Students get through the TN Board 12th Economics Important Questions Chapter 3 Theories of Employment and Income which is useful for their exam preparation.
TN State Board 12th Economics Important Questions Chapter 3 Theories of Employment and Income
Very short answer questions
Question 1.
How does Keynes define Full employment?
Answer:
Keynes defines Full employment as the absence of involuntary unemployment.
Question 2.
How does Lerner define Full employment?
Answer:
“That level of employment at which any further increase in spending would result in an inflationary spiral of wages and prices”.
Question 3.
What does every economy aim at?
Answer:
Every economy in the world aims at attaining the level of full employment equilibrium where all its available resources are fully and efficiently employed to achieve the maximum level of output.
Question 4.
What is Full employment?
Answer:
The concept of full employment refers to full employment of labour force of a country.
Question 5.
What do you mean by unemployment?
Answer:
It is problem faced when there are people, who are willing to work and able to work but cannot find suitable jobs.
Question 6.
Write a note on the classical theory of employment.
Answer:
The classical theory of employment is composed of different views of classical economists on the issue of income and employment in the economy.
Question 7.
What are the assumptions of classical economist on the theory of employment?
Answer:
Classical economist assumed that the economy operates at the level of full employment without inflation in the long period, wages and prices of goods were flexible and the competitive market existed in the economy. (Laissez – Faire economy)
Question 8.
Write a note on classical theory explanation.
Answer:
This classical theory of Say’s Law explains that “A person receives his income from production which is spent on the purchase of goods and services produced by others for the economy as a whole, therefore, total production equal total income”.
Question 9.
What is the view of Keynes theory of employment in short-run?
Answer:
Keynes theory of employment was based on the view of the short run. “According to him, the factors of production such as capital goods, supply of labour, technology and efficiency of labour remain unchanged while determining the level of employment.
Question 10.
Define Keynes theory of employment.
Answer:
According to Keynes theory of employment “Effective demand signifies the money spent on consumption of goods and services and on investment. The total expenditure is equal to the national income, which is equivalent to national output”.
Question 11.
What are the three motives of liquidity preference?
Answer:
- Transaction motive
- Precautionary motive
- Speculative motive.
Question 12.
What do you mean by desired demand in the economy?
Answer:
The desired demand in the economy is the sum of the total desired Private consumption, expenditure, desired investment – expenditure desired
government spending, and desired net exports. Thus, the desired spending is called aggregate spending.
AD = C + I + G + (X – M)
Question 13.
Write a note on aggregate supply.
Answer:
Aggregate supply refers to the value of the total output of goods and services produced in an economy in a year.
Question 14.
What is aggregate supply price?
Answer:
Aggregate supply price is the total amount of money that all entrepreneurs in an economy except to receive from the sale of output produced by a given number of labourers employed.
Question 15.
What are the two approaches to the determination of the equilibrium level of income in Keynesian theory?
Answer:
- Aggregate demand – Aggregate supply approach
- Saving – investment approach
Short answer questions
Question 1.
Explain the classical theory of unemployment.
Answer:
- It is about different views of classical economists on Income and employment in the economy.
- According to classical economists, the economy operates at the level of full employment without inflation for a long period.
- The classical economists assumed that wages and prices of goods were flexible and these existed a competitive market in the economy. (Laissez – Faire Economy)
Question 2.
“Say’s the law of markets is the core of the classical theory of employment” explains.
Answer:
J.B. Say a French economist and an industrialist was influenced by Adam Smith and David Ricardo. J.B.Say enunciated the proposition that “supply creates its own demand” so there cannot be general overproduction or the problems of unemployment in the economy.
Question 3.
Write a note on Ex ante and Export in Say’s Law.
Answer:
“Supply creates its own demand or equivalently that the aggregate investment equals the aggregate saving holds good in the export because it is an accounting identity. According to Say’s law, these two are equal in exantisense. That is the total quantity which people produce that is aggregate supply must be equal to the total quantity which they plan to buy that is aggregate demand.
Question 4.
Write a note on the theory of Keynes.
Answer:
There was a turning point in the development of modem economic theory after the publications of “The general theory of employment interest and Money” published in 1936. He was against the belief of classical economists. He not only criticized the belief of classical economist that the market forces in capitalist economy adjust themselves to attain equilibrium, he also gave his own theory of employment.
Question 5.
Write a note of effective demand.
Answer:
The principle of effective demand is the starting point of Keynes theory of employment and income. It denotes money actually spent by the people on products of industry. The money received by the entrepreneurs is paid in the form of rent, wages, interest and profit. So the Effective demand = National income.
Long answer questions
Question 1.
Explain the assumptions of Say’s Law of market.
Answer:
- No single buyer or seller of a commodity or an input can affect the price.
- Full employment.
- People are motivated by self-interest and self-interest determines economic decisions.
