MCQ Questions

National Income and Related Aggregates Class 12 MCQs Questions with Answers

Question 1.

Inventory is a …………….. concept whereas the change in inventory is a concept.

(A) stock, flow
(B) flow, stock
(C) stock, stock
(D) flow, flow
Answer:
(A) stock, flow

Explanation:
Inventory is a stock concept as it can be measured at a point of time and change in inventory is a flow concept because it can be measured over a time period.

Question 2.

Which of the following is not a ‘factor payment?

(A) Free uniform to defence personnel
(B) Salaries to the Members of Parliament
(C) Rent paid to the owner of a building
(D) Scholarship given to the students
Answer:
(D) Scholarship given to the students

Explanation:
Factor Payments are made to the factors of production, thus scholarship is not a factor payment, instead it is a transfer payment.

Question 3.

Goods purchased for the following purpose are final goods:

(A) for the satisfaction of wants
(B) for investment in firm
(C) both (A) and (B)
(D) none of the above
Answer:
(C) both (A) and (B)

Explanation:
Final goods are referred to as those goods that do not require further processing. These goods are produced for the direct consumption either by a consumer for final consumption or by a producer for investment or capital formation.

Question 4.

Which of the following is a stock?

(A) Savings
(B) Production
(C) Consumption of fixed capital
(D) Capital
Answer:
(D) Capital

Explanation:
Capital is measured at a particular point of time.

Question 5.

Which of the following is a flow?

(A) Deposits in a bank
(B) Capital
(C) Depreciation
(D) Wealth
Answer:
(C) Depreciation

Explanation:
Depreciation indicates the changes in the value of an asset over a period $ of time.

Question 6.

Identify the correctly matched pair of the items in Column A to those in Column B:

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(B) 2 – (b)

Explanation:
Real flow refers to the flow of factor services and goods and services among different sectors of the economy.

Question 7.

Which of the following is a stock?

(A) Wealth
(B) Savings
(C) Exports
(D) Profits
Answer:
(A) Wealth

Explanation:
Wealth is the accumulated value of economic goods or past savings measured at a given point of time.

Question 8.

Identify the correctly matched pair of items in Column A to those in Column B:

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(A) 1-(a)

Explanation:
Money flows refer to the payments for the services.

Question 9.

The study of National Income is related to:

(A) Microeconomics
(B) Macroeconomics
(C) Both Micro and Macroeconomics
(D) None of the above
Answer:
(B) Macroeconomics

Explanation:
Macroeconomics is the study of behaviour of an economy as a whole. National income is the value of total final goods produced by an economy. Thus, the study of National Income is related to macroeconomics.

Question 10.

Unforeseen obsolescence of fixed capital assets during production is:

(A) Consumption of fixed capital
(B) Capital loss
(C) Income loss
(D) None of the above
Answer:
(B) Capital loss

Explanation:
Capital loss is non-recurring in nature. Unforeseen obsolescence of fixed capital. assets during production is a capital loss that may happen due to natural calamities, war, unexpected decrease in demand, etc.

Question 11.

Identify the correctly matched pair of items in Column A to those in Column B:

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(B) 2 – (b)

Explanation:
Macroeconomics is the study of behaviour of an economy as a whole. National Income is the value of total final goods produced by an economy. Thus, the study of National Income is related to macroeconomics.

Question 12.

Identify which of the following statements is true:

(A) Durable goods get transformed in the production and consumption process.
(B) More sophisticated and heavy capital goods raise the ability of a labourer to produce goods.
(C) Intermediate goods do not pass through any more stages of production.
(D) Final goods refers to that good which is purchased for the purpose of further production/resale.
Answer:
(B) More sophisticated and heavy capital goods raise the ability of a labourer to produce goods.

Explanation:
More sophisticated and heavy capital goods that raise the ability of a labourer to produce goods includes heavy machineries. These heavy and sophisticated machineries reduce the time taken by labourer.

Question 13.

