Chapter-1: Determination of National Income

Determination of National Income 1
CHAPTER-1
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1 RJ = Practical Insight into Theoretical World
Unit 1: National Income Accounting
1. Which of the following is NOT a component of Gross Domestic Product (GDP)?

(a) Consumption (b) Investment
(c) Government Spending (d) Imports
2. Which of the following is the correct formula for calculating Gross Domestic
Product (GDP)?
(a) GDP = Consumption + Investment + Government Spending
(b) GDP = Consumption + Investment + Government Spending + Exports Imports
(c) GDP = Consumption + Investment + Net Exports
(d) GDP = Consumption + Investment + Government Spending + Exports
3. Which of the following is a measure of a country's Gross National Product

(GNP)?
(a) The total value of all goods and services produced within a country's borders in a
specific period.
(b) The total value of all goods and services produced by a country's residents, both
domestically and abroad, in a specific period.
(c) The total value of all goods and services sold by a country to other countries in a
specific period.
(d) The total value of all goods and services produced by a country's domestic
companies in a specific period.
4. In national income accounting, "Net Domestic Product (NDP)" is defined as:

specific period.
(b) The total value of all final goods and services produced within a country's borders
a specific period.
(c) The total value of all goods and services produced within a country's borders
minus depreciation in a specific period.
(d) The total value of all goods and services produced by a country's residents, both
domestically and abroad, in a specific period.
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5. Which of the following is NOT a component of Gross Domestic Product (GDP)?

(a) Government Spending (b) Consumption (c) Investment (d) Imports
6. What does GNP stand for in national income accounting?

(a) Gross National Product (b) Gross Net Profit
(c) Government National Payment (d) General National Practice
7. Which of the following represents the formula for calculating GDP (Gross
Domestic Product)?
(a) GDP = Consumption + Government Spending + Investment + Exports Imports
(b) GDP = Consumption + Government Spending - Investment + Exports + Imports
(c) GDP = Consumption + Government Spending + Investment - Exports - Imports
(d) GDP= Consumption - Government Spending +Investment + Exports - Imports
8. In national income accounting, what does the term "disposable income" refer to?
(a) The total income earned by a nation's residents.
(b) The income that individuals have after paying taxes.
(c) The total income earned by a nation's residents minus government spending.
(d) The income earned from foreign sources.
9. Which of the following is NOT included in the calculation of Gross Domestic

Product (GDP)?
(a) Government spending (b) Consumer spending
(c) Imports (d) Exports
10. Which of the following is used to measure the total income earned by a
country's residents, regardless of their location?
(a) Gross National Product (GNP) (b) Gross Domestic Product (GDP)
(c) Net National Product (NNP) (d) Net Domestic Product (NDP)
11. In National Income Accounting, depreciation of capital refers to:

(a) The decrease in the value of a nation's currency
(b) The decrease in the value of physical assets over time
(c) The decrease in the government's budget deficit
(d) The decrease in consumer spending on durable goods
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12. Which of the following is an example of a transfer payment in National Income

Accounting?
(a) Salary of a government employee (b) Social Security benefits
(c) Income earned from selling goods (d) Corporate taxes paid to the government
13. Which of the following is NOT a component of Aggregate Expenditure in National

Income Accounting?
(a) Consumption (C) (b) Investment (1)
(c) Government Spending (G) (d) Net Exports (NX)
1. National Income estimates are essential for:

(a) Calculating government debt
(b) Evaluating the overall health of the financial sector
(c) Measuring the economic growth and development of a country
(d) Determining the inflation rate
2. The Gross Domestic Product (GDP) per capita is used to:

(a) Measure the overall size of the economy
(b) Determine the average income of a country's citizens
(c) Calculate the total value of exports and imports
(d) Analyze the distribution of wealth in a nation
3. Which of the following is NOT a usefulness of National Income estimates?

(a) Facilitating economic planning and formulation of policies
(b) Assessing the contribution of different sectors to the economy
(c) Aiding in international trade negotiations
(d) Estimating the unemployment rate
4. National Income estimates help in identifying:

(a) The fiscal deficit of a country
(b) The sources of economic growth
(c) The exchange rates of foreign currencies
(d) The demographic profile of the population
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5. The difference between Gross National Product (GNP) and Gross Domestic
Product (GDP) is mainly due to:
(a) Imports and exports (b) Government spending
(c) Foreign aid received (d) Remittances from citizens working abroad
6. Which of the following is a usefulness of National Income estimates in economic

planning?
(a) Estimating the number of people in poverty
(b) Determining the cost of living for citizens
(c) Assessing the impact of monetary policy
(d) Identifying the distribution of wealth in society
7. Which of the following is NOT a significance of National Income estimates?

(a) Comparing the economic performance of different countries
(b) Guiding businesses in profit maximization strategies
(c) Formulating fiscal policies and taxation rates
(d) Predicting short-term fluctuations in the stock market
8. The concept of "per capita income" derived from National Income estimates is
used to:
(a) Determine the total output of an economy
(b) Measure the average income of individuals in the country
(c) Assess the level of government debt
(d) Calculate the value of imports and exports
9. National Income estimates help in identifying:

(a) The number of foreign tourists visiting the country
(b) The contribution of different sectors to the economy
(c) The literacy rate and educational attainment of citizens
(d) The availability of natural resources within the country
10. National Income estimates are essential for:

(a) Calculating individual income taxes
(b) Assessing the overall health of an economy
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(c) Measuring inflation and unemployment rates

(d) Determining exchange rates between currencies
11. National Income estimates are essential because they help in:
(a) Calculating the total population of a country
(b) Measuring the total value of goods and services produced in a country
(c) Determining the exchange rate of the country's currency
(d) Evaluating the literacy rate of the country
12. The significance of National Income estimates lies in:

(a) Assessing the distribution of income among different income groups
(b) Determining the number of unemployed individuals in the country
(c) Estimating the total national debt of the country
(d) Analyzing the birth and death rates in the country
13. Which of the following is NOT a usefulness of National Income estimates?

(a) Assessing the standard of living in a country
(b) Formulating economic policies
(c) Calculating the inflation rate
(d) Comparing the economic performance of different countries
14. National Income estimates help in international comparisons of countries'

economies because they:
(a) Provide information about the military strength of the countries
(b) Show the total exports and imports of the countries
(c) Indicate the level of technological advancement in the countries
(d) Offer a common measure to compare economic performance
15. Which of the following statements is true regarding the usefulness of National
Income estimates?
(a) It helps in predicting the stock market trends.
(b) It assists in identifying the environmental challenges faced by a country.
(c) It is only relevant for developed countries, not for developing countries.
(d) It aids in assessing the contribution of different sectors to the economy.
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1. Gross Domestic Product (GDP) measures:

(a) The total value of goods and services produced within a country's borders,
including net income from abroad.
(b) The total value of goods and services produced by a country's residents,
regardless of their location.
(c) The total value of goods and services produced within a country's borders,
excluding net income from abroad.
(d) The total value of goods and services consumed within a country's borders.
2. Gross National Product (GNP) is defined as:

(a) The total value of goods and services produced within a country's borders,
excluding depreciation.
(b) The total value of goods and services produced by a country's residents,
regardless of their location.
(c) The total value of goods and services produced within a country's borders,
including indirect taxes.
(d) The total value of goods and services produced by a country's residents,
excluding net income from abroad.
3. Net National Product (NNP) is calculated by:

(a) Deducting depreciation from Gross National Product (GNP).
(b) Adding depreciation to Gross National Product (GNP).
(c) Deducting indirect taxes from Gross Domestic Product (GDP).
(d) Adding indirect taxes to Gross National Product (GNP).
4. National Disposable Income (NDI) is defined as:

(a) The total income earned by a country's residents, including net income from
abroad.
(b) The total income earned by a country's residents, excluding net income from
abroad and indirect taxes.
(c) The total income earned by a country's residents, including indirect taxes.
(d) The total income earned by a country's residents, excluding depreciation.
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5. Personal Income (PI) is calculated as:

(a) National Disposable Income (NDI) minus corporate profits and social insurance
contributions.
(b) National Income (NI) minus indirect taxes.
(c) Gross Domestic Product (GDP) minus depreciation.
(d) Gross National Product (GNP) minus net income from abroad.
6. Gross Domestic Product (GDP) is defined as the total:

(a) Income earned by a country's residents, regardless of their location
(b) Value of goods and services produced within a country's borders
(c) Income earned by foreign residents within the country
(d) Value of goods and services produced by a country's residents abroad
7. Gross National Product (GNP) is calculated as the total:

(a) Value of goods and services produced within a country's borders
(b) Income earned by a country's residents, regardless of their location
(c) Income earned by foreign residents within the country
(d) Value of goods and services produced by a country's residents abroad
8. Net National Product (NNP) is derived by deducting:

(a) Depreciation from GDP (b) Depreciation from GNP
(c) Net indirect taxes from GDP (d) Net indirect taxes from GNP
9. National Disposable Income (NDI) is calculated by:

(a) Adding depreciation to NNP
(b) Adding net indirect taxes to NNP
(c) Deducting direct taxes from NNP
(d) Deducting net indirect taxes from NNP
10. Personal Income (PI) is derived from National Income (NI) by:
(a) Adding transfer payments and deducting undistributed corporate profits
(b) Adding corporate profits and deducting net interest and rent
(c) Deducting direct taxes and adding transfer payments
(d) Deducting retained earnings and adding social security contributions
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11. Which concept of National Income includes only the market value of final goods
and services produced within a country's borders during a specific time period?
(a) Gross National Product (GNP) (b) Net Domestic Product (NDP)
(c) Gross Domestic Product (GDP) at market price (d) Net National Product (NNP)
12. Which concept of National Income deducts depreciation (capital consumption)

from Gross Domestic Product (GDP)?
(a) Net Domestic Product (NDP)
(b) Net National Product (NNP)
(c) Gross National Product (GNP)
(d) Gross Domestic Product (GDP) at factor cost
13. Which concept of National Income takes into account the net income earned
from foreign investments and deducts net income earned by foreigners within the
country?
(a) Gross Domestic Product (GDP) at factor cost (b) Net Domestic Product (NDP)
(c) Gross National Product (GNP) (d) Net National Product (NNP)
14. Which concept of National Income includes only the value added at each stage of
production and avoids double-counting?
(a) Gross Domestic Product (GDP) at market price (b) Net Domestic Product (NDP)
(c) Gross Domestic Product (GDP) at factor cost (d) Gross Value Added (GVA)
15. Which concept of National Income measures the total market value of all final
goods and services produced within a country's borders, excluding the value of
indirect taxes and including subsidies?
(a) Net Domestic Product (NDP) at factor cost
(b) Gross Domestic Product (GDP) at factor cost
(c) Gross Domestic Product (GDP) at market price
(d) Net National Product (NNP)
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1. The following table shows the production and prices of two goods, X and Y, in a
hypothetical economy for the year 2023:
Goods Quantity Produced Price per Unit
X 100 units ` 10
Y 150 units ` 15
Calculate the nominal GDP of the economy for the year 2023.
(a) ` 2,500 (b) ` 3,000 (c) ` 3,500 (d) ` 4,000
Real GDP:
2. In a country, the nominal GDP for the year 2022 is 800 billion, and the GDP
deflator for 2022 is 120.0. What is the real GDP for 2022?
(a) ` 480 billion (b) ` 666.67 billion (c) ` 666.00 billion (d) ` 960 billion
GDP Deflator:
3. The nominal GDP of a country in the base year was ` 500 billion, and the real
GDP in the same year was ` 450 billion. Calculate the GDP deflator for the base
year.
(a) 90.0 (b) 100.0 (c) 110.0 (d) 125.0
4. In the current year, the nominal GDP of the country is ` 600 billion, and the
real GDP is ` 540 billion. Calculate the GDP deflator for the current year using
the base year's GDP deflator (which is 100.0).
(a) 90.0 (b) 100.0 (c) 110.0 (d) 125.0
5. If the GDP deflator for a particular year is 120.0, what does it indicate about
the price level compared to the base year?
(a) Prices have increased by 20% compared to the base year.
(b) Prices have decreased by 20% compared to the base year.
(c) Prices have remained the same as the base year.
(d) Prices have doubled compared to the base year.
6. If the GDP deflator for a particular year is 90.0, what does it indicate about
the price level compared to the base year?
(a) Prices have increased by 10% compared to the base year.
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(b) Prices have decreased by 10% compared to the base year.

