CHAPTER -15- PROBLEM OF EXCESS DEMAND AND DEFICIT DEMAND

MULTIPLE CHOICE QUESTIONS

Question Question Content

No
Q1 If income equilibrium level in the economy is determined at the level before full
employment, it is known as the state of:
a) Deficit Demand
(b) Surplus Demand
(c) Partial Demand
(d) None of these
Q2 What are the characteristics of Deficit Demand?
(a) Aggregate Demand falls short of Aggregate Demand required at full employment
(b) Aggregate Demand remains short of Aggregate Supply required of full
employment level
(c) Both (a) and (b)
(d) None of above
Q3 The gap by which actual aggregate demand exceeds the aggregate
demand required to establish full employment equilibrium is known as___________.
a) Deficit demand
b) Deflationary gap
c) Inflation gap
d) Excess demand
Q4 _____________refers to the situation when aggregate supply falls short of aggregate
demand corresponding to full employment level of output in economy.
a) Deficit demand
b) Excess demand
c) Inflationary gap
d) Deflationary gap
Q5 Deficit demand indicates
a) Under employment equilibrium
b) Over full employment equilibrium
c) Full employment equilibrium
d) None of these
Q6 Monetary policy is the policy of __________ to control money supply and credit in the
economy
a) Central government
b) Central bank
c) Both (A) &(B)
d) None of these
Q7 During excess demand central bank _____________the margin requirement
a) Decrease
b) Increase

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 c) Removes
d) Does not change
Q8 Which of the following is not the reason for excess demand?
a) Fall in the propensity to consume
b) Reduction in taxes
c) Increase in investment
d) Deficit financing
Q9 Which of the following is true?
(a) Employment level declines due to decrease in demand
(b) Price level falls due to Deficit demand in the country
(c) Production level falls Deficit demand
(d) All the above
Q10 The ‘difference between the Aggregate Demand at above full employment and
Aggregate Supply at full employment is known as:
(a) Inflationary Gap
(b) Deflationary Gap
(c) Both (a) and (b)
(d) None of the above
Q11 Which of the following is a reason for surplus demand?
(a) Increase in Public Expenditure
(b) Increase in Money Supply
(c) Fall in Taxes
(d) All the above
Q12 In the situation of the deflationary gap:
(a)Output decreases
(b)Prices decreases
(c) Employment decreases
(d) All of these
Q13 Which of the following causes the trade cycle?
(a) Deflationary Conditions
(b) Inflationary Conditions
(c)Both (a) and (b)
(d) None of these
Q14 Which one is the corrective measure for Deficit Demand?
(a) Fiscal Measures
(b) Monetary Measures
(c) Both (a) & (b)
(d) None of the above
Q15 Which measure is included in Fiscal Measures?
(a)Public Expenditure
(b)Taxation
(c)Public Debt
(d) All of these
Q16 ____________ = AD > AS, corresponding to the full employment level of output or

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 income.
(a) Deficit demand
(b) Excess demand
(c) Deflationary gap
(d) None of the above
Q17 Which one is the reason for deciding Deficit demand conditions?
(a) Fall in the money supply in the country
(b) Fall in investment demand as a result of rising in bank rate
(c) Fall in disposable income and consumer demand due to increase in taxes
(d) All the above
Q18 Deflationary Gap does not shows the measurement of:
(a) Deficit Demand
(b) Surplus Demand
(c) Full Employment
(d) None of these
Q19 Which monetary measure is not to be adopted in correcting Inflationary
(a) Increase in Bank Rate
(b) Buying of Securities in Open Market
(c) Increase in Cash Reserve Ratio
(d) All the above
Q20 In Keynesian economics, the state of Deficit Demand is called as:
(a) Full Employment Equilibrium
(b) Under Full Employment Equilibrium
(c) Both (a) and (b)
(d) None of the above
Q21 What is the impact of deficit demand on production and employment?
(a) Increase
(b) Decrease
(c) Remains constant
(d) None of them
Q22 Name the situation under which aggregate demand falls short of aggregate Supply at
full employment level.
(a) Excess demand
(b) Excess supply
(c) Inflationary gap
(d) None of them
Q23 The ‘difference between the Aggregate Demand at above full employment and
Aggregate Demand at full employment is known as:
(a) Inflationary Gap or Deficit demand
(b) Deflationary Gap or Deficit demand
(c)Neither(a) nor (b)
(d) None of the above
Q24 The fiscal policy measures that control decrease aggregate demand, and thus, control
the problem of excess demand are:

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 (a) Increasing the level of government expenditure.
(fa) Increasing the amount of taxes.
(c) A mix of reducing government expenditure and increasing tax rates
(d) All of them
Q25 The monetary policy measures that control decrease aggregate demand, and thus,
control the problem of excess demand are:
(a) Increase in the bank rate.
(b) Sale of government securities in the open market by the central bank.
(c) Decreasing CRR and SLR.
(d) None of them
Q26 The fiscal policy measures that can increase aggregate demand and thus, control the
problem of Deficit demand are:
(a) Increasing the level of government expenditure.
(b) Reduction in the level of taxes.
(c) A mix of increasing government expenditure and decreasing the rate of taxes
(d) All of them
Q27 Which of the following statements is true?
(a) Employment level declines due to decrease in demand
(b) Price level falls due to Deficit demand in the country
(c) Production level falls Deficit demand
(d) All the above
Q28 Inflationary gap refers to the situation of
a) AD < AS
b) AD > AS
c) AD=AS
d) AD=0
Q29 From following, which is not a cause of excess demand
a) Increase in consumption expenditure
b) Increase in investment expenditure
c) Increase in exports
d) Increase in government income
Q30 Involuntary unemployment refers to the situation
a) When people choose to do work, but jobs are unavailable
b) When people choose to remain unemployed, even when jobs are available
c) When people are not getting work, even when they are willing to work at the
existing wage rate.
d) When people get less income than to their capability
Q31 What is the fiscal measure of correcting deficit demand?
a) Increase in public debt
b) Decrease in public expenditure
c) Decrease in taxes
d) None of the above
Q32 Which is the measure of correcting excess demand?
a) Deficit financing