If in an economy the value of Net Factor Income from Abroad is 200 crores and the value of Factor Income to Abroad is ? 40 crores. Identify the value of Factor Income from Abroad:

(A) 200 crores
(B) 160 crores
(C) 240 crores
(D) 180 crores
Answer:
(C) 240 crores

Explanation:
Net Factor Income from Abroad = Factor Income from Abroad – Factor Income to Abroad ₹ 200 = Factor Income from Abroad – ₹40 Factor Income from Abroad = ₹200 + ₹40 = ₹240 crores

Question 14.

The sum of factor payments is equal to –

(A) Gross Domestic Income
(B) National Income
(C) Per Capital Real Income
(D) Per Capital National Income
Answer:
(B) National Income

Explanation:
The factor payments indicates the value added to the factor/inputs of production, as these are the payments made to factor of production. Thus, the sum of all the factor payments also constitutes National Income.

Question 15.

Which of the following statements is incorrect?

(A) Gross Domestic Product (GDP) at Market Price = GDP at Factor Cost + Net Indirect Taxes
(B) Net National Product (NNP) at Market Price = NNP at Factor Cost.
(C) Gross National Product (GNP) at Market Price = GDP at Market Price + Net Factor Income from Abroad
(D) Net National Product (NNP) at Factor cost = National Income [Delhi Set – II, 2020] ED
Answer:
(B) Net National Product (NNP) at Market Price = NNP at Factor Cost.

Explanation:
Net National Product (NNP) I at Market Price = NNP at Factor Cost + Net Indirect Taxes

Question 16.

Identify the correctly matched pair of items in Column A to those in Column B:

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(C) 3 – (c)

Explanation:
When there are no goods or services exchanged for the payment of money, it is known as transfer payment

Question 17.

Foreign embassies in India are a part of India’s:

(A) Economic territory
(B) Geographical territory
(C) Both (A) and (B)
(D) None of the above
Answer:
(B) Geographical territory

Explanation:
According to United Nation, “Economic territory is the geographical territory administered by a government within which persons, goods and capital circulate freely.” Since, Foreign Embassies can’t be administered by Indian Government, these are a part of India’s geographical territory.

Question 18.

National Income is the sum of factor incomes accruing to:

(A) Nationals
(B) Economic territory
(C) Residents
(D) Both residents and non-residents
Answer:
(C) Residents

Explanation:
National income is the sum total of factor incomes earned by normal residents of a country in the form of rent, wages, interest and profit in an accounting year.

Question 19.

Identify the correctly matched pair of items in Column A to those in Column B:

(A) 1-(a)
(B) 2-(b)
(C) 3-(c)
(D) 4-(d)
Answer:
(D) 4-(d)

Explanation:
Wages and salaries in kind consist of wages/salaries in form of goods and services that are not necessary in the workplace and that can be used by employees on their own time, and on their own initiative, to meet their own needs or those of their family members.

Question 20.

Which of the following affects national income?

(A) Goods and Services Tax
(B) Corporation Tax
(C) Subsidies
(D) None of the above
Answer:
(C) Subsidies

Explanation:
NNPFC= NNFMP – Indirect Taxes + Subsidies

Question 21.

Identify the correctly matched pair of items in Column A to those in Column B:

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Ans.
(A) 1 – (a)

Explanation:
Income tax is a forced transfer as tax payer cannot avoid it.

Question 22.
With a rise in real national income, welfare of the people:
(A) rises.
(B) faUs.
(C) remains unchanged.
(D) none of the above.
Ans.
(A) rises.

Explanation:
With a rise in real national income, welfare of the people rises as people have more money to spend on the needs and wants

Question 23.
GDP is not an appropriate indicator of welfare because of:
(A) externalities.
(B) composition of GDP and distribution of GDP
(C) non-monetary transactions.
(D) all of the above.
Answer:
(D) all of the above.