(c) Prices have remained the same as the base year.
(d) Prices have decreased by 90% compared to the base year.
1. In a country, the Gross National Product (GNP) for the year 2021 is calculated
as follows:
- Gross Domestic Product (GDP) = ` 900 billion
- Net factor income from abroad (NFIA) = - ` 50 billion (negative value
indicates net outflow of income to foreign countries)
Calculate the GNP for the year 2021.
(a) ` 850 billion
(b) ` 950 billion
(c) ` 950 billion (adjusted for net factor income from abroad)
(d) ` 850 billion (adjusted for net factor income from abroad)
2. In a country, the Gross National Product (GNP) for the year 2022 is ` 1,200
billion, and Net factor income from abroad (NFIA) is ` 40 billion (positive value
indicates net inflow of income from foreign countries). Calculate the Gross
Domestic Product (GDP) for the year 2022.
(a) ` 1,160 billion
(b) ` 1,240 billion
(c) ` 1,160 billion (adjusted for net factor income from abroad)
(d) ` 1,240 billion (adjusted for net factor income from abroad)
3. In a country, the Gross National Product (GNP) for the year 2023 is ` 2,500
billion, and Net factor income from abroad (NFIA) is ` 80 billion (positive value
indicates net inflow of income from foreign countries). The GDP for the year
2023 is:
(a) ` 2,580 billion
(b)` 2,420 billion
(c) ` 2,420 billion (adjusted for net factor income from abroad)
(d) ` 2,580 billion (adjusted for net factor income from abroad)
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4. In a country, the Gross National Product (GNP) for the year 2022 is calculated
as follows:
Gross Domestic Product (GDP) = ` 900 billion
Net factor income from abroad = ` 50 billion
What is the Gross National Product (GNP) for the year 2022?
(a) ` 850 billion (b) ` 950 billion (c) ` 950 billion (d) ` 950 billion
1. In a country, the Gross National Product (GNP) at Market Prices for the year
2021 is ` 800 billion. During the same year, depreciation (Capital Consumption
Allowance) amounts to ` 100 billion. Calculate the Net National Product at
Market Prices (NNPMP) for the year 2021.
2022 is ` 1,500 billion. During the same year, depreciation (Capital Consumption
Allowance) amounts to ` 200 billion. Calculate the Net National Product at
Market Prices (NNPMP) for the year 2022.
(a) ` 1,300 billion
(b) ` 1,700 billion
(c) ` 1,300 billion (adjusted for depreciation)
(d) ` 1,700 billion (adjusted for depreciation)
2023 is ` 2,000 billion. During the same year, depreciation (Capital Consumption
Allowance) amounts to ` 250 billion. The Net National Product at Market Prices
(NNPMP) for the year 2023 is:
(a) ` 2,250 billion
(b) ` 1,750 billion
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1. In a country, the Gross Domestic Product at Market Prices (GDPMP) for the
year 2021 is ` 900 billion, and indirect taxes (subsidies) on products are ` 50
billion. Calculate the Gross Domestic Product at Factor Cost (GDPFC) for the
year 2021.
(a) ` 850 billion
(b) ` 950 billion
(c) ` 950 billion (adjusted for indirect taxes)
(d) ` 850 billion (adjusted for subsidies)
year 2022 is ` 1,200 billion, and indirect taxes (subsidies) on products are ` 100
year 2022.
(a) ` 1,100 billion
(b) ` 1,300 billion
(c) ` 1,100 billion (adjusted for indirect taxes)
(d) ` 1,300 billion (adjusted for subsidies)
year 2023 is ` 2,500 billion, and indirect taxes (subsidies) on products are ` 200
year 2023.
(a) ` 2,300 billion
(b) 2,700 billion
(c) ` 2,300 billion (adjusted for indirect taxes)
1. In a country, the Gross Domestic Product at Factor Cost (GDPFC) for the year
2021 is ` 800 billion, and depreciation (consumption of fixed capital) is ` 100
billion. Calculate the Net Domestic Product at Factor Cost (NDPFC) for the year
2021.
(a) ` 700 billion
(b) ` 900 billion
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(c) ` 700 billion (adjusted for depreciation)

(d) ` 900 billion (adjusted for depreciation)
2022 is ` 1,200 billion, and depreciation (consumption of fixed capital) is ` 150
2022.
(a) ` 1,050 billion
(b) ` 1,350 billion
2023 is ` 2,500 billion, and depreciation (consumption of fixed capital) is 200
2023.
(a) ` 2,300 billion
(b) ` 2,700 billion
1. In a country, the Gross National Product at Factor Cost (GNPFC) for the year
2021 is ` 900 billion, and net indirect taxes (subsidies) on products are ` 50
billion. Calculate the Net National Product at Factor Cost (NNPFC) or National
Income for the year 2021.
(a) ` 850 billion
(b) ` 950 billion
(c) ` 950 billion (adjusted for net indirect taxes)
(d) 850 billion (adjusted for subsidies)
2022 is ` 1,200 billion, and net indirect taxes (subsidies) on products are ` 100
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(a) ` 1,100 billion

(b) ` 1,300 billion
(c) ` 1,100 billion (adjusted for net indirect taxes)
2023 is ` 2,500 billion, and net indirect taxes (subsidies) on products are ` 200
(a) ` 2,300 billion
(b) ` 2,700 billion
(c) ` 2,300 billion (adjusted for net indirect taxes)
2021 is ` 800 billion, and the total population is ` 200 million. Calculate the Per
Capita Income for the year 2021.
(a) ` 4,000 (b) ` 4,500 (c) ` 3,500 (d) ` 4,200
2022 is ` 1,200 billion, and the total population is ` 250 million. Calculate the
Per Capita Income for the year 2022.
(a) ` 4,800 (b) ` 4,000 (c) ` 4,500 (d) 5,000
2023 is ` 2,500 billion, and the total population is ` 300 million. Calculate the
Per Capita Income for the year 2023.
(a) ` 8,000 (b) ` 6,000 (c) ` 7,500 (d) 5,000
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2021 is ` 900 billion, depreciation (consumption of fixed capital) is ` 100 billion,
net indirect taxes (subsidies) on products are 50 billion, and net current
transfers from abroad are 20 billion. Calculate the Personal Income for the year
2021.
2022 is ` 1,200 billion, depreciation (consumption of fixed capital) is ` 150
billion, net indirect taxes (subsidies) on products are ` 80 billion, and net
current transfers from abroad are ` 30 billion. Calculate the Personal Income
for the year 2022.
(a) ` 1,000 billion (b) ` 1,100 billion (c) ` 1,020 billion (d) ` 1,130 billion
2023 is ` 2,500 billion, depreciation (consumption of fixed capital) is ` 200
billion, net indirect taxes (subsidies) on products are ` 100 billion, and net
current transfers from abroad are ` 40 billion. Calculate the Personal Income
for the year 2023.
(a) ` 2,240 billion (b) ` 2,440 billion (c) ` 2,380 billion (d) 2,540 billion
2021 is ` 900 billion. The indirect taxes (net of subsidies) on products are ` 50
billion, and the consumption of fixed capital (depreciation) is ` 100 billion.
Calculate the Personal Income for the year 2021, given that there are no other
income transfer `
2022 is ` 1,200 billion. The indirect taxes (net of subsidies) on products are `
80 billion, and the consumption of fixed capital (depreciation) is ` 150 billion.
income transfer
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2023 is ` 2,500 billion. The indirect taxes (net of subsidies) on products are `
150 billion, and the consumption of fixed capital (depreciation) is ` 200 billion.
income transfer `
(a) ` 2,150 billion (b) ` 2,150 billion. (c) ` 2,150 billion (d) ` 2,150 billion
1. In a country, the Personal Income (PI) for the year 2021 is ` 800 billion. The
direct taxes are ` 100 billion, and the social security contributions are 50
billion. Calculate the Disposable Personal Income (DI) for the year 2021, given
that there are no other income transfer `
(a) ` 650 billion (b) ` 750 750 billion (c) ` 700 billion (d) ` 600 billion
2. In a country, the Personal Income (PI) for the year 2022 is ` 1,200 billion. The
direct taxes are ` 150 billion, and the social security contributions are ` 100
that there are no other income transfer
(a) ` 950 billion (b) 1,050 billion (c) 1,000 billion (d) ` 900 billion
3. In a country, the Personal Income (PI) for the year 2023 is ` 2,500 billion. The
direct taxes are ` 200 billion, and the social security contributions are ` 150
that there are no other income transfer `
4. In a country, the Personal Income (PI) for the year 2021 is ` 900 billion.
Personal taxes for the year 2021 are ` 150 billion. Calculate the Disposable
Personal Income (DI) for the year 2021.
(a) ` 750 billion (b) ` 900 billion
(c) ` 750 billion (adjusted for personal taxes) (d) ` 1,050 billion
5. In a country, the Personal Income (PI) for the year 2022 is ` 1,200 billion.
(a) ` 1,020 billion
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(b) ` 1,200 billion

(c) ` 1,020 billion (adjusted for personal taxes)
(d) ` 1,380 billion
(a) ` 2,200 billion
(b) ` 2,800 billion
(c) ` 2,200 billion (adjusted for personal taxes)
(d) ` 2,800 billion (adjusted for personal taxes)
Current transfers from the government and rest of the world to individuals for
the year 2021 are ` 50 billion. Social contributions by individuals for the year
2021 are ` 100 billion. Calculate the Private Income for the year 2021.
Current transfers from the government and rest of the world toindividuals for
(a) ` 970 billion (b) ` 970 billion (c) 970 billion (d) ` 970 billion
Current transfers from the government and rest of the world to individuals for
(a) ` 2,300 billion (b) ` 2,700 billion (c) 2,500 billion (d) `2,900 billion
Transfer payments for the year 2021 are ` 100 billion, and corporate taxes are
` 50 billion. Calculate the Private Income for the year 2021.
(a) ` 750 billion
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(b) ` 750 billion (adjusted for transfer payments)

(c) ` 850 billion
(d) ` 950 billion
(a) ` 970 billion
(b) ` 1,020 billion
(c) ` 970 billion (adjusted for transfer payments)
(d) ` 1,080 billion
(a) ` 2,200 billion (b) ` 2,150 billion
(c) ` 2,200 billion (adjusted for transfer payments) (d) ` 2,350 billion
1. Which of the following organizations is responsible for estimating the National

Income of India?
(a) Reserve Bank of India (RBI) (b) Central Statistical Office (CSO)
(c) Ministry of Finance (d) World Bank
2. Which of the following methods is used to estimate the National Income of

India?
(a) Expenditure approach (b) Consumer Price Index method
(c) Profit and Loss method (d) Balance of Payments approach
3. Which of the following is NOT considered a part of the National Income of

India?
(a) Wages of factory workers
(b) Dividends received by shareholders from a domestic company
(c) Profits earned by a foreign company from its operations in India
(d) Government grants given to a state for infrastructure development
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4. Which base year is currently used for calculating the real Gross Domestic
Product (GDP) in India?
(a) 2010-2011 (b) 2004-2005 (c) 2015-2016 (d) 2008-2009
5. Which component of National Income in India is known as the "single largest

component" contributing to the economy's output?
(a) Agriculture (b) Manufacturing (c) Services (d) Construction
6. Which organization is responsible for estimating and publishing National Income

data in India?
(a) Reserve Bank of India (RBI) (b) Ministry of Finance
(c) Central Statistical Office (CSO) (d) Indian Statistical Institute (ISI)
7. Which method is used to estimate National Income in India?