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 b) Reduction in taxes
c) Increase in public expenditure
d) Increase in public debt
Q33 Policy related to revenue and expenditure of the government is
a) Monetary policy
b) Fiscal policy
c) Foreign trade policy
d) Moral suasion
Q34 Component of fiscal policy
a) Bank rate
b) Margin requirement
c) Moral suasion
d) Tax
Q35 Deficit demand leads to
a) Deflation
b) Fall in output
c) Fall in employment
d) All of these
Q36 Qualitative measures to control money supply:
a) Moral suasion
b) Bank rate
c) Repo rate
d) None of these
Q37 Inflationary gap:
a) raises the level of output
b) does not impact the level of output
c) raises the general price level
d) both b and c
Q38 Full employment equilibrium refers to a situation of:
a) AD=AS(with fuller utilisation of resources)
b) Zero unemployment
c) Both a and b
d) None of these
Q39 Frictional unemployment occurs due to:
a) immobility of labour
b) lack of production capacity
c) low wage rate
d) change in production technique
Q40 Deficit or excess demand can be corrected through:
a) fiscal policy
b) monetary policy
c) both a and b
d) none of these
Q41 Wage-price spiral is a consequence of:

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 a) inflationary gap
b) deflationary gap
c) stagflation
d) both a and c
Q42 By increasing the tax burden on the households, the government intends to:
a) correct the situation of Deficit demand
b) correct the situation of inflationary gap
c) correct the situation of excess demand
d) both b and c
Q43 What is a fiscal measure of correcting Deficit demand?
(a) Increase in public expenditure and decrease in taxes
(b) Decrease in public debt
(c) Deficit financing
(d) All of these
Q44 An increase in aggregate demand of equilibrium level of income and employment
causes an increase in:
(a) Employment
(b) Production
(c) Income
(d) All of these
Q45 In Keynesian economics, the state of Deficit Demand is called as:
(a) Full Employment Equilibrium
(b) Under Full Employment Equilibrium
(c) Both (a) and (b)
(d) None of the above
Q46 Which one is the reason for Deficit Demand condition?
(a) Fall in the money supply in the country
(b) Fall in investment demand as a result of rising in bank rate
(c) Fall in disposable income and consumer demand due to increase in taxes
(d) All the above
Q47 With which component of Monetary Policy, Central Bank tries to attain economic
stability in the country?
(a) Supply of Money
(b) Interest Rate
(c) Availability of Money
(d) All of these
Q48 How the excess money from the economy can be arrested and Excess Demand can be
corrected?
(a) Reduction in Bank Rate
(b) Selling Securities in Open Market
(c) Reducing Cash Reserve Ratio
(d) All the above
Q49 The reverse repo rate is decreased so that commercial banks will create more credit,
because

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 a) The banks will be discouraged to deposit more surplus money with the RBI
b) Banks will decrease the interest rate for the public
c) The commercial banks will maintain less liquidity with themselves
d) None of the above
Q50 Excess Demand may rise due to
a) Increase in exports
b) Increase in imports
c) Increase in consumption expenditure
d) Increase in taxation
Q51 If economies need to control recession like most of the euro zone nations, which of
the following will be most appropriate?
(a)reducing repo rate
(b)reducing CRR
(c)both (a)&(b)
(d) neither (a) nor (b)
Q52 To correct Excess demand, RBI must _______ the margin requirement.
(a)increase
(b)decrease
(c)not change
(d)remove
Q53 Which of the following can be used to correct deflationary gap under monetary
policy?
(a)increase taxation
(b)increase in cost of credit
(c)cut in the government expenditure
(d)none of the above
Q54 Which of the following can be a reason for Excess Demand?
(a)reduction in investment
(b)increase in imports
(c)decrease in exports
(d)rise in propensity to consume
Q55 In Economics the problem of unemployment is the problem of _______
(a)Voluntary unemployment
(b)involuntary unemployment
(c)both (a) & (b)
(d)Seasonal unemployment
Q56 Full employment implies absence of:
a) Voluntary unemployment
b) Involuntary unemployment
c) Unemployment
d) None of these
Q57 In a situation of Deficit demand at the full employment level of income:
a) AD=AS
b) AD>AS

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 c) AD<AS
d) None of these
Q58 Excess demand refers to a situation when:
a) AD>AS (corresponding to full employment)
b) AD>AS (corresponding to full employment)
c) Unsold stocks tend to increase
d) None of these

Q59 Which of the following does not lead to fall in AD?

a) Fall in private consumption expenditure
b) Fall in exports
c) Fall in imports
d) Fall in government expenditure

