AD AND AS ASSERTION BASED QUESTION

AD AND AS – ASSERTION REASON BASED QUESTIONS Q.1 Assertion: Inflationary pressure takes place when the economy is in full employment Reason: Due to the rise in demand and rigid supply, price of the goods tends to rise A is false, but R is True Q.2 Assertion(A):In a situation of excess demand, there is underemployment in the economy. Reason (R) : Excess demand raises the real value of the output. Both Assertion (A) and Reason (R) is false. Q.3 Assertion (A): If aggregate demand exceeds aggregate supply, income rises Reason (R): Excess of aggregate demand will reduce planned inventory and firms would tend to increase the employment and output. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A) Q.4 Assertion(A): The point at which consumption curve intersects the 45 degree line, APS is zero. Reason(R): It happens because at this point, consumption is equal to income and saving is zero. Both (A) and (R) are true and (R)is the correct explanation of (A) Q.5 Assertion(A) : The point at which saving curve intersects the x axis is known as break even point. Reason: At this point, s=O and c=y Both A and R are true Q.6 Assertion (A) : Full employment implies zero unemployment when nobody is ever unemployed in the economy. Reason (R) : There is always some minimum level of unemployment called natural unemployment or voluntary unemployment Assertion (A) is false but Reason (R) is true. Q.7 Assertion (A): APS can never be one or more than one. Reason (R): APC increases with increase in income. Answer: c) Assertion (A) is true but Reason (R) is false.

Q.8 Assertion : Presence of autonomous consumption expenditure ensures that increase will definitely increase in initial phases of development. Reason : Due to Autonomous consumption expenditure, Aggregate demand is always greater than income in initial phases due to which income and output increases in the initial level. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A) Q.9 Assertion: If a family's marginal propensity to consume is 0.70, then it will necessarily consume seven-tenths of its total income. Reason: Average Propensity to Consume represents the ratio of absolute consumption expenditure to the corresponding level of income. Assertion (A) is false but reason (R) is true Q.10 Assertion: Tax increases by state governments during recessions often reduce the expansionary impact of fiscal policy by the central government. Reason : Tax increases lead to decrease in disposable income due to which consumption expenditure in the economy falls. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A) Q.11 Assertion(A): Increase in public expenditure will improve AD Reason (R) : Public expenditure incurred by government will increase the money supply in the hands of public. Ans: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion(A). Q.12 Assertion (A): During deficient demand, central bank advises the commercial banks to advance loan at easy terms in order to minimize the condition of deficient demand in the country. Reason (R): Recently the Reserve Bank of India has announced the policy of Demonetization in order to reduce the excess demand and to absorb the excess and unauthorized money from the market. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A) Q.13 ASSERTION (A): MPC of poor is more than that of rich. REASONING (R): MPC falls with successive increase in Income Both A and R are true and R is the correct explanation of A

Q.14 Assertion (A): Inflationary gap is the amount by which the actual aggregate demand exceeds aggregate supply at the level of full employment which causes a rise in price level and measure the excess demand. Reason: Inflationary gap exists when aggregate demand is greater than aggregate supply. Assertion (A) is true but Reason (R) is false as inflationary gap exists only when AD is greater than AS required to establish full employment. Q.15 Assertion (A):If aggregate demand exceeds aggregate supply, the income rises. Reason (R): Excess of aggregate demand will reduce the planned inventory and firms would tend to increase the employment and output, which will raise the income. Ans. Both Assertion and Reason are true and Reason is the correct explanation of Assertion. Q.16 (Assertion) Higher income group has lower propensity to consume as compared to lower income group. (Reason) Consumption expenditure can never be zero as minimum expenditure to be incurred for survival even at zero level of income. Both A and R are true and R is not the correct explanation of R Q.17 Assertion: Multiplier explains how many times the income increases as a result of an increase in the investment. Reason: There is an inverse relationship between the value of marginal propensity to save and investment multiplier. Both Assertion (A) and Reason (R)are true and Reason (R)is the correct explanation of Assertion (A). Q.18 Assertion (A): Higher the value of MPC, more is the value of multiplier Reason(R): Multiplier is directly related to MPC Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A) Q.19 Assertion: In residential real estate, both sales and new launches contracted in Q1:2020- 21 Reason: One of major impact of lock down is sluggish consumer sentiments. Both A and R are true and R is the correct explanation of A. Q.20 Assertion: Full employment is that situation in the economy when AS = AD along with fuller utilisation of the resources. But it does not mean a situation of zero unemployment in the Economy. Reason: Full employment means absence of unemployment in the economy. (A) is true but (R) is false