(a) Expenditure approach (b) Production approach
(c) Income approach (d) All of the above
8. The base year for computing the Gross Domestic Product (GDP) in India is
generally revised after every:
(a) 5 years (b) 8 years (c) 10 years (d) 15 years
9. Which factor cost adjustment is necessary to arrive at Gross Domestic Product

(GDP) at factor cost from GDP at market prices in India?
(a) Deducting indirect taxes and adding subsidies
(b) Adding indirect taxes and deducting subsidies
(c) Adding net exports
(d) Deducting net exports
10. Which of the following sectors is NOT included in the sectoral classification used
for estimating National Income in India?
(a) Agriculture and allied activities (b) Manufacturing
(c) Services (d) Foreign Trade
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11. In India, which organization is responsible for the estimation of National

Income?
(a) Ministry of Finance (b) Reserve Bank of India (RBI)
(c) Central Statistical Office (CSO) (d) Planning Commission of India
12. Which factor-based method is used for calculating Gross Domestic Product (GDP)
in India?
(a) Production Approach (b) Expenditure Approach
(c) Income Approach (d) Value Added Approach
13. Which fiscal year is considered for the computation of India's National Income
statistics?
(a) January 1st to December 31st (b) April 1st to March 31st
(c) July 1st to June 30th (d) October 1st to September 30th
14. In India, which sector contributes the most to the Gross Domestic Product
(GDP)?
(a) Agriculture and Allied Activities (b) Manufacturing
(c) Services (d) Mining and Quarrying
15. In the context of National Income accounting, what does GVA stand for?
(a) Gross Value Adjustment (b) Gross Value Added
(c) Gross Variable Assessment (d) General Value Adjustment
1. In a simple economy, the total value of (Gross Domestic Product - GDP) is

earned by households (wages, rent, goods and services produced ` 500 billion.
The total income and profits) is ` 400 billion. Calculate the total value of savings
and taxes in this economy.
2. In a closed economy, the total value of goods and services produced (Gross
Domestic Product - GDP) is ` 800 billion. The total value of consumption
expenditure is ` 600 billion. Calculate the total value of savings in this closed
economy.
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3. In an open economy, the total value of goods and services produced (Gross
Domestic Product - GDP) is ` 1,500 billion. The total value of consumption
expenditure is ` 1,000 billion, and exports are ` 300 billion. Calculate the total
value of savings in this open economy.
(a) ` 300 billion (b) ` 500 billion (c) ` 800 billion (d) ` 1,200 billion
4. In a two-sector economy, the total value of output (Gross Domestic Product) is `

800 billion. Calculate the total value of income generated in the economy.
(a) ` 800 billion (b) ` 600 billion (c) ` 400 billion (d) ` 1,200 billion
5. In a three-sector economy, the total value of output (Gross Domestic Product) is

` 1,200 billion. The value of exports is ` 100 billion, and the value of
government spending on goods and services is ` 150 billion. Calculate the total
value of income generated in the economy.
(a) ` 1,200 billion (b) ` 1,050 billion (c) ` 950 billion (d) ` 1,000 billion
6. In a four-sector economy, the total value of output (Gross Domestic Product) is

` 2,000 billion. The value of imports is ` 300 billion, and the value of
government spending on goods and services is ` 400 billion. Calculate the total
value of income generated in the economy.
1. Consider a three-stage production process. The value of raw materials purchased

by a firm is ` 500, the cost of intermediate goods is ` 300, and the firm adds a
value of ` 200 to produce the final goods. Calculate the value added by the
firm.
(a) ` 200 (b) ` 300 (c) ` 500 (d) ` 1,000
2. Consider a four-stage production process. The value of raw materials purchased

by a firm is ` 800, the cost of intermediate goods at each stage is ` 100, `
150, and ` 200, respectively. The firm adds a value of ` 300 at the final stage
to produce the final goods. Calculate the value added by the firm.
(a) ` 100 (b) ` 150 (c) ` 300 (d) ` 450
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3. Consider a two-stage production process. The value of raw materials purchased

by a firm is ` 400, and the firm adds a value of ` 600 to produce the final
goods. Calculate the value added by the firm.
(a) ` 400 (b) ` 600 (c) 1,000 (d) ` 200
4. In a three-stage process, the value of raw materials production purchased by a

company is ` 500 million. The company adds value worth ` 300 million during the
production process. Calculate the total value of the final product.
(a) ` 100 million (b) ` 200 million (c) ` 300 million (d) ` 800 million
5. In a four-stage production process, the value of intermediate goods purchased

by a company is ` 800 billion. The company adds value worth ` 400 billion during
the production process. Calculate the total value of the final product.
(a) ` 200 billion (b) `400 billion (c) ` 800 billion (d) ` 1,200 billion
6. In a five-stage production process, the value of raw materials purchased by a

company is ` 1,000 million. The company adds value worth ` 500 million during
the production process. Calculate the total value of the final product.
(a) ` 500 million (b) ` 1,000 million (c) ` 1,500 million (d) ` 2,000 million
1. In an economy, the following income components are given: employee

compensation (` 300 billion), rents (` 50 billion), interest (` 100 billion),
proprietor's income (` 150 billion), corporate profits (` 200 billion), and taxes on
production and imports (` 50 billion). Calculate the Gross Domestic Product (GDP)
using the Income Method.

(a) ` 800 billion (b) ` 900 billion (c) ` 1,000 billion (d) ` 1,080 billion
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(a) ` 950 billion (b) ` 1,000 billion (c) ` 1,200 billion (d) ` 1,220 billion
4. In a country, the total compensation of employees (wages, salaries, and

benefits) for the year 2021 is ` 500 billion. The gross operating surplus (profit)
earned by businesses for the year 2021 is ` 300 billion. Calculate the Gross
National Income (GNI) for the year 2021.
(a) ` 200 billion (b) ` 500 billion (c) 800 billion (d) ` 300 billion

(a) ` 1,000 billion (b) ` 400 billion (c) ` 600 billion (d) ` 1,200 billion

(a) ` 1,30billion (b) ` 1,500 billion (c) ` 800 billion (d) ` 300 billion
1. In a country, the total private consumption expenditure for the year 2021 is `
800 billion. The total investment expenditure for the year 2021 is ` 200 billion.
The government's total expenditure on goods and services for the year 2021 is `
300 billion. Calculate the Gross Domestic Product (GDP) for the year 2021.
(a) ` 500 billion (b) ` 1,000 billion (c) ` 1,300 billion (d) ` 900 billion
900 billion. The total investment expenditure for the year 2022 is ` 250 billion.
The government's total expenditure on goods and services for the year 2022 is `
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1,200 billion. The total investment expenditure for the year 2023 is ` 300
billion. The government's total expenditure on goods and services for the year
2023 is ` 400 billion. Calculate the Gross Domestic Product (GDP) for the year
2023.
(a) ` 1,500 billion
(b) ` 1,900 billion
(c) ` 1,900 billion (adjusted for imports)
(d) ` 1,500 billion (adjusted for exports)
800 billion. The gross private domestic investment for the year 2021 is ` 200
billion. The government expenditure on goods and services for the year 2021 is `
300 billion, and the net exports (exports minus imports) for the year 2021 are `
(a) ` 1,000 billion (b) ` 1,000 billion (c) ` 1,200 billion (d) ` 900 billion
1,200 billion. The gross private domestic investment for the year 2022 is ` 300
400 billion, and the net exports (exports minus imports) for the year 2022 are -
` 150 billion. Calculate the Gross Domestic Product (GDP) for the year 2022.
1,500 billion. The gross private domestic investment for the year 2023 is ` 400
500 billion, and the net exports (exports minus imports) for the year 2023 are -
` 200 billion. Calculate the Gross Domestic Product (GDP) for the year 2023.
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1. The System of Regional Accounts in India provides economic data at which level
of geographical aggregation?
(a) District level (b) State level (c) National level (d) International level
2. Which government agency is responsible for preparing the System of Regional

Accounts in India?
(a) Ministry of Finance
(b) Reserve Bank of India (RBI)
(c) Central Statistical Office (CSO)
(d) National Institution for Transforming India (NITI Aayog)
3. The System of Regional Accounts in India provides data on which of the following
aspects at the state level?
(a) Population and demographic trends
(b) Agricultural production and land use
(c) Industrial output and manufacturing activities
(d) All of the above
4. Which of the following is NOT a primary purpose of the System of Regional

Accounts in India?
(a) Facilitating inter-state economic comparisons
(b) Informing state-level economic planning and policy formulation
(c) Identifying regional disparities and inequalities
(d) Regulating regional fiscal policies
5. Which statistical yearbook published by the CSO includes the data and analysis
on the System of Regional Accounts in India?
(a) Economic Survey of India (b) Indian Financial Yearbook
(c) India in Figures (d) National Accounts Statistics
6. What is the primary purpose of the System of Regional Accounts in India?

(a) To estimate the national income of the country
(b) To measure the economic growth of different states
(c) To calculate the GDP of individual cities
(d) To track the inflation rate at the regional level
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7. Which organization is responsible for preparing the System of Regional Accounts

in India?
(c) Central Statistical Office (CSO) (d) National Sample Survey Office (NSSO)
8. Which of the following indicators is NOT covered in the System of Regional

Accounts in India?
(a) Gross State Domestic Product (GSDP) (b) Per Capita Income of states
(c) Industrial Production Index of states (d) National Unemployment Rate
9. Which method is used for estimating the Gross State Domestic Product (GSDP)
in India?
(a) Production Approach (b) Income Approach
(c) Expenditure Approach (d) Value Added Approach
10. The System of Regional Accounts in India provides data at which level of
geographical aggregation?
(a) District level (b) City level (c) State level (d) Village level
1. Gross Domestic Product (GDP) measures:

(a) The total value of goods and services produced within a country's border `
(b) The total value of goods and services consumed by households.
(c) The total value of goods and services exported by a country.
(d) The total value of goods and services imported by a country.
2. Which of the following statements is true regarding the relationship between

GDP and welfare?
(a) Higher GDP always leads to higher welfare for all citizens.
(b) Higher GDP guarantees improved living standards for all citizens.
(c) GDP is a comprehensive measure of societal well-being.
(d) GDP per capita is a useful but incomplete indicator of welfare.
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3. Which of the following factors is NOT considered in the calculation of GDP?

(a) Government spending on infrastructure projects
(b) Investment in new factories and equipment
(c) Income earned by citizens working abroad
(d) Transfer payments, such as social welfare benefits
4. Which of the following situations can lead to a discrepancy between GDP growth
and citizens' well-being?
(a) When inflation is high, and GDP growth is low
(b) When income inequality increases during a period of economic expansion
(c) When a country's exports decrease, and GDP growth slows down
(d) When government spending increases to fund public services and welfare
programs
5. Which of the following is a limitation of using GDP as a measure of welfare?

(a) GDP does not account for the value of goods and services produced in the informal
sector.
(b) GDP does not consider government spending on defense and security.
(c) GDP does not take into account changes in the trade balance.
(d) GDP does not capture the impact of technological advancements on productivity.
6. Gross Domestic Product (GDP) is a measure of:

(a) The total population of a country
(b) The total value of goods and services produced in a country
(c) The total government spending in a country
(d) The total imports and exports of a country
7. Which of the following statements is true regarding GDP and welfare?

(a) A higher GDP always indicates higher welfare for the population.
(b) GDP is unrelated to the well-being and welfare of the population.
(c) GDP is a good indicator of economic growth but does not fully capture the overall
welfare of the population.
(d) GDP is a measure of income distribution among the population.
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8. Which of the following is an example of a limitation of using GDP as a measure

of welfare?
(a) GDP includes the value of illegal activities, such as drug trafficking.
(b) GDP accounts for environmental degradation and pollution.
(c) GDP reflects the level of education and healthcare in a country.
(d) GDP considers the distribution of income among different income groups.
9. Which term refers to the total GDP adjusted for inflation or changes in price
levels?
(a) Real GDP (b) Nominal GDP
(c) Per capita GDP (d) Gross National Product (GNP)
10. Which of the following factors is NOT considered in GDP calculations?

(b) Private investment in businesses and factories
(c) Household savings and personal investments
(d) Value of intermediate goods used in the production process
1. Which of the following is a limitation of using Gross Domestic Product (GDP) as a

measure of economic welfare?
(a) GDP does not account for changes in the population size.
(b) GDP includes the value of all final goods and services.
(c) GDP considers income distribution among different income groups.
(d) GDP measures the total value of goods and services produced.
2. Which factor can lead to an overestimation of a country's GDP?

