Theory of Income and Employment Class 12 MCQ covers certain important topics, which are covered under syllabus for ISCE Class 12 and are coming in Term II examination for the academic year 2022-23. Theory of Income and Employment Class 12 MCQ Test contains 88 questions. MCQ on Economics Class 12 ISC have been made for Class 12 students to help check the concept you have learnt from detailed classroom sessions and application of your knowledge.
Theory of Income and Employment Class 12 MCQ
The basic model of income determination
1. Determination of income, output and employment is the core issue of ______.
(a) Microeconomics
(b) Macroeconomics
(c) Both (a) and (b)
(d) None of the above
Answer
Answer: (b) Macroeconomics
2. The simple model of income determination in the short run____ model.
(a) Keynesian model
(b) Hector model
(c) Pant model
(d) Rome model
Answer
Answer: (a) Keynesian model
3. Keynesian theory was developed in ____.
(a) 1939
(b) 1940
(c) 1935
(d) 1936
Answer
Answer: (d) 1936
4. According to Keynesian theory income and output in an economy depends upon;
(a) Aggregate demand
(b) Aggregate supply
(c) Both (a)&(b)
(d) None of the above
Answer
Answer: (c) Both (a)&(b)
5. Conclusions derived from Keynesian theory can be reversed. (True/False)
Answer
Answer: False
Theory of Income and Employment Class 12 MCQ
Aggregate demand
6. ______ is the total amount of goods and services demanded in an economy.
(a) Individual Demand
(b) Aggregate demand
(c) Actual demand
(d) All of the above
Answer
Answer: (b) Aggregate demand
7. Aggregate demand is;
(a) Desired
(b) Planned
(c) Intended
(d) All of the above
Answer
Answer: (d) All of the above
8. Group of buyers in an economy include;
(a) Household and firms
(b) Government
(c) Foreign buyers
(d) All of the above
Answer
Answer: (d) All of the above
9. Which of the following is not a component of aggregate demand;
(a) Household
(b) World bank
(c) Foreign government
(d) Firms
Answer
Answer: (b) World bank
10. ______ is the total amount of goods and services that people buy in an economy.
(a) Effective demand
(b) Aggregate demand
(c) Actual aggregate demand
(d) All of the above
Answer
Answer: (a) Effective demand
11. Effective demand is an Ex-post concept. (True/False)
Answer
Answer: True
12. Actual demand equals the desired demand at _______.
(a) Maximum cost
(b) Equilibrium
(c) Maximum consumption level
(d) None of the above
Answer
Answer: (b) Equilibrium
13. Closed economy has;
(a) Only exports
(b) Only imports
(c) Neither imports nor exports
(d) Both import and export
Answer
Answer: (c) Neither imports nor exports
14. The components of aggregate demand in a closed economy are______.
(a) Firms
(b) Consumption expenditure
(c) Investment expenditure
(d) Both (b)&(c)
Answer
Answer: (d) Both (b)&(c)
15. ________ is the desired Expenditure by the households on the purchase of consumption goods.
(a) Investment
(b) Consumption expenditure
(c) Demand
(d) None of the above
Answer
Answer: (b) Consumption expenditure
16. _______ is the desired Expenditure by the producers on the purchase of capital goods.
(a) Investment expenditure
(b) Consumption expenditure
(c) Demand
(d) None of the above
Answer
Answer: (a) Investment expenditure
17. _______ shows the relationship between total desired consumption spending by the households and the factors that determine it.
(a) Consumption expenditure
(b) Investment expenditure
(c) Consumption function
(d) Investment function
Answer
Answer: (c) Consumption function
18. The amount that people spend on consumption depends upon;
(a) Income
(b) Wealth
(c) Liquid assets
(d) All of the above
Answer
Answer: (d) All of the above
19. Keynesian theory of consumption function shows the functional relationship between the desired consumption and income. (True/False)
Answer
Answer: True
Theory of Income and Employment Class 12 MCQ
Propensity to consume
20 . _______ shows the relationship between different levels of income and consumption.
(a) Consumption expenditure
(b) Investment expenditure
(c) Propensity to consume
(d) Investment function
Answer
Answer: (c) Propensity to consume
21. ______ refers to the proportion of income devoted to consumption.