- The laissez-faire policy is essential for an automatic and self-adjusting process of full employment equilibrium. Market forces determine everything right.
- There will be perfect competition in labour and product market.
- There is wage-price flexibility.
- Money acts only as a medium of exchange.
- Long-run analysis.
- There is no possibility for overproduction or unemployment.
Question 2.
Explain the criticisms of Say’s Law of market.
Answer:
- According to Keynes, supply does not create its demand. It is not applicable where demand does not increase as much as production increases.
- The automatic adjustment process will not remove unemployment. Unemployment can be removed by an increase in the rate of investment.
- Money is not neutral. Individuals hold money for unforeseen contingencies while businessmen keep a cash reserve for future activities.
- Say’s law is based on the proposition that supply creates its own demand and there is no overproduction. Keynes said that overproduction is possible.
- Keynes regards full employment as a special case because there is under-employment in capitalist economies.
- The need for state intervention arises in the case of general overproduction and mass unemployment.
Question 3.
Write a note on John Maynard Keynes.
Answer:
John Maynard Keynes was one of the most influential economists of the 20th century. He was born in Cambridge in 1883. In addition to his work as an economist, he held a position as civil servant a director of the Bank of England and leader of the British delegation of negotiators at the Bretton Woods conference at points in his career. Economic theory based on his idea is known as Keynesian economics, and remain highly influential today, particularly in the field of macroeconomics.
Question 4.
According to the Keynes theory of employment, what does effective demand signifies and determines?
Answer:
- It signifies the money spent on the consumption of goods and services on investment.
- The relationship between employment and output of an economy depends upon the level of effective demand which is determined by the forces of aggregate supply and aggregate demand.
- The level of employment in the economy is determined by effective demand.
- The effective demand will be determined by two determinants, like consumption and investment expenditure.
- The rate of interest and the marginal efficiency of capital determines the investment levels.
Activity
Question 1.
List out the persons in your village or ward who are fully unemployment, partially unemployed and underemployed.
Answer:
This activity helps the students:
- To make decisions about their career in life.
- To analyze the prevailing employment situations in society.
- To develop a deep understanding of the importance of education.
- To take the right decisions about the choice of job opportunities.
- To understand clearly about the need of the hour.
- Career Importance and choice of qualification.
Multiple choice questions
1. ………… is one of the greatest and most influential economists of mid 20th century.
(a) J.B. Say
(b) Adam smith
(c) J.M. Keynes
(d) Alfred Marshall
Answer:
(c) J.M. Keynes
2. Every economy aims at attaining:
(a) Overall development
(b) Equilibrium
(c) Full population
(d) Full employment equilibrium.
Answer:
(d) Full employment equilibrium.
3. Interest flexibility brings equality between:
(a) Income and consumption
(b) Savings and investment
(c) Demand and supply
(d) Labour and capital
Answer:
(b) Savings and investment
4. Demand creates its own supply was said by:
(a) Democratic
(b) Classical economist
(c) Keynesianism
(d) J.B. Say.
Answer:
(c) Keynesianism
5. Cyclical unemployment exists during the downtown phase of:
(a) Business
(b) Economy
(c) Unemployment
(d) Trade cycle
Answer:
(d) Trade cycle
6. Cyclical unemployment can be cured by:
(a) Public investment
(b) Full employment
(c) Education
(d) Increase in income
Answer:
(a) Public investment
7 devices are responsible for technological unemployment.
(a) Capital saving
(b) Labour saving
(c) Money saving
(d) Time-saving
Answer:
(b) Labour saving
8. Disguised unemployment is found in:
(a) Industries
(b) Firms
(c) Services
(d) Agriculture
Answer:
(d) Agriculture
9. Adam Smith wrote the book “An enquiry into the nature and causes of the wealth of nations” in the year:
(a) 1786
(b) 1776
(c) 1766
(d) 1756
Answer:
(b) 1776
10. Every economy in the world aims at attaining the level of :
(a) Full employment
(b) Unemployment
(c) Seasonal unemployment
(d) Disguised unemployment
Answer:
(a) Full employment
11. Keynes theory of employment and income is the principle of:
(a) Long run
(b) Short period
(c) Short-run
(d) Long period
Answer:
(c) Short-run
12. Effective demand is equal to:
(a) National income
(b) Gross income
(c) Personal income
(d) Per capita income
Answer:
(a) National income
13. The entrepreneur is encouraged to employ:
(a) More capital
(b) More investment
(c) More labour
(d) More income
Answer:
(c) More labour
14. ……….. was set up in July 1982.