(a) Inclusion of government transfer payments
(b) Exclusion of household consumption
(c) Exclusion of exports of goods and services
(d) Inclusion of imports of goods and services
3. Which aspect is not adequately captured by GDP, making it an incomplete
measure of economic performance?
(a) Economic growth rate (b) Inflation rate
(c) Income distribution (d) Unemployment rate
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4. Which challenge arises due to the difficulty of accurately measuring the informal
or underground economy?
(a) Seasonal adjustments (b) Double-counting of intermediate goods
(c) Price fluctuations (d) Shadow economy estimation
5. Which of the following is NOT a limitation of using GDP as a measure of well-

being?
(a) GDP ignores the value of leisure time and non-market activities.
(b) GDP does not account for environmental degradation and resource depletion.
(c) GDP considers the level of investment in human capital and education.
(d) GDP focuses solely on economic activities and production.
6. Which of the following is a limitation of using National Income as a measure of

economic welfare?
(a) It does not account for income inequality.
(b) It includes the value of illegal activities in the economy.
(c) It is difficult to calculate accurately.
(d) It is not relevant for developed countries.
7. Which challenge arises due to the existence of the informal or underground

economy?
(a) Difficulty in measuring the overall economic output accurately
(b) The inclusion of illegal activities in the GDP calculation
(c) Inflationary pressure on the economy
(d) Increased government expenditure
8. Which of the following is a limitation of using GDP as an indicator of well-being

in terms of environmental sustainability?
(a) GDP includes the value of illegal activities.
(b) GDP does not consider income distribution.
(c) GDP growth may be accompanied by environmental degradation.
(d) GDP does not account for changes in price levels.
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9. Which limitation of National Income computation arises due to the exclusion of

non-market activities and household production?
(a) Overestimation of economic output
(b) Difficulty in calculating GDP at factor cost
(c) Underestimation of economic output and welfare
(d) Overestimation of economic growth rate
10. Which challenge arises due to the constant changes in the structure of the
economy and the introduction of new goods and services?
(a) Difficulty in calculating inflation rate (b) Changes in government policies
(c) Difficulty in measuring real GDP (d) Difficulty in estimating the savings
rate
ADDITIONAL QUESTION BANK
1. National income accounting is a method used to:

(a) Calculate the total profits of private companies
(b) Measure the economic performance of a country
(c) Determine the total savings of the government
(d) Assess the inflation rate in the economy
2. Gross Domestic Product (GDP) is defined as:

specific time period
(b) The total value of all imports and exports of a country
(c) The total value of all goods and services produced by a country's citizens,
regardless of their location
(d) The total value of all goods and services produced by a country's companies,
regardless of their ownership
3. Which of the following is NOT included in GDP calculations?

(a) Investment spending by businesses
(b) Government spending on infrastructure
(c) Social security payments to retirees
(d) Consumer spending on durable goods
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4. The income approach to calculating GDP:

(a) Adds up all the wages, salaries, and profits earned in an economy
(b) Only considers the total spending on final goods and services
(c) Focuses on the net exports of a country
(d) Includes only the value of intermediate goods and services
5. Real GDP differs from Nominal GDP in that:

(a) Real GDP accounts for inflation, while Nominal GDP does not
(b) Real GDP includes government spending, while Nominal GDP does not
(c) Real GDP is measured in current market prices, while Nominal GDP is adjusted for
inflation
(d) Real GDP considers only the value of goods, while Nominal GDP includes services as
well
6. National Income is calculated as:

(a) GDP minus depreciation (b) GDP plus net exports
(c) GDP minus indirect taxes and subsidies (d) GDP minus government spending
7. The expenditure approach to calculating GDP:

(a) Adds up all the wages, salaries, and profits earned in an economy
(b) Focuses on the total spending on final goods and services
(c) Includes only the value of intermediate goods and services
(d) Considers the net exports of a country
8. Which of the following is a component of Gross Domestic Product (GDP)?

(a) Money supply in the economy (b) Unemployment rate
(c) Government budget deficit (d) Investment spending by businesses
1. National income estimates are essential for:

(a) Calculating the profits of individual companies
(b) Assessing the distribution of wealth in a country
(c) Determining the exchange rates between currencies
(d) Monitoring the stock market performance
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2. The primary use of national income estimates is to:

(a) Measure the overall happiness and well-being of citizens
(b) Determine the economic growth rate of the country
(c) Calculate the total value of imports and exports
(d) Evaluate the effectiveness of foreign aid programs
3. Why is it important to calculate Gross Domestic Product (GDP)?

(a) To understand the unemployment rate in the country.
(b) To analyze the overall debt of the government
(c) To determine the total value of all goods and services produced the economy
(d) To evaluate the efficiency of the banking sector
4. National income estimates help in comparing the economic performance of

different countries by:
(a) Converting all currencies to a common unit of measurement
(b) Focusing solely on the GDP growth rate
(c) Ignoring the impact of inflation on the economy
(d) Excluding the service sector from the calculations
5. The per capita income, derived from national income estimates, is useful for:
(a) Understanding the total population of a country
(b) Analyzing the average income of individuals in the country
(c) Measuring the total number of employed people
(d) Evaluating the performance of the agricultural sector
6. One of the limitations of using national income estimates is that they:

(a) Cannot account for the underground economy
(b) Overstate the value of intermediate goods
(c) Ignore the impact of international trade on the economy
(d) Focus excessively on government spending
7. National income estimates help policymakers in making informed decisions about:

(a) The promotion of consumer spending
(b) The allocation of resources and budget planning
(c) The reduction of inflation rates
(d) The regulation of the stock market
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8. In times of economic downturn, national income estimates can be used to:

(a) Encourage more foreign investments
(b) Identify the sectors that require government bailouts
(c) Increase taxes on businesses and individuals
(d) Decrease government spending on infrastructure
1. Gross Domestic Product (GDP) is the total value of:

(a) All goods and services produced within a country's borders in a specific time
period
(b) All goods and services produced by a country's citizens, regardless of their
location
(c) All goods and services produced by a country's companies, regardless of their
ownership
(d) All final goods and services produced within a country's borders in a specific time
period
2. Gross National Product (GNP) differs from GDP in that GNP:

(a) Includes only the value of final goods and services
(b) Excludes the value of exports
(c) Accounts for depreciation of capital goods
(d) Includes the value of goods and services produced by a country's citizens abroad
3. Net National Product (NNP) is calculated by:

(a) Adding depreciation to GDP (b) Subtracting depreciation from GDP
(c) Adding depreciation to GNP (d) Subtracting depreciation from GNP
4. National Income (NI) is calculated by:

(a) Adding indirect taxes to NNP
(b) Subtracting indirect taxes from NNP
(c) Adding net foreign factor income to NNP
(d) Subtracting net foreign factor income from NNP
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5. Personal Income (PI) is the total income received by:

(a) Individuals before paying personal taxes
(b) Individuals after paying personal taxes
(c) Households before paying personal taxes
(d) Households after paying personal taxes
6. Disposable Income (DI) is calculated by:

(a) Adding personal taxes to personal income
(b) Subtracting personal taxes from personal income
(c) Adding corporate taxes to personal income
(d) Subtracting corporate taxes from personal income
7. Which of the following represents the broadest measure of a country's national

income?
(a) GDP (b) GNP (c) NNP (d) Pl
8. Gross National Income (GNI) is defined as:

(a) The total value of all goods and services produced by a country's companies,
regardless of their ownership
(b) The total value of all goods and services produced by a country's citizens,
regardless of their location
(c) The total value of all final goods and services produced within a country's borders
in a specific time period
(d) The total value of all goods and services produced within a country's borders,
excluding foreign factors of production
1. In India, the organization responsible for estimating national income is:

(c) Central Statistical Office (CSO) (d) Planning Commission
2. Which of the following methods is primarily used to estimate national income in

India?
(a) Production approach (b) Expenditure approach
(c) income approach (d) All of the above
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3. The base year for estimating Gross Domestic Product (GDP) using constant prices
in India is typically updated every:
4. In India, Gross Domestic Product (GDP) at market prices is calculated by adding:

(a) Indirect taxes and depreciation to GDP at factor cost
(b) Indirect taxes and net factor income from abroad to GDP at factor cost
(c) Indirect taxes and subsidies to GDP at factor cost
(d) Indirect taxes and net factor income from abroad to GDP at market prices
5. National Income in India is also known as:

(a) Gross National Product (GNP) (b) Net Domestic Product (NDP)
(c) Net National Product (NNP) (d) Gross Domestic Product (GDP)
6. The Central Statistical Office (CSO) in India operates under the purview of the:
(b) Ministry of Statistics and Programme Implementation
(c) Reserve Bank of India (RBI)
(d) Planning Commission
7. In the context of India's national income estimation, GVA stands for:

(a) Gross Value Added (b) Gross Variable Analysis
(c) Government Value Assessment (d) Government Variable Account
8. Which of the following sectors is NOT covered in the estimation of national

income in India?
(a) Agriculture and Allied Activities (b) Manufacturing
(c) Financial Services (d) Household Consumption
1. The System of Regional Accounts (SRA) in India aims to:

(a) Calculate the national income of India
(b) Measure the economic performance of different states and regions within India
(c) Assess the exchange rates between different Indian states
(d) Determine the total imports and exports of each Indian state
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2. The Ministry responsible for the compilation of the System of Regional Accounts
in India is:
(b) Ministry of Commerce and Industry
(c) Ministry of Home Affairs
(d) Ministry of Statistics and Programme Implementation
3. The base year used for estimating the System of Regional Accounts in India is
generally revised every:
4. The regional accounts data in India provides insights into:

(a) The inflation rate in each state
(b) The fiscal deficit of the central government
(c) The economic activities and their contribution to each state's GDP
(d) The foreign direct investments received by different Indian states
5. Which of the following is NOT a component of the System of Regional Accounts

in India?
(a) Gross State Domestic Product (GSDP)
(b) Per Capita Income of states
(c) Sectoral distribution of states' population
(d) International trade data of each state
6. The primary source of data used for compiling the System of Regional Accounts
in India is:
(a) Annual reports of different state governments
(b) Survey data collected by private agencies
(c) Data from the Reserve Bank of India (RBI)
(d) Data from various government departments and surveys conducted by the Central
Statistical Office (CSO)
7. The System of Regional Accounts helps in identifying the:

(a) Number of state-owned enterprises in each region
(b) Level of unemployment in the country
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(c) Disparities in economic growth and development among states

(d) Composition of the national budget
1. One of the limitations of national income computation is that it:

(a) Ignores the contribution of the services sector to the economy
(b) Overestimates the value of intermediate goods and services
(c) Excludes the impact of inflation on the economy
(d) Does not consider non-market activities and the informal economy
2. The challenge of accurately measuring national income arises due to:

(a) Difficulties in collecting data on government spending
(b) Limited availability of data on international trade
(c) The constantly changing structure of the economy
(d) The exclusion of the financial sector from the calculations
3. Which of the following is NOT a challenge in computing national income?

