Macro CH 7 & 8 PDF

CHAPTER -14- DETERMINATION OF INCOME AND EMPLOYMENT
MULTIPLE CHOICE QUESTIONS
Question Question Content

No
Q1 Aggregate supply and ______________are always equal.
a) National income
b) Aggregate demand
c) Marginal propensity to save
d) Average propensity to consume
Q2 Consumption function is the functional relationship between _____________and__________.
a) Consumption, aggregate demand
b) Consumption, national income
c) Aggregate demand ,aggregate supply
d) National income, private income
Q3 Out of the following, which can have value more than one?
a) MPC
b) APC
c) APS
d) MPS
Q4 Which of the following fact is correct about MPC?
a) Value of MPC varies between 0 and 1
b) MPC of poor is more than that of rich
c) MPC falls with successive increase in income
d) All of these
Q5 Which of the following can have a negative value?
a) APC
b) MPC
c) MPS
d) APS
Q6 If investment falls to zero, national income does not fall to zero because of:
a) Autonomous consumption
b) Induced investment
c) Autonomous investment
d) Multiplier
Q7 If MPC is 0.6 the investment multiplier will be
a) 1.67
b) 2.5
c) 6
d) 4
Q8 The maximum value of multiplier is____________ when the value of MPC is_______
a) Infinity zero
b) Infinity one
c) One infinity
d) None of these
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Q9 AD curve is represented by_________ curve in the income determination analysis
a) Consumption=saving+ investment
b) Consumption+ saving
c) Saving+ investment
d) Consumption+ investment
Q10 When economy decides to save the whole of its additional income then value of investment
multiplier will be
a) 1
b) Indeterminate
c) 0
d) Infinity
Q11 If saving function of an economy is given as: S=-40+0.4(Y) then MPC is.
a) 1
b) 0.4
c) 0.6
d) None of these
Q12 Keynesian theory of employment is based on the assumption of
(a) short-run
(b) long-run
(c) full employment
(d) none of these
Q13 If APC of an economy is 0.6, savings at the income level of Rs. 1,000 crore will be
(a) Rs. 100 crore
(b )Rs. 300 crore
(c) Rs. 400 crore
(d) Rs. 600 crore
Q14 If the value of investment multiplier increases, It would mean that
(a) Taxes have increased
(b) MPC has increased
(c) MPS has increased
(d) MPC has decreased
Q15 45° line in the context of equilibrium income is a:
(a) Line of reference.
(b) Line of identity.
(c) Line of equality between AD and AS.
(d) Both (a) and (c).
Q16 Aggregate demand is estimated as:
A. private consumption expenditure
B. private consumption expenditure + government expenditure
C. private investment expenditure + private consumption expenditure + government expenditure
D. private consumption expenditure + private investment expenditure + government expenditure +
next export
Q17 Marginal Propensity to Consume is equal to:
A. ∆Y / ∆C
B. Y / C
C. ∆C / ∆Y
D. C / Y
Q18 If MPS is 0.6, what will be ∆S when income increased by Rs.50?
A.30
B. 20
C. 25
D. 35
Q19 Which of the following is correct?
A. MPC + MPS = 1
B. 1 - MPC = MPS
C. 1 - MPS = MPC
D. all of these
Q20 Breakeven point occurs when :
A. Y=S
B. S=0
C. Y=C
D. both second and third option
Q21 Since AS = C+S and AD = C+I, the equilibrium will be established when C+S = C+I , or where:
A. S=I
B. S>I
C. S<I
D. all of these
Q22 Investment which is independent of the level of income is called:
A. autonomous investment
B. induced investment
C. fixed investment
D. inventory investment
Q23 The slope of S-line is indicated by:
A. MPC
B. MPS
C. 1 – MPC
D. both second and third option
Q24 Multiplier =
A. ∆Y / ∆S
B. ∆Y / ∆I
C. ∆I / ∆Y
D. ∆Y / ∆C
Q25 If MPC = 1/4, the value of multiplier will be:
A. 4
B. ¾
C. 4/3
D. 6
Q26 if investment increase from 400 to 550 and income increase from 900 to 1650 e the MPS should be
equal to :
A. 0.1
B. 0.2
C. 0.3
D. 0.4
Q27 What will be the value of multiplier if MPC=MPS?
A. 1
B. 2
C. 3
D. Infinite

Q28 Which of the following is correct? Keynes approach is based on
A. Long run Micro approach
B. Short run Micro approach
C. Short run Macro approach
D. Long run Macro approach
Q29 Aggregate demand can be increased by:
(a) Increasing bank rate
(b) Selling government securities by RBI
(c) Increasing cash reserve ratio
(d) Purchasing government securities by RBI
Q30 What can be the maximum value of Marginal Propensity to Save?

