Question

Match List-I with List-II :

Choose the correct answer from the options given below:

• (A) - (I), (B) - (II), (C) - (III), (D) - (IV)
• (A) - (II), (B) - (III), (C) - (IV), (D) - (I)
• (A) - (I), (B) - (II), (C) - (IV), (D) - (III)
• (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Hint:

Micro: Price Theory; Macro: Income/Employment; Absolute Income: Consumption drifts with income; Pigou: Real-Balance Effect.

Answer 1

The Correct Option is B

The economic concepts are matched with their descriptions as follows:
- (A) Microeconomics (II - Price Theory): Microeconomics studies individual markets, firms, and consumers, focusing on price determination, resource allocation, and market behavior, often referred to as Price Theory.
- (B) Macroeconomics (III - Income and Employment Theory): Macroeconomics examines the economy as a whole, analyzing aggregates like national income, employment, inflation, and output, as developed in Keynesian Income and Employment Theory.
- (C) Absolute Income Hypothesis (IV - Drift Hypothesis): Proposed by Keynes, this hypothesis states that consumption depends on current disposable income, with a stable marginal propensity to consume. The term “Drift Hypothesis” may refer to consumption drifting with income changes, though it’s less commonly used.
- (D) Pigou Effect (I - Real-Balance Effect): Also known as the Real-Balance Effect, the Pigou Effect describes how falling price levels increase the real value of money holdings, boosting consumption and aggregate demand, countering Keynesian liquidity traps. The correct pairing is (A) - (II), (B) - (III), (C) - (IV), (D) - (I), making option (2) correct.