Every question from this NCERT chapter, with a detailed explanation.
Which of the following correctly describes the relationship between the Marginal Propensity to Consume (MPC) and the Marginal Propensity to Save (MPS)? 1. If MPC increases, MPS must also increase to maintain equilibrium. 2. The sum of MPC and MPS is always equal to one. 3. Both MPC and MPS represent the total level of consumption and savings respectively.
With reference to the consumption function in an economy, consider the following statements: 1. Autonomous consumption is the consumption expenditure that occurs only when income is positive. 2. Induced consumption is the portion of consumption that varies directly with the level of income. 3. The marginal propensity to consume determines the rate at which induced consumption changes as income changes. Which of the statements given above is/are correct?
Consider the following statements regarding Inventory Investment: 1. Unplanned inventory accumulation occurs when actual sales exceed the planned sales of a firm. 2. It refers to the change in the stock of finished goods and raw materials held by a firm over a period. 3. Inventory investment is always positive regardless of demand fluctuations. Which of the statements given above is/are correct?
With reference to the "Investment Multiplier", consider the following statements: 1. It represents the ratio of the total increment in equilibrium output to the initial increment in autonomous expenditure. 2. The value of the multiplier is directly proportional to the marginal propensity to save (MPS). 3. If the marginal propensity to consume (MPC) is zero, the value of the investment multiplier is one. Which of the statements given above is/are correct?
With reference to the determination of income in the short run, consider the following statements: 1. The equilibrium level of output is always equal to the full employment level of output. 2. Deficient demand occurs when the equilibrium output is less than the full employment output. 3. Excess demand leads to a rise in prices in the long run. Which of the statements given above is/are correct?
Which one of the following best describes the "Effective Demand Principle"?
Consider the following statements regarding the determination of equilibrium income: 1. Equilibrium is achieved when ex ante aggregate demand equals ex ante aggregate supply. 2. If ex ante demand exceeds ex ante supply, producers will decrease production in the next cycle. 3. Unintended accumulation of inventories indicates that aggregate demand is higher than planned output. Which of the statements given above is/are correct?
With reference to the components of Aggregate Demand (AD) in a two-sector economy, consider the following statements: 1. It consists of consumption expenditure and investment expenditure. 2. Investment expenditure is assumed to be completely induced by income levels in the simplified model. 3. Consumption expenditure includes both autonomous and induced components. Which of the statements given above is/are correct?
In the context of the multiplier mechanism, consider the following statements: 1. The total increase in national income is always equal to the initial increase in autonomous expenditure. 2. The process of income generation continues in rounds until the excess demand is eliminated. 3. The size of the multiplier effect depends on the proportion of additional income that is consumed. Which of the statements given above is/are correct?
Consider the following statements regarding the "Effective Demand Principle": 1. It operates in a situation where the price level is fixed. 2. It assumes aggregate supply is perfectly inelastic. 3. It implies that aggregate output is determined solely by the supply of labor. Which of the statements given above is/are correct?
Which of the following factors primarily influence investment decisions by producers? 1. Market rate of interest 2. The availability of credit has no impact on investment decisions. 3. Cost of investible funds
If the ex ante Aggregate Demand is greater than the ex ante Aggregate Supply, what is the immediate adjustment mechanism in the economy?
If the ex ante Aggregate Demand is less than the ex ante Aggregate Supply, what is the consequence?
Consider the following statements regarding the impact of the "Paradox of Thrift" on Aggregate Demand (AD): 1. An increase in the marginal propensity to save causes the AD curve to shift upwards. 2. The new equilibrium output will be lower than the initial equilibrium output. 3. The total savings in the economy may not increase despite higher thriftiness. Which of the statements given above is/are correct?
Which of the following correctly states the equilibrium condition of the final goods market?