(a) 0
(b) 1
(c) 2
(d) 3
Q31 According to classical economists, real wage rate is _______ to the Marginal Productivity of labour.
(a) Equal
(b) More
(c) Less
(d) None of these
Q32 If the marginal propensity to consume is greater than marginal propensity to save, the value of
multiplier will be:
(a) Less than 2
(b) Greater than 2
(c) Equal to 2
(d) Equal to 1
Q33 The size of the multiplier varies:

(a) Directly with the size of the MPC
(b) Inversely with the size of MPC
(c) Proportionately with the size of the MPC
(d) Slowly with the size of the MPC
Q34 Choose the correct pair of the statement:
Column I Column II
A. Ex-ante savings i. Actual savings
B. AS<AD ii. Some of the goods would remain unsold
C. Saving iii. Negatively related to income
D. Perfectly elastic AS iv. Excess capacity in the economy
(a) A-I (b) B-ii (c) C-iii (d) D-iv

Q35 In the following diagram OC represents:
(a) Total Consumption (b) Autonomous consumption
(c) Aggregate Consumption (d) Induced consumption

Q36 In an economy, C=40+0.75Y and I= ₹ 60 crore, what will be the equilibrium level of income?
(a) ₹ 300 crore
(b) ₹ 350 crore
(c) ₹ 400 crore
(d) ₹ 450 crore
Q37 In which situation AD and AS become equal?

(a) Full employment
(b) Beyond full employment
(c) Less than full employment
(d) All of these
Q38 Which of the following is not true about AD in a two-sector economy?

(a) AD= consumption + Saving
(b) AD curve starts from some point above the origin
(c) AD= consumption + investment
(d) AD curve has a positive slope
Q39 The maximum value of multiplier is _______ when the value of MPC is ___________.
(a) Infinity, zero
(b) Infinity, one
(c) One, infinity
(d) None of these

Q40 When aggregate demand > aggregate supply, inventories
(a) Fall
(b) Rise
(c) Do not change
(d) First fall, then rise
Q41 Break-even
even point in the following diagram is represented by:
(a) Point B
(b) Point A
(c)) Both (a) and (b)
(d) neither (a) nor (b)
Q42 If C = 200 + 0.75Y, then saving function will be expressed as:
(a) S= 200 + 0.25Y
(b) S= - 200 + 0.75Y
(c) S= - 200 + 0.25Y
(d) S= 75 + 0.25Y
Q43 MPC being equal to 0.4, what will be ΔC, If income increases by ₹ 200?
(A) ₹ 60
(B) ₹ 80
(C) ₹ 100
(D) ₹ 150
Q44 In the consump on func on on, C= C +bY, the term C refers to:
(A) value of c when Y= 0
(B) value of c when Y=C
(C) value of C when Y changes
(D) value of C when Y is constant
Q45 Which is a correct equation of AD in a closed economy:
(A) AD = C + I
(B) AD = C+ I + G
(C) AD = C + I + G + (X-M)
(D) both (A) and (B)

Q46 When S changes from -40 to -60 then ΔS is equal to:
(A) -10
(B) -40
(C) 20
(D) -20
Q47 If MPC is 60 per cent, MPS will be:
(A) 60 per cent
(B) 40 per cent
(C) 50 per cent
(D) 80 per cent
Q48 If consumption function is C= bY, what will be the saving function?
(A) S = -C + By
(B) S = (1 – b)Y
(C) S = -C + (1 – b)Y
(D) All of these
Q49 Since AS= C + S AND AD= C+ I, the equilibrium will be established where C + S = C + I or where:
(A) S = I
(B) S > I
(C) S < I
(D) All of these
Q50 According to classical economists, there always exists ______ equilibrium in the economy.
(A) Full employment
(B) Underemployment
(C) Over full employment
(D) None of these
Q51 What will be APC when APS = 0?
(A) One
(B) Zero
(C) Two
(D) Infinite
Q52 If the income is ₹ 400 crores and consumption is ₹ 250 crores, what will be the APC?
(A) 0.67
(B) 0.63
(C) 0.60
(D) 0.58
Q53 Suppose in a hypothetical economy, the income rises from ₹ 5,000 crores to ₹ 6,000 crores. As a
result, the consumption expenditure rises from ₹ 4,000 crores to ₹ 4,600 crores. Marginal
propensity to consume in such a case would be ______
(A) 0.8
(B) 0.4
(C) 0.2
(D) 0.6
Q54 If MPC = 1, the value of the multiplier is:
(A) 0
(B) 1
(C) Between 0 and 1
(D) Infinity

