MCQs on Determination of Income and Employment

Determination of income and employment is a very important topic in Economics. It analyses the important concepts related to the subject like demand, supply, consumption, savings, etc. and gives a broad understanding of their role in the income and employment generation activities in the country. Students reading this chapter will have a much better grip on the main factors affecting the economic activities and scenario of a nation.

We have collated a list of multiple-choice questions on Income and Employment to assist students in their understanding of the topic.

1. Which of the following statements accurately describes the consumption function?
   1. The consumption function is a relation between income, savings, price and consumption
   2. The consumption function is a relation between income and consumption
   3. The consumption function is a relation between price, savings and consumption
   4. The consumption function is a relation between income, price and savings

Answer: b

2. Which of the following statements is an accurate description of propensity to consume?
   1. It is the additional income that gets spent on consumption
   2. It denotes the ratio of the consumption to income
   3. It defines the tendency of a consumer to consume more than usual
   4. It denotes the actual level of income at which is it equal to the consumption expenditure

Answer: b

3. Which of the following statements is the correct description of propensity to save?
   1. It is the additional income that does not get saved
   2. It denotes the ratio of the savings to income
   3. It denotes the actual level of income at which is it equal to the savings
   4. None of the above

Answer: b

4. Which of the following statements is true about the consumption function?
   1. The consumption function is a functional relationship between aggregate demand and aggregate supply
   2. The consumption function is a functional relationship between consumption and national income
   3. The consumption function is a functional relationship between national income and private income
   4. The consumption function is a functional relationship between consumption and aggregate demand

Answer: b

5. Which of the following statements is not true about average demand in a two-sector economy?
   1. The average demand is the total of consumption and savings
   2. The average demand curve commences from some point that is above the origin
   3. The average demand is the total of consumption and investment
   4. The average demand curve has a positive slope

Answer: a

6. Which of the following statements about the consumption curve is correct?
   1. The consumption curve lies above the forty-five degrees line at the break-even point
   2. The consumption curve lies below the forty-five degrees line at the break-even point
   3. The consumption curve intersects the forty-five degrees line at the break-even point
   4. None of the above

Answer: c

7. Which of the following statements is accurate about the average propensity to consume?
   1. The average propensity to consume can never be less than one
   2. The average propensity to consume can never be more than one
   3. The average propensity to consume can never be zero
   4. The average propensity to consume can never be positive

Answer: c

8. Which of the statements is correct about the relationship between the average propensity to save (APS) and average propensity to consume (APC)?
   1. Both APS and APC rise in case of an increase in the national income
   2. Both APS and APC fall in case of an increase in the national income
   3. APC rises, but APS falls in case of an increase in the national income
   4. APS rises, but APC falls in case of an increase in the national income

Answer: d

9. Which of the statements is true about the relationship between planned savings and planned investment?
   1. When planned investment is more than planned savings, the national income may increase
   2. When planned investment is more than planned savings, the national income may decrease
   3. When planned investment is more than planned savings, there is no effect on the national income
   4. None of the above

Answer: a

10. Which of the statements is not true in the case of underemployment equilibrium?
    1. The aggregate supply is equal to the aggregate demand
    2. The resources are fully utilised in an efficient manner
    3. The resources are not fully utilised in an efficient manner
    4. There is an existence of an excessive production capacity in the economy

Answer: b

11. Which of the following statements is true about the cash reserve ratio?
    1. An increase in the cash reserve ratio will lead to a rise in the aggregate demand
    2. An increase in the cash reserve ratio will lead to a fall in the aggregate demand
    3. An increase in the cash reserve ratio will not lead to any change in the aggregate demand
    4. None of the above

Answer: b

12. Which of the following statements is true about excess demand?
    1. Excess demand can lead to a rise in employment and price levels
    2. Excess demand can lead to a fall in employment and price levels
    3. Excess demand does not affect the employment and price levels
    4. Excess demand does not affect employment but leads to a rise in the price level

Answer: d

13. Which of the following steps can be taken to increase the aggregate demand?
    1. Increasing the bank rate
    2. Increasing the cash reserve ratio
    3. Selling of the government securities by the Reserve Bank of India (RBI)
    4. None of the above

Answer: d

14. Which of the following statements is true about the monetary policy of a country?
    1. The main aim of this policy is to ensure price stability in the economy
    2. The policy aims to achieve stable policy relations
    3. The main objective of this policy is to ensure higher tax collections
    4. The policy seeks to improve the employment generation situation in the country

Answer: a

15. What measures can be used to correct the inflationary gap under the monetary policy?
    1. Reducing the availability of credit
    2. Cutting the government expenditure
    3. Increasing taxation
    4. None of the above

Answer: a

Also See:

• Difference Between Central Bank and Commercial Bank
• Determination of Equilibrium Income in the Short Run
• Difference Between National Income and Private Income
• Employment Growth Informalisation and Other Issues
• Determination of Income and Employment