Category: Important Questions

Students get through the TN Board 12th Economics Important Questions Chapter 6 Banking which is useful for their exam preparation.

TN State Board 12th Economics Important Questions Chapter 6 Banking

Very short answer questions

Question 1.
Name the Central banks established between 1921 and 1954.
Answer:

1. The South African Reserve Bank (1921)
2. The Central Bank of China (1928)
3. The Reserve Bank of India (1935)
4. The Central Bank of Ceylon (1950)
5. The Bank of Isreal (1954)

Question 2.
Write a note on primary deposits.
Answer:
Bank makes loans and advances to its customers out of these primary deposits. The initiative is taken by the customers. These deposits are also called “Passive deposits”

Question 3.
What do you mean by variable portfolio ceiling?
Answer:
The system by which the Central bank fixes the ceiling or maximum amount of loans and advances for every commercial bank.

Question 4.
What is a cheque?
Answer:
A cheque is an instrument that instructs the bank to transfer funds from the cheque issuer’s account to the receiver of the cheque.

Question 5.
Which monetary system does India follow?
Answer:
India follows the paper currency standard because in India, the standard currency is made of paper.

Question 6.
Why are financial institutions like UTI, LIC is not considered banks?
Answer:
Because such financial institutions do not accept chequable deposits.

Question 7.
Why are Post office savings banks are not treated as banks?
Answer:
Because they do not perform the bank’s essential functions of leading.

Question 8.
How NBFI are classified?
Answer:
Non-banking financial institutions are broadly classified into two. They are

1. Stock exchange and
2. Other financial institutions

Question 9.
What are the objectives of ARDC?
Answer:

1. To provide necessary funds by way of refinancing to eligible institutions like Scheduled bank etc..
2. To subscribe to the debentures floated by the Central land development banks etc.

Question 10.
What are the main objectives of RRBs?
Answer:
To provide credit and other facilities particularly to small and marginal farmers, agricultural laborers. So as to develop agriculture, trade industry and other production activities in Rural areas.

Question 11.
Write a note on a debit card.
Answer:
A debit card is a card allowing the holder to transfer money electronically from their bank account when making a purchase.

Short answer questions

Question 1.
What are the concessions of RRBs?
Answer:
Regional Rural Banks are granted concessions by the Central Banks

1. They are allowed to maintain Cash Reserve Ratio at 3% and the Statutory Liquidity Ratio at 25%.
2. RRBs also provide refinance facilities through NABARD.

Question 2.
What is the role of NABARD in agricultural credit?
Answer:

1. The RBI has shown keen interest in agricultural credit and has maintained a separate department.
2. RBI has extended short-term, medium and long-term credit to agriculture through state-level cooperative banks.
3. RBI also set up Agricultural Refinance Development Corporation (ARDC) to promote agricultural development.

Question 3.
What are the two faces of monetary policy?
Answer:
Inflation: (cheap money policy)

1. Borrowing is easy
2. Consumer buy more
3. Business expands
4. More people are employed
5. People spend more

Recession: (dear money policy)

1. Borrowing is difficult
2. Consumer buy less
3. Business postpone expansion
4. Unemployment increases
5. Production is reduced

Question 4.
Distinguish between Demand deposits and time deposits.
Answer:

Demand deposits	Time deposits
Demand deposits are payable on demand	Time deposits are payable on the expiry of specified period
It do not carry interest	This carry a fixed rate of interest
It is chequable deposits	It is not chequable deposits

Question 5.
Write a note on e-banking.
Answer:
Online banking also known as internet banking is an electronic payment system that enables customers of a bank. The online banking system typically connects the core banking system operated by a bank and is in contrast to branch banking which was the traditional way customers accessed banking services.

Question 6.
Differentiate between NEFT and RTGS.
Answer:
There are two systems of inter-bank transfer. These systems are maintained by RBI.

NEFT	RTGS
National Electronic Fund Transfer	Real Time Gross Settlement
Transaction happens in batches so its slow.	Transactions happens in real time so it is fast.
Timings 8 am to 6.30 pm	Timings 9 am to 4.30 pm
No minimum limit	Minimum amount for RTGS transfer is ?2 lakhs

Question 7.
Write a note on Paytm.
Answer:
Payment Bank in August 2015, Paytm received a license from RBI to launch a payments bank. It is a separate entity in which founder Vijay Shekar Sharma will hold 51% share once communications hold 39% and 10% will be held by a subsidiary of one 97 and Sharma.

Question 8.
Write a note on the credit card.
Answer:
A credit card is a payment card issued to users to enable the cardholder to pay a merchant for goods and services based on the cardholder’s promise to the card issuer to pay them for the amounts, So paid-plus the other agreed charges. Credit cards combine with payment services with extensions of the credit card industry may limit customers’ ability to shopping.

Question 9.
Write a note on NPA.
Answer:
Non-Performing Asset. Once the borrower fails to make interest or principal payment for 90 days, the loan is considered to be a Non-Performing Asset. They depend on interest payment for income. The size of NPA is around 10 lakhs cr. So the government is forced to infuse capital to the banks by using poor Taxpayers’ money. The government of India has infused Rs. 68000 cr to the banking system. So the NPAs ultimately affect the common people.

Question 10.
Write a note on the merger of banks.
Answer:
Union cabinet decides to merge all the remaining five associate banks of the State Bank group with SBI in 2017. Five associates and the Bharatiya Mahila Bank have become part of SBI on April 1, 2017. This has placed SBI among the top 50 banks in the world. The five associate banks that were merged are

1. State Bank of Bikaner and Jaipur (SBBJ)
2. State Bank of Hyderabad (SBH)
3. State Bank of Mysore (SBM)
4. State Bank of Patiala (SBP) and
5. State Bank of Travancore (SBT).

Long answer questions

Question 1.
Explain industrial credit and investment Cooperation of India.
Answer:
Functions:

1. Assistance to industries
2. Provision of foreign currency loans
3. Merchant banking
4. Letter of credit
5. Project promotions
6. Housing loans
7. Leasing operation

This was set up on 5th Jan 1955. The purpose is to channelize the World bank funds to the industry in India and also help to build up a Capital market. Now a very large part of its equity capital is held by Public sector Institutions such as HC, GIC. The feature of the operation of ICICI is the foreign currency loans sanctioned by this institution of industries. Since 1973, the ICICI has entered the international capital markets also for raising foreign currency loans. ICICI also borrows from IDBI and the Government sector. The major portion of its assistance has gone to the private sector.

Question 2.
Explain IDBI – Industrial Development Bank of India.
Answer:
The IDBI was a wholly-owned subsidiary of RBI till 1976 and it was delinked and made an autonomous corporation, fully owned by the Government of India. The functions are

1. Assistance to other Financial institutions.
2. Direct assistance to industrial concerns. It can provide refinance in respect of term loans to IFC, SFC. The special feature of IDBI is the provision for the creation of a special fund known as the Development assistance fund. It provides assistance to industries. The financing of Exports was also undertaken by IDBI till the establishment of Exim bank in 1982.

Question 3.
Explain the State Level Institutions.
Answer:
The Government of India passed SFC Act in 1951. It is for the development of small and medium Industries. The SFC provides loans and assistance to industrial units. The maximum amount that can be sanctioned to the industry is up to 60 lakhs. SFC depends upon the IDBI for refinancing. It can also make temporary borrowings from RBI.

Question 4.
State Industrial Development Corporation (SIDCO).
Answer:
It was set up by the state governments. They provide financial assistance to industrial concerns by way of loans, promotional activities such as surveys, project identification, and training of entrepreneurs. SIDCO takes 26%, 25% of the equity, and the rest is offered to invest public. SIDCO also administers various government incentive schemes. They also borrow through bonds and accept deposits.

Activity

Question 1.
Students are to be asked to visit the nearby commercial bank to observe the functioning of the bank. They are also instructed to submit a brief report about their learning experiences.
Answer:
Visit a Commercial Bank: To know the functions of the Bank.

1. Helps to know and have a deep understanding of the functioning of Banks.
2. Students can perform Banking activities of their own.
3. Students will know and observe the day-to-day activities of a Bank.
4. Helps to develop a deep understanding of the Banking system.
5. Finally, students understand that Banking is much a part of human life.
6. They also understand the essence and importance of Banking.

Question 2.
Students are asked to do a brief survey about the impact of the 2016 Demonetisation of currency on the general public.
Answer:
Students as the first step can take interviews with their family members. Inference of Survey:

1. How public or the family members faced difficulties in changing 500 and 1000 Notes.
2. What are the difficulties they faced in ATM to withdraw the money for day to expenses?
3. The difficulties they faced in standing and waiting in front of ATMs and Banks.
4. The difficulties they faced especially when there was a family get-together or function.
5. The problems faced by the public during their travel.

Students will gather information from nearby areas, petty shops, and street vendors.

Multiple choice questions

1. When was the oldest Central bank in the world established?
(a) 1686
(b) 1656
(c) 1676
(d) 1666
Answer:
(b) 1656

2. Where was the international finance conference held in 1920?
(a) Russia
(b) USA
(c) South Africa
(d) Brussels
Answer:
(d) Brussels

3. The functions of commercial banks are broadly classified into:
(a) Three
(b) Four
(c) Two
(d) Five
Answer:
(a) Three

4. There are ……… types of deposits.
(a) 2
(b) 3
(c) 4
(d) 5
Answer:
(a) 2

5. Commercial banks help in providing foreign exchange to businessmen dealing with:
(a) Trade
(b) Money
(c) Industries
(d) Import and export
Answer:
(d) Import and export

6. Pooled savings should be allocated to various sectors of the economy with a view to increase:
(a) Consumption
(b) Production
(c) Distribution
(d) Exchange
Answer:
(b) Production

7. When was there an economic crises in US?
(a) In 2006 – 2007
(b) In 2004 – 2005
(c) In 2007 – 2008
(d) In 2001 – 2002
Answer:
(c) In 2007 – 2008

8. RBI has given ……….. crores to the Government of India in the year 2018 – 2019
(a) Rs. 60,000
(b) Rs. 78,000
(c) Rs. 63,000
(d) Rs. 68,000
Answer:
(d) Rs. 68,000

9. Banks provide ……….. credit for worthwhile projects.
(a) 90%
(b) 100%
(c) 80%
(d) 75%
Answer:
(b) 100%

10. RBI was Nationalized on:
(a) 1947
(b) 1949
(c) 1948
(d) 1946
Answer:
(b) 1949

11. …………. is the sole authority to issue currency.
(a) RBI
(b) SBI
(c) ICICI
(d) All the banks
Answer:
(a) RBI

12. According to sec 22 of ……….. every bank should obtain Banking License from RBI.
(a) Monetary policy
(b) Fiscal policy act
(c) Bank of India act
(d) Banking Regulation act
Answer:
(d) Banking Regulation act

13. RBI represents India as a member of:
(a) SBI
(b) FEMA
(c) FOREX
(d) IMF
Answer:
(d) IMF

14. Banking Regulation Act of in the basis for credit control of RBI.
(a) 1949
(b) 1959
(c) 1939
(d) 1929
Answer:
(a) 1949

15. The RBI was providing medium-term loans also for a period exceeding ……….. for reclamation of land.
(a) 15 months to 5 years
(b) 15 months to 3 years
(c) 15 months to 2 years
(d) 15 months to 5 years
Answer:
(d) 15 months to 5 years

16. RBI relating to agriculture credit has been over by ……….. since 1982.
(a) NABARD
(b) ARDC
(c) IMF
(d) ICICI
Answer:
(a) NABARD

17. ARDC was established on 1st July 1963.
(a) Act of RBI
(b) Act of Government
(c) Act of Parliament
(d) Act of Scheduled bank
Answer:
(c) Act of Parliament

18. NABARD gives long-term loans up to years to the state government.
(a) 20
(b) 30
(c) 10
(d) 40
Answer:
(a) 20

19. The planning commission now:
(a) NABARD
(b) RRB
(c) NITI Aayog
(d) SCB
Answer:
(c) NITI Aayog

20. IFCI was established .in:
(a) 1938
(b) 1948
(c) 1958
(d) 1968
Answer:
(b) 1948

21. Financial assistance of IFCI can be availed by any:
(a) Bank
(b) Public sector
(c) Limited company
(d) Industry
Answer:
(c) Limited company

22. ICICI was set up in 1955 as:
(a) Limited company
(b) Bank
(c) Public sector
(d) Joint-stock company
Answer:
(d) Joint-stock company

23. IDBI was delinked from RBI and became autonomous from the year:
(a) 1966
(b) 1976
(c) 1986
(d) 1956
Answer:
(b) 1976

24. The maximum amount that can be sanctioned to industry by SFC is:
(a) 20 lakhs
(b) 30 lakhs
(c) 60 lakhs
(d) 50 lakhs
Answer:
(c) 60 lakhs

25. ………… received Nobel prize in 1976 and introduced the doctrine of monetarism.
(a) Adam smith
(b) Alfred Marshall
(c) Lionel robbins
(d) Milton Friedman
Answer:
(d) Milton Friedman

26. ATM was introduced in:
(a) 1947
(b) 1957
(c) 1967
(d) 1977
Answer:
(c) 1967

27. ……… was the founder of Paytm Payments Bank.
(a) Milton Friedman
(b) Vijay Mallya
(c) Vijay Shekar Sharma
(d) Rakesh Sharma
Answer:
(c) Vijay Shekar Sharma

28. Demonetisation occurs whenever there is a change in:
(a) Government
(b) Political party
(c) Exchange rate
(d) National currency
Answer:
(d) National currency

29. Which of the following makes a financial institution a bank?
(a) Accepting deposits
(b) Lending
(c) Accepting demand deposits
(d) Accepting time deposits
Answer:
(c) Accepting demand deposits

30. Creation of money by commercial banks refer to:
(a) Creation of bank deposits
(b) Issuing currency
(c) Both (a) and (b)
(d) None
Answer:
(a) Creation of bank deposits

31. How much money are banks able to create is determined by?
(a) Initial deposits
(b) SCR
(c) CRR
(d) All the above
Answer:
(d) All the above

32. Given CRR=4% and SLR=16% the value of multipliers is:
(a) 25
(b) 6.25
(c) 5
(d) 8.33.
Answer:
(c) 5

33. When the Central bank sells securities in the market, the credit creation capacity of the commercial banks is like to:
(a) Rise
(b) Fall
(c) Rise or fall
(d) No effect
Answer:
(b) Fall

34. Raising Reverse Repo Rate by the central bank is likely to have the following impact on demand for goods and services in the economy:
(a) Rise
(b) Fall
(c) May rise and fall
(d) No effect
Answer:
(a) Rise

35. With lowering requirements by the central bank, the borrowing capacity of the borrowers:
(a) Rises
(b) Falls
(c) May rise and fall
(d) No effect
Answer:
(a) Rises

36. Which of the following is a bank?
(a) Post office savings bank
(b) LIC
(c) UTI
(d) IDBI
Answer:
(a) Post office savings bank

37. Finance is the essential breath of all economic activities:
(a) Trade
(b) Commerce
(c) Agriculture
(d) Collecting cheques
Answer:
(d) Collecting cheques

Pick the odd one out.

1. Commercial banks collect:
(a) Dividends
(b) Pensions
(c) Salaries
(d) Tax
Answer:
(d) Tax

2. Commercial banks make the payments of various obligations of customers such as:
(a) Telephone bills
(b) Rent
(c) Household equipment
(d) School fees
Answer:
(c) Household equipment

3. Commercial banks provide locker facilities to their customers for the safe custody of:
(a) Customers
(b) Jewellery
(c) Shares
(d) Debentures
Answer:
(a) Customers

4. Banks collect and publish statistics relating to:
(a) Population
(b) Trade
(c) Commerce
(d) Industry
Answer:
(a) Population

5. NBFs other financial institutions category comes:
(a) RBI
(b) Chit funds
(c) Unit trust
(d) Insurance companies
Answer:
(a) RBI

6. Monetary authority controls the supply of money in the economy to stabilize:
(a) Population
(b) Control inflation
(c) Banking system
(d) Exchange rate
Answer:
(a) Population

7. Statutory Liquidity Ratio is the amount which a bank has to maintain in the form of:
(a) Legal tender
(b) Cash
(c) Gold
(d) Approved securities
Answer:
(a) Legal tender

8. Moral suasion under this method Central bank gives ……….. to Commercial banks to co-operate.
(a) Advice
(b) Requests
(c) Persuades
(d) Notice
Answer:
(d) Notice

9. Economists are the chief exponents of Neutral money.
(a) Adam smith
(b) Wicksteed
(c) Hayek
(d) Robertson
Answer:
(c) Hayek

10. The objectives of demonetization:
(a) Removing black money from the currency
(b) Issuing the currency notes
(c) Stopping corruption
(d) Stopping terror funds
Answer:
(d) Stopping terror funds

11. Credit creation leads to increase:
(a) Production
(b) Public finance
(c) Employment
(d) Sales
Answer:
(b) Public finance

Students get through the TN Board 12th Economics Important Questions Chapter 5 Monetary Economics which is useful for their exam preparation.