Q55 Supply creates its own Demand. Who gave this law?
(A) J.B.Say
(B) J.S.Mill
(C) Keynes
(D) Ricardo
Q56 Consumption which is independent of income is called.
a) Induced Consumption
b) Autonomous Consumption
c) Wasteful Consumption
d) Past Consumption
Q57 Value of MPC lies between.
a) 1 to 2
b) 0 to 1
c) 0 to 4
d) 0 to 0.5
Q58 The point where ex-ante aggregate demand is equal to ex-ante aggregate supply will be.
a) Equilibrium
b) Disequilibrium
c) Excess Demand
d) Excess Supply
Q59 What is the value of MPC, when MPS= 0?
a) 0
b) 4
c) 3
d) 1
Q60 In the situation of excess demand.
a) Demand is less than the level of output.
b) Demand is more than the level of output.
c) Supply is less than the level of output.
d) Supply is more than the level of output.
Q61 What is the relationship between MPS and Multiplier?
a) Positive
b) Negative
c) Constant
d) Nome of these above
Q62 If the investment multiplier is 1, what will be the value of Marginal Propensity to Consume?
a) 2
b) 4
c) 1
d) 0

Q63 Is equal to the difference between ‘AD beyond full employment and AD at full
employment’.
a) Recession
b) Inflationary gap
c) \deflationary gap
d) Nome of these
Q64 Which of the following can have a negative value?
a) APC
b) MPC
c) MPS
d) APS
Q65 The level of induced consumption is an economy depends on:
a) Level of national income
b) MPC
c) Both (a) and (b)
d) Autonomous consumption
Q66 If C= 20+0.8 Y and investment expenditure is Rs. 50 crores, then equilibrium income is:
a) Rs. 400 crores
b) Rs. 350 crores
c) Rs. 200 crores
d) Rs. 100 crores
Q67 When planned saving is less than planned investment, it indicates a situation when:
a) AD < AS
b) AD = AS
c) AD > AS
d) None of these
Q68 The value of Multiplier is:
a)
b)
c)
d) Both (a) and (b)
Q69 If MPS= 0.3, autonomous consumption = ₹ 50 crores and investment = ₹ 100 crores, then
equilibrium income will be:
a) ₹ 500 crores
b) ₹ 150 crores
c) ₹ 300 crores
d) ₹ 45 crores

Q70 When investment increases from ₹ 500 crores to ₹ 600 crores, then income increases from ₹
1200 crores to ₹ 1600 crores. MPS should be:
a) 0.20
b) 0.40
c) 0.25
d) 0.50
ANSWER
Question No Answer
Q1 a
Q2 b
Q3 b
Q4 d
Q5 d
Q6 a
Q7 b
Q8 d
Q9 a
Q10 c
Q11 a
Q12 c
Q13 b
Q14 d
Q15 d
Q16 c
Q17 c
Q18 a
Q19 a
Q20 c
Q21 a
Q22 a
Q23 b
Q24 b
Q25 c
Q26 b
Q27 b
Q28 c
Q29 (d) Purchasing government securities by RBI
Q30 (b) 1 (Hint: As the change in the saving can be less than or equal
to change in income only)
Q31 (a) Equal
Q32 (b) Greater than 2
Q33 (a) Directly with the size of the MPC
10 | P a g e 8 October 2021,ZIET BHUBANESWAR
Q34 (d) D-iv
Q35 (b) Autonomous consumption
Q36 (c) ₹ 400 crore

Q37 (d) All of these
Q38 (a) AD= consumption + Saving
Q39 (b) Infinity, one
Q40 (a) Fall
Q41 (c) Both (a) and (b)
Q42 (c) S= - 200 + 0.25Y
Q43 (B) ₹ 80
Q44 (A) value of c when Y= 0
Q45 (D) both (A) and (B)
Q46 (D) -20
Q47 (B) 40 per cent
Q48 (B) S = (1 – b)Y
Q49 (A) S = I
Q50 (A) Full employment
Q51 (A) One
Q52 (B) 0.63
Q53 (D) 0.6
Q54 (D) Infinity
Q55 (A) J. B. Say
Q56 b
Q57 b
Q58 a
Q59 d
Q60 b
Q61 b
Q62 d
Q63 b
Q64 d
Q65 c
Q66 b
Q67 c
Q68 d
Q69 a
Q70 c
PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI, KOLKATA,

