EduAdda By Sailesh Goenka

THEORY OF INCOME AND EMPLOYMENT

Class 12 - Economics

1. When Autonomous Consumption = ₹ 75 crore, Marginal Propensity to Consume = 0.65 and income level is ₹ [1]
1,500 crore then the total, consumption will be

esh
a) ₹ 1,050 crore b) None of these

c) ₹ 900 crore d) ₹ 925 crore

2. In C = a + b (Y), a denotes: [1]

ail
a) Consumption expenditure b) Automatic consumption expenditure

c) Autonomous consumption expenditure d) Annual consumption expenditure

yS
3. Which of the following represents the rate of growth of an economy? [1]

a) None of these b) MPS

aB

c) MPC
ka d) Investment multiplier (k)
4. In S = - a + (1 - b)Y where S denotes: [1]
en
a) Level of sales b) Level of savings
dd

c) Level of savings and Capital expenditure d) Level of subsidies

Go

5. It is the expenditure on the purchase of such assets which help us to generate income [1]
uA

a) Investment b) None of these

c) Saving d) Consumption
Ed

6. Given Marginal Propensity to Save as 0.2, an additional investment of ₹ 1,000 crore will result in a total increase [1]
in national income of the value of:

a) ₹ 2,000 crore b) ₹ 10,000 crore

c) ₹ 8,000 crore d) ₹ 5,000 crore

7. What does C/Y indicate? [1]

a) Break-even point b) None of these

c) MPC d) APC
8. ________ (Aggregate Demand/Aggregate Supply) refers to total ex-ante expenditure in an economy during an [1]
accounting year.

a) Aggregate Supply b) None of these

c) National Income d) Aggregate Demand

9. Consumption in Keynesian Economics depends upon: [1]

1/8
For Admission Contact us on 7003217257
 a) none of these b) saving

c) income d) investment
10. The APC can be equal to one when [1]

a) APS=2 b) APS = -1

c) APS = 0 d) APS=1
11. Assertion (A): The point at which the consumption curve intersects the 45-degree line, APS is zero.
[1]
Reason (R): It happens because at this point, consumption is equal to income and saving is zero.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

esh
c) A is true but R is false. d) A is false but R is true.
12. Assertion (A): APS can never be one or more than one.
[1]
Reason (R): APC increases with an increase in income.

ail
a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. yS correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

13. Assertion (A): The presence of autonomous consumption expenditure ensures that the increase will definitely [1]
increase in the initial phases of development.

aB

ka
Reason (R): Due to Autonomous consumption expenditure, Aggregate demand is always greater than income in
the initial phases due to which income and output increase in the initial level.
en
a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
dd

explanation of A. correct explanation of A.

Go

c) A is true but R is false. d) A is false but R is true.

uA

14. Assertion (A): In Keynesian analysis, the investment curve always lies at the same height above the X-axis.
[1]
Reason (R): We assume that the level of investment demand is the same at every level of income, i.e.,
autonomous investment, which is independent of income.
Ed

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

15. Assertion (A): The level of output determined by the equality of Y and AD necessarily mean the level of output [1]
at which everyone is employed.

Reason (R): The equilibrium level of output may be greater than the full employment level of output (the
situation of excess demand) or less than the full employment level of output (the situation of deficient demand).

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

16. Assertion (A): Aggregate demand curve parallel to the consumption curve.
[1]
Reason (R): This is because they have the same slope, i.e. MPC.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the

2/8
For Admission Contact us on 7003217257
 explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

17. Assertion (A): APC can be zero.
[1]
Reason (R): Even at zero income, there has to be a minimum or subsistence level of consumption expenditure,
called autonomous consumption.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

18. Assertion (A): In residential real estate, both sales and new launches contracted in 2020-21.
[1]
Reason (R): One of major impact of lock down is sluggish consumer sentiments.

esh
a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

ail
19. Assertion (A): APC is continuously increasing as income increases; and APS is continuously decreasing as [1]
income increases.

yS
Reason (R): As income increases, the proportion of income saved increases and the proportion of income
consumed decreases.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
aB

explanation of A.
ka correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

en
20. Assertion (A): If a family's marginal propensity to consume is 0.70, then it will necessarily consume seven- [1]
dd

tenths of its total income.

Go

Reason (R): Average Propensity to Consume represents the ratio of absolute consumption expenditure to the
uA

corresponding level of income.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.
Ed

c) A is true but R is false. d) A is false but R is true.

