12th Economics Book Back Question and Answer Tamil Medium & English Medium

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12th Economics Book Back Question and Answer Tamil Medium & English Medium

Chapter 3 Theories of Employment and Income

Introduction

        The economic history has shown many countries facing economic problems. Out of these problems, unemployment is the most vexing. Both classical economists and Keynes have explained the relationship between employment and income. The classical economists had great faith in the law of markets articulated by J.B. Say, the French economist. J. M. Keynes is one of the greatest and most influential economists of the mid 20th century.

       Meaning of Full Employment

      Full employment refers to a situation in which every able bodied person who is willing to work at the prevailing wage rate, is employed. In other words full employment means that persons who are willing to work and able to work must have employment or a job; Keynes defines full employment as the absence of involuntary unemployment.Lerner defines full employment as “that level of employment at which any further increase in spending would resultin an inflationary spiral of wages and prices”.

          Every economy in the world aims at attaining the level of full employment equilibrium where all its available resources are fully and efficiently employed to achieve maximum level of output. But in reality, the concept of full employment generally refers to full employment of labour force of a country.

PART A

I. Multiple choice questions

1. Every able bodied person who is willing 

to work at the prevailing wage rate is 

employed called as ……….

(a) Full employment

(b) Under employment

(c) Unemployment

(d) Employment opportunity

2. Structural unemployment is a feature in 

a ………..

(a) Static society

(b) Socialist society

(c) Dynamic society

(d) Mixed economy

3. In disguised unemployment, the 

marginal productivity of labour is …..

(a) Zero

(b) One

(c) Two

(d) Positive

4. The main concention of the Classical 

Economic Theory is ……..

(a) Under employment

(b) Economy is always in the state of 

equilibrium

(c) Demand creates its supply 

(d) Imperfect competition

5. J.B. Say is a …………………….

(a) Neo Classical Economist

(b) Classical Economist

(c) Modern Economist

(d) New Economist

6. According to Keynes, which type of 

unemployment prevails in capitalist 

economy ?

(a) Full employment

(b) Voluntary unemployment

(c) Involuntary unemployment

(d) Under employment

7. The core of the classical theory of 

employment is …………

(a) Law of Diminishing Return

(b) Law of Demand

(c) Law of Markets

(d) Law of Consumption

8. Keynes attributes unemployment to 

…………..

(a) A lack of effective supply

(b) A lock of effective demand

(c) A lack of both

(d) None of the above

9. ………. Flexibility brings equality 

between saving and investment.

(a) Demand

(b) Supply

(c) Capital

d) Interest 

10. …………… theory is a turning point in 

the development of modern economic 

theory.

(a) Keynes’

(b) Say’s

(c) Classical

(d) Employment 

11. The basic concept used in Keynes 

Theory of Employment and Income 

is…………….

(a) Aggregate demand

(b)Aggregate supply

(c) Effective demand

(d) Marginal Propensity Consume

12. The component of aggregate demand 

is ………….

(a) Personal demand

(b) Government expenditure

(c) Only export

(d) Only import

13. Aggregate supply is equal to ………….

(a) C + I + G

(b) C + S + G + (x-m)

(c) C + S + T + (x-m)

(d) C + S + T + Rf

14. Keynes theory pursues to replace 

laissez faire by …………

(a) No government intervention

(b) Maximum intervention

(c) State intervention in certain 

situation

(d) Private sector intervention

15. In Keynes theory of employment and 

income, ………….. is the basic cause 

of economic depression.

(a) Less production

(b) More demand 

(c) Inelastic supply

(d) Less aggregate demand in relation 

to productive capacity.

16. Classical theory advocates ……

(a) Balanced budget

(b) Unbalanced budget 

(c) Surplus budget

(d) Deficit budget

17. Keynes theory emphasized on …… 

equilibrium.

(a) Very short run

(b) Short run

(c) Very long run

(d) Long run 

18. According to classical theory, rate of 

interest is a reward for ……

(a) Investment

(b) Demand

(c) Capital

(d) Saving

19. In Keynes theory , the demand for and 

supply of money are determined by ….

(a) Rate of interest

(b) Effective demand 

(c) Aggregate demand

(d) Aggregate supply

20. Say’s law stressed the operation of 

…………. in the economy.

(a) Induced price mechanism

(b) Automatic price mechanism

(c) Induced demand

(d) Induced investment

Part - B

Answer the following questions in one or two sentences.

21. Define full employment.

Answer:

  • Full employment refers to a situation in which every able bodied person who is willing to work at the prevailing wage rate, is employed. In other words full employment means that persons who are willing to work and able to work must have employment or a job.

22. What is the main feature of rural unemployment ?

Answer:

  • India’s rural economy has both unemployment and underemployment.
  • The major feature of rural unemployment is the existence of unemployment in the form of disguised unemployment and seasonal unemployment.
  • In agriculture and agro based industries like sugar, production activities are carried out only in some seasons.

23. Give short note on frictional unemployment.

Answer:

Frictional Unemployment (Temporary Unemployment):

  • Frictional unemployment arises due to imbalance between supply of labour and demand for labour.
  • This is because of immobility of labour, lack of necessary skills, break down of machinery, shortage of raw materials etc.
  • The persons who lose jobs and in search of jobs are also included under frictional unemployment.

24. Give reasons for labour retrenchment at present situation.

Answer:

  • Modem technology being capital intensive requires less labourers and contributes to ’ technological unemployment.
  • Now a days, invention and innovations lead to the adoption of new techniques there by the existing workers are retrenched.
  • Labour saving devices are responsible for technological unemployment.


25. List out the assumptions of Say’s law.

Answer:

  • The Say’s Law of market is based on the following assumptions:
  • No single buyer or seller of commodity or an input can affect price.


  • Full employment.
  • People are motivated by self interest and self – interest determines economic decisions.

  • The laissez faire policy is essential for an automatic and self adjusting process of full employment equilibrium. Market forces determine everything right.

  • There will be a perfect competition in labour and product market.
  • There is wage-price flexibility.
  • Money acts only as a medium of exchange.
  • Long – run analysis.
  • There is no possibility for over production or unemployment.

26. What is effective demand ?

Answer:

  • The starting point of Keynes theory of employment and income is the principle of effective demand.
  • Effective demand denotes money actually spent by the people on products of industry.
  • The money which entrepreneurs receive is paid in the form of rent, wages, interest and profit.
  • Therefore effective demand equals national income.

27. What are the components of aggregate supply ?

Answer:

Aggregate demand has the following four components:

  • Consumption demand

  • Investment demand
  • Government expenditure and
  • Net Export (export – import)

PART – C

Answer the following questions in a paragraph.

28. Write the following in short

(i) Seasonal unemployment

(ii) Frictional unemployment

(iii) Educated unemployment

29. According to classical theory of employment, how wage reduction solve the 

problem of unemployment diagramatically explain. 

30. Write short note on the implications of Say’s law.

31. Explain Keynes’ theory in the form of flow chart.

32.What do you mean by aggregate demand ? Mention its components.

33. Explain about aggregate supply with the help of diagram.

34. Write any five differences between classism and Keynesiantheory.

PART - D

Answer the following questions in about page.

35. Describe the types of unemployment.

36. Critically explain Say’s law of market.

37. Narrate the equilibrium between ADF and ASF with diagram.

38. Explain the differences between classical theory and Keynes theory