Match List I with List II and select the correct answer using the code given below: List I | List II A. Increase in Autonomous Investment | 1. Unintended inventory accumulation B. Increase in Marginal Propensity to Save (MPS) | 2. Downward swing of Aggregate Demand curve C. Excess Demand | 3. Upward parallel shift of Aggregate Demand curve D. Excess Supply | 4. Unintended inventory depletion
Consider the following statements regarding the distinction between the "Accounting Identity" and "Equilibrium Condition": 1. The accounting identity states that ex post output equals ex post aggregate demand. 2. The equilibrium condition states that ex post output must equal ex ante aggregate demand. 3. The accounting identity holds true only when the economy is in equilibrium. Which of the statements given above is/are correct?
How does the interest rate affect investment demand? Consider the following statements: 1. Interest rate is the cost of investible funds. 2. At higher interest rates, firms tend to increase investment to maximize returns. 3. There is an inverse relationship between interest rates and investment demand. Which of the statements given above is/are correct?
Underemployment Equilibrium refers to a situation where: 1. It refers to a situation where Aggregate Demand exceeds Aggregate Supply. 2. Resources are not fully employed. 3. It is a situation where the equilibrium output is less than the full employment output. Which of the statements given above is/are correct?
Consider the following statements summarizing the Keynesian model of income determination: 1. It assumes prices are fixed in the short run. 2. It rejects the concept of effective demand in determining income. 3. It suggests that equilibrium output is determined solely by the supply of factors of production. Which of the statements given above is/are correct?
With reference to the government sector in the determination of income, consider the following statements: 1. Government expenditure adds to the aggregate demand similar to investment and consumption. 2. Taxes imposed by the government increase the disposable income of households. 3. In the absence of indirect taxes, the GDP is identically equal to the National Income. Which of the statements given above is/are correct?
Why are machines produced in an economy considered part of "Final Goods" and "Investment"? 1. They are not used up in the production process like raw materials. 2. They are consumed immediately in the production process. 3. They add to the future productive capacity of the economy. Which of the statements given above is/are correct?
Match List I with List II and select the correct answer using the code given below: List I | List II A. Excess Demand | 1. Amplifies changes in autonomous expenditure B. Deficient Demand | 2. Leads to a decline in prices in the long run C. Multiplier | 3. Signals that supply exceeds demand D. Inventory Accumulation | 4. Leads to a rise in prices in the long run
Consider the following statements regarding Savings in an economy: 1. Savings is defined as the portion of income that is used for tax payments. 2. The Marginal Propensity to Save (MPS) is the change in savings per unit change in income. 3. If the Marginal Propensity to Consume (MPC) is 1, the Marginal Propensity to Save (MPS) will be 0. Which of the statements given above is/are correct?
What does "Negative Inventory Investment" signify in an economy? 1. A rise in the stock of finished goods. 2. A depletion of existing stock to meet excess demand. 3. A situation where planned sales are less than actual sales. Which of the statements given above is/are correct?
With reference to the Multiplier Mechanism, consider the following statements: 1. The process stops immediately after the first round of consumption expenditure. 2. It assumes that an initial increase in investment leads to an increase in income, which further induces consumption. 3. The total effect on income is limited to the initial investment amount only. Which of the statements given above is/are correct?
In a two-sector economy without a government, equilibrium is established when: 1. Planned Savings equals Planned Investment. 2. Aggregate Demand is always greater than Aggregate Supply. 3. Unintended inventory investment is zero. Which of the statements given above is/are correct?
Why is the price level assumed to be fixed in the first stage of macroeconomic theory? 1. It is because prices are legally fixed by the government in a market economy. 2. Because the economy is assumed to be operating at less than full employment. 3. Because unused resources allow production to increase without rising marginal costs. Which of the statements given above is/are correct?
If there is an autonomous increase in investment expenditure in an economy, which of the following is likely to happen? 1. The Aggregate Demand curve shifts upwards in parallel. 2. The equilibrium level of income increases by an amount equal to the increase in investment. 3. The equilibrium level of income decreases due to the crowding out effect.
Consider the following statements regarding the relationship between MPC and MPS: 1. If MPC is 0.8, then MPS is 0.2. 2. An increase in MPS implies an increase in the slope of the consumption function. 3. The sum of Average Propensity to Consume (APC) and Average Propensity to Save (APS) is always equal to 1. Which of the statements given above is/are correct?