TN State Board 12th Economics Important Questions Chapter 5 Monetary Economics

Very short answer questions

Question 1.
Write a note on the silver standard.
Answer:
This monetary system fixes the economic unit of account with the weight of silver. The silver standard is a monetary arrangement in which the Government allows the conversion of the currency into a fixed amount of silver.

Question 2.
Write a note on paper currency standard.
Answer:
In this system, paper currency notes are issued by the Treasury or RBI circulate as unlimited Legal Tender. It cannot be converted into metal. It is also known as a managed currency standard.

Question 3.
Write a note on cryptocurrency.
Answer:
A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the Transfer of Funds, operating independently of a Central Bank.

Question 4.
What are the Four alternative measures of the money supply?
Answer:
M₁ = Currency coins and demand deposits.
M₂ = M₁ + Savings deposits with Post Office Savings banks.
M₃ = M₂ + Time deposits of all commercial and co-operative banks.
M₄ = M₃ + Total deposits with Post Offices.
M₁ and M₂ are known as narrow money.
M₃ and M₄ are known as broad money.

Question 5.
Write a note on the currency symbol.
Answer:
The new symbol was designed by D.Udaya Kumar, IIT Bombay was selected by the Union cabinet on 15* July 2010. The new symbol is an amalgamation of Devanagri ‘Ra’ and the Roman ‘R’ without the stem. It came into use in India on 15th July 2010.

Question 6.
What is Narrow money?
Answer:
M1 and M2 are narrow money because they include currency plus demand deposits in banks and other deposits.

Question 7.
How does money increase the productivity of capital?
Answer:

1. Money is the most liquid form of capital.
2. Capital in the form of money can be put to any use.

Question 8.
Write a note Wage-Price.
Answer:
The wage-Price spiral is used to explain the cause and effect relationship between rising wages and rising prices or Inflation.

Question 9.
What are the three measures to prevent and control Inflation?
Answer:

1. Monetary measures
2. Fiscal measures and
3. Other measures.

Question 10.
Write a note on Monetary Economics.
Answer:
Currency is created by the RBI and union government. Bank deposits are created by commercial banks and cooperative banks. The demand for money is determined by a number of factors such as income, price level, interest rate, etc.

Short answer questions

Question 1.
What do you mean by money? – Explain.
Answer:
Money is anything that is generally accepted as payment for goods and sendees. As a medium of exchange for repayment of debts. Money is the basis for all credit. The importance of credit has increased in all countries of the world. Credit instruments are used on a large scale. The use of cheques, bills of exchange, etc., has gone up.

Question 2.
What is the history of the Barter system?
Answer:
The history of the Barter system starts from 6000 BC.

1. The barter system was introduced by Mesopotamia tribes.
2. Before money was introduced, the exchange of goods took place.
3. Under the Barter system, buyers and sellers of commodities had to face a lot of difficulties.
4. Phoenicians adopted (Barter) the exchange of goods with various other cities across oceans.
5. Babylonians also developed an improved barter system (goods for goods).

Question 3.
Write a note on Money Supply.
Answer:
Money Supply is a stock variable. It plays an important role in the determination of price level and interest rates. Money supply at a point of time is stock and over a period of time, it is a Flow. So money supply is the amount of money that is in circulation in an economy at any given time.

Question 4.
What do you mean by Inflation?
Answer:
Inflation is a consistent rise in the general price level. Inflation is the rate at which the general prices for goods and services are rising and consequently, the purchasing power of currency is falling.

Question 5.
Write a Note of Deflation.
Answer:
The important features of deflation are: (a) Falling prices, (b) Reduces Money supply, (c) Unemployment. In the case of Inflation falling prices are desirable but that should not lead to a fall in the level of production and Employment. But if prices fall from the level of full employment both Income and Employment will be affected adversely.

Long answer questions

Question 1.
Measures to Control Inflation – Explain.
Answer:
Keynes and Milton Friedman together suggested three measures to prevent and control inflation.
They are:

1. Monetary Measures
2. Fiscal Measures (J.M. Keynes)
3. Other Measures

Monetary Measures: Three measures are adopted by RBI. They are

1. Increase in Bank rate.
2. Sale of Government securities in the open market.
3. Higher Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
4. Consumer Credit Control and
5. Higher Margin requirements
6. Higher Repo Rate and Reverse Repo Rate.

Fiscal Measures: This measure is considered important to handle or an instrument to handle inflationary situations.
Anti-Inflationary Fiscal Measure is:

1. Reduction of Government Expenditure
2. Public Borrowing and Enhancing Taxation

Other Measures: It is divided into two
(a) Short-Term Measures
(b) Long-Term Measures
(a) Short-Term Measures: It is the distribution of essential products to the public through Fair Price (Rationing) Shops. Whenever shortages occur in India for basic goods, the goods are imported to avoid Inflation.
(b) Long-Term Measures: To accelerate economic growth especially for wage goods which has a direct bearing on the general price level and the cost of living. Restrictions on present Consumption may help in improving saving and investment so that the rate of Economic growth will be accelerated in the Longrun.

Multiple-choice questions

1. Barlir system was introduced by:
(a) Mesopotamia Tribes
(b) Baby Lonians
(c) Russians
(d) Americans
Answer:
(a) Mesopotamia Tribes

2. Currency notes are issue by in India.
(a) SBI
(b) RBI
(c) ICICI
(d) IDBI
Answer:
(b) RBI

3. Trade cycle is classified into Phases.
(a) 1
(b) 2
(c) 3
(d) 4
Answer:
(d) 4

4. Marshall’s Equation is:
(a) M = PKY
(b) M = KPY
(c) MV = PT
(d) MV = M’P’
Answer:
(b) M = KPY

5. …………. is the Liquid asset.
(a) Water
(b) Milk
(c) Money
(d) All of these
Answer:
(c) Money

6. When there is an increase in price rapidly, it is called as:
(a) Recession
(b) Hyper Inflation
(c) Galloping Inflation
(d) Creeping Inflation
Answer:
(b) Hyper Inflation

7. ‘Inflation is Taxation’ without Legislation was defined by:
(a) Alfred Marshall
(b) Keynes
(c) Adam Smith
(d) Milton Friedman
Answer:
(d) Milton Friedman

8. Money supply is the total amount of money in:
(a) Sector
(b) Economy
(c) World
(d) Household
Answer:
(b) Economy

9. The rupee symbol came into use on:
(a) 15th July 2010
(b) 16th July 2010
(c) 20th July 2010
(d) 1st July 2010
Answer:
(a) 15th July 2010

10. The Purchasing power of money, the book was published in:
(a) 1931
(b) 1921
(c) 1911
(d) 1941
Answer:
(c) 1911

11. …………. is the general form of Equation by Fisher.
(a) MV = PT
(b) M’V’ = PT
(c) M = KPY
(d) N = P/K
Answer:
(a) MV = PT

12. Inflation will slow down during:
(a) Recession
(b) Depression
(c) Stagflation
(d) Disinflation
Answer:
(d) Disinflation

13. The Economic activity becomes very slow during:
(a) Boom
(b) Depression
(c) Recovery
(d) Recession
Answer:
(b) Depression

14. ………… is the Fraction of deposits of Commercial Banks with RBI.
(a) SLR
(b) CDR
(c) CRR
(d) RDR
Answer:
(c) CRR

15. …………. is the Branch of Economics which provides a framework for analyzing money.
(a) Fiscal Policy
(b) Monetary Economics
(c) Macro Economics
(d) Micro Economics
Answer:
(b) Monetary Economics

16. …………. is an alternative to the cash.
(a) Gold
(b) Silver
(c) Plastic money
(d) Cheque
Answer:
(c) Plastic money

17. The first Hyper Inflation of the 21st Century was:
(a) April 2009
(b) April 2008
(c) April 2006
(d) April 2007
Answer:
(d) April 2007

18. Which of the following is a must for anything to be called money:
(a) Measure of deferred Payment
(b) Medium of Exchange
(c) Store of Value
(d) Measure of Value
Answer:
(b) Medium of Exchange

19. Money is suitable for storing wealth because:
(a) It requires less space
(b) If is readily acceptable for exchange
(c) It is easily portable
(d) All the above
Answer:
(d) All the above

20. Supply of money refers to Quantity of Money:
(a) During the year only
(b) During any period of time
(c) As on 31st March only
(d) As on any point of time
Answer:
(d) As on any point of time

21. Money Supply refers to:
(a) Currency outside banks and all bank deposits
(b) Currency inside bank
(c) Currency outside banks and demand deposits in bank
(d) Currency outside and Inside bank
Answer:
(c) Currency outside banks and demand deposits in bank

22. Money has made possible:
(a) Borrowing and Lending
(b) Creation of Financial Institutions
(c) Keeping of accounts
(d) All the above
Answer:
(d) All the above

23. Which of the following makes a financial Institution, a Bank:
(a) Accepting Deposits
(b) Lending
(c) Accepting demand Deposits
(d) Accepting time deposits
Answer:
(c) Accepting demand Deposits

24. Creation of money by Commercial Banks refers to:
(a) Creation of Bank deposits
(b) Issuing Currency
(c) Both (a) & (b)
(d) All the above
Answer:
(a) Creation of Bank deposits

25. How much money are banks able to create is determined by:
(a) Initial deposits
(b) SLR
(c) CRR
(d) All the above
Answer:
(d) All the above

26. The value of money multiplier equals:
(a) 1/SLR
(b) 1/CRR
(c) 1/(SLR+CRR)
(d) None
Answer:
(c) 1/(SLR+CRR)

27. Given CRR = 4% and SLR = 16%, the value of multiplier is:
(a) 25
(b) 26
(c) 5
(d) 10
Answer:
(c) 5

28. When the central bank sells securities, in the market, the credit creation capacity of the commercial bank is likely to:
(a) Rise
(b) Fall
(c) May rise or fall
(d) No effect
Answer:
(b) Fall

29. Lowering of CRR by Central Bank has the following impact on credit creation:
(a) Negative
(b) Positive
(c) Neutral
(d) No Effect
Answer:
(b) Positive

30. Raising Reverse Repo Rate by the Central Bank is likely to have the following impact on demand for goods and services in the Economy: ,
(a) Rises
(b) Falls
(c) All Effects
(d) No Effect
Answer:
(b) Falls

31. With Lowering Margin requirements by the Central Government, the borrowing capacity of the borrowers:
(a) Rises
(b) Falls
(c) Both rise and fall
(d) No Effect
Answer:
(a) Rises

32. Which of the following is a Bank?
(a) Post Office Savings Bank
(b) SBI
(c) UTI
(d) IDBI
Answer:
(b) SBI

33. Name the instrument through which commercial bank remit money to distant places:
(a) Letter
(b) Telex
(c) Cell Phone
(d) Demand Draft
Answer:
(d) Demand Draft

34. What is the facility of drawing more money from banks by businessmen?
(a) Demand Draft
(b) Fixed Deposit
(c) Over Draft
(d) Mail Transfer
Answer:
(c) Over Draft

35. Name the institution which acts as a custodian of Foreign Exchange reserves:
(a) Central Bank
(b) RBI
(c) None
(d) Both (a) & (b)
Answer:
(d) Both (a) & (b)

36. Name the institution which performs the function of a clearinghouse:
(a) RBI
(b) IDBI
(c) SBI
(d) UTI
Answer:
(a) RBI

Students get through the TN Board 12th Economics Important Questions Chapter 4 Consumption and Investment Functions which is useful for their exam preparation.

TN State Board 12th Economics Important Questions Chapter 4 Consumption and Investment Functions

Very short answer questions

Question 1.
What do you mean by investment function?
Answer:
It is investment – interest rate relationship. I = f(R) I – Investment (Dependent variable) R – Rate of interest (Independent variable).

Question 2.
What do you mean by windfall gains or losses?
Answer:
Unexpected changes in the stock market leading to gains or losses tend to shift the consumption function upward or downward.

Question 3.
What do you mean by investment?
Answer:
Investments mean the purchase of stocks and shares, debentures, government bonds, and equities.

Question 4.
What is investment according to Keynes?
Answer:
According to Keynes, it is an only a financial investment and not a real investment. This type of investment does result in an addition to tHe stock of real capital of the Nation.

Question 5.
What is Autonomous investment?
Answer:
It is the expenditure on capital formation, which is independent of the change in income, rate of interest or rate of profit.

Question 6.
Write a note on autonomous investment.
Answer:
Autonomous investment is one of the key concepts in welfare economics. In times of economic depression, the governments try to boost autonomous investments.

Question 7.
What do you mean by induced investment?
Answer:
Induced investment is the expenditure on fixed assets and stocks which are required when the level of income and demand in any economy goes up.

Question 8.
MEC depends on two factors. What are they?
Answer:
The prospective yield from a capital asset and the supply price of a capital asset.

Question 9.
Name the factors that are taken into consideration while making any investment decisions.
Answer:
MEC:

1. The cost of the capital asset
2. The expected rate of return from MEC during its lifetime
3. The market rate of interest

Question 10.
What is full employment situations?
Answer:
Under the conditions of full employment, resources are fully employed. So additional investment will lead to inflation only, rather than the generation of additional income.

Question 11.
Name the kinds of multipliers.
Answer:
Tax multipliers, employment multipliers, Foreign trade multipliers, and Investment multipliers.

Question 12.
What are the accelerator effects?
Answer:

1. Increase in consumer demand.
2. Films get close to full capacity.
3. Films invert to meet rising demand.

Question 13.
What are Super multipliers?
Answer:
The Super multipliers are greater than the simple multiplier which includes only autonomous investments and no induced investment, while super multipliers include investments.

Short answer questions

Question 1.
What are the features of autonomous investments?
Answer:

1. Investments that are not dependent on National income.
2. Mainly done with the welfare motive and not for making profits.
3. Example: Construction of roads and bridges.
4. Not affected by rest in raw material or wages of workers.
5. Essential to the development of Nation and out of depression.

Question 2.
Write a note on Induced investments.
Answer:
It is profit-motivated. It is related to the changes in national income. The relationship between the National income and Induced investment is positive, decreases in National income lead to a decrease in induced investment and vice versa. Induced investment is income elastic. It is positively sloped.

Question 3.
Write a note on the marginal efficiency of capital.
Answer:
It is the rate of discount which makes the discount present value of the expected income stream equal to the cost of capital. It was first introduced by J.M.Keynes in 1936 as an important determinant of Autonomous investment. The MEC is the expected profitability of an additional capital asset.

Question 4.
Differentiate – Positive and Negative multiplier.
Answer:

Positive multiplier	Negative multiplier
When an initial increases in injection (or a decrease in a leakage) leads to a greater final increase in real GDP.	When an initial increases in an injection ( or an increase in a leakage) leads to a greater final decrease in real GDP.

Question 5.
Differentiate between the static multiplier and dynamic multiplier.
Answer:

Static multiplier	Dynamic multiplier
It is known as simultaneous multiplier timeless and logical multiplier. The change in investment and the resulting change in income are simultaneous.	It is also known as sequence multiplier.
There is also change in MPC as the economy moves from one equilibrium position to another one.	In real life income level doesn’t increase instantly with investment. In fact, there is a time lag between increase in income and consumption expenditure.

Question 6.
What are the assumptions of the accelerator?
Answer:

1. Absence of excess capacity in consumer goods industries.
2. Constant capital-output ratio.
3. An increase in demand is assumed to be permanent.
4. The supply of funds and other inputs is quite elastic.
5. Capital goods are perfectly divisible in any required size.

