# 200 MCQs of Determination of Income and Employment Macroeconomics class 12

Looking for important MCQs of Determination of Income and Employmentrmination and Multiplier chapter with answers of Macroeconomics class 12 of CBSE, ISC, and other State Boards.

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## Multiple Choice Questions of Determination of Income and Employment chapter with answers of Macroeconomics class 12

Out of the following, which can have a value more the one?

a) MPC
b) APC
c) APS
d) MPS

Ans – b)

Which of the following is not a component of aggregate demand in a two sector economy?

a) Net Exports
b) Government Expenditure
c) Consumption
d) Both a) and b)

Ans – d)

Break-even point is achieved when:

a) National Income = Consumption
b) Consumption = Saving
c) Saving = 0
d) National Income > Consumption

Ans – a), c)

a) Horizontal straight line parallel to the X-axis
b) Positively sloped curve
c) Negatively sloped curve
d) Vertical straight line parallel to the Y-axis

Ans – b)

Aggregate supply and _ are always equal.

a) National Income
b) Aggregate Demand
c) Marginal Propensity to save
d) Average Propensity to consume

Ans – a)

Consumption function is the functional relationship between _ and ___ .

a) Consumption, Aggregate demand
b) Consumption, National Income
c) Aggregate Demand, Aggregate Supply
d) National Income, Private Income

Ans – b)

Tick the wrong option:

a) APC can be more than 1
b) APC can be equal to 1
c) APC rises with increases in income
d) APC can be less than 0

Ans – c), d)

__ refers to actual saving in an economy during a year.

a) Ex-ante saving
b) APS
c) MPS
d) Ex-post saving

Ans – d)

Which of the following is not true about AD in a two sector economy?

a) AD = Consumption + saving
b) AD curve starts from some point above the origin
c) AD = Consumption + Investment
d) AD curve has a positive slope

Ans – a)

Which of the following fact is correct about MPC?

a) Value of MPC varies between 0 and 1
b) MPC of poor is more than that of rich
c) MPC falls with successive increase in income
d) MPC can be more than 1

Ans – a), b), c)

Which of these is a component of Aggregate Demand.

a) Private consumption expenditure
b) Investment expenditure
c) Savings
d) All of these

Ans – a), b)

Which of the following can have a negative value?

a) APC
b) MPC
c) MPS
d) APS

Ans – d)

a) From the origin
b) Point Below the origin
c) Point above the origin
d) None of these

Ans – c)

If investment falls to zero, national income does not fall to zero because of:

a) Autonomous Consumption
b) Induced Investment
c) Autonomous Investment
d) Multiplier

Ans – a)

The value of _ can never be negative, while ___ can have a value eqaul to one.

a) APS, APC
b) MPC, APS
c) APC, APS
d) MPS, APC

Ans – d)

Which of the following expression is correct?

a) APC = Consumption/National Income
b) APC = Change in Consumption/Change in National Income
c) APC = 1 – APS
d) APC = National Income/Consumption

Ans – a), C)

If C – 100 + 0.75Y, then Saving Function will be expressed as:

a) S = 100 + 0.25Y
b) S = -100 + 0.75Y
c) S = -100 + 0.25Y
d) S = 75 + 0.25Y

Ans – c)

At the break-even point:

a) Consumption curve lies below the 45 degree line
b) Consumption curve intersects 45 degree line
c) Consumption curve lies above the 45 degree line
d) None of these

Ans – b)

Suppose in a hypothetical economy, hte 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

Ans – d)

Average Propensity to consume can never be __ .

a) positive
b) zero
c) more than one
d) less than one

Ans – b)

Which of the following is correct?

a) MPC + APC = 1
b) MPC + APS = 1
c) MPC + MPS = 1
d) MPC – MPS = 1

Ans – c)

Consumption curve makes an intercept on the Y-axis. It indicates that:

a) Saving is positive when income is zero
b) Consumption is positive when income is zero
c) Saving is negative when income is positive
d) consumption is zero when income is zero

