20 multiple-choice (MCQ / objective) questions from this chapter, in the common exam-style shapes. Every question comes with an explanation along with the answer, so you remember why the option is correct, not just which one it is.
Syllabus note
The CBSE 2026-27 unit ‘Determination of Income and Employment’ carries 12 marks. Involuntary unemployment, the deflationary and inflationary gaps and the measures to correct them are in the CBSE curriculum but appear only briefly in the rationalised NCERT text; these questions follow the CBSE Supplementary Reading Material. In numerical answers the (½) and (1) marks show step marks as in the CBSE marking scheme.
1 Direct Questions
Direct Questions
- 1 markThe ‘ex ante’ value of a variable means its:
(A) actual value(B) planned value(C) accounting value(D) value in the previous year - 1 markWithin what range does the MPC lie?
(A) Between 0 and 1, both included(B) Above 1(C) Between −1 and 1(D) Below 0 - 1 markHow is the aggregate demand line (AD = C̄ + Ī + cY) related to the consumption line?
(A) It cuts it at the origin(B) It is steeper(C) Parallel, because both have slope c(D) It is flatter - 1 markEquilibrium income is reached where:
(A) ex post consumption = ex post income(B) saving is zero(C) consumption = investment(D) ex ante aggregate demand = ex ante aggregate supply - 1 markIf ex ante aggregate demand exceeds planned output:
(A) inventories rise and output falls(B) inventories fall unexpectedly and output rises(C) prices fall at once(D) nothing changes - 1 markAccording to the paradox of thrift, when everyone raises the MPS, the total saving of the economy:
(A) definitely rises(B) doubles(C) becomes equal to income(D) either falls or stays unchanged - 1 markInvoluntary unemployment means:
(A) people able and willing to work at the going wage do not get work(B) people do not want to work(C) seasonal lack of work(D) people stay unemployed by asking for higher wages - 1 markWhich of these is a suitable measure to correct excess demand?
(A) Raising government spending(B) Raising the cash reserve ratio(C) Cutting taxes(D) Cutting the repo rate
2 Assertion-Reason
Assertion-Reason
- 1 markAssertion (A): The value of the MPC cannot exceed 1.
Reason (R): When income changes, the change in consumption can never exceed the change in income.
(A) Both A and R are true, and R is the correct explanation of A(B) Both A and R are true, but R is not the correct explanation of A(C) A is true, but R is false(D) A is false, but R is true - 1 markAssertion (A): The equation Y = A + cY holds in every situation.
Reason (R): Ex post output always equals ex post consumption plus ex post investment.
(A) Both A and R are true, and R is the correct explanation of A(B) Both A and R are true, but R is not the correct explanation of A(C) A is true, but R is false(D) A is false, but R is true
3 Match the Following
Match the Following
- 1 markMatch List I with List II.
List I: (i) MPC (ii) APS (iii) Investment multiplier (iv) Break-even point
List II: (1) S/Y (2) 1/MPS (3) ΔC/ΔY (4) C = Y
(A) i-1, ii-3, iii-2, iv-4(B) i-3, ii-1, iii-2, iv-4(C) i-3, ii-2, iii-1, iv-4(D) i-4, ii-1, iii-2, iv-3 - 1 markMatch List I with List II.
List I: (i) Deflationary gap (ii) Inflationary gap (iii) Involuntary unemployment (iv) Full employment
List II: (1) All factors of production employed (2) Shortfall of AD at Yf (3) Excess of AD at Yf (4) No work even at the going wage
(A) i-3, ii-2, iii-4, iv-1(B) i-2, ii-3, iii-1, iv-4(C) i-2, ii-3, iii-4, iv-1(D) i-1, ii-4, iii-2, iv-3
4 Statement-Based Questions
Statement-Based Questions
- 1 markConsider these statements.
