Class 12 Economics Chapter 4 – Determination of Income and Employment Important Questions
These Determination of Income and Employment Important Questions cover the most important MCQs, one-word questions, assertion and reason questions and descriptive questions from NCERT Class 12 Economics Chapter 4. The questions are prepared from NCERT concepts and important exam-oriented topics for quick revision and practice.
This page is useful for UPSC, SSC, PSC, Railway, Banking, CUET, CBSE and Class 12 Economics preparation, helping students revise important concepts related to aggregate demand, aggregate supply, equilibrium income, consumption function, investment, multiplier and employment determination.
Table of Contents
Multiple Choice Questions (MCQs)
These MCQs from Determination of Income and Employment are designed for quick objective revision and competitive exam preparation. The questions cover important macroeconomic concepts, equilibrium conditions, consumption behaviour and multiplier effects discussed in the NCERT chapter.
MCQ 1
Aggregate demand refers to:
- A. Demand for one commodity
- B. Total demand for goods and services in the economy
- C. Household demand only
- D. Government demand only
Answer: B. Total demand for goods and services in the economy
Page Reference: Page 52
MCQ 2
Aggregate supply refers to:
- A. Supply by one producer
- B. Total output produced in the economy
- C. Foreign supply only
- D. Household production only
Answer: B. Total output produced in the economy
Page Reference: Page 53
MCQ 3
Equilibrium level of income is determined when:
- A. Consumption exceeds savings
- B. Aggregate demand equals aggregate supply
- C. Investment exceeds income
- D. Exports exceed imports
Answer: B. Aggregate demand equals aggregate supply
Page Reference: Page 54
MCQ 4
Consumption function shows the relationship between:
- A. Income and consumption
- B. Income and exports
- C. Savings and imports
- D. Production and taxes
Answer: A. Income and consumption
Page Reference: Page 55
MCQ 5
The marginal propensity to consume (MPC) refers to:
- A. Ratio of total savings to income
- B. Increase in consumption due to increase in income
- C. Ratio of exports to imports
- D. Increase in taxes due to income rise
Answer: B. Increase in consumption due to increase in income
Page Reference: Page 56
MCQ 6
The value of MPC always lies between:
- A. 0 and 1
- B. 1 and 2
- C. 2 and 3
- D. –1 and 1
Answer: A. 0 and 1
Page Reference: Page 56
MCQ 7
Savings function shows the relationship between:
- A. Savings and income
- B. Consumption and production
- C. Exports and imports
- D. Taxes and investment
Answer: A. Savings and income
Page Reference: Page 57
MCQ 8
Investment multiplier measures:
- A. Fall in savings
- B. Increase in income due to increase in investment
- C. Increase in taxes
- D. Rise in exports only
Answer: B. Increase in income due to increase in investment
Page Reference: Page 59
MCQ 9
The multiplier value depends on:
- A. Tax rate
- B. MPC
- C. Imports
- D. Exports
Answer: B. MPC
Page Reference: Page 59
MCQ 10
When MPC increases, multiplier value:
- A. Decreases
- B. Remains constant
- C. Increases
- D. Becomes zero
Answer: C. Increases
Page Reference: Page 59
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One-Word / Very Short Answer Questions
These one-word and factual questions help students quickly revise important macroeconomic concepts, formulas and equilibrium conditions from the chapter. The section is especially useful for UPSC, SSC, PSC, CUET and other objective examinations.
-
What does aggregate demand represent?
Answer: Total demand in the economy -
What does aggregate supply represent?
Answer: Total output in the economy -
Equilibrium occurs when which two variables are equal?
Answer: Aggregate demand and aggregate supply -
Which function shows relationship between income and consumption?
Answer: Consumption function -
What does MPC stand for?
Answer: Marginal Propensity to Consume -
Which function shows relation between income and savings?
Answer: Savings function -
What is income minus consumption called?
Answer: Savings -
What does the multiplier measure?
Answer: Increase in income due to investment increase -
What causes deficient demand?
Answer: Insufficient aggregate demand -
What causes inflationary pressure?
Answer: Excess demand
Assertion and Reason Questions
These assertion and reason questions from Determination of Income and Employment help students develop conceptual clarity and analytical understanding of equilibrium income, multiplier and aggregate demand concepts. They are highly useful for board exams and competitive examinations.
Question 1
Assertion (A): Equilibrium income is determined where aggregate demand equals aggregate supply.
Reason (R): At equilibrium, planned expenditure equals total output.
Options:
- A. Both A and R are true and R is the correct explanation
- B. Both A and R are true but R is not the correct explanation
- C. A is true but R is false
- D. A is false but R is true
Correct Option: A
Question 2
Assertion (A): Consumption function shows relation between income and consumption.
Reason (R): Consumption expenditure changes with changes in income.
Options:
- A. Both A and R are true and R is the correct explanation
- B. Both A and R are true but R is not the correct explanation
- C. A is true but R is false
- D. A is false but R is true
Correct Option: A
Question 3
Assertion (A): MPC always lies between 0 and 1.
Reason (R): Consumption increases by less than increase in income.
Options:
- A. Both A and R are true and R is the correct explanation
- B. Both A and R are true but R is not the correct explanation
- C. A is true but R is false
- D. A is false but R is true
Correct Option: A
Important Exam-Based Concept Questions
These important descriptive and analytical questions from Determination of Income and Employment are useful for board examinations and competitive exams. The questions focus on conceptual understanding, aggregate analysis, equilibrium concepts and NCERT-based macroeconomic interpretation.
- Explain the concept of aggregate demand and aggregate supply.
- Discuss the determination of equilibrium income in an economy.
- Explain the consumption function with suitable examples.
- Differentiate between APC and MPC.
- Explain the savings function and its significance.
- Discuss the concept and working of the investment multiplier.
- Explain the relationship between MPC and multiplier.
- Discuss the causes and effects of deficient demand.
- Explain the concept of excess demand and inflationary gap.
- Analyse the role of investment in income determination.
- Explain Keynesian theory of income and employment determination.
- Discuss the significance of equilibrium level of employment.
- Differentiate between autonomous consumption and induced consumption.
- Explain how aggregate demand affects output and employment.
- Discuss the policy measures used to correct deficient and excess demand.
Quick Revision Points
- Aggregate demand means total demand in the economy.
- Aggregate supply means total output produced in the economy.
- Equilibrium occurs when aggregate demand equals aggregate supply.
- Consumption function shows relation between income and consumption.
- MPC means Marginal Propensity to Consume.
- MPC always lies between 0 and 1.
- Savings function shows relation between income and savings.
- Multiplier measures increase in income due to increase in investment.
- Multiplier formula:
Multiplier = 1 / (1 − MPC)
- Higher MPC leads to higher multiplier value.
- Deficient demand causes unemployment.
- Excess demand creates inflationary pressure.
- Keynesian theory explains determination of income and employment.