(a) Difficulty in accounting for depreciation of assets
(b) Estimating the value of household production and unpaid work
(c) Dealing with fluctuations in exchange rates
(d) Accounting for income generated from illegal activities
4. National income computation may not accurately reflect the economic well-being
of:
(a) The government sector (b) The manufacturing sector
(c) The agricultural sector (d) Different income groups within the population
5. One of the limitations of using Gross Domestic Product (GDP) as a measure of

welfare is that it:
(a) Does not account for income distribution within the country
(b) Ignores the value of net exports in the economy
(c) Overestimates the contribution of government spending to the economy
(d) Excludes the value of investment spending by businesses
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6. The concept of national income fails to consider the economic value of:
(a) Social security payments to retirees (b) Imports of goods and services
(c) Gross fixed capital formation (d) National debt and government borrowing
7. Which of the following does NOT pose a challenge in calculating Gross National
Product (GNP)?
(a) Accounting for the income earned by foreign residents in the country
(b) Estimating the value of exports of goods and services
(c) Dealing with changes in the national currency's exchange rate
(d) Measuring the value of capital goods used in the production process
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ANSWERS (Unit 1):
Q. No. Ans. Q. No. Ans. Q. No. Ans. Q. No. Ans. Q. No. Ans.
1. d 2. b 3. b 4. c 5. d
6. a 7. a 8. b 9. c 10. a
11. b 12. b 13. d
1. c 2. b 3. d 4. b 5. a
6. c 7. d 8. b 9. b 10. b
11. b 12. a 13. c 14. d 15. b
1. a 2. b 3. a 4. b 5. a
6. b 7. b 8. b 9. c 10. a
11. c 12. a 13. c 14. d 15. b
1. c 2. c 3. b 4. c 5. a
6. b
1. c 2. c 3. c 4. c
1. b 2. a 3. d
1. c 2. c 3. c
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1. c 2. c 3. c
1. c 2. c 3. c
1. a 2. c 3. b
1. b 2. c 3. a 4. a 5. b
6. c
1. a 2. d 3. a 4. c 5. c
6. c
1. b 2. a 3. a 4. b 5. a
6. a
1. b 2. a 3. c 4. a 5. c
6. c 7. d 8. c 9. a 10. d
11. c 12. c 13. b 14. c 15. b
1. a 2. c 3. a 4. a 5. b
6. b
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1. a 2. d 3. d 4. d 5. d
6. c
1. c 2. b 3. d 4. c 5. a
6. b
1. b 2. c 3. b 4. a 5. a
6. c
1. b 2. c 3. d 4. d 5. d
6. b 7. c 8. b 9. c 10. c
1. a 2. d 3. d 4. b 5. a
6. b 7. c 8. a 9. a 10. c
1. a 2. a 3. c 4. d 5. c
6. a 7. a 8. c 9. c 10. c
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1. b 2. a 3. c 4. a 5. a
6. c 7. b 8. d
1. b 2. b 3. c 4. a 5. b
6. a 7. b 8. b
1. a 2. d 3. b 4. b 5. b
6. b 7. b 8. b
1. c 2. d 3. a 4. d 5. c
6. b 7. a 8. d
1. b 2. d 3. b 4. c 5. d
6. d 7. c
1. d 2. c 3. c 4. d 5. a
6. a 7. d
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Unit 2: THE KEYNESIAN THEORY OF

DETERMINATION OF NATIONAL INCOME
1. What is the central proposition of Keynesian theory regarding the determination

of national income?
(a) National income is determined by aggregate supply.
(b) National income is determined by aggregate demand.
(c) National income is determined by both aggregate supply and aggregate demand.
(d) National income is determined by the government's fiscal policy.
2. During a recession, Keynesian economists recommend which of the following

policies to stimulate economic growth and increase national income?
(a) Decreasing government spending and raising taxes.
(b) Decreasing the money supply to control inflation.
(c) Increasing government spending and lowering taxes.
(d) Reducing exports to protect domestic industries.
3. In the Keynesian model, what is the role of private investment in determining

national income?
(a) Private investment has no impact on national income.
(b) Private investment solely determines national income.
(c) Private investment is a component of aggregate demand affecting national income..
(d) Private investment only affects the inflation rate, not national income.
4. According to the Keynesian theory, what can lead to a situation of

"underemployment equilibrium" in an economy?
(a) When aggregate demand exceeds aggregate supply.
(b) When aggregate supply exceeds aggregate demand.
(c) When there is full employment in the economy.
(d) When aggregate demand is insufficient to create full employment.
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5. Which of the following represents the primary tool for the government to
influence aggregate demand and stabilize the economy, according to Keynesian
economics?
(a) Monetary policy. (b) Fiscal policy.
(c) Supply-side policies. (d) Exchange rate policy.
6. Who is the main proponent of the Keynesian theory of determination of National

Income?
(a) Adam Smith (b) John Maynard Keynes
(c) Milton Friedman (d) Friedrich Hayek
7. According to Keynesian theory, what determines the level of employment and

output in an economy?
(a) Consumer preferences and saving habits
(b) Government spending and taxation policies
(c) The interaction of aggregate demand and aggregate supply
(d) The natural rate of unemployment
8. The central idea of the Keynesian theory is that:

(a) Government intervention is necessary to stabilize the economy
(b) The market forces alone can ensure full employment and economic stability
(c) Tax cuts are the most effective tool for economic growth
(d) Private investment is the primary driver of economic prosperity
9. According to Keynes, what can lead to a situation of "effective demand

deficiency" in the economy?
(a) Excessive government spending
(b) High levels of consumer saving
(c) Low interest rates set by the central bank
(d) High levels of inflation
10. Keynesian theory suggests that during an economic downturn, the government
should implement:
(a) Austerity measures to reduce public debt
(b) Supply-side policies to boost production
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(c) Contractionary monetary policies to control inflation

(d) Expansionary fiscal policies to increase spending
11. Keynes argued that during periods of economic recession or the government
should:
(a) Increase taxes to reduce budget deficits
(b) Reduce government spending to control inflation depression,
(c) Decrease interest rates to encourage private investment
(d) Increase government spending to stimulate aggregate demand
12. The concept of "Multiplier Effect" in the Keynesian theory suggests that:
(a) Changes in government spending have a larger impact on National Income than
changes in taxes.
(b) A change in investment leads to a proportionate change in National Income.
(c) Increases in exports result in higher economic growth and employment.
(d) Changes in consumption have a direct and immediate impact on investment.
13. According to Keynes, in situations of insufficient aggregate demand, the economy

may experience:
(a) Demand-pull inflation (b) Cost-push inflation
(c) Deflation and unemployment (d) Stagflation
1. In a simple two-sector model of the circular flow, the two sectors are:
(a) Government and households (b) Business firms and households
(c) Government and business firms (d) Foreign sector and households
2. In the circular flow model, which sector is the ultimate consumer of goods a and
services?
(a) Business firms (b) Households (c) Government (d) Foreign sector
3. In the circular flow model, which sector supplies factors of production to

business firms?
(a) Government (b) Households (c) Business firms (d) Foreign sector
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4. Which of the following flows represents the payment made by business firms to
households for providing factors of production?
(a) Factor payments (b) Transfer payments
(c) Investment spending (d) Consumption expenditure
5. In the circular flow model, which sector provides funds to business firms for
investment purposes?
(a) Government (b) Households (c) Business firms (d) Foreign sector
6. In the circular flow model, households are the:

(a) Sellers of goods and services and buyers of factors of production
(b) Buyers of goods and services and sellers of factors of production
(c) Buyers of goods and services and buyers of factors of production
(d) Sellers of goods and services and sellers of factors of production
7. Which of the following best represents the flow of goods and services in the
circular flow model?
(a) Money flows from households to businesses for goods and services.
(b) Goods and services flow from households to businesses in exchange for money.
(c) Money flows from businesses to households for factors of production.
(d) Factors of production flow from businesses to households in exchange for money.
8. Savings in the circular flow model refer to:

(a) The money that businesses save from their profits
(b) The money that households save from their income
(c) The money that businesses invest in new projects
(d) The money that households spend on goods and services
9. In the circular flow model, the total value of goods and services produced in the
economy is measured by:
(a) Gross Domestic Product (GDP) (b) Gross National Product (GNP)
(c) Net Domestic Product (NDP) (d) Net National Product (NNP)
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10. In the circular flow model, households receive income in the form of:
(a) Profits (b) Taxes (c) Wages, rent, and interest (d) Government transfers
11. Which component of the circular flow represents the total spending by
households on goods and services?
(a) Savings (b) Investment
(c) Government spending (d) Consumption expenditure
12. In the two-sector circular flow model, savings by households are equal to:
(a) Consumption expenditure (b) Taxes paid to the government
(c) Investment by firms (d) Government spending
13. The circular flow model assumes that all income earned by households is either
spent on consumption or saved, and there is no:
(a) Government intervention (b) Investment by firms
(c) Financial sector (d) Foreign trade
1. In economics, the study of how individuals and societies allocate limited

resources to satisfy their unlimited wants is known as:
(a) Microeconomics (b) Macroeconomics
(c) Economic planning (d) Economics
2. The total value of all final goods and services produced within a country's
borders during a specific time period is known as:
(c) Net National Product (NNP) (d) National Income
3. Which of the following is NOT a factor of production in economics?

(a) Land (b) Labor (c) Capital (d) Money
4. The price at which the quantity demanded of a good or service equals the
quantity supplied is known as:
(a) Equilibrium price (b) Market price (c) Maximum price (d) Minimum price
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5. The study of how individuals and firms make decisions and interact in markets is
known as:
(a) Macroeconomics (b) Microeconomics
(c) Economic planning (d) Econometrics
6. Which of the following is a basic concept in economics that refers to the limited
nature of resources?
(a) Opportunity cost (b) Scarcity
(c) Inflation (d) Gross Domestic Product (GDP)
7. Opportunity cost is defined as:

(a) The cost of producing one additional unit of a good or service
(b) The total cost of all inputs used in the production process
(c) The highest-valued alternative given up when a choice is made
(d) The difference between total revenue and total cost
8. Which function of money refers to money serving as a medium of exchange in

transactions?
(a) Store of value (b) Unit of account
(c) Medium of exchange (d) Standard of deferred payment
9. The Consumer Price Index (CPI) is a measure of:

(a) The overall level of prices in an economy
(b) The total output produced in an economy
(c) The unemployment rate in an economy
(d) The government's budget deficit
10. The total market value of all final goods and services produced within a
country's borders during a specific time period is known as:
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11. The total value of all goods and services produced within a country's borders
during a specific time period is known as:
(a) Gross National Product (GNP) (b) Gross Domestic Product (GDP)
12. The measure of the responsiveness of quantity demanded of a good to a change

in its price is known as:
(a) Elasticity of demand (b) Elasticity of supply
(c) Marginal utility (d) Consumer surplus
13. Which type of unemployment occurs when there is a temporary mismatch

between job seekers and available job vacancies?
(a) Cyclical unemployment (b) Frictional unemployment
(c) Structural unemployment (d) Seasonal unemployment
14. The interest rate at which a central bank lends money to commercial banks is
known as:
(a) Prime rate (b) Discount rate (c) Federal funds rate (d) LIBOR rate
1. In an economy, the Aggregate Demand (AD) function is represented as AD =

1,000 - 100P, where P is the price level. Calculate the Aggregate Demand when
the price level is ` 5.
(a) 1,500 (b) 500 (c) 1,000 (d) 2,000

(a) 1,500 (b) 2,500 (c) 2,000 (d) 3,000

(a) 2,500 (b) 3,000 (c) 1,500 (d) 2,000
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4. In an economy, the aggregate demand (AD) function is represented as AD =

2,000 - 100P, where P is the price level. Calculate the equilibrium level of
aggregate demand when the price level (P) is ` 15.
(a) ` 1,000 (b) ` 2,500 (c) ` 1,500 (d) ` 500
1. In an economy, the consumption function is represented as C = 500 + 0.8Y,

where Y is the disposable income. Calculate the level of consumption when the
disposable income (Y) is ` 2,000.
(a) ` 1,800 (b) ` 1,900 (c) ` 2,500 (d) ` 2,200

where C is consumption and Y is disposable income. Calculate the level of
consumption when disposable income (Y) is ` 1,000.
(a) 1,200 (b) ` 1,300 (c) ` 1,400` (d) ` 1,500
3. In an economy, the consumption function is represented as C = 1,000 + 0.8Y,

(a) ` 800 (b) ` 1,200 (c) ` 2,400 (d) ` 2,800

(a) ` 1,000 (b) ` 1,800 (c) ` 2,200 (d) ` 1,400

(a) ` 1,500 (b) ` 2,000 (c) ` 2,200 (d) ` 2,800

where C is the consumption and Y is the disposable income. Calculate the level of
consumption when the disposable income (Y) is ` 5,000.
(a) ` 1,800 (b) ` 3,800 (c) ` 4,000 (d) ` 5,000
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where C is the consumption and Y is the disposable income. Calculate the level of
saving when the disposable income (Y) is ` 4,000.
(a) ` 2,400 (b) ` 1,600 (c) ` 2,000 (d) 1,000
2. In an economy, the consumption function is represented as C = 800 + 0.6 Y,

where C is the consumption, Y is the disposable income, and S is the saving.
Calculate the level of saving when the disposable income (Y) is ` 2,000.
(a) ` 1,200 (b) ` 800 (c) ` 400 (d) ` 1,600

where C is the consumption, and Y is the disposable income. Calculate the level
of saving when the disposable income (Y) is 4,000.
(a) ` 600 (b) ` 1,600 (c) ` 2,400 (d) ` 2,600
1. In an economy, the short-run aggregate supply (SRAS) curve is represented as

