64 + Interview Questions in DETERMINATION-OF-INCOME-AND-EMPLOYMENT IN GENERAL AWARENESS Page 1 InterviewSolution

1.	can consumption exceed income ? If yes , what is saving then?
Answer» Yes , when income is zero or less than subsisttence consumption level , then there is negative saving ( dissving ) consumption expenditure is incurred from past saving ( dissaving ) consumption expendilture in incurred from past saving .

Discussion

2.	What is the defference between voluntary unemployment and involuntary unemployment ? State the significance of this distinction .
Answer» Volunarty unemployment occurs when people are not not willing to do work although suitable work is avilable for them i.e., they are voluntarily unemployed involunraty unemployment occurs when occurs when those who are able and willing to work at the prevailing wage rate do not get work the distinction is important to determine the total unemployment in an ecionomy Voluntarily unemployed are not included in the labour force while estimating size of unemployment whereas involuntary are duly considered for determining the overrall status of unemployment in the conutry .

Discussion

3.	Give meaning of involuntary unemployment .
Answer» if refers ot a situation in which all able persons who are work at prevailing wage rate do not get work.

Discussion

4.	if planned saving are greater than planned investment , what will be its effect our inventories ?
Answer» stock of inventories will increase .

Discussion

5.	Underemployment equilibrium indicates excess supply in the economy
Answer» Correct Answer - true because AD is less than what is needed for full emplolyment of resoures implying exstence of excess cappacity .

Discussion

6.	what is equilibrium output ?
Answer» output is at equilibrium level when quantity product is equal to quantity demanded .

Discussion

7.	break - even point is struck when saving is equal to zero .
Answer» Correct Answer - true bacause at zero level of income , a minimum level of consumption is - income and so saving = 0

Discussion

8.	Although propensity to consume is fairly high in india yet manufacturing sector india shows a low rate of growth due to low demand , why is it so ?
Answer» NO douubt propensity to consume in india is high but majority of people being poor spend their earnings on necessary goods like food clothing and related items .After spending on their basic needs littere is left with people for buying nanufacured goods .AS a result , manufacuring sector shows a low rate of growth because of low demand .

Discussion

9.	give menings of (i) Ex- ante saving ,(ii) ex-ante investment ,(iii) ex- ante consumption and (ic) Ex- ante aggregate demand .
Answer» (i) the saving which all the households plan ( desire ) to make at levels of income are called ex- ante saving (ii) . The investment which the firms plan to make at different levels of income during a given period are called ex- ante investment .(iii) Ex- ante consumption means value of planned condumption experditure on final goods.(iv) Ex- ante aggregate demand means planed aggregate demand for final goods and serives.

Discussion

10.	what happens to the demand for credit in the economy when repo rate is increased ?
Answer» By varying repo rate central Bank increase /decrease supply of money and availablity of credit ,How ? When central Bank repo rate this raies cost of borrowing which discourges commmercial bank in borrowing from central Bank . commercial banks , as a follow up action raise their lending rate of interest to consumers and investors demand is comparaticvely lesser evil as deficient demand causes serious consequences .

Discussion

11.	FULL EMPLOYMENT/ INVOLUNTARY UNEMPLOYMENT
Answer» Full employment is an economic situation in which all available labor resources are being used in the most efficient way possible. Full employment embodies the highest amount of skilled and unskilled labor that can be employed within an economy at any given timeORInvoluntary unemployment occurs when a person is willing to work at the prevailing wage yet is unemployed. Involuntary unemployment is distinguished from voluntary unemployment, where workers choose not to work because their reservation wage is higher than the prevailing wage

Discussion

12.	Ex- post investment is greater than ex- ante investment .
Answer» Correct Answer - true as it is the deficiency of AD which causes deflationaly gap.

Discussion

13.	Underemployment equilibrium indicates excess supply in the economy
Answer» Correct Answer - true because AD is less than what is needed for full emplolyment of resoures implying exstence of excess cappacity .

Discussion

14.	Does full employment mean zero unemployment ?
Answer» full empolyment does not mean a situation of zero unemployment because natural rate of nemployment ( minimum rate rate of unemployment ) always exists in the economy .

Discussion

15.	infiationary gap is measured by deficient demand .
Answer» Correct Answer - False because infiationary gap is measured by excess demand .

