CHAPTER -13-MONEY AND BANKING

ASSERTION- REASON QUESTIONS

Read the following statements Assertion (A) and Reason (R). Choose the correct alternatives
given below:

1. 1. Assertion (A): To boost the falling demand in the economy. Reserve bank of India
recently reduced repo rate and bank rate.
Reason (R): Decrease in repo rate and bank rate causes decreases in the rate of interest
which leads to rise demand of credit because of which more money flows into the
economy, purchasing power of people increases. Thus, aggregate demand rises and
deficient demand is corrected.
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 the not 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

2. Assertion (A): Anything will be called money if the law of country proclaims it to be
money. It will be commonly accepted measure of value as it will be endowed with legal
tender power (Limited and unlimited).Thus “money is what the law says it is”
Reason (R): Limited legal tender money can be accepted up to a certain limit. For
example, in India, coins up to Rs1000 only (as per coinage bill, August 2011) can be
accepted legally in payment. All currency notes have unlimited legal tender.
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 the not 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

3. Assertion (A): Money supply is a flow concept.

Reason (R): Money Supply always measured at a particular point 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 the not 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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4. Assertion (A): The reserve bank of India had in March 2020 offered a three months
moratorium on loans enabling borrowers to defer repayment on EMI and other loans.
Reason (R): The loan moratorium was aimed at providing borrowers relief aimed the
economic impact of the covid-19 pandemic.
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 the not 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

5. Assertion (A): Currency held by public is a monetary liability of central bank.

Reason (R): Central bank controls credit, whereas commercial banks create credit with
currency held by 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 the not 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
6. Assertion – Demonetization was the step taken by the Government of India in order to
tackle the problems of corruption, black money, terrorism and circulation of fake currency
in the Indian Economy.
Reason– Demonetization has ensured improved tax compliance in India over the 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 the not 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

7. Assertion – Supply of money consists of currency held by the people and net demand
deposits held by the Commercial Banks
Reason – Supply of money is the quantity of money over 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 the not 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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8. Assertion – Credit multiplier is inversely related to CRR and is the reciprocal of CRR.
Reason – In times of inflation, RBI raises the CRR to control 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 the not 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

9. Assertion – M2 and M4 include saving deposits of post office savings organisations in

India.
Reason - M1 is most liquid and easiest for transactions whereas M4 is least liquid of all.
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 the not 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

10. Assertion – The monetary policy rests with RBI in India which controls credit and money
supply in the economy.
Reason – To combat excess demand in the economy, RBI increases the margin
requirement, one of the important qualitative measures of the monetary policy.
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 the not 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

11. Assertion (A): Economic exchanges without the mediation of money are referred to
as barter exchanges.
Reason (R): Demand Deposits are the part of M1.
(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.
12. Assertion (A): Total quantity or stock of money available in the economy at
particular point of time is known as money supply.
Reason (R): Demand deposit is not the part of money supply.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion(R)
(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) isfalse.
(d) Assertion (A) is false but Reason (R) istrue.

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13. Assertion (A): M1 is Most liquid of money supply.
Reason (R): M1 = C + DD + OD
(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 (ii) are true and Reason (R) is the correct
explanation of Assertion(A)
(c) Assertion (A) is true but Reason (R) isfalse.
(d) Assertion (A) is false but Reason (R) istrue.

14. Assertion (A) The lender of last resort is one of the important function of RBI Reason
(R) RBI uses the lender of last resort function to save commercial bank during
emergency.
(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) isfalse.
(d) Assertion (A) is false but Reason (R) istrue.
15. Assertion (A): All the commercial bank is a financial institution’ Reason (R): All
financial institutions are banks.
(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) isfalse.
(d) Assertion (A) is false but Reason (R) istrue.
16. Assertion (A): Money Multiplier = 1/LRR
Reason (R): Lower the LRR higher the value of Money Multiplier and vice-versa.
(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.

17. Assertion (A): The RBI controls the money supply in the economy in various ways.
Reason (R): The tools used by the Central bank to control money supply can be
quantitative or qualitative
(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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18. Assertion (A): currency issued by the central bank can be held by the public Known as
Monetary base.
Reason (R): It consists coins and paper currency.
(a) Both Assertion (A) and Reason (RR) 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
19. Assertion (A): Commercial Bank acts as a banker to the Government
Reason (R): Reserve Bank is the only institution which can issue currency
(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.

