Learn CBSE Economics Index Terms for Class 12, Part 2, Chapter 4 Determination of Income and Employment
1. Aggregate Demand – Aggregate demand is the sum of all final goods and services, minus intermediate goods and services, that are available to final users within a country at a given point in time. This is the total dollar value of all purchases of both household and business spending and government spending. Aggregate demand can be generated by changes in income (factors affecting expenditure) or any combination of other factors that change how much people spend on various goods and services.
Aggregate demand is the total level of real consumption and investment spending by consumers and businesses in an economy as determined by their market incomes, as well as by net exports. Total aggregate demand (like any dollar value) includes all four components: consumption, investment, government spending (on goods and services), and net exports.
The aggregate demand curve shows the change in quantity demanded of a product at different prices. The curve is derived from the relationship between price and quantity demanded by individuals, as changes in price cause changes in both quantities bought by consumers and also the output produced by firms. This concept, curves to represent how many more goods one will buy with an increase in income, or how many less goods one will buy with a decrease in income. It is a market’s total purchases.
2. Aggregate Supply – Aggregate supply is the total resources available to an economy. It includes all sources of production, such as factories and farms. Aggregate supply is the total quantity of final goods and services that a country or other economic entity can produce some time in the future.
Aggregate supply is the sum of all inputs used to produce a specific amount of output. This can be summarised as the total money flow into or out of an economy, which stays constant over time, regardless of changes in overall production.
The aggregate supply curve is the graph of the supply of goods and services available to the economy at various levels of price. It shows the amount that firms produce at various levels of price. The aggregate supply curve, along with the aggregate demand curve, indicates what happens to economic output when there are more or fewer sellers in the market.
3. Equilibrium – Equilibrium is a term used in economics and other social sciences. It describes the state of an economy in which supply equals demand, and each person’s demand for a good or service matches the price that they can offer.
Equilibrium is the point at which supply and demand for a product in an economy are balanced, with neither price changing. Certain strategies in economics may involve equilibration where policies are put in place to cause this equilibrium.
According to Cambridge Dictionary, equilibrium means “a state or condition of affairs where opposing forces tend to cancel each other out, and there is only a small overall effect.” This is particularly important to economists, who analyse equilibrium in various theories. For example, Keynesians and Marxists claim that market forces will not fulfil consumers’ needs if they haven’t had a chance to make informed decisions due to past price uncertainty. Equilibrium then allows all involved institutions, businesses and governments, to efficiently move towards the most optimal solution without risk of failure due to market shocks.
4. Ex Ante – Ex ante is a Latin phrase meaning “from the beginning”. This definition refers to any situation that must be formed before it can be analysed. In economics, ex ante is used to refer to phenomena that had happened before specific actions were taken.
Ex ante research is based upon the assumption that economic outcomes are known and that no new data are needed. In economics, it is only after an economic choice has been made that the full impact of its consequences can be realised.
Ex ante means that the prices and cost of resources are known. Ex ante means that the prices and costs of resources are determined before one starts building something, or before one takes out a loan to buy them.
Ex ante means “before the fact” and refers to the idea that a person has all of their options available and chooses accordingly. For example, if one has time to do an assignment, one might do it right away if one thinks it will be easy. However, if that assignment is taking up a lot of their time and effort, one might decide not to do it since the outcome may be unfavourable.
5. Ex Ante Consumption – Ex ante consumption is the concept of economic theory that says a consumer spends money in order to make their future income streams bigger. Ex ante consumption is the term used to describe the economic impact of a decision that was made before the event occurred.
Ex ante consumption, ex post consumption and the time-varying nature of production are three important aspects of economics that typically occur in an economy. Ex ante consumption is what happens before the starting point when it comes time for production; in other words, one has to consume something first before one can produce anything. Ex post consumption is what happens after one’s produced something; in other words, one has managed to consume from their investment. Time-varying nature of production happens when we’re dealing with a new product (like a car) or a product that’s changing (like a new shampoo).
Ex ante consumption is the demand curve of a good or service that takes into account all relevant costs and prices incurred in the process of production.