SRAS = 1,500+ 0.5P, where P is the price level. Calculate the level of
aggregate supply when the price level (P) is ` 10.
(a) ` 1,550 (b) ` 2,000 (c) ` 2,500 (d) ` 1,000
2. In an economy, the short-run aggregate supply (SRAS) curve is represented as

SRAS = 2,000+ 100P, where P is the price level. Calculate the level of
aggregate supply when the price level (P) is ` 10.
(a) ` 2,100 (b) ` 3,000 (c) ` 2,500 (d) ` 2,200
3. In an economy, the aggregate supply (AS) function is represented as AS =

2,000+ 100P, where P is the price level. Calculate the level of aggregate supply
when the price level (P) is ` 10.
(a) ` 2,000 (b) ` 3,000 (c) ` 2,100 (d) ` 2,500
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1. In the two-sector model of National Income determination, the two main sectors
are:
(a) Government and households (b) Government and foreign trade
(c) Households and firms (businesses) (d) Firms (businesses) and foreign trade
2. In the two-sector model, the total output produced by firms is either consumed
by households or:
(a) Saved by households (b) Invested by firms
(c) Exported to foreign countries (d) Imported from foreign countries
3. In the two-sector model, the total income earned by households is either spent
on consumption or:
(a) Invested by firms (b) Taxed by the government
(c) Exported to foreign countries (d) Imported from foreign countries
4. In the two-sector model, the equilibrium level of National Income occurs when:
(a) Total consumption equals total investment
(b) Total savings equals total investment
(c) Total consumption equals total savings
(d) Total income equals total expenditure
5. If total consumption in the two-sector model is greater than total income, the
economy will experience:
(a) An increase in inventories (b) An increase in investment
(c) An increase in National Income (d) A decrease in National Income
6. In the two-sector model, the income earned by households is allocated between:

(a) Taxes and Savings (b) Consumption and Savings
(c) Consumption and Investment (d) Taxes and Investment
7. In the two-sector model, the equilibrium condition is achieved when:

(a) Consumption equals savings (b) Consumption exceeds savings
(c) Savings exceed consumption (d) Consumption and savings are both zero
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8. If in the two-sector model, consumption exceeds income, it would result in:

(a) Equilibrium (b) A budget surplus
(c) A budget deficit (d) An increase in investment
9. In the two-sector model, investment is assumed to be:

(a) Autonomous (b) Derived
(c) Dependent on consumption (d) Dependent on government spending
10. In the two-sector model, the total income earned by households is divided into
two components: consumption expenditure (C) and:
(a) Gross Domestic Product (GDP) (b) Investment (1)
(c) Net exports (NX) (d) Savings (S)
11. The equilibrium condition in the two-sector model occurs when:

(a) Savings are greater than investment (b) Consumption equals investment
(c) Savings equal investment (d) Consumption equals GDP
12. If, in the two-sector model, aggregate savings are greater than aggregate
investment, the economy is in:
(a) Recession (b) Equilibrium (c) Inflation (d) Unemployment
13. The formula for calculating national income (Y) in the two-sector model is:
(a) Y = C - S (b) Y = C + S (c) Y = C + 1 (d) Y = C – I
1. In an economy, the aggregate demand (A(d) function is represented as

AD=2,000-100P, and the short-run aggregate supply (SRAS) function is
represented as SRAS = 1,000 + 150P. Calculate the equilibrium price level (P)
and output level when the economy is at equilibrium.
(a) P = ` 6, Y = 1,400 (b) P = ` 8, Y= 1,200
(c) P = ` 10, Y = 1,000 (d) P = ` 12, Y = 800
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2. In an economy, the aggregate demand (AD) and short-run aggregate supply

(SRAS) functions are given by AD = 2,000 - 100P and SRAS = 1,000+ 150P,
where P is the price level. Calculate the equilibrium price level and output level.
(a) Equilibrium price level: ` 8; Output level: 1,400 units
(b) Equilibrium price level: ` 10; Output level: 1,500 units
(c) Equilibrium price level: ` 12; Output level: 1,600 units
(d) Equilibrium price level: ` 6; Output level: 1,200 units
3. In an economy, the aggregate demand (A(d) function is represented as AD 2,000

100P, and the short-run aggregate supply (SRAS) function is represented as
SRAS = 500 + 100P. Calculate the equilibrium price level and output level in the
economy.
(a) Equilibrium price level = ` 8; Equilibrium output level = 1,200 units
(b) Equilibrium price level = ` 10; Equilibrium output level = 1,000 units
(c) Equilibrium price level = ` 12; Equilibrium output level = 800 units
(d) Equilibrium price level = ` 14; Equilibrium output level = 600 units
1. The investment multiplier measures the relationship between:

(a) Consumer spending and investment
(b) Government spending and investment
(c) Investment and changes in national income
(d) Changes in national income and consumer spending
2. The formula to calculate the investment multiplier is:

(a) Investment Multiplier = 1 / Marginal Propensity to Consume (MPC)
(b) Investment Multiplier = 1 / Marginal Propensity to Save (MPS)
(c) Investment Multiplier = 1 + Marginal Propensity to Consume (MPC)
(d) Investment Multiplier = 1 + Marginal Propensity to Save (MPS)
3. If the Marginal Propensity to Save (MPS) is 0.2, what is the value of the
investment multiplier?
(a) 1.2 (b) 5 (c) 0.2 (d) 0.8
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4. The investment multiplier indicates that an increase in investment of a certain

amount will lead to a/an:
(a) Smaller increase in national income (b) Equal decrease in national income
(c) Larger increase in national income (d) No change in national income
5. The investment multiplier assumes that:

(a) The economy is at full employment (b) Consumer spending is constant
(c) Government spending is constant (d) There are no leakages in the economy
6. The investment multiplier measures the:

(a) Increase in government spending due to an increase in investment
(b) Increase in investment due to an increase in government spending
(c) Total change in national income resulting from a change in investment
(d) Total change in investment resulting from a change in national income
7. The value of the investment multiplier is calculated as:

(a) 1/Marginal Propensity to Consume (MPC)
(b) Marginal Propensity to Consume (MPC)/1
(c) 1/Marginal Propensity to Save (MPS)
(d) Marginal Propensity to Save (MPS)/1
8. If the Marginal Propensity to Consume (MPC) is 0.8, the value of the investment
multiplier will be:
(a) 2 (c) 4 (b) 3 (d) 5
9. The investment multiplier can be used to calculate the total change in income
when there is an autonomous increase in investment. Autonomous investment
refers to investment that:
(a) Depends on changes in income
(b) Does not depend on changes in income
(c) Is made by the government sector
(d) Is made by the foreign sector
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10. If the investment multiplier is 3, an initial increase in investment of ` 100 million

will lead to a total increase in national income of:
(a) ` 200 million (b) ` 300 million (c) ` 400 million (d) ` 500 million
11. The investment multiplier measures the:

(a) Change in investment due to changes in interest rates.
(b) Change in investment due to changes in government spending.
(c) Change in national income due to changes in investment.
(d) Change in consumption due to changes in income.
12. The formula for calculating the investment multiplier is:

(a) Investment Multiplier = 1 / Marginal Propensity to Consume (MPC)
(b) Investment Multiplier = 1 / Marginal Propensity to Save (MPS)
(c) Investment Multiplier = 1 / Marginal Propensity to Import (MPI)
(d) Investment Multiplier = 1 / Marginal Propensity to Invest (MPI)
13. If the marginal propensity to consume (MPC) is 0.8, the value of the investment
multiplier would be:
(a) 0.8 (c) 0.2 (b) 5 (d) 2
14. The investment multiplier is based on the idea that an initial change in
investment:
(a) Directly affects consumption spending by households.
(b) Indirectly affects consumption and investment spending through changes in
interest rates.
(c) Indirectly affects consumption spending by households.
(d) Directly affects government spending.
15. If the investment multiplier is 4, a 100 million increase in investment will lead to
a total increase in national income of:
(a) `200 million (b) ` 400 million (c) ` 600 million (d) ` 800 million
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1. In the three-sector model, the three main sectors of the economy are:
(a) Government, households, and foreign trade
(b) Government, households, and financial institutions
(c) Households, firms (businesses), and foreign trade
(d) Households, firms (businesses), and financial institutions
2. In the three-sector model, the equilibrium condition occurs when:

(a) Total consumption equals total savings
(b) Total income equals total consumption
(c) Total income equals total expenditure
(d) Total savings equals total investment
3. The formula for calculating the equilibrium level of income (Y) in the three-
sector model is:
(a) Y=C+1+G (b) Y=C+S+T (c) Y=C+1+NX (d) Y=C+1-NX
4. If in the three-sector model, total consumption is ` 800 million, total investment

is ` 200 million, government expenditure is ` 300 million, and net exports are `
50 million, the equilibrium level of income (Y) would be:
(a) ` 1,050 million (b) ` 1,250 million (c) ` 750 million (d) ` 1,350 million
5. If in the three-sector model, total consumption is ` 500 million, total investment

is ` 300 million, government expenditure is ` 200 million, and net exports are -
`50 million (trade deficit), the equilibrium level of income (Y) would be:
(a) ` 1,050 million (b) `950 million (c) ` 750 million (d) `1,150 million
6. In a three-sector model, the three main sectors of the economy are:

(a) Households, firms, and government.
(b) Households, firms, and foreign trade
(c) Households, firms, and banks
(d) Households, firms, and financial institutions
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7. In a three-sector model, the equilibrium condition occurs when:

(a) Aggregate savings equal aggregate investment
(b) Aggregate consumption equals aggregate income
(c) Total exports equal total imports
(d) Total government spending equals total tax revenue
8. If, in the three-sector model, aggregate consumption is greater than aggregate

income, the economy is in:
(a) Recession (b) Equilibrium (c) Inflation (d) A trade surplus
9. The formula for calculating the equilibrium level of income (Y) in a three-sector
model is:
(a) YG-1+X-M (b) Y=C+1+G (c) Y=C+S+T (d) Y=C+1+X
10. The concept of the marginal propensity to import (MPM) in a three-sector model
refers to:
(a) The change in government spending due to changes in income.
(b) The change in consumption due to changes in income.
(c) The change in imports due to changes in income.
(d) The change in investment due to changes in interest rates.
11. The formula for calculating national income (Y) in the three-sector model is:
(a) Y=C+S (b) Y=C+1 (c) Y=C+T (d) Y=C+T+1
12. In the three-sector model, the total income earned by households is divided into
three components: consumption expenditure (C), savings (S), and:
(a) Taxes (T) (b) Investment (1)
(c) Exports (X) (d) Government expenditure (G)
13. The equilibrium condition in the three-sector model occurs when:

(a) Total consumption equals total income
(b) Total savings equal total investment
(c) Total consumption plus total taxes equal total income
(d) Total exports equal total imports
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14. If, in the three-sector model, aggregate consumption and taxes are greater
than aggregate income, it indicates that:
(a) The economy is in equilibrium (b) The economy is in recession
(c) The economy is facing a surplus (d) The economy is facing a deficit
1. In an economy, the government purchases of goods and services (G) are `500
billion, taxes (T) are `300 billion, transfer payments (TR) are `100 billion, and
the disposable income (YD) is `1,500 billion. Calculate the level of government
savings or dissavings.
(a) Government savings of `200 billion
(b) Government dissavings of `100 billion
(c) Government dissavings of `200 billion
(d) Government savings of `100 billion
2. In an economy, the government increases its spending on infrastructure projects

and welfare programs. As a result, the government expenditure (G) increases by
`100 billion. How will this increase in government expenditure affect the
equilibrium level of income in the economy, assuming the marginal propensity to
consume (MPC) is 0.8?
(a) The equilibrium level of income will increase by `100 billion.
(b) The equilibrium level of income will decrease by ` 100 billion.
(c) The equilibrium level of income will increase by ` 500 billion.
(d) The equilibrium level of income will decrease by ` 500 billion.
3. In an economy, the government increases its spending on infrastructure projects

and welfare programs. As a result, the government expenditure (G) increases by
`200 billion. How will this increase in government expenditure affect the
equilibrium level of income (Y) in the economy, assuming a simple Keynesian
model?
(a) The equilibrium level of income (Y) will increase by ` 200 billion.
(b) The equilibrium level of income (Y) will decrease by ` 200 billion.
(c) The equilibrium level of income (Y) will not change.
(d) The equilibrium level of income (Y) will change, but the direction of change cannot
be determined without more information.
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4. In an economy, the government purchases (G) are ` 500 billion, taxes (T) are
`300 billion, transfer payments (TR) are `100 billion, and the disposable income
(YD) is `1,800 billion. Calculate the level of government savings or dissavings
(Sg).
(a) Government savings (Sg) = ` 100 billion
(b) Government savings (Sg) = - `100 billion
(c) Government savings (Sg) = `300 billion
(d) Government savings (Sg) = - `300 billion
1. In the four-sector model, the total income earned by households is divided into
four components: consumption expenditure (C), savings (S), taxes (T), and:
(a) Exports (X) (b) Imports (M)
(c) Investment (1) (d) Government expenditure (G)
2. The equilibrium condition in the four-sector model occurs when:

