Check the below NCERT MCQ Questions for Class 12 Economics Chapter 4 Determination of Income and Employment with Answers Pdf free download. MCQ Questions for Class 12 Economics with Answers were prepared based on the latest exam pattern. We have provided Determination of Income and Employment Class 12 Economics MCQs Questions with Answers to help students understand the concept very well.

Determination of Income and Employment Class 12 MCQs Questions with Answers

Employment Theory Is Related To MCQ Question 1.
What is the shape of the Keynesian Aggregate Supply before the level of full employment is attained?
(A) Perfectly inelastic
(B) Perfectly elastic
(C) Unitary elastic
(D) More elastic

MCQ Of Aggregate Demand And Supply Class 12 Question 2.
According to classical economists, real wage rate is ______ to the Marginal Productivity of Labour.
(A) Equal
(B) More
(C) Less
(D) None of these

Determination Of Income And Employment Class 12 MCQ Question 3.
What is the cause of Keynesian perfectly elastic Aggregate Supply curve?
(A) Wage price rigidity
(B) Constant Marginal Product of Labour
(C) Both of these
(D) None of these

Determination Of Income And Employment MCQ Question 4.
According to classical economists, there always exists ______ equilibrium in the economy.
(A) Full employment
(B) Underemployment
(C) Over full employment
(D) None of these

Question 5.
What will be APC when APS = 0?
(A) One
(B) Zero
(C) Two
(D) Infinite

Question 6.
If the income is ₹ 400 crores and consumption is ₹ 250 crores, what will be the APC?
(A) 0.67
(B) 0.63
(C) 0.60
(D) 0.58

Question 7.
What is a fiscal measure of correcting deficient demand?
(A) Increase in public expenditure and decrease in taxes
(B) Decrease in public debt
(C) Deficit financing
(D) All of these

Question 8.
Which is the measure of correcting excess demand?
(A) Deficit financing
(B) Reduction in taxes
(C) Increase in public expenditure
(D) Increase in public debt

Answer: (D) Increase in public debt

Question 9.
Suppose in a hypothetical economy, the income rises from ₹ 5,000 crores to ₹ 6,000 crores. As a result, the consumption expenditure rises from ₹ 4,000 crores to ₹ 4,600 crores. Marginal propensity to consume in such a case would be ______
(A) 0.8
(B) 0.4
(C) 0.2
(D) 0.6

Question 10.
On the basis of government law, the compulsory payment made by the public is known as _________
(A) Expenditure
(B) Investment
(C) Tax
(D) Subsidy

Question 11.
Which among is the direct tax?
(A) Income tax
(C) Wealth tax
(D) All of these

Question 12.
The value of multiplier is:
(A) $$\frac{1}{MPC}$$
(B) $$\frac{1}{MPS}$$
(C) $$\frac{1}{1-MPS}$$
(D) $$\frac{1}{MPC-1}$$

Answer: (B) $$\frac{1}{MPS}$$

Question 13.
If MPC = 1, the value of the multiplier is:
(A) 0
(B) 1
(C) Between 0 and 1
(D) Infinity

Question 14.
Aggregate demand can be increased by:
(A) increasing bank rate
(B) selling govt, securities by RBI
(C) increasing cash reserve ratio
(D) none of these

Question 15.
If the marginal propensity to consume is greater than the marginal propensity to save, the value of the multiplier will be
(A) greater than 2
(B) less than 2
(C) equal to 2
(D) equal to 5

Question 16.
Supply creates its own Demand. Who gave this law?
(a) J.B.Say
(b) J.S.Mill
(c) Keynes
(d) Ricardo

Question 17.
Who is the author of the book ‘General Theory of Employment, Interest, and Money’?
(a) A.C. Pigou
(b) Malthus
(c) J.M. Keynes
(d) Marshall

Question 18.
Which of the following is true for the Classical Theory of Employment?
(a) State of full employment in the economy
(b) No possibility of over-or under-production in the economy
(c) Both (a) and (b)
(d) None of the above

Answer: (c) Both (a) and (b)

Question 19.
On which factor Keynesian Theory of Employment depends?
(a) Effective Demand
(b) Supply
(c) Production Efficiency
(d) None of the above

Question 20.
Which is the determining factor for investment?
(a) Marginal Efficiency of Capital
(b) Interest Rate
(c) Both (a) and (b)
(d) None of these

Answer: (c) Both (a) and (b)

Question 21.
According to Keynes, investment implies:
(a) Financial Investment
(b) Real Investment
(c) Both (a) and (b)
(d) None of the above

Question 22.
With the increase in investment, MEC:
(a) Rises
(b) Falls
(c) Remains Constant
(d) None of these

Question 23.
Which of the following is a Read Investment?
(c) Construction of Buildings
(d) Opening Deposit Account in the Bank

