MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO RELATION BETWEEN INCOME AND VALUE
Which of the following describes the income effect?
A) Change in consumption resulting from a change in real income
B) Change in consumption resulting from a change in the price of a good
C) Change in production due to technological improvements
D) Change in demand due to marketing strategies
Answer: A) Change in consumption resulting from a change in real income
What is the impact of high-income inequality on the overall demand in an economy?
A) Increases overall demand
B) Decreases overall demand
C) Stabilizes overall demand
D) Has no effect on overall demand
Answer: B) Decreases overall demand
What is the term for a tax system where the tax rate decreases as the amount subject to taxation increases?
A) Progressive Tax
B) Regressive Tax
C) Proportional Tax
D) Flat Tax
Answer: B) Regressive Tax
Which of the following factors can lead to an increase in a household’s real income?
A) Increase in nominal income and inflation rate
B) Decrease in nominal income and inflation rate
C) Increase in nominal income and decrease in inflation rate
D) Decrease in nominal income and increase in inflation rate
Answer: C) Increase in nominal income and decrease in inflation rate
How does an increase in the cost of living affect the real income of consumers in India?
A) Real income increases
B) Real income remains unchanged
C) Real income decreases
D) Real income fluctuates unpredictably
Answer: C) Real income decreases
Which term describes the benefit gained from consuming one additional unit of a good or service?
A) Marginal Benefit
B) Total Benefit
C) Average Benefit
D) Cumulative Benefit
Answer: A) Marginal Benefit
Which index would you use to measure the average level of prices of goods and services in an economy?
A) Consumer Price Index (CPI)
B) Producer Price Index (PPI)
C) Wholesale Price Index (WPI)
D) Gross Domestic Product (GDP)
Answer: A) Consumer Price Index (CPI)
In the context of India, which group of goods is most likely to see a decrease in demand during an economic recession?
A) Basic food items
B) Luxury cars
C) Generic medicines
D) Public transportation services
Answer: B) Luxury cars
How does the marginal propensity to consume (MPC) relate to consumer income?
A) It measures the proportion of additional income spent on consumption
B) It measures the proportion of total income spent on consumption
C) It measures the proportion of additional income saved
D) It measures the total amount of income saved
Answer: A) It measures the proportion of additional income spent on consumption
Which sector in India is least likely to be affected by changes in consumer income?
A) Information Technology
B) Health Care
C) Automobiles
D) Real Estate
Answer: B) Health Care
What does a higher Gini coefficient indicate about income distribution in a country?
A) More equitable income distribution
B) Less equitable income distribution
C) No change in income distribution
D) Fluctuating income distribution
Answer: B) Less equitable income distribution
What effect does an increase in income have on the demand for necessity goods in India?
A) Significant increase
B) Significant decrease
C) Little or no change
D) Demand becomes zero
Answer: C) Little or no change
In economic terms, what is “utility”?
A) The cost of producing a good
B) The revenue generated from selling a good
C) The satisfaction or benefit derived from consuming a good
D) The total amount of goods produced
Answer: C) The satisfaction or benefit derived from consuming a good
Which of the following is an example of a necessity good?
A) Designer clothing
B) Basic food staples
C) Luxury vacations
D) High-end electronics
Answer: B) Basic food staples
What is the impact of a decrease in interest rates on consumer spending and saving?
A) Increases saving, decreases spending
B) Increases both saving and spending
C) Decreases saving, increases spending
D) Decreases both saving and spending
Answer: C) Decreases saving, increases spending
Which of the following best explains the substitution effect?
A) Consumers’ shift from higher-priced goods to lower-priced goods as income decreases
B) Consumers’ shift from lower-priced goods to higher-priced goods as income increases
C) Producers’ shift to producing more expensive goods
D) Producers’ shift to producing cheaper goods
Answer: A) Consumers’ shift from higher-priced goods to lower-priced goods as income decreases
Which economic concept measures the total market value of all final goods and services produced in a country in a given period?
