The accelerator principle explains the relationship between
A Income and consumption
B Investment and consumption
C Investment and changes in income
D Saving and investment
Accelerator shows how changes in income lead to changes in induced investment.
According to the accelerator, investment depends mainly on
A Level of income
B Rate of interest
C Change in income
D Level of savings
Induced investment responds to changes in income, not absolute income.
The accelerator coefficient measures
A MPC
B Ratio of change in investment to change in income
C Multiplier
D Capital-output ratio
Accelerator equals capital-output ratio indicating required capital per unit of output.
Accelerator effect is strongest when
A Income is constant
B Income is falling
C Income is rising at increasing rate
D Income is zero
Rising income creates demand for more capital goods.
The accelerator principle assumes
A Excess capacity
B Fixed capital-output ratio
C Flexible prices
D Full employment
It assumes a constant relationship between capital and output.
When income stops increasing, induced investment
A Increases
B Decreases
C Becomes zero
D Becomes negative
No change in income means no additional investment demand.
The accelerator is ineffective when
A Demand is rising
B Excess capacity exists
C Technology is fixed
D Capital is divisible
Excess capacity reduces need for new investment.
Multiplier and accelerator together explain
A Inflation
B Business cycles
C Wage determination
D Price rigidity
Interaction of multiplier and accelerator explains cyclical fluctuations.
The combined effect of multiplier and accelerator is known as
A Income effect
B Investment effect
C Super-multiplier
D Stabilizer
Super-multiplier magnifies income fluctuations.
Equilibrium level of income is determined where
A Saving equals consumption
B Investment equals saving
C Aggregate demand equals aggregate supply
D Government spending equals tax
Equilibrium occurs when planned spending equals output.
In Keynesian framework, equilibrium income can exist at
A Only full employment
B Only zero employment
C Underemployment level
D Overemployment level
Economy may settle below full employment due to deficient demand.
Equilibrium income increases when
A Saving increases
B Investment increases
C Taxes increase
D Consumption decreases
Higher investment raises aggregate demand and income.
If planned expenditure exceeds output, firms will
A Reduce production
B Increase production
C Reduce prices
D Reduce employment
Excess demand encourages firms to expand output.
If planned expenditure is less than output, firms will
A Increase production
B Increase prices
C Reduce output
D Increase wages
Excess supply leads to cut in production and employment.
Equilibrium level of employment is determined by
A Labour supply
B Wage rate
C Effective demand
D Population
Employment depends on level of effective demand.
Underemployment equilibrium exists when
A All resources are fully utilized
B Aggregate demand is deficient
C Prices are flexible
D Wages are rising
Insufficient demand prevents full employment.
Which policy is mainly suggested by Keynes to cure unemployment?
A Monetary policy
B Wage cuts
C Fiscal policy
D Population control
Government spending boosts aggregate demand directly.
Expansionary fiscal policy involves
A Increasing taxes and reducing spending
B Reducing taxes and increasing spending
C Increasing interest rates
D Reducing money supply
Expansionary policy stimulates demand during recession.
Contractionary fiscal policy aims at
A Reducing inflation
B Increasing employment
C Increasing income
D Reducing savings
Reducing spending and increasing taxes curb excess demand.
Which of the following is a fiscal policy instrument?
A Bank rate
B Open market operations
C Government expenditure
D CRR
Government spending is a fiscal tool.
Budget deficit refers to
A Excess of revenue over expenditure
B Excess of expenditure over revenue
C Balance between revenue and expenditure
D Excess of saving over investment
Deficit indicates higher government spending than revenue.
Fiscal policy affects income mainly through
A Wage flexibility
B Multiplier effect
C Price mechanism
D Accelerator only
Government spending multiplies income through re-spending.
Monetary policy is formulated by
A Government
B Parliament
C Central bank
D Commercial banks
Central bank controls money supply and credit.
Expansionary monetary policy aims to
A Reduce money supply
B Increase interest rate
C Increase credit availability
D Reduce investment
Easier credit stimulates investment and demand.
Which is a quantitative monetary policy tool?
