Chapter Exam

Chapter 3: Theories of Employment and Income — Online MCQ Test

Q: According to the Classical theory of employment, the economy automatically tends to achieve:

Answer: B. Full employment equilibrium — Classical economists believed that flexible wages and prices ensure the economy moves toward full employment in the long run.

Q: In Keynesian economics, employment is mainly determined by:

Answer: A. Aggregate demand — Keynes argued that the level of employment depends on effective demand, which is reflected in aggregate demand.

Q: If consumption and investment spending increase in the economy, Keynesian theory predicts that:

Answer: A. Employment will increase — Higher aggregate demand raises output, which leads firms to hire more workers and increase employment.

Q: Which of the following is the correct sequence in the Keynesian income-employment determination process?

Answer: B. Aggregate demand → Output → Income → Employment — In Keynesian theory, aggregate demand determines output, which generates income and leads to corresponding employment levels.

ECONOMICS · CLASS 12th · Tamil Nadu State Board

Practice Chapter 3: Theories of Employment and Income with a free chapter-wise online MCQ test for Tamil Nadu State Board CLASS 12th ECONOMICS. This chapter covers: Contrasts the classical view of full employment as a natural market outcome with the Keynesian theory of effective demand which argues that employment and income levels are determi.... AI-generated questions from basic to board-exam level, with instant results and explanations.

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Chapter 3: Theories of Employment and Income — Important Questions & Answers (FAQ)

Frequently asked questions from Tamil Nadu State Board CLASS 12th ECONOMICS — Chapter 3: Theories of Employment and Income, with answers and explanations. These are sample questions; the exam has its own separate question set.

According to the Classical theory of employment, the economy automatically tends to achieve:

A. Under-employment equilibrium
B. Full employment equilibrium ✓
C. Persistent inflation
D. Falling aggregate demand

Answer: B. Full employment equilibrium
Classical economists believed that flexible wages and prices ensure the economy moves toward full employment in the long run.

In Keynesian economics, employment is mainly determined by:

A. Aggregate demand ✓
B. Population growth
C. Money supply alone
D. Natural resources only

Answer: A. Aggregate demand
Keynes argued that the level of employment depends on effective demand, which is reflected in aggregate demand.

If consumption and investment spending increase in the economy, Keynesian theory predicts that:

A. Employment will increase ✓
B. Employment will definitely fall
C. Savings will disappear completely
D. Prices will never change

Answer: A. Employment will increase
Higher aggregate demand raises output, which leads firms to hire more workers and increase employment.

Which statement best compares Classical and Keynesian views?

A. Classical theory supports government intervention; Keynesian theory rejects it
B. Classical theory believes markets may not clear automatically; Keynesian theory believes they always do
C. Classical theory emphasizes supply-side adjustment; Keynesian theory emphasizes demand-side determination ✓
D. Both theories deny the role of employment in national income

Answer: C. Classical theory emphasizes supply-side adjustment; Keynesian theory emphasizes demand-side determination
Classical theory focuses on market adjustment through flexible wages and prices, while Keynesian theory stresses aggregate demand as the key determinant of output and employment.

Which of the following is the correct sequence in the Keynesian income-employment determination process?

A. Employment → Output → Income → Aggregate demand
B. Aggregate demand → Output → Income → Employment ✓
C. Income → Aggregate supply → Prices → Trade
D. Wages → Savings → Imports → Employment

Answer: B. Aggregate demand → Output → Income → Employment
In Keynesian theory, aggregate demand determines output, which generates income and leads to corresponding employment levels.

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Chapter 4: Consumption and Investment Functions