Here we are providing 1 Mark Questions for Economics Class 12 Chapter 4 Determination of Income and Employment are the best resource for students which helps in class 12 board exams.

## One Mark Questions for Class 12 Economics Chapter 4 Determination of Income and Employment

Question 1.
Define Aggregate Demand. (C.B.S.E. 2010,2014)
Or
What is ‘Aggregate Demand’ in macroeconomics? (C.B.S.E Outside Delhi 2015)
Aggregate Demand (AD) refers to the total expenditure on consumption and investment by different sectors of the economy.

Question 2.
How would you show Aggregate Demand in an equation?
Aggregate Demand can be written in the form of the following equation:
AD = C + I + G + (X – M) where
C – Private Final Expenditure
I = Investment Expenditure
G = Government Expenditure
X – M = Net Exports (Exports – Imports)

Question 3.
Define Aggregate Supply.
Or
What is ‘Aggregate Supply’ in macroeconomics? (C.B.S.E 2015)
Aggregate Supply (AS) refers to the planned aggregate production by the producers during a period of one year. It is equal to the income generated.

Question 4.
How would you show Aggregate Supply in an equation?
Aggregate Supply can be written in the form of the following equation:
AS = Y = C + S
where; C – Consumption Expenditure
S = Savings

Question 5.
What are the two main constituents of AD?
The two main constituents of AD are:
(i) Consumption
(ii) Investment

Question 6.
What are the two constituents of AS?
The two main constituents of AD are:
(i) Consumption
(ii) Saving

Question 7.
Why does consumption curve not start from the origin? (C.B.S.E 2018)
Consumption curve does not start from zero because people consume even at zero level of income.

Question 8.
Define MPC. (C.B.S.E 2014,2017)
Marginal Propensity to Consume (MPC) is the ratio of change in consumption to the change in income; It is the slope of the consumption function.

Question 9.
What do you understand by APC?
Average Propensity to Consume (APC) is the ratio of total consumption (C) to total income (Y).
$$M P C=\frac{\Delta C}{\Delta Y}$$

Question 10.
What do you understand byAPC?
Average Propensity to Consume (APC) is the ratio of total consumption (C) to total income (Y).
$$\mathrm{APC}=\frac{\mathrm{C}}{\mathrm{Y}}$$

Question 11.
How is Average Propensity to Consume measured?
Average propensity to consume (APC) is measured as below:
$$\mathrm{APC}=\frac{\text { Consumption }}{\text { Income }}=\frac{C}{Y}$$

Question 12.
Define APS.
Average Propensity to Save (APS) is the ratio of total saving to total income
$$\mathrm{MPS}=\frac{\Delta \mathrm{S}}{\Delta Y}$$

Question 13.
What do you understand by MPS?
Marginal Propensity to Save (MPS) is the ratio of change in saving to change in income.
$$\mathrm{MPS}=\frac{\Delta \mathrm{S}}{\Delta Y}$$

Question 14.
State the relationship between MPS and MPC.
The sum of Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) is always equal to one. That is,
MPC + MPS = 1

Question 15.
State the relationship between APC and APS.
The sum of Average Propensity to Consume (APC) and Average Propensity to Save (APS) is always equal to one. That is, APC + APS = 1

Question 16.
What is consumption?
Consumption refers to that part of income, which is spent by the households on the purchase of consumer goods and services.

Question 17.
What does a consumption function show?
Consumption function shows the relationship between income and consumption.

Question 18.
Give the meaning of autonomous consumption.
Autonomous consumption is the amount of consumption expenditure at zero level of income. It does not change with change in income.

Question 19.
Give the meaning of ex-ante savings. (C.B.S.E. 2010)
Ex-ante savings refer to the level of savings, which is planned to be made by the households during a period of one year.

Question 20.
If planned savings are greater than planned investment what will be its effect on inventories?
If planned savings are greater than planned investment, inventories will increase.

Question 21.
What are the two determinants of investment?
The two determinants of investment are:
(i) Marginal Efficiency of Capital
(ii) Rate of interest

Question 22.
What is the main motive for investment in the private sector?
Expected profitability is the main motive for investment in the private sector.

Question 23.
Define investment. (C.B.S.E. 2013 Comp.)
Investment refers to purchase of new machines, new buildings and other capital goods that add to the existing stock of capital goods.

Question 24.
Give the meaning of ex-ante investment. (C.B.S.E 2010)
Ex-ante investment refers to the investment, which is planned to be made by the firms during a period of one year.

Question 25.
If S exceeds I in an economy, what will be its effect on level of income?
If S exceeds I in an economy then the level of income will decline.

Question 26.
If I exceeds S in an economy, what will be its effect on level of income?
If I exceeds S in an economy then the level of income will increase.

Question 27.
Define Say’s law of markets.
According to the Say’s law of markets, “Production is the source of demand.”

Question 28.
What is meant by full employment? (C.B.S.E Outside Delhi 2014)
Full employment refers to a situation in which everyone who is willing to work at the existing wage rate gets work.