Q60 Revenue and expenditure policy of the government to correct the situations of excess
and Deficit demand is known as:
a) Monetary policy
b) Fiscal policy
c) Both (A) and (B)
d) None of these
Q61 Which of the following components of fiscal policy can be used to correct Deficit
demand?
a) Increase in government expenditure
b) Cut in tax rates
c) Cut in public borrowing
d) All of these
Q62 Which of the following components of monetary policy can be used to correct excess
demand?
a) Increase in SLR
b) Increase in CRR
c) Increase in margin requirement
d) All of these
Q63 To correct the situation of deflationary gap, the central bank:
a) Increases margin requirement
b) Decreases margin requirement
c) Increases cash reserve ratio
d) Both (A) and (B)
Q64 Which of the following leads to increase in AD?
(A) Fall in imports
(B) Increase in investment expenditure
(C) Increase in government expenditure
(D) All of these
Q65 A situation when AS=AD along with fuller utilisation of resources in the economy is
called

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 a) Underemployment equilibrium
b) Full employment equilibrium
c) Equilibrium without excess capacity
d) Both B and C
Q66 In case of under employment equilibrium
a) AS=AD
b) There is excess capacity in the economy
c) Resources are not fully utilised
d) All of these.
Q67 Full employment:
a) It consistent with a natural rate of unemployment
b) Is a situation of zero unemployment
c) Occurs when demand for labour force is equal to supply of labour force
d) Both A and C.
Q68 Problem of unemployment refers to:
a) The problem of voluntary unemployment
b) The problem of involuntary unemployment
c) Neither A nor B
d) Both A and B.
Q69 Deficit demand leads to:
a) Deflationary gap
b) Excess capacity
c) Low level of employment
d) All of these.
Q70 Planned AD is short of its full employment level in a situation of:
a) Excess demand
b) Inflationary gap
c) Deficit demand
d) None of these.
Q71 Inflationary gap is measured as:
a) ADE+ADF
b) ADE-ADF
c) ADE×ADF
d) ADE÷ADF
(Here ADE= aggregate demand beyond full employment; ADF= aggregate demand at
full employment).
Q72 Aggregate demand falls owing to:
a) Increase in exports
b) Increase in consumption expenditure
c) Increase in imports
d) Both A and C
Q73 Fiscal policy refers to:
a) Revenue and expenditure policy of the government
b) Budgetary policy of the government

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 c) Both A and B
d) Neither A nor B
Q74 The policy which corrects the situations of excess deficit demand by regulating
interest rate and availability of credit in the economy is called :
a) Fiscal policy
b) Monetary policy
c) Budgetary policy
d) All of these
Q75 In order to correct the situation of excess demand:
a) Cost of credit it is raised
b) Availability of credit is raised
c) Availability of credit is reduced to
d) Both A and C
Q76 Which of the following can be used to correct inflationary gap:
a) Increases in taxation
b) But in the cost of credit
c) Cut in government expenditure
d) Both A and C
Q77 Which of the following can be used to correct deflationary gap:
a) Increase in bank rate
b) Increase in CRR
c) Reduction in SLR
d) Increase in margin requirement.
Q78 Excess demand leads to:
(a) Inflationary gap
(b) Rise in prices
(c) Rise in employment level
(d) Both (a) and (b)
Q79 Which of the following leads to an increase in AD?
(a) Fall in imports
(b) Increase in investment expenditure
(c) Increase in govt.expenditure
(d) All of these
Q80 If the level of AD is to be raised(upward shift in AD curve) there should be:
(a) Increase in autonomous investment
(b) Increase in autonomous consumption expenditure
(c) Both (a) and (b)
(d) None of these
Q81 Deficit demand refers to a situation when
(a) AD>AS (corresponding to full employment)
(b) AD<AS (corresponding to full employment)
(c) Unsold stocks tend to increase
(d) None of these
Q82 Which of the following components of fiscal policy can be used to correct Deficit

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 demand…
(a) Increase in govt.expenditure
(b) Cut in tax rates
(c) Cut in public borrowing
(d) All of these
Q83 Which of the following components of monetary policy can be used to correct excess
demand?
(a) Increase in bank rate
(b) Increase in CRR
(c) Increase in marginal requirement
(d) All of these
Q84 Deflationary gap is measured as :
(a) AD of full employment - Planned AD corresponding to underemployment
(b) AD of full employment + Planned AD corresponding to underemployment
(c) AD of full employment / Planned AD corresponding to underemployment
(d) None of these
Q85 Structural unemployment occurs due to:
(a) Change in technology
(b) When factors other than labour are in shortage
(c) Both (a) and (b)
(d) None of these
Q86 To correct the situation of excess demand, RBI uses…
(a) Cheap monetary policy
(b) Dear monetary policy
(c) Both (a) and (b)
(d) None of these
Q87 Which of the following is considered as a component of monetary policy?
(a) Taxes
(b) Government expenditure
(c) CRR and SLR
(d) None of these

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ANSWER

Question No Answer
Q1 (a) Deficit Demand
Q2
(C) Both (a) and (b)
Q3 (C)Inflationary gap
Q4 a) Deficit demand
Q5
(a) Under employment equilibrium
Q6 (b) Central bank
Q7 (B) Increase
Q8 (a) Fall in the propensity to consume
Q9 (d) All the above
Q10 (a) Inflationary gap
Q11 (d) All the above
Q12 (d) All of these
Q13 (c) both a & b
Q14 (c) both a & b
Q15 (d) All of these
Q16 (b) Excess demand
Q17 (d) All the above
Q18 (b) Surplus Demand
Q19 (b) Buying of Securities in Open Market
Q20 (b) Under Full Employment Equilibrium
Q21 (b) Decrease
Q22 (b) Excess supply
Q23 (d) None of the above
Q24 (a) Increasing the level of government expenditure.
Q25 (c) Decreasing CRR and SLR.
Q26 (d) All of them
Q27 (d) All the above
Q28 b) AD > AS
Q29 d. Increase in government income
Q30 c) When people are not getting work,even when they are
willing to work at the existing wage rate
Q31 c) Decrease in taxes
Q32 d)Increase in public debt
Q33 b) Fiscal policy
Q34 d. Tax
Q35 d) All of these
Q36 a. Moral suasion
Q37 d) both b and c

