Macro

Income & Employment

Medium

Arrange the following statements about the effect of an increase in taxes on total income and output.

(A) An increase in taxes decreases disposable income.

(B) Aggregate demand schedule shifts downwards.

(C) Aggregate expenditure changes by a fraction of tax deduction.

(D) Equilibrium output decreases.

(A), (B), (C), (D)

(A), (C), (B), (D)

(B), (A), (D), (C)

(C), (B), (D), (A)

✅ Correct Option: 2

Option 1 -> Starts with (A) but places (C) after (B), which is incorrect as the fractional change in expenditure occurs before the AD shift.

Option 2 -> Correctly sequences: (A) taxes reduce disposable income first, (C) expenditure changes by fraction (MPC effect), (B) AD shifts downward, (D) equilibrium output falls.

Option 3 -> Incorrectly starts with (B) before disposable income is affected, violating the causal chain.

Option 4 -> Incorrectly starts with (C) before taxes even affect disposable income, which is logically impossible.

Hence, Option 2: (A), (C), (B), (D) -> When taxes increase, the first impact is on disposable income which decreases (A). This doesn't reduce consumption/expenditure by the full tax amount but by a fraction determined by the marginal propensity to consume (C). This fractional reduction in aggregate expenditure causes the aggregate demand curve to shift downward (B). Finally, this downward shift in aggregate demand leads to a decrease in equilibrium output (D). This sequence correctly captures the Keynesian transmission mechanism of fiscal policy. -> correct

2024: 16 May

Paradox of Thrift means :

2025: 29 May Shift 1

Suppose in a hypothetical economy ,the income rises from ₹5000 crores to ₹6000 crores. As a result, the consumption expenditure rises from ₹4000 cores to ₹4600 crores. Then what will be the marginal propensity to consume?

2025: 15 May Shift 1

In the excess demand condition, which of the following measures may be adopted in the economy to control it?

(A) Increase in repo rate.

(B) Decrease in reverse repo rate.

(D) Increase in subsidies.

Choose the correct answer from the options given below:

2023: 20 June Shift 1

Equilibrium in product market achieved when.

2025: 29 May Shift 2

The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous investment expenditure is known as?

2025: 31 May Shift 1

Arrange the following statements in chronological order in respect to the increase in the proportion of income people save.

(A) Marginal propensity to consume decreases.

(B) The level of income decreases.

(D) The aggregate demand curve shifts downwards.

Choose the correct answer from the options given below:

(A), (B), (C), (D)
(A), (C), (B), (D)
(B), (A), (D), (C)
(A), (D), (B), (C)

Solution

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CUET Economics Past Year Questions (Topic-Wise)