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Assume, for a hypothetical… (Class 12 Economics 2026, Q16a)

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EconomicsCBSE Class 12 · Board exam 2026, set 58/5/1 · 6 marks · Long answer

CBSE Class 12 Economics 2026: question 16(a)

Set in the CBSE Class 12 board exam of 2026, paper 58/5/1, section A, question 16(a), for 6 marks. Try it first; the hints and our step-by-step solution are below.

Q16(a) · 6 marks · Long answerCompetency-basedDetermination of Income and Employment

Assume, for a hypothetical economy, the following data is given :

Income (Y)Consumption (C)Investment (I)Aggregate Demand (AD)
0402060
10012020–
20020020–
30028020300
  1. (i)

    Calculate the missing values in the given schedule.

    1 mark
  2. (ii)

    Define the term 'Effective Demand'.

    2 marks
  3. (iii)

    On the basis of the given data, it can be said that the equilibrium level of income is 200.
    Do you agree ? If not, explain the adjustment mechanism that may take place to attain equilibrium level of income.

    3 marks

Source: official question paper from cbse.gov.in (PDF). See it in the full 2026 board paper, set 58/5/1.

Hints

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

Hint 1

Equilibrium needs AD = income.

Hint 2

What happens to stocks when demand exceeds output?

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. (i) AD = C + I. At Y = 100: AD = 120 + 20 = 140. At Y = 200: AD = 200 + 20 = 220.

    1 mark

  2. (ii) Effective demand is the level of aggregate demand at which it equals aggregate supply, i.e. the AD that determines the equilibrium level of income and output.

    2 marks

  3. (iii) No. At Y = 200, AD = 220 > AS = 200, so it is not equilibrium; equilibrium is where AD = Y, i.e. at Y = 300 (AD = 300).

    1 mark

  4. (iii) When planned AD exceeds planned output, firms' inventories fall below the desired level. Firms expand production and employment to restore stocks, so output and income rise until AD = AS at 300.

    2 marks

Answer: (i) AD = 140 and 220. (ii) Effective demand is AD equal to AS. (iii) No: at 200, AD (220) > AS; output rises until equilibrium at 300.

Where the marks are

  • Missing values (½ + ½)
  • Effective demand defined (2)
  • Disagree and adjustment mechanism (marked as a whole, 3)

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 paper2026 board paper, set 58/5/1: 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.