Long answer questions

Question 1.
Explain consumption function.
Answer:
It is the functional relationship between two aggregates i.e., Total consumption and Gross national income. C = f(Y).
C = Consumption, Y = Income, f = Function. It is the relationship between C and Y C = dependent Y = independent variables. It is also known as MPC. The consumption function is a schedule of the various amounts of consumption expenditure corresponding to different levels of income.

Income Y	Consumption C	Savings S
0	20	-20
60	70	-10
120	120	0
180	170	10
240	220	20
300	270	30
360	320	40

If we take C = 100 + 0.8Y then MPC = 0.8. Here if Y = 0, C = 100, If
Y = 100, C = 180. If Y = 200, C = 260. If Y = 300, C = 340 (MPC = \(\frac{\Delta \mathrm{C}}{\Delta \mathrm{Y}}\) = 0.8). In mathematical terms, C = a + by or C = 20 + 0.8Y where a > 0 and b < 1.
C = Consumption
A = Constant or intercept
Y = Income
b = MPC = \(\frac{\Delta \mathrm{C}}{\Delta \mathrm{Y}}\)
Here, when Y = 120, C = 120 (Point B is the diagram)
When Y = 180, C = 170, S = 10 (Point S is the diagram)
If Y increases to 360, C = 320, S = 40

In the diagram, income is measured on X-axis and consumption on Y-axis. In the 45° line at all levels, income and consumption are equal. It is a linear consumption. The 45° line is regarded as a zero-saving line. It measures both amounts consumed and saved. The shape of the line indicates the division of income between consumption and saving.

Question 2.
Write the determinants of the investment function.
Answer:
According to classical economists, investments depend exclusively on the rate of interest. But in reality, investments depend on a No. of factors. They are

1. Rate of interest
2. Level of uncertainty
3. Political environment
4. Rate of growth of population
5. The stock of capital goods
6. The necessity of new products
7. Level of income of investors
8. Inventions and innovations
9. Consumer demand
10. Policy of the state
11. Availability of capital
12. Liquid assets of the investors

Keynes contended that business expectations and profits are more important in deciding investment. He also pointed out that investment depends on MEC and the rate of interest.

Question 3.
Explain the factors on which MEC is dependent.
Answer:
Marginal Efficiency of capital depends on two factors
(i) The prospective yields from a capital asset
(ii) The supply price of a capital asset The MEC is influenced by
(a) Short-run factors
(b) long-run factors
(a) Short-run factors:

1. Demand for products: The rate of return from the investment will be high if the market for a particular good grows and costs are likely to fall. But if entrepreneurs expect a fall in demand for goods and a rise in cost, the investment will decline.
2. Liquid assets: If entrepreneurs have more capital, thus take advantage of more investment.
3. Sudden change in income: If the income of the entrepreneur increases, there will be a high investment in the country.
4. The current rate of investment: If the rate of investment in a particular industry is very large, the MEC will below.
5. Waves of optimism and pessimism: When businessmen are optimistic, MEC increases and when they are pessimistic, MEC is low.

(b) Long-run factors:

1. Rate of growth of population: When the population grows rapidly, MEC will increase and investment is discouraged and MEC will reduce.
2. Technological progress: This will increase investment and MEC.
3. Monetary and fiscal policies: The policy of cheap money and liberal tax will give more profit and MEC will be high.
4. Political environment: The political stability and administration will improve MEC.
5. Resource availability: The supply of more Natural resources will increase the Marginal Efficiency of Capital.

Question 4.
Write the assumption of the multiplier.
Answer:
Assumptions of Keynes theory of multiplier.

1. There is a change in autonomous investment.
2. The marginal propensity to consume is constant.
3. There is no induced investment.
4. Consumption is a function of current income.
5. Consumer goods are available in response to effective demand for them.
6. There is a closed economy unaffected by foreign influences.
7. There are no changes in prices.
8. There is less than full employment level in the economy.

Question 5.
Explain the relationship between the rate of interest and investment.
Answer:
Higher rates of interest will reduce the investment because higher rates increase the cost of borrowing and require investment to have a higher rate of return to be profitable.

Explanation of the diagram:
When the real cost of borrowings rises, few investment projects are profitable. If interest rates increase from 5% to 8%, then we get a fall in the amount of investment from Rs. 100cr to Rs. 80cr. The increase in interest rates will discourage investment because investment has a higher opportunity cost.

1. It is more expensive to borrow money from the bank when interest rates are higher.
2. Saving money in the bank gives a higher rate of return. So using savings to finance investment has an opportunity cost of lower interest payments.
3. If interest rates increase, firms will gain a better rate of return to justify the cost of borrowing using savings.

Question 6.
Explain MEC and Multiplier.
Answer:
The MPC refers to the relation between change in consumption (c) and change in income(Y).
Symbolically MPC = \(\frac{\Delta \mathrm{C}}{\Delta \mathrm{Y}}\)
The value of the multiplier depends on MPC.
Multiplier (K) = 1/1-MPC
The multiplier is the reciprocal of one minus marginal propensity to consume. Since marginal propensity to save is 1 – MPC. (MPC+MPS =1). The multiplier is 1/ MPS. The multiplier is therefore defined as reciprocal of MPS. The multiplier is inversely related to MPS and directly with MPC.
Numerically if MPC is 0.75, MPS is 0.25 and k is 4.
Using formula K = 1 /1 – MPC
1 / 1 – 0.75 = 1 / 0.25 = 4

Taking the following values, we can explain the functioning of multiplier.

MPC	MPS	K
0.00	1.00	1
0.10	0.90	1.11
0.50	0.50	2.00
0.75	0.25	4.00
0.90	0.10	10.00
1.00	0.00	α

C = 100 + 0.8 Y; I = 100
I = 10
Y = C + I
= 100 + 0.8Y + 100
0.2Y = 200
Y = 1000
Here, C = 100 + 0.8Y = 100 + (1000) = 900;
S = 100 = I
After I is raised by 10, now I = 110,
Y = 100 + 0.8Y + 110 .
0.2Y = 210
Y = \(\frac{210}{0.2}\) = 1050
Here C = 100 = 0.8 (1050) = 940; S = 110 = I

Diagrammatic Explanation:
At 45° line Y = C + S
It implies the variables in axis and axis are equal.
The MPC is assumed to be at 0.8
(C = 100 + 0.8Y)
The aggregate demand (C + I) curve intersects 45° line at point E.
The original national income is 500.
(C = 100 + 0.8Y = 100 + 0.8 (500) = 500)
When I is 100, Y = 1000, C = 900;
S = 100 = I
The new aggregate demand curve is
C+I =100 +0.8y+100+10
Y = \(\frac{210}{0.2}\) = 1050
C = 940; S = 110 = I

Question 7.
Explain the leakage of the multiplier.
Answer:
The multiplier assumes that those who earn income are likely to spend a proportion of their additional income on consumption. But in practice, people spend it on other items such expenses are known as leakages.

1. Payment towards past debts: Repayment of old loans, then MPC is reduced and the value of the multiplier is cut.
2. Purchase of existing wealth: Income is used for the purchase of land, buildings, etc., the money is circulated among people and does not consume. So the value of the multiplier is affected.
3. Import of goods and services: This money spent goes out of the country. Thus, imports reduce the value of the multiplier.
4. Nonavailability of consumer goods: According to multiplier theory supply of consumer goods following demand. But there is often a time lag. During this gap (d > s). inflation increases. So the consumption expenditure and the multiplier value decreases.

Question 8.
Write the uses of multipliers.
Answer:

1. Multiplier highlights the importance of investment in income and employment theory.
2. It gives importance to the different stages of the trade cycle.
3. It also helps in bringing equality between S and I.
4. It helps in formulating government policies.
5. Multipliers help to reduce unemployment and achieve full employment.

Activity
Question 1.
How do you calculate MPC from the consumption function?
Answer:
Consumption function or Propensity to consume. It is between two aggregates that is
(i) Total consumption and
(ii) Gross national income
C = f( Y)
MPC is the ratio of change iaconsumption to a change in income MPC = ΔC/ΔY
Consumption function is C = C₀ + bY
(i) C₀ is called autonomous consumption that is consumption is positive at zero levels of income.
(ii) The coefficient b measures the slope of consumption (The slope of consumption function gives the increase in consumption per unit increase in income). This is Marginal Propensity to Consume. So whenever there is an increase in consumption function, the MPC changes or MPC increases. Consumption changes by b for every rupee one change in income.
Solution:
Consumption changes in the same direction as income C = a + bY
C Consumption, a = Autonomous consumption (when the income is zero). b = slope of the consumption curve and Y = income. MPC is the ratio change in consumption to change in income. MPC = ΔC / ΔY
The value of MPC always lies between 0 and 1 that is 0 < MPC < 1. When income increases, then MPC also increases.
Propensity to consume:

Multiple choice questions

1. Consumption function and investment function play a vital role in influencing:
(a) MPC
(b) MPS
(c) NFIA
(d) National income
Answer:
(d) National income

2. The consumption function is the relationship between the consumption expenditure and the:
(a) Per capita Income
(b) National income
(c) NFIA
d) Disposable income
Answer:
(b) National income

3. In consumption function, the 45° line is regarded as:
(a) Price line
(b) Demand line
(c) Supply line
(d) Zero saving line
Answer:
(d) Zero saving line

4. The keynes psychological law operates in ……….. economy
(a) Socialist
(b) Mixed
(c) Traditional
(d) Capitalist
Answer:
(d) Capitalist

5. According to keynes proposition of psychological law of consumption, when income increases, ………… also increases by smaller amount.
(a) Consumption expenditure
(b) Investment expenditure
(c) Savings
(d) Demand
Answer:
(a) Consumption expenditure

6. J.M.Keynes has divided factors influencing the consumption function into:
(a) 4
(b) 2
(c) 3
(d) 5
Answer:
(b) 2

7. Subjective factors are internal and related to ……….. feelings.
(a) Physical
(b) Bad
(c) Negative
(d) Psychological
Answer:
(d) Psychological

8. Objective factors are the factors.
(a) Internal
(b) Subjective
(c) External
(d) Normal
Answer:
(c) External

9. ………. has made two observations regarding the factors affecting consumption.
(a) Adam smith
(b) J.M.Keynes
(c) Duesenberry
(d) Alfred Marshall
Answer:
(c) Duesenberry

10. There is a function and ……….. relationship between rate of interest and investment.
(a) Positive
(b) Inverse
(c) Normal
(d) Straight
Answer:
(b) Inverse

11. The autonomous investment curve is:
(a) Upward sloping
(b) Downward sloping
(c) Horizontal
(d) Vertical
Answer:
(c) Horizontal

12. Generally government makes autonomous investment because of ………… consideration.
(a) Human
(b) Welfare
(c) Ospecious
(d) Individual
Answer:
(b) Welfare

13. induced investment is income elastic and it is ………… sloped.
(a) Negatively
(b) Upward
(c) Downward
(d) Positively
Answer:
(d) Positively

14. Induced investment is ………. motivated.
(a) Profit
(b) Sales
(c) Loss
(d) Production
Answer:
(a) Profit

15. The classical economist believed that investment depends on:
(a) Rate of savings
(b) Rate of investment
(c) Rate of interest
(d) Rate of consumption
Answer:
(c) Rate of interest

16. MEC was 1st introduced by J.M.keynes in:
(a) 1936
(b) 1966
(c) 1956
(d) 1996
Answer:
(a) 1936

17. MEC is also influenced by the rate of growth of:
(a) Agriculture
(b) Industries
(c) Population
(d) Supply
Answer:
(c) Population

18. The concept of multiplier was first developed by:
(a) J.M.Keynes
(b) R.F.Khan
(c) Ricardo
(d) Samuelson
Answer:
(b) R.F.Khan

19. Under static multiplier, the change in investment and the resulting change in income are:
(a) Continuous
(b) Discontinuous
(c) Simultaneous
(d) Changing
Answer:
(c) Simultaneous

20. Dynamic multiplier is also known as:
(a) Super multiplier
(b) Sequence multiplier
(c) Timeless multiplier
(d) Logical multiplier
Answer:
(b) Sequence multiplier

21. The additional income spent on other items are known as:
(a) Wealth
(b) Inflation
(c) Investment
(d) Leakages
Answer:
(d) Leakages

22. …….. reduces the value of the multiplier.
(a) Demand
(b) Imports
(c) Exports
(d) Supply
Answer:
(b) Imports

23. Simple accelerator model was made by J.M.CIark in:
(a) 1915
(b) 1916
(c) 1917
(d) 1918
Answer:
(c) 1917

24. The combined effect of the multiplier and the accelerator is also called as:
(a) Veblen effect
(b) Griffen paradox
(c) Leverage effect
(d) Multiplier effect
Answer:
(c) Leverage effect

25. Theory of income determination is based on:
(a) Ex-ante variable
(b) Ex-post variable
(c) Both (a) and (b)
(d) None of the above
Answer:
(a) Ex-ante variable

26. MPC equals to:
(a) C/Y
(b) ΔC / ΔY
(c) 1 – C/Y
(d) ΔC / ΔY
Answer:
(b) ΔC / ΔY

27. MPS equals to:
(a) 1 – MPC
(b) ΔS/ΔY
(c) Δ(Y – C) / ΔY
(d) All the above
Answer:
(d) All the above

28. Aggregate consumption expenditures includes this type of expenditure:
(a) Autonomous
(b) Induced
(c) Accumulation
(d) Both autonomous and induced
Answer:
(d) Both autonomous and induced

29. Aggregate saving in the economy is:
(a) Positive throughout
(b) Positive and then negative
(c) Negative throughout
(d) Negative initially and then positive
Answer:
(d) Negative initially and then positive

30. The Consumption function curve is:
(a) Upward sloping
(b) Downward sloping
(c) Parallel to the X-axis
(d) Parallel to the Y-axis
Answer:
(a) Upward sloping

31. When AD exceeds AS, the inventories tend to:
(a) Rise
(b) Fall
(c) Rise initially and fall
(d) Remain unchanged
Answer:
(b) Fall

32. Value of multiplier is determined by:
(a) MPS
(b) MPC
(c) Both (a) and (b)
(d) Investment
Answer:
(c) Both (a) and (b)

33. If MPC = MPS, the value of multiplier is:
(a) 0
(b) 1
(c) 2
(d) Infinity
Answer:
(c) 2

Pick the odd one out.

1. …………… plays a vital role in influencing national income.
(a) Consumption function
(b) Investment function
(c) Consumption
(d) Price
Answer:
(d) Price

2. ………… is a functional relationship between two aggregates.
(a) Consumption function
(b) Propensity function
(c) Aggregate demand
(d) Total consumption
Answer:
(c) Aggregate demand

3. The Average Propensity to Consume =
(a) C/Y
(b) S/Y
(c) ΔC / ΔY
(d) dY / dX
Answer:
(d) dY / dX

4. The economy is faced with abnormal circumstances like:
(a) War
(b) Revolution
(c) Hyperinflation
(d) Habits
Answer:
(d) Habits

5. The constant variables are:
(a) Tastes
(b) Social customs
(c) Income distribution
(d) Profit
Answer:
(d) Profit

6. The unforeseen contingencies are:
(a) Accident
(b) Injury
(c) Sickness
(d) Demand
Answer:
(d) Demand

7. Keynes sums up the motives as:
(a) Precaution
(b) Calculation
(c) Foresight
(d) Income
Answer:
(d) Income

8. Major objective factors influencing consumption functions are:
(a) Price level
(b) Wage level
(c) Supply level
(d) Interest rate
Answer:
(c) Supply level

9. The term investment means:
(a) Purchase of stock and shares
(b) Debentures
(c) Government bonds
(d) Production
Answer:
(d) Production

10. Private investment is an increase in the capital stock such as:
(a) Buying raw material
(b) Buying a factory
(c) Buying a machine
(d) Buying a house
Answer:
(d) Buying a house

11. The origin of the accelerator principle can be traced back in the writing of:
(a) Afflation
(b) Hawtere
(c) Adam smith
(d) Bickerdike
Answer:
(c) Adam smith

Students get through the TN Board 12th Economics Important Questions Chapter 3 Theories of Employment and Income which is useful for their exam preparation.

TN State Board 12th Economics Important Questions Chapter 3 Theories of Employment and Income

Very short answer questions

Question 1.
How does Keynes define Full employment?
Answer:
Keynes defines Full employment as the absence of involuntary unemployment.