Discussion

16.	how is value of ex-ante AD derived under fixed price and constant rate of interest ?
Answer» in an economy without government , ex-ante AD is the sum of Ex- ante consumption expendilture and ex-ante investment ( minimum rate of unemployment ) always exists in the economy .

Discussion

17.	Difference between full employment equilibrium and underemployment equilibrium .
Answer» Full empolyment equilibrium is the equilibrium `(AD=AS)` where all the resuroces in the economy are fully utillsed ( emmployend ) there are no inused .underemployment equilibrium refers to a situation where aggregate demand and aggregate supply are equal at a level at which all reasources are not fully used .

Discussion

18.	List the components of arrregate demand (AD).
Answer» components of aggregate deamand in a four sector economy are : (i) private ( house hold) consumpton demand (C ) ,(ii) private investment demand (i) ,(iii) Government demand for Goods and servicess (G) and (iv) Net export ( Export - import ) Demand (X-M) AD is the sum of above mentioned four types of demand symbolically :ADC+I+G+(X.M).

Discussion

19.	what happens when aggregate demand increase beyond the level of its full employment ?
Answer» when AD increase beyond its full employment level putput remains constant as the respurces are already fully empolyed ( used ) But as AD increase the pressure of demand on the existing supply mounts up the result is a rise in prices causing inflation .

Discussion

20.	what is the relationship between MPC and MPS? Explain ?
Answer» sum of MPC and MPS is always equal to 1. How ? Income (Y) is ether consumed ( C) or saved ( S) . Therefore ,Y=C+S. increase in income `(Delta Y) ` is equal to increase in concumption `(Delta C) ` and increase in saving `(Delta S) .So Delta Y =Delta C+ Delta S.` Dividing both sides by `Delta `Y , we get `(DeltaY) /(DeltaI) =(DeltaC)/(Delta Y) +(DeltaS)/(DeltaY)` `1=MPC+MPS`

Discussion

21.	if MPS =1, how much will be MPC?
Answer» MPC=1-MPS =1-1=0 (zero,i.e., nil )

Discussion

22.	value of investment multiplier (K) varies between zero and onfinfy true or false ?
Answer» False beacause value of K varies between 1 and infinity .

Discussion

23.	when MPC gt MPS , the value of multiplier (K) will be greater than MPS. True or false ?
Answer» Not be greater true .True when MPS is 0.1 False when MPC is 0.6,0.7 and 0.8 (i.e., greater than MPS)

Discussion

24.	there is inverse relationship between MPS and investment multiplier .
Answer» Correct Answer - true suppose MPS = 1/3 , then ` K= (1) /(1//3)=xx(3)/(1)=3`

Discussion

25.	in an economy investment is increased by Rs. 2,000 crore ,Calculate the change in total income if MPS is 0.25.
Answer» `DeltaI=2,000 " "therefore MPS=0.25=(1)/(4)` `K=(1)/(MPS)=(1)/(1//4)=4` `K=(DeltaY)/(DeltaI) or 4=(DeltaY)/(2000)` `Delta Y= 4xx2,000=8,000`crore

Discussion

26.	when MPCgt MPS , the value of investment multiplier (K) will be grater than 5.
Answer» Correct Answer - False if MPC > 0.5 but not greater than 0.8 true if MPC is greater than 0.8.

Discussion

27.	sum of APC and MPC is always equal to 1.
Answer» Correct Answer - False as APC is ratio of consumption and income whereas MPC is the ratio of change in consumption `(Delta C)` due to change in income . `(Delta Y)`

Discussion

28.	the value of APS can never be greater than 1.
Answer» Correct Answer - true because saving can never be more than national income .

Discussion

29.	An increase of Rs. 250 crore in investment in an economy resulted in total increase in income of Rs. 1,000 crore . Calculate the following : (a) Marginal propensity to consume (MPC) ,(b) change in saving , ( C) change in consumption expenditure , (d) Value of multiplier .
Answer» `K= ( Delta Y) /(DeltaI) =(1000)/(250)=4` `(a) K= (1)/(MPC ) or 4= (1) /(MPC)` `or 4-4 MPC=1` `or 4MPC=3` ` MPC =(3)/(4) =0.75` ( also ,MPS=1-0.75=0.25) (B) change in savings `Delta S= Delta Yxx MPS` `= 1,000xx0.25` `=250 ` crore ( C) ` Delta C= Delta YxxMPC` `= 1,000 xx0.75` `=750 ` crore (D) Value of miltiplier (K) ` =(Delta Y) /(Delta I)=(1000)/(250)=4`

Discussion

30.	Value of APS and MPC can never be less than zero .
Answer» Correct Answer - False As value of APS Can be Less than zero when consumption is more than income .