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Q38 a) AD=AS(with fuller utilisation of resources
Q39 a)immobility of labour
Q40 c) both a and b
Q41 a) inflationary gap
Q42 d) both b and c
Q43 (d) All of these
Q44 (d) All of these
Q45 (b) Under Full Employment Equilibrium
Q46 (d) All the above
Q47 (d) All of these
Q48 (b) Selling Securities in Open Market
Q49 (a)The banks will be discouraged to deposit more surplus
money with the RBI
Q50 (a) Increase in exports
Q51 (c)both (a)&(b)
Q52 (a)increase
Q53 (d)none of the above
Q54 (d)rise in propensity to consume
Q55 (c)both (a) & (b)
Q56 (b)
Q57 (c)
Q58 (a)
Q59 (c)
Q60 (b)
Q61 (d)
Q62 (d)
Q63 (b)
Q64 (d)
Q65 d
Q66 d
Q67 d
Q68 b
Q69 d
Q70 b
Q71 b
Q72 c
Q73 c
Q74 b
Q75 d
Q76 d
Q77 c
Q78 (d)

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Q79 (d)
Q80 (c)
Q81 (b)
Q82 (d)
Q83 (d)
Q84 (a)
Q85 (c)
Q86 (b)
Q87 (c)

PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI,

KOLKATA, RANCHI, SILCHAR AND TINSIKIA REGION.
VETTED BY : SILCHAR REGION

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CHAPTER -15- PROBLEM OF EXCESS DEMAND AND DEFICIT DEMAND
CASE STUDY BASED QUESTIONS
CBQ NO Question Content
Q1 CASE STUDY:
Jobs are back, income is not: Workers take lower-paying jobs ; still suffer salary cuts, November
24,2020
More than half the households in India have suffered a fall in their incomes during the lockdown,
compared to a Year ago, and a very large proportion has seen no increase. The Indian economy is
recovering, listed companies are making huge profits, the employment rate is rising; but, The
common people are still struggling with stagnant household incomes.
According to the Centre for Monitoring Indian Economy (CMIE). Now, India is nearly eight months
into the lockdown with several relaxations in the movement of goods and delivery of services,
and many fast frequency indicators have reported a smart recovery, but the recovery in
household incomes is very slow.
i) . Due to deficit financing there will be _________ in the economy. (excess demand/ deficient
demand)
ii) . _______is not a component of aggregate demand in two-sector economy.
(import, net exports , export)
iii) . Deficient Demand indicates _________ full employment equilibrium. (over/under)
iv) . Minimum level of expenditure is dependent on the level of income in the economy. ( true or
false)
Q2 CASE STUDY:
Read the following news report and answer Questions the following on the basis of the same :
The Reserve Bank of India (RBI), cut Repo Rate to 4.4%, the lowest in at least 15 years. Also, it
reduced the Cash Reserve Ratio (CRR) maintained by the banks for the first time in over seven
years. CRR for all banks was cut by 100 basis points to release ` 1.37 lakh crores across the
banking system. RBI governor Dr. Shaktikanta Das predicted a big global recession and said India
will not be immune. It all depends how India responds to the situation. Aggregate demand may
weaken and ease core inflation. The Economic Times; March 27th, 2020
1. Cut in Repo rate by RBI is likely to............... (Increase/decrease) the demand for goods and
services in the economy. (choose the correct alternative)
2. Decrease in Cash Reserve Ratio will lead to................. (choose the correct alternative)
(i) fall in aggregate demand
(ii) rise in aggregate demand
(iii) no change in aggregate demand
(iv) fall in general price level
3.. The difference by which actual Aggregate Demand exceeds the Aggregate Demand, required
to establish full employment equilibrium is known as... .............(inflationary gap/deflationary
gap). (choose the correct alternative)
4.. The impact of ‘Excess Demand’ under Keynesian theory of income and employment, in an
economy are : (choose the correct alternative)
(i) decrease in income, output, employment and general price level
(ii) decrease in nominal income, but no change in real output
(iii) increase in income, output, employment and general price level
(iv) No change in output/employment but increase in general price level.

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Q3 Read the passage given below and answer the following questions
When an economy undergoes a deflationary Shock, the implications can be both positive and
negative for consumers and businesses. There is a big difference between the terms disinflation
and deflation, which we will first go over before getting into the causes and effects of deflationary
shocks, and how these shocks can affect the economy, consumers and businesses. Disinflation
usually occurs during a period of recession and manifests itself by slowing down the rate at which
prices increase; this occurs as a result of a decrease in consumer sales. If the inflation rate drops
to a lower level than before, technically that difference is disinflation. Deflation, on the other
hand, can be thought as the opposite of inflation, or as negative inflation, and it occurs when the
supply of goods or services rises faster than the supply of money.

i. ………….. (Central bank/Commercial bank) help to correct the situation of deflationary shock in a
country through its credit control policy.

