The short run fixed price analysis of the product market - class-XII

The level of output will not rise as economy is already at full employment level and there is no idle capacity in the economy.

Aggregate Demand refers to the desired level of expenditure in the economy during an accounting year. It is what people wish to spend on the purchase of goods and services during an accounting year.

The Ad curve in income determination analysis represents a two sector economy which only includes the expenditure made by the consumer sector and the producer sector.

Therefore, aggregate demand = consumption + investment = C + I.

Two approaches are:

When aggregate supply is more than aggregate demand or when investment is less than savings, then the planned inventory rises above the desired level. To clear the unwanted increase in inventory, firms plan to reduce the production output till Aggregate demand becomes equal to Aggregate supply. Therefore, level of national income reduces to the level of aggregate demand in the economy.

When aggregate demand is more than aggregate supply or when investment is more than saving in the economy , then the planned inventory
would fall below the desired level. To bring back the Inventory at the desired
level, the producers will expand the output. Therefore, as a result of more output in the economy, the income will increase. 

Liquidity Preference theory refers to the preference of the people to hold wealth in the form of liquid cash rather than in other non-liquid assets like bonds, securities, bills of exchange, land, building, gold etc. According to the liquidity preference theory of interest, interest rates on short-term securities are lower because investors are not sacrificing liquidity for greater time frames as in medium or longer-term securities. 

Liquidity Preference theory refers to the preference of the people to hold wealth in the form of liquid cash rather than in other non-liquid assets like bonds, securities, land, building, gold etc. According to the liquidity preference theory of interest, interest rates on short-term securities are lower because investors are not sacrificing liquidity for greater time frames as in medium or longer-term securities.

Government expenditure refers to the expenditure made by the government during the period of an accounting year which forms a part of the aggregate demand in the economy which is incurred either for consumption purpose like judiciary system or investment purpose like infrastructural development. 

Import and export are the two sides of international trade where import refers to purchasing of goods and services from international market in the country and export refers to selling goods and services in the international market. 

Import refers to purchasing of goods and services from international market in the country and export refers to selling goods and services in the international market. So export is an income for the country whereas import is an expense for the country. Therefore, when export is higher than imports then the net earnings from the trade of a country is positive which in added to the national income of the economy. 

Import refers to purchasing of goods and services from international market in the country and export refers to selling goods and services in the international market. So export is an income for the country whereas import is an expense for the country. Therefore, when export is higher than imports then the net earnings from the trade of a country is positive. 

Import refers to purchasing of goods and services from international market in the country and export refers to selling goods and services in the international market. So export is an income for the country whereas import is an expense for the country. Therefore, when export is equal to imports then the net earnings from the trade of a country is zero which does not impact the national income as the earnings from foreign trade is added to the national income of an economy. 

Import refers to purchasing of goods and services from international market in the country and export refers to selling goods and services in the international market. So export(X) is an income for the country whereas import(M) is an expense for the country. Therefore, the net earnings from the trade of a country is the excess of exports over import which is symbolically expressed as X-M. 

Government expenditure refers to the expenditure made by the government during the period of an accounting year which forms a part of the aggregate demand in the economy which is incurred either for consumption purpose like judiciary system or investment purpose like infrastructural development. 

Import refers to purchasing of goods and services from international market in the country and export refers to selling goods and services in the international market. So when foreign currency is received through exports from a certain country it can be utilized in importing the required goods and services from that country. 

Frictional unemployment relates to job searching (1); Structural unemployment relates to technological changes (3); Seasonal unemployment relates to population pressure/seasonal cycles (4); Disguised unemployment relates to zero marginal productivity (2).

Frictional unemployment is an unemployment situation where people are not unemployed owing to not getting any job but they are unemployed because they are searching for a new job or they are getting transferred from one employment to the other. Frictional unemployment remains consistent with full employment if it is at a rate of 3-4% of the full employment. 

Frictional unemployment is an unemployment situation where people are not unemployed owing to not getting any job but they are unemployed because they are searching for a new job or they are getting transferred from one employment to the other. Frictional unemployment remains consistent with full employment if it is at a rate of 3-4% of the full employment. 