(a) Propensity to consume
(b) The average propensity to consume
(c) Marginal propensity to consume
(d) None of the above
Answer
Answer: (b) The average propensity to consume
22. Relationship between total consumption and total income is defined by
(a) Average Propensity to consume
(b) Propensity to consume
(c) Marginal propensity to consume
(d) None of the above
Answer
Answer: (a) Average Propensity to consume
23. APC=∆C/Y (True/False)
Answer
Answer: False
24. _____ is the ratio of change in consumption to change in income.
(a) Average Propensity to consume
(b) Propensity to consume
(c) Marginal propensity to consume
(d) None of the above
Answer
Answer: (c) Marginal propensity to consume
25. The slope of ______ shows the marginal propensity to consume.
(a) Consumption curve
(b) Investment curve
(c) Income curve
(d) Average propensity
Answer
Answer: (a) Consumption curve
26. According to Keynes, there is a _____ relationship between income and consumption expenditure.
(a) No relationship
(b) Inverse
(c) Direct
(d) Negative
Answer
Answer: (c) Direct
27. Increase in income is divided between consumption spending and savings. (True/False)
Answer
Answer: true
28. The 45° line drawn from the origin denotes that every point on this line is equidistant from both axes. (True/False)
Answer
Answer: True
29. The consumption curve, slopes ___
(a) Upward
(b) Downward
(c) Horizontal
(d) Vertical
Answer
Answer: (a) Upward
30. Minimum level of consumption takes place at ______ level of income.
(a) Maximum
(b) Negative
(c) Zero
(d) Positive
Answer
Answer: (c) Zero
31. Consumption at zero level of income is known as:
(a) Ex-ante Consumption
(b) Ex-post consumption
(c) Desired consumption
(d) Autonomous consumption
Answer
Answer: (d) Autonomous consumption
32. Consumption>Income, this is a situation of
(a) Maximum consumption
(b) Saving
(c) Dissavings
(d) Minimum income level
Answer
Answer: (c) Dissavings
33. _____ is the slope of the consumption curve.
(a) MPC
(b) APC
(c) PC
(d) All of the above
Answer
Answer: (a) MPC
34. For a straight line consumption function, MPC is______
(a) More than one
(b) Constant
(c) Zero
(d) One
Answer
Answer: (b) Constant
Theory of Income and Employment Class 12 MCQ
Propensity to save
35. _______ shows the relationship between the level of saving and the level of Income.
(a) Consumption expenditure
(b) Investment function
(c) Saving function.
(d) None of the above
Answer
Answer: (c) Saving function.
36. Higher level of income ensure;
(a) No savings
(b) Fewer savings
(c) More Expenditure
(d) More savings
Answer
Answer: (d) More savings
37. There is a _____ relationship between savings and consumption.
(a) Keynesian twins
(b) Siamese twins
(c) Both (a)&(b)
(d) None of the above
Answer
Answer: (b) Siamese twins
38. Saving is an _____ function of the level of income
(a) Decreasing
(b) Constant
(c) Increasing
(d) Direct
Answer
Answer: (c) Increasing
39. ______ is the proportion of income that households want to save.
(a) The average propensity to save
(b) The average propensity to consume
(c) Marginal propensity to save
(d) Marginal propensity to consume
Answer
Answer: (a) The average propensity to save
40. APS=∆S/∆Y (True/False)
Answer
Answer: False
41. _______ is the ratio of change in total desired savings to change in total income.
(a) APS
(b) MPS
(c) APC
(d) MPC
Answer
Answer: (b) MPS
42. MPS=∆S/∆Y (True/False)
Answer
Answer: True
43. MPS is indicated by the slope of;
(a) C-curve
(b) S-curve
(c) I-curve
(d) None of the above
Answer
Answer: (b) S-curve
44. The value of MPS lies between;
(a) 0-1
(b) 1-10
(c) ∞-0
(d) 0-∞
Answer
Answer: (a) 0-1
45. The sum of APS and APC is
(a) ∞
(b) 0
(c) 1
(d) -1
Answer
Answer: (c) 1
46. MPC+MPS= 1 (True/False)
Answer
Answer: True
47. Propensity to save curve can be derived from;
(a) Propensity to consume curve
(b) Propensity to save the schedule
(c) Propensity to consume schedule
(d) All of the above
Answer
Answer: (a) Propensity to consume curve
Theory of Income and Employment Class 12 MCQ
Investment expenditure
48. ______ refers to that part of aggregate output which takes the form of capital goods
(a) Savings
(b) Investment
(c) Consumption
(d) None of the above
Answer
Answer: (b) Investment
49. Investment undertaken by the government is known as;
(a) Public investment
(b) Private investment
(c) Overall investment
(d) Aggregate investment
Answer
Answer: (a) Public investment
50. Government invests in projects like;
(a) Schools
(b) Dams
(c) Roads
(d) All of the above
Answer
Answer: (d) All of the above
51. _______ investment is undertaken as a result of a change in the level of income.
