrix}$ is [2, 16]. Then find range of c is
- A boy of mass 50 kg is standing at one end of a, boat of length 9 m and mass 400 kg. He runs to the other, end. The distance through which the centre of mass of the boat boy system moves is
- A capillary tube of radius r is dipped inside a large vessel of water. The mass of water raised above water level is M. If the radius of capillary is doubled, the mass of water inside capillary will be
- A circular disc is rotating about its own axis. An external opposing torque 0.02 Nm is applied on the disc by which it comes rest in 5 seconds. The initial angular momentum of disc is
- A circular disc is rotating about its own axis at uniform angular velocity \(\omega.\) The disc is subjected to uniform angular retardation by which its angular velocity is decreased to \(\frac {\omega}{2}\) during 120 rotations. The number of rotations further made by it before coming to rest is