Effective demand in Keynesian theory refers to
A Desire backed by purchasing power
B Total demand for goods
C Demand that actually determines output and employment
D Potential demand at full employment
Effective demand is the point where aggregate demand equals aggregate supply, determining actual output and employment.
According to Keynes, employment depends upon
A Supply of labour
B Capital stock
C Effective demand
D Wage rate
Employment level is governed by the level of effective demand in the economy.
Effective demand is determined at the point where
A AD = AS
B AD > AS
C AD < AS
D Saving = Income
Equilibrium is reached where aggregate demand equals aggregate supply.
Aggregate demand refers to
A Demand for a single commodity
B Total demand for all goods and services
C Demand for labour
D Government demand only
Aggregate demand is the total expenditure on goods and services in an economy.
Aggregate demand consists of
A Consumption + Saving
B Consumption + Investment
C Saving + Investment
D Income + Consumption
In a two-sector model, AD = C + I.
Which component of aggregate demand is autonomous?
A Consumption
B Investment
C Saving
D Income
Investment is considered autonomous as it is independent of income in Keynesian analysis.
Aggregate supply in Keynesian theory refers to
A Total output at different price levels
B Total cost of production
C Total value of goods and services producers are willing to supply
D Maximum possible output
AS represents the value of output firms are willing to produce at different employment levels.
Aggregate supply price is defined as
A Minimum price at which goods are sold
B Price at which demand equals supply
C Expected sales proceeds necessary to induce production
D Market clearing price
It is the expected revenue required to justify production at a given employment level.
In Keynesian analysis, aggregate supply curve is
A Vertical
B Downward sloping
C Horizontal at full employment
D Positively sloped
AS rises with increase in employment and output.
Aggregate demand curve in Keynesian framework is
A Vertical
B Horizontal
C Downward sloping
D Upward sloping
AD rises with increase in employment due to higher income and consumption.
The point of effective demand represents
A Maximum employment
B Minimum employment
C Equilibrium level of income and employment
D Underemployment only
Effective demand determines equilibrium output and employment.
If aggregate demand is less than aggregate supply, firms will
A Increase production
B Increase prices
C Reduce output and employment
D Increase wages
Excess supply leads firms to cut production.
If aggregate demand exceeds aggregate supply, firms will
A Reduce production
B Increase employment
C Accumulate unsold stocks
D Reduce prices
Excess demand encourages expansion of output and employment.
According to Keynes, economy may settle at
A Full employment equilibrium only
B Zero employment equilibrium
C Underemployment equilibrium
D Overemployment equilibrium
Lack of sufficient demand can cause equilibrium below full employment.
Aggregate demand schedule shows relationship between
A Income and saving
B Employment and expected sales proceeds
C Income and consumption
D Prices and output
AD relates employment levels with expected revenue.
Aggregate supply schedule shows relationship between
A Prices and income
B Employment and expected minimum sales proceeds
C Income and saving
D Consumption and income
AS reflects supply price required at each employment level.
Which factor shifts aggregate demand upward?
A Fall in consumption
B Rise in investment
C Increase in saving
D Fall in income
Higher investment raises aggregate demand.
Which factor shifts aggregate supply upward?
A Fall in wages
B Increase in productivity
C Rise in cost of production
D Technological improvement
Higher costs raise required supply price.
Keynes assumed aggregate supply to be perfectly elastic at
A Zero employment
B Full employment
C Underemployment
D Overemployment
With unemployed resources, output can expand without price rise.
Full employment is reached when
A All labour is employed regardless of wages
B Aggregate demand equals aggregate supply at maximum output
C There is no frictional unemployment
D Prices are stable
Full employment corresponds to maximum sustainable output.
Deficient demand occurs when
A AD = AS
B AD > AS
C AD < AS
D Saving = Investment
Insufficient demand causes underemployment.
According to Keynes, classical economists ignored
A Supply constraints
B Role of labour
C Possibility of deficient demand
D Role of capital
Classical theory denied demand deficiency.
Aggregate demand in a three-sector economy includes
A C + I
B C + S
C C + I + G
D C + G
Government expenditure adds to aggregate demand.