A) Gross National Product (GNP)
B) Net National Product (NNP)
C) Gross Domestic Product (GDP)
D) Consumer Price Index (CPI)
Answer: C) Gross Domestic Product (GDP)
How does an increase in disposable income affect the luxury goods market in India?
A) Demand for luxury goods decreases
B) Demand for luxury goods remains unchanged
C) Demand for luxury goods increases
D) Demand for luxury goods fluctuates unpredictably
Answer: C) Demand for luxury goods increases
What happens to the consumption of inferior goods when consumer income rises?
A) Consumption increases
B) Consumption remains unchanged
C) Consumption decreases
D) Consumption fluctuates unpredictably
Answer: C) Consumption decreases
Which economic measure is used to compare the relative price levels of goods and services across different regions?
A) Purchasing Power Parity (PPP)
B) Consumer Price Index (CPI)
C) Producer Price Index (PPI)
D) Gross Domestic Product (GDP)
Answer: A) Purchasing Power Parity (PPP)
What is the effect of a high inflation rate on the purchasing power of fixed incomes in India?
A) Purchasing power increases
B) Purchasing power remains unchanged
C) Purchasing power decreases
D) Purchasing power fluctuates unpredictably
Answer: C) Purchasing power decreases
What type of goods have an income elasticity of demand less than 1 but greater than 0?
A) Inferior Goods
B) Normal Goods
C) Luxury Goods
D) Giffen Goods
Answer: B) Normal Goods
Which economic concept explains the tendency of individuals to spend a higher proportion of their income on luxury goods as their income rises?
A) Engel’s Law
B) Law of Demand
C) Law of Supply
D) Pareto Principle
Answer: A) Engel’s Law
What is the term for income left after all taxes and essential expenses have been paid?
A) Gross Income
B) Disposable Income
C) Discretionary Income
D) Net Income
Answer: C) Discretionary Income
Which of the following best describes the relationship between income and consumption in Keynesian economics?
A) Consumption is solely determined by income
B) Consumption is determined by a variety of factors, including income
C) Consumption and income are inversely related
D) Consumption and income are unrelated
Answer: B) Consumption is determined by a variety of factors, including income
How does the introduction of a universal basic income in India likely affect consumer spending?
A) Decreases consumer spending
B) Has no effect on consumer spending
C) Increases consumer spending
D) Makes consumer spending unpredictable
Answer: C) Increases consumer spending
What is the term for the total amount of goods and services that consumers are willing and able to purchase at a given price level in an economy?
A) Aggregate Supply
B) Aggregate Demand
C) Market Demand
D) Market Supply
Answer: B) Aggregate Demand
Which of the following is a direct consequence of rising consumer incomes in a developing economy like India?
A) Increase in poverty levels
B) Decrease in educational attainment
C) Increase in demand for imported goods
D) Decrease in healthcare access
Answer: C) Increase in demand for imported goods
What effect does a decrease in income tax rates typically have on the overall economy?
A) Decreases disposable income
B) Decreases consumer spending
C) Increases disposable income
D) Increases inflation
Answer: C) Increases disposable income
In India, which goods are most likely to have elastic demand?
A) Basic food items
B) Luxury cars
C) Generic medicines
D) Utility services
Answer: B) Luxury cars
What is the main purpose of calculating the Human Development Index (HDI)?
A) To measure economic growth
B) To evaluate environmental sustainability
C) To assess the overall development and well-being of countries
D) To track population growth
Answer: C) To assess the overall development and well-being of countries
Which factor is most likely to increase the marginal propensity to save in India?
A) Increase in consumer confidence
B) Decrease in disposable income
C) Increase in interest rates
D) Decrease in inflation rates
Answer: C) Increase in interest rates
What is the relationship between income level and the percentage of income spent on food according to Engel’s Law?