Explanation:
There are certain limitations of GDP as an index of welfare:

1. GDP does not take into account changes in inequalities in the distribution of income.
2. GDP does not include non-monetary exchanges.
3. GDP does not consider the changes in the population of a country.
4. GDP does not account for valuation of externalities.

Question 24.

Pollution created by factories/vehicles is an example of:

(A) positive externalities.
(B) negative externalities.
(C) either (A) or (B).
(D) neither (A) of (B). SB
Answer:
(B) negative externalities.

Explanation:
Cost suffered by unrelated third party due to result of an economic transaction is known as negative externalities. Pollution created by factories/vehicles has negative effect on the society.

Question 25.

Identify, the correctly matched items in Column to that of Column B:?

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(B) 2 – (b)

Explanation:
Non-monetary exchanges refers to goods and services that are produced but not exchanged for cash. The value of these exchanges is often difficult to estimate and therefore excluded from the national income estimates.

Question 26.

Identify the correctly matched items in Column A to that of Column B:

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(B) 2 – (b)

Explanation:
Non-monetary exchanges refem to goods and services that are produced but not exchanged for cash. The value of these exchanges is often difficult to estimate and therefore excluded from the national income estimates.

Question 27.

Real GDP is considered as an index of:

(A) price level in the economy.
(B) welfare of the people.
(C) profit maximization.
(D) none of the above.
Answer:
(B) welfare of the people.

Question 28.

dentify the correctly matched items in Column A to that of Column B:

(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(A) 1 – (a)

Explanation:
Social welfare is an aggregate of the utilities or satisfaction of all the individuals in the society.

Question 29.

Smoke emitted by a chemical factory and causing air pollution is an example of:

(A) Positive externalities
(B) Negative externalities
(C) Either (A) or (B)
(D) Neither (A) nor (B)
Answer:
(B) Negative externalities

Explanation:
Negative externalities refer to negative impact of an economic activity on the others without involving any penalty.

Assertion and Reason Based MCQs

Directions: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
(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, but 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.

Question 1.

Assertion (A): The flour purchased by a baker is considered an intermediate good.
Reason (R): The flour is used for the production of bread, cakes and biscuits to be sold to the consumer.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Explanation:
Goods used in the production of final goods are known as intermediated goods.

Question 2.

Assertion (A): Refrigerator used at home is considered as Capital Good.
Reason (R): Refrigerator is a one-time purchase for the household and will not be purchased for a very long time.

Answer:
(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
Capilal goods includes hose fixed or tangible assets that arc purchased by E ‘? producers or businesses to produce goods and services.

Question 3.

Assertion (A): Car purchased by the hotel for the purpose of tourism facilitation is a Capital Good.
Reason (R): The car is purchased by the hotel to provide long term service to the consumers.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Explanation:
Capital goods includes those fixed or tangible assets that are purchased by ; producers or businesses to produce goods and services.

Question 4.
Assertion (A): Furniture purchased by a household is considered a final good.
Reason (R): Furniture will not be used for further production.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Explanation:
Final goods are used for direct consumption by consumers or producers.

Question 5.

Assertion (A): The cement purchased by the constructor is considered an intermediate good.
Reason (R): The cement is used for the construction of the building to be sold to the consumer.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Explanation:
Goods used in the production of I final goods are known as intermediate goods.

Question 6.

Assertion (A): The value of intermediate good should not be included.
Reason (R): This will cause the problem of double counting as the value of intermediate goods is already included in the value of final good.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Explanation:
The value of intermediate good should not be included as it leads to double counting which will lead to increase in national income. Thus, the norm is to include the value of final goods only.

Question 7.

Assertion (A): Income from illegal activities like smuggling, theft, gambling, etc., should not be included.
Reason (R): Including illegal activities will cause the problem of double counting.

Answer:
(C) Assertion (A) is true, but Reason (R) is false.

Explanation:
Illegal activities like smuggling, theft, gambling, etc., are not considered legal economic activities.

Question 8.

Assertion (A): Brokerage on the sale/purchase of shares and bonds is to be included.
Reason (R): They form the value of final goods and so need to be included with respect to the Value Added Method.