(a) Private Investment
(b) Autonomous investment
(c) Induced investment
(d) Public investment
Answer
Answer: (c) Induced investment
52. Induced investment varies ______ with the change in the level of income.
(a) Indirectly
(b) Directly
(c) Both (a)&(b)
(d) None of the above
Answer
Answer: (b) Directly
53. _______ is the investment that is not affected by a change in the level of income.
(a) Private Investment
(b) Autonomous investment
(c) Induced investment
(d) Public investment
Answer
Answer: (b) Autonomous investment
54. The curve of autonomous investment is______.
(a) Horizontal line
(b) Parallel to X-axis
(c) Both (a)&(b)
(d) None of the above
Answer
Answer: (c) Both (a)&(b)
55. Autonomous investment is income-inelastic. (True/False)
Answer
Answer: True
56. Autonomous investment remains constant. (True/False)
Answer
Answer: False
Theory of Income and Employment Class 12 MCQ
Determination of equilibrium income and output
57. Approaches to determine the equilibrium level of income are;
(a) Aggregate demand-Aggregate supply approach
(b) Saving-Investment approach
(c) Both (a)&(b)
(d) None of the above
Answer
Answer: (c) Both (a)&(b)
58. Under the AD-AS approach, equilibrium is decided where,
(a) AD=AS
(b) AS>AD
(c) AS<AD
(d) None of the above
Answer
Answer: (a) AD=AS
59. Aggregate supply is equal to;
(a) Investment
(b) Consumption
(c) Savings
(d) National income
Answer
Answer: (d) National income
60. Which of the following statement are correct about the situation, AD<AS
(a) Firms are not able to sell the entire output they have purchased.
(b) There is an unplanned rise in inventories
(c) Firms reduce production.
(d) All of the above
Answer
Answer: (d) All of the above
61. Under the Saving-Investment approach equilibrium is determined where,
(a) S>I
(b) S<I
(c) S=I
(d) None of the above
Answer
Answer: (c) S=I
Theory of Income and Employment Class 12 MCQ
Investment multiplier
62. _______ is defined as the multiple amounts by which income Increases as a result of an increase in investment expenditure.
(a) Saving function
(b) Investment multiplier
(c) Investment function
(d) Propensity to invest
Answer
Answer: (b) Investment multiplier
63. ______ is the ratio of change in income to the change in investment.
(a) Investment multiplier
(b) Saving function
(c) Investment function
(d) Propensity to invest
Answer
Answer: (a) Investment multiplier
64. K=∆Y/∆I (True/False)
Answer
Answer: True
65. The investment multiplier is based on an assumption that the Expenditure of one person is the income of another (True/False)
Answer
Answer: True
66. The smaller value of MPC shows;
(a) smaller amount of K
(b) larger amount of K
(c) Both (a)&(b)
(d) None of the above
Answer
Answer: (a) smaller amount of K
67. The larger value of MPC shows,
(a) A smaller amount of K
(b) A larger amount of K
(c) Both (a)&(b)
(d) None of the above
Answer
Answer: (b) A larger amount of K
Theory of Income and Employment Class 12 MCQ
Employment
68. ______ refers to a situation when the equilibrium level of income is at that level when some resources are underemployed
(a) Full employment
(b) Voluntary unemployment
(c) Underemployment
(d) Over employment
Answer
Answer: (c) Underemployment
69. ______ is defined as the situation when all those persons who are willing to work at an existing wage rate get work.
(a) Full employment
(b) Voluntary unemployment
(c) Underemployment
(d) Over employment
Answer
Answer: (a) Full employment
70. Which of the following statements about full employment are correct?
(a) Full employment does not mean that everyone is employed.