Q.21 Assertion (A): Deficient demand causes inflation and full employment: Reason (R): When AD fails to catch up with AS of full employment all goods and services produced in the economy cannot be sold. Assertion (A) is false but Reason (R) is true. Q.22 (Assertion) Higher income group has lower propensity to consume as compared to lower income group. (Reason) Consumption expenditure can never be zero as minimum expenditure to be incurred for survival even at zero level of income. Both A and R are true and R is not the correct explanation of R Q.23 Assertion (A): Keynes pointed out that during depression, private investment is not induced. Reason (R): The marginal productivity of capital is high in depression. A is true but R is false. Q.24Assertion: Full employment is that situation in the economy when AS = AD along with fuller utilisation of the resources. But it does not mean a situation of zero unemployment in the Economy. Reason: Full employment means absence of unemployment in the economy. (A) is true but (R) is false Q.25 Assertion- In a situation of excess demand, there is underemployment in the economy. Reason- In case of excess demand, equilibrium between desired AD and desired AS is determined at a higher level of income at full employment in the economy. Assertion is false but Reason is true. Q.26 Assertion (A):The value of APC can be greater than one. Reason (R):When total consumption is equal to total income. A is true but R is false. Q.27 Assertion(A ) :Autonomous investment increases with increase in level of income. Reason (R ) : Autonomous investment is made by government sector. Assertion is false and Reason is true.

Q.28 Assertion: Value of Marginal propensity to consume can not be greater than one. Reason: Change in consumption can not be more than change in income. If both assertion and reason are true, and reason is the correct explanation of assertion. Q.29 Assertion- In a situation of excess demand, there is underemployment in the economy. Reason- In case of excess demand, equilibrium between desired AD and desired AS is determined at a higher level of income at full employment in the economy. Assertion is false but Reason is true. Q.30 Assertion (A) – When marginal propensity to consume is zero, the value of investment multiplier will also be zero. Reason (R) – Multiplier is directly proportionate to MPC A is false but R is true. Q.31 Assertion (A): Fiscal policy and monetary policy are opposite to each other. Reason (R): Fiscal and monetary policies are complementary to each other. Both are simultaneously pursued to combat the situation of inflationary or deflationary gap. Assertion (A) is false but Reason (R) is true. Q.32 Assertion(A ) :Autonomous investment increases with increase in level of income. (1 Reason (R ) : Autonomous investment is made by government sector. Assertion is false and Reason is true. Q.33 ASSERTION : Value of MPC can not be greater than 1. REASON : Change in consumption can never be more than change in income. Both assertion and reason are true and reason is the correct explanation of assertion. Q.34 Assertion (A): Cash reserve ratio refers to that portion of total deposits of a commercial bank which it has to keep with central bank in the form of cash reserves. Reason (R): Cash reserve ratio can vary between 3 to 15 per cent. Both A and R are true and R is not the correct explanation of A Q.35 Assertion (A) : Moral suasion refers to central bank persuasion to achieve its objective. Reason (R) : Central bank is lender of the last resort. Both A and R are true and R is not the correct explanation of A Q.36 Assertion (A): The minimum rate at which the central bank is ready to lend is bank rate. Reason (R) : Bank rate is determined by demand and supply of money. A is true, but R is false Q.37 Assertion (A) : Commercial banks create o credit by accepting deposits only. Reason (R): Credit multiplier is equal to the reciprocal of cash reserve ratio. A is false, but R is True

