AvinashKumar

20201BAL0023
BALLB

PART-A

1. (A)
2. (A)
3. (A)
4. (B)
5. (D)
6. (A)
7. (D)
8. (A)
9. (D)
10. (C)
11. (A)
12. (D)
13. (C)
14. (C)
15. (C)

PART-B

1. In the classical theory, output and employment are determined by the production
function and the demand for labour and the supply of labour in the economy. Given the
capital stock, technical knowledge and other factors, a precise relation exists between
total output and amount of employment, i.e., number of workers.
Neoclassical models
assume that the equilibrium values of real variables (employment and output) are
determined in the labour and goods markets, whereas nominal variables (in current
prices) aredetermined in the money market.

2. John Maynard Keynes offered new thinking on income and employment theory with
the publication of General Theory of Employment, Interest and Money (1936).
Building on his theory, Keynesians have stressed the relationship
between income,
output, and expenditure. Since transactions -sided
are two
—in that one person’s income
the
is another person’s expenditure
— relationship could be expressed in the form of a
simple equation: Y = O = D, where Y is the national incomechasing
(i.e., purpower),
O is the value of the national output, and D is national expenditure. What this equation
means is that effective demand is equal to income as well as to output. Since consumers
can either spend or save their income, Y = C + S, where C nsumption
is co and S is
savings.

Similarly, on the output side, production is either sold to final customers or invested in
inventory or new capital equipment, (such as production plants or machinery). So O =
C + I, where C represents sales to final customers
and I investment. Thus, C + S = C +
I and, therefore, S = I. However, while savings and investment may thus be equated
from an accounting standpoint, in fact, actual planned savings and planned investment

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 may differ in real life. Keynesians say that econom
ic instability stems from this
discrepancy between savings and investment.

3. The circular flow model in four sector economy provides a realistic picture of the
circularflow in an economy. Four sector model studies the circular flowopen
in an
economy which comprises of the household sector, business sector, government sector,
and foreign sector.
The foreign sector has an important role in the economy. When the
domestic business firms
export goods and services to the foreign markets,ions
inject
are made into the circular flowmodel. On the other hand, when the domestic
households, firms or the government importssomething from the foreign sector,
leakage occurs in the circular
flow model. The circular flow of income in four sector
economy ca n be explained by the flowing diagram:

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