(a) Total consumption equals total income
(b) Total savings equal total investment
(c) Total consumption plus total taxes equal total income
3. If, in the four-sector model, aggregate consumption and taxes are greater than
aggregate income, it indicates that:
4. In the four-sector model, the net exports (NX) component represents:

(a) Total consumption by households
(b) Total government expenditure
(c) Total investment by firms
(d) The difference between exports (X) and imports (M)
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5. The formula for calculating national income (Y) in the four-sector model is:
(a) Y = C+S (b) Y=C+T (c) Y=C+T+1 (d) Y=C+T+1+NX
6. In the four-sector model, the four main sectors of the economy are:
(a) Households, firms (businesses), government, and foreign trade
(b) Households, firms (businesses), government, and financial institutions
(c) Households, firms (businesses), government, and banks
(d) Households, firms (businesses), government, and central bank
7. In the four-sector model, the total income earned by households is divided into
four components: consumption expenditure (c), savings (S), taxes (T), and:
(a) Imports (M) (b) Exports (X)
(c) Government expenditure (G) (d) Investments (1)
8. The equilibrium condition in the four-sector model occurs when:

(a) Total consumption plus total taxes equal total income
(b) Total consumption plus total investment equal total income
(c) Total savings plus total investment equal total income
9. If, in the four-sector model, aggregate consumption, taxes, and imports are
greater than aggregate income, it indicates that:
10. The formula for calculating national income (Y) in the four-sector model is:
(a) Y=C+S (b) Y=C+1 (c) Y=C+T+X (d) Y=C+T+1+X-M
1. According to the Keynesian theory, during an economic recession, the government

should:
(a) Decrease government spending to reduce budget deficits.
(b) Increase taxes to control inflation.
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(c) Increase government spending to stimulate aggregate demand.

(d) Decrease interest rates to encourage private investment.
2. The Keynesian theory emphasizes that in times of economic downturns, the

primary cause of unemployment is:
(a) Technological advancements leading to job losses.
(b) Structural changes in the economy.
(c) Insufficient aggregate demand.
(d) Excessive government intervention.
3. The concept of the "Multiplier Effect" in the Keynesian theory suggests that:
(a) Government spending has a larger impact on national income than changes in taxes.
(b) A change in investment leads to a proportionate change in national income.
(c) Increases in exports result in higher economic growth and employment.
(d) Changes in consumption have a direct and immediate impact on investment.
4. According to the Keynesian theory, during periods of high inflation, the

government should focus on:
(a) Increasing government spending to boost aggregate demand.
(b) Reducing taxes to encourage consumption.
(c) Decreasing money supply and raising interest rates to control spending.
(d) Encouraging private investment through tax incentives.
5. The Keynesian theory highlights that during economic downturns, there may be a
role for the government to engage in:
(a) Active fiscal and monetary policies to stabilize the economy.
(b) Laissez-faire and minimal government intervention.
(c) Decreasing public expenditure to reduce budget deficits.
(d) Reducing public debt to promote economic growth.
6. The conclusion of the Keynesian theory of determination of national income is

that:
(a) The government should play a minimal role in the economy.
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(b) Government intervention is necessary to stabilize the economy and achieve full
employment.
(c) The economy will always be in a state of equilibrium without any government
intervention.
(d) Monetary policy is the most effective tool to control inflation and unemployment.
7. According to the Keynesian theory, during times of economic recession, the

government should:
(a) Decrease taxes to boost consumer spending.
(b) Decrease government spending to reduce budget deficits.
(c) Increase taxes to reduce inflation.
(d) Increase government spending to stimulate aggregate demand.
8. The Keynesian theory suggests that changes in aggregate demand can lead to
fluctuations in:
(a) The exchange rate. (b) Interest rates.
(c) Unemployment and inflation. (d) Stock market prices.
9. The primary focus of the Keynesian theory is on:

(a) Long-term economic growth.
(b) Achieving price stability.
(c) Short-run economic fluctuations and stabilizing the economy.
(d) Increasing international trade.
10. The Keynesian theory influenced the development of economic policies during:
(a) The Great Depression in the 1930s.
(b) The Industrial Revolution in the 18th century.
(c) The Renaissance period in Europe.
(d) The post-World War II era.
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1. The Keynesian theory of determination of national income was proposed by:

(a) Adam Smith (b) John Maynard Keynes
(c) Milton Friedman (d) Friedrich Hayek
2. According to the Keynesian theory, the level of national income is primarily

determined by:
(a) Aggregate demand in the economy (b) Aggregate supply in the economy
(c) The government's fiscal policy (d) The central bank's monetary policy
3. The central idea of the Keynesian theory is that:

(a) Supply creates its own demand in the economy
(b) Savings and investment are equal in the long run
(c) The economy can experience prolonged periods of unemployment
(d) Government intervention is unnecessary in a free-market economy
4. Keynes argued that during economic downturns, the government should:

(a) Reduce taxes and increase government spending
(b) Increase taxes and reduce government spending
(c) Allow market forces to correct the imbalances in the economy
(d) Privatize state-owned enterprises to stimulate economic growth
5. The concept of "effective demand" in the Keynesian theory refers to:

(a) The total demand for goods and services in the economy
(b) The demand for goods and services by the government sector
(c) The demand for exports and imports in the economy
(d) The demand for consumer goods only, excluding investment
6. Keynesian policies are designed to address:

(a) Short-run fluctuations in the business cycle
(b) Long-run structural issues in the economy
(c) Inflationary pressures in the economy
(d) Excessive government debt and deficits
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7. In the Keynesian theory, if aggregate demand is insufficient to achieve full

employment, the result will be:
(a) Inflation (b) Deflation
(c) Recession or unemployment (d) Economic growth and stability
8. The Keynesian theory gained prominence during which historical period?

(a) The Great Depression of the 1930s
(b) The Industrial Revolution of the 18th century
(c) The Renaissance era in Europe
(d) The dot-com bubble of the late 1990s
1. In a simple two-sector model of the economy, the two main sectors are:
(a) Household and government (b) Household and business
(c) Business and government (d) Household and financial
2. The circular flow model illustrates the flow of:

(a) Goods and services and money between households and firms
(b) Goods and services and money between households and the government
(c) Goods and services and money between businesses and the government
(d) Goods and services and money between firms and financial institutions
3. In the circular flow model, households are the:

(a) Buyers of goods and services and sellers of factors of production
(b) Buyers of goods and services and buyers of factors of production
(c) Sellers of goods and services and sellers of factors of production
(d) Sellers of goods and services and buyers of factors of production
4. Which of the following represents the flow of money in the circular flow model?
(a) Money flows from households to businesses as payment for goods and services
(b) Money flows from businesses to households as payment for factors of production
(c) Money flows from businesses to the government as taxes
(d) Money flows from households to the government as taxes
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5. In the circular flow model, households receive income through:

(a) Profits earned from business activities
(b) Government subsidies and transfers
(c) Wages, salaries, and rent for providing factors of production
(d) Interest earned from financial investments
6. The circular flow model assumes that:

(a) There is no saving or investment in the economy
(b) The government does not play a role in the economy
(c) There are no leakages or injections in the flow of income
(d) The economy is closed, with no foreign trade
7. Leakage in the circular flow model refers to:

(a) Money flowing out of the economy due to imports
(b) Money flowing into the economy due to exports
(c) Savings and taxes that reduce the flow of income
(d) Government spending that increases the flow of income
8. Injection in the circular flow model refers to:

(a) Money flowing into the economy due to exports
(b) Money flowing out of the economy due to imports
(c) Government spending and investments that increase the flow of income
(d) Savings and taxes that reduce the flow of income
1. Economics is the study of:

(a) How to maximize individual profits
(b) How to achieve economic equality among individuals
(c) How societies allocate scarce resources to satisfy unlimited wants
(d) How to control inflation and unemployment in the economy
2. The basic economic problem arises because:

(a) Governments are inefficient in resource allocation
(b) Human wants are unlimited, but resources are limited
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(c) There is a surplus of goods and services in the market

(d) Consumers' preferences change frequently
3. The concept of opportunity cost refers to:

(a) The monetary cost of an economic decision
(b) The highest-valued alternative that must be given up when a choice is made
(c) The additional cost incurred when producing one more unit of a good
(d) The total cost of production of a firm
4. In economics, the term "demand" refers to:

(a) The quantity of a good or service that producers are willing to supply
(b) The quantity of a good or service that consumers are willing and able to buy at a
given price
(c) The price at which producers are willing to sell a good or service
(d) The price at which consumers are willing and able to buy a good or service
5. The law of supply states that:

(a) As the price of a good or service increases, the quantity demanded will increase
(b) As the price of a good or service increases, the quantity supplied will decrease
(c) As the price of a good or service decreases, the quantity demanded will decrease
(d) As the price of a good or service decreases, the quantity supplied will increase
6. Which of the following is a function of money in an economy?

(a) To regulate imports and exports
(b) To control inflation and deflation
(c) To serve as a medium of exchange, unit of account, and store of value
(d) To determine the distribution of income and wealth
7. In a market economy, the allocation of resources is primarily determined by:

(a) The government through central planning
(b) Consumer preferences and market forces of supply and demand
(c) Labor unions and collective bargaining
(d) International trade agreements and treaties
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8. The production possibilities frontier (PPF) represents:

(a) The maximum quantity of goods and services that a country can produce using all
available resources efficiently
(b) The minimum level of production a country must achieve to meet its basic needs
(c) The total output of a country's economy in a given time period
(d) The income distribution among different income groups in an Economy
1. In the two-sector model of national income determination, the two main sectors
are:
(a) Household and government (b) Household and business
(c) Business and government (d) Government and foreign trade
2. The two-sector model simplifies the economy by considering the interactions

between:
(a) Households and businesses only
(b) Households and the government only
(c) Businesses and the government only
(d) Households and the foreign sector only
3. In the two-sector model, households are the main:

(a) Producers of goods and services (b) Consumers of goods and services
(c) Suppliers of factors of production (d) Investors in the economy
4. The two-sector model assumes that all the income earned by households is
either:
(a) Spent on consumption or saved (b) Spent on consumption or invested
(c) Spent on imports or exports (d) Spent on consumption or taxes
5. Investment in the two-sector model refers to:

(a) The purchase of financial assets by households
(b) The purchase of physical capital goods by businesses
(c) The government's spending on infrastructure projects
(d) The government's spending on social welfare programs
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6. Savings in the two-sector model is equal to:

(a) Investment (b) Consumption
(c) Income earned by households (d) Government spending
7. The two-sector model assumes that there is no:

(a) Government intervention in the economy
(b) Unemployment or inflation
(c) Saving or investment in the economy
(d) International trade or foreign sector interaction
8. In the two-sector model, the equilibrium condition is achieved when:

(a) Savings are equal to consumption (b) Investment is equal to consumption
(c) Investment is equal to savings (d) Savings are equal to government spending
1. The investment multiplier is a concept used in economics to measure:

