NCERT Solutions for Class 12 Macro Economics Chapter 4 Determination of Income and Employment


What is the difference between ex ante investment and ex post investment?


The difference between ex ante investment and ex post investment is shown below:

Ex ante investment

Ex post investment

Investment which is planned or desired to be made by all the producing units in an economy     during a period of time is known as ex ante investment.

Investment which is realised or actually invested by all the producing units in an economy during a period of time is known as ex post investment.

It is measured in the beginning of the year.

It is measured in the end of the year.



Measure the level of ex-ante aggregate demand when autonomous investment and consumption expenditure (A) is ₹ 50 crores, and MPS is 0.2 and level of income (Y) is ₹ 4000 crores. State whether the economy is in equilibrium or not (cite reasons).


Level of income (Y) = ₹400
Consumption expenditure (A) = ₹50 crores
MPS = 0.2
We know,
MPC = 1-0.2 = 0.8
Exante aggregate demand is given by Y* =
Y* = 50 + 0.8 × 4000
Y* = 3250
The economy is not in equilibrium because exante aggregate demand i.e. Y* = 3250 not equal to expost demand i.e. Y= ₹400


Explain ‘Paradox of Thrift’.


Paradox of thrift refers to a situation in which all the people of the economy tend to save greater proportion of their income, i.e. marginal propensity to save, MPS, increases which may ultimately ends up as decline in total saving of the economy. When an individual saves, it leads to increase in investment and thereby its prosperity. But when an economy as whole saves, total savings in the economy will not increase- it will either decline or remain unchanged. It is because when individual’s saving increases, it leads to fall in aggregate demand as the proportion of income spent on consumption decreases. This will lead to decline in investment and production which thereby reduces employment and income level. As income decreases, individual’s saving and then total saving decreases. This concept is propounded by Keynes to state that as people become thriftier they end up saving less or same as before.


What is marginal propensity to consume? How is it related to marginal propensity to save?


Marginal propensity to consume (MPC) refers to the rate at which aggregate consumption spending changes due to change in national income. Numerically, it can be written as: MPC = ∆C/∆Y

Here, ∆C= Change in consumption

∆Y = Change in income

We know,

Y = C + S

It implies, ∆Y = ∆C + ∆S

On dividing this equation by ∆Y, we get,

∆Y/∆Y = ∆C/∆Y + ∆S/∆Y

1 = MPC +MPS

It implies that MPC = 1- MPS and MPS = 1- MPC.

Thus, the relation between MPC and MPS is that there sum is always equal to 1.


What is effective demand? How will you derive the autonomous expenditure multiplier when price of final goods and the rate of interest are given?


Effective demand refers to the demand for commodity which determines the equilibrium output in the market. In macroeconomics it is assumed that the aggregate supply is inelastic in short run and in case of any inequality in aggregate demand and aggregate supply, the equilibrium output is solely determined by aggregate demand.

To maintain simplicity while deriving the aggregate demand we assume fixed price of final goods and constant rate of interest for an economy. Fixed price of final goods implies that the suppliers are facing horizontal supply curve i.e. the elasticity of supply is infinite. It implies that the suppliers are willing to supply whatever amount consumers will demand at that price. In an economy when equilibrium output is solely determined by the aggregate amount of demand at fixed price under these circumstances (fixed price of final goods and constant rate of interest), this is referred as effective demand principle.

Under the effective demand principle, the equilibrium output of the final goods is equal to ex ante aggregate demand, as represented in the below equation:


What do you understand by ‘parametric shift of a line’? How does line shift when its (i) slope decreases, and (ii) its intercept increases?


Consider the equation of a straight line as

b = ma + ε

Where variables ‘a’ is independent and ‘b’ is a dependent variable which can be plotted on the horizontal and vertical axis respectively. ‘m’ is the slope of straight line and > 0 and ε is the intercept on the vertical axis > 0. An increase in the value of ‘a’ by 1 unit, increases the value of ‘b’ by ‘m’ units.

