Income and Employment

Theory & Determination of Income and Employment(Classical and Keynesian Theory)

Multiple Choice Questions with Answer:

1. A situation when a person is able and willing to take up a job and gets employed, it is called-

a. Employment

b. Full Employment

c. Under Employment

d. Unemployment.

2. A situation when people are engaged in jobs but they do not get these jobs according to their capabilities, efficiency and qualifications, it is called-

a. Employment

b. Full Employment

c. Under Employment

d. Unemployment.

3. A situation when the workers are willing to work under any conditions and at any wage rate but they fail to get employment, it is called-

a. Voluntary Unemployment

b. Involuntary Unemployment

c. Cyclical Unemployment

d. Frictional Unemployment

4. A temporary unemployment which exists during the period of the transfer of labor from one occupation to another is called-

a. Voluntary Unemployment

b. Involuntary Unemployment

c. Cyclical Unemployment

d. Frictional Unemployment

5. When more workers are engaged in a work than actually required to work, it is called-

a. Voluntary Unemployment

b. Involuntary Unemployment

c. Disguised Unemployment

d. Frictional Unemployment

6. Who developed the Classical Theory of Income and Employment?

a. J. B. Say

b. J. S. Mill

c. Ricardo

d. All of the above.

7. “The supply creates its own demand”. This is the famous law of----

a. Market (Say’s Law of Market)

b. Demand

c. Supply

d. None of the above.

8. The book General Theory of Employment, Interest and Money was written by----

a. J. N. Keynes

b. J. M. Keynes

c. Ricardo

d. None of the above.

9. Keynesian theory of employment is based on the concept of------------

a. Aggregate Demand

b. Aggregate Supply

c. Aggregate Demand and Supply both

d. None.

10. The investment which is undertaken independently of the level of income is known as----

a. Autonomous Investment

b. Induced Investment

c. Public Investment

d. Private Investment

11. The components of aggregate demand is/ are------

a. Household consumption expenditure

b. Govt final conspt. expenditure

c. Pvt and public invt expenditure

d. All

12. Determination equilibrium of an economy can be studied by-----

a. Equality of AD and AS

b. Equality of saving and investment

c. Both a and b

d. None.

Answers

1 a

2 c

3 b

4 d

5 c

6 d

7 a

8 b

9 c

10 a

11 d

12 c

Write T for True and F for False against each of the following statements:

1. The Classical theory of Income and Employment states that full employment is a normal feature of a capitalist economy.

2. The classical theory of employment rules out the possibility of unemployment in a free market economy.

3. According to classical economists the economy would never be in a full employment equilibrium.

4. Keynesian theory of employment is based on the concept of effective demand.

5. Effective demand means the level of income where aggregate demand and aggregate supply are equal.

6. Classical economists used the approach of aggregate demand and aggregate supply for the determination of full employment equilibrium.

7. Induced investment is expenditure both on fixed assets and on the stocks that are required if the economy is to be able to produce a bigger output as aggregate demand rises.

8. AD = C + I + G + (X-M)

9. Equilibrium level of income is determined where aggregate demand curve cuts aggregate supply.

10. The level of income will be in equilibrium when aggregate demand is greater than aggregate supply.

Answers

1 T

2 T

3 F

4 T

5 F

6 F

7 T

8 T

9 T

10 F

Short Questions with Answers:

1. What is employment (توظيف )?

A situation when a person is able and willing to take up a job and gets employed is called employment.

2. What is full employment ( كامل التوظيف )?

A situation where all those workers who are able and willing to work get employment is called full employment.

3. What is under employment ( تحت التوظيف )?

A situation when people are engaged in jobs but they do not get these jobs according to their capabilities, efficiency and qualifications is called under employment.

4. What is unemployment (بطالة )?

A situation when a person is willing to work but does not get opportunity to work is called unemployment.

5. What do you mean by involuntary unemployment ( البطالة القسرية )?

A situation when the workers are willing to work under any conditions and at any wage rate but they fail to get employment is called involuntary unemployment.

6. What do you understand by the term voluntary unemployment ( البطالة الطوعية )?

When the economy offers employment opportunities to the workers, but they themselves are not willing to take up jobs because the employment conditions such as wage rate, location, promotional avenues, physical environment, attitude of the employer, etc., do not suit them.

7. What is cyclical unemployment ( البطالة الدورية )?

It is caused by slackness in business conditions. During depression, investment activities get discouraged. Contraction in business activities renders large numbers of workers unemployed.

8. What is technological unemployment ( البطالة التكنولوجية )?

It is generally found in the advanced countries. The main cause of this unemployment is the introduction of the new technology.

9. What is frictional unemployment ( البطالة الاحتكاكية )?

It is a temporary unemployment which exists during the period of the transfer of labor from one occupation to another.

10. What is structural unemployment ( البطالة الهيكلية )?

It is the result of the backwardness and underdevelopment of an economy.

11. What do you mean by disguised unemployment ( البطالة المقنعة )?

When more workers are engaged in a work than actually required to work, it is called disguised unemployment.

12. Who are classical economists?

The old economists such as Adam Smith, J. B. Say, J. S. Mill, Ricardo, etc. who believe in laissez faire policy (non- interference of government in any economic activities) are called classical economists.

13. What is classical theory of income and employment?

The Classical theory of income and employment states that full employment is a normal feature of a capitalist economy. The classical theory of employment rules out the possibility of unemployment in a free market economy. The economy would always be in a full employment equilibrium.

14. What are the assumptions on which the classical theory of income and employment based?

The classical theory of employment is based on the following assumptions:

 The Say’s law of market;

 Flexibility (مرونة ) of the interest rates;

 Flexibility of the wage rates.

15. What is Say’s Law of Market?

According to Say’s Law of Market, “The supply creates its own demand”. It is an automatic mechanism which establishes equilibrium between aggregate demand and aggregate supply

16. What is the main implication of classical theory of income and employment?

The implication of the classical system is that there will never be a possibility of over- production or under- production in the economy. The economy would always be in a full employment equilibrium.