RANCHI, SILCHAR AND TINSIKIA REGION.
VETTED BY : SILCHAR REGION
11 | P a g e 8 October 2021,ZIET BHUBANESWAR

CASE STUDY BASED QUESTIONS
CBQ NO Question Content
Q1 CASE STUDY-1
State Bank of India’s latest edition of ECOWRAP has noted that many households may
have marginal propensity to consume less because several types of spending are not
easily available amid social distancing constraints. Analysing the trends in deposits since
the lockdown was first imposed, on May 25, the bank noted that the data revealed that
deposits (savings, current and term) increased significantly during Lockdown-1 as
people were apprehensive in the beginning about spending, and turned frugal. During
Lockdown-2, there was a 25% decline in bank deposits, but term deposit accrual was
very healthy.
Source: Business Standard; June 2nd, 2020
Questions:
1.____________ is the ratio of change in consumption to change in income. (APC/MPC)
2. According to given article, many households may have marginal propensity to
consume because several types of spending are not easily available amid social
distancing constraints.
(a) no change (b) more
(c) less (d) None of these
3. There was a 25%__________ in bank deposits, but term deposit accrual was very
healthy during lockdown 2.
4. The sum of APC and MPC is ___________ .
(a) one (b) zero
(c) both (a) and (b) (d) None of these
Q2 CASE STUDY-2:
Government consumption will have to fuel demand till the economy comes out of the
COVID-19 shock and regains pre-COVID-19 momentum, the Reserve Bank's annual
report said on Tuesday. Private consumption, which has lost its discretionary elements
across the board, particularly transport services, hospitality, recreation and cultural
activities, will come in later as "behavioural restraints may prevent the normalisation of
demand for these activities", RBI said in the annual report.
Source: Economics Times Aug 25, 2020
Questions:
1. The term demand referred above means :
(a) Individual demand (b) Aggregate demand
(c) Market demand (d) none of the above
2. What situation is faced by the economy due to this COVID situation?

(a) Excess Demand (b) Deflationary gap
(c) Deficient Demand (d) both b and c
3. Net Exports is a part of Aggregate demand for an economy. (True / False)
4. If this is situation is not addressed immediately then an economy will face :
(a) Boom and rise in prices (b) Depression and fall in prices
(c) Recovery and fall in prices (d) recession and rise in prices
Q3 CASE STUDY
Read the passage given below and answer the questions(21-22)
The equilibrium output in the economy also determines the level of employment, given
the quantities of other factors of production.. This means that the level of output
determined by the equality of income with Aggregate Demand does not necessarily
mean the level of output at which everyone is employed. Full employment level of
income is that level of income where all the factors of production are fully employed in
the production process. Recall that equilibrium attained at the point of equality of
income and Aggregate Demand by itself does not signify full employment of resources.
Equilibrium only means that if left to itself the level of income in the economy will not
change even when there is unemployment in the economy. The equilibrium level of
output may be more or less than the full employment level of output.
1.Full employment level of income is that level of income where
A. All the factors of production are fully employed in the production process.
B. Some factors of production are fully employed in the production process.
C. Only labour are fully employed.
D. None of the above
2.The equality of income with Aggregate Demand:
A. Does not necessarily mean the level of output at which everyone is employed.
B. Does necessarily mean the level of output at which everyone is employed.
C. Both of the above
D. None of the above
Q4 Case Study
Read the following news report and answer the Questions:
Significant pick-up in economic activity was observed from October 2020 that peaked in
January this year and started declining from February.
The same started increasing from May this year, peaked in July and declined again in
August.
At this juncture, there is a need to further fuel the drivers of household consumption
and private investments to enhance the aggregate demand in the economy as it will
have an accelerated effect on expansion of capital investments in the country.
The government should frontload the National Infra Pipeline expenditure as increased
spending on infrastructure will give a multiplier effect to rejuvenate the aggregate
demand in the economy.
Source:(Interview: Sanjay Aggarwal, President of the PHD Chamber of Commerce and
Industry)
Entrepreneur India September 13, 2021