A) Direct relationship
B) Inverse relationship
C) No relationship
D) Random relationship
Answer: B) Inverse relationship
Which of the following policies is likely to have the greatest impact on reducing income inequality in India?
A) Regressive taxation
B) Progressive taxation
C) Deregulation of markets
D) Reduction of public spending
Answer: B) Progressive taxation
What does a Lorenz Curve illustrate?
A) Relationship between price and quantity demanded
B) Distribution of income or wealth in a population
C) Relationship between supply and demand
D) Changes in consumer preferences over time
Answer: B) Distribution of income or wealth in a population
How does an increase in consumer income typically affect the demand for housing in India?
A) Demand decreases
B) Demand remains unchanged
C) Demand increases
D) Demand fluctuates unpredictably
Answer: C) Demand increases
Which of the following best describes “income distribution”?
A) The total income earned by a country
B) The way in which a nation’s total income is spread among its population
C) The distribution of income between businesses and government
D) The allocation of income between different industries
Answer: B) The way in which a nation’s total income is spread among its population
What is the effect of a high level of income inequality on economic growth?
A) It accelerates economic growth
B) It has no impact on economic growth
C) It hinders economic growth
D) It stabilizes economic growth
Answer: C) It hinders economic growth
Which term describes the additional income earned from working one more hour or producing one more unit of output?
A) Marginal Revenue
B) Marginal Product
C) Marginal Income
D) Marginal Cost
Answer: A) Marginal Revenue
What impact does an increase in income have on the demand for leisure activities in India?
A) Demand decreases
B) Demand remains unchanged
C) Demand increases
D) Demand fluctuates unpredictably
Answer: C) Demand increases
Which of the following is most likely to decrease as a result of rising consumer incomes?
A) Demand for public transport
B) Demand for luxury goods
C) Demand for high-quality education
D) Demand for healthcare services
Answer: A) Demand for public transport
What does the concept of “diminishing marginal utility” suggest about consumption?
A) Total utility increases at an increasing rate
B) Total utility increases at a decreasing rate
C) Marginal utility decreases as more units are consumed
D) Marginal utility increases as more units are consumed
Answer: C) Marginal utility decreases as more units are consumed
How does consumer spending typically respond to expectations of future income growth?
A) Decreases
B) Remains unchanged
C) Increases
D) Fluctuates unpredictably
Answer: C) Increases
Which type of unemployment is most likely to be influenced by changes in income levels?
A) Structural Unemployment
B) Cyclical Unemployment
C) Frictional Unemployment
D) Seasonal Unemployment
Answer: B) Cyclical Unemployment
What is the likely effect of rising incomes on the savings rate in a high-income country like India?
A) Savings rate decreases
B) Savings rate remains unchanged
C) Savings rate increases
D) Savings rate fluctuates unpredictably
Answer: C) Savings rate increases
What happens to the demand for inferior goods when the price of these goods falls, assuming other factors remain constant?
A) Demand increases
B) Demand remains unchanged
C) Demand decreases
D) Demand becomes zero
Answer: A) Demand increases
Which economic principle states that people will consume more of a good as its price falls, holding other factors constant?
A) Law of Supply
B) Law of Demand
C) Law of Diminishing Returns
D) Law of Marginal Utility
Answer: B) Law of Demand
What is the effect of rising consumer incomes on the demand for higher education in India?
A) Demand decreases
B) Demand remains unchanged
C) Demand increases
D) Demand fluctuates unpredictably
Answer: C) Demand increases
What type of policy is likely to boost economic growth by directly increasing disposable income?
A) Contractionary monetary policy
B) Increase in direct taxes
C) Expansionary fiscal policy
D) Reduction in government subsidies
Answer: C) Expansionary fiscal policy
How does consumer income affect the demand for normal goods in India?
A) Demand decreases as income increases
B) Demand remains unchanged as income increases
C) Demand increases as income increases
D) Demand becomes zero as income increases
Answer: C) Demand increases as income increases