(a) The impact of changes in investment on the overall economy
(b) The efficiency of the financial sector in generating profits
(c) The effectiveness of government spending on economic growth
(d) The correlation between inflation and unemployment
2. The investment multiplier is calculated as the:

(a) Change in investment divided by the change in national income
(b) Change in national income divided by the change in investment
(c) Change in consumption divided by the change in investment
(d) Change in government spending divided by the change in investment
3. A higher investment multiplier implies that:

(a) Changes in investment have a larger impact on the overall economy
(b) Changes in investment have a smaller impact on the overall economy
(c) The economy is in a recessionary phase
(d) The economy is in an inflationary phase
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4. The investment multiplier process works through:

(a) Changes in consumer spending due to changes in investment
(b) Changes in government spending due to changes in investment
(c) Changes in aggregate demand due to changes in investment
(d) Changes in aggregate supply due to changes in investment
5. The value of the investment multiplier is influenced by the:

(a) Level of government regulation in the economy
(b) Level of unemployment in the economy
(c) Marginal propensity to consume (MPC) and the marginal to save (MPS)
(d) Exchange rate of the national currency
6. In an economy with a high investment multiplier, a decrease in investment can

lead to:
(a) A significant decrease in national income and output
(b) An increase in consumer spending to compensate for the decrease in investment
(c) An increase in government spending to compensate for the decrease in investment
(d) No significant impact on the overall economy
7. The investment multiplier is a key concept in understanding the impact of:

(a) Fiscal policy on economic growth (b) Monetary policy on interest rates
(c) Foreign trade on exchange rates (d) Supply-side policies on unemployment
8. The investment multiplier is a theoretical concept that assumes:

(a) Investment has a fixed impact on the economy
(b) The economy is in a constant state of equilibrium
(c) There are no leakages in the circular flow of income
(d) All other factors in the economy remain constant
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1. In a three-sector model of national income determination, the three main

sectors are:
(a) Household, government, and foreign trade
(b) Household, business, and government
(c) Business, government, and foreign trade
(d) Household, financial, and foreign trade
2. The three-sector model expands the two-sector model by incorporating the role
of:
(a) Government and imports only (b) Government and exports only
(c) Government and both imports and exports (d) Foreign trade and exports only
3. In the three-sector model, government spending includes:

(a) Imports and exports of goods and services
(b) Taxes and transfers to households
(c) Investments in physical capital by businesses
(d) Savings and financial investments
4. Equilibrium income in the three-sector model is achieved when:

(a) Aggregate demand is greater than aggregate supply
(b) Aggregate demand is less than aggregate supply
(c) Aggregate demand is equal to aggregate supply
(d) Aggregate demand is equal to consumption
5. The equilibrium condition in the three-sector model is represented as:

(a) Aggregate demand (AD) = Exports (X) + Government spending (G)
(b) Aggregate demand (AD) = Consumption (C) + Government spending (G) + Savings
(S)
(c) Aggregate demand (AD) = Consumption (C) + Investment (1) + Government spending
(G)
(d) Aggregate demand (AD) = Consumption (C) + Investment (1) + Government
spending (G) - Imports (M)
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6. In the three-sector model, leakage refers to:

(c) Taxes and savings that reduce the flow of income
(d) Government spending that increases the flow of income
7. The injection in the three-sector model refers to:

(c) Government spending and investments that increase the flow of income
(d) Savings and taxes that reduce the flow of income
8. In the three-sector model, if aggregate demand exceeds aggregate supply, it

leads to:
(a) A surplus in the economy
(b) An increase in government borrowing
(c) Inflationary pressures in the economy
(d) A decrease in national income
1. In a four-sector model of national income determination, the four main sectors

are:
(a) Household, government, business, and foreign trade
(b) Household, government, business, and financial
(c) Household, government, business, and exports
(d) Business, government, foreign trade, and financial
2. The four-sector model expands the three-sector model by incorporating the role
of:
(a) Government and imports only (b) Government and exports only
(c) Foreign trade and exports only (d) Financial sector and imports only
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3. In the four-sector model, net exports (NX) represent the difference between:
(a) Government spending (G) and taxes (T) (b) Exports (X) and imports (M)
(c) Savings (S) and investments (1) (d) Consumption (C) and investment (1)
4. Equilibrium income in the four-sector model is achieved when:

(a) Aggregate demand is greater than aggregate supply
(b) Aggregate demand is less than aggregate supply
(c) Aggregate demand is equal to aggregate supply
(d) Aggregate demand is equal to consumption
5. The equilibrium condition in the four-sector model is represented as:

(a) Aggregate demand (AD) Consumption (C) + Government spending (G) + Savings (S)
(b) Aggregate demand (AD) = Consumption (C) + Investment (1) + Government
spending (G) + Net exports (NX)
(c) Aggregate demand (AD) = Consumption (C) + Investment (1) + Government
spending (G) - Net exports (NX)
(d) Aggregate demand (AD) = Consumption (C) + Investment (1) + Government
spending (G) - Taxes (T)
6. In the four-sector model, the net exports (NX) are negative when:
(a) Imports exceed exports (b) Exports exceed imports
(c) Government spending exceeds taxes (d) Savings exceed investments
7. The leakage in the four-sector model refers to:

(c) Taxes, savings, and imports that reduce the flow of income
(d) Government spending and investments that increase the flow of income
8. The injection in the four-sector model refers to:

(c) Government spending, exports, and investments that increase the flow of income
(d) Taxes, savings, and imports that reduce the flow of income
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1. The Keynesian theory emphasizes the role of …………………. in influencing national

income.
(a) Aggregate supply (b) Government policies
(c) Foreign trade (d) Business investments
2. According to the Keynesian theory, during periods of economic downturns, the

government should use ……………………. to stimulate economic growth.
(a) Monetary policy (b) Supply-side policies
(c) Fiscal policy (d) Trade policies
3. The concept of "effective demand" in the Keynesian theory highlights the

importance of:
(b) The total demand for goods and services in the economy
(c) The level of savings and investments in the economy
(d) The role of foreign trade in influencing national income.
4. The Keynesian theory suggests that if there is insufficient aggregate demand in

the economy, the government should:
(a) Reduce government spending and lower taxes
(b) Increase government spending and lower taxes
(c) Increase interest rates to encourage savings
(d) Decrease interest rates to promote borrowing and investment
5. In the Keynesian model, full employment equilibrium can only be achieved with:
(a) An increase in government regulations and control
(b) The proper functioning of the financial sector
(c) The active role of the government in managing aggregate demand
(d) A balanced budget and reduced government intervention
6. The Keynesian theory gained popularity during the:

(a) Great Depression of the 1930s (b) Industrial Revolution of the 18th century
(c) Renaissance era in Europe (d) Dot-com bubble of the late 1990s
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7. Keynes argued that in the long run:

(a) Government intervention is unnecessary in the economy
(b) Supply creates its own demand
(c) The economy will automatically reach full employment
(d) The impact of government policies on aggregate demand diminishes
8. The Keynesian theory's focus on aggregate demand and government intervention

has had a significant influence on the development of modern:
(a) Classical economics (b) Monetarist economics
(c) Neoclassical economics (d) Macroeconomics
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ANSWERS (Unit 2):
1. B 2. C 3. C 4. D 5. B
6. B 7. C 8. A 9. B 10. D
11. D 12. A 13. C
1. B 2. B 3. B 4. A 5. B
6. A 7. B 8. B 9. A 10. C
11. D 12. C 13. D
1. D 2. A 3. D 4. A 5. B
6. B 7. C 8. C 9. A 10. A
11. B 12. A 13. B 14. B
1. B 2. C 3. C 4. C
1. B 2. B 3. B
1. B 2. C 3. B
1. A 2. C 3. B
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1. A 2. A 3. B
1. C 2. A 3. A 4. C 5. D
6. B 7. A 8. C 9. A 10. D
11. C 12. A 13. B
1. A 2. A 3. B
1. C 2. D 3. B 4. C 5. D
6. C 7. A 8. C 9. B 10. B
11. C 12. A 13. D 14. C 15. C
1. A 2. C 3. C 4. B 5. B
6. B 7. B 8. A 9. B 10. C
11. D 12. A 13. C 14. D
1. C 2. C 3. A 4. B
1. C 2. C 3. D 4. D 5. D
6. A 7. B 8. C 9. D 10. D
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1. C 2. C 3. B 4. C 5. A
6. B 7. D 8. C 9. C 10. A
1. B 2. A 3. C 4. A 5. A
6. A 7. C 8. A
1. B 2. A 3. A 4. A 5. C
6. C 7. C 8. C
1. C 2. B 3. B 4. B 5. D
6. C 7. B 8. A
1. B 2. A 3. B 4. A 5. B
6. A 7. D 8. C
1. A 2. B 3. A 4. C 5. C
6. A 7. A 8. D
1. B 2. C 3. B 4. C 5. C
6. C 7. C 8. c
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1. A 2. A 3. B 4. C 5. B
6. A 7. C 8. C
1. B 2. C 3. B 4. B 5. C
6. A 7. D 8. D
1.80 9307260763

Chapter-1: Determination of National Income

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Determination of National Income 1

Unit 1: National Income Accounting

1. Which of the following is NOT a component of Gross Domestic Product (GDP)?

3. Which of the following is a measure of a country's Gross National Product

4. In national income accounting, "Net Domestic Product (NDP)" is defined as:

5. Which of the following is NOT a component of Gross Domestic Product (GDP)?

6. What does GNP stand for in national income accounting?

9. Which of the following is NOT included in the calculation of Gross Domestic

11. In National Income Accounting, depreciation of capital refers to:

12. Which of the following is an example of a transfer payment in National Income

13. Which of the following is NOT a component of Aggregate Expenditure in National

1. National Income estimates are essential for:

2. The Gross Domestic Product (GDP) per capita is used to:

3. Which of the following is NOT a usefulness of National Income estimates?

4. National Income estimates help in identifying:

6. Which of the following is a usefulness of National Income estimates in economic

7. Which of the following is NOT a significance of National Income estimates?

9. National Income estimates help in identifying:

10. National Income estimates are essential for:

(c) Measuring inflation and unemployment rates

12. The significance of National Income estimates lies in:

13. Which of the following is NOT a usefulness of National Income estimates?

14. National Income estimates help in international comparisons of countries'

1. Gross Domestic Product (GDP) measures:

2. Gross National Product (GNP) is defined as:

3. Net National Product (NNP) is calculated by:

4. National Disposable Income (NDI) is defined as:

5. Personal Income (PI) is calculated as:

6. Gross Domestic Product (GDP) is defined as the total:

7. Gross National Product (GNP) is calculated as the total:

8. Net National Product (NNP) is derived by deducting:

9. National Disposable Income (NDI) is calculated by:

12. Which concept of National Income deducts depreciation (capital consumption)

(b) Prices have decreased by 10% compared to the base year.

(c) ` 700 billion (adjusted for depreciation)

(a) ` 1,100 billion

(b) ` 1,200 billion

(b) ` 750 billion (adjusted for transfer payments)

1. Which of the following organizations is responsible for estimating the National

2. Which of the following methods is used to estimate the National Income of

3. Which of the following is NOT considered a part of the National Income of

5. Which component of National Income in India is known as the "single largest

6. Which organization is responsible for estimating and publishing National Income

7. Which method is used to estimate National Income in India?

9. Which factor cost adjustment is necessary to arrive at Gross Domestic Product

11. In India, which organization is responsible for the estimation of National

1. In a simple economy, the total value of (Gross Domestic Product - GDP) is

4. In a two-sector economy, the total value of output (Gross Domestic Product) is `

5. In a three-sector economy, the total value of output (Gross Domestic Product) is

6. In a four-sector economy, the total value of output (Gross Domestic Product) is

1. Consider a three-stage production process. The value of raw materials purchased

2. Consider a four-stage production process. The value of raw materials purchased

3. Consider a two-stage production process. The value of raw materials purchased

4. In a three-stage process, the value of raw materials production purchased by a

5. In a four-stage production process, the value of intermediate goods purchased

6. In a five-stage production process, the value of raw materials purchased by a

1. In an economy, the following income components are given: employee

2. In an economy, the following income components are given: employee

3. In an economy, the following income components are given: employee