ii. Which of the following steps should be taken by the Central Bank to boost demand in the
economy during the deflationary gap?
A. Decrease tax rate
B. Deficit financing
C. Decrease legal reserve requirements
D. Increase foreign exchange reserve
iii. Which of the following statements stands true during the deflationary gap?
A. Actual output falls short of potential output
B. Potential output falls short of actual output
C. Actual demand is less than expected demand
D. Expected demand is less than actual demand
iv. What will be the impact on money supply during the deflationary gap?
A. Decrease
B. Increase
C. Remain constant
D. Can't be predicted
Q4 India’s wholesale inflation accelerated for the third consecutive month and firmed up to an eight-
month high of 1.48% in October, driven by manufactured items, data released by the commerce
and industry ministry showed on 16 Nov. The WPI had increased 1.32% in September, The annual
rate of inflation based on the WPI Food Index, which comprises ‘food articles’ from the primary
articles group and ‘food product’ from the manufactured products group, decreased to 5.78% in
October from 6.92% in September. The government also revised the wholesale inflation for
August to 0.41% from 0.16% earlier.
Food inflation cooled to 6.37% in October from 8.17% in September, led by decline in meat, egg
and fish inflation that slowed to 1.65% in October from 4.15% the previous month.
Inflation in vegetables and potatoes was 25.23% and 107.70% respectively.
In the manufactured products category, inflation was 2.12% compared with 1.61% in September.

i, India’s wholesale inflation accelerated for the third consecutive month in October 2020, driven
by ________item(food/manufactured).
ii. Increase in core inflation implies improvement in _______(demand/supply) condition after
covid 19 related lockdown was lifted.
iii. Inflation is a situation of excess demand i.e., when aggregate demand is in excess of aggregate

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 supply corresponding to ______.
a. under full employment
b. over full employment
c. full employment
d. none of these
iv. Inflationary gap causes ________.
a. no change in the level of output
b. no change in the level of employment
c. rise in general price level
d. all of these

Q5 CASE STUDY:
Amidst indications of an economic slowdown in the beginning of year 2020 came the challenge of
CoronaPandemic in Feb-Mar 2020, forcing the Government to impose a strict lock down leading
to near cessation of Major economic activities across all sectors. The Finance Minister on 13th,
14th, 15thMay’20 announced an Economic package of ₹20 Lakh Crore for revival of Indian
economy. Government of India’s ₹20 lakh crore ‘AatmaNirbhar Bharat’ package which aimed at
reviving the economy, includes major fiscal measures like free food for the poor, direct cash
transfer, money for rural job guarantee scheme, MGNREGA and credit guarantees to MSMEs.RBI
has also taken steps to slash lending rates and add more liquidity into the markets.

1. Indicate the impact of the economic package on AD:

(a) Fall in Aggregate Demand
(b) Rise in Aggregate Demand
(c) Rise in general Price level
(d) No change in Aggregate Demand
2. To induce liquidity RBI must have:
(a) Increased Cash Reserve Ratio
(b) Reduced Repo Rate
(c) Increased Reverse Repo Rate
(d) Kept Statutory liquidity Ratio constant
3. The likely impact of “Deficit Demand” under income and employment theory, in an economy
are:
(a) Decrease in income, output, employment and general price level
(b) Decrease in nominal income, but no change in real output
(c) Increase in income, output, employment and general price level
(d) No change in output/ employment but increase in general price level
4. The nature of fiscal policy undertaken by the government is _________ and Monetary Policy is
________ in its nature.
(a) Expansionary, Expansionary
(b) Expansionary, Contractionary
(c) Contractionary, Expansionary
(d) Contractionary, Contractionary
Q6 Case Study :
Monetary and fiscal instruments are the key to combat the problems of excess and deficient
demand. Fiscal instruments relate to revenue and expenditure policy of the government.
Monetary instruments relate to the regulation of money supply in the economy. To combat
excess demand, the government needs to curb its expenditure and raise its revenue. On the

3|Page 8 October 2021,ZIET BHUBANESWAR

 monetary front, it needs to pursue a Dear Money Policy, making availability of credit tougher than
before and shrinking the credit creation capacity of the commercial banks. On the other hand, to
combat deficient demand, expenditure needs to be stimulated while revenue needs to be cured.
On the monetary front, Cheap Money Policy needs to be pursued, facilitating easy availability of
credit and enhancing credit creation capacity of the commercial banks.
Based on case study given above, answer the following questions:
1: Who issues monetary policy to control aggregate demand:
(A) Central bank
(B) Government
(C) Commercial bank
(D) None of these
2: Which is monetary instrument to combat the problems of excess and deficient demand:
(A) CCR
(B) SLR
(C) Bank rate
(D) All of above
3: Which is fiscal instrument to combat the problems of excess and deficient demand:
(A) Public revenue
(B) Public expenditure
(C) Public debt
(D) All of above
4: Cause of Deficient Aggregate Demand:
(A) Reduction in private consumption expenditure
(B) Reduction in government expenditure
(C) Decline in exports
(D) All of these
Q7 Case Study :
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 slightly, lower energy prices in rose to 4.1per cent in April-
December 2019, after a sharp decline from 5.9per cent in 2014 to 3.4 per cent in 2018.
Based on case study given above, answer the following questions:

1: Due to weakening of global economic activity, level of aggregate demand in the economy:
(A) increases
(B) decreases
(C) fluctuate
(D) constant
2: The impact of above situation under Keynesian theory of income and employment, in an
economy is:
(A) Decrease in income, output and employment.
(B) Decrease in nominal income, but no change in real output.
(C) Increase in income, output and employment.
(D) No change in output and employment but increase in general price level.
3: Decrease in government expenditure is required to combat:
(A) inflation
(B) deflation

4|Page 8 October 2021,ZIET BHUBANESWAR

 (c) unemployment
(D) poverty
4: Inflation leads to:
(A) unemployment
(B) wage-price spiral
(c) both (A) and (B)
(D) none of these
Q8 Deflationary gap When there is involuntary unemployment in the economy, there is a short fall in
Aggregate Demand from the level required to maintain a full employment equilibrium. This short
fall is termed as deflationary gap.
EF is deflationary gap

Read above passage and give the answer of following questions:

1.. Explain the behavior of consumption with increased in income?
2. Why aggregate demand is short when involuntary unemployment in the economy.