Question 2.
How does Lerner define Full employment?
Answer:
“That level of employment at which any further increase in spending would result in an inflationary spiral of wages and prices”.

Question 3.
What does every economy aim at?
Answer:
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 the maximum level of output.

Question 4.
What is Full employment?
Answer:
The concept of full employment refers to full employment of labour force of a country.

Question 5.
What do you mean by unemployment?
Answer:
It is problem faced when there are people, who are willing to work and able to work but cannot find suitable jobs.

Question 6.
Write a note on the classical theory of employment.
Answer:
The classical theory of employment is composed of different views of classical economists on the issue of income and employment in the economy.

Question 7.
What are the assumptions of classical economist on the theory of employment?
Answer:
Classical economist assumed that the economy operates at the level of full employment without inflation in the long period, wages and prices of goods were flexible and the competitive market existed in the economy. (Laissez – Faire economy)

Question 8.
Write a note on classical theory explanation.
Answer:
This classical theory of Say’s Law explains that “A person receives his income from production which is spent on the purchase of goods and services produced by others for the economy as a whole, therefore, total production equal total income”.

Question 9.
What is the view of Keynes theory of employment in short-run?
Answer:
Keynes theory of employment was based on the view of the short run. “According to him, the factors of production such as capital goods, supply of labour, technology and efficiency of labour remain unchanged while determining the level of employment.

Question 10.
Define Keynes theory of employment.
Answer:
According to Keynes theory of employment “Effective demand signifies the money spent on consumption of goods and services and on investment. The total expenditure is equal to the national income, which is equivalent to national output”.

Question 11.
What are the three motives of liquidity preference?
Answer:

1. Transaction motive
2. Precautionary motive
3. Speculative motive.

Question 12.
What do you mean by desired demand in the economy?
Answer:
The desired demand in the economy is the sum of the total desired Private consumption, expenditure, desired investment – expenditure desired
government spending, and desired net exports. Thus, the desired spending is called aggregate spending.
AD = C + I + G + (X – M)

Question 13.
Write a note on aggregate supply.
Answer:
Aggregate supply refers to the value of the total output of goods and services produced in an economy in a year.

Question 14.
What is aggregate supply price?
Answer:
Aggregate supply price is the total amount of money that all entrepreneurs in an economy except to receive from the sale of output produced by a given number of labourers employed.

Question 15.
What are the two approaches to the determination of the equilibrium level of income in Keynesian theory?
Answer:

1. Aggregate demand – Aggregate supply approach
2. Saving – investment approach

Short answer questions

Question 1.
Explain the classical theory of unemployment.
Answer:

1. It is about different views of classical economists on Income and employment in the economy.
2. According to classical economists, the economy operates at the level of full employment without inflation for a long period.
3. The classical economists assumed that wages and prices of goods were flexible and these existed a competitive market in the economy. (Laissez – Faire Economy)

Question 2.
“Say’s the law of markets is the core of the classical theory of employment” explains.
Answer:
J.B. Say a French economist and an industrialist was influenced by Adam Smith and David Ricardo. J.B.Say enunciated the proposition that “supply creates its own demand” so there cannot be general overproduction or the problems of unemployment in the economy.

Question 3.
Write a note on Ex ante and Export in Say’s Law.
Answer:
“Supply creates its own demand or equivalently that the aggregate investment equals the aggregate saving holds good in the export because it is an accounting identity. According to Say’s law, these two are equal in exantisense. That is the total quantity which people produce that is aggregate supply must be equal to the total quantity which they plan to buy that is aggregate demand.

Question 4.
Write a note on the theory of Keynes.
Answer:
There was a turning point in the development of modem economic theory after the publications of “The general theory of employment interest and Money” published in 1936. He was against the belief of classical economists. He not only criticized the belief of classical economist that the market forces in capitalist economy adjust themselves to attain equilibrium, he also gave his own theory of employment.

Question 5.
Write a note of effective demand.
Answer:
The principle of effective demand is the starting point of Keynes theory of employment and income. It denotes money actually spent by the people on products of industry. The money received by the entrepreneurs is paid in the form of rent, wages, interest and profit. So the Effective demand = National income.

Long answer questions

Question 1.
Explain the assumptions of Say’s Law of market.
Answer:

1. No single buyer or seller of a commodity or an input can affect the price.
2. Full employment.
3. People are motivated by self-interest and self-interest determines economic decisions.
4. The laissez-faire policy is essential for an automatic and self-adjusting process of full employment equilibrium. Market forces determine everything right.
5. There will be perfect competition in labour and product market.
6. There is wage-price flexibility.
7. Money acts only as a medium of exchange.
8. Long-run analysis.
9. There is no possibility for overproduction or unemployment.

Question 2.
Explain the criticisms of Say’s Law of market.
Answer:

1. According to Keynes, supply does not create its demand. It is not applicable where demand does not increase as much as production increases.
2. The automatic adjustment process will not remove unemployment. Unemployment can be removed by an increase in the rate of investment.
3. Money is not neutral. Individuals hold money for unforeseen contingencies while businessmen keep a cash reserve for future activities.
4. Say’s law is based on the proposition that supply creates its own demand and there is no overproduction. Keynes said that overproduction is possible.
5. Keynes regards full employment as a special case because there is under-employment in capitalist economies.
6. The need for state intervention arises in the case of general overproduction and mass unemployment.

Question 3.
Write a note on John Maynard Keynes.
Answer:
John Maynard Keynes was one of the most influential economists of the 20th century. He was born in Cambridge in 1883. In addition to his work as an economist, he held a position as civil servant a director of the Bank of England and leader of the British delegation of negotiators at the Bretton Woods conference at points in his career. Economic theory based on his idea is known as Keynesian economics, and remain highly influential today, particularly in the field of macroeconomics.

Question 4.
According to the Keynes theory of employment, what does effective demand signifies and determines?
Answer:

1. It signifies the money spent on the consumption of goods and services on investment.
2. The relationship between employment and output of an economy depends upon the level of effective demand which is determined by the forces of aggregate supply and aggregate demand.
3. The level of employment in the economy is determined by effective demand.
4. The effective demand will be determined by two determinants, like consumption and investment expenditure.
5. The rate of interest and the marginal efficiency of capital determines the investment levels.

Activity

Question 1.
List out the persons in your village or ward who are fully unemployment, partially unemployed and underemployed.
Answer:
This activity helps the students:

1. To make decisions about their career in life.
2. To analyze the prevailing employment situations in society.
3. To develop a deep understanding of the importance of education.
4. To take the right decisions about the choice of job opportunities.
5. To understand clearly about the need of the hour.
6. Career Importance and choice of qualification.

Multiple choice questions

1. ………… is one of the greatest and most influential economists of mid 20th century.
(a) J.B. Say
(b) Adam smith
(c) J.M. Keynes
(d) Alfred Marshall
Answer:
(c) J.M. Keynes

2. Every economy aims at attaining:
(a) Overall development
(b) Equilibrium
(c) Full population
(d) Full employment equilibrium.
Answer:
(d) Full employment equilibrium.

3. Interest flexibility brings equality between:
(a) Income and consumption
(b) Savings and investment
(c) Demand and supply
(d) Labour and capital
Answer:
(b) Savings and investment

4. Demand creates its own supply was said by:
(a) Democratic
(b) Classical economist
(c) Keynesianism
(d) J.B. Say.
Answer:
(c) Keynesianism

5. Cyclical unemployment exists during the downtown phase of:
(a) Business
(b) Economy
(c) Unemployment
(d) Trade cycle
Answer:
(d) Trade cycle

6. Cyclical unemployment can be cured by:
(a) Public investment
(b) Full employment
(c) Education
(d) Increase in income
Answer:
(a) Public investment

7 devices are responsible for technological unemployment.
(a) Capital saving
(b) Labour saving
(c) Money saving
(d) Time-saving
Answer:
(b) Labour saving

8. Disguised unemployment is found in:
(a) Industries
(b) Firms
(c) Services
(d) Agriculture
Answer:
(d) Agriculture

9. Adam Smith wrote the book “An enquiry into the nature and causes of the wealth of nations” in the year:
(a) 1786
(b) 1776
(c) 1766
(d) 1756
Answer:
(b) 1776

10. Every economy in the world aims at attaining the level of :
(a) Full employment
(b) Unemployment
(c) Seasonal unemployment
(d) Disguised unemployment
Answer:
(a) Full employment

11. Keynes theory of employment and income is the principle of:
(a) Long run
(b) Short period
(c) Short-run
(d) Long period
Answer:
(c) Short-run

12. Effective demand is equal to:
(a) National income
(b) Gross income
(c) Personal income
(d) Per capita income
Answer:
(a) National income

13. The entrepreneur is encouraged to employ:
(a) More capital
(b) More investment
(c) More labour
(d) More income
Answer:
(c) More labour

14. ……….. was set up in July 1982.
(a) NABARD
(b) ARDC
(c) IMF
(d) RBI
Answer:
(a) NABARD

15. A person receives his income from:
(a) Consumption
(b) Distribution
(c) Production
(d) Exchange
Answer:
(c) Production

16. Under Say’s law of the market, there will be …………. in labour and product market.
(a) Imperfect competition
(b) Perfect competition
(c) Monopoly competition
(d) Monopolistic competition
Answer:
(b) Perfect competition

17. According to Keynes, the automatic adjustment process will not remove :
(a) Poverty
(b) Illiteracy
(c) Underemployment
(d) Unemployment
Answer:
(d) Unemployment

18. Keynes book ” The general theory of employment, interest and money was published in:
(a) 1936
(b) 1946
(c) 1956
(d) 1965
Answer:
(a) 1936

19. ED = …………
(a) Y = C + I = Output = Employment
(b) Y = C + I + S = Output
(c) Y = I + S = Output = Employment
(d) Y = C + I = Employment
Answer:
(a) Y = C + I = Output = Employment

20. In the Keynesian model, the output is determined mainly by:
(a) Effective demand
(b) Aggregate demand
(c) Aggregate supply
(d) Marginal propensity to consume
Answer:
(b) Aggregate demand

21. AD = C + I + ………
(a) C + I + G + (X + M)
(b) C + I + G + (X ÷ M)
(c) C + I + S + (X – M)
(d) C + I + G + (X – M)
Answer:
(d) C + I + G + (X – M)

22. The term ………… refers to the amount of money received from the sale of output.
(a) Price
(b) Demand
(c) Supply
(d) Profit
Answer:
(a) Price

23. Aggregate supply = C + S + T + Rf = ………….
(a) Aggregate demand generated in the economy.
(b) Aggregate supply generated in the economy.
(c) Aggregate income generated in the economy.
(d) Aggregate price generated in the economy.
Answer:
(c) Aggregate income generated in the economy.

24. The slope of the aggregate supply curve depends on the relation between the:
(a) Employment and income
(b) Employment and productivity
(c) Employment and distribution
(d) Employment and market
Answer:
(b) Employment and productivity

25. ………… is an important factor in determining the level of economic activity.
(a) Aggregate demand
(b) Aggregate supply
(c) Effective demand
(d) Aggregate price level
Answer:
(b) Aggregate supply

26. The expected rate of return over costs of a new capital good is:
(a) Marginal efficiency of capital
(b) Marginal propensity to consume
(c) Effective demand
(d) Aggregate demand
Answer:
(a) Marginal efficiency of capital

27. When resources are not fully utilized in production is known as:
(a) Aggregate demand
(b) Disguised unemployment
(c) Full employment
(d) Underemployment
Answer:
(d) Underemployment

28. Theory of income determination is based on:
(a) Ex – ante variable
(b) Ex – post variable
(c) Both (a) and (b)
(d) None of the above
Answer:
(a) Ex – ante variable

29. Aggregate supply is same as:
(a) National output
(b) National income
(c) Both (a) and (b)
(d) None of the above
Answer:
(c) Both (a) and (b)

30. The migration of people from rural areas to urban areas increase the:
(a) Size of labour forces
(b) Increases the unemployment
(c) Creates open unemployment
(d) Full employment
Answer:
(d) Full employment

31. Seasonal unemployment occurs during:
(a) Seasons of the year
(b) Particular time in a year
(c) Offseason
(d) All the time in a year
Answer:
(d) All the time in a year

32. Frictional unemployment arises due to:
(a) Imbalance between supply and demand for labour
(b) Immobility of labour
(c) Break down of machinery
(d) Profit maximization
Answer:
(d) Profit maximization

33. Educated people are unemployed because:
(a) Qualification does not match the job
(b) Faulty education system
(c) Lack of employable skills
(d) Prices are very high
Answer:
(d) Prices are very high

34. Structural unemployment is because:
(a) Jobs are highly responsible
(b) Drastic change in the structure of the society
(c) Lack of demand for the product
(d) Shift in demand
Answer:
(a) Jobs are highly responsible

35. Classical economists assumed that the economy operates at the level of full employment:
(a) Without inflation in the long period.
(b) Wages and prices of goods were flexible.
(c) Marginal productivity of labour is zero.
(d) Competitive market existed in the economy.
Answer:
(c) Marginal productivity of labour is zero.

36. Unemployment can be removed by:
(a) Investment
(b) Rate of investment
(c) Supply of labour
(d) Increase in rate of investment
Answer:
(c) Supply of labour

37. Say’s law is based on the proposition that:
(a) Full employment
(b) Supply creates its own demand
(c) There is no overproduction
(d) Cash reserve for future activities
Answer:
(d) Cash reserve for future activities

38. According to Keynes, the factors of production remain unchanged, they are:
(a) capital goods
(b) Supply of labour
(c) Supply of money
(d) Technology
Answer:
(c) Supply of money

39. Effective demand denotes:
(a) Money spent by the people on products
(b) The money which entrepreneurs receive
(c) National income
(d) Employment, interest and money
Answer:
(d) Employment, interest and money

Students get through the TN Board 12th Economics Important Questions Chapter 2 National Income which is useful for their exam preparation.

TN State Board 12th Economics Important Questions Chapter 2 National Income

Very short answer questions

Question 1.
What is depreciation?
Answer:
Fall in value of fixed assets due to normal wear and tear and expected absolescence (disuse) is called depreciation (or consumption of fixed capital).

Question 2.
What are the components of aggregate expenditure?
Answer:

1. Private consumption expenditure by households (C)
2. Investment expenditure (I)
3. Government purchases of goods & services (G)
4. Net exports (X – M)
5. GDP = C + I + G + (X – M)

Question 3.
What are Factor Incomes?
Answer:
Factor incomes are Incomes received by factors of production for their contribution to the production process.

Question 4.
What is called Green GNP?
Answer:
GNP would help to attain sustainable use of the natural environment and equitable distributions of benefits of development.

Question 5.
Define: (a) Nominal GNP, (b) Real GNP?
Answer:

1. GNP measured at current prices is called nominal GNP
2. GNP measured at constant prices is called Real GNP.

Question 6.
What are the uses of National Income accounting?
Answer:

1. It reflects the performance of the economy.
2. It indicates structural and sectorial changes.
3. It shows how National Income is shared among various factors of production.
4. It has several uses for economic policy and research.

Question 7.
What are transfer payments?
Answer:
Payments that are made without getting any goods or services in exchange (return) are called transfer payments. Eg: Gifts, old age pension, etc.

Question 8.
What are the 4 factors of production? What is their remuneration?
Answer:
Land, Labour, capital, and enterprise are the factors of production. Rent, wages, interest, and profit are the reward for factors of production.
Land – labor – capital – an organization
Rent – wages – interest – profit

Question 9.
Name the 3 price indices which are used to calculate price variations.
Answer:

1. GDP or GNP deflator
2. Consumer price index
3. Wholesale price index.

Question 10.
What is GNP Deflator?
Answer:
It is a statistical tool used to measure the average level of prices of all goods and services that make up GNP.

Question 11.
What is meant by double counting? Why it should be avoided?
Answer:
Counting the same product more than once in calculating National Income is called double counting. It should be avoided to remove the chance of over-estimation.

Question 12.
What do you mean by National Income?
Answer:
It is the total money value of all final goods and services produced in a country during a particular period.

Question 13.
When do capital gains arise?
Answer:
When capital assets such as a house, other property stocks or shares, etc are sold at a higher price than the price of purchase capital gains arise. It is excluded from National Income.