Increase in government expenditure affects AD by
A Reducing it
B Not affecting it
C Increasing it
D Making it rigid
Government spending directly raises aggregate demand.
Which of the following reduces aggregate demand?
A Increase in investment
B Increase in government spending
C Increase in saving
D Reduction in taxes
Higher saving reduces consumption demand.
Autonomous investment is independent of
A Interest rate
B Income level
C Expectations
D Technology
Autonomous investment does not vary with income.
Induced investment varies with
A Population
B Income level
C Government policy
D Money supply
Induced investment depends on income changes.
Which of the following is NOT a component of aggregate demand?
A Consumption
B Investment
C Saving
D Government expenditure
Saving is a leakage, not a component of demand.
The slope of AD curve depends mainly on
A Marginal propensity to consume
B Interest rate only
C Population growth
D Wage rate
MPC determines how AD responds to income changes.
Aggregate demand rises with increase in employment because
A Prices fall
B Income rises
C Wages fall
D Interest rate rises
More employment increases income and consumption.
The equality AD = AS represents
A Disequilibrium
B Inflation
C Equilibrium
D Recession
Equilibrium is achieved when planned spending equals output.
Underemployment equilibrium implies
A Excess demand
B Excess supply of labour
C Full utilization of resources
D Inflation
Labour remains unemployed due to deficient demand.
According to Keynes, increase in saving without increase in investment will
A Increase income
B Increase employment
C Reduce income
D Increase prices
Higher saving reduces consumption and income.
Aggregate supply depends mainly on
A Interest rate
B Cost conditions
C Demand conditions
D Money supply
Production costs influence supply decisions.
Keynesian AS curve becomes vertical at
A Zero output
B Underemployment
C Full employment
D Depression
Beyond full employment, output cannot increase.
Which factor causes rightward shift of AS curve?
A Increase in wages
B Rise in input prices
C Technological progress
D Increase in taxes
Technology raises productivity and supply.
Aggregate demand is a function of
A Income and employment
B Only prices
C Only output
D Only saving
AD rises with income generated by employment.
Which statement is correct regarding effective demand?
A It always ensures full employment
B It is determined by supply alone
C It may occur below full employment
D It ignores aggregate supply
Effective demand may be insufficient for full employment.
Keynes rejected the idea that
A Supply creates demand
B Demand influences output
C Government intervention is needed
D Money affects output
Keynes rejected Say’s Law.
Aggregate demand curve shifts upward due to
A Increase in taxes
B Fall in consumption
C Increase in autonomous investment
D Increase in saving
Autonomous investment directly raises AD.
In Keynesian model, prices remain constant as long as
A AD > AS
B AS is perfectly elastic
C Economy is at full employment
D Demand falls
With idle resources, output expands without price rise.
Aggregate supply price increases due to
A Lower wages
B Increase in productivity
C Rise in production costs
D Fall in raw material prices
Higher costs require higher sales proceeds.
Which concept links demand with employment?
A Say’s Law
B Multiplier
C Effective demand
D Accelerator
Effective demand directly determines employment.
The Keynesian AD-AS framework is mainly applicable in
A Long run
B Short run
C Very long run
D Secular period
Keynes focused on short-run fluctuations.
Deficient aggregate demand results in
A Inflation
B Overemployment
C Unemployment
D Wage increase
Insufficient demand reduces output and employment.
Which component of AD is most volatile?
A Consumption
B Investment
C Government spending
D Saving
Investment fluctuates due to expectations.
Increase in autonomous consumption will
A Reduce AD
B Not affect AD
C Increase AD
D Reduce AS
Autonomous consumption raises aggregate demand.
Keynesian AS curve is based on assumption of
A Perfect competition
B Fixed wages in short run
C Flexible prices
D Neutral money
Wage rigidity supports Keynesian AS shape.
Aggregate demand equals income because
A All income is saved
B All income is consumed
C Income is spent on goods and services
D Prices are fixed
Income earned is spent, forming demand.
The concept of effective demand explains
A Price determination
B Income and employment determination
C Wage determination
D Interest rate determination
Effective demand is central to Keynesian income-employment theory. ;