Answer:
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
Broker is rendering productive services.

Question 9.

Assertion (A): Leisure is not included in GNP.
Reason (R): It does not involve rendering of any factor service.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Question 10.

Assertion (A): Profits of chemical industries increased 150%; fishermen income reduced by 70% due to untreated chemical pollutants in water bodies. This is a negative externality.
Reason (R): The profits of chemical industries is causing pollution which is harming the water and inturn leading the fishermen to catch less fish as the biodiversity of the water body is disturbed.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Question 11.

Assertion (A): GDP does not exhibit the structure of the product.
Reason (R): If the increase in GDP is mainly due to increased production of war equipment and ammunitions, then such an increase cannot improve welfare in economy.

Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Question 12.

Assertion (A): GDP is the correct measure of the improvement of welfare of the people.
Reason (R): Many activities in an economy are not evaluated in monetary terms, they are not included in GDP due to non-availability of data.

Answer:
(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
There are certain limitations of GDP as an index of welfare:

• GDP does not take into account changes in inequalities in the distribution of income.
• GDP does not include non-monetary exchanges.
• GDP does not consider, the changes in the population of a country.
• GDP does not account for valuation of externalities.

Question 13.

Assertion: With every increase in the level of GDP social welfare definitely increases in the economy.
Reason (R): GDP is not a true indicator of welfare of the economy.

Answer:
(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
CD? is a flawed measure of human welfare, e.g., if Increase in the level of GDP is associated with higher level of income inequality, social welfare may not increase.

Case-Based MCQs

I. Read the below case and answer the questions that follow:
The Centre on Saturday increased the budgetary allocation for the environment ministry from last fiscal by nearly five percent for 2020-21 with no change in the amount allotted to pollution abatement and climate change action plan. Union Finance Minister, Nirmala Sitharaman, allocated 3,100 crore for the ministry out of which 46O crore were allotted to control pollution, which is the same as the money it received in the last budget.

Control of pollution has been conceptualized to provide financial assistance to Pollution Control Boards/Committees and funding to National Clean Air Programme (NCAP). Similarly, budget for pollution abatement, which was cut by 50 percent last year from 2018-19, remained unchanged at 10 crore.

The minister also announced that states, which are formulating and implementing plans for ensuring cleaner air in cities above one million population should be encouraged. Budget 2020: Allocation for Environment Ministry up 5% to ?3,100 crore – Business Standards, 1st February, 2020

Question 1.

What type of externality will the increase in budget allocation create?

(A) Negative
(B) Positive
(C) Neutral
(D) Can’t be said
Answer:
(B) Positive

Explanation:
Positive externalities refer to positive impact of an economic activity on the others without involving any price.

Question 2.

means material well-being of the ………….. people.

(A) Externality
(B) Welfare
(C) Economy
(D) None of the above
Answer:
(B) Welfare

Explanation:
Welfare means material well-being of the people as it is the state of having enough housing, clothing, food, and possessions, etc. to live comfortably.

Question 3.

Real GDP and Welfare are …………… related with each other.

(A) Directly
(B) Indirectly
(C) Inversely
(D) None of the above
Answer:
(A) Directly

Explanation:
Real GDP and Welfare are related with each other as rise in the real GDP leads to rise in the welfare.

Question 4.

Why is the policy implemented?

(A) To ensure clear air
(B) To ensure clear water
(C) To ensure clean roads
(D) All of the above
Answer:
(A) To ensure clear air

II. Read the below case and answer the questions that follow:
Circular Income Flow in a Two Sector Economy: In the figure given we can see that upper loop shows the resources such as land, capital and entrepreneurial ability flow from households to firms in the direction shown by the arrow direction. Labour, Land, Capital & Enterprise
img
The money flows from firms to the households as factor payments in the form of wages, rent, interest and profits, shown by the arrow direction. The lower part of the figure shows the flow of money from households to firms in the form of consumption expenditure done by the households to purchase the goods and services produced by the firms, making the flow of goods and services from firms to households. Thus, we see that money flows from business firms to households as factor payments and then it flows from households to firms. Thus, there is, in fact, a circular flow of money or income. This is how the economy functions.