21. Autonomous consumption is indicated by ________ in the consumption function. [1]

a) C¯ b) C

c) AC d) ¯
S

22. With the increase in income, autonomous expenditure ________. [1]

a) will increase proportionately b) will remain unaffected

c) will decrease d) will increase

23. Aggregate demand is sum of ________. [1]

a) C + I + G + (x - m) b) C + I

c) C + I + G d) C
24. Suppose in a hypothetical economy, the income rises from ₹ 5,000 crores to ₹ 6,000 crores. As a result, the [1]

3/8
For Admission Contact us on 7003217257
 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
25. Complete the flow ΔI → ΔY → ΔC → ________. [1]

a) ΔD b) ΔC

c) ΔS d) ΔY

26. When planned savings exceed planned investment, the level of income and employment will tend to ________. [1]

a) Remain constant b) Rise

esh
c) Fall d) None of these
27. Statement I: In National Income Accounting, the terms like consumption, investment, income etc. were used in [1]
the accounting sense - denoting actual values of these items.

ail
Statement II: In order to understand the determination of income, we need to know the planned values of
different components of aggregate demand.
yS
a) Both the statements are true. b) Both the statements are false.

c) Statement I is true, Statement II is false. d) Statement II is true, Statement I is false.

28. Statement I: APS can be negative, zero or positive.
[1]
aB

ka
Statement II: Both MPC and MPS range from 0 to 1.

a) Statement I is true, Statement II is false. b) Both the statements are false.

en
c) Statement II is true, Statement I is false. d) Both the statements are true.
dd

29. Statement I: If planned demand falls short of planned output, there will be unplanned accumulation of [1]
Go

inventories.

uA

Statement II: Y = AD is a necessary condition for equilibrium level of income or output.

a) Statement I is true, Statement II is false. b) Both the statements are true.

c) Both the statements are false. d) Statement II is true, Statement I is false.

Ed

30. Statement I: Effective demand is defined as that level of output and employment where Aggregate Demand is [1]
equal to Aggregate Supply.

Statement II: As per Keynesian theory in an economy, full employment can never exist.

a) Statement II is true, Statement I is false. b) Both the statements are true.

c) Both the statements are false. d) Statement I is true, Statement II is false.

31. Statement I: Aggregate demand curve is represented by a 45o line from the origin.
[1]
Statement II: In a two sector economy, there are only two components of aggregate demand, viz. Consumption
Expenditure and Investment Expenditure.

a) Statement II is true, Statement I is false. b) Both the statements are true.

c) Both the statements are false. d) Statement I is true, Statement II is false.

32. Can there be consumption even if there is no income? [2]
33. What is the value of Marginal Propensity to Consume when MPS is zero? [2]

4/8
For Admission Contact us on 7003217257
34. What is the nature of AD curve? [2]
35. What is propensity to consume? [2]
36. What does planned consumption or ex-ante consumption depend on? [2]
37. Which of the following will enhance the Aggregate Demand ? [2]
i. Government investment on the railway
ii. Increase in Imports
iii. Mobile phone companies investing ?1000 crore
38. What is meant by ex-ante investment? [2]
39. What is ex-post measures? [2]
40. Can the value of average propensity to consume be greater than one? [2]
41. What happens to aggregate demand when income increases? [2]

esh
42. Find investment from the following.
[3]
National income = Rs. 600

Autonomous consumption = Rs.150

ail
Marginal Propensity to Consume = 0.70
43. An Economy is in equilibrium, calculate the Marginal Propensity to Save (MPS) from the following: [3]
yS
i. National Income (Y) = ₹ 4,400
ii. Autonomous Consumption (C¯) = ₹ 1,000
iii. Investment Expenditure (I) = ₹ 100
aB

44.
ka
In an economy, the consumption expenditure is Rs. 8,750 crore and the ratio of Average Propensity to Consume [3]
and Average Propensity to Save is 7:1. Calculate the level of income in the economy.
45. What is the difference between Market Demand and Aggregate Demand? [3]
en
46. The value of marginal propensity to consume is 0.6 and initial income in the economy is Rs 100 crores. prepare [3]
dd

a schedule showing Income, Consumption and Saving. Also, show the equilibrium level of income by assuming
Go

an autonomous investment of Rs 80 crores.

uA

47. Suppose Marginal Propensity to Consume is 0.8. How much increase in investment is required to increase [3]
National Income by Rs 2,000 crore? Calculate.
48. Define MPC. How does MPC affect level of income? [3]
Ed

49. Explain the relationship between investment multiplier and Marginal Propensity to Consume. [3]
50. Distinguish between Marginal Propensity to Consume and Average Propensity to Consume. Give a numerical [3]
example.
51. In an economy, an increase in investment leads to increase in national income which is three times more than the [3]
increase in investment. Calculate MPC.
52. State and discuss the components of Aggregate Demand in a two sector economy. [4]
53. Explain Saving Function with the help of schedule and diagram. [4]
54. State which of the following statements are true or false. Give valid reasons. [4]
i. According to the Keynesian theory of employment, the state of full employment is obtained only when the
economy is in equilibrium.
ii. In a two-sector economy, if consumption is equal to income, the average propensity to save will be zero.
55. Complete the following table. [4]

Income (Y) Saving (S) Marginal Propensity to Consume (MPC) Average propensity to Consume

5/8
For Admission Contact us on 7003217257
 0 -6

20 -3 .................... ...................

