Class 12 Economics – Determination of Income and Employment

Chapter Overview

This chapter examines how an economy's total income and employment are determined by the interaction of aggregate demand (AD) and aggregate supply (AS). It presents equilibrium concepts, including saving‑investment balance, Keynesian cross, multiplier effects, and fiscal/monetary policy tools to address inflationary or deflationary gaps. :contentReference[oaicite:0]{index=0}

Important Keywords

• Aggregate Demand (AD): Total planned expenditure (C + I + G + (X – M)). :contentReference[oaicite:1]{index=1}
• Aggregate Supply (AS): Total planned output/income (C + S). :contentReference[oaicite:2]{index=2}
• Equilibrium Income: Level where AD = AS or S = I. :contentReference[oaicite:3]{index=3}
• Consumption Function: C = a + cY, where c = MPC. :contentReference[oaicite:4]{index=4}
• MPC/MPS: Marginal propensity to consume/save; MPC + MPS = 1. :contentReference[oaicite:5]{index=5}
• Multiplier: ΔY/ΔI = 1/(1 – MPC). :contentReference[oaicite:6]{index=6}
• Inflationary Gap: AD exceeds AS at full employment. :contentReference[oaicite:7]{index=7}
• Deflationary Gap: AD falls short of AS at full employment. :contentReference[oaicite:8]{index=8}