Question 14.
What is the current price?
Answer:
It is the prevailing market price to calculate the value of output. It may be always higher than the real value.

Question 15.
Where is the production method applied in India?
Answer:
In India, this method is applied to agriculture, mining, and manufacturing including handicrafts.

Question 16.
Give an example of Double counting.
Answer:
Value of cotton enters the value of yam as cost and value of yam in cloth and that of cloth in garments.

Question 17.
How does the income method approach National income?
Answer:
This method approaches National Income from the distribution side. National Income is calculated by adding up all the income generated in the course of producing National products.

Question 18.
Name the sectors adopted in Income Method to calculate National Income?
Answer:
Small enterprises, banking and insurance, commerce and transport, professions, liberal arts and domestic services, public authorities, house property, and Foreign sector transactions.

Question 19.
What are the items to be included while calculating National Income through Income?
Answer:
The imputed value of rent for self-occupied houses or offices is to be included and the imputed value of services provided by owners of production units (family labour) is to be included.

Question 20.
Why a proper valuation of output is very difficult?
Answer:
In India, a special conceptual problem is posed by the existence of a large, unorganized, and non-monetized subsistence sector where the barter system prevails for transacting goods and services.

Question 21.
What are the difficulties in assessing depreciation allowance?
Answer:
The deduction of depreciation allowances, accidental damages, repair, and replacement charges from National Income requires a high degree of judgment to assess the depreciation allowance and other charges.

Question 22.
What do you mean by unpaid services?
Answer:
A housewife renders a no. of useful services like preparation of meals, serving, tailoring, mending, washing, cleaning, bringing up children, etc., she is not paid for them and her services are not directly included in National Income.

Question 23.
Why the Income from Illegal activities are not included in National Income?
Answer:
Because such Illegal activities have value and satisfy the wants of the people but they have not considered as productive from the point of view of society.

Question 24.
What is the variation percentage in the estimation of GDP in India?
Answer:
The GDP estimates for India vary from 2 trillion US Dollars to 5 trillion US Dollars. There is at least a 10% margin of error. National Income is overestimated or underestimated by at least 10%.

Question 25.
How is the economy divided under social accounting and sector?
Answer:
(a) Firms
(b) Households
(c) Government
(d) Rest of the world and
(e) Capital sector.

Question 26.
What do you mean by sector?
Answer:
A sector is a group of individuals or institutions having common interrelated economic transactions.

Question 27.
Give reasons for not including leisure in GNP?
Answer:
Leisure is not included in GNP because it is intangible and subjective. It is very difficult to measure value and it is also impossible to assess the value it.

Question 28.
What are the items that are excluded from GNP?
Answer:

1. Financial transactions
2. Transfer or second-hand or used goods
3. Non-market goods and services
4. Illegal activities
5. Value of leisure

Question 29.
Does GNP measure National welfare?
Answer:
GNP is considered a good indicator of economic welfare but it is not an adequate measure of national welfare.

Question 30.
Explain components of factor income?
Answer:

1. Compensation of employees (wages)
2. Rent
3. Interest
4. Profits = (dividend + profit tax + undistributed profit)
5. Mixed Income are called as components.

Question 31.
Why are exports treated as a part of the domestic products?
Answer:
Because exported goods and services are a part of the domestic output for the production of which domestic resources have been used.

Short answer questions

Question 1.
Methods of measuring National Income – Explain.
Answer:
All goods and services produced in the country must be counted and converted against money value during a year. So whatever is produced is either used for consumption or saving. Thus national output can be calculated at 3 levels that is production, Income, and expenditure.

Question 2.
How the Gross value of the farm output is obtained in India?
Answer:

1. The total production of 64 agricultural commodities is estimated. The output of each crop is measured by multiplying the area shown by the average yield per hectare.
2. The total output is valued at market price.
3. The aggregate value of 64 commodities is taken to measure the gross value of agricultural value
4. The net value of the agricultural output is measured by making deductions for the cost of seed, manure, etc.

Question 3.
What are the basic concepts used in measuring National Income?
Answer:
GDP, NNP, NNP at factor cost, Personal Income, Disposable Income, Per capita Income, Real Income, and GDP deflator.

Question 4.
What do you mean by GDP at market price?
Answer:
GDP is the total market value of the final goods and services produced within the country during a year. It is calculated at market prices. GDP by expenditure method at Market prices = C + I + G + (X-M)
C = Consumption Goods; I = Investment goods;
G = Government purchases (X – M) is net export which can be positive or negative.

Question 5.
Explain Real income.
Answer:
Real Income is the buying power of Nominal Income. Nominal Income is National Income expressed in terms of a general price level of a particular year. The Real Income is derived as National Income = National Income at a constant price. Current price ÷ /P₁/ P₀.
P₁ – Price Index during the current year
P₀ – Price Index during the base year

Question 6.
How is National Income calculated under the product method?
Answer:
The product method measures the output of the country. It is also known as the inventory method. Under this method, the value of the output from different sectors like agriculture, industry, trade, and commerce, etc is obtained for the entire economy during a year.

Question 7.
What are the precautions taken while measuring National Income under the expenditure method?
Answer:
Precautions:

1. Second-hand goods: This expenditure should not be included.
2. Purchase of shares and bonds: This expenditure or purchase should not be included.
3. Transfer payments: Expenditures towards old age pension should not be included.
4. Expenditure on intermediate goods: Expenditure on seeds, fertilizers by farmers should not be included to avoid double counting.

Question 8.
Explain statistical problems.
Answer:
There can be statistical problems while calculating National Income. Statistical data may not be perfectly reliable when they are compiled from numerous sources. Skill and efficiency of the statistical staff and co-operation of people at large are important in estimating National Income.

Question 9.
Write a note on National Income and erosion of national wealth.
Answer:
Natural resources are largely damaged for achieving higher GDP. That is there is a reduction of potential for future growth. So while estimating National Income, loss of natural resources should be subtracted from National Income.

Question 10.
What are the difficulties in measuring National Income?
Answer:

1. Transfer payments: Pension, insurance, etc.,
2. Difficulties in estimating depreciation allowances: Accidental damages, repair, etc…
3. Unpaid services: Services of a housewife.
4. Income from illegal activities: Smuggling, gambling, etc.,
5. Production for self-consumption and changing price: Farmers keep food for self-consumption.
6. Capital gains: Stocks & shares etc.,
7. Statistical problems: Not perfect and reliable data.

Question 11.
Distinguish between Domestic and National Income.
Answer:

Domestic income	National income
Employee compensation + Rent, Interest and Profits + Mixed Income	Domestic Income + Net Factor Income from abroad.

Question 12.
Distinguish between National Income and Net Domestic Product.
Answer:

National Income (NNPFC)	Net Domestic Product (NDPMP)
Employee compensation + Rent Interest and profits + Mixed Income + Net Factor Income from abroad.	Employee compensation + Rent, Interest and Profits + Mixed Income + Net Indirect Taxes.

Question 13.
Distinguish between NNP_MP and NNP_FC
Answer:

NNPMP	NNPFC
GNPMp – Depreciation	GNPMp – Depreciation – Net Indirect Taxes

Question 14.
Distinguish between National Income at current price and National Income at constant price.
Answer:

National Income at current price	National Income at constant prices
It is the sum total of market value – of all final goods and services produced by an economy during a year estimated at current prices of that year.	It is the sum total of market value of all final goods and services produced by an economy during the year but estimated at the price of same base year.
It can increase even when there is no flow of goods and services in the economy but only the current prices increase.	It increase only there is an increase in the flow of goods and services.

Question 15.
Distinguish between National and Private income.
Answer:

National Income	Private Income
The sum of total factor earned by normal residents of a country within and outside the country during a year.	It consists of Factor Incomes and Transfer Incomes received from all sources by private sector within and outside the country.

Question 16.
Distinguish between Private and Personal Income.
Answer:

Private Income	Personal Income
It consists of Factor Incomes and Transfer Incomes received from all sources by private sector within an outside the country.	It is the sum of earned incomes and transfer income received by persons from all sources within and outside the country.

Question 17.
Distinguish between Consumption and Capital goods.
Answer:

Consumption goods	Capital goods
These goods which are consumed by the ultimate consumers to satisfy their wants directly. Eg: Tv, shirt, pen etc.,	These goods which help in the production of other goods and services. Eg: machines, tools etc.,

Question 18.
Distinguish between Intermediate and Final Product.
Answer:

Intermediate Product	Final Product
These products which are used in the production of other products or resale in the same year. Eg: Fuels and raw materials etc.,	These products which are used for final consumption or final investment. Eg: machinery cloth etc.,

Question 19.
Distinguish between Factor and Transfer payment.
Answer:

Factor payment	Transfer payment
Payments received by the factor of production in return for services. Eg: rent, wages	Payments received by households production units and other sources without rendering any services. Eg: donations, gifts etc.,

Question 20.
Distinguish between Domestic and National Products.
Answer:

Domestic products	National products
It is the gross money value of all final goods and services produced in the domestic territory of a country during a year. It doesn’t include NFIA.	It is the gross money value of all final goods and services produced by the normal residents of a country during a year. It includes NFIA.

Long answer questions

Question 1.
Explain the types of final goods and services of GNP.
Answer:
GNP is the total measure of the flow of final goods and services at market value resulting from current production in a country during a year including Net Income from abroad.

1. The final value of consumer goods and services produced in a year to satisfy the immediate wants of the people – that is Consumption (C).
2. Gross Investment is
   1. such as residential construction and inventories of finished and unfinished goods.
   2. Goods and services produced or purchased by Government (G)
   3. Net exports of goods and services that is the difference between the value of exports and imports that is (X – M).
   4. GNP at a market price i.e. the gross value of final goods and services produced annually in a country that is(C + I + G + (X – M) + (R-P)). GNP at market price = GDP at market prices + Net Factor Income from abroad.

Question 2.
Explain the Income method of Measuring National Income.
Answer:
The income method approaches National Income from the distribution side. In this method, National Income is calculated by adding all Incomes generated in the course of producing the national products.
Steps involved:

1. The enterprises are classified into industrial groups.
2. Factor Incomes are grouped under Labour Income, Capital Income, and Mixed-Income.
   Eg:
   • Labour Income – Wages and salaries
   • Capital Income – Profit and dividend
   • Mixed-Income – Farming and other professions
3. National Income is calculated as Domestic Income + NFIA
   Y – W + r + i + π + (R – P)
   W = wages, r = rent, i = interest, n = profit.

This method helps in estimating the contributions of the remaining sector like banking and insurance transports, public authorities, house property, and the foreign sector. Transactions are got from the account of the balance of payments of the country.

Question 3.
What are the precautions taken under the product method?
Answer:
The product method is followed in underdeveloped countries. In this method, the margin of error is more. In India agricultural, mining, manufacturing, and handicrafts sectors follow this method.
Precautions:

1. Double counting: The raw material should not be included for the final production of the calculation of National Income. Eg: values of cotton.
2. The value of output used for consumption should not be used.
3. Durable goods: Sale and purchase of second-hand goods should not be included. Eg: second-hand cars.

Question 4.
Explain the limitations of National Income as an Index of economic welfare.
Answer:

1. Economic welfare depends upon the provided compositions of goods and services.
2. Economic welfare will be less when there is higher GDP with environmental hazards. Eg: pollution, air, and water.
3. Production of war goods will increase the national output but not economic welfare.
4. The Per capita income can be increased by employing women and children for long hours but it will not promote economic welfare.
5. The physical quality of life index is considered a better indicator of economic welfare.

Question 5.
How is National income measured through the social accounting method?
Answer:
The social accounting method measures the transactions among various sectors such as firms, households, government, etc., are recorded and their interrelationship is traced. The social accounting framework is useful for economists and policymakers because it represents.

Numerical problems

Question 1.
From the given data calculate Gross Domestic Product at market price.

Answer:
GDP_MP = (value of output in primary sector) – Intermediate consumption of primary sector + (value of output in secondary sector) – intermediate consumption of secondary sector + (value of output in tertiary sector) – Intermediate consumption of tertiary sector so by substituting the given values
= (2000 – 1000) + (1800- 800) + (1400- 600)
= 1000 + 1000 + 800 = Rs. 2800/- crores
Answer is 2800 crores.
Hence the GDP_MP = 2800 Cr.

Question 2.
Calculate National Income or (NNP_FC) by Income method and Expenditure method.

Answer:
Given data’s are:
(i) National Income (Income Method): National Income = Employee compensation + rent + interest + profits + mixed income + Net factor income from abroad = 500 + (100 +40 +60 ) +10 + (-10 ) = Rs. 700cr
(ii) National Income (Expenditure Method):
National Income private final consumption expenditure + government final consumption expenditure + net domestic capital formation + depreciation + net exports + net factor income from abroad – depreciation – net indirect taxes. = 550 + 150 + 45 + (-5) + (-10 ) – 30 = Rs. 700.

Question 3.
Calculate National Income.

Answer:
Domestic Income = 80 + 100 + 210 + 250 + 500 = 1,140 Cr
National Income = 1,140 + (-20) = 1,120 Cr.

Question 4.
On the basis of the following real data at current prices of the Indian economy during 1982 -1983.
Find out 1) NNP_FC
2) GNP_MP
3) GDP_MP
4) GNP_FC and
5) NDP_MP

Answer:
1. NNP_FC = NDP_FC + Net Income from abroad.
= 1,33,151 + (-) 681 = 1,32,470 Cr.

2. NNP_MP = NNP_FC + Net indirect taxes.
= 1,32,470+ 19,183 = 1,51,653 Cr.

3. GNP_NP = NNP_MP + Depreciation.
= 1,51,653 + 11,242 = 1,62,895 Cr.

4. GDP_MP = GNP_MP – Net Income from abroad
= 1,62,895 – (-681) = 1,63,576 Cr.

5. GDP_FC = GDP_MP – Net indirect taxes.
= 1,63,576 – 19,183 = 1,44,393 Cr.

6. GNP_FC = GDP_FC + Net Income from abroad
= 1,44,393 +(-681) = 1,43,712 Cr.

7. NDP_MP = GDP_MP – Depreciation.
= 1,63,576 – 11,242 = 1,52,334 Cr.

Question 5.
Find out NDP from the given data.

Answer:
NDP at M_P = 97,503 – 5,699 – (- 201) = 92,005 Cr
NDP_MP = 97,503 – 5,699 – (- 201) = 92,005 Cr.

Question 6.
GNP at MP of an imaginary economy is Rs. 1,20,000 Cr. And its capital stock is worth Rs. 3,00,000 Cr. If capital stock depreciates @ 20% per annum, indirect taxes amount to Rs. 30,000 Cr and subsidies are put at Rs. 15,000 Cr. Then what is the National Income.
Answer:
National Income (NNP at F_C) = 12,000 – 60,000 (Dep 20% of 3,00,000) – 30,000 + 15,000.
= 12,000 – 60,000 – 30,000 + 15,000 = 45,000 Cr.
(Depreciation 20% of 3,00,000).

Question 7.
Find GDP at Fc from the following data:

Answer:
GDP at F_C = 1-3-4
i.e., Value of output – value of intermediate consumption – Net indirect taxes,
i.e., 500 – 200 – 20 = 280 Cr.

Question 8.
If the NDPFC is Rs. 1,000 Cr and NFIA is Rs. (-) 5 Cr. How much will be National Income (NNP_FC)?
Answer:
NNP_FC =NDP_FC + NFIA
1,000 + (-5) = 995 Cr.

Question 9.
If Domestic Factor Income is Rs. 200 Cr. And National Income is Rs. 190 Cr. How much will be NFIA (Net Factor Income From Abroad)?
Answer:
NFIA = National Income – Domestic Factor Income = 190 – 200 = – 10 Cr.

Question 10.
Suppose the GDP at a market price of a country in a particular year was Rs. 1,100 Cr. Net Factor Income from abroad was Rs. 100 Cr. The value of indirect taxes – subsidies was Rs. 150 Cr. And National Income Rs. 850 Cr. Calculate the aggregate value of depreciation.
Answer:
National Income (or NNP_FC) = GDP_MP – Depreciation + NFIA – Net Indirect Taxes
850 = 1,100 – Depreciation + 1,100 – 150
Depreciation = 1,100 + 100 – 150 – 850
Depreciation = Rs. 200 Cr.