40 0 .................... ..................

60 3 .................... .....................

56. An economy is in equilibrium. Calculate the investment expenditure from the following:
[4]
National Income = 800

Marginal Propensity to Save = 0.3

Autonomous Consumption = 100

57. An economy is in equilibrium. Calculate National Income from the following:
[4]
Autonomous Consumption = Rs.100

esh
Marginal Propensity to Save = 0.2

Investment Expenditure = Rs. 200

58. Calculate investment expenditure from the following data about an economy which is in equilibrium.
[4]

ail
National Income = Rs 1,000

Marginal Propensity to Save = 0.25

yS
Autonomous consumption expenditure = Rs 200
59. With reference to Consumption Function answer the following questions: [4]
i. What is consumption function?
ii. What is break even point?
aB

ka
iii. Consumption curve starts from Y-axis. What does this implies?
60. Define effective demand. Discuss how effective demand can be restored, if ex-ante Aggregate Demand (AD) is [4]
en
more than ex-ante Aggregate Supply (AS).
dd

61. What is the investment demand functions ? [4]

Go

Question No. 62 to 65 are based on the given text. Read the text carefully and answer the questions:
[4]
uA

AS (aggregate supply) refers to aggregate production as planned by the producers during an accounting year. It implies
the flow of goods and services in the economy during an accounting year. We know, production of goods and services
implies value addition, and value addition implies income generation. Our knowledge of national income accounting
Ed

tells us that value-added and income generated are identical to each other. Accordingly, AS implies the flow of income
(Y) in the economy during an accounting year. AS and Y, therefore, can be treated as identical to each other.

AS refers to the flow of goods and services as planned by the producers during an accounting year. It is identical with
the flow of income (Y) during an accounting year AS and Y, therefore, may be treated as identical to each other.

62. Aggregate supply only refers to ________.

a) actual production b) desired production

c) desired consumption d) actual consumption

63. The aggregate supply curve is indicated by a ________ line from the origin.

a) 180o b) 90o

c) 45o d) 120o

64. Aggregate supply is ________ with GDP in the economy.

6/8
For Admission Contact us on 7003217257
 a) identical b) all of these

c) indexed d) equated
65. Prices are ________ in aggregate supply.

a) constant b) increasing

c) variable d) decreasing
66. Explain the components of aggregate deman. [6]
67. Explain the equilibrium level of income with the help of saving and investment curves. If planned saving exceed [6]
planned investment, what changes will bring about the equality between them?
68. How is saving and investment approach derived from the Aggregate Demand and supply approach of income [6]
determination? Explain and use diagram.

esh
69. From the data given below about an economy, calculate [6]
i. Investment expenditure
ii. Consumption expenditure.

ail
Equilibrium level of Income = Rs. 5,000

Autonomous Consumption = Rs. 500

yS
Marginal Propensity to Consume = 0.4.
70. Explain national income equilibrium through aggregate demand and aggregate supply. Use the diagram. Also, [6]
explain the changes that take place in an economy when the economy is not in equilibrium.
71. Keynes suggested the use of various tools to deal with the situation of Inflationary Gap prevailing in an [6]
aB

ka
economy.

State and discuss any two monetary policy measures to combat the situation of Inflationary gap in a hypothetical
en
economy.
dd

72. Explain the determination of National Income using saving and investment approach, with the help of a diagram. [6]
Go

Explain the changes that take place when saving is greater than investment.
uA

73. In an economy, the equilibrium level of income is Rs. 12,000 crore. The ratio of Marginal Propensity to [6]
Consume and Marginal Propensity to Save is 3 : 1. Calculate the additional investment needed to reach new
equilibrium level of income of Rs. 20,000 crore.
Ed

74. i. Define Aggregate Demand. What are its components? [6]

ii. From the following data about an economy, calculate its equilibrium level of income:

Marginal Propensity to Consume = 0.75

Autonomous consumption = Rs 200

Investment =Rs 6000.

75. Complete the following table. [6]

Income Saving Average Propensity to Consume Marginal Propensity to Consume

(Y) (S) (APC) (MPC)

0 -40 - -

50 -20 - -

100 0 - 0.6

150 30 0.8 -

7/8
For Admission Contact us on 7003217257
200 50 - -

esh
ail
yS
aB

ka
en
dd
Go
uA
Ed

8/8
For Admission Contact us on 7003217257