Q.1: What is the relationship between multiplier and MPC?
(a) Positive and indirect (b) Positive and direct
(c) Negative and direct (d) Negative and indirect
Q.2: Which of these is a component of aggregate demand?
(a) Private consumption expenditure (b) Investment expenditure
(c) Government expenditure (d) All of these
Q.3: which is not affected by changes in the level of income:
(a) Autonomous investment (b) Induced investment
(c) Aggregate investment (d) Portfolio investment
Q.4: Which policy is related to the RBI:
(a) Fiscal Policy (b) Budgetary Policy
(c) Monetary Policy (d) Revenue Policy
Q5 Case Study
The Reserve Bank of India said on Monday that the second wave of the COVID-19
pandemic in India has had a bigger impact on aggregatedemand than on aggregate
supply, and it believes the economic slowdown was not as severe as a year ago.
The biggest toll of the second wave is in terms of a demand shock - loss of mobility,
discretionary spending and employment, besides inventory accumulation, while the
aggregate supply is less impacted, the Reserve Bank of India said in its monthly bulletin.
RBI said the impact of the second wave is appearing to be U-shaped with agriculture
and technology forming the shoulders of the letter U andmost vulnerable being blue
collar groups (manual work or workers, particularly in industry) and these will warrant a
priority in policyinterventions.
Source: The Economic Times (17 May 2021.)
Q1: If AD<AS, what will the impact of the situation in an economy?

(a) Decrease in inventories, income, employment and general price level
(b) Increase in inventories, income, employment and general price level
(c) Decrease in income, output, employment and general price level
(d) No change in output but increase in employment and general price level
Q2: Which of the following is a reason of demotivation for induced investment?
(a) High aggregate demand
(b) Availability of labour at low wages
(c) Easy availability of finance facilities
(d) Loan on high interest rate
Q3: AD<AS will cause a situation of:
(a) Deflation (b) Inflation (c) Over employment (d) None of these
Q.4: Aggregate Demand = Consumption + ______________.
(a) Supply (b) Investment (c) Saving (d) Expenditure
Q6 Case Study
Read the passage given below and answer the following question
Amidst indications of an economic slowdown in the beginning of year in feb-mar 2020,
forcing the government to impose a strict lockdown leading to near cessation of major

economic activities across all sectors. The finance minister on 13th, 14th, 15th may
2020 announced an economic package of Rs. 20 lakh crore for revival of the Indian
economy.
Government of India’s Rs. 20 lakh crore ‘AatmaNirbhar Bharat’ package which aimed at
reviving the economy, includes major fiscal measures like free food for the poor, direct
cash transfer, money for rural job guarantee scheme, MGNREGA and credit guarantee
to MSMEs. RBI has also taken steps to slash lending rates and add more liquidity into
markets.
1 indicate the impact of economic package on AD-
(A) fall in the AD
(B) rise in the AD
(C) rise in the general price level
(D) no change in AD
2. to induce liquidity RBI must have-
(A) increased CRR
(B) reduced Repo rate
(C) increased reverse repo rate
(D) kept statutory liquidity ratio constant
3. the likely impact of “deficit demand” under income and employment theory, in an
economy are:
(A) decrease in income, output, employment and general price level
(B) decrease in income, but no change in real output
(C) increase in income, output, employment and general price level
(D) no change in output/employment but increase in general price level
4. The nature of fiscal policy undertaken by the government is ______and monetary
policy is ____in its nature.
(A) expansionary, expansionary
(B) expansionary, contractionary
(C) contractionary, expansionary
(D) contractionary, contractionary
Q7 Read the passage given below and answer the following question
In the simple Keynesian model of income determination, we assume that there is no
government activity in the economy. If we remove this assumption to see how the
equilibrium level of income can be determined in the presence of economic activity of
the government, it can be seen that, the government collects money from the economy
and spends money into the economy. Government expenditures and receipts have an
important effect on the economy. Government budget has two sides viz. the
expenditure side and the receipt side. Money inflows in the receipt side of the budget
are of three types, i.e. taxation, public borrowing and sales of goods and services;
money outflow in the expenditure side of the budget are also of three types i.e.
purchase of goods and services, transfer payment and repayment of debts. Taxation is a
compulsory contribution made by the people to the government against which no
direct payments are made by the government. A taxpayer becomes poorer by the
amount of taxes. Hence, the income available in the hands of the people is reduced by

