Macro

Income & Employment

Medium

Comprehension:

Read the following report carefully and answer the questions on the basis of the same:

Along with the weakening of global economic activity, inflation the world over also remained muted in 2019. Inflation softened in advanced and emerging economies reflecting a slack in consumer demand. From the supply side, lower energy prices in 2019 also contributed to softening of inflation. In India, inflation rose slightly to 4.1% in April - December 2019, after a sharp decline from 5.9% in 2014 to 3.4% in 2018.

Which of the following does not lead to fall in Aggregate Demand?

Fall in private consumption expenditure.

Fall in exports.

Fall in imports.

Fall in government expenditure.

✅ Correct Option: 3

Option 1 -> Fall in private consumption (C) directly reduces one component of AD, causing AD to fall.

Option 2 -> Fall in exports (X) reduces net exports (X-M), leading to a fall in AD.

Option 3 -> Fall in imports (M) increases net exports (X-M) since imports are subtracted in AD formula, causing AD to rise, not fall.

Option 4 -> Fall in government expenditure (G) directly reduces one component of AD, causing AD to fall.

Hence, Option 3: Fall in imports -> Aggregate Demand is calculated as AD = C + I + G + (X - M), where C is consumption, I is investment, G is government expenditure, X is exports, and M is imports. Since imports (M) are subtracted in the formula, a fall in imports actually increases net exports (X - M), which leads to a RISE in Aggregate Demand, not a fall. All other options represent components that are added to AD, so their fall would decrease AD. -> correct

2025: 15 May Shift 1

Which of the following statement is true?

2025: 22 May Shift 1

Arrange the following statement considering the effects on total income and output when the government purchases (G) increase keeping taxes constant.

(A). Planned aggregate expenditure will increase.

(B). When G exceeds T, the government runs a deficit.

(C). Equilibrium income will increase.

(D). Aggregate demand schedule shifts rightward.

Choose the correct answer from the options given below:

2023: 11 June Shift 3

The 'Effective Demand Principle' states that aggregate output is determined solely by :

2023: 30 May Shift 1

Deficit Demand Occurs when :

(A) Equilibrium level of output is less than full employment level

(B) When AD < AS (Aggregate Demand less than Aggregate Supply)

(D) Demand is not enough to employ all factors of production

(E) Prices will decline in the long run

Choose the correct answer from the options given below :

2022: 15 July Shift 2

Suppose a TV manufacturing unit wants to raise its inventories from 1000 units to 2000 units during the year. Expecting sale of 5000 units during the year, the firm produces 5000+1000= 6000 TV sets. Actual sale for the firm are 5000 TV sets during the year.

This is an example of:

2022: 30 Aug Shift 2

Match List - I with List - II.

List - I	List - II
(A) MPC (Marginal Propensity to Consume)	(I) $\frac{\Delta Y}{\Delta I}$
(B) MPS (Marginal Propensity to Save)	(II) $\frac{\Delta C}{\Delta Y}$
(C) K (Multiplier)	(III) C + I
(D) AD (Aggregate Demand)	(IV) $\frac{\Delta S}{\Delta Y}$

Choose the correct answer from the options given below :

Which of the following does not lead to fall in Aggregate Demand?

Solution

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