6. Ex ante Investment – Ex ante investment is defined as the decision to purchase a product or service before it is available. The buyer doesn’t wait for it to be produced and marketed. So, in terms of economics, ex ante investment refers to deciding whether to engage in a transaction immediately upon completion of some form of research.
Ex ante investment (ex ante) is a term used in economics to refer to investment decisions that occur before it is factually known whether the return on the investment will be positive or negative. This means that the decision to invest in something is based on assumptions rather than actual results.
Ex ante investment refers to the method of investment decision-making in which an investor assumes they know what they are buying and makes a judgement on value. Ex ante decision-making is different from ex post, as it relies on information available at the time of investment.
The phrase “Ex ante” means ‘before’ in Greek, and as such, it is used to refer to a situation where the future behaviour of an actor is known. In economics, ex ante means ‘before the event’, meaning that the future value of a good is known before its use.”
7. Ex Post – In economics, the term ex post means in retrospect. Ex post means “from the time of its occurrence.” It refers to an event that has already occurred but may be considered in economic analysis.
Ex post is the Latin phrase meaning “afterwards”. It refers to the point in time at which one measures. For example, if one is assessing their student’s test scores on their final exam, it would be an ex post.
Ex post analysis is one of the most important branches of economics. It studies the cause and the consequences of events that have already taken place. For instance, ex post analysis would look at the number of hours worked in a month and how this has changed over time by comparing days off with weekends from last year to the present year.
8. Marginal Propensity to Consume – In the branch of economics called micro, the term Marginal Propensity to Consume (MPC) is a way to measure the marginal change in spending that occurs when a consumer adds an additional dollar of income. To find the MPC, multiply each income level by 1/(1-MP) for every dollar change in income, where MP is the Marginal Propensity to Consume.
Marginal Propensity to Consume is the ratio of a change in consumption to a change in income that results from a 1% change in real income. The Marginal Propensity to Consume compares changes in the amount of consumption (that is, the demand for consumption) with changes in income. The term “marginal” refers to the fact that consumption is determined by changing income, not other variables that influence consumption: wealth, tastes, preferences, and habit.”
Marginal Propensity to Consume (MPC) measures the extent to which an individual’s level of income is a determinant of that individual’s propensity to purchase a particular good or service. MPC is defined as marginal propensity to spend out of all available income, expressed as a per cent, where the “available” income is defined by the individual’s income minus their expenditures for all goods and services other than fixed costs plus any optional impulse purchases (discretionary expenditures). The MPC concept has been used since at least the early 1970s and was first applied to firm-level analysis in 1975 by Tirole (1975). Over this time period, additional researchers have made frequent use of MPC and have found its utility across various contexts.
Marginal Propensity to Consume (MPC) is used to denote the change in consumption based on a change in income. The relationship between mp and consumption will explain why there is an inverse relationship between government expenditures, interest rates, and consumption. MPC can also be thought of as the change in consumption for every unit of a variable, increased or decreased.
9. Unintended Changes in Inventories – The concept of Unintended Changes in Inventories (UCI) is important in the area of inventory management. The term “unintended changes in inventory” means a change in an inventory without any corresponding change in expenses. It could be when an item goes on sale or out of stock, or when the purchase price is higher than the selling price.
Unintended Changes in Inventory is a situation where an organisation has made an inventory but sold it, but it did not figure in the original rules of their accounting system. In economics, an unexpected change in inventory quantities that result from a change in demand or production cannot be counted as a side effect of an economic phenomenon. This is due to the fact that their magnitude cannot be predicted, and they have effects on many processes.
10. Autonomous Change – Autonomous change is the process by which spontaneous disequilibrium (accident) and disequilibrium (adaptation) are continuously occurring in a dynamic system. The building blocks of autonomous change are innovation, business cycles and prices.
Autonomous change is a concept in economics that describes a situation in which one variable changes only because of the decisions made by another variable. Autonomous change is when a system can improve itself, making society better in doing so.
Autonomous change is the difference between an economy’s current status and the status it would have in a hypothetical world based on an idealised economic model.
11. Parametric Shift – Parametric shift is a theme within economics that attempts to explain how people’s behaviour changes in response to changes in technology. A parametric shift is a term created by economists to help understand an economic model. In this model, the value of a variable is shifted according to parameters (which are often the same as the elasticity of supply), which are estimated.