Ans – b)

Relationship of APC and APS with national income can be represented as:

a) Both APC and APS fall with increase in National Income
b) Both APC and APS rise with increase in National Income
c) APS falls, while APC rises with increase in National Income
d) APC falls, while APS rises with increase in National Income

Ans – d)

In the saving Function: S = -100 + 0.6Y, the value of autonomous consumption will be:

a) 0.6
b) -100
c) 0.4
d) 100

Ans – d)

Problem of unemployment is the problem of:

a) Voluntary unemployment
b) Involuntary Employment
c) Involuntary Unemployment
d) Voluntary Employment

Ans – c)

The level of induced consumption in an economy depends on:

a) Level of Nationa Income
b) MPC
c) Both a) and b)
d) Autonomous Consumption

Ans – c)

Which of the following is true about AD in a two sector economy:

a) AD = Consumption + Investment
b) AD curve starts from some point above the origin
c) AD curve has a positive slope
d) All of these

Ans – d)

Which of the following statements is false?

a) At break even point, the value of APC is one
b) The value of marginal propensity to consume is always positive
c) APC can never be greater than one
d) Full employment implies absence of involuntary unemployment

Ans – c)

Which of the following is correct

a) MPC + MPS = 1
b) MPC + MPS > 1
c) MPC – MPS = 1
d) MPC + MPS = 0

Ans – a)

Full employment implies absence of:

a) Unemployment
b) Voluntary Unemployment
c) Involuntary Unemployment
d) None of these

Ans – c)

When consumption function shoots from Y-axis, it indicates that:

a) Consumption is zero when income is zero
b) Saving is zero when income is zero
c) Saving is negative when income is positive
d) Consumption is positive when incoe is zero

Ans – d)

Which of the following is not a component of AD in a two sector economy?

a) Government Expenditure
b) Net Exports
c) Consumption Expenditure
d) Both a) and b)

Ans – d)

Aggregate Consumption in an economy is:

a) Always Positive
b) Always Negative
c) Positive in the beginning and then negative
d) Negative in the beginning and then positive

Ans – a)

MPC = 0, when:

a) Increase in Saving = Increase in Income
b) Entire increase in income is saved
c) Increase in Consumption = Increase in Income
d) Both a) and b)

Ans – d)

The Consumption of an economy is given as C = 40 + 0.80Y, then value of MPS is:

a) 0.80
b) 1.00
c) 0.40
d) 0.20

Ans – d)

Choose the correct statement:

a) Aggregate Demand = Consumption + Investment
b) Aggregate Supply = Consumption + Saving
c) Both a) and b)
d) Neither a) nor b)

Ans – c)

If MPC is 0.6, what will be the change in consumption, if income increases by 100.

a) 40
b) 50
c) 60
d) 70

Ans – c)

Which of the following is correct?

a) APS = Savings/Income
b) MPC = 1 – MPS
c) APC + APS = 1
d) All of these

Ans – d)

When Autonomous Consumption = ₹100 crores, Marginal Propensity to Save = 0.30 and National Income
is ₹1,500 crores, then total consumption will be:

a) ₹1,050 crores
b) ₹1,150 crores
c) ₹550 crores
d) None of these

Ans – b)

If Consumption at zero level of National Income is ₹50 crores, MPC is 0.6 and National Income is
₹1,000 crore, then value of savings will be:

a) ₹650 crore
b) ₹450 crore
c) ₹350 crore
d) None of these

Ans – c)

If MPC is 0.7, then an increase in National Income of ₹1,000 crores will result in additional
savings of:

a) ₹300 crores
b) ₹700 crores
c) ₹7,000 crores
d) None of these

Ans – a)

The consumption Function of an economy is given as: C = 50 + 0.6Y. Which of the following statement
is true for this economy.

a) Consumption at zero level of National Income is ₹50 crores
b) People spend 60% of rise in income on consumption
c) Both a) and b)
d) People save 60% of rise in income