Q.38 Assertion (A) : Multiplier assumes value between zero and infinity. Reason (R): The value of the multiplier is determined by the value of the marginal propensity to consume. Both A and R are true and R is the correct explanation of A Q.39 Assertion (A) : The 45° line on two dimensional diagram represents aggregate demand. Reason (R) : It also represents equality between national income and national output. A is false, but R is True Q.40 Assertion (A): A saving function is given by equation, S=-100+0.2Y. Marginal propensity to consume is 0.2. Reason (R): Marginal propensity to save is equal to the slope of saving function. A is false, but R is True Q.41 Assertion (A) : If Rs. 10,000 increase in income has led to a Rs. 7,000 increase in consumption, the marginal propensity to save is 70%. Reason (R): Marginal propensity to save is the ratio of the change in saving to the change in total income. A is false, but R is True Q.42 ASSERTION--When MPC is equal to MPS, increase in national income will be twice the initial increase in investment. REASON—Equality between MPC and MPS signifies that both of them are equal to each other. Therefore, value investment multiplier is equal to 2. It means that increase in income in the economy will be twice the initial increase in investment. ANSWER: A and R both are correct and R is the correct explanation of A. Q.43 ASSERTION—Sum of average propensity to consume and marginal propensity to consume is always equal to 1. REASON—Sum of average propensity to consume and average propensity to save is equal to 1 and marginal propensity to consume and marginal propensity to save is equal to 1. ANSWER: Both A and R are correct and R is the correct explanation of A. Q.44 Assertion(A): APC can never be zero. Reason (R): Value of MPC lies between 0 and 1. Ans: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A). Q.45 Assertion(A): Deficient demand refers to the situation when aggregate demand (AD) is less than the aggregate Supply (AS) corresponding to full employment level of output in the economy. Reason (R): Increase in Propensity to consume.

Ans: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion(A). Q.46 Assertion : Full employment means zero unemployment. (1) Reason : Natural rate of unemployment always exist in the economy. Ans- Reason is correct but assertion is wrong Q.47 Assertion (A): : Full employment implies absence of involuntary unemployment Reason (R) During full employment all willing and capable people get work without any undue difficulty and there is no involuntary unemployment Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A) Q.48 Assertion (A) When MPC is equal to MPS increase in income will be two times the increase in investment Reason (R): The summation of MPC and MPS is equal to 1 Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A) Q.49 Assertion(A) . Equilibrium GDP is read only in a situation of full employment. Reason(R) . A situation when AS=AD along with fuller utilisation of resources in the economy is called full employment equilibrium Assertion(A) is false but Reason(R)is true. Q.50 Assertion (A). The sum of APC and APS is equal to 1 Reason (B). The income can either be consumed or saved, so APC+APS=1 Both Assertion(A) and Reason(R )are true and Reason(R)is the correct explanation of the assertion. Q.51 (Assertion) Marginal propensity to consume will be equal to unity when income is equal to consumption. (Reason) Saving is zero at the break-even level of equilibrium output. Both A and R are true and R is the correct explanation of A. Q.52 Assertion: The value of APC can be equal to one. Reason: Value of APC falls with successive increase in the level of income. Ans : Both assertion and reason are true and reason is not the correct explanation of assertion.

