Mock Test - Determination of Income and Employment

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1. 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 to ` 4,600 crores. Marginal Propensity to Consume in such a case would be __________.

0.8

0.4

0.2

0.6

2. Full employment implies absence of:

Voluntary unemployment

Involuntary unemployment

Unemployment

None

3. Aggregate demand can be increased by:

increasing bank rate

selling government securities by Reserve Bank of India

increasing cash reserve ratio

None of the above

4. When MPS = 0, then K is:

∞

None

5. In a situation of ‘Inflationary gap’ at the full employment level of income:

AD > AS

AD = AS

AD < AS

None

6. If MPC is given as 1, how much is MPS:

∞

None

7. If MPC = 1, the value of multiplier is: (Choose the correct alternative)

Between 0 and 1

Infinity

8. According to which economist national income can be determined even below the full employment level:

Adam Smith

J.M. Keynes

J.B. Say

None

9. Identify the correct pair from the following Column I and Column II and choose the correct alternative:

Column I

Column II

A. At break-even point

B. Value of aggregate supply

C. Marginal Propensity to Save

D. Consumption function

(i) C = Y

(ii) E quals to domestic income

(iii) R atio of change in savings to change in income

(iv) relationship between consumption and saving

A – (i)

B – (ii)

C – (iii)

D – (iv)

10. If Marginal Propensity to Consume is greater than Marginal Propensity to Save, the value of multiplier will be:

Greater than 2

Less than 2

Equal to 2

Equal to 5

11. As Marginal Propensity to Save (MPS) increases, the value of investment multiplier

C = 30 + 0.75Y

C = (–)30 + 0.25Y

C = 30 + 0.25Y

C = (–)30 – 0.25Y

12. If in an economy, investment multiplier is 4 and Autonomous Consumption is ` 30 crore, the relevant consumption function would be

C = 30 + 0.75Y

C = (–)30 + 0.25Y

C = 30 + 0.25Y

C = (–)30 – 0.25Y

13. Suppose, following data is presented for an imaginary economy:

Sr. No.

Items

Amount (

in crores)

(i)

(ii)

(iii)

National Income

Marginal Propensity to Save

Investment Expenditure

5,000

0.2

800

The value of Autonomous Consumption will be __________ .

Rs 100 crores

Rs 300 crores

Rs 200 crores

Rs 400 crores

14. The impact of ‘Excess Demand’ under Keynesian theory of income and employment, in an economy are:

Decrease in income, output, employment and general price level

Decrease in nominal income, but no change in real output

Increase in income, output, employment and general price level

No change in output/employment but increase in general price level.

15. Assertion (A): Consumption and investment are the two components of aggregate demand in a closed economy.

Reason (R): Aggregate demand curve always start from origin with a positive slope.

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

Assertion (A) is true but Reason (R) is false

Assertion (A) is false but Reason (R) is true

16. Assertion (A): If aggregate demand is more than aggregate supply at any given level of income, it is not equilibrium level of income.

Reason (R): Equilibrium level of income is the situation where investment is equal to savings.

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

Assertion (A) is true but Reason (R) is false

Assertion (A) is false but Reason (R) is true

17. APC is obtained by:

Y – S

C/Y

Change in C/Change in Y

Y – S/Change in Y

18. The value of aggregate supply is equals to:

National Income

Domestic Income

Private Income

Personal Income

19. Statement 1: Aggregate demand is the sum total of consumption and investment expenditures.

Statement 2: Total consumption consists of an autonomous component and an induced component.

Statement 1 is true and statement 2 is false

Statement 1 is false and statement 2 is true

Both statements 1 and 2 are true

Both statements 1 and 2 are false

20. Average Propensity to Save (APS) is equal to:

Y/S

ΔY/ ΔS

S/Y

ΔS/ ΔY

21. What is the value of investment multiplier, when marginal Prospensity to Consume (MPC) is 0.1?

1.1

1.01

100

22. The following information is given for an imaginary country:

Sr. No.

Items

Amount (

in crores)

(i)

(ii)

(iii)

Investment Expenditure

National Income

Marginal Propensity to Consume

300

1,6000

0.8

Identify which of the following statements is correct?

The value of autonomous consumption expenditure will be ` 80 crores.

The value of autonomous consumption expenditure will be ` 60 crores.

The value of autonomous consumption expenditure will be ` 20 crores.

The value of autonomous consumption expenditure will be ` 40 crores.

23. Average Propensity to Consume (APC) is equal to:

Y/C

ΔY/ ΔC

C/Y

ΔC/ ΔY

24. Which of the following are the components of aggregate demand?

Household Consumption Expenditure and Investment Expenditure

Government Consumption Expenditure and Net Exports

Both (a) and (b)

Neither (a) nor (b)

25. If MPC is 40 per cent, MPS will be:

70 percent

60 percent

50 percent

40 percent

26. The Central Bank issues appeals to the Commercial Banks through:

Open Market Operation

Moral Suasion

Bank Rate

Cash Reserve Ratio

27. According to the Keynesian Theory, in the short period:

AS is assumed to be given

AD is assumed to be given

Both are assumed to be given

Nothing is assumed to be given

28. Assertion (A): Sum of APC and APS is equal to one.

Reason (R): Income of an economy is either saved or consumed.

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

Assertion (A) is true but Reason (R) is false

Assertion (A) is false but Reason (R) is true

29. Out of the following which value can be greater than one?

APC

MPC

APS

MPS

30. The following information is given for an imaginary country

Sr.No.

Items

Amount (

in crores)

(i)

(ii)

(iii)

National Income

Marginal Propensity to Consume

Autonomous Consumption

10,000

0.9

100

Identify which of the following statements is correct?

The value of investment expenditure will be Rs 1,000 crores.

The value of investment expenditure will be Rs 800 crores.

The value of investment expenditure will be Rs 700 crores.

The value of investment expenditure will be Rs 900 crores.

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