A parametric shift is a concept that describes the movement in demand curves for a particular good when prices change. It is the result of economies of scale derived from the fact that an increase in quantity demanded represents a decrease in price and vice versa.
A parametric shift is a proposed (and sometimes controversial) change in the base medium of monetary policy, decided by the central bank. The idea arises from the observation that central banks have very little influence over levels of nominal GDP, and therefore have only limited ability to move real variables with their exchange rate policies. This has led some economists, including Michael Woodford, to advocate changing the base for monetary policy from nominal GDP to aggregate supply or some other measure.
12. Effective Demand Principle – The Effective Demand Principle assigns the total demand for a good to household income, preferences, prices and all other constraints on consumption. The household will demand a certain quantity of goods at a certain price.
The Effective Demand Principle (EDP) states that the price of a good can be determined by the quantity demanded and the prices of all other goods and services. If a consumer’s income decreases, then the quantity demanded for that good increases.
The Effective Demand Principle, also called the Law of Demand, holds that as income rises, people have a greater willingness to spend, and as prices rise, they are willing to buy less. The principle is an empirical statement of the maximum amount at which each good is bought by consumers.
The Effective Demand Principle of demand is the idea that consumers are purchasing a product based upon the value they place on it rather than the actual price paid.
13. Paradox of Thrift – The paradox of thrift is an economic theory that suggests that conservation is a self-defeating policy. It implies the possibility for negative effects to be caused by a transaction or action. In other words, this theory states that if one saves more money, then one will end up with less money to spend.
The Paradox of thrift is a familiar economic story, perhaps best told by an anecdote about three men who take turns in depositing money in different banks. The first deposit is made at the beginning of their meal, but all three start hungry and end up equally full. When they open their pay envelopes at the end of the day, they find that each has received the same amount of money – even though they put in only a small amount at the start and none at all during most of the rest. Economists call it “fading present value” because it appears as if people are getting what they put in today without being able to take advantage of it tomorrow.
The paradox of thrift holds that if one saves money by saving, one has no reason to save. At the same time, economists recognise that one generally doesn’t save because it would be irrational for them to save some of their wealth and leave the rest there unused. It is a general principle in economics that money saved will be spent on goods and services.
14. Autonomous Expenditure Multiplier – In economics, the autonomous expenditure multiplier is a concept that explains how an increase in government spending creates new demand. The term was coined by economist Robert Barro and popularised by economist Robert Gordon in their landmark National Bureau of Economic Research working paper, “The Demand for Government Spending”, which was published in 1987.
The autonomous expenditure multiplier is a measure of the extent to which a government spending programme increases its own borrowing needs, as opposed to simply raising revenues and increasing expenditures. When this occurs, it can have dramatic implications for the national debt levels of a country.
A measure of how much each dollar in the economy contributes to GDP. This multiplier helps determine the total effect of spending on an economy, and it relates directly to the expenditure multiplier of Keynesian economics.
It is calculated by dividing the sum of spending on personal consumption and investment by real GDP. It is a key economic indicator that measures the relationship between aggregate demand and aggregate supply in an economy.
We hope that the offered Economics Index Terms for Class 12 with respect to Part II, Chapter 4: Determination of Income and Employment, will help you.
Related Links:
- Class 12 Economics Index Terms Part I Chapter1: Introduction
- Class 12 Economics Index Terms Part I Chapter 2: Theory of Consumer Behaviour
- Class 12 Economics Index Terms Part I Chapter 3: Production and Costs
- Class 12 Economics Index Terms Part I Chapter 4: The Theory of the Firm Under Perfect Competition
- Class 12 Economics Index Terms Part I Chapter 5: Market Equilibrium
- Class 12 Economics Index Terms Part II Chapter 1: Introduction
- Class 12 Economics Index Terms Part II Chapter 2: National Income Accounting
- Class 12 Economics Index Terms Part II Chapter 3: Money and Banking
- Class 12 Economics Index Terms Part II Chapter 4: Determination of Income and Employment
- Class 12 Economics Index Terms Part II Chapter 5: Government Budget and the Economy
- Class 12 Economics Index Terms Part II Chapter 6: Open Economy Macroeconomics