Q9 In the present COVID-19

19 times, many economists have raised their concerns that Indian economy
may have to face
ace a deflationary situation, due to reduced economic activities in the country.
Suppose you are a member of the high powered committee constituted by the Reserve Bank of
India (RBI).
1. You have suggested that as the supervisor of commercial banks, .....
................
........... (restriction/release)
of the money supply be ensured, by the Reserve Bank of India (RBI).
(Choose the correct alternative)

Q10 The Reserve Bank of India (RBI), cut Repo Rate to 4.4%, the lowest in at least 15 years. Also, it
reduced the Cash Reserve Ratio (CRR) maintained by the banks for the first time in over seven
years. CRR for all banks was cut by 100 basis points to release ₹ 1.37 lakh crores across the
banking system. RBI governor Dr. Shaktikanta Das predicted a big global recession and said India
will not be immune. It all depends how India responds to the situation. Aggregate demand may
weaken and ease core inflation. The Economic Times; March 27th, 2020
1. Cut in Repo rate by RBI is likely to……….. (Increase/decrease) the demand for goods and

5|Page 8 October 2021,ZIET BHUBANESWAR

 services in the economy. (choose the correct alternative)
2. Decrease in Cash Reserve Ratio will lead to…...........… (choose the correct alternative)
(a) fall in aggregate demand (b)rise in aggregate demand (c)no change in aggregate demand (d).
fall in general price level
3.The difference by which actual Aggregate Demand exceeds the Aggregate Demand, required to
establish full employment equilibrium is known as……….………(inflationary gap/deflationary gap).
(choose the correct alternative)
4.The impact of “Excess Demand” under Keynesian theory of income and employment, in an
economy are: (choose the correct alternative)
(a). decrease in income, output, employment and general price level
(b). decrease in nominal income, but no change in real output
(c). increase in income, output, employment and general price level
(d). no change in output/employment but increase in general price level.
5.There are two measures-fiscal measures and --------- that may be taken by the Government of
India to correct the situation of deficient demand.(fill in the blanks)
6. To combat with disastrous impact of Covid-19, Government had announced many stimulus
packages to revive economy. This measure will fall under ------policy.
Fiscal policy/monetary policy (choose the correct alternative)

ANSWER

CBQ NO Answer
Q1 i) Excess demand
ii) Net exports
iii) Under full employment
iv)False.
Q2 1. increase
2. (iii) rise in aggregate demand
3. Inflationary gap
4. (iv) No change in output/employment but increase in general price level.
Q3 i. Central bank
ii. C. Decrease legal reserve requirements
iii. C. Actual demand is less than expected demand
iv. A. Decrease
Q4 i. manufactured
ii. demand
iii. c) full employment
iv. d) all of these
Q5 1. Rise in Aggregate Demand
2. Reduced Repo Rate
3. Decrease in income, output, employment and general price level
4. Expansionary, Expansionary

6|Page 8 October 2021,ZIET BHUBANESWAR

Q6 1 (A)
2 (D)
3 (D)
4 (D)
Q7 1 (B)
2 (A)
3 (A)
4 (B)
Q8 1. When increase in income consumption also increase but speed of increase in
consumption is less than the speed of increase in income.
2. Because in this situation some factor of production unemployed. Factor of
production not fully utilised due to involuntary unemployment.
Q9 Ans. Release
Q10 1. Increase
2. (b)
3. Inflationary gap
4. (c)
5. Monetary measures
6. Fiscal policy

PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI,

KOLKATA, RANCHI, SILCHAR AND TINSIKIA REGION.
VETTED BY : SILCHAR REGION

7|Page 8 October 2021,ZIET BHUBANESWAR

CHAPTER -15- PROBLEM OF EXCESS DEMAND AND DEFICIT DEMAND
TRUE AND FALSE QUESTIONS
Question Question Content
No
Q1 Monetary policy is related to the revenue and expenditure policy of the government.
A.TRUE
B.FALSE
Q2 When there is excess demand, the rate of taxation is to be reduced.
A.TRUE
B.FALSE
Q3 When there is deficient demand, public expenditure is to be generally expanded.
A.TRUE
B.FALSE
Q4 When there is deficient demand, public expenditure is to be generally contracted.
A.TRUE
B.FALSE
Q5 An increase in the interest rate in the future will reduce the savings.
A.TRUE
B.FALSE
Q6 Low level of investment and employment implies low level of output as the impact is deficient
demand in an economy.
A.TRUE
B.FALSE
Q7 According to Keynes, “Unemployment is the cause of AD < AS.
A.TRUE
B.FALSE
Q8 Decreasing tax is a fiscal measure to deal with the inflationary gap situation in an economy.
(A.TRUE
B.FALSE
Q9 The inflationary gap is the shortfall in AD from the level required to maintain full employment
equilibrium in the economy.
A.TRUE
B.FALSE
Q10 Deflationary gap exists when aggregate demand is greater than aggregate supply at full
employment level.
A.TRUE
B.FALSE
Q11 Excess demand represents over full employment situation.
A.TRUE
B.FALSE
Q12 Unemployment can exist at full employment level.
A.TRUE
B.FALSE
Q13 Deficient demand is inflationary in nature.
A.TRUE