Activity

Question 1.
Compare GDP of different countries since 2001.
Answer:
Advantages of comparing GDP of different countries:

1. Helps to develop a deep understanding of one’s own economy in comparison with others.
2. Helps to know about our country’s economic backwardness.
3. Helps to develop or find a solution to improve our GDP.
4. To understand the necessity to work for the development of self and the country.
5. To take the right decisions when it comes to the matter of choice of education and job choices.
6. Helps to make decisions in life to improve per capita income.
7. Comparison of 2 decades (2001 – 2020) will enhance the students to make the dream of Dr A.P.J. Abdul Kalam come true in 2020.
8. Helps to build a new India in all-around development in 2020.

Multiple-choice questions

1. ……….. First introduced the concept of National income.
(a) Adam Smith
(b) Alfred Marshall
(c) Samuel son
(d) Simon Kuznets
Answer:
(d) Simon Kuznets

2. National income is:
(a) Value of good & services in a country during a year
(b) Value of money produced in a country during a year
(c) Value of agricultural products produced in a country during a year
(d) Value of industrial products produced in a country during a year
Answer:
(a) Value of good & services in a country during a year

3. GDP by expenditure method at market prices = ………..
(a) C + L + S + (X + M)
(b) C + S + G + (X – M)
(c) C + I + G + (X – M)
(d) S + I + G + (X – M)
Answer:
(c) C + I + G + (X – M)

4. Net domestic product =
(a) GDP – Depreciation
(b) GNP – Depreciation
(c) GDP – NFIA
(d) NNP – Depreciation
Answer:
(a) GDP – Depreciation

5. GNP includes ……….. types of final goods and services.
(a) 5
(b) 4
(c) 6
(d) 3
Answer:
(a) 5

6. The final goods and services produced in a year to satisfy the immediate wants of the people is referred as:
(a) Production
(b) Consumption
(c) Distribution
(d) Exchange
Answer:
(b) Consumption

7. NNP is expressed as:
(a) NNP = GNP – Depreciation
(b) NNP = GDP – Depreciation
(c) NNP = GDP – Transfer payments
(d) NNP = GNP – Transfer payments
Answer:
(a) NNP = GNP – Depreciation

8. Depreciation is also called as:
(a) Personal income
(b) Factor cost
(c) Capital cost
(d) Capital consumption allowance
Answer:
(d) Capital consumption allowance

9. NNP at factor cost =
(a) NNP at factor price – Indirect taxes + subsidies
(b) NNP at market price – Indirect taxes + subsidies
(c) NNP at market price – Direct taxes + subsidies
(d) NNP at factor price – Direct taxes + subsidies
Answer:
(b) NNP at market price – Indirect taxes + subsidies

10. Personal income is never equal to the National Income because it includes:
(a) Subsidies
(b) Disposable income
(c) Transfer payment
(d) Depreciation
Answer:
(c) Transfer payment

11. Disposal income = Personal income minus:
(a) Savings
(b) Indirect tax
(c) direct tax
(d) Investment
Answer:
(c) direct tax

12. The Average Income of a person of a country in a particular year is called:
(a) Per capita income
(b) National income
(c) personal income
(d) Disposable income
Answer:
(a) Per capita income

13. Nominal income is National Income expressed in terms of:
(a) Final value of goods
(b) General price level
(c) Current price level
(d) Factor cost
Answer:
(b) General price level

14. Product method is also called as:
(a) Expenditure method
(b) Income method
(c) Inventory method
(d) Factor earning method
Answer:
(c) Inventory method

15. The product method is followed in:
(a) Developed countries
(b) Developing countries
(c) Underdeveloped countries
(d) All the countries
Answer:
(c) Underdeveloped countries

16. Double counting is avoided in the ……….. method.
(a) Income method
(b) Expenditure method
(c) Factor earning method
(d) Value added method
Answer:
(d) Value added method

17. Example for National Income is:
(a) Pension
(b) salary
(c) Profit
(d) Bank savings
Answer:
(a) Pension

18. GNP =
(a) C + I + G + (X + M)
(b) C + I + S + (X + M)
(c) C + I + G + (X-M)
(d) C + S + I + (X – M)
Answer:
(b) C + I + S + (X + M)

19. National Income by-product method is measured by the value of final goods and services at:
(a) Current market prices
(b) Current factor prices
(c) Current savings
(d) Current income
Answer:
(a) Current market prices

20. The GDP estimates for India varies from 2 trillion US dollar to:
(a) 3 Trillion US dollar
(b) 4 Trillion US dollar
(c) 5 Trillion US dollar
(d) 6 Trillion US dollar
Answer:
(c) 5 Trillion US dollar

21. National disposable income is different from National Income because it also takes into account:
(a) Current transfers
(b) Capital transfers
(c) Both (a) and (b)
(d) All the above
Answer:
(a) Current transfers

22. Transfer is:
(a) Gift
(b) Charity
(c) Tax
(d) All the above
Answer:
(d) All the above

23. Welfare of the people of a country is determined by:
(a) Nominal GDP
(b) Real GDP
(c) Per capita real GDP
(d) Per capita real GDP and Cost of other factors.
Answer:
(d) Per capita real GDP and Cost of other factors.

24. Reduction is the production of junk food:
(a) Reduces welfare
(b) Increase welfare
(c) Both (a) and (b)
(d) Has no effect on welfare
Answer:
(c) Both (a) and (b)

25. Given GDP_MP = 100
Subsidies = 5
Depreciation = 10 then NDP_FC equals:
(a) 95
(b) 100
(c) 105
(d) 115
Answer:
(a) 95

26. Given NDP_FC = 80
Indirect tax = 10 and Net factor Incdme to abroad = 10.
What is NNP_MP?
(a) 70
(b) 80
(c) 90
(d) 100
Answer:
(d) 100

27. GDP at M_P = 50,720 , NFIA = 2,400 calculate GNP at market price GNP = ………..
(a) 53,120 Cr
(b) 54,120 Cr
(c) 53,000 Cr
(d) 53,720 Cr
Answer:
(a) 53,120 Cr

28. GNP at market price 97,000 , subsidies 9,000 and Indirect Taxes 12,000 calculate GNP_FC
(a) 1,00,700
(b) 1,00,000
(c) 9,000
(d) 12,000
Answer:
(b) 1,00,000

Pick the odd one out.

1. Per capita Income is:
(a) The total Income of the country
(b) Dividing National Income by population
(c) GDP/Population
(d) The Average Income of a person of a country
Answer:
(a) The total Income of the country

2. Net value added at factor cost (F) is:
(a) Market value of output
(b) Total of income payment made to factors of production
(c) NNI – Amount of Indirect tax + subsidies
(d) Value of the net output of the economy
Answer:
(d) Value of the net output of the economy

3. Methods of measuring National Income by:
(a) Value added method
(b) Factor earning method
(c) Disposable Personal Income
(d) Expenditure method
Answer:
(c) Disposable Personal Income

4. Real Income is:
(a) Nominal Income
(b) Real income is National Income expressed in terms of general price level
(c) Buying power of Nominal Income
(d) National Income/ Population
Answer:
(c) Buying power of Nominal Income

5. GDP deflator is:
(a) Index of price changes of goods and services included in GDP
(b) Difference between the value of exports and imports of goods and services
(c) It is dividing nominal GDP in a given year by the real GDP
(d)

Answer:
(b) Difference between the value of exports and imports of goods and services

Students get through the TN Board 12th Economics Important Questions Chapter 1 Introduction to Macro Economics which is useful for their exam preparation.

TN State Board 12th Economics Important Questions Chapter 1 Introduction to Macro Economics

Very short answer questions

Question 1.
Why was Keynes regarded as the Father of Modern Economics?
[OR]
How was Keynes regarded as arid why?
Answer:
Keynes was regarded as the Father of modem Economics because he explained the way out from the Great Economic depression when goods remained unsold and workers unemployed.

Question 2.
What are the subject matters covered in Macro Economics?
Answer:
The subject matters covered in Macro Economics are the such as Employment National Income, Inflation, business cycle, Poverty, Inequality, disparity, investment and saving, capital formation, infrastructure development, international trade, the balance of trade and balance of payments, exchange rate, and economic growth.

Question 3.
Write a note on the following:
Answer:

1. National Income: It is a very important basic aspect of Macro Economy Analysis. The study also helps us to understand the growth process of an economy in the long term.
2. Inflation: Inflation refers to a steady increase in the general price level.
3. Business cycle: This problem is being faced by all economics. The cynical movements like depression, boom, recession, and recovery need to be studied carefully based on the aggregate economic variables.
4. Poverty and unemployment: This is one of the economic paradoxes of resource-rich nations. The corrective measures can be done and resources can be allocated when the rate of poverty and unemployment are studied properly.
5. Economic growth: Macroeconomic studies will give us a clear picture of the factors determining the growth and development of an economy.
6. Economic policies: It is necessary to solve basic problems and to overcome the obstacles of economic growth.

Question 4.
Write a note on the Economy, or What do you mean by the economy? or Define Economy.
Answer:
An economy is referred to any system or area where economic activities are carried out.

Question 5.
What are the fundamental economic activities?
Answer:
The fundamental economic activities are production, consumption, and exchange activity.

Question 6.
Name the major Economic Activities.
Answer:
The major economic activities include transportation, banking, advertising, planning, government policy, etc.

Question 7.
Name the major non-economic activities.
Answer:
The major non-economic activities are environment, health, education, entertainment, governance regulations, etc.

Question 8.
Name the external activities from other economies.
Answer:
The external activities from other economies are export, import, international relations, emigration, immigration, foreign investments, foreign exchange earnings, etc.

Question 9.
What does the economic system refer to?
Answer:
Economic systems refer to the manner in which individuals and institutions are connected together to carry out economic activities in a particular area.

Question 10.
Name the three major types of economic systems.
Answer:

1. Capitalistic economy (capitalism),
2. Socialistic economy (socialism) and
3. Mixed economy (mixedism) are the three major economic systems.

Question 11.
What does mixedism denote?
Answer:
Mixedism denotes the co-existence of capitalism and socialism.

Question 12.
Name the countries which are examples of a capitalistic economy.
Answer:
The countries are the USA, West Germany, Australia, and Japan.

Question 13.
What does socialism refer to?
Answer:
Socialism refers to a system of total planning, public ownership arid state control on economic activities.

Question 14.
Define socialism.
Answer:
Socialism is defined as a way of organizing a society in which major industries are owned and controlled by the government.

Question 15.
What does a socialist economy aim at?
Answer:
It aims at equality in the distribution of income and wealth and equal opportunity for all.

Question 16.
What is the socialist economy?
Answer:
In a socialist economy, all the resources are owned and operated by the government and public welfare is the main motive.

Question 17.
What do you mean by the mixed economy? (or) What is a mixed economy?
Answer:
In a mixed economy, both the private and public sectors co-exist and work together for economic development. It is a combination of capitalism and socialism.

Question 18.
What is a mixed economy? Give example or How does the mixed economy work?
Answer:
In Mixed Economy, resources are owned by Individuals and the Government. Eg: India, England, France, and Brazil.

Question 19.
How are variables classified in economics?
Answer:
Variables used in economic analysis are classified as stock and flow both may increase or decrease with time.

Question 20.
Write a note on stock and variable.
Answer:
Stock: It is a quantity of a commodity measured at a point in time.
Eg: Money supply, unemployment level, foreign exchange resources, and capital.
Flow Variable: They are measured over a period of time.
Eg: National income, exports, imports, consumption, production, investment, etc.

Question 21.
What is a model?
Answer:
A model is a simplified representation of a real situation. It is an explanation of the working of an economy.

Question 22.
How are models used in economics?
Answer:
In economics, models are used to describe economic activities, relationships, and behavior. They are built with graphs, equations, and maths.
Eg: Supply-demand models.

Question 23.
What does the circular flow of income indicate?
Answer:
It shows connections between different sectors of an economy.
Eg: The flow of income, goods, and services, is also a base of national accounts.

Question 24.
What do macro-economic studies about?
Answer:
It studies the behavior and performance of an economy as a whole.

Short answer questions

Question 1.
Draw the flowchart of the functioning of an economy based on activities.
Answer:

Question 2.
Explain the classifications of economics.
Answer:

1. Status of Development: Developed, underdeveloped, undeveloped, and developing economies.
2. System of Activities: Capitalistic, Socialistic, and Mixed Economies.
3. The scale of Activities: Small and Large Economies.
4. Nature of Functioning: Static and Dynamic Economies.
5. Nature of Operation: Closed and Open Economies.
6. Nature of Advancement: Traditional and Modem Economies.
7. Level of National Income: Low Income, Middle Income, and High-Income Economies.

Question 3.
Explain mixed economy (mixedism) with a diagram.
Answer:

Question 4.
Draw the diagram of the circular flow of income in a three-sector economy.
Answer:

Question 5.
What are the limitations of macroeconomics?
Answer:

1. Excessive generalization of the economy as a whole.
2. Assumption of homogeneity among individual units.
3. The composition of good and bad will vary between individual and the nation,
4. Non-economic factors will determine the Economic activities.

Long answer questions

Question 1.
What are the features of a capitalist economy?
Answer:

1. Private ownership of property and law of inheritance: All resources are owned by private individuals and they have the right to own or sell according to their will.
2. Freedom of choice and enterprise: The individuals are free to do any trade or occupations anywhere and consumers are also free to use them.
3. Profit motive: The technology is advanced and specializations are implemented, so the producers follow the golden rule of maximization of profit.
4. Free competition: There is competition between buyers and sellers. The Government cannot prevent competition in the free market.
5. Price mechanism – All economic activities are regulated through a price mechanism.
6. Role of Government: The government has a limited role in a capitalist economy. The government provides basic services like defense, education, etc., in the economy.
7. Inequalities of income: In a capitalist economy, the haves and have nots are classified so economic inequality prevails.

Question 2.
What are the demerits of capitalism?
Answer:

1. The concentration of wealth and income: The inequalities of income prevails in a capitalist economy, as the concentration of wealth is with few.
2. Wastage of resources: Because of product duplication and advertising, resources are wasted.
3. Class struggle: In capitalism, the society is divided into capitalists and workers due to class struggle.
4. Business cycle: Frequent economic fluctuations because of the free market.
5. Production of Non-Essential goods: To maximize profit, even harmful goods are produced.

Question 3.
Explain the features of socialism.
Answer:

1. Public ownership of means of production: The factors of productions (resources) are nationalized.
2. All decisions are taken by the central planning authority.
3. Maximum social benefit: Social welfare is the aim of socialism.
4. Non – existence of competition: The Government has total control of production and distribution, there is no competition.
5. Absence of price mechanism: Price is controlled and fixed by the central planning authority.
6. Equality of income: There is no inequality of income in a socialist economy.
7. Equality of opportunity: Equal opportunity is for all in socialism.
8. Classless society: There are no class distinctions in socialism. All are equal.

Question 4.
Explain the merits of socialism.
Answer:

1. Reduction in inequalities: No private property or exploitation is allowed.
2. Rational allocation of resources: Wastages are minimized as the allocation of resources is done by the central planning authority.
3. Absence of class conflicts: There are no inequalities, society is harmonious.
4. End of trade cycles: Economic fluctuations are controlled because of the planning authority.
5. Promotes social welfare: Social welfare is promoted by reducing exploitation, inequalities in society.

Question 5.
Explain the merits of a mixed economy.
Answer:

1. Rapid Economic growth: In a mixed economy, the public and private needs are met.
2. Balanced economic growth: There is balanced growth between agriculture and industry, consumer and capital goods, and rural and urban areas.
3. Proper utilization of resources: In a mixed economy, utilization of resources is controlled directly in the Government sector and indirectly in the private sector.
4. Economic equality: The government introduces a progressive rate of taxation for economic equality.
5. Special advantages to the society: To promote social welfare fair price shops, rationing is established by Government.

Question 6.
Explain the demerits of a mixed economy.
Answer:

1. Lack of coordination: Co-ordination related problems exist between the private and public sectors due to different ideas.
2. Competitive attitude: Both the private and public sectors should work complementary but they are competitive in a real sense.
3. Inefficiency: Due to inefficiency and corruption, public sector enterprises remain inefficient.
4. Fear of nationalization: The fear of nationalization affects the business operations of private enterprises.
5. Widening inequality: The gap between the rich and the poor increases, the inequality of capitalism and inefficiency of socialism prevails in mixed economies.