(a) NABARD
(b) ARDC
(c) IMF
(d) RBI
Answer:
(a) NABARD
15. A person receives his income from:
(a) Consumption
(b) Distribution
(c) Production
(d) Exchange
Answer:
(c) Production
16. Under Say’s law of the market, there will be …………. in labour and product market.
(a) Imperfect competition
(b) Perfect competition
(c) Monopoly competition
(d) Monopolistic competition
Answer:
(b) Perfect competition
17. According to Keynes, the automatic adjustment process will not remove :
(a) Poverty
(b) Illiteracy
(c) Underemployment
(d) Unemployment
Answer:
(d) Unemployment
18. Keynes book ” The general theory of employment, interest and money was published in:
(a) 1936
(b) 1946
(c) 1956
(d) 1965
Answer:
(a) 1936
19. ED = …………
(a) Y = C + I = Output = Employment
(b) Y = C + I + S = Output
(c) Y = I + S = Output = Employment
(d) Y = C + I = Employment
Answer:
(a) Y = C + I = Output = Employment
20. In the Keynesian model, the output is determined mainly by:
(a) Effective demand
(b) Aggregate demand
(c) Aggregate supply
(d) Marginal propensity to consume
Answer:
(b) Aggregate demand
21. AD = C + I + ………
(a) C + I + G + (X + M)
(b) C + I + G + (X ÷ M)
(c) C + I + S + (X – M)
(d) C + I + G + (X – M)
Answer:
(d) C + I + G + (X – M)
22. The term ………… refers to the amount of money received from the sale of output.
(a) Price
(b) Demand
(c) Supply
(d) Profit
Answer:
(a) Price
23. Aggregate supply = C + S + T + Rf = ………….
(a) Aggregate demand generated in the economy.
(b) Aggregate supply generated in the economy.
(c) Aggregate income generated in the economy.
(d) Aggregate price generated in the economy.
Answer:
(c) Aggregate income generated in the economy.
24. The slope of the aggregate supply curve depends on the relation between the:
(a) Employment and income
(b) Employment and productivity
(c) Employment and distribution
(d) Employment and market
Answer:
(b) Employment and productivity
25. ………… is an important factor in determining the level of economic activity.
(a) Aggregate demand
(b) Aggregate supply
(c) Effective demand
(d) Aggregate price level
Answer:
(b) Aggregate supply
26. The expected rate of return over costs of a new capital good is:
(a) Marginal efficiency of capital
(b) Marginal propensity to consume
(c) Effective demand
(d) Aggregate demand
Answer:
(a) Marginal efficiency of capital
27. When resources are not fully utilized in production is known as:
(a) Aggregate demand
(b) Disguised unemployment
(c) Full employment
(d) Underemployment
Answer:
(d) Underemployment
28. Theory of income determination is based on:
(a) Ex – ante variable
(b) Ex – post variable
(c) Both (a) and (b)
(d) None of the above
Answer:
(a) Ex – ante variable
29. Aggregate supply is same as:
(a) National output
(b) National income
(c) Both (a) and (b)
(d) None of the above
Answer:
(c) Both (a) and (b)
30. The migration of people from rural areas to urban areas increase the:
(a) Size of labour forces
(b) Increases the unemployment
(c) Creates open unemployment
(d) Full employment
Answer:
(d) Full employment
31. Seasonal unemployment occurs during:
(a) Seasons of the year
(b) Particular time in a year
(c) Offseason
(d) All the time in a year
Answer:
(d) All the time in a year
32. Frictional unemployment arises due to:
(a) Imbalance between supply and demand for labour
(b) Immobility of labour
(c) Break down of machinery
(d) Profit maximization
Answer:
(d) Profit maximization
33. Educated people are unemployed because:
(a) Qualification does not match the job
(b) Faulty education system
(c) Lack of employable skills
(d) Prices are very high
Answer:
(d) Prices are very high
34. Structural unemployment is because:
(a) Jobs are highly responsible
(b) Drastic change in the structure of the society
(c) Lack of demand for the product
(d) Shift in demand
Answer:
(a) Jobs are highly responsible
35. Classical economists assumed that the economy operates at the level of full employment:
(a) Without inflation in the long period.
(b) Wages and prices of goods were flexible.
(c) Marginal productivity of labour is zero.
(d) Competitive market existed in the economy.
Answer:
(c) Marginal productivity of labour is zero.
36. Unemployment can be removed by:
(a) Investment
(b) Rate of investment
(c) Supply of labour
(d) Increase in rate of investment
Answer:
(c) Supply of labour
37. Say’s law is based on the proposition that:
(a) Full employment
(b) Supply creates its own demand
(c) There is no overproduction
(d) Cash reserve for future activities
Answer:
(d) Cash reserve for future activities
38. According to Keynes, the factors of production remain unchanged, they are:
(a) capital goods
(b) Supply of labour
(c) Supply of money
(d) Technology
Answer:
(c) Supply of money
39. Effective demand denotes:
(a) Money spent by the people on products
(b) The money which entrepreneurs receive
(c) National income
(d) Employment, interest and money
Answer:
(d) Employment, interest and money