Macroeconomic variables such as inflation, unemployment and national income are determined by the interaction of the entire economy rather than by individual consumers or firms. A single buyer or seller cannot change the overall inflation rate through individual actions. Therefore, macroeconomics studies these aggregate variables to understand their causes and effects. Hence, Option B is correct.

The historical sequence begins with Adam Smith's idea that individuals pursuing self-interest contribute to social welfare (2). Later, economists recognized that markets do not always achieve equilibrium or full employment (3). This realization increased the role of the State in pursuing broader social goals such as employment and stability (4). As a result, macroeconomics emerged as a distinct branch to study the economy as a whole (1). Therefore, the correct sequence is 2 → 3 → 4 → 1.

During inflation, the general price level of the economy increases. Macroeconomics assumes that the prices of most individual commodities tend to move in the same direction as the overall price level. Therefore, when ΔP(macro) is positive, ΔP(micro) is also generally positive for most commodities. Hence, Option A correctly represents the macroeconomic assumption.

1 → d : Idle factories are a major symptom of the Great Depression. 2 → c : Worsening sectoral employment reflects a worsening state of the economy. 3 → a : Macroeconomics focuses on the overall health of the country's economy. 4 → b : The classical tradition assumed that the economy generally operated at or near full employment. Therefore, Option C is correct.

Statement 1 → Incorrect because macroeconomics uses analytical methods and empirical observations to identify indicators of economic performance. Statement 2 → Correct because the tendency of prices and output to move together provides an empirical basis for aggregate analysis. Statement 3 → Incorrect because national economic health is assessed using aggregate variables rather than the profit of individual firms. Statement 4 → Correct because output, employment and the general price level are standard macroeconomic indicators. Therefore, Statements 2 and 4 are correct.

Macroeconomics studies the overall movement of production and employment across the economy. When both employment and production decline simultaneously across sectors, it indicates a contraction in economic activity and suggests that the economy is heading towards a depression. Therefore, Option B is correct.

Statutory bodies such as the Reserve Bank of India are established to pursue public objectives laid down by law. Their role includes maintaining monetary stability, regulating the financial system and supporting overall economic welfare rather than maximizing private profits. Therefore, Option A is correct.

1 → c : Changing the money supply is a monetary policy measure used to influence economic activity. 2 → d : Taxation policy is a budgetary (fiscal) measure used to modify market forces. 3 → b : Administrative policies strengthen governance, defense and public administration. 4 → a : Improving primary health care is an example of an unselfish societal goal pursued by the State. Therefore, Option C is correct.

The Great Depression demonstrated that a significant decline in aggregate output is accompanied by rising unemployment and idle productive capacity. As firms reduce production, they require fewer workers, leading to a sharp increase in unemployment. Therefore, Option D correctly represents the macroeconomic relationship.

Statement 1 → Incorrect because the aggregate price level is not obtained by simultaneously solving the equilibrium of every individual market; macroeconomics uses aggregate measures and representative goods. Statement 2 → Correct because the representative-good approach is used to represent the general price level of the economy. Statement 3 → Correct because rapid changes in the aggregate price level are associated with inflation or, in the context of economic decline, falling prices during depression. Statement 4 → Correct because the aggregate price level is one of the principal indicators of macroeconomic performance. Therefore, Statements 2, 3 and 4 are correct.

According to the classical tradition before Keynes, markets were believed to adjust automatically to ensure full employment. Consequently, all labourers willing to work would find employment, and factories would operate at their full productive capacity. This assumption left little scope for persistent unemployment or idle resources. Therefore, Option A is correct.

The analysis begins by recognizing that treating all labour as a single representative category hides important distinctions, such as those between a manager and an accountant (1). This limitation leads economists to move beyond the single representative good (2). They then classify the economy into a handful of sectors such as agriculture, industry and services (3). Finally, they analyse the output and employment levels of each sector separately (4). Therefore, the correct sequence is 1 → 2 → 3 → 4.

1 → b : The classical tradition assumes the economy operates at full-capacity output and full employment. 2 → c : Keynesian macroeconomics studies the interdependence of the economy as a whole. 3 → d : The representative-good approach simplifies analysis by using one imaginary commodity to represent total output. 4 → a : The sectoral approach divides the economy into sectors such as agriculture, industry and services for more detailed analysis. Therefore, Option B is correct.

Statement 1 → Incorrect because inflation refers to a sustained rise in the general price level, not a downward movement in prices. Statement 2 → Correct because macroeconomic simplification assumes that the prices of most commodities generally move in the same direction. Statement 3 → Correct because different sectors of the economy are interdependent, and price movements in one sector can influence others. Statement 4 → Correct because the aggregate price level summarizes the overall movement of prices in the economy. Therefore, Statements 2, 3 and 4 are correct.

Macroeconomic simplification is justified because empirical evidence shows that important economic variables such as output, prices, wages and employment generally move together across the economy. This close relationship allows economists to analyse representative variables instead of examining every individual commodity separately. Therefore, Option A is correct.

Statement 1 → Correct because the representative-good approach becomes particularly useful when macroeconomic variables such as prices, wages and output change rapidly, allowing economists to analyse aggregate movements efficiently. Statement 2 → Incorrect because the NCERT explicitly states that the representative-good approach may overlook vital distinctive characteristics of individual goods. Statement 3 → Correct because the approach enables economists to abstain from studying every individual commodity separately. Statement 4 → Correct because a representative good is used to simplify the analysis of aggregate output, prices and employment. Therefore, Statements 1, 3 and 4 are correct.

The process begins by selecting a single good to represent all goods in the economy (1). The representative good is then assigned the average production level of all goods and services (2). Its price is used to represent the general price level of the economy (3). Finally, economists analyse the overall economy using this representative good as a simplified model (4). Therefore, the correct sequence is 1 → 2 → 3 → 4.

The representative good is an imaginary commodity used to simplify macroeconomic analysis. Its production level is taken to represent the average production of all goods and services in the economy rather than the production of any single commodity. Therefore, the conceptual equation expressing the production of the representative good is the average production of all goods. Hence, Option A is correct.

The passage states that the revenue earned from selling output is distributed among the factors of production. Land receives rent, capital receives interest and labour receives wages. The remaining revenue belongs to the entrepreneur as profit. Therefore, interest and wages are the payments made from revenue to capital and labour respectively. Hence, Option B is correct.

The passage explains that revenue earned from the sale of output is first distributed as rent to land, interest to capital and wages to labour. The amount left after making these payments is the entrepreneur's earning, known as profit. Therefore, Option C correctly defines profit.