The equation of a straight line incorporates the two entities:

Entity m: Let us take two values of m, say 1 and 0.5. Corresponding to these values of m, we can have two straight lines, one steeper than the other as shown in the following diagram. The higher the value of m, the steeper will be the straight line. It is referred as movement of the variable along the graph.

Entity ε: Any change in the value of ε, changes the intercept on Y axis. Starting from zero, the first straight line will undergo parallel upward shifts. Let us take two values of ε, say 3 and 2. Corresponding to these values we can have two straight lines as shown in the following diagram. The higher the value of ε, the upward will be the straight line.

These entities i.e. m and ε are called the parameters of the graph which do not appear as variables on the axes. Instead they act in the background to regulate the position of the graph. Any change in the graph due to change in any of these variables is known as parametric shift of a line.

  1. The line swings downward along the same vertical intercept as its slopes decreases.
  2. The line shifts upward with the same slope as its intercept increases.

Benefits of NCERT Solutions

It is highly recommended to refer to NCERT Solutions while preparing for class 12 board exams. Here are some of the benefits of using NCERT Solutions by Extramarks.
1. It is written in such a manner to help the student enjoy the learning journey.

2. It aims to help students grasp the concepts of every chapter.
3. It comes with in-depth explanations to help student boost their confidence.

4. Diagrams are provided, wherever required in the solution.
5. It is free of cost.

Tips & Strategies for Class 12 Exam Preparation

1. Start with making a time table. Prioritize the important topics and study them well.

2. Class 12 is important for your career, therefore follow your time table religiously.

3. Always make brief notes while studying a chapter as they will come in handy for revision before the exam.

4. Understand your concepts, diagrams etc. with NCERT Solutions given on the Extramarks website and the Extramarks – The Learning App.

5. Most importantly, be confident.

Why Opt for Extramarks NCERT Solutions for Class 12 ?

Class 12 board exams are the pillars of a successful career in your life. Thus, with the right study materials, students will be able to achieve their desired marks in exams. NCERT Solutions for class 12 by Extramarks will greatly help students in understanding chapters and will be like a companion in their learning journey.

Frequently Asked Questions

How to study for the Class 12 Maths CBSE exam? 

Math is a subject that analyses the critical and analytical thinking of a student and tests numerical questions. So, the best way to prepare for Math is by studying the NCERT solutions. Make a timetable, jot down the important formulas, and theorems, make time for revision and give as much time as you can give to practicing questions. Solve a maximum number of questions and time your efforts. Extramarks - The Learning App has several sample papers along with NCERT 12 solutions that can be used for practicing for class 12 Math exam.

How to Prepare for Class 12 Board Exams?

Class 12 exams seem like a major feat, but they are actually quite simple and really just a milestone that every student cross in his/her academic life. There is nothing to fear as you can easily prepare for the exams with the help of NCERT solutions for class 12 that are given on the Extramarks website or Extramarks – The Learning App

What part of the CBSE Class 12 exam syllabus is covered in the NCERT books?

The CBSE guide for class 12 study material NCERT contains all syllabus prescribed to students of class 12. Look for NCERT solutions on the Extramarks website in the footer section and you will find all solutions there. 

Do you provide solutions for All subjects for class 12 CBSE? 

Yes, Extramarks provides all NCERT class 12 solutions for all subjects for class 12. Extramarks - The Learning App also has solved and unsolved sample papers that you can use to practice for your exams. You can also find the previous year`s solved board question paper on the app.

What are some expert tips to score good marks in Class 12 CBSE?

To score good marks in class 12 CBSE board exams, you must follow these tips:

1. Make a timetable to study well. Organize and prioritize the topics you want to study and haven`t yet had the time to open. Start studying with the most crucial topics.

2. Follow your timetable religiously. Save time for relaxing activities like meditation, swimming or sleeping.

3. Make brief notes containing important answers, character sketches, theorems, formulae, etc. Make clear notes so you can study them before the exam.

4. Learn from class 12 NCERT solutions given on Extramarks website.

5. Be confident that you can crack these exams and take time off to relax.

6. Revise thoroughly before the exam.

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