Discussion

31.	If disposable income is Rs. 1,000 and consumption expenditure Rs. 750, find out the average propensity to save.
Answer» `APS=(Y-C)/(Y)=(1,000-750)/(1,000)=0.25`

Discussion

32.	Given that mational income is Rs. 80 crore and consumption expenditure is Rs. 64 crore find out average propensity to save (Aps) . When income rises to Rs. 100 crore and consumption expenditure to Rs. 78 crore , what will be APC and MPC?
Answer» (i) `APS =(s)/(Y) =(16=(80-64))/(80)=(1)/(5) =0.2` (ii) when income rises to 100 crore and consumption to 78 crore , then `Delta Y =20` `(=100-80) and Delta C=14(=78-64)` `APC=( C)/(Y) =(78)/(100)=0.78` `MPC =(delta C) /(deltaY) =(14)/(20)=(7)/(10)=0.70`

Discussion

33.	if income of a consumer rises by Rs. 50,000 , what will be its impact on his consumption expenditure ? Comment on his response .
Answer» the consumer would like to increase his expenditure but by less than increase in income . This is accrding to keynesian Psychological law of consumption which states As. Income increases , consumption expenditure also increase but by less than increase in income there is tendency of the people not to spend on consumption the whole in incremental income .

Discussion

34.	there is an increasae in investment of Rs. 100 crore in an economy , mnarginal propensity to cosume is 1. what can you say about increase in income ?
Answer» `K=(1)/(1-MPC)=(1)/(1-1)=(1)/(0)=oo"(infinite)"` `oo =(Delta Y) /( Delta I) ` `Delta Y= oo xxDelta I = 100oo` total increase in income is 100 or infinite .

Discussion

35.	if MPC is 0.75 , how much will be APS?
Answer» `MPS =1-MPC` `=1-0.75 = 0.25`

Discussion

36.	if disposable income is Rs. 1,000 and consumption expenditure is Rs. 750 , find out APS.
Answer» `APS=(S)/(Y)=(250(=1,000-750))/(1,000)=(1)/(4)` `=0.25 or 25%`

Discussion

37.	in an economy every time income rises ,75% of increase in income is spent on consumption , now suppose in the same economy , investment rises by Rs. 750 Crore , Calculate the following : (i) change in income ,(ii) change in saving .
Answer» spending 75% of increase in income on consumption means MPC=75% (i) Multiplier (K) `=(1)/(1-MPC)` `=(1)/(1-(75)/(100))=(1)/((25)/(100))=4` `K=(Delta Y)/(Delta I) or 4= (Delta Y) /(750)` Or `Delta Y =4xx750= Rs. 3,000` crore ( change in income is Rs. 3,000 crore ) (ii) `MPS=1-MPC` `=1-75%= 25%` change in saving =`25%` of change in income `=25% " of " 3,000` `=Rs. 750 ` crore

Discussion

38.	How much is the marginal propensity to consume in an economy in which the marginal propensity to save is 0.2 ?
Answer» `MPC=1-MPS=1-0.2=0.8`

Discussion

39.	if APS 0.6, how much will ne APC?
Answer» APC=1-APS `=1-0.6=0.4`

Discussion

40.	An economy is in equilibrium Calculate inverstment experditure from the following : National income `=800,MPS=0.3 ,Autonomous cons.=100
Answer» since MPS =0.30 therefore MPC = 0.70 `Y=C+I` ` =barC +by +I` `80=100+0.7x800+I` `(MPC=1-.3=.7) ` `800=100 +560+I` `800=660+I` I=800-66=140` Investment expenenditure = 140

Discussion

41.	in an economy C= 300+0.8Y and T=500 ( where C= consumption ,Y income ,I= income ,I = investment ). Calculate the following j : (i) Equilibrium level if income , (ii) consumption expenditure at equilibrium level .
Answer» (i) for equilibrium `Y=C+I (or As=AD)` `Y=300+0.8Y+500` (sucstituting Values of C and I) `Y-0.8Y=800` `0.2Y=800 or ` `(2)/(10)Y=800` `Y=4,000` ( this is equilibrium level of income ) (ii) `Y=c+I` `4,000=C+500` `C=4,000-500` `=3,000` ( this is consumption expenditure )