1|Page 8 October 2021,ZIET BHUBANESWAR

 B.FALSE
Q14 The government decreases its spending to correct the situation of excess demand.
A.TRUE
B.FALSE
Q15 Aggregate Demand can be increased by selling the securities in the open market.
A.TRUE
B.FALSE
Q16 During deficient demand there is accumulation of inventory in the economy.
A.TRUE
B.FALSE
Q17 Deflationary Gap shows the measurement of Deficit Demand.
A.TRUE
B.FALSE
Q18 Production and employment level increases due to deficient demand.
A.TRUE
B.FALSE
Q19 Full employment equilibrium refers to the situation in the economy when AS=AD along with
fuller utilization of resources.
A.TRUE
B.FALSE
Q20 Natural unemployment is a situation of ‘frictional and structural’ unemployment in the
economy.
A.TRUE
B.FALSE
Q21 Deflationary gap is measured in terms of excess demand.
A.TRUE
B.FALSE
Q22 Higher borrowing by the government from the RBI releases greater liquidity in the economy.
A.TRUE
B.FALSE
Q23 Monetary policy is also called budgetary policy of the government.
A.TRUE
B.FALSE
Q24 Problem of unemployment is the problem of voluntary unemployment
A.TRUE
B.FALSE
Q25 AD is in excess while there is excess capacity in the economy
A.TRUE
B.FALSE
Q26 Monetary policy is pursued by the central bank of a country
A.TRUE
B.FALSE
Q27 Due to excess demand the market value of goods and services tends to decline
A.TRUE
B.FALSE
Q28 Full employment does not mean a situation of zero unemployment
A.TRUE
B.FALSE

2|Page 8 October 2021,ZIET BHUBANESWAR

Q29 Government should adopt balanced budget policy when economy is very close to full
employment. (
A.TRUE
B.FALSE
Q30 Deflationary gap can be corrected by increasing the level of AD.
A.TRUE
B.FALSE
Q31 CRR should be raised to combat the deflationary gap.
A.TRUE
B.FALSE
Q32 Bank rate should be lowered in a situation of inflationary gap.
A.TRUE
B.FALSE
Q33 AD is deficient when there is excess capacity in the economy.
A.TRUE
B.FALSE

ANSWER

Question Answer
No
Q1 False
Q2 False
Q3 True
Q4 False
Q5 False
Q6 True
Q7 True
Q8 False
Q9 False
Q10 False
Q11 True
Q12 True
Q13 False
Q14 True
Q15 False
Q16 True
Q17 True
Q18 False
Q19 True
Q20 True
Q21 False
Q22 True
Q23 False

3|Page 8 October 2021,ZIET BHUBANESWAR

Q24 False
Q25 False
Q26 True
Q27 False
Q28 True
Q29 True
Q30 True
Q31 True
Q32 False
Q33 True

PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI,

KOLKATA, RANCHI, SILCHAR AND TINSIKIA REGION.
VETTED BY : SILCHAR REGION

4|Page 8 October 2021,ZIET BHUBANESWAR

CHAPTER -15- PROBLEM OF EXCESS DEMAND AND DEFICIT DEMAND
ASSERTION- REASON QUESTIONS
Question Question Content
No
Q1 Assertion (A): Inflationary gap is the result of excess demand.
Reasoning(R): When aggregate demand is more than aggregate supply, inflationary gap is
occurred.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q2 Assertion (A): Due to excess demand, employment increases in the economy.
Reasoning(R): Output level increases in the economy due to excess demand.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q3 Assertion (A): Bank rate increases in order to control excess demand.
Reasoning(R): Bank rate helps to control the money supply in the economy.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q4 Assertion (A): Monetary measures are adopted by the central bank to control deficient demand.
Reasoning(R): Fiscal measures are adopted by the government through budget to control excess
demand.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q5 Assertion (A): RBI is the apex bank in the country.
Reasoning(R): Commercial banks want to maximize their profits.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of

1|Page 8 October 2021,ZIET BHUBANESWAR

 Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q6 Assertion: Fiscal policy and monetary policy are contradictory to each other.
Reason: Fiscal policy and monetary policy are complementary to each other. Both the policies
simultaneously target to stabilize the economy.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q7 Assertion: There is underemployment of resources in the economy during Deficient Demand
situations.
Reason: To correct the excess demand situation, Govt. must cut down unproductive expenditure.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q8 Assertion: In a situation of excess demand at the full employment level, there is inflation in the
economy.
Reason: At the full employment level, even if there is more demand for goods and service, the
output cannot be increased.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q9 Assertion: Reduction in taxation can correct the problem of deficient demand.
Reason: Reduction in taxation leaves the people with more disposable income.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q10 Assertion: Deficient demand causes inflation and full employment.
Reason: when the actual AD falls short of the AS at full employment, the output produced in the
economy cannot be sold.