When the aggregate spending is not sufficient to produce an adequate level of output which requires full employment of available resources then it means aggregate demand is less than aggregate supply, then the planned inventory rises
above the desired level. To clear the unwanted increase in inventory, firms
plan to reduce the output which reduces the employment in the economy. 

When the aggregate spending is not sufficient to produce an adequate level of output which requires full employment of available resources then it means aggregate demand is less than aggregate supply, then the planned inventory rises above the desired level. To clear the unwanted increase in inventory, firms plan to reduce the output which reduces the employment in the economy and results in AD=AS. This equilibrium point is below the full employment level of equilibrium which is called underemployment equilibrium. 

Full employment refers to the situation when all the people who are willing to work in the economy at a prevailing wage rate are getting work and are employed to produce the desired level of output in the economy. 

When the aggregate spending is excessive then it leads to output which has full employment of available resources then it means aggregate demand is more than aggregate supply, then the planned inventory would fall below the desired
level. To bring back the Inventory at the desired level, the producers expand
the output but due to full employment of the available resources the output remains the same which leads to inflation in the economy.

Underemployment occurs when a person's skills, education, or experience exceed the requirements of their current job. A postgraduate working as a peon is a classic example of credential mismatch. The term 'under employment' (two words) is used here to describe this phenomenon. Unemployment means no work at all, while structural and seasonal refer to specific causes of joblessness, not credential mismatch.

When due to introduction of new machinery (change in technology) some
workers tend to be replaced by machines; their unemployment is termed as
Technological unemployment.

Aggregate supply refers to the desired level of output in the economy during an accounting year. It is through this output only that the producer sector generates income. Therefore, aggregate supply= consumption + savings. 

The point at which aggregate
demand (AD)  is equals aggregate supply (AS) is the point of effective demand  because at this level there is no
tendency for income and output to change and the market is entirely clear.

True.

Aggregate supply refers to the sales proceeds from the desired level of output in the economy during an accounting year. It is through this output only that the producer sector generates income in the economy at any given level of employment. The determinants of aggregate supply are natural resources, Human resources which refers to labor, stock of capital which refers to machinery and tools used in production and state of technical knowledge.

Aggregate supply refers to the sales proceeds from the desired level of output in the economy during an accounting year. Human resources which refers to labor is held to be variable in short run as its application can be changed depending on the requirement of the output in the market. Human resources can be increased or decreased as per the requirement in the market. 

Aggregate supply refers to the desired level of output in the economy during an accounting year. It is through this output only that the producer sector generates income. Therefore, aggregate supply= consumption + savings.

Aggregate supply refers to the sales proceeds from the desired level of output in the economy during an accounting year. It is through this output only that the producer sector generates income in the economy at any given level of employment. Therefore, aggregate supply= consumption + savings.

Natural resources which a determinant of aggregate supply also known as land in economics refers to all the natural gifts which are present in the nature including air, water and land that can be used in the production process for the production of desired level of output in the economy. 

Capital refers to the amount which is been invested by the owners of the firm which is used to employ people to work in the production process and also to acquire assets which is used in the production process, Therefore, he aggregate supply and employment depends on the quality and use of this stock of capital because if it is not used efficiently then it will not yield the desired level of output. 

The productive efficiency of labour and capital increases with the use of technology as it refers to the technical way of doing something in a more efficient and easy manner with discovery of some new techniques which increases the efficiency in production when mixed with other factors of production. 

In the very short period, supply is perfectly inelastic because the time frame is too brief to adjust production levels or bring in new resources, meaning supply is limited to existing stock.

Deficiency in demand causes deflation. Deflation refers to the reduction of the general level of prices in an economy. Thus, deficient demand has effect on the country's output and prices.

Margin requirements needs to be reduced to enhance the credit creating power of commercial banks and to correct the deficient demand.

True. 

When Aggregate demand  is more than
Aggregate supply, then the planned inventory would fall below the desired
level as the demand is more than the supply in the market. To bring back the Inventory at the desired level, the producers expand
the output More output means more income. Rise in output means rise in AS
and rise in income means rise in AD. 

Net income from abroad refers to net factor income from abroad, which is the difference between income received from abroad and income paid abroad. This is distinct from net exports, which is the difference between exports and imports of goods and services.

True.