the amount of taxes paid. Public borrowing is made through the sale of new
government bonds, which people voluntarily purchase. Neither their income nor their
wealth is deduced thereby. They simply alter the form and composition of wealth in the
private sector. An increase in the net indebtedness of the government to the central
bank takes place through the creation of new money by the central bank.
1. If government increases its expenditure on the infrastructural project, how will this
impact the aggregate demand?
( A) Increase
(B) Decrease
(C) Remains constant
(D) Increase in a three sector closed economy
2. what will be the impact on the aggregate demand, if the government increase tax
rates as it is a main source of government’s revenue
(A) Increase
(B) Decrease
(C) Remains constant
(D) Either Increase or decrease
3. Public borrowings by the government will lead to --------------(increase/decrease)
money supply in the economy.
4. Suppose government gives subsidies to an industry to share its cost and help the
industry to establish it in the long run. This represents which of the following objectives
of the government budget?
(A)Reducing income inequality
(B) Reallocation of resources
(C) Social Welfare
(D) Fiscal Discipline
Q8 REPORT- 1
Amidst indications of an economic slowdown in the beginning of year 2020 came the
challenge of Corona pandemic in Feb-Mar 2020, forcing the Government to impose a
strict lockdown leading to near cessation of major economic activities across all sectors.
The Finance Minister on 13th, 14th, 15th May 20 announced an economic package of
₹20 Lakh Crore for revival of Indian economy.
Indicate the impact of economic package on AD:
a) Fall in Aggregate Demand
b) Rise in Aggregate Demand
c) Rise in general price level
d) No change in Aggregate Demand

Q9 REPORT- 1
Government of India’s ₹20 lakh crore ‘AatmaNirbhar Bharat’ package which aimed at
reviving the economy, includes major fiscal measures like free food for the poor, direct
cash transfer, money for rural job guarantee scheme, MGNREGA and credit guarantees
to MSMEs. RBI has also taken steps to slash lending rates and add more liquidity into
the markets. To induce liquidity RBI must have.
a) Increased cash Reserve Ratio
b) Reduced Repo Rate
c) Increased Reverse Repo Rate
d) Kept statutory liquidity Ratio constant

ANSWER
CBQ NO Answer
Q1 1. MPC
2. Less
3. Decline/
4. (d) None of these
Q2 1. (b) Aggregate demand
2. (d) both b and c
3. True
4. (b) Depression and fall in prices
Q3 1. A
2. A
Q4 1. (b) Positive and direct
2. (d) All of these
3. (a) Autonomous investment
4. (c) Monetary Policy
Q5 1. (c) Decrease in income, output, employment and general price level
2. (d) Loan on high interest rate
3. (a) Deflation
4. (b) Investment
Q6 1 (B) rise in the AD
2 (B) reduced Repo rate
3 (A) decrease in income, output, employment and general price level
4 (B) expansionary, contractionary
Q7 1 ( A) Increase
2 (B) Decrease
3 Decrease
4 (B) Reallocation of resources
Q8 Option b
Q9 Option b


TRUE AND FALSE QUESTIONS
Question Question Content
No
Q1 In macroeconomics, aggregate demand refers to planned purchase of goods and services
during a year.
A.TRUE
B.FALSE
Q2 Saving function would be linear in case Marginal Propensity to Save is found to be
constant.
A.TRUE
B.FALSE
Q3 The value of marginal propensity to consume can be greater than one.
A.TRUE
B.FALSE
Q4 Minimum level of expenditure is dependent on the level of income in the economy.
A.TRUE
B.FALSE
Q5 When the value of average propensity to save is negative, the value of marginal
propensity to save will also be negative.
A.TRUE
B.FALSE
Q6 The value of MPC is always equal to 1.
A.TRUE
B.FALSE
Q7 High propensity to consume is a virtue, while high propensity to save is not.
A.TRUE
B.FALSE
Q8 In two sector economy, if income is zero, APC will also be zero.
A.TRUE
B.FALSE
Q9 According to Keynesian theory of employment, a state of underemployment can never
exist in an economy.
A.TRUE
B.FALSE
Q10 Unplanned inventories accumulate when planned investment is less than planned saving.
A.TRUE
B.FALSE
Q11 In saving function - 50 + 0.6Y, the value of autonomous consumption will be – 50.
A.TRUE
B.FALSE
Q12 S < I implies a situation when a fall in expenditure through ‘S’ is less than the rise in
expenditure through ‘I’
A.TRUE
B.FALSE