Question 1.

Money Flows from ……………. to ………….. as factor payments.

(A) Firms, households
(B) Households, firms
(C) Government, firms
(D) Households, government
Answer:
(A) Firms, households

Question 2.

Circular flow of income refers to the flow of activities of production, income generation and expenditure involving different ……………. of the economy.

(A) Sector
(B) Aspect
(C) Type
(D) None of the above
Answer:
(A) Sector

Explanation:
Two sectors of the economy:
(a) Households
(b) Firms

Question 3.

Which of the following is not the significance of Circular Flow of Income?

(A) It reflects structure of an economy.
(B) It shows interdependence among different sectors.
(C) It shows injections and leakages from flow of money.
(D) It does not help in estimation of national income and related aggregates.
Answer:
(D) It does not help in estimation of national income and related aggregates.

Question 4.

Which of the following is not an assumption of a two sector model of Circular Flow of Income?

(A) Domestic economy comprises only 2 sectors, the producers and the households.
(B) The households spend their entire income, so that there is no saving.
(C) Domestic economy is an open economy (no exports and imports).
(D) There is no government in the economy.
Answer:
(C) Domestic economy is an open economy (no exports and imports).

Explanation:
The two sector economy has the J following assumptions There are only two sectors in the economy household sector and business sector.
(2) No government interventions over the economic activities.
(3) Business sectors do not carry out any import or export activities, creating a closed economy.

III. Read the below case and answer the questions that follow:
The country’s real gross domestic product (GDP) is likely to expand by 11 percent in the next financial year due to a faster economic recovery and on a low base, says a report. The report by domestic rating agency Brickwork Ratings said economic activities are slowly reaching Pre-COVID levels following the relaxation of the lockdown, except in sectors that remain affected by social distancing norms.

“With progress in developing an effective vaccine for COVID-19 and signals of faster-than-expected recovery in the domestic economy, and also supported by a low base, we expect the real GDP to grow at 11 percent in F/Y 22, from the estimated contraction of 7 percent to 7.5 percent in F/Y 21,” the agency said.

According to the first advance estimates of national income released by the National Statistical Office (NSO), the country’s GDP is estimated to contract by a record 7.7 percent during the current financial year. “Real GDP to grow at 11 per cent in F/Y 22: Report” Economic Times, 21st Jan, 2021

Question 1.

Real GDP is when the goods and services are produced by all producing units in the domestic territory of a country during an accounting year and valued at prices or constant price.

(A) base year’s
(B) current year’s
(C) both (A) and (B)
(D) neither (A) nor (B)
Answer:
(A) base year’s

Question 2.

Read the following statement – Assertion (A) and Reason (R).
Choose one of the correct alternatives given below:
Assertion (A): The country’s real gross domestic product is likely to expand.
Reason (R): Some sectors remain affected by social distancing norms.

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, but 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.
Answer:
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
The country’s real gross domestic product is likely to expand due to a faster economic recovery following the relaxation of the lockdown.

OR

Answer:
(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
Real GDP is nominal GDP I adjusted for inflation and GDP Deflator is the measure of inflation.

Question 3.

What will be the growth rate of GDP according to the NSO?

(A) -7.7%
(B) +7.7%
(C) +11%
(D) -7.5%
Answer:
Option (A) is correct.

Question 4.

Read the following statements – Assertion (A) and Reason (R).
Assertion (A): Real GDP is the true indicator of the growth of the economy.
Reason (R): Real GDP is nominal GDP adjusted for inflation used to measure the actual growth of production.
Select the correct alternative from the following:

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(B) Both Assertion (A) Reason (R) are true, but 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.
Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

MCQ Questions for Class 12 Economics with Answers