20. Assertion (A): Money creation is the main function of Commercial banks.
Reason (R): How many times the total deposit would be of the initial deposit is known as
Money Multiplier.
(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.
(c)Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

21. Assertion(A): Commercial Bank contribute to Quantum of money supply in the economy
through credit creation
Reason(R): As they have the note issuing authority.
Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
(a) Assertion and Reason both are correct, statements and Reason is correct explanation
for Assertion.
(b) Assertion and Reason both are correct statements but Reason is not correct explanation
for Assertion.
(c) Assertion is true but Reason is false.
(d) Assertion is false but Reason is true.

22. Assertion (A): LRR represents the minimum reserve ratio essential to be maintained by
banks.
Reason: (R) Bank create deposits in the process of making loans to their customers.
(a) Assertion and Reason both are correct, statements and Reason is correct explanation
for Assertion.
(b) Assertion and Reason both are correct statements but Reason is not correct explanation
for Assertion.
(c) Assertion is true but Reason is false.
(d) Assertion is false but Reason is true.

5|Page 8 October 2021,ZIET BHUBANESWAR

23. Assertion (A)- when CRR is increased, credit creation capacity of commercial banks
reduces.
Reason (R)- with increase in reserve ratios, banks have less funds available for loans.
(a) Assertion and Reason both are correct, statements and Reason is correct explanation
for Assertion.
(b) Assertion and Reason both are correct statements but Reason is not correct explanation
for Assertion.
(c) Assertion is true but Reason is false.
(d) Assertion is false but Reason is true.

24. Assertion (A)-Open market operations are used to influence money supply in the
economy.
Reason: (R) Central bank sells government securities to increase the flow of credit in the
economy.
(a) Assertion and Reason both are correct, statements and Reason is correct explanation
for Assertion.
(b) Assertion and Reason both are correct statements but Reason is not correct explanation
for Assertion.
(c) Assertion is true but Reason is false.
(d) Assertion is false but Reason is true.

25. Assertion: The Central Bank is also known as the bank of issue.
Reason: The Central Bank enjoys the sole monopoly of issuing currency to ensure control
over volume of currency and money supply.
(a) Assertion and Reason both are correct, statements and Reason is correct explanation
for Assertion.
(b) Assertion and Reason both are correct statements but Reason is not correct explanation
for Assertion.
(c) Assertion is true but Reason is false.
(d) Assertion is false but Reason is true.

26. Assertion (A)- RBI gives licence to commercial banks and supervise them.
Reason (R)- RBI is the largest bank of country.
(a) both (A) & (R) are true and (R) is correct explanation of (A)
(b) both (A) & (R) both are true and (R) is not correct explanation of (A)
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true
27. Assertion (A)-Money supply is a flow concept.
Reason (R)- Money supply refers to total currency circulation at a point of time.
(a) both (A) & (R) both are true and (R) is correct explanation of (A)
(b) both (A) & (R) both are true and (R) is not correct explanation of (A)
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true

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28. Assertion (A)-Governor of RBI gives advises to central government regarding about tax,
expenditure related decisions.
Reason (R)- It is essential for the government to follow the advises of RBI.
(a) both (A) & (R) both are true and (R) is correct explanation of (A)
(b) both (A) & (R) both are true and (R) is not correct explanation of (A)
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true

29. Assertion (A)- Credit creation process increases the money supply in economy.
Reason (R)- Through the credit creation process commercial banks can distribute loans
many times as compare to their primary deposits.
(a) Both (A) & (R) both are true and (R) is correct explanation of (A)
(b) Both (A) & (R) both are true and (R) is not correct explanation of (A)
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true

30. Assertion (A)-Settlement of liabilities of commercial banks is done by RBI.

Reason (R)- RBI holds the accounts of all commercial banks and commercial banks keep
funds in it essentially
(a) Both (A) & (R) both are true and (R) is correct explanation of (A)
(b) Both (A) & (R) both are true and (R) is not correct explanation of (A)
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true

KEY/ANSWER SHEET

1 2 3 4 5 6 7 8 9 10 11
A A C A D B D A A A B
12 13 14 15 16 17 18 19 20 21 22
C A A C A A A D B C B
23 24 25 26 27 28 29 30
A C A C D C A B

PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI,

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

7|Page 8 October 2021,ZIET BHUBANESWAR

CHAPTER -14- DETERMINATION OF INCOME AND EMPLOYMENT
ASSERTION- REASON QUESTIONS
Question No Question Content
Q1 ASSERTION (A):
APS can never be one or more than one.
REASONING (R):
APC increases with increase in 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.
Q2 ASSERTION (A):
MPC of poor is more than that of rich.
REASONING (R):
MPC falls with successive increase in 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.
Q3 ASSERTION (A):
Multiplier explains how many times the income increases as a result of an increase in the
investment.
REASONING (R):
There is an inverse relationship between the value of marginal propensity to save and
investment multiplier.
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):
Full employment is that situation in the economy when AS = AD along with fuller
utilization of the resources. But it does not mean a situation of zero unemployment in the
Economy.
REASONING (R):
Full employment means absence of unemployment 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.
1|Page 8 October 2021,ZIET BHUBANESWAR
 (d) Assertion (A) is false but Reason (R) is true
Q5 ASSERTION (A):
When Investment Multiplier is 1, the value of MPC is also 1.
REASONING (R):
Consumption can exceed Income but Savings cannot.
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.
Q6 Assertion (A): Higher the value of Marginal Propensity to Consume, higher the value of
multiplier and more chances of economic growth and increase in National Income. This
happens when marginal propensity to save falls and marginal propensity to consume rises.
Reason(R): Investment generates income and this additional income causes a change in
consumption. Additional consumption expenditure generates additional income for
producers of goods and services. This process keeps repeating till the total increase in
income equals the product of multiplier and change in investment: ΔY=Kx ΔI
(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 (A): Unplanned inventories accumulates when planned investment is less than
planned savings i.e. producers are left with unsold stock of goods as planned savings are
more than planned investments.
Reason(R): In a situation of deficiency of AD in relation AS, Aggregate Demand is less than
Aggregate Supply when buyers (consumers and firms) are consuming less and thus
spending less. It means that they are planning to buy less than what sellers are planning to
sell implying fall in marginal propensity to consume.
(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 (A): There is direct relationship between Saving and demand for goods and
services in the economy.
Reason(R): As people save more and more, the demand for goods and services fall in the
economy.
(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 (A): J M Keynes emphasized more on Investment.
Reason(R): As saving increases, it leads to more and more investment in the
economy and hence more demand for goods and services in the economy.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
2|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.
Q10 Assertion (A): There is always full employment equilibrium in the economy.
Reason (R): The equilibrium in the economy, where AD=AS may strike even when there is
underemployment.
(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: Price has no role to play as a determinant of Aggregate Supply.
Reason: Proportionate increase in aggregate supply due to excess capacity of production
leads to a constant price level in the economy.
(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: The rate at which consumption increases often lags behind the rate at which Y
increases.
Reason: There is always some minimum level of consumption, even when income is zero
(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: In Keynesian view, full employment equilibrium is an automatic phenomenon.
Reason: Full employment is that situation in the economy when AS=AD along with further
utilization of resources, but it does not mean a situation of zero unemployment in
economy
(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: Value of Marginal Propensity to consume cannot be greater than one.
Reason: Change in the consumption cannot be more than the total income.
(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.
Q15 Assertion (A): the point at which consumption curve intersect the 45 degree line, APS is
zero.
3|Page 8 October 2021,ZIET BHUBANESWAR
 Reason(R): it happens because at this point, consumption is equal to income and saving is
zero.
(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 (A): the point at which saving curve intersects the X axis is known as break-even
point.
Reason (R): at this point, S=0 and C = Y
(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): presence of autonomous consumption expenditure ensures that increase
will definitely increase in initial phases of development,
Reason (R): due to autonomous consumption expenditure, aggregate demand is always
greater than income in initial phases due to which income and output increases in the
initial level.
(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): if a family’s MPC is 0.70, then it will necessarily consume seven-tenth of its
income.
Reason (R): APC represents the ratio of absolute consumption expenditure to the
corresponding level of income.
(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 (c) Assertion (A) is true but Reason (R) is false
Q2 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
Q3 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
Q4 (c) Assertion (A) is true but Reason (R) is false
Q5 (d) Assertion (A) is false but Reason (R) is true.
Q6 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
Q7 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
Q8 (d) Assertion (A) is false but Reason (R) is true.
Q9 (c) Assertion (A) is true but Reason (R) is false
Q10 (d) Assertion (A) is false but Reason (R) is true.
Q11 (a) Both (A) and (R) are correct and (R) is correct explanation of (A).
Q12 (b) Both (A) and (R) are correct but (R) is not correct explanation of
(A).
Q13 (d) (R) is correct but (A) is false.
Q14 (c) (A) is correct but (R) is false.
Q15 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
Q16 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
Q17 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
Q18 (d) (R) is correct but (A) is false.

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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.

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 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.

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KOLKATA, RANCHI, SILCHAR AND TINSIKIA REGION.
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