Question 7.
Explain three-sector economies with the diagram.
Answer:
In addition to households and firms, the inclusion of the government sector makes this model a three-sector model. The government levies taxes on households and firms, purchases goods and services from firms, and receive factors of production from the household sector. On the other hand, the government also makes social transfers such as pension, relief, subsidies to the households. Similarly, Government pays the firms for the purchases of goods and services. The Flow Chart illustrates the three-sector economy model: Under the three-sector model, national income(Y)isobtainedbyaddingConsumptionexpenditure(C), Investment expenditure (I), and Government expenditure (G).
[Refer diagram 1.2.]
Therefore:
Y = C + I + G

Question 8.
Explain four sector economies with the diagram.
Answer:

In a Four-sector economy, in addition to households, firms, and government, a fourth sector namely, the external sector is included. In real life, only a four-sector economy exists. This model is composed of four sectors namely,

1. Households
2. Firms
3. Government,
4. External sector

The external sector comprises exports and imports. It is illustrated in the Flow Chart.
In a four-sector economy, expenditure for the entire economy includes domestic expenditure (C+I+G) and net exports (X- M). Therefore,
Y = C + I + G +(X – M).

Multiple-choice questions

1. The word Micro and Macro were coined in the year:
(a) 1930
(b) 1931
(c) 1932
(d) 1933
Answer:
(d) 1933

2. The General Theory of Employment, interest and money was published in:
(a) 1935
(b) 1936
(c) 1937
(d) 1934
Answer:
(b) 1936

3. Purchase of refrigerator by a restaurant is:
(a) consumption expenditure on durable good
(b) consumption expenditure on non-durable goods
(c) intermediate expenditure
(d) final expenditure
Answer:
(d) final expenditure

4. Economic territory of a country is also called as:
(a) geographical territory
(b) political frontiers
(c) domestic territory
(d) all the above
Answer:
(c) domestic territory

5. …….. Term was coined by Manfred D Steger in 2002.
(a) Micro
(b) Macro
(c) Globalism
(d) Economy
Answer:
(c) Globalism

6. Co-existence of capitalism and socialism is called as:
(a) Market Economy
(b) Mixedism
(c) Traditional Economy
(d) Village Economy
Answer:
(b) Mixedism

7. ……….. is the driving force behind ail Economic activities in a capitalistic economy.
(a) Market
(b) Price
(c) Demand
(d) profit
Answer:
(d) profit

8. ……….. is the golden rule for a producer under Capitalism.
(a) To maximize profit
(b) To maximize production
(c) To maximize consumption
(d) To maximize distribution.
Answer:
(a) To maximize profit

9. ………. is the heart of a capitalistic economy.
(a) Competition
(b) Inequality of income
(c) Price mechanism
(d) Profit motive
Answer:
(c) Price mechanism

10. The Society is divided into two classes.
(a) Socialistic
(b) Capitalistic
(c) Mixedism
(d) Traditional society
Answer:
(b) Capitalistic

11. Inequalities of income is increased in because of the concentration of wealth in few hands.
(a) Capitalism
(b) Socialism
(c) Mixedism
(d) Globalism
Answer:
(a) Capitalism

12. The socialistic Economy is also known as:
(a) Planned economy
(b) Mixed economy
(c) Village economy
(d) Market economy
Answer:
(a) Planned economy

13. In a socialistic economy, all resources are owned and operated by:
(a) Government
(b) Private
(c) Individual
(d) RBI
Answer:
(a) Government

14. ……….. is an integral part of a socialistic economy.
(a) Social benefit
(b) Price mechanism
(c) Planning
(d) Profit
Answer:
(c) Planning

15. ……….. is the guiding principle behind all economic activities.
(a) Economy welfare
(b) Social welfare
(c) Material welfare
(d) Human welfare
Answer:
(b) Social welfare

16. Society functions in a harmonious manner in Economy.
(a) Capitalist
(b) Socialist
(c) Mixedism
(d) Village
Answer:
(b) Socialist

17. ………… is a simplified representation of the real situation of the economy.
(a) Model
(b) Society
(c) National income
(d) Macroeconomics.
Answer:
(a) Model

18. The basic identities of the two sector economy is:
(a) Y = C+I
(b) Y = C+S
(c) Y = S+Y
(d) Y = I+S
Answer:
(a) Y = C+I

19. ……….. is a quantity of a commodity that is constant at a point in time,
(a) Flow
(b) Stock
(c) Income
(d) Consumption
Answer:
(b) Stock

20. In the production phase of the circular flow of income, the income are:
(a) created
(b) distributed
(c) spent
(d) accumulated
Answer:
(a) created

21. Police department is a part of ……….. sector.
(a) primary sector
(b) secondary sector
(c) tertiary sector
(d) none
Answer:
(c) tertiary sector

22. Converting wheat into wheat flour is a part of this sector of .the economy:
(a) primary sector
(b) secondary sector
(c) tertiary sector
(d) agricultural sector
Answer:
(c) tertiary sector

23. Value added is:
(a) sales price – purchase price
(b) sales + stocks
(c) sales + net change in stocks – intermediate costs
(d) value of the output – purchase
Answer:
(c) sales + net change in stocks – intermediate costs

24. In national income accounting, reat is the payment for used of:
(a) parent
(b) trademark
(c) land
(d) godown
Answer:
(c) land

25. Income method national income from:
(a) income generation angle
(b) income paid out the angle
(c) income speak angle
(d) all the above
Answer:
(b) income paid out an angle

26. Expenditure method of estimating national income takes into account of:
(a) transfer expenditure
(b) financial expenditure
(c) intermediate expenditure
(d) all the above
Answer:
(b) financial expenditure

27. Operating surplus is:
(a) profit
(b) profit + rent
(c) profit + rent + royalty + interest
(d) profit + rent + interest
Answer:
(c) profit + rent + royalty + interest

28. Food item purchased by a production unit are:
(a) single-use customer goods
(b) single-use capital goods
(c) durable use consumer goods
(d) durable use capital goods
Answer:
(b) single-use capital goods

29. Capital loss is:
(a) normal wear and tear of fixed capital goods
(b) foreseen obsolences
(c) unforeseen obsolences
(d) all the above
Answer:
(c) unforeseen obsolences

30. Capital and investments are:
(a) both flows
(b) both stocks
(c) capital is stock while investment is a flow
(d) investment is stock while capital is a flow
Answer:
(c) capital is stock while investment is a flow

Students get through the TN Board 12th Commerce Important Questions Chapter 28 Company Secretary which is useful for their exam preparation.

TN State Board 12th Commerce Important Questions Chapter 28 Company Secretary

Very short answer questions

Question 1.
Define secretary using Oxford dictionary.
Answer:
“A secretary is a person who is employed to conduct correspondence on behalf of an individual or a company and also to execute filing documentation and administrative functions” Oxford Dictionary.

Question 2.
Mention the statutory functions of a company secretary.
Answer:
According to the Companies Act,

1. Under the Income Tax Acts
2. Under the Indian Stamp Act
3. Under Other acts

Question 3.
State the other qualifications of a company secretary.
Answer:
The secretary must be smart, unbiased, and must have an IQ presence of mind and amiable personality. He should have a thorough knowledge of company law, labor law, mercantile law, accounting, and office management.

Question 4.
What is Quorum?
Answer:
There is another requirement of quorum. A single person does not contain a meeting. So it has to be seen that the required number of people are present. A requisite number of people at the meeting is called a quorum.

Question 5.
What are the acts applicable to the company?
Answer:

1. Foreign exchange regulation act
2. Industries development and regulation act.
3. Factories act
4. Industrial dispute act
5. Labor laws
6. Payment of wages act.

Question 6.
What is the qualification of a company secretary?
Answer:
Apart from the statutory qualifications, he should also have other qualifications as may be necessary to conduct the affairs of the company. Is statutory qualifications-company having a paid-up share capital of? 5 crore or more in the case of any other company (one or more).

Question 7.
Explain about the board meeting.
Answer:
Meetings of directors are called board meetings. Meetings of the directors provide a platform to discuss the business and take formal decisions.

Question 8.
State the kinds of resolution.
Answer:
There are broadly three types of resolutions namely,

1. Ordinary resolution
2. Special resolution
3. A resolution requiring special notice.

Short answer questions

Question 1.
Explain briefly the appointment of the company secretary.
Answer:

1. 204 of companies act 2013 the provisions regarding appointment of a company secretary are every listed company must have a full-time company secretary.
2. Every unlisted company and every private company having a paid-up capital of Rs. 5 crores or more must also have a full-time secretary.
3. Only an individual who is a member of the institute of company secretaries of India can be appointed as a company secretary.

Question 2.
Give a short note company secretary.
Answer:

1. The person who is responsible for the general performance of an organization is called the company secretary.
2. The Key Managerial Personnel (KMP) who run a company is called with different titles directors, managers or secretary.
3. The word secretary has originated, in Latin. The Latin word “secretaries” which means secret.
4. The person who steers the company holding the administrative, financial, and overall performance of the company is called the company secretary.

Question 3.
Discuss “voting”.
Answer:

1. The word “vote” originated in the Latin word votum indicating one’s wishes or desire.
2. By casting his vote one formally declaring his opinion or wish in favor of or against a proposal or a candidate to be elected for an office.
3. Every motion or proposal is subject to the approval of the majority of the members or shareholders can cast their votes only on the occasions in which they want to establish their rights according to section 47 of the company act 2013.

Long answer questions

Question 1.
Explain the powers and rights of the company secretary.
Answer:
A company secretary is a high-level officer. He enjoys certain rights and power as per the contract made with the company, which are as follows.

1. Supervision and control: As a head of the office a company secretary has the rights to supervise, direct and control all office activities of sub-ordinate officers.
2. Signing authority: Being a principal officer, a company secretary can sign contracts, files, and documents on behalf of the company.
3. Exercising power: He has the right to exercise powers as granted by the board of directors.
4. Issuing testimonial: A company secretary can issue testimonials to employees on behalf of the company.
5. Claiming salary and damages: As per the contract, he has the right to claim his salary and other allowances. He can also take legal action against the company if there is any breach of contract.
6. Attending meeting: He has the right to be physically present in the meetings of the shareholders and board of directors.
7. Preferential creditor: During the winding up of a company, the company secretary can claim his legal dues on a preferential basis.

Question 2.
In what situations company secretary can be removed?
Answer:
The company secretary may be terminated under the following situations:

1. When his term of appointment has expired.
2. When he is given proper notice of dismissal as per the terms of agreement of employment.
3. When he makes a secret profit.
4. When he misconducts himself
5. Where he is found to be guilty of moral turpitude, negligence, disobedience, incompetence.
6. Where he suffers from permanent mental and physical disabilities.

Multiple-choice questions

1. The Latin word “Secretarius” which means:
(a) Skill
(b) Knowledge
(c) Secret
(d) Personality
Answer:
(c) Secret

2. The first secretary of a company is appointed by the:
(a) Promoters
(b) Company act
(c) Board of directors
(d) None
Answer:
(a) Promoters

3. Who will make statutory books?
(a) Directors
(b) Secretary
(c) Shareholder
(d) All the above
Answer:
(b) Secretary

4. A company secretary acts under the full control of the:
(a) Board of directors
(b) Directors
(c) Both (a) and (b)
(d) None
Answer:
(c) Both (a) and (b)

5. ………… Should act as a link between the board of directors and the shareholders.
(a) Executive
(b) Chairman
(c) Secretary
(d) Vice-chairman
Answer:
(c) Secretary

6. Who has absolute discretion to remove a company secretary?
(a) The board of director
(b) The director
(c) Chairman
(d) Shareholders
Answer:
(a) The board of director

7. Every public company should hold a meeting of the shareholders within:
(a) Six months
(b) One year
(c) One month
(d) Three months
Answer:
(a) Six months

8. First meeting of directors should be convened within the date of incorporation of the company.
(a) 60 days
(b) 30 days
(c) 90 days
(d) 120 days
Answer:
(b) 30 days

9. …………. can be present at the meeting and he cannot vote.
(a) Proxy
(b) Poll
(c) Quorum
(d) None
Answer:
(a) Proxy

10. Company secretary should have a thorough knowledge of
(a) Company law
(b) Mercantile law
(c) Labour law
(d) All the above
Answer:
(d) All the above

11. ………… must ensure timely submission of tax revenue to the sales tax authority.
(a) Chairman
(b) Director
(c) Secretary
(d) None
Answer:
(c) Secretary

12. Secretary may be terminated under the following situations.
(a) Term of appointment has expired
(b) Misconducts himself
(c) He suffers from mental disabilities
(d) All the above
Answer:
(d) All the above

13. a Requisite number of the person at the meeting is called:
(a) Quorum
(b) Poll
(c) Proxy
(d) Financiers
Answer:
(a) Quorum

14. Voting has no secrecy is known as:
(a) Open procedure
(b) Secret procedure
(c) Postal ballot
(d) All the above
Answer:
(a) Open procedure

15. Voting method that could maintain the secrecy of the voter is known as:
(a) Secret procedure
(b) By voice
(c) Open procedure
(d) None
Answer:
(a) Secret procedure

Students get through the TN Board 12th Commerce Important Questions Chapter 27 Company Management which is useful for their exam preparation.

TN State Board 12th Commerce Important Questions Chapter 27 Company Management

Very short answer questions

Question 1.
What do you mean by Director?
Answer:
The person who takes an active interest in the well-being of a company and one of the members of the board of directors is called a Director of a company. A director is a person from a board of Directors who leads (or) supervises the functions of a company.

Question 2.
Mention a few duties of a director.
Answer:
The following are the duties of Directors:

1. Collective duties of Directors
2. General duties of Directors
3. Specific duties of Directors

Question 3.
Who can a non-executive Director?
Answer:
A non-executive director typically does not engage in the day-to-day management of the organization but is involved in policymaking and planning exercises. In addition, non-executive Directors’ responsibilities include the monitoring of the executive Directors and acting in the interest of the company shareholders.

Question 4.
Who is called an independent Director?
Answer:
According to section 149(6), an independent director is an alternate Director other than a Managing Director who is known as a whole-time Director or nominee Director. The company has to appoint a minimum of two independent Directors.

Question 5.
How to nominate the Director?
Answer:
A Director nominated by any financial institution in pursuance of the provisions of any law for the time being in force, or of any agreement, or appointed by any Government or any other person to represent its interest.

Question 6.
What is the maximum limit a company can appoint Directors?
Answer:
A company can appoint maximum (15) fifteen Directors. A company may appoint more than fifteen directors after passing a special resolution in a general meeting and approval of the Central Government is not required.

Question 7.
State the general provisions relating to the appointment of Directors?
Answer:

1. Every Director should be appointed by the company in a general meeting as per the provision of the act.
2. Director identification number is compulsory for the appointment of Director of a company.
3. A Director shall furnish his identification number and a declaration that he is not disqualified to become a Director under the act.

Question 8.
Who can remove a Director of the company?
Answer:
A director of a company can be removed from his office before the expiry of his term by the shareholders, the Central Government, the company law board.

Short answer questions

Question 1.
Explain about the “First Director”?
Answer:
“First Director” – Director means those Directors who hold office from the date of incorporation of the company. The first Directors are usually named in the articles of association or are appointed by the directors.
In the case of one person company, an individual being a number shall be deemed to be its first Director until the Director(s) are duly appointed by the member in accordance with the provision of section 152.

Question 2.
Explain managerial remuneration and its perquisites?
Answer:
The managerial remuneration is payable to persons appointed as 196 of the act. The term remuneration means any money or its equivalent given or passed to any person for services rendered by him and includes perquisites.

1. Value of rent-free or concession accommodation.
2. Value any other items provided free of cost or at a concessional rate.
3. Value of securities/sweat equity shares allotted or transferred by the employer or former employer to the employee.
4. A contribution made by an employer to an approved superannuation fund.
5. Value of any other fringe benefit or amenity.
6. Stock options would be part of the remuneration for all Directors.

Question 3.
Discuss the rights of the Director?
Answer:
Rights can be categorized into individual rights and collective rights. Individual rights such as:

1. Right to inspect books of accounts.
2. Right to receive notices of board meetings.
3. Right to participate in proceedings and cast vote in favor or against resolutions.
4. Right to receive circular resolutions proposed to be passed.
5. Right to inspect minutes of board meetings.