Q.53 Assertion – bank rate is the rate of interest at which central bank lends to the commercial banks for long term. Reason – During deflation central bank has to lower its bank rate. Both Assertion and Reason are True and Reason is not the correct explanation of assertion Q.54 Assertion (A) An increase in demand before the full employment level of income does not increase output and employment Reason (R) Resources are lying idle in the economy. An increase in demand before the full employment level of income tends to increase output and employment Both Assertion (A) and Reason (R) are true and Reason (R) is the true correct explanation of Assertion (A) Q.55 Assertion (A) Excess demand does not affect the level of output. Reason (R) Excess demand is a post full employment situation. Both Assertion (A) and Reason (R) are true and Reason (R) is the true correct explanation of Assertion (A) Q.56 Assertion(A): Y= C+I (where Y= National Income, C= consumption, I= Investment) Reason (R) : C and I are important determinants of national income. Both A and R are true and R is the correct explanation of A. Q.57 Assertion: Consumption curve always starts from a positive incept on Y-axis. Reason: Autonomous consumption refers to minimum level of consumption, which is needed for survival, i.e. consumption at zero level of national income. Ans: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A). Q.58 Assertion (A): Inflationary gap may be defined as an excess of aggregate demand over aggregate supply at the full employment level Reason (R): The inflationary gap results in the rise in general price level which is called inflation. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A) Q.59 Assertion (A): If investment falls, multiplier process does not work. Reason (R): Multiplier is the reciprocal of marginal propensity to save. Assertion (A) is false but Reason (R) is true

Q.60 Assertion (A): APS can be negative at low level of income when consumption expenditure is greater than income. Reason(R): APS can never be greater than 1 as savings can never be more than national income. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A). Q.61 Assertion (A) - Higher income groups has lower propensity to consume, as compared with lower income group. Reason (R) - Consumption expenditure can never be zero even when a person doesn't have any income. Both Assertion and Reason are true, but Reason (R) is not the correct explanation of Assertion (A) Q.62 ASSERTION (A) Equilibrium below full employment level led to decrease in output level. REASON (R) Output level is decreased due to over utilisation of resources. Assertion (A) is correct but Reason (R) is false. AD represents the total demand for goods and services at any given price level in a given period. AD over the long-term equals gross domestic product because the two metrics are calculated in the same way. Q.63 Assertion : In case of excess demand, RBI increases the bank rate which reduces the money supply Reason : Apart from Bank rate CRR and SLR is also increased Assertion is correct and Reason is supporting assertion Q.64 Assertion (A):- Average propensity to consume can never be zero. R:Consumption can never be zero i.e. even at zero level of national income, there is autonomous consumption. Both Assertion (A) and Reason are true and Reason (R) is the correct explanation of Assertion (A) Q.65 Assertion (A): the deflationary gap is called deflationary because it sets in motion forces that cause deflatio Reason (R): in order to remedy the problem of deficient demand, the aggregate output has to be increased by an a Assertion (A) is true but Reason (R) is false. Q.66 Assertion(A):Effective Demand is that aggregate demand price which becomes effective, because it is equal to aggregate supply price Reason (R): Effective Demand represents a position of ‘short-run’ equilibrium. BothAssertion(A)andReason(R)aretrueandReason(R)isnotthecorrectexplanationofAssertion(A) Q.67 Assertion(A):Aggregate Supply is nothing but the national income Reason (R): Money value of final goods and services is equal to net value added. Ans: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion(A).

Q.68 Assertion (A): Autonomous consumption refers to the investment expenditure which is independent of income. Reason (R): We need to maintain a minimum amount of saving for survival. Answer- c. Assertion (A) is true but Reason (R) is false. Q.69 Assertion( A): Equilibrium beyond full employment is a better situation than equilibrium at full employment Reason( R): Output is greater even beyond full employment equilibrium A is true but R is false Q.70 Assertion(A): Neither Inflation or Nor Deflation is desirable for economy. Reason (R): In short Run economy never operates at full employment. Both Assertion and Reason are true and Reason is not the correct explanation of Assertion (A). Q.71 Assertion (A):The value of APC can be greater than one. Reason (R):When total consumption is equal to total income. A is true but R is false. Q.72 Assertion: To increase excess demand Central Bank starts purchasing securities from the open market. Reason: To maintain aggregate demand, RBI use only qualitative methods. Assertion is correct but reason is wrong. Q.73 Assertion (A):The value of MPC lies between 0 and 1 Reason(R): ThereisalwayschangeinconsumptionwithrespecttochangeinIncome. BothAssertion(A)andReason(R)aretrueandReason(R)isnotthecorrectexplanation of Assertion (A)