Question 24.
APC + APS = ?
(a) ?
(b) 2
(c) 1
(d) 0

Question 25.
MPC = MPS = ?
(a) ?
(b) 2
(c) 1
(d) 0

Question 26.
Which or is true?
(a) MPC + MPS = 0
(b) MPC + MPS < 1
(c) MPC + MPS = 1
(d) MPC + MPS > 1

Answer: (c) MPC + MPS = 1

Question 27.
The main component of aggregate demand is:
(a) Individual consumption
(b) Public consumption
(c) Investment
(d) All the above

Question 28.
Who is the writer of the book, “Trained Economic Politique”?
(a) Pigour
(b) J.B. Say
(c) Keynes
(d) Ricardo

Question 29.
IF MPC = 0.5, then Multiplier (k) will be:
(a) 1/4
(b) = 0
(c) 1
(d) 2

Question 30.
On which concept does classical viewpoint depend?
(a) Say’s Law of Market
(b) perfect Flexibility of Wage Rate
(c) Perfect Flexibility of Interest Rate
(d) All of these

Question 31.
“Wage cut maintains full employment in the economy.” Who put forward this view?
(a) Pigou
(b) Keynes
(c) Marshall
(d) None of the above

Question 32.
Which one of the following is the determining factor of Equilibrium Income is the Keynesian Viewpoint?
(a) Aggregate Demand
(b) Aggregate Supply
(c) Both (a) and (b)
(d) None of the above

Answer: (c) Both (a) and (b)

Question 33.
In Keynesian viewpoint, the equilibrium level of income and employment in the economy will be established where:
(d) None of these

Question 34.
According to the saving-investment viewpoint, income employment equilibrium will be determined at a point where:
(a) S > I
(b) I > S
(c) S = I
(d) None of these

Question 35.
An increase in aggregate demand of equilibrium level of income and employment causes an increase in:
(a) Employment
(b) Production
(c) Income
(d) All of these

Question 36.
Which one is correct?
(a) Y = C + I
(b) Y = 0 = N
(c) C + S = C + I
(d) All of these

Question 37.
Keynes theory is associated with :
(a) Effective demand
(b) Propensity to consume
(c) Propensity to save
(d) All of these

Question 38.
Keynesian multiplier establishes a relationship between:
(a) Investment and Income
(b) Income and Consumption
(c) Saving and Investment
(d) None of the above

Question 39.
Which one is correct?
(a) K = $$\frac{1}{MPC}$$
(b) K = $$\frac{1}{MPS}$$
(c) K = $$\frac{1}{1-MPS}$$
(d) K = $$\frac{1}{1+MPS}$$

Answer: (b) K = $$\frac{1}{MPS}$$

Question 40.
Multiplier can be expressed as:
(a) K = $$\frac{\Delta \mathrm{S}}{\Delta \mathrm{I}}$$
(b) K = $$\frac{\Delta \mathrm{Y}}{\Delta \mathrm{I}}$$
(c) K = I – S
(d) None of these

Answer: (b) K = $$\frac{\Delta \mathrm{Y}}{\Delta \mathrm{I}}$$

Question 41.
Keynes derived Investment Multiplier from Kahn’s :
(a) Income Multiplier
(b) Consumption Multiplier
(c) Employment Multiplier
(d) None of the above

Question 42.
The value of Keynesian Investment Multiplier depends on:
(a) Income Level
(b) Marginal Productivity of Capital
(c) Marginal Propensity to Consume
(d) Investment Level

Answer: (c) Marginal Propensity to Consume

Question 43.
Which factor affects Keynesian Multiplier?
(a) Marginal Propensity to Save
(b) Marginal Propensity to Consume
(c) Both (a) and (b)
(d) None of the above

Answer: (c) Both (a) and (b)

Question 44.
Which of the following is correct?
(a) MPC and multiplier have a direct relationship
(b) MPS and multiplier have an inverse relationship
(c) Both (a) and (b)
(d) None of the above

Answer: (c) Both (a) and (b)

Question 45.
The value of MPC is:
(a) 1
(b) 0
(c) Greater than 0 but less than 1
(d) ?

Answer: (c) Greater than 0 but less than 1

Question 46.
If MPC = 0.5, then multiplier (K) will be:
(a) 1/2
(b) 1
(c) 2
(d) 0

Question 47.
If MPC = 0.5 and initial investment is 100 Rs crores, the income generation in the economy will be :
(a) 5 crores Rs
(b) 100 crores Rs
(c) 200 crores Rs
(d) 500 crores Rs

Question 48.
‘The theory of employment multiplier was propounded by:
(a) Keynes
(b) Kahn
(c) Hansen
(d) Marshall

Question 49.
If income equilibrium level in the economy is determined at the level before full employment, it is known as the state of:
(a) Deficit Demand
(b) Surplus Demand
(c) Partial Demand
(d) None of these

Question 50.
In Keynesian economics, the state of Deficit Demand is called as:
(a) Full Employment Equilibrium
(b) Under Full Employment Equilibrium
(c) Both (a) and (b)
(d) None of the above

Answer: (b) Under Full Employment Equilibrium

Question 51.
What are the characteristics of Deficit Demand?
(a) Aggregate Demand falls short of Aggregate Demand required at full employment
(b) Aggregate Demand remains short of Aggregate Supply required of full employment level
(c) Both (a) and (b)
(d) None of above

Answer: (c) Both (a) and (b)

Question 52.
Deflationary Gap shows the measurement of:
(a) Deficit Demand
(b) Surplus Demand
(c) Full Employment
(d) None of these

Question 53.
Which one is the reason for appearing Deficit Demand condition?
(a) Fall in the money supply in the country
(b) Fall in investment demand as a result of rising in bank rate
(c) Fall in disposable income and consumer demand due to increase in taxes
(d) All the above

Question 54.
Which of the following is true?
(a) Employment level declines due to decrease in demand
(b) Price level falls due to deficient demand in the country
(c) Production level falls deficient demand
(d) All the above

Question 55.
The ‘difference between the Aggregate Demand at above full employment and Aggregate Demand at full employment is known as:
(a) Inflationary Gap
(b) Deflationary Gap
(c) Both (a) and (b)
(d) None of the above

Question 56.
Which of the following is a reason for surplus demand?
(a) Increase in Public Expenditure
(b) Increase in Money Supply
(c) Fall in Taxes
(d) All the above

Question 57.
In the situation of the deflationary gap:
(a) Demand increases rapidly
(b) Supply increase rapidly
(c) Both demand and supply are equal
(d) All of these

Question 58.
Which of the following causes the trade cycle?
(a) Deflationary Conditions
(b) Inflationary Conditions
(c) Both (a) and (b)
(d) None of these

Answer: (c) Both (a) and (b)

Question 59.
Which one is the corrective measure for Deficient Demand?
(a) Fiscal Measures
(b) Monetary Measures
(c) Both (a) & (b)
(d) None of the above

Answer: (c) Both (a) & (b)

Question 60.
Which measure is included in Fiscal Measures?
(a) Public Expenditure
(b) Taxation
(c) Public Debt
(d) All of these

Question 61.
Which fiscal measure should be adopted for correcting Deficient Demand?
(a) Government should spend more on public works
(b) Taxation should be reduced
(c) Pubic debt should be reduced
(d) All the above

Question 62.
With which component of Monetary Policy, Central Bank tries to attain economic stability in the country?
(a) Supply of Money
(b) Interest Rate
(c) Availability of Money
(d) All of these

Question 63.
Which method Central Bank adopts for controlling quantitative credit?
(a) Bank Rate
(b) Open Market Operations
(c) Change in Cash Reserve Ratio
(d) All the above

Question 64.
Which is a qualitative method of controlling credit?
(a) Change in Margin Requirements of Loanee
(b) Credit Rationing
(c) Direct Action
(d) All of these

Question 65.
Which monetary measure may be adopted to correct Deficient Demand?
(a) Reduction in Bank Rate
(b) Buying Securities in Open Markey
(c) Reducing Cash Reserve Ratio
(d) All the above

Question 66.
Which fiscal measure is to be adopted in correcting the Inflationary Gap?
(a) Reduction in Public Expenditure
(b) Increase in taxes
(c) Increase in Public debt
(d) All of these

Question 67.
Which monetary measure is to be adopted in correcting Inflationary
(a) Increase in Bank Rate
(b) Selling of Securities in Open Market
(c) Increase in Cash Reserve Ratio
(d) All the above

Question 68.
Income and employment are determined by:
(a) Total demand
(b) Total supply
(c) Total demand and total supply both
(d) By market demand

Answer: (c) Total demand and total supply both

Question 69.
The relation between consumption and savings are:
(a) Inverse
(b) Direct
(c) Inverse and direct both
(d) Neither inverse nor direct.

Question 70.
When an economy they’re to save all its extra income then investment calculation will be:
(a) 1
(b) Uncertain
(c) 0
(d) Infinite

Question 71.
“Supply creates its own demand”. This statement was given by the economist:
(a) Keynes
(b) Pigou
(c) J. B.Say

Question 72.
The classical theory is based on the assumption of:
(a) Say’s the law of market
(b) Flexibility in wage rates
(c) Flexibility in interest rate
(d) All of the above

Answer: (d) All of the above.

Fill in the blanks:

Question 1.
The multiplier is the ratio between the change in income and change in _________

Question 2.
There is a/an _______ relation between multiplier and MPC.

Question 3.
Deficient demand refers to the situation when Aggregate Demand _______ Aggregate Supply.

Question 4.
Income tax is a _______ tax.

Question 5.
The price will be _______ an the inflationary gap.

Question 6.
In a situation of inflationary gap, the economy faces a situation of _____ output.

Question 7.
The deflationary gap is a measure of _______ demand.

Question 8.
Excess demand refers to the situation when AD ______ AS.

Question 9.
______ policy is related to revenue and expenditure of the government.

Question 10.
Bank rate is a ________ instrument of monetary policy.

Question 11.
Tax, public borrowings are the main components of ________ policy.

Question 12.
Bank rate and open market operation are the main components of _______ policy.

Question 13.
Fiscal policy has a ______ bearing on all the sectors of the economy.

Question 14.
Sale tax is an example of ________ tax.

Question 15.
The _______ Propensity to Consume is the proportion of the income, which is spent on consumption.

Question 16.
MPC of the lower-income group is _______ than the higher income group.

Question 17.
MPC is always _________

Question 18.
MPC lies between ______ and ________

Question 19.
________ refers to the highest rate of return over cost expected from a marginal or additional unit of a capital asset.

Question 20.
Deflationary gap is the measurement of _________ demand.

Question 21.
Deficit demand indicates _________ gap.

Question 22.
In case of excess demand bank rate _________

Question 23.
Multiplier can also _________ in opposite direction.

Question 24.
The point at which aggregate demand and aggregate supply are equal is known as __________

Question 25.
Unemployment is the result of ________

Question 26.
Propensity to consume shows relation between _________ and distributed income.

State true or false:

Question 1.
Consumption is the complement of saving.

Question 2.
Full employment means the absence of involuntary unemployment.

Question 3.
MPC can be negative.

Question 4.
MPC of the rich class is higher.

Question 5.
MPC can be greater than one under abnormal conditions.

Question 6.
According to Keynes, “Unemployment is the cause of AD < AS.”

Question 7.
There is an indirect relationship between multiplier and MPC.

Question 8.
With the increase in investment, the multiplier increases income many times more. It is called backward action of the multiplier.

Question 9.
The value of K is in between 1 and ∝.

Question 10.
When MPC is zero multipliers is 1.

Question 11.
Consumption by one person becomes the income of the other.

Question 12.
The deflationary gap is the shortfall in AD from the level required to maintain full employment equilibrium in the economy.

Question 13.
Corporation tax is an indirect tax.

Question 14.
Monetary policy is related to the revenue and expenditure policy of the government.

Question 15.
When there is excess demand, the rate of taxation is to be reduced.

Question 16.
When there is deficient demand, public expenditure is to be generally expanded.

Question 17.
Full employment does not mean zero unemployment.

Question 18.
An increase in the interest rate in the future will reduce the savings.

Question 19.
Consumption expenditure does not increase in the same proportion as income increases.

Question 20.
Theories of employment were propounded by Marshall.

Question 21.
Unemployment is the result of deficit demand.

Question 22.
Keynes’s theory also applies to underdeveloped countries.

Question 23.
Keynes’s theory is based on the concept of full employment.

Match the following:

Question 1.

 ‘A’ ‘B’ 1. Meaning of market demand (a) Directly related to each other 2. Income and Savings both (b) J. B. Say 3. Independent jurisdiction (c) Income is inelastic 4. Induced investment (d) By the demand of one good 5. Supply creates its own demand (e) Is ruled by 6. Effective demand = Total demand and Total supply (f) Income is elastic.

 Column-I Column-II 1. Components of Aggregate Demand (A) C + S 2. Components of Aggregate Supply (B) Rate of interest and MEC 3. Determinants of investment (C) AD = AS 4. Equilibrium level of income (D) C + I + G + ( X – M) 5. Investment multiplier (E) Taxes, deficit financing 6. MPC = 0.6, MPS = ? (F) 0.4 7. APC = 0.9, APS = ? (G) 0.1 8. Measures of fiscal policy (H) k = $$\frac{\Delta Y}{\Delta I}$$ 9. Measures of monetary policy (I) Bank rate, CRR 10. Quantitative Instrument (J) Rationing 11. Qualitative Instrument (K) Open market operation
 Column-I Column-II 1. Components of Aggregate Demand (D) C + I + G + ( X – M) 2. Components of Aggregate Supply (A) C + S 3. Determinants of investment (B) Rate of interest and MEC 4. Equilibrium level of income (C) AD = AS 5. Investment multiplier (H) k = $$\frac{\Delta Y}{\Delta I}$$ 6. MPC = 0.6, MPS = ? (F) 0.4 7. APC = 0.9, APS = ? (G) 0.1 8. Measures of fiscal policy (E) Taxes, deficit financing 9. Measures of monetary policy (I) Bank rate, CRR 10. Quantitative Instrument (K) Open market operation 11. Qualitative Instrument (J) Rationing