NCERT Class 12 Economics Income Determination

Read and download NCERT Class 12 Economics Income Determination chapter in NCERT book for Class 12 Economics. You can download latest NCERT eBooks for 2021 chapter wise in PDF format free from This Economics textbook for Class 12 is designed by NCERT and is very useful for students. Please also refer to the NCERT solutions for Class 12 Economics to understand the answers of the exercise questions given at the end of this chapter


We have so far talked about the national income, price level, rate f interest etc. in an ad hoc manner – without investigating the forces that govern their values. The basic objective of macroeconomics is to develop  theoretical tools, called models, capable of describing the processes which determine the values of  these variables. Specifically, the models attempt to provide theoretical explanation to questions such as what causes periods of slow growth or recessions in the economy, or increment in the price level, or a rise in unemployment. It is difficult to account for all the variables at the same time. Thus, when we concentrate on the determination of a particular variable, we must hold the values of all other variables constant. This is a stylisation typical of almost any theoretical exercise and is called the assumption of ceteris paribus, which literally means ‘other things remaining equal’. You can think of the procedure as follows – in order to solve for the values of two variables x and y from two equations, we solve for one variable, say x, in terms of y from one equation first, and then
substitute this value into the other equation to obtain the complete solution. We apply the same method in the analysis of the macroeconomic system.


In the chapter on National Income Accounting, we have come across terms like consumption, investment, or the total output of final goods and services in an economy (GDP). These terms have dual connotations. In Chapter 2 they were used in the accounting sense – denoting actual values of these items as measured by the activities within the economy in a certain year. We call these actual or accounting values ex post measures of these items. These terms, however, can be used with a different connotation. Consumption may denote not what people have actually consumed in a given year, but what they had planned to consume during the same period. Similarly, investment can mean the amount a producer plans to add to her inventory. It may be different from what she ends up doing. Suppose the producer plans to add Rs 100 worth goods to her stock by the
end of the year. Her planned investment is, therefore, Rs 100 in that year. However, due to an unforeseen upsurge of demand for her goods in the market the volume of her sales exceeds what she had planned to sell and, to meet this extra demand, she has to sell goods worth Rs 30 from her stock. Therefore, at the end of the year, her inventory goes up by Rs (100 – 30) = Rs 70 only. Her planned investment is Rs 100 whereas her actual, or ex post, investment is Rs 70 only. We call the planned values of the variables – consumption, investment or output of final goods – their ex ante measures. In a theoretical model of the economy the ex ante values of these variables should be our primary concern. If anybody wants to predict what the equilibrium value of the final goods, output or GDP will be it is important for her to know  what quantities of the final goods people plan to demand or supply. We must, therefore, learn about the determinants of the ex ante values of consumption, investment or aggregate output of the economy.


1. What is marginal propensity to consume? How is it related to marginal propensity to save?
2. What is the difference between ex ante investment and ex post investment?
3. What do you understand by ‘parametric shift of a line’? How does a line shift when its (i) slope decreases, and (ii) its intercept increases?
4. What is ‘effective demand’? How will you derive the autonomous expenditure multiplier when price of final goods and the rate of interest are given?

5. Measure the level of ex-ante aggregate demand when autonomous investment  and consumption expenditure (A) is Rs 50 crores, and MPS is 0.2 and level of income (Y) is Rs 4000 crores. State whether the economy is in equilibrium or not (cite reasons).
6. Explain ‘Paradox of Thrift’.

Please refer to attached file for NCERT Class 12 Economics Income Determination



Click to View or Download pdf file
Click for more Economics Study Material
Part A Introductory Microeconomics Glossary
NCERT Class 12 Economics Glossary
Part A Microeconomics Chapter 1 Introduction to Micro Economics
NCERT Class 12 Economics Introduction
Part A Microeconomics Chapter 2 Theory of Consumer Behaviour
NCERT Class 12 Economics Theory of Consumer Behaviour
Part A Microeconomics Chapter 3 Production and Costs
NCERT Class 12 Economics Production and Costs
Part A Microeconomics Chapter 4 The Theory of the Firm under Perfect Competition
NCERT Class 12 Economics The Theory of the Firm under Perfect Competition
Part A Microeconomics Chapter 5 Market Equilibrium
NCERT Class 12 Economics Market Equilibrium
Part A Microeconomics Chapter 6 Non-competitive Markets
NCERT Class 12 Economics Non competitive Markets
Part B Introductory Macroeconomics Glossary
NCERT Class 12 Economics Introductory Macroeconomics Glossary
Part B Macroeconomics Chapter 2 National Income Accounting
NCERT Class 12 Economics National Income Accounting
Part B Macroeconomics Chapter 3 Money and Banking
NCERT Class 12 Economics Money and Banking
Part B Macroeconomics Chapter 4 Determination of Income and Employment
NCERT Class 12 Economics Income Determination
Part B Macroeconomics Chapter 5 Government Budget and The Economy
NCERT Class 12 Economics Introductory Macroeconomics Government Budget and The Economy
NCERT Class 12 Economics The Government Functions and Scope
Part B Macroeconomics Chapter 6 Open Economy Macroeconomics
NCERT Class 12 Economics Open Economy Macroeconomics

Latest NCERT & CBSE News

Read the latest news and announcements from NCERT and CBSE below. Important updates relating to your studies which will help you to keep yourself updated with latest happenings in school level education. Keep yourself updated with all latest news and also read articles from teachers which will help you to improve your studies, increase motivation level and promote faster learning

Moderation of Marks Class 11 and 12 Board Exams

The portal for moderation and finalization of results for Class-12 is being opened from 16.07.2021 to 22.07.2021. As Board has to declare the result latest by 31.07.2021, schools have been requested to follow the schedule strictly and complete the moderation within...

CBSE Class 12 Evaluation Criteria 2021

SUMMARY OF THE POLICY FOR TABULATION OF MARKS FOR CLASS XII BOARD EXAMINATIONS 2021   1(a) Due to cancellation of the Board examinations, the assessment of theory portion of 80/70/60/50/30 marks will be done by the school based on the following:     Class...

CBSE Board Examination Scheme of Assessment 2021 2022

A. Academic session to be divided into 2 Terms with approximately 50% syllabus in each term: The syllabus for the Academic session 2021-22 will be divided into 2 terms by following a systematic approach by looking into the interconnectivity of concepts and topics by...

FAQs on Policy for Tabulation of Marks for Class 10 Board Exams

ON POLICY Question.1 How CBSE will declare the result of Class-X? Answer. Results of Class X Board will be declared on the basis of an objective criterion developed by the Board vide Notification no.CBSE/CE/2021 dated 01.05.2021. Question.2. If any candidate is not...

CBSE asks schools to load Class 12 Internal Assessment Marks

This has a reference to the letter no CBSE/COORD/2021 dated 11.02.2021 regarding conduct of the School-Based Assessment (Internal Assessment/Practical/ Project) of Class-XII and uploading the marks by 11.06.2021. It has been observed that some schools have not been...

Studies Today