(b) Idle rich people are not employed
(c) Frictional unemployment is consistent with full employment
(d) All of the above
Answer
Answer: (d) All of the above
71. People who are unemployed by their choice are known as involuntary unemployed. (True/False)
Answer
Answer: False
72. Which of the following are considered as voluntary unemployed?
(a) Idle rich
(b) Idle poor
(c) Thieves and pickpockets
(d) All of the above
Answer
Answer: (d) All of the above
73. A situation when people are willing to work at given wage rates but do not get jobs is known as;
(a) Full employment
(b) Involuntary unemployment
(c) Underemployment
(d) Over employment
Answer
Answer: (b) Involuntary unemployment
74. ________is a situation when some able-bodied person can work and are willing to work at the prevailing wage rate but are not able to find work that may yield them some regular income.
(a) Unemployment
(b) Involuntary unemployment
(c) Underemployment
(d) Over employment
Answer
Answer: (a) Unemployment
75. Unemployment is a situation when the person is without work involuntarily, and not voluntarily. (True/False)
Answer
Answer: True
Theory of Income and Employment Class 12 MCQ
Excess and deficit demand
76. Amount by which the actual aggregate demand exceeds, the aggregate output corresponding to full employment level in an economy is known as;
(a) Unemployment
(b) Excess employment
(c) Excess demand
(d) Excess supply
Answer
Answer: (c) Excess demand
77. The amount by which actual aggregate demand exceeds the aggregate supply corresponding to full employment is known as;
(a) Excess demand
(b) Excess supply
(c) Inflation
(d) Inflationary gap
Answer
Answer: (d) Inflationary gap
78. Excess demand is caused by;
(a) Increase in the consumption expenditure
(b) Increase in private consumption expenditure
(c) Increase in export
(d) All of the above
Answer
Answer: (d) All of the above
79. Fiscal policy is the policy of RBI to control excess demand ( True/False)
Answer
Answer: False
80. Which of the following is not the instrument of fiscal policy?
(a) Taxation
(b) Private investment
(c) Public borrowing
(d) Deficit financing
Answer
Answer: (b) Private investment
81. Monetary policy is the policy of RBI to control excess and deficit demand in an economy ( True/ False)
Answer
Answer: True
82. _____ is the rate at which the central bank gives loans to commercial banks for short term.
(a) Repo rate
(b) Bank rate
(c) Reverse repo rate
(d) All of the above
Answer
Answer: (a) Repo rate
83. Open market operation refers to;
(a) Sale and purchase of RBI security
(b) Sale and purchase of government securities in the open market
(c) Both (a)&(b)
(d) None of the above
Answer
Answer: (b) Sale and purchase of government securities in the open market
84. _______ is the amount by which actual aggregate demand falls short of the aggregate output corresponding to full employment level in the economy.
(a) Excess demand
(b) Deficient demand
(c) Inflation
(d) Inflationary gap
Answer
Answer: (b) Deficient demand
85. ______ represents the difference between the actual aggregate demand and the level of aggregate demand required to establish Equilibrium at full employment level of Income
(a) Excess demand
(b) Deficient demand
(c) Inflation
(d) Deflationary gap
Answer
Answer: (d) Deflationary gap
86. Which of the following are the reasons for deficient demand?
(a) Fall in consumption expenditure
(b) Decrease in private investment expenditure
(c) Fall in money supply
(d) All of the above
Answer
Answer: (d) All of the above
87. Which of the following are measures to correct excess demand in an economy?
(a) Fiscal and monetary policy
(b) Increasing Imports
(c) Increase in output
(d) All of the above
Answer
Answer: (d) All of the above
88. Which of the following are measures to correct deficient demand?
(a) Fiscal policy
(b) Monetary policy
(c) Export promotion measures
(d) All of the above
Answer
Answer: (d) All of the above
Economics Class 12 ISC MCQs – Term 2
- Theory of Income and Employment Class 12 MCQ
- Money : Meaning and Functions
- Banks : Commercial Bank and Central bank
- Balance of Payments and Exchange Rate
- Government Budget
- MCQ on Fiscal Policy Class 12 Economics
- National Income and Circular flow of Income
- National Income Aggregates Class 12 MCQ
- Methods of Measuring National Income Class 12 MCQ