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"In an economy… (Class 12 Economics SQP 2023-24, Q14A)

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EconomicsCBSE Class 12 · Sample paper, session 2023-24 · 4 marks · Very short answer

CBSE Class 12 Economics sample paper 2023-24: question 14(A)

From the official CBSE sample question paper for 2023-24, section A, question 14(A), for 4 marks. Try it first; the hints and our step-by-step solution are below.

Q14(A) · 4 marks · Very short answerDetermination of Income and Employment

"In an economy, ex-ante Aggregate Demand is more than ex-ante Aggregate Supply." Elaborate the possible impact of the same, on the level of output, income and employment.

Source: official sample paper from cbseacademic.nic.in (PDF). See it in the full Sample paper 2023-24.

Hints

Open one hint at a time and try again before the next.

Hint 1

Where does the extra demand come from at first?

Hint 2

What do firms do when stocks run down?

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. If ex-ante AD > ex-ante AS, households and firms plan to buy more than producers plan to supply.

    1 mark

  2. The extra demand is met from existing stocks, so inventories fall below the desired (planned) level: an unintended fall in inventories.

    1 mark

  3. To restore the desired level of inventories, producers expand production.

    1 mark

  4. As a result, output, employment and income rise, until AD equals AS (up to full employment; beyond it, prices rise instead).

    1 mark

Answer: Inventories fall below the desired level, so firms raise production: output, income and employment rise until AD = AS.

Where the marks are

  • Impact explained (marked as a whole, 4)

Revise the chapter

Practise this chapterBoard-style questions from Determination of Income and Employment, one at a time, marked against the answer key and marking points.Back to the full paperSample paper 2023-24: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.