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Cheat sheet · Class 12 · CBSE · Commerce Economics

Macroeconomics: Determination of Income and Employment cheat sheet

The whole chapter on one page: key formulas, facts and the points to remember, for quick revision before a test.

CBSE Class 12 · Economics

Cheat sheet

Chapter 4Determination of Income and Employment

Investment multiplier k = 1 / (1 − MPC) = 1 / MPS.

1. Consumption

C=Cˉ+cYC = \bar C + cY
MPC+MPS=1MPC + MPS = 1APC+APS=1APC + APS = 1

2. Equilibrium

Equilibrium where AD=ASAD = AS (or S=IS = I). AD=C+IAD = C + I in a two-sector model.

3. Multiplier

k=ΔYΔI=11−MPCk = \dfrac{\Delta Y}{\Delta I} = \dfrac{1}{1 - MPC}

MPC = 0.8 ⇒ k = 5; an extra ₹100 crore of investment raises income by ₹500 crore.

4. Gaps

Deficient demand

AD < AD at full employment → unemployment; deflationary gap.

Excess demand

AD > full-employment level → inflationary gap.

5. Key Points

  • Paradox of thrift.
  • Ex-ante vs ex-post.
  • Autonomous investment doesn't depend on income.
  • Full employment ≠ zero unemployment.

Remember: C function | AD = AS | multiplier | demand gaps

Macroeconomics: Determination of Income and Employment: questions and notes

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