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Determination of Income and Employment (12 Economics)

Practise chapter-wise MCQs for Class 12 Economics — Determination of Income and Employment. Every question comes with the correct answer and an explanation

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TL;DR: Practise chapter-wise MCQs for Class 12 Economics — Determination of Income and Employment. Every question comes with the correct answer and an explan…

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Practise chapter-wise MCQs for Class 12 Economics — Determination of Income and Employment. Every question comes with the correct answer and an explanation

Determination of Income and Employment MCQs with Answers & Explanations

Q1. In the context of the aggregate demand-aggregate supply model, full employment equilibrium occurs when:

  1. Aggregate Demand is greater than Aggregate Supply.
  2. Aggregate Supply is greater than Aggregate Demand.
  3. Inflation is zero.
  4. Aggregate Demand equals Aggregate Supply at the full employment level of output. ✓ (correct)

Explanation: Full employment equilibrium is achieved when the economy produces at its potential output level, meaning there is no involuntary unemployment, and aggregate demand equals aggregate supply at this output level.

Q2. What does the 'autonomous' component of consumption represent?

  1. Consumption that does not depend on the level of income. ✓ (correct)
  2. Consumption by the government.
  3. Consumption that increases with income.
  4. Consumption that decreases with income.

Explanation: Autonomous consumption is the minimum level of consumption that occurs even when income is zero. It is independent of the income level.

Q3. Deficient demand in an economy leads to:

  1. Excess capacity
  2. Deflationary gap ✓ (correct)
  3. Full employment equilibrium
  4. Inflationary gap

Explanation: Deficient demand, also known as underemployment equilibrium, occurs when aggregate demand is insufficient to employ all available resources, leading to a deflationary gap.

Q4. The paradox of thrift suggests that if everyone saves more, it can lead to:

  1. Increased aggregate investment and economic growth.
  2. A balanced budget for the government.
  3. Decreased aggregate demand and lower economic output. ✓ (correct)
  4. Increased consumption and higher economic growth.

Explanation: The paradox of thrift states that while saving is good for an individual, if everyone tries to save more simultaneously, it reduces aggregate demand, leading to lower production and income, thus paradoxically reducing total savings.

Q5. If the government increases its spending, what is the likely impact on aggregate demand and income, assuming MPC > 0?

  1. Aggregate demand decreases, income decreases.
  2. Aggregate demand increases, income decreases.
  3. Aggregate demand decreases, income increases.
  4. Aggregate demand increases, income increases. ✓ (correct)

Explanation: An increase in government spending is a component of aggregate demand. With a positive MPC, this initial increase in spending leads to a multiplied increase in aggregate income.

Q6. The Keynesian theory of employment primarily emphasizes the role of:

  1. Aggregate Demand ✓ (correct)
  2. Fiscal Policy alone
  3. Aggregate Supply
  4. Money Supply

Explanation: Keynesian economics posits that the level of output and employment is determined by the aggregate demand for goods and services.

Q7. Which of the following represents the aggregate demand for goods and services in an economy?

  1. C + S + T + X
  2. C + I + G + X - M ✓ (correct)
  3. I + G + X + M
  4. C + S + T + M

Explanation: Aggregate Demand (AD) is the total expenditure on goods and services in an economy, represented by Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X - M).

Q8. Which of the following is a component of investment in macroeconomics?

  1. Purchase of shares in the stock market.
  2. Payment of household electricity bills.
  3. Purchase of a new factory by a firm. ✓ (correct)
  4. Government transfer payments.

Explanation: Investment in macroeconomics refers to the creation of new capital assets, such as a new factory, machinery, or residential construction. The purchase of shares is financial investment, not real investment.

Q9. The effective demand refers to the point where:

  1. Marginal Propensity to Consume equals Marginal Propensity to Save.
  2. Aggregate Demand exceeds Aggregate Supply.
  3. Aggregate Supply exceeds Aggregate Demand.
  4. Aggregate Demand equals Aggregate Supply. ✓ (correct)

Explanation: Effective demand, in Keynesian economics, is the level of aggregate demand at which it equals aggregate supply. This determines the equilibrium level of output and employment.

Q10. If the marginal propensity to consume (MPC) is 0.75, what is the value of the multiplier?

  1. 4 ✓ (correct)
  2. 1.33
  3. 3
  4. 0.25

Explanation: The multiplier is calculated as 1 / (1 - MPC). With MPC = 0.75, the multiplier is 1 / (1 - 0.75) = 1 / 0.25 = 4.

More 12 Economics MCQs

  • Introduction to Microeconomics
  • Theory of Consumer Behaviour
  • Production and Costs
  • The Theory of the Firm under Perfect Competition
  • Market Equilibrium
  • Non-competitive Markets

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