Question 29.
What is Keynes’s conception of full employment?
According to Keynes, full employment exists when the Aggregate Supply function becomes perfectly inelastic in an economy.

Question 30.
How is full employment equilibrium determined?
Full employment equilibrium is determined when Aggregate Demand function intersects the Aggregate Supply function on its perfectly inelastic part.

Question 31.
According to classical writers, what are the causes of involuntary unemployment?
According to classical writers, involuntary unemployment appears in an economy due to wage rigidity, minimum wage laws and trade union activities.

Question 32.
What, according to Keynes, is the fundamental cause of involuntary unemployment?
According to Keynes, the fundamental cause of involuntary unemployment in an economy is the deficient demand.

Question 33.
What is involuntary unemployment? (CBSE 2014,2017)
The involuntary unemployment refers to a situation in which the workers are willing to work at the prevailing wage rates but the jobs are not available to them.

Question 34.
If MPC and MPS are equal, what is the value of the multiplier?
The sum of MPC and MPS is always equal to I. That is,
MPC + MPS = I
When MPC = MPS, then the value of both of them will be:
$$M P C=M P S=\frac{1}{2}$$
The value of multiplier can be calculated as:
\begin{aligned} K &=\frac{1}{M P S} \\ &=\frac{1}{\frac{1}{2}}=2 \end{aligned}
Thus, the value of the multiplier is 2.

Question 35.
What is investment multiplier?
Investment multiplier (K) expresses the relationship between the final change in income and the initial change in investment. It is estimated as the ratio of change in income due to change in investment.

Question 36.
Whose value does $$\frac{1}{1-M P C}$$ show?
Investment Multiplier.
$$K=\frac{\Delta Y}{\Delta !}$$

Question 37.
Whose value does $$\frac{1}{\mathrm{MPS}}$$ indicate?
Investment multiplier.

Question 38.
What will be the value of multiplier, if MPS is 0.4?
Investment multiplier $$(K)=\frac{1}{M P S}$$
At MPS = 0.4,
$$K=\frac{1}{0.4}=\frac{10}{4}=2.5$$

Question 39.
What is the value of investment multiplier, if MPS = 0.8?
Investment multiplier $$(K)=\frac{1}{M P S}$$
At MPS = 0.8,
$$K=\frac{1}{0.8}=\frac{10}{8}=1.25$$

Question 40.
What will be the value of multiplier, if MPS = 0.5?
Investment multiplier $$(K)=\frac{1}{M P S}$$
At MPS = 0.5
$$K=\frac{1}{0.5}=\frac{10}{5}=2$$

Question 41.
What is value of multiplier, if MPC is 0.9?
Investment Multiplier $$(\mathrm{K})=\frac{1}{1-\mathrm{MPC}}$$
At MPC = 0.9,

Question 42.
What is the value of multiplier, if MPC is 3/4?
Investment Multiplier K=\frac{1}{1-0.9}=\frac{1}{0.1}=10
\begin{aligned} M P C &=\frac{3}{4}, K=\frac{1}{1-3 / 4} \\ &=\frac{1}{1 / 4}=4 \end{aligned}

Question 43.
What can be the minimum value of investment multiplier?
The minimum value of investment multiplier can be one.

Question 44.
If investment multiplier is one, what will be the value of Marginal Propensity to Consume?
When investment multiplier is one, then the value of Marginal Propensity of Consume will be zero.

Question 45.
What is deficient demand?
Deficient demand refers to a situation in the economy in which Aggregate Demand is less than: the i Aggregate Supply (AD < AS) at the fell employment level.

Question 46.
What is ‘excess demand’ in macroeconomics? (C.B.S.E Outside Delhi 2014)
Excess demand refers to a situation in the economy in which the Aggregate Demand is more than i the Aggregate Supply (AD > AS) at the fell employment level.

Question 47.
What is deflationary gap? (C.8.S.E Outside Delhi 2014)
Deflationary gap refers to the excess of available supply of output over the anticipated expenditure • at constant prices of base period.

Question 48.
Define inflationary gap.(C.B.S.E. Outside Delhi 2014)
Inflationary gap refers to the excess of anticipated expenditure over the available supply of output at i constant prices of base period.

Question 49.
How can the problems of excess and deficient demand be combated?
The problems of excess and deficient demand may be combated through fiscal policy and monetary policy measures of the government.

Question 50.
What is meant by open market operations?
Open market operation is the policy of the central monetary authority to sell and buy the government securities in the market.

Question 51.
What is bank rate or discount rate?
Bank rate is the minimum rate at which the central bank discounts the first class bills of exchange and provides credit to the commercial banks.

Question 52.
What do you mean by margin requirement?
Margin requirement of loan is the minimum security price charged by the commercial bank for granting

Question 53.
Suggest one monetary measure to correct excess demand.
Bank rate can be increased to correct excess demand.

Question 54.
Give one fiscal measure to correct excess demand.