Chapter 4: Banking Class 12 Economics NCERT Solutions

Understand credit creation, functions of central banks, and monetary policies with Chapter 4 Banking NCERT Solutions. Download free PDFs for efficient preparation. Scroll down to find all exercises solved with clear explanations.

What You Will Learn in Chapter 4 – Determination of Income and Employment

This chapter explains the basic Keynesian model of income determination. You will learn the concepts of Aggregate Demand (AD), Aggregate Supply (AS), the concept of propensity to consume, multiplier, and how employment and output are influenced by changes in these factors. It also explains the concepts of underemployment equilibrium and measures to correct it.

Key Topics Covered:

1. Aggregate Demand and Its Components

Aggregate Demand (AD) is the total demand for goods and services in an economy at a given overall price level and in a given period. It consists of:

• Consumption expenditure (C)

• Investment expenditure (I)
  So,
  AD = C + I

2. Aggregate Supply and Its Meaning

Aggregate Supply (AS) refers to the total output produced by the firms at a given level of employment. In the simple Keynesian model:

• AS = National Income (Y)

• Equilibrium occurs when AD = AS or C + I = Y

3. Propensity to Consume: APC and MPC

• Average Propensity to Consume (APC): Ratio of consumption to income → APC = C/Y

• Marginal Propensity to Consume (MPC): Change in consumption due to change in income → MPC = ΔC/ΔY

These concepts help in understanding how consumption behavior influences national income.

4. Investment Function

• Autonomous Investment (Iₐ): Investment not influenced by the level of income.

• Induced Investment: Investment influenced by income level.

In Keynesian theory, total investment = autonomous + induced investment.

5. Equilibrium Level of Income

The economy reaches equilibrium when: Aggregate Demand = Aggregate Supply
or
C + I = Y

This condition determines the national income and employment in an economy.

6. Saving Function and Propensity to Save

• Average Propensity to Save (APS): APS = S/Y

• Marginal Propensity to Save (MPS): MPS = ΔS/ΔY
  It is important to note: MPC + MPS = 1

7. Multiplier Effect

The Multiplier (K) measures the ratio of change in income to change in investment:
K = 1 / (1 – MPC)
It explains how initial investment leads to multiple rounds of income increase.

8. Underemployment Equilibrium

According to Keynes, an economy can be in equilibrium even when resources are underutilized. This is known as underemployment equilibrium, where:

• AD = AS

• But full employment is not achieved

9. Measures to Correct Deficient Demand

To tackle underemployment and low income levels, Keynes suggested increasing:

• Government Expenditure

• Investment

• Consumption This is part of expansionary fiscal and monetary policy.

Why Use Our NCERT Solutions for Chapter 4?

Our NCERT Solutions for Chapter 4: Determination of Income and Employment simplify the complex Keynesian concepts using real-life examples, graphs, and easy language. Whether it’s understanding multiplier effects or explaining the logic behind income determination, our solutions are tailored for clarity and comprehension.

Highlights of Our Solutions:

• Conceptual clarity on AD, AS, consumption functions, and investment functions

• Numerical illustrations for calculating equilibrium income, savings, and multiplier

• Graphs and diagrams for visual learning

• Insightful explanations on deficient demand and underemployment equilibrium

NCERT Solutions for Chapter 4 – Determination of Income and Employment

Intext Questions:

• Definitions and functions of AD and AS

• Meaning of MPC, MPS, APC, APS with examples

• Step-by-step calculation of income using AD = AS approach

Exercise Questions (Q.1 to Q.10):

• Full solutions to numerical questions involving income determination

• Graph-based questions on saving and investment curves

• Conceptual questions on underemployment and full employment

• Short notes on multiplier, investment, and equilibrium conditions

Download Chapter 4 Solutions PDF – Determination of Income and Employment

Get the complete PDF version of Class 12 Economics Chapter 4 NCERT Solutions which includes:

• Fully solved exercises

• Important formulas and definitions

• Diagrams for visual understanding

• Practice questions for self-assessment

Recommended Preparation Tips:

• Understand the AD-AS framework thoroughly – equilibrium is the core concept.

• Practice numerical problems involving MPC, MPS, income, and multiplier.

• Learn to draw and interpret graphs showing saving, consumption, and investment functions.

• Clarify the difference between actual investment and planned investment.

• Focus on the logic behind the multiplier to score high in application-based questions.

Additional Study Resources:

• Chapter 4 Notes – Determination of Income and Employment

• Practice Worksheets with Graphs and Diagrams

• MCQs and Assertion-Reason Questions for Revision

• Previous Years’ Board Questions and Marking Schemes

Mastering Determination of Income and Employment

This chapter lays the groundwork for understanding how macroeconomic equilibrium is achieved in real economies. By learning the relationships between consumption, investment, saving, and income, students can critically analyze issues like unemployment, inflation, and recession with a solid economic lens.