MCQs Income & Employment (Aggregate Demand , Aggregate Supply, Inflation,Deflation )
Q1. Consumption curve starts from origin. (True/False)
Ans. False. Consumption curve doesn’t start from origin due to autonomous consumption which is minimum even when income is 0
Q2.Define Aggregate supply.
Ans. AS refers to the production of goods & services as planned by the producer during an accounting year.
Q. Define Aggregate demand.
Ans. AD is the sum of total expenditure that people plan to incur on the purchase of goods & services produced in an economy during an financial year
Q3. What is Marginal Propensity to consume?
Ans. MPC is the ratio between change in consumption expenditure with the change income level.
Q. Define Marginal propensity to save
Ans. MPS is the ratio between change in savings with respect to change in income level
Q4.Name the components of Aggregate Demand
Ans. Household consumption expenditure, net exports,private consumption expenditure & govt.expenditure
Q. Name the components of Aggregate Demand in two sector economy.
Ans. Consumption Expenditure (C) & Investment (I)
Q5. – is excess of exports of goods over the import of goods
Ans. Net exports
Q. Define investment
Ans. Investment is the process of addition to the capital stock leading to increase in capital assets
Q6.Define Average Propensity to Consume
Ans. It refers to the ratio between the consumption expenditure and income
Q. Define Average propensity to Save
Ans. It refers to the ratio between the savings & income.
Q7. The value of multiplier is –
Q8. If MPC is greater than MPS, the value of the multiplier is –
A. Equal to 5
B. Greater than 2
C. Equal to 2
D. Less than 2
Explnation= Let MPC = 0.6 AND MPS= 0.4 then K= 1/MPS ,which is
equals to 2.5 hence the value of multiplier is greater than 2 when MPC
is greater than MPS
Q9. If MPC= MPS , the value of multiplier is –
Explanation= MPC+MPS =1 , which is possible only when both MPC &
MPS are 0.5 , the value of multiplier will be 1/0.5 which is equals to 2
Q10. If MPC=1 , value of multiplier is ?
Explanation : when MPC =1 multiplier will be 1/1-MPC = 1/0 which is
equal to infinity.
Q11. If MPC is greater than MPS , value of multiplier is ?
A. Equal to 5
B. Equal to 2
C. Less than 2
D. Greater than 2
Explanation: Let MPC be 0.6 & MPS be 0.4 value of multiplier will be
1/1-MPC which is equals to 1/0.4= 2.5
Q12.When the MPC is greater than MPS , value of investment
multiplier is greater than 5 . State whether it is True/False
Explanation: The value of multiplier is not greater than 5 ,let MPC be
0.6 & MPS be 0.4 value of multiplier will be 1/1-MPC which is equals to
Q13. If MPC=0 , value of multiplier is –
Explanation: When MPC=0 value of multiplier is 1/1-MPC which is
equals to 1/1.
Q14. State the maximum & minimum value of investment multiplier.
Ans. Maximum= Infinity
Q15. In what condition will there be equilibrium level of national
Ans. Equilibrium level of national income will happen when AD=AS
corresponding to full employment level
Q16. MPS = 0.5 , find the value of multiplier
Ans. K= 1/MPS
Q17. AD can be increased by
A. Increasing repo rate
B. Increasing CRR
C. Decreasing bank rate
D. None of these
Q18. What do you mean by involuntary unemployment?
Ans. It is a situation when people are willing & able to work at existing
wage rates but yet they are not able to get work
Q. Why full employment never means zero unemployment?
Ans. This is because there may always exist voluntary unemployment.
Q19. Define deflationary gap
Ans. The deficiency of AD below level that is required to maintain full
employment equilibrium in an economy is termed as deflationary gap.
Define Inflationary gap
Ans. The excess of AD above level that is required to maintain full
employment equilibrium in an economy is termed as inflationary gap
Q21. Under short run equilibrium – factor remain constant
A. Raw material
D. All of these
Q22. When ……………….. flow of goods & services in the economy tends to exceed their demand because of which some of the goods remain unsold.
Q23. Which of the following is not correct?
C. Breakeven level is a income level where AD=AS
Q24. During deflation RBI decreases/increases CRR (Choose correct
Q. MPC is – of consumption function
Q25. Which of the following is true about APC?
A. It can’t be negative & zero
C. It can be greater than 1 & less than 1
D. All of the above
Q26.Which of the following is true about APS?
A. It can be negative
B. Not equals to 1 & not greater than 1
C. Can be less than 1 or can be 0
D. All of the above
Q27. Value of Money Multiplier
………………(increases/decreases/remains unchanged) with an increase
in Cash Reserve Ratio.
Q28. Average Propensity to Consume can never be …………………………
(choose the correct alternative)
C. Less than 1
D. More than 1
Q29. In an economy, break-even point and equilibrium point may lie at
the same level of income, if ex-ante investments are …………………
Explanation:- Break even point is a point where consumption is equal to
income or saving is 0
Equilibrium point : where ex ante investment are equal to ex ante savings
(S=I) , break even point and equilibrium point will lie at same level of income if ex ante investments are 0 , because equilibrium will struck only when S=I and break even point which says S=0 also lie on the same level so S=I=0 , hence the answer is 0
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