REVISION TEST-3
DETERMINATION OF INCOME AND EMPLOYMENT
1. If planned savings exceeds planned investments in an economy, explain its likely
impact on income, output and employment.
2. Assuming that there exists a situation of excess demand in an economy leading to an
inflationary gap. a) What is the impact of excess demand in the economy b) Explain any two
monetary measures that can help to control this situation.
3. Describe the economic scenario when ex-post Aggregate Demand surpasses ex-post
Aggregate Supply and its potential consequences on price levels, production and
employment.
4. (A) "In an economy, ex-ante Aggregate Demand is more than ex-ante Aggregate Supply."
Elaborate the possible impact of the same, on the level of output, income and employment.
5. “Saving curve can be derived from the consumption curve” Justify the statement, citing valid
steps with the help of a well-labelled diagram.
6. Read the following text carefully: “Union Finance Minister stated, that investments in
infrastructure and productive capacity have a large multiplier impact on growth and
employment and in view of this, capital investment outlay is being proposed to increase
steeply in the Budget 2023-24 by 1,000 crore.” Based on the given text and common
understanding, explain the working process of the increase in investment on the National
Income, assuming the Marginal Propensity to Save (MPS) as 20%.
7. “In an economy, ex-ante Aggregate Supply is less than ex-ante Aggregate Demand.” Explain
its impact on the level of output, income and employment.
8. Elaborate the two components of Aggregate Supply in a two-sector economy.
9. Define AD. State its components.
10. “With the objective to correct deflation, Reserve Bank of India may decrease the Bank rate.”
Discuss the rationale behind the step taken by the Reserve Bank of India (RBI).
11. "With an objective to reduce inflation, government may reduce public Expenditure." Discuss
the rationale behind such a step which may be taken by the Government.
12. Discuss the working of the adjustment mechanism if, Aggregate Demand (AD) is greater than
Aggregate Supply (AS).
13. What is meant by deflationary gap? State and discuss any two fiscal measures to
correct the situation of deflationary gap.
14. Define effective demand.
15. Define Saving Function. ii) What is the significance of dis-savings?
16. Explain, how the ‘Reverse Repo Rate’ helps in correcting Excess Demand in an economy?
17. Discuss the working of the adjustment mechanism in the following situations:
a) If Aggregate Demand is greater than Aggregate Supply
b) If Ex-Ante Investments are less than Ex-Ante Savings
18. State the meaning of the following:
19. (i) Investment multiplier (ii) Full employment
20. Using a hypothetical example, elaborate the working of investment multiplier in an
economy.
21. What is meant by inflationary gap? State and discuss any two fiscal measures to correct the
situation of inflationary gap.
22. Answer the following questions based on the data given below:
(i) Planned investment = ₹ 100 crore
(ii) C = 50+ 0.5 Y (a) Determine the equilibrium level of income.
(b) Calculate the saving and consumption expenditure at equilibrium level of
National Income.
23. Answer the following questions based on the data given below :
24. (i) Planned Investments = `Rs.100 crore.
25. (ii) C = 50 + 0.50 Y
(a) Determine the equilibrium level of income.
(b) Calculate the value of Savings at equilibrium level of National Income.
(c) Calculate the value of Investment Multiplier.
26. Assume the following for a hypothetical economy: (i) Autonomous Consumption
Expenditure (C) = ₹ 25 crore (ii) Marginal Propensity to Save (MPS) = 0.1 (iii) Level of
Income (Y) = ₹ 2,000 crore (iv) Autonomous Investment (I) = ₹ 25 crore Is the
economy in equilibrium situation? Justify your answer with valid calculations.
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