(i) MPC + MPS = 1
(ii) APC + APS = 1
(A) Only (i) is true(B) Only (ii) is true(C) Both are false(D) Both are true
5 Arrange in the Correct Order
Arrange in the Correct Order
- 1 markArrange the steps of the multiplier process in the correct order.
1. The MPC share of the extra income is spent on consumption
2. Investment rises autonomously
3. Producers raise output and factor incomes rise
4. Excess demand appears again and output rises again
(A) 2-3-1-4(B) 2-1-3-4(C) 3-2-1-4(D) 1-2-3-4
6 Fill in the Blanks
Fill in the Blanks
- 1 markInvestment multiplier (book: autonomous expenditure multiplier) = 1 ÷ ______
(A) MPS(B) MPC(C) APC(D) APS
7 Odd One Out
Odd One Out
- 1 markThree of these are measures for deficient demand. Which one is not?
(A) Raising the cash reserve ratio(B) Raising government spending(C) Cutting taxes(D) Buying securities
8 Passage-Based Questions
Passage-Based Questions
Passage
(Hypothetical news report) In a country called Sudesh, factories are running at only 70% of their capacity and many people who want work cannot find it even at the going wage. Seeing weak demand, the central bank cut the repo rate and bought government securities in the open market.
- 1 markWhich situation is Sudesh’s economy in?
(A) Excess demand(B) Full employment equilibrium(C) Inflationary gap(D) Deficient demand, with involuntary unemployment
9 True / False
True / False
- 1 markConsider these statements.
(i) The producer’s ex ante investment is ₹100.
(ii) Her ex post investment is ₹70.
(iii) The ₹30 of goods sold from stock is an unplanned fall in inventory.
(A) Only (i) and (ii) are true(B) Only (ii) is true(C) Only (i) and (iii) are true(D) (i), (ii) and (iii) are all true
Answer Key and Explanations
Direct Questions
- (B) Ex ante = planned, what was intended. The actual or accounting value is the ex post value.
- (A) The change in consumption cannot exceed the change in income (at most 1) and is at least 0; the book: 0 ≤ MPC ≤ 1.
- (C) AD = C + Ī; adding a constant Ī does not change the slope, so AD is parallel to the consumption line and the gap between them is Ī.
- (D) At equilibrium planned demand equals planned supply. Zero saving is the break-even point, not equilibrium.
- (B) People want to buy more than is produced, so firms’ stocks fall unexpectedly and they raise output and employment.
- (D) A higher MPS lowers AD and income; at equilibrium S = I, so total saving cannot rise (it stays at 10 in the book’s example).
- (A) CBSE supplementary material: when those able and willing to work at the going wage rate do not get work. Choosing not to work is voluntary unemployment.
- (B) A higher CRR reduces banks’ ability to lend, so money supply and AD fall. The other three raise AD and are measures for deficient demand.
Assertion-Reason
- (B) Both are true, but R repeats what A says (MPC = ΔC/ΔY), so it is not a separate explanation of A.
- (D) A is false: ex ante demand equals ex ante supply only at equilibrium. R is true: it is the accounting identity of Chapter 2.
Match the Following
- (B) MPC = ΔC/ΔY, APS = S/Y, k = 1/MPS, at break-even C = Y.
- (C) Deflationary = shortfall of AD at Yf; inflationary = excess; involuntary unemployment = no work at the going wage; full employment = all factors employed.
Statement-Based Questions
- (D) Both are true: extra income and total income are each either consumed or saved.
Arrange in the Correct Order
- (A) Investment rises (2) → output and income rise (3) → part is consumed (1) → new excess demand and the next round (4).
Fill in the Blanks
- (A) k = 1/(1 − MPC) = 1/MPS.
Odd One Out
- (A) Raising the CRR reduces credit and AD; it is a measure for excess demand.
Passage-Based Questions
- (D) Capacity is idle and people are unemployed even at the going wage: equilibrium is below full employment, that is, deficient demand.
True / False
- (D) All three are true: the plan was 100, the unforeseen sale reduced it by 30, ex post 70.
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