Collective rights are as follows:

1. Right to refuse to transfer shares: Directors of private companies and deemed public companies are entitled to refuse registration of transfer of shares to a person whom they do not approve.
2. Right to elect a chairman: The Directors are entitled to elect a chairman for the board meetings.
3. Right to appoint a managing Director: The board has the right to appoint the Managing Director/manager of the company.
4. Right to recommend dividend: The board is entitled to decide whether the dividend is to be paid or not shareholders cannot compel the Directors to pay a dividend. However, they can reduce the rate of recommended dividends. Payment of dividends is the prerogative of the board.

Long answer questions

Question 1.
State the liability to the company of Directors.
Answer:
The Directors shall be liable to the company for in the following cases: Where they have acted ultra – vires the company: For example, where they apply the funds of the company to objects not specified in the memorandum of association or when they pay dividends out of capital.
Where there is a breach of trust: Directors being the trustees of the company, should discharge their duties in the best interest of the company, where they commit a breach of trust resulting in a loss to the company they are bound to make good the loss.
Misfeasance: Directors are liable to the company for misfeasance. It covers willful negligence. However mere failure on the part of the Director to take necessary steps for recovery of debts due to the company does not constitute misfeasance.

Question 2.
Differentiate between manager and Director?
Answer:

Question 3.
Differentiate between the managing director and the whole-time director?
Answer:

Multiple-choice questions

1. The group of human beings who undertake the responsibility to run the business are known as:
(a) Human resource
(b) Board of directors
(c) Human resource management
(d) None
Answer:
(b) Board of directors

2. The directors of a company formulate:
(a) Policies
(b) Objectives
(c) Both (a) and (b)
(d) Work
Answer:
(c) Both (a) and (b)

3. The directors are expected to act in:
(a) Good faith
(b) Utmost care
(c) Perform work
(d) All the above
Answer:
(d) All the above

4. Mention the key managerial personnel:
(a) The chief executive officer
(b) The managing director
(c) The company secretary
(d) All the above
Answer:
(d) All the above

5. The general board is empowered to:
(a) Set the policies
(b) Decision
(c) Work
(d) Duties
Answer:
(a) Set the policies

6. An ……….. can be either a whole-time director of the company or a managing director:
(a) Executive director
(b) Non-executive director
(c) Independent director
(d) All the above
Answer:
(a) Executive director

7. A substitute to a director who may be absent from India for a period, a company can appoint:
(a) Shadow director
(b) Independent director
(c) Alternative director
(d) Additional director
Answer:
(c) Alternative director

8. A person who is not a member of the board but he has some power to run a company is known as:
(a) Additional director
(b) Shadow director
(c) Independent
(d) Nominee director
Answer:
(b) Shadow director

9. A private company shall have a minimum of ……… directors.
(a) Ten
(b) Eight
(c) Nine
(d) One
Answer:
(d) One

10. A company can appoint a maximum number directors.
(a) 10
(b) 12
(c) 15
(d) 9
Answer:
(c) 15

11. The power is stated in the term of employment.
(a) Whole-time director
(b) Managing director
(c) Both (a) and (b)
(d) None
Answer:
(a) Whole-time director

12. ……… Comes under top-level management and play an important role in decision making.
(a) Directors
(b) Managers
(c) Executives
(d) Employees
Answer:
(a) Directors

13. Who is entrusted with substantial power?
(a) Whole-time director
(b) Manager
(c) Managing director
(d) None
Answer:
(c) Managing director

14. Who is in charge of the particular department of the company?
(a) Director
(b) Manager
(c) Secretary
(d) All the above
Answer:
(b) Manager

15. A director can be removed from his office in the following way.
(a) The shareholders
(b) The Central Government
(c) The company law board
(d) All the above.
Answer:
(d) All the above.

Students get through the TN Board 12th Commerce Important Questions Chapter 26 Companies Act, 2013 which is useful for their exam preparation.

TN State Board 12th Commerce Important Questions Chapter 26 Companies Act, 2013

Very short answer questions

Question 1.
What is a company?
Answer:
Company form of business has certain distinct advantages over other forms of business like a sole proprietorship, partnership, etc., It includes features such as limited liability, perpetual succession, etc.

Question 2.
What are the different stages of the formation of the company?
Answer:

1. Promotion
2. Registration
3. Capital subscription
4. Commencement of business

Question 3.
What is a public company?
Answer:
A corporation whose ownership is dispersed among the general public in many shares of stock which are freely traded on a stock exchange or in the counter market.

Question 4.
Explain articles of association.
Answer:
Articles of association is a document which along with the memorandum of association from the company’s constitution defines the responsibilities of the directors the kind of business to be undertaken and them by which the shareholder’s extent control over the board of directors.

Question 5.
What is share capital?
Answer:
Share capital consists of all funds raised by a company in exchange for shares of either common or prepared shares of stock. The amount of share capital or equity financing a company has can change over time.

Question 6.
Mention the kinds of preference shares.
Answer:

1. Cumulative preference shares
2. Non-cumulative preference shares
3. Redeemable preference shares
4. Non – Redeemable preference shares
5. Convertible preference shares
6. Non – Convertible preference shares
7. Participating preference shares
8. Tenure of preference shares

Question 7.
Define share certificate.
Answer:
A share certificate is an instrument in writing that is legal proof of the ownership of the number of shares in it. Every company limited by shares whether it is public or private must issue the share certificate to its shareholders except in the case where shares are held in a dematerialization system.

Question 8.
What is stock?
Answer:
A stock is a general term used to describe the ownership certificates of any company. A share on the other hand refers to the stock certificate of a particular company. Holding a particular company’s shares makes you a shareholder.

Question 9.
When the certificate of incorporation issued by the registrar?
Answer:
After scrutinizing all the documents filed by the promoter the registrar enters the name of the company in the register of companies and charges a registration fee. The registrar then issues the “Certificate of Incorporation”.

Question 10.
Mention a few features of debentures.
Answer:

1. It is issued by the company in the form of a certificate under the common seal.
2. It is a movable property.
3. Debenture holders are the creditors of the company.
4. Debentures carry a fixed rate of interest.
5. Debentures may be either secured or unsecured.

Short answer questions

Question 1.
Discuss the history of company law in India.
Answer:
The earliest business association in England was the “Merchant Guilds”. Some of the merchant Association or guilds who have regulated the companies-

1. A Royal charter established the East India Company in the year 1600.
2. In England, the joint-stock companies act was passed for the first time in 1844.
3. In the year 1850, taking the English joint-stock companies Act, 1844 as a base, a provision was made for the registration of joint-stock companies in India.
4. The joint-stock companies act was passed in India by introducing the concept of limited liability in the year 1857.
5. In 1913, the Indian companies act of 1913 was passed. The act introduces the institution of private companies in the corporate sector in India.

After Independence based on the recommendation of Shri. H.C. Baba committee in 1950 and the provisions of the English Companies Act 1948 the Companies Act 1956 was introduced in the Parliament.

Question 2.
Explain different kinds of share capital.
Answer:
According to section 43 of the Act, a company that is limited by shares can issue two classes of shares. They are

1. Equity share capital
   (a) With voting rights or
   (b) With differential rights as to dividend, voting, or otherwise in accordance with such rules as may be prescribed.
2. Equity shares: Those shares which are not called as preference share are known as equity share or the share of a company which does not have any preferential rights with regard to dividend and repayment of the share capital at the time of liquidation of a company.
3. Preference shares: Section 42 of the companies Act, 2013 the term “Preference shares” means that part of the share capital the holders of which have a preferential right overpayment of dividend and repayment of share capital in the event of winding up of the company.

Question 3.
What are the details contains in the share certificate?
Answer:

1. Company name
2. Date of issue
3. Details of the member
4. Shares held
5. Nominal value
6. Paid-up value
7. Definite number

Long answer questions

Question 1.
Explain briefly the formation of a company.
Answer:
Section 3(1) of the Act states that a company may be formed for any lawful purpose by:

1. Seven or more persons, where the company to be formed is to be a public company.
2. Two or more persons where the company to be formed is to be a private company or
3. One person, where the company to be formed is to be one person company, that is to say, a private company by subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of registration “Formation of a company” has been divided into four stages:
   (a) Promotion
   (b) Registration
   (c) Capital subscription
   (d) Commencement of business
   Out of the four stages, the first two stages promotion and registration are necessary for both public and private companies. A private company can start operating its business immediately after registration, but a public company has to pass through two more stages capital subscription and commencement. of business.

Question 2.
Discuss private placement.
Answer:

1. Private placement means an offer of securities or invitation to subscribe to securities to a select group of persons through a private placement offer.
2. The number of subscribers under private placement should not exceed 50 members or such numbers prescribed.
3. Qualified institutional buyers and employees holding shares under stock option plans should be excluded in a country the maximum members mentioned above.
4. But, companies going for private placement should fulfill certain conditions mentioned in the Companies Act 2013 in this regard. Then only they can collect capital through private placement.

Multiple-choice questions

1. In which year a Royal Charter established the East India company?
(a) 1605
(b) 1603
(c) 1601
(d) 1600
Answer:
(d) 1600

2. In which act introduces the institution of private companies in the corporate sector in India?
(a) The Indian Companies Act
(b) Industrial and financial reconstruction
(c) Joint-stock companies Act
(d) None
Answer:
(a) The Indian Companies Act

3. According to section 2(11) “body corporate” or corporate includes:
(a) Private company
(b) Public company
(c) Small company
(d) All the above
Answer:
(d) All the above

4. How many stages of information of a company?
(a) 8
(b) 6
(c) 4
(d) 2
Answer:
(c) 4

5. According to sec 35 of companies act issued by the registrar.
(a) Certificate of incorporation
(b) Power of attorney
(c) Verification
(d) Article of association
Answer:
(a) Certificate of incorporation

6. A fraction or portion of the total capital of the company which has equal denomination is known as:
(a) Share
(b) Debentures
(c) Promoter
(d) Bond
Answer:
(a) Share

7. ………. is issued under the common seal of the company acknowledging the receipt of money.
(a) Stock
(b) Debenture
(c) Bank loan
(d) None
Answer:
(b) Debenture

8. The debentures which are issued with a condition ………. at a fixed date or upon demand.
(a) Redeemable
(b) Irredeemable
(c) Secured
(d) All the above
Answer:
(a) Redeemable

9. Instruments are secured by a charge on the fixed asset of the issuer company is known as:
(a) Unsecured debentures
(b) Secured debentures
(c) Redeemable debentures
(d) Irredeemable debentures
Answer:
(b) Secured debentures

10. …………. generally have a charge on the assets of the company.
(a) Share
(b) Bond
(c) Debentures
(d) Loan
Answer:
(c) Debentures

11. When a company needs ……….. for extension and development purpose.
(a) Interest
(b) Funds
(c) Labour
(d) Loan
Answer:
(b) Funds

12. Instruments that retain the debt character and cannot be converted into equity shares are called as:
(a) Partly convertible debentures
(b) Fully convertible debentures
(c) Non convertible debentures
(d) All the above
Answer:
(c) Non convertible debentures

13. ………. became payable on the company going to liquidation.
(a) Redeemable debenture
(b) Irredeemable debenture
(c) Both (a) and (b)
(d) None
Answer:
(c) Both (a) and (b)

14. ……….. is an instrument in writing that is legal proof of the ownership of a number of shares stated in it.
(a) Share warrant
(b) Share certificate
(c) Certificate incorporation
(d) Issue of securities
Answer:
(b) Share certificate

15. ………… can raise funds from the public by issuing shares.
(a) Public company
(b) Private company
(c) Joints stock company
(d) Sole proprietorship
Answer:
(a) Public company

Multiple-choice questions

1. In which year a Royal Charter established the East India company?
(a) 1605
(b) 1603
(c) 1601
(d) 1600
Answer:
(d) 1600

2. In which act introduces the institution of private companies in the corporate sector in India?
(a) The Indian Companies Act
(b) Industrial and financial reconstruction
(c) Joint-stock companies Act
(d) None
Answer:
(a) The Indian Companies Act

3. According to section 2(11) “body corporate” or corporate includes:
(a) Private company
(b) Public company
(c) Small company
(d) All the above
Answer:
(d) All the above

4. How many stages of information of a company?
(a) 8
(b) 6
(c) 4
(d) 2
Answer:
(c) 4

5. According to sec 35 of companies act issued by the registrar.
(a) Certificate of incorporation
(b) Power of attorney
(c) Verification
(d) Article of association
Answer:
(a) Certificate of incorporation

6. A fraction or portion of the total capital of the company which has equal denomination is known as:
(a) Share
(b) Debentures
(c) Promoter
(d) Bond
Answer:
(a) Share

7. ………. is issued under the common seal of the company acknowledging the receipt of money.
(a) Stock
(b) Debenture
(c) Bank loan
(d) None
Answer:
(b) Debenture

8. The debentures which are issued with a condition ………. at a fixed date or upon demand.
(a) Redeemable
(b) Irredeemable
(c) Secured
(d) All the above
Answer:
(a) Redeemable

9. Instruments are secured by a charge on the fixed asset of the issuer company is known as:
(a) Unsecured debentures
(b) Secured debentures
(c) Redeemable debentures
(d) Irredeemable debentures
Answer:
(b) Secured debentures

10. …………. generally have a charge on the assets of the company.
(a) Share
(b) Bond
(c) Debentures
(d) Loan
Answer:
(c) Debentures

11. When a company needs ……….. for extension and development purpose.
(a) Interest
(b) Funds
(c) Labour
(d) Loan
Answer:
(b) Funds

12. Instruments that retain the debt character and cannot be converted into equity shares are called as:
(a) Partly convertible debentures
(b) Fully convertible debentures
(c) Non convertible debentures
(d) All the above
Answer:
(c) Non convertible debentures

13. ………. became payable on the company going to liquidation.
(a) Redeemable debenture
(b) Irredeemable debenture
(c) Both (a) and (b)
(d) None
Answer:
(c) Both (a) and (b)

14. ……….. is an instrument in writing that is legal proof of the ownership of a number of shares stated in it.
(a) Share warrant
(b) Share certificate
(c) Certificate incorporation
(d) Issue of securities
Answer:
(b) Share certificate

15. ………… can raise funds from the public by issuing shares.
(a) Public company
(b) Private company
(c) Joints stock company
(d) Sole proprietorship
Answer:
(a) Public company

Students get through the TN Board 12th Commerce Important Questions Chapter 25 Government Schemes for Entrepreneurial Development which is useful for their exam preparation.

TN State Board 12th Commerce Important Questions Chapter 25 Government Schemes for Entrepreneurial Development

Very short answer questions

Question 1.
What is the provision given to set up enterprises for entrepreneurs?
Answer:
Financial assistance, Insurance, subsidy, training helps early-stage technology startup and business loans, the special incentive is provided to set up new enterprises for entrepreneurs.

Question 2.
Give a note on making in India.
Answer:
This scheme is designed to transform India into a global design and manufacturing hub, the make in India initiative was launched in September 2014. This has helped procure investment, foster innovation develops skills, protect intellectual property and build best-in-class manufacturing infrastructure.

Question 3.
Mention a few efforts at promoting entrepreneurship by the Government of India.
Answer:

1. Startup India
2. Make in India
3. Atal Innovation Mission
4. Support to Training and Employment Program for Women
5. Jan Dhan – Aadhaar
6. Digital India
7. Standup India

Question 4.
What is the main aim of Standup India?
Answer:
It aims at enabling economic participation of women entrepreneurs, scheduled castes, and scheduled tribes and shares the benefit of Indian growth with the above-mentioned categories. At least women and one individual from the SC or ST communities is granted loans between 10 lakhs to 1 crore to set up greenfield enterprises in manufacturing, services, or the trading sector.

Question 5.
List out the steps in promoting an entrepreneurial venture.
Answer:

1. Selection of the product
2. Selection of the form of ownership
3. Selection of site
4. Designing capital structure
5. Acquisition of manufacturing know-how
6. Preparation of project report

Question 6.
How to select a suitable site for his / her venture?
Answer:

1. Nearness to native place
2. The incentive provided by the Government
3. Nearness to Market
4. Infrastructure Facilities
5. Availability of labor and Raw materials in a particular area.

Question 7.
What are the aspects the projects report covers?