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Vidaara.orgClass 12 · Mathematics
CodeVID-M12-WS
Determination of Income and Employment — Practice Worksheet
Chapter: Determination of Income and Employment
Topic: Determination of Income and Employment
Maximum Marks: 35
Time: 30 minutes
Name: ____________________ Roll No.: __________ Date: ____________

General Instructions

  • All questions are compulsory.
  • Choose the correct option (A, B, C or D) for each question.
  • The answer key is at the end — try the paper first!
Section A — Multiple Choice (1 mark each) 15 × 1 = 15 marks
1.
Total planned expenditure in the economy is:
  • A.Aggregate demand
  • B.Aggregate supply
  • C.National debt
  • D.The deficit
2.
Aggregate demand equals:
  • A.C + I + G + (X − M)
  • B.Rent + wages
  • C.Y − S
  • D.Real ÷ Nominal
3.
The largest component of aggregate demand is usually:
  • A.Consumption
  • B.Net exports
  • C.Government spending
  • D.Investment
4.
In C = a + bY, 'a' is:
  • A.Autonomous consumption
  • B.Income
  • C.Saving
  • D.The multiplier
5.
Where the consumption line crosses the 45° line is the:
  • A.Break-even point
  • B.Multiplier
  • C.Inflationary gap
  • D.Deficit
6.
The output level where AD = AS is called:
  • A.Effective demand
  • B.Disposable income
  • C.The deflator
  • D.Net exports
7.
Income is divided between consumption and:
  • A.Saving
  • B.Tax
  • C.Imports
  • D.Profit
8.
MPC is the:
  • A.Fraction of extra income consumed
  • B.Total income
  • C.C ÷ Y
  • D.Tax rate
9.
APC + APS equals:
  • A.0
  • B.1
  • C.100
  • D.MPC
10.
The investment multiplier equals:
  • A.1 ÷ MPS
  • B.MPS × 100
  • C.1 − MPC
  • D.MPC ÷ MPS
11.
If MPC = 0.75, the multiplier is:
  • A.4
  • B.1.33
  • C.0.25
  • D.7.5
12.
A higher MPC makes the multiplier:
  • A.Larger
  • B.Smaller
  • C.Zero
  • D.Negative
13.
Equilibrium where output is below full employment is:
  • A.Underemployment equilibrium
  • B.Full employment
  • C.Inflationary gap
  • D.Surplus
14.
AD less than the full-employment level creates a:
  • A.Deflationary gap
  • B.Inflationary gap
  • C.Trade surplus
  • D.Budget surplus
15.
AD greater than the full-employment level creates a:
  • A.Deflationary gap
  • B.Inflationary gap
  • C.Recession
  • D.Surplus
Section B — Challenge / Olympiad (2 marks each) 10 × 2 = 20 marks
16.
An economy has MPC = 0.8. The government raises investment by ₹50 crore. National income will rise by:
  • A.₹250 crore
  • B.₹40 crore
  • C.₹50 crore
  • D.₹10 crore
17.
Why does an injection of investment raise income by a multiple of itself?
  • A.Each round of spending becomes income that is partly re-spent
  • B.Money is printed
  • C.Prices fall
  • D.Saving rises first
18.
If people decide to save a larger fraction of income (MPC falls), the multiplier will:
  • A.Become smaller
  • B.Become larger
  • C.Stay the same
  • D.Turn negative
19.
During the Great Depression the economy stayed at a steady but low output with mass unemployment. This is an example of:
  • A.Underemployment equilibrium
  • B.Full employment
  • C.An inflationary gap
  • D.A budget surplus
20.
To close a deflationary gap, the correct policy mix is to:
  • A.Raise government spending / cut taxes / ease money (raise AD)
  • B.Cut spending and raise taxes
  • C.Do nothing
  • D.Raise the repo rate
21.
When aggregate demand exceeds the economy's full-employment output, the result is mainly:
  • A.Rising prices (inflation), not more output
  • B.More unemployment
  • C.Falling prices
  • D.A trade deficit
22.
At equilibrium income, planned saving equals planned:
  • A.Investment
  • B.Consumption
  • C.Tax
  • D.Income
23.
If MPC = 0.6, then MPS and the multiplier are:
  • A.0.4 and 2.5
  • B.0.6 and 5
  • C.0.4 and 4
  • D.0.6 and 1.67
24.
Autonomous consumption (a > 0) means that even at zero income, people:
  • A.Still consume (by dis-saving or borrowing)
  • B.Consume nothing
  • C.Only save
  • D.Pay only taxes
25.
The central task of macroeconomic policy, in this model, is to push aggregate demand toward the:
  • A.Full-employment level
  • B.Zero level
  • C.Break-even point only
  • D.Maximum possible level always

Answer Key

Section A — Multiple Choice (1 mark each)
  1. (A) Aggregate demand
  2. (A) C + I + G + (X − M)
  3. (A) Consumption
  4. (A) Autonomous consumption
  5. (A) Break-even point
  6. (A) Effective demand
  7. (A) Saving
  8. (A) Fraction of extra income consumed
  9. (B) 1
  10. (A) 1 ÷ MPS
  11. (A) 4
  12. (A) Larger
  13. (A) Underemployment equilibrium
  14. (A) Deflationary gap
  15. (B) Inflationary gap
Section B — Challenge / Olympiad (2 marks each)
  1. (A) ₹250 crore
  2. (A) Each round of spending becomes income that is partly re-spent
  3. (A) Become smaller
  4. (A) Underemployment equilibrium
  5. (A) Raise government spending / cut taxes / ease money (raise AD)
  6. (A) Rising prices (inflation), not more output
  7. (A) Investment
  8. (A) 0.4 and 2.5
  9. (A) Still consume (by dis-saving or borrowing)
  10. (A) Full-employment level
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