A Moral suasion
B Credit rationing
C Bank rate
D Selective credit control
Bank rate influences overall credit conditions.
Increase in CRR will
A Increase money supply
B Reduce credit creation
C Increase investment
D Increase inflation
Higher CRR reduces banks’ lending capacity.
Monetary policy is less effective during
A Boom
B Inflation
C Liquidity trap
D Expansion
Interest rate becomes ineffective in liquidity trap.
Fiscal policy is more effective than monetary policy when
A Economy is at full employment
B Liquidity trap exists
C Inflation is high
D Savings are zero
Fiscal spending directly raises demand.
Automatic stabilizers include
A Discretionary spending
B Progressive taxes
C Open market operations
D Bank rate
Progressive taxes automatically stabilize income.
Which policy is preferred during depression?
A Contractionary fiscal policy
B Expansionary fiscal policy
C Tight monetary policy
D Neutral policy
Expansionary fiscal policy boosts demand.
Monetary policy mainly influences economy through
A Government spending
B Interest rate
C Wage rate
D Population
Interest rate affects investment decisions.
Time lag in fiscal policy refers to
A Delay in money supply change
B Delay in recognizing and implementing policy
C Delay in interest rate change
D Delay in wage adjustment
Fiscal policy decisions often face administrative delays.
Crowding out effect occurs when
A Government spending reduces private investment
B Private investment increases
C Taxes are reduced
D Savings increase
Government borrowing may raise interest rates.
Which policy is more flexible and quicker?
A Fiscal policy
B Monetary policy
C Income policy
D Trade policy
Monetary tools can be adjusted faster.
Stabilization policy aims at
A Economic growth only
B Price stability only
C Full employment and price stability
D Trade surplus
Stabilization balances growth and inflation control.
Which policy is effective in controlling inflation?
A Expansionary fiscal policy
B Expansionary monetary policy
C Contractionary fiscal policy
D Deficit financing
Reduced spending and higher taxes curb demand.
Government expenditure multiplier works through
A Accelerator
B MPC
C APS
D Interest rate
MPC determines how spending circulates.
Balanced budget multiplier is
A Zero
B One
C Less than one
D Infinite
Equal increase in spending and taxes raises income by same amount.
Which factor limits effectiveness of fiscal policy?
A High MPC
B Leakages
C Government spending
D Investment demand
Saving, taxes, and imports reduce multiplier impact.
Monetary policy controls inflation mainly by
A Increasing government spending
B Increasing money supply
C Reducing credit availability
D Reducing taxes
Tight credit reduces excess demand.
Keynes favored fiscal policy because
A Monetary policy is always ineffective
B It directly affects aggregate demand
C It controls population
D It reduces savings
Government spending directly increases demand.
Which situation requires contractionary monetary policy?
A Recession
B Deflation
C Inflation
D Unemployment
Tight money policy reduces inflationary pressure.
Fiscal deficit financed by borrowing from RBI leads to
A Price stability
B Inflationary pressure
C Reduced money supply
D Deflation
Deficit financing increases money supply.
Which policy tool directly affects disposable income?
A Interest rate
B CRR
C Taxation
D Open market operations
Taxes affect disposable income and consumption.
Stabilization policy is needed because market economy
A Is always efficient
B Is self-regulating
C Is prone to cycles
D Has fixed prices
Cycles cause instability requiring policy intervention.
Which of the following increases equilibrium income most?
A Increase in saving
B Increase in taxes
C Increase in government spending
D Decrease in MPC
Government spending has strong multiplier effect.
Monetary policy is ineffective during depression mainly due to
A Wage rigidity
B Liquidity trap
C Excess demand
D Inflation
Interest rate fails to stimulate investment.
The objective of Keynesian policies is to achieve
A Laissez-faire
B Full employment
C Zero inflation
D Balanced trade
Keynes aimed to ensure full employment.
Which policy directly creates employment?
A Monetary policy
B Wage policy
C Fiscal policy
D Trade policy
Government spending creates jobs directly.
The Keynesian theory of income and employment emphasizes
A Supply-side factors
B Demand management
C Population control
D Wage flexibility
Managing aggregate demand is central to Keynesian theory. ;