Q13 The value of average propensity to save (APS) can never be greater than 1.
A.TRUE
B.FALSE
Q14 When MPC is greater than MPS, the value of multiplier will be 5.
A.TRUE
B.FALSE
Q15 The point at which consumption curve intersects the 45 degree line, APS is zero
A.TRUE
B.FALSE
Q16 Full employment is a situation in which all those people, who are willing and able to work
, get work at the desired wage
A.TRUE
B.FALSE
Q17 AD does not include export.
A.TRUE
B.FALSE
Q18 Break-even point is struck when S = 0.
A.TRUE
B.FALSE
Q19 When Investment multiplier is 1, the value of MPC is also 1.
A.TRUE
B.FALSE
Q20 If the ratio of MPC and MPS is 8: 2, the value of investment multiplier will be 4.
A.TRUE
B.FALSE
Q21 Output always increases when AD increases.
A.TRUE
B.FALSE
Q22 Value of investment multiplier varies between zero and infinity.
A.TRUE
B.FALSE
Q23 Higher the value of MPC, more is the value of multiplier.
A.TRUE
B.FALSE
Q24 If MPS is half of MPC, then value of investment multiplier will be 4.
A.TRUE
B.FALSE
Q25 There is an inverse relationship between the value of marginal propensity to save and
investment multiplier.
A.TRUE
B.FALSE
Q26 “As per Keynesian theory in an economy, full employment can never exist.”A.TRUE
B.FALSE

ANSWER
Question Answer
No
Q1 True. Aggregate Demand is the sum total of expenditure that the people plan or desire to incur
on the purchase of goods and services produced in the economy during an accounting year.
Q2 True. Saving function would be linear in case MPS is constant. This is because a linear saving
function is a straight line saving function. The slope of a straight line is constant. And the slope
is indicated by MPS. Constant MPS implies constant slope and therefore, a straight line linear
saving function.
Q3 False. The value of marginal propensity to consume cannot be greater than one. It is because
change in consumption cannot be greater than change in income
Q4 False. Minimum level of expenditure is independent of the level of income in the economy.
Q5 False. The value of average propensity to save (APS) is negative when consumption is greater
than income but this does not mean that marginal propensity to save (/WPS) will also be
negative. In fact, MRS is never negative because it is the ratio between ΔS and ∆Y and ΔS can
never be negative, as a component of Δ/.
Q6 False
Q7 True
Q8 False
Q9 False
Q10 True
Q11 False (It will be 50)
Q12 True
Q13 True (Saving can never be more than national income)
Q14 False
Q15 True (It happens because at this point, consumption is equal to income and saving is zero.
Q16 False
Q17 False
Q18 True
Q19 False
Q20 False
Q21 false
Q22 False
Q23 True
Q24 False
Q25 True
Q26 False