2|Page 8 October 2021,ZIET BHUBANESWAR

 Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q11 Assertion (A) During deflationary gap, actual aggregate demand is more than potential aggregate
demand to maintain full employment.
Reason(R) Recession in an economy leads to fall in demand as compared with supply.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q12 Assertion (A) Deflationary gaps reflects presence of unemployment in an economy.
Reason(R) Full employment doesn't ensure zero unemployment during a period of time.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q13 Assertion (A) Excess demand refers to the situation when aggregate demand is in excess of
aggregate supply corresponding to full employment in the economy i.e., AD >AS, corresponding to
full employment.
Reason(R) To correct inflationary gap, Bank rate, Repo rate, Reverse Repo rate and legal reserve
ratio is increased by the Central Bank to reduce supply of money so that purchasing power of
people can be curtailed and inflationary gap can be controlled.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q14 Assertion (A) Fiscal policy refers to the budgetary policy of the government with a view to correct
the situation of excess demand or deficient demand.
Reason(R) Government uses low Bank rate to control excess supply of money.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.

3|Page 8 October 2021,ZIET BHUBANESWAR

 (d) Assertion (A) is false but Reason (R) is true.
Q15 Assertion (A) Deficient demand leads to fall in output.
Reason(R) Due to fall in investment and employment in the economy, the output also tends to fall.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q16 Assertion: In a situation of excess demand at the full employment level, there is inflation in the
economy.
Reason: At the full employment level, even if there is more demand for goods and service, the
output cannot be increased.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q17 Assertion (A): General price level tends to rise in a situation of inflationary gap.
Reason (R): Excess demand implies pressure of demand on the existing resource.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q18 Assertion (A): Wage-price spiral is the consequence of deficient demand.
Reason (R): In this situation, wages catch prices and prices catch wages
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q19 Assertion (A): Underemployment equilibrium indicates excess capacity in the economy.
Reason (R): Aggregate demand is less than what is needed for full employment of the factors.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

4|Page 8 October 2021,ZIET BHUBANESWAR

Q20 Assertion (A): CRR should be raised to combat inflationary gap.
Reason (R): CRR is controlled by commercial bank.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q21 Assertion (A): Bank rate should be lowered in a situation of inflationary gap.
Reason (R): Bank rate is controlled by central bank.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q22 Assertion (A): Deflationary gap can be corrected by increasing the level of aggregate demand.
Reason (R): it is the deficiency of aggregate demand that causes deflationary gap.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q23 Assertion (A) inflationary pressure takes place when the economy is in full employment.
Reason (R) due to the rise in demand and rigid supply, price of the goods tends to rise
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q24 Assertion (A) if aggregate demand exceeds aggregate supply income rises.
Reason (R) excess of aggregate demand will reduce planned inventory and firm would tend to
increase the employment and output.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q25 Assertion (A) the point at which consumption intersect the 45 degree line, APS is zero
Reason (R) it happens because at this point consumption is equal to income and saving is zero.

5|Page 8 October 2021,ZIET BHUBANESWAR

 Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q26 Assertion (A) full employment implies zero unemployment where nobody is ever unemployed in
the economy
Reason (R) there is always some minimum level of unemployment for natural unemployment or
voluntary unemployment.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q27 Assertion (A) increase in public expenditure will improve AD.
Reason (R) Public expenditure incurred by government will increase the money supply in the heads
of public.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q28 ASSERTION (A):
Inflationary pressure takes place when the economy is in full employment.
REASONING (R):
Due to the rise in demand and rigid supply, price of the goods tends to rise.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q29 ASSERTION (A):
In a situation of deficient demand, there is underemployment in the economy.
REASONING (R):
Excess demand raises the real value of the output. Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.

6|Page 8 October 2021,ZIET BHUBANESWAR

 (d) Assertion (A) is false but Reason (R) is true.
Q30 ASSERTION (A):
Tax increases by state governments during recessions often reduce the expansionary impact of
fiscal policy by the central government.
REASONING (R):
Tax increases lead to decrease in disposable income due to which consumption expenditure in the
economy falls. Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q31 ASSERTION (A):
Increase in public expenditure will improve AD.
REASONING (R):
Public expenditure incurred by government will increase the money supply in the hands of public.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q32 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.
REASONING (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.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

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ANSWER

Question No Answer
Q1 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q2 (b) Assertion and reason both are true but reason is not the correct explanation of
assertion.
Q3 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q4 (b) Assertion and reason both are true but reason is not the correct explanation of
assertion.
Q5 (b) Assertion and reason both are true but reason is not the correct explanation of
assertion.
Q6 (d) Assertion is false, reason is true.
Q7 (b) Assertion and reason both are true but reason is not the correct explanation of
assertion.
Q8 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q9 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion
Q10 (d) Assertion is false, reason is true.
Q11 (b) Assertion and reason both are true but reason is not the correct explanation of
assertion.
Q12 (b) Assertion and reason both are true but reason is not the correct explanation of
assertion.
Q13 (b) Assertion and reason both are true but reason is not the correct explanation of
assertion.
Q14 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q15 (c) Assertion (A) is true but Reason (R) is false.
Q16 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q17 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q18 (d) Assertion is false, reason is true.
Q19 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q20 (d) Assertion is false, reason is true.
Q21 (d) Assertion is false, reason is true.
Q22 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q23 (d) Assertion is false, reason is true.
Q24 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q25 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q26 (d) Assertion is false, reason is true.

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Q27 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q28 (d) Assertion is false, reason is true.
Q29 (c) Assertion (A) is true but Reason (R) is false.
Q30 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q31 (a) Both Assertion and reason are true and reason is the correct explanation of the
assertion.
Q32 (b) Assertion and reason both are true but reason is not the correct explanation of
assertion.

PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI,

KOLKATA, RANCHI, SILCHAR AND TINSIKIA REGION.
VETTED BY : SILCHAR REGION

9|Page 8 October 2021,ZIET BHUBANESWAR