Discussion

42.	in an economy investment increase by RS. 120 crore the value of multiplier is 4. Calculate MPC .
Answer» `K= (1)/(1-MPC) or 4=(1)/(1-MPC)` `4-4MPC=1or 4MPC =4-1=3 ` ` or MPC=(3)/(4)=0.75`

Discussion

43.	C=100+0.4Y is the consumption function of an economy where C is Consumption Expenditure and Y is National Income. Investment expenditure is 1,100 Calculate(i) Equilibrium level of National Income, (ii) Consumption expenditure at equilibrium level of national income.
Answer» (i) we know `Y=C+I` `=100+0.4Y+1100` `Y-0.4Y = 1,200 OR ` ` 0.6Y = 1,200 x10//6` ` = 2,000` (ii) equilibrium level of income = 2,00 investment = 1,100 therefore = 1,100 therefore , consumption expenditure `=2,000-1,100` `=900`

Discussion

44.	Calculate marginal propensity to consume (MPC) from the following data about an economy which is in equilibrium : National income 2,000 Autonomous consumption expendituure 200 Investment expenditure 100
Answer» `Y=C+I` ` Y= (barC+By)+I` `2,000=200+MPC(2,000)+100` `2,000 MPC=2,000-200-100=1,700` `MPC = 1,700 //2,000` `=17//20` `=0.85`

Discussion

45.	find consumption expenditure from the following : National income =Rs. 5,000 Autonomous consumption = Rs, 1,000 MPC = 0.80
Answer» `C=barC+by` `=1,000+0.80xx 5,000` `=1,000 +4,000` `=5,000`

Discussion

46.	Calculate autonomous consumption expenditure from the following about an economy which is in equilibrium : National income `=500,MPs =0.30`, Investment expenditure = 100
Answer» since d MPS =0.30 therefore MPC =0.70 ` Y=C+I (here C = barC +by ,b=MPC)` Putting the given values , we get `500 = barC +0.70xx500+100` `=barC +350+100 =barC+450` `barC = 500 -450 =50`

Discussion

47.	find consumption experditure from the following : National income `=Rs. 5,000` Autonomous cons. Expenditure `=Rs, 1,000` Marginal propensity to cinsume `=0.80`
Answer» `C= barC +by ("where",BarC= "autono.cons.," b= MPC and Y ="National income ")` `=1,000+0.80xx5,000` `=1,000+4,000=Rs.5,000`

Discussion

48.	in an economy investment is increased by Rs. 300 crore .If MPC is 2/3 , calculate increase in national income .
Answer» `K=(DeltaY)/(DeltaI) or DeltaY=KxxDeltaI` `=(1)/(1-MPC)xxDeltaI` `=(1)/(1(-2)/(3))xx300` `=(1)/((1)/(3))xx300` `=3xx300=900 `crore

Discussion

49.	In an economy the autonomous investment is 100 and the consumption is C=80+0.4Y. Is the economy in equilibrium at an income level 400? Justify your answer.
Answer» At equilibrium `AD=Y` `AD=C+I=Y` `80+0.4+100=Y` `0.6Y=180` `Y=(180)/(0.6)=300` since the given income of 400 is greater than the equilibrium level of income , the economy is not at equilibtium It is at a situation where aggregate demand is greater than the aggrefate output produced in the economy .

Discussion

50.	in an economy , actual level of income IS Rs. 500 crore whereas the full employment level of income is Rs. 800 crore . The MPC is 0.75 Calculate the increase in investment required to achieve full employment level of income .
Answer» `K=(1)/(1-MPC)=(1)/(1-0.75)=(1)/(0.25)=(1)/(1//4)=4` increase in income required =800-500 =300 crore increase in investment required = 300`div` 4 `=75 `crore

Discussion

Explore topic-wise InterviewSolutions in .

can consumption exceed income ? If yes , what is saving then?

What is the defference between voluntary unemployment and involuntary unemployment ? State the significance of this distinction .

Give meaning of involuntary unemployment .

if planned saving are greater than planned investment , what will be its effect our inventories ?

Underemployment equilibrium indicates excess supply in the economy

what is equilibrium output ?

break - even point is struck when saving is equal to zero .

