Worksheet Solutions: Determination of Income and Employment- 2 | Economics Class 12 - Commerce PDF Download

Multiple Choice Questions

Q1: Which of the following is an example of a flow variable in the context of national income accounting?
(a) Total savings in an economy
(b) Stock of capital goods
(c) Government debt
(d) National debt
Ans: (a) Flow variables measure a quantity over a period of time, such as total savings, while stock variables measure a quantity at a specific point in time, such as the stock of capital goods.

Q2: In the circular flow of income, which of the following represents withdrawals from the income flow?
(a) Government spending
(b) Investment by firms
(c) Imports
(d) Exports
Ans: (c) Withdrawals include savings, taxes, and imports, which leak money out of the circular flow of income.

Q3: Which of the following is a tool used by the government to control inflation?
(a) Increase in government spending
(b) Decrease in interest rates
(c) Increase in taxes
(d) Decrease in money supply
Ans: (c) Increasing taxes reduces disposable income, leading to lower consumer spending, which can help control inflation.

Q4: What does the term 'Gross Domestic Product (GDP)' represent?
(a) Total value of all goods and services produced within a country in a specific period
(b) Total value of all goods and services produced and consumed within a country in a specific period
(c) Total value of all goods and services produced within a country and exported to other countries
(d) Total value of all goods and services imported by a country
Ans: (a) GDP measures the total economic output within a country's borders over a specific time period.

Q5: Which of the following is a component of aggregate demand?
(a) Government expenditure
(b) Imports
(c) Savings
(d) Taxes
Ans: (a) Aggregate demand comprises consumption, investment, government spending, and net exports (exports minus imports). Government expenditure is a significant component of aggregate demand.

True and False Questions 

Q1: An increase in exports leads to a decrease in a country's GDP.
Ans: False
An increase in exports contributes positively to a country's GDP as it represents economic output sold to other countries, adding to the national income.

Q2: Frictional unemployment occurs when individuals are unemployed due to mismatch between their skills and available job opportunities.
Ans: True
Frictional unemployment results from individuals transitioning between jobs and searching for suitable employment opportunities.

Q3: The Phillips curve illustrates the relationship between inflation and unemployment, showing an inverse relationship between the two.
Ans: True
The Phillips curve demonstrates the trade-off between inflation and unemployment; when inflation is low, unemployment tends to be high, and vice versa.

Q4: Investment is considered an injection into the circular flow of income.
Ans: True
Investment, along with government spending and exports, is an injection into the circular flow of income, leading to economic growth and increased income.

Q5: The multiplier effect refers to the initial change in spending leading to a larger change in national income.
Ans: True
The multiplier effect magnifies the initial change in spending, leading to a larger impact on national income as the spending circulates through the economy.

Match the Following

Q1: Match the following terms with their correct definitions:

Ans:

Very Short Answer Questions 

Q1: Define Disposable Income.
Ans: Disposable income is the total income available to an individual or household for spending and saving after income taxes have been deducted.

Q2: Explain the concept of Aggregate Demand.
Ans: Aggregate demand refers to the total quantity of goods and services demanded by all sectors of the economy at a given price level and in a given period.

Q3: What is meant by the Propensity to Consume?
Ans: Propensity to consume refers to the percentage of income that individuals or households spend on goods and services rather than saving it.

Q4: Differentiate between Autonomous Consumption and Induced Consumption.
Ans: Autonomous consumption refers to the minimum level of consumption that occurs even when there is no income. Induced Consumption: Induced consumption refers to the consumption that increases with an increase in income.

Q5: Define the Marginal Propensity to Consume (MPC).
Ans: MPC is the proportion of additional income that a consumer spends on consumption. It indicates how much consumer spending will change when income changes.

Short Answer Questions

Q1: Explain the components of Aggregate Demand in the context of Indian Economy.
Ans: Aggregate demand consists of consumption expenditure (C), investment expenditure (I), government expenditure (G), and net exports (exports - imports). In the Indian economy, consumption by households, investments by businesses, government spending on goods and services, and net exports contribute to aggregate demand.

Q2: Describe the concept of Multiplier with an example. How does it help in understanding the relationship between an initial change in investment and the final change in income?
Ans: The multiplier effect refers to the phenomenon where an initial change in investment or government spending leads to a more significant final change in national income. For example, if there is an initial increase in investment, it leads to higher income for producers and employees. The increased income leads to higher consumption, creating a chain reaction of spending and income generation throughout the economy.

Q3: Discuss the factors that determine the Marginal Propensity to Consume. How does MPC influence the overall consumption in an economy?
Ans: MPC is influenced by various factors such as income levels, consumer confidence, interest rates, and government policies. A higher MPC means consumers spend a larger proportion of their income, stimulating economic growth. Conversely, a lower MPC indicates higher savings and lower immediate consumption.

Q4: Explain the relationship between Average Propensity to Consume (APC) and Marginal Propensity to Consume (MPC).
Ans: Average Propensity to Consume (APC) is the proportion of total income spent on consumption, while Marginal Propensity to Consume (MPC) is the proportion of additional income spent on consumption. APC decreases as income rises, while MPC remains constant. When APC is equal to MPC, the economy is in a stable equilibrium.

Q5: Illustrate the concept of Aggregate Supply. What factors influence the Aggregate Supply in an economy?
Ans: Aggregate supply represents the total quantity of goods and services that producers are willing and able to supply at different price levels. Factors influencing aggregate supply include input costs, technological advancements, government policies, and overall business conditions. Changes in these factors can lead to shifts in the aggregate supply curve, impacting the overall output of the economy.