Aggregate supply price refers to the minimum value of money which all the entrepreneurs  in the economy must expect from the sale of output produced by them using the factors of production, at any given level of employment. This is the rate of return from the  business according to which the firms make their long term and short term plans. 

Aggregate demand function represents the relation between the level of out produced in an economy to the level of employment in the economy and aggregate demand price where the level of output and level of employment has a direct relationship due to which if one increases then the other one also increases and vice versa as employees directly contribute in the production of output and level of output and demand price have an inverse relationship as level of output increases in the economy then the aggregate demand price decreases due to demand deficiency and vice versa.

False.

Aggregate supply refers to the desired level of output in the economy during an accounting year. It is through this output only that the producer sector generates income. Aggregate supply function is a upward sloping curve which denotes the direct relation between the level of output produced in the economy and income generates. The curve become vertical after full employment level of output indicating the maximum amount of output which can be produced in the economy generating the respective national income. 

Aggregate Demand refers to the desired level of expenditure in the economy during an accounting year. It is what people wish to spend on the purchase of goods and services during an accounting year.

Aggregate demand= C+I+G+ (X-M) where

C= Consumption expenditure

I= Investment expenditure

G= Government expenditure

(X-M)= Net export

Aggregate demand curve is upward sloping showing a positive relation between level of income and overall expenditure in the economy. The curve intercepts on Y-axis because even at zero level of income, there is some consumption which is required for the very existence of life. 

Aggregate demand price refers to the the maximum value of money which the households and firms expect to spend on the purchase of different goods and services for consumption and production purpose respectively in the economy. 

Aggregate supply refers to the desired level of output in the economy during an accounting year. It is through this output only that the producer sector generates income. Aggregate supply function is a upward sloping curve which denotes the direct relation between the level of output produced in the economy and income generates. The curve starts from the origin indicating the income at zero level of output in the economy. 

Aggregate supply
refers to the desired level of output in the economy during an accounting year.
It is through this output only that the producer sector generates income. Aggregate supply function is a upward sloping curve which denotes the direct relation between the level of output produced in the economy and income generates. The curve become vertical after full employment level of output indicating the maximum amount of output which can be produced in the economy generating the respective national income. 

Aggregate supply refers to the desired level of output in the economy during an accounting year. It is through this output only that the producer sector generates income. Aggregate supply function is a upward sloping curve which denotes the direct relation between the level of output produced in the economy and income generates. The curve become vertical i.e. parallel to Y-axis after full employment level of output indicating the maximum amount of output which can be produced in the economy generating the respective national income. 

In the short run, the aggregate supply curve is typically modeled as a function of the level of employment, assuming other factors like capital and technology remain constant. As employment increases, output increases along the short-run aggregate supply curve.

Public expenditure refers to the spending by the government to provide public goods and services, which includes social goods like education, healthcare, and infrastructure.

Aggregate demand represents the total demand for finished goods and services in an economy, which effectively dictates the total planned expenditure by households, firms, and the government.

According to the consumption function, as income rises, saving typically increases because the marginal propensity to save is positive. Households save a portion of additional income. While the relationship may not be strictly linear at very high income levels (the savings rate can plateau), the general principle that higher income leads to higher savings is well-established in economics.

In Keynesian theory, aggregate demand is the primary driver of output and employment in the short run. Changes in aggregate demand lead to changes in the equilibrium level of income and employment.

In short-run macroeconomic models, factors of production such as land, capital stock, and the level of technology are held constant to isolate the effects of changes in labor and aggregate demand.

Inventory investment refers to the change in the stock of unsold goods, raw materials, and work-in-progress held by firms, whereas fixed capital investment refers to assets like machinery and buildings.

Autonomous consumption represents the level of consumption that occurs even when income is zero, as individuals must consume to survive. Therefore, it is generally positive, not zero.

Autonomous consumption is the minimum level of consumption required for survival, which exists regardless of income level. Thus, it cannot be zero.

An open economy is an economy in which there are economic activities between the domestic country with the other countries.

Hence, for an open economy, aggregate demand is equal to Consumption + Investment + Government expenditure + (X-M) where X is the income from Exports and M is the expenditure on imports

AD = C + I + G + (X-M)

In a competitive market, the equilibrium price and quantity are established where the quantity demanded by consumers equals the quantity supplied by producers, which is the intersection point of the demand and supply curves.