ASSERTION- REASON QUESTIONS
Question No Question Content
Q1 ASSERTION (A):
APS can never be one or more than one.
REASONING (R):
APC increases with increase in income.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q2 ASSERTION (A):
MPC of poor is more than that of rich.
REASONING (R):
MPC falls with successive increase in Income.
Alternatives:
Assertion (A)
Q3 ASSERTION (A):
Multiplier explains how many times the income increases as a result of an increase in the
investment.
REASONING (R):
There is an inverse relationship between the value of marginal propensity to save and
investment multiplier.
Alternatives:
Assertion (A)
Q4 ASSERTION (A):
Full employment is that situation in the economy when AS = AD along with fuller
utilization of the resources. But it does not mean a situation of zero unemployment in the
Economy.
REASONING (R):
Full employment means absence of unemployment in the economy.
Alternatives:
Assertion (A)
(d) Assertion (A) is false but Reason (R) is true
Q5 ASSERTION (A):
When Investment Multiplier is 1, the value of MPC is also 1.
REASONING (R):
Consumption can exceed Income but Savings cannot.
Alternatives:
Assertion (A)
Q6 Assertion (A): Higher the value of Marginal Propensity to Consume, higher the value of
multiplier and more chances of economic growth and increase in National Income. This
happens when marginal propensity to save falls and marginal propensity to consume rises.
Reason(R): Investment generates income and this additional income causes a change in
consumption. Additional consumption expenditure generates additional income for
producers of goods and services. This process keeps repeating till the total increase in
income equals the product of multiplier and change in investment: ΔY=Kx ΔI
Assertion (A)
Q7 Assertion (A): Unplanned inventories accumulates when planned investment is less than
planned savings i.e. producers are left with unsold stock of goods as planned savings are
more than planned investments.
Reason(R): In a situation of deficiency of AD in relation AS, Aggregate Demand is less than
Aggregate Supply when buyers (consumers and firms) are consuming less and thus
spending less. It means that they are planning to buy less than what sellers are planning to
sell implying fall in marginal propensity to consume.
Assertion (A)
Q8 Assertion (A): There is direct relationship between Saving and demand for goods and
services in the economy.
Reason(R): As people save more and more, the demand for goods and services fall in the
economy.
Assertion (A)
Q9 Assertion (A): J M Keynes emphasized more on Investment.
Reason(R): As saving increases, it leads to more and more investment in the
economy and hence more demand for goods and services in the economy.
Assertion (A)
Q10 Assertion (A): There is always full employment equilibrium in the economy.
Reason (R): The equilibrium in the economy, where AD=AS may strike even when there is
underemployment.
Assertion (A)
Q11 Assertion: Price has no role to play as a determinant of Aggregate Supply.
Reason: Proportionate increase in aggregate supply due to excess capacity of production
leads to a constant price level in the economy.
Assertion (A)
Q12 Assertion: The rate at which consumption increases often lags behind the rate at which Y
increases.
Reason: There is always some minimum level of consumption, even when income is zero
Assertion (A)
Q13 Assertion: In Keynesian view, full employment equilibrium is an automatic phenomenon.
Reason: Full employment is that situation in the economy when AS=AD along with further
utilization of resources, but it does not mean a situation of zero unemployment in
economy
Assertion (A)
Q14 Assertion: Value of Marginal Propensity to consume cannot be greater than one.
Reason: Change in the consumption cannot be more than the total income.
Assertion (A)
Q15 Assertion (A): the point at which consumption curve intersect the 45 degree line, APS is
zero.
Reason(R): it happens because at this point, consumption is equal to income and saving is
zero.
Assertion (A)
Q16 Assertion (A): the point at which saving curve intersects the X axis is known as break-even
point.
Reason (R): at this point, S=0 and C = Y
Assertion (A)
Q17 Assertion (A): presence of autonomous consumption expenditure ensures that increase
will definitely increase in initial phases of development,
Reason (R): due to autonomous consumption expenditure, aggregate demand is always
greater than income in initial phases due to which income and output increases in the
initial level.
Assertion (A)
Q18 Assertion (A): if a family’s MPC is 0.70, then it will necessarily consume seven-tenth of its
income.
Reason (R): APC represents the ratio of absolute consumption expenditure to the
corresponding level of income.
Assertion (A)

ANSWER
Question No Answer
Q1 (c) Assertion (A) is true but Reason (R) is false
Q2 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
Q5 (d) Assertion (A) is false but Reason (R) is true.
Q11 (a) Both (A) and (R) are correct and (R) is correct explanation of (A).
Q12 (b) Both (A) and (R) are correct but (R) is not correct explanation of
(A).
Q13 (d) (R) is correct but (A) is false.
Q14 (c) (A) is correct but (R) is false.
Q18 (d) (R) is correct but (A) is false.
PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI, KOLKATA, RANCHI,

SILCHAR AND TINSIKIA REGION.

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CHAPTER -14- DETERMINATION OF INCOME AND EMPLOYMENT

MULTIPLE CHOICE QUESTIONS

Question Question Content

1|Page 8 October 2021,ZIET BHUBANESWAR

3|Page 8 October 2021,ZIET BHUBANESWAR

Q30 What can be the maximum value of Marginal Propensity to Save?

Q33 The size of the multiplier varies:

A. Ex-ante savings i. Actual savings

B. AS<AD ii. Some of the goods would remain unsold

C. Saving iii. Negatively related to income

D. Perfectly elastic AS iv. Excess capacity in the economy

(a) A-I (b) B-ii (c) C-iii (d) D-iv

(a) Total Consumption (b) Autonomous consumption

(c) Aggregate Consumption (d) Induced consumption

Q37 In which situation AD and AS become equal?

Q38 Which of the following is not true about AD in a two-sector economy?

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Q36 (c) ₹ 400 crore

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11 | P a g e 8 October 2021,ZIET BHUBANESWAR

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Source: The Economic Times (17 May 2021.)

Q1: If AD<AS, what will the impact of the situation in an economy?

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PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI, KOLKATA,

7|Page 8 October 2021,ZIET BHUBANESWAR

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PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI, KOLKATA,

4|Page 8 October 2021,ZIET BHUBANESWAR

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