Determination of Income and Employment MCQ — Class 12

Test your understanding of Determination of Income and Employment with 20 free questions across Easy and Moderate. Hard and Extreme require Premium. Choose a level in the interactive quiz to answer questions and review explanations.

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Key concepts to revise

Aggregate demand

Aggregate demand: planned aggregate expenditure on final goods and services in the simplified macro model, built from the relevant expenditure components

Consumption function

Consumption function: a relationship showing planned consumption at different income levels, commonly written C = a + bY in the simple linear case

Average propensities

Average propensities: APC is consumption divided by income and APS is saving divided by income

Marginal propensities

Marginal propensities: MPC is change in consumption divided by change in income, while MPS is change in saving divided by change in income

MPC–MPS identity

MPC–MPS identity: in the simple consumption-saving relationship MPC plus MPS equals one

Short-run equilibrium output

Short-run equilibrium output: equilibrium occurs where planned aggregate demand equals aggregate output or income in the simple model

Investment multiplier

Investment multiplier: the ratio of change in equilibrium income to the initial change in autonomous investment, equal to 1/(1−MPC) or 1/MPS in the simple model

Full employment and involuntary unemployment

Full employment and involuntary unemployment: full employment allows all willing workers at the prevailing conditions to find work apart from normal frictions, while involuntary unemployment exists when willing workers cannot find jobs

Excess demand

Excess demand: planned aggregate demand exceeds the full-employment level of output, creating inflationary pressure that may be corrected by contractionary fiscal or monetary measures

Deficient demand

Deficient demand: planned aggregate demand is insufficient to purchase the full-employment output, creating recessionary or unemployment pressure that may be corrected by expansionary measures

Try these sample MCQs

1. Which concept best matches this situation? Consumption and investment together form the core two-sector aggregate demand.

  1. Consumption function
  2. Aggregate demand
  3. Marginal propensities
  4. Investment multiplier
Check answer and explanation

Aggregate demand. Aggregate demand: planned aggregate expenditure on final goods and services in the simplified macro model, built from the relevant expenditure components

2. Which concept best matches this situation? Positive autonomous consumption allows some consumption even at zero current income.

  1. Average propensities
  2. MPC–MPS identity
  3. Consumption function
  4. Full employment and involuntary unemployment
Check answer and explanation

Consumption function. Consumption function: a relationship showing planned consumption at different income levels, commonly written C = a + bY in the simple linear case

3. Which concept best matches this situation? At income 100, consumption 80 gives APC 0.8 and saving 20 gives APS 0.2.

  1. Marginal propensities
  2. Short-run equilibrium output
  3. Excess demand
  4. Average propensities
Check answer and explanation

Average propensities. Average propensities: APC is consumption divided by income and APS is saving divided by income

After the quiz

Write down the concepts you missed. Explain each one in your own words, give an example, and attempt the level again without notes. A high score on a short quiz does not replace revision of the whole chapter.

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