Although propensity to consume is fairly high in india yet manufacturing sector india shows a low rate of growth due to low demand , why is it so ?

give menings of (i) Ex- ante saving ,(ii) ex-ante investment ,(iii) ex- ante consumption and (ic) Ex- ante aggregate demand .

what happens to the demand for credit in the economy when repo rate is increased ?

FULL EMPLOYMENT/ INVOLUNTARY UNEMPLOYMENT

Ex- post investment is greater than ex- ante investment .

Underemployment equilibrium indicates excess supply in the economy

Does full employment mean zero unemployment ?

infiationary gap is measured by deficient demand .

how is value of ex-ante AD derived under fixed price and constant rate of interest ?

Difference between full employment equilibrium and underemployment equilibrium .

List the components of arrregate demand (AD).

what happens when aggregate demand increase beyond the level of its full employment ?

what is the relationship between MPC and MPS? Explain ?

if MPS =1, how much will be MPC?

value of investment multiplier (K) varies between zero and onfinfy true or false ?

when MPC gt MPS , the value of multiplier (K) will be greater than MPS. True or false ?

there is inverse relationship between MPS and investment multiplier .

in an economy investment is increased by Rs. 2,000 crore ,Calculate the change in total income if MPS is 0.25.

when MPCgt MPS , the value of investment multiplier (K) will be grater than 5.

sum of APC and MPC is always equal to 1.

the value of APS can never be greater than 1.

An increase of Rs. 250 crore in investment in an economy resulted in total increase in income of Rs. 1,000 crore . Calculate the following : (a) Marginal propensity to consume (MPC) ,(b) change in saving , ( C) change in consumption expenditure , (d) Value of multiplier .

Value of APS and MPC can never be less than zero .

If disposable income is Rs. 1,000 and consumption expenditure Rs. 750, find out the average propensity to save.

Given that mational income is Rs. 80 crore and consumption expenditure is Rs. 64 crore find out average propensity to save (Aps) . When income rises to Rs. 100 crore and consumption expenditure to Rs. 78 crore , what will be APC and MPC?

if income of a consumer rises by Rs. 50,000 , what will be its impact on his consumption expenditure ? Comment on his response .

there is an increasae in investment of Rs. 100 crore in an economy , mnarginal propensity to cosume is 1. what can you say about increase in income ?

if MPC is 0.75 , how much will be APS?

if disposable income is Rs. 1,000 and consumption expenditure is Rs. 750 , find out APS.

in an economy every time income rises ,75% of increase in income is spent on consumption , now suppose in the same economy , investment rises by Rs. 750 Crore , Calculate the following : (i) change in income ,(ii) change in saving .

How much is the marginal propensity to consume in an economy in which the marginal propensity to save is 0.2 ?

if APS 0.6, how much will ne APC?

An economy is in equilibrium Calculate inverstment experditure from the following : National income `=800,MPS=0.3 ,Autonomous cons.=100

in an economy C= 300+0.8Y and T=500 ( where C= consumption ,Y income ,I= income ,I = investment ). Calculate the following j : (i) Equilibrium level if income , (ii) consumption expenditure at equilibrium level .

in an economy investment increase by RS. 120 crore the value of multiplier is 4. Calculate MPC .

C=100+0.4Y is the consumption function of an economy where C is Consumption Expenditure and Y is National Income. Investment expenditure is 1,100 Calculate(i) Equilibrium level of National Income, (ii) Consumption expenditure at equilibrium level of national income.

Calculate marginal propensity to consume (MPC) from the following data about an economy which is in equilibrium : National income 2,000 Autonomous consumption expendituure 200 Investment expenditure 100

find consumption expenditure from the following : National income =Rs. 5,000 Autonomous consumption = Rs, 1,000 MPC = 0.80

Calculate autonomous consumption expenditure from the following about an economy which is in equilibrium : National income `=500,MPs =0.30`, Investment expenditure = 100

find consumption experditure from the following : National income `=Rs. 5,000` Autonomous cons. Expenditure `=Rs, 1,000` Marginal propensity to cinsume `=0.80`

in an economy investment is increased by Rs. 300 crore .If MPC is 2/3 , calculate increase in national income .

In an economy the autonomous investment is 100 and the consumption is C=80+0.4Y. Is the economy in equilibrium at an income level 400? Justify your answer.

in an economy , actual level of income IS Rs. 500 crore whereas the full employment level of income is Rs. 800 crore . The MPC is 0.75 Calculate the increase in investment required to achieve full employment level of income .