Ans – c)

Suppose in a hypothetical economy, the income rises from ₹500 crores to ₹600 crores. As a result,
the consumption expenditure rises from ₹400 crores to ₹500 crores. Marginal Propensity
to consume in such a case would be _ .

a) 0.8
b) 0.4
c) 1.0
d) 0.6

Ans – c)

If the value of Average Propensity to Consume (APC) is 0.8 and National Income is ₹4,000 crore,
the value of savings will be _ .

a) ₹100 crores
b) ₹200 crores
c) ₹800 crores
d) ₹500 crores

Ans – c)

If the vaue of Average Propensity to save (APS) is 0.2 and National Income is ₹4,000 crore, then consumption
will be __ .

a) ₹4,000 crores
b) ₹3,200 crores
c) ₹3,800 crores
d) ₹2,600 crores

Ans – b)

If Autonomous Consumption (C) is greater than Zero, it indicates that the national income of hte
economy will be __ .

a) Rising
b) Falling
c) Zero
d) Constant

Ans – a) or b) or c) or d)

At equilibrium level:

a) Consumption = Investment
b) Aggregate Demand = Aggregate Supply
c) Saving = Investment
d) Consumption = Saving

Ans – b), c)

If MPC is 0.6, the investment multiplier will be:

a) 1.67
b) 2.5
c) 6
d) 4

Ans – b)

The maximum value of multiplier is when the value of MPC is .

a) Infinity, Zero
b) Infinity, One
c) one, infinity
d) None of these

Ans – b)

When planned saving is less than planned investment, it indicates a situation when:

d) None of these

If MPC = MPS, then value of multiplier is:

a) Infinity
b) One
c) Equal to MPC
d) Two

Ans – d)

AD curve is represented by __ curve in the income determination analysis.

a) Consumption + Saving + Investment
b) Consumption + Saving
c) Saving + Investment
d) Consumption + Investment

Ans – d)

Multiplier is __ related to MPC.

a) Directly
b) Positively
c) Indirectly
d) Rarely

Ans – a), b)

When economy decides to save the whole of its additional income, then value of investment
multiplier will be:

a) 1
b) Indeterminate
c) 0
d) Infinity

Ans – a)

__ refers to a situation when AD is equal to AS beyond the full employment level.

a) Full Employment Equilibrium
b) Over Full Employemnt Equilibrium
c) Underemployment Eqauilibrium
d) None of these

Ans – b)

The algebraic relationship between multiplier and MPC is:

a) Multiplier (K) = 1 + MPC
b) Mulitplier (K) = 1 – MPC
c) Multiplier (k) = 1/1 – MPC
d) Multiplier (k) = 1/MPC

Ans – c)

If saving function of an economy is given as: S = -40 + 0.4 (Y), thenf MPC is:

a) 1
b) 0.4
c) 0.6
d) None of these

Ans – c)

The value of multiplier is:

a) 1/MPC
b) 1/MPS
c) 1/1 – MPS
d) 1/1 – MPC

Ans – b), d)

If MPC = 1, the value of multiplier is:

Or

If the entire additional income of an economy is consumed, the value of investment multiplier
will be _ .

a) 0
b) 1
c) Between 0 and 1
d) Infinity

Ans – d)

If MPC = 0, the value of multiplier is:

a) 0
b) 1
c) Between 0 and 1
d) Infinity

Ans – b)

MPC = 0.75 and as a result of Multiplier Effect, National Income increased by ₹300 crores by an

a) ₹400 crores
b) ₹225 crores
c) ₹1,200 crores
d) ₹75 crores

Ans – d)

When aggregate demand is greater than aggregate supply, inventories:

a) Fall
b) Rise
c) Do not change
d) First fall, then rise

Ans – a)

If C = 20 + 0.80 Y and Investment Expenditure is ₹50 crores, then Equilibrium Income is:

a) ₹400 crores
b) ₹350 crores
c) ₹200 crores
d) ₹100 crores

Ans – b)

When Planned Saving is less than Planned Investment, then:

a) National Income is likely to fall
b) There will be nochane in National Income
c) National Income is likely to rise
d) None of these

Ans – c)

If MPS = 0.20 and investment is increased by ₹400 crores, then total increase in income will be:

a) ₹80 crores
b) ₹2,000 crores
c) ₹500 crores
d) ₹3,200 crores

Ans – b)

If MPS = 0.30, Autonomous Consumption = ₹50 crores and Investment = ₹100 crores, then Equilibrium
Income will be:

a) ₹500 crores
b) ₹150 crores
c) ₹300 crores
d) ₹45 crores

Ans – a)

In determination of Equilibrium Level of Income by AD-AS approach, AD curve is represented by:

a) (C+S) Curve
b) (C+I) Curve
c) (S+I) Curve
d) (C+Y) Curve

Ans – b)

If the marginal propensity of consume is greater than 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

Ans – a)

If ratio between MPC and MPS is 4:1, then value of multiplier is:

a) 3
b) 4
c) 5
d) 6

Ans – c)

Find autonomous consumption expenditure,if at equilibrium, national income is ₹1,500 crores;
investment expenditure ₹300 crores; Marginal Propensity to Consumer is 0.7.

a) ₹140 crore
b) ₹150 crore
c) ₹100 crore
d) ₹120 crore

Ans – b)

What will be the level of ex-ante aggregate demand when autonomous investment and consumption
expenditure is ₹100 crore and MPS is 0.4 and level of income is ₹4,000 crore.

a) ₹3,250 crore
b) ₹2,500 crore
c) ₹1,700 crore
d) ₹3,500 crore

Ans – b)

If at equilibrium level, National Income is ₹2,000 crores, Autonomous Consumption is ₹400 crores
and Investment expenditure is ₹200 crore, then Marginal Propensity to Consume will be:

a) 0.6
b) 0.5
c) 0.8
d) 0.7

Ans – d)

What is the value of multiplier, when saving function is represented as: S = -60 + 0.2Y?

a) 2
b) 5
c) 4
d) 1.25

Ans – b)

Keynesian Theory of Employment is based on the assumption of:

a) Short run
b) LOng run
c) Both a) and b)
d) None of these

Ans – a)

According to Keynesian Theory, equilibrium level of income is determined at a level when:

a) Ex-ante Savings = Ex-ante Investments
b) Ex-post Saving = Ex-post Investments
c) Both a) and b)
d) Neither a) nor b)

Ans – a)

There exists a positive relation between:

a) Investment Multiplier and MPC
b) Investment Multiplier and APS
c) Investment Multiplier and MPS
c) Investment Multiplier and APC

Ans – a)

With increase in National Income by ₹3,000 crores, savings increased by ₹1,200 crores, the value
of multiplier will be:

a) 2 times
b) 2.5 times
c) 4 times
d) 5 times

Ans – b)

In the determination of equilibrium level of output, investment is assumed to be:

a) Induced
b) Autonomous
c) Both a) and b)
d) None of these

Ans – b)

When investment increases from ₹500 crores to ₹600 crores, then income increases from ₹1,200
crores to ₹1,600 crores. MPS should be:

a) 0.20
b) 0.40
c) 0.25
d) 0.50

Ans – c)

Which of the following is the determination factor of Equilibrium according to Keynesian view
point?

a) Aggregate Demand
b) Aggregate Supply
c) Both a) and b)
d) None of the above

Ans – c)

In case of an underemployment equilibrium, which of the following alternative is not true?

a) Aggregate demand is equal to aggregate supply
b) There exist excess produciton capacity in the economy
c) Resources are not fully and efficiently utilised
d) Resources are fully and efficiently utilised

Ans – d)

If Marginal Propensity to Save (MPS) is 0.25 and initial change in investment is ₹250 crores, then
the final change in income would be _ .

a) ₹1,000 crores
b) ₹1,200 crores
c) ₹500 crores
d) ₹3,500 crores

Ans – a)

__ is exercised through discussions, letters and speeches to banks:

a) Moral suasion
b) Selective Credit Controls
c) Margin Requirements
d) Open Market Operations

Ans – a)

Which of the following is not the reason for excess demand?

a) Fall in the propensity to consume
b) Reduction in taxes
c) Decrease in investments
d) Deficit Financing

Ans – a), c)

Increase in cash reserve ratio will lead to:

a) Fall in Aggregate Demand
b) Rise in Aggregate Demand
c) No change in Aggregate Demand
d) Reduces credit creating power of Commercial banks

Ans – a), d)

The gap by which actual aggregate demand exceeds the aggregate demand required to establish full
employment equilibrium is known as _ .

a) Deficient Demand
b) Deflationary gap
c) Inflationary gap
d) Excess Demand

Ans – c)

“Change in Government Spending” is a part of:

a) Monetary Policy
b) Fiscal Policy
c) Either a) or b)
d) Neither a) nor b)

Ans – b)

__ refers to the situation when aggregate supply falls showt of aggregate demand
corresponding to full employment level of output in the economy.

a) Deficient Demand
b) Excess Demand
c) Inflationary Gap
d) Deflationary gap

Ans – b)

a) Increase in the level of employment
b) Decrease in the level of employemnt
c) No change in the level of employment
d) Increase in Price level

Ans – c), d)

Deficient Demand indicates:

a) Under employment equilibrium
b) Over full employment equilibrium
c) Full employment equilibrium
d) None of these

Ans – a)

Monetary Policy is the policy of _ to control money supply and credit creation in the
economy.

a) Central Government
b) Central Bank
c) Both a) and b)
d) None of these

Ans – b)

During excess demand, central bank __ the margin.

a) Decreases
b) Increases
c) Removes
d) Does not change

Ans – b)

If an economy is to control recession like most of the Euro Zone nations, which of the following
can be appropriate:

a) Reducing Repo Rate
b) Reducing CRR
c) Both a) and b)
d) None of a) and b)

Ans – c)

Aggregate demand can be increased by:

a) increasing bank rate
b) selling government securities by Reserve Bank of India
c) increasing cash reserve ratio
d) none of the above

Ans – d)

The monetary policy generally targets to ensure _ .

a) Price stability in the economy
b) Employment generation in the country
c) Stable foreign relations
d) Greater tax collections for the government

Ans – a)

Excess Demand can be controlled through:

a) Monetary Policy
b) Fiscal Policy
c) Both a) and b)
d) Neither a) nor b)

Ans – c)

An economy is at full employment and AD is greater than AS, what will be the impact on price level
in such an economy?

a) Rise
b) Fall
c) No change
d) Both rise and fall

Ans – a)

Which of the following can be used to correct inflationary gap under Monetary Policy?

a) Increase in Taxation
b) Reduce availability of credit
c) Cut in Government Expenditure
d) None of these

Ans – b)

a) Decrease in Planned Output
b) Fall in General Prices
c) Both a) and b)
d) Rise in Employment Level

Ans – c)

During deflation, it is advisable to:

a) Lower the bank rate and purchase of securities in the open market
b) Increase the bank rate and purchase of securities in the open market
c) Lower the bank rate and sale of securities in the open market
d) Increase the bank rate and sale of securities in the open market

Ans – a)

The effects of excess demand in an economy are:

a) Increase in Output, Employment and Price Level
b) Decrease in Output, Employment and Price Level
c) Increase in Price Level but no change in Output and Employment
d) Increase in Output but no change in Employment and Price Level

Ans – c)

To reduce credit availability in the economy, the central bank may _ .

a) Buy securities in the open market
b) Sell securities in the open market
c) Reduce Reserve ratio
d) Reduce repo rate

Ans – b)