MCQ Questions for Class 12 Economics Chapter 4 Determination of Income and Employment with Answers

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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

Answer

Answer: (B) Perfectly 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

Answer

Answer: (A) Equal


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

Answer

Answer: (C) Both 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

Answer

Answer: (A) Full employment


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

Answer

Answer: (A) One


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

Answer

Answer: (B) 0.63


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

Answer

Answer: (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

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

Answer

Answer: (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

Answer

Answer: (C) Tax


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

Answer

Answer: (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

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

Answer

Answer: (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

Answer

Answer: (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

Answer

Answer: (A) greater than 2


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

Answer

Answer: (a) J.B.Say


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

Answer

Answer: (c) J.M. Keynes


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

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

Answer

Answer: (a) Effective Demand


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

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

Answer

Answer: (b) Real Investment


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

Answer

Answer: (b) Falls


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

Answer

Answer: (c) Construction of Buildings


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

Answer

Answer: (b) 2


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

Answer

Answer: (c) 1


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

Answer

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

Answer

Answer: (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

Answer

Answer: (a) Pigour


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

Answer

Answer: (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

Answer

Answer: (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

Answer

Answer: (a) Pigou


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

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:
(a) AD > AS
(b) AS > AD
(c) AD = AS
(d) None of these

Answer

Answer: (c) AD = AS


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

Answer

Answer: (c) S = I


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

Answer

Answer: (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

Answer

Answer: (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

Answer

Answer: (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

Answer

Answer: (a) Investment and Income


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

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

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

Answer

Answer: (c) Employment Multiplier


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

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

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

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

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

Answer

Answer: (c) 2


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

Answer

Answer: (c) 200 crores Rs


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

Answer

Answer: (b) Kahn


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

Answer

Answer: (a) Deficit Demand


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

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

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

Answer

Answer: (a) Deficit Demand


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

Answer

Answer: (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

Answer

Answer: (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

Answer

Answer: (a) Inflationary Gap


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

Answer

Answer: (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

Answer

Answer: (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

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

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

Answer

Answer: (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

Answer

Answer: (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

Answer

Answer: (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

Answer

Answer: (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

Answer

Answer: (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

Answer

Answer: (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

Answer

Answer: (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

Answer

Answer: (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

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.

Answer

Answer: (a) Inverse


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

Answer

Answer: (a) 1


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

Answer

Answer: (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

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 _________

Answer

Answer: investment


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

Answer

Answer: direct


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

Answer

Answer: short


Question 4.
Income tax is a _______ tax.

Answer

Answer: direct


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

Answer

Answer: increased


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

Answer

Answer: higher


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

Answer

Answer: excess


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

Answer

Answer: >


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

Answer

Answer: fiscal


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

Answer

Answer: quantitative


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

Answer

Answer: fiscal


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

Answer

Answer: monetary


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

Answer

Answer: direct


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

Answer

Answer: Indirect


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

Answer

Answer: Average


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

Answer

Answer: higher


Question 17.
MPC is always _________

Answer

Answer: positive


Question 18.
MPC lies between ______ and ________

Answer

Answer: zero, one


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

Answer

Answer: Marginal efficiency of capital


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

Answer

Answer: Deficit


Question 21.
Deficit demand indicates _________ gap.

Answer

Answer: Deflationary gap


Question 22.
In case of excess demand bank rate _________

Answer

Answer: Increase


Question 23.
Multiplier can also _________ in opposite direction.

Answer

Answer: Work


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

Answer

Answer: Effective demand


Question 25.
Unemployment is the result of ________

Answer

Answer: Deficit


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

Answer

Answer: Consumption


State true or false:

Question 1.
Consumption is the complement of saving.

Answer

Answer: True


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

Answer

Answer: True


Question 3.
MPC can be negative.

Answer

Answer: False


Question 4.
MPC of the rich class is higher.

Answer

Answer: False


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

Answer

Answer: True


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

Answer

Answer: True


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

Answer

Answer: False


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

Answer

Answer: False


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

Answer

Answer: True


Question 10.
When MPC is zero multipliers is 1.

Answer

Answer: True


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

Answer

Answer: True


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

Answer

Answer: True


Question 13.
Corporation tax is an indirect tax.

Answer

Answer: False


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

Answer

Answer: False


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

Answer

Answer: False


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

Answer

Answer: True


Question 17.
Full employment does not mean zero unemployment.

Answer

Answer: True


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

Answer

Answer: False


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

Answer

Answer: True


Question 20.
Theories of employment were propounded by Marshall.

Answer

Answer: False


Question 21.
Unemployment is the result of deficit demand.

Answer

Answer: False


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

Answer

Answer: False


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

Answer

Answer: True


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.
Answer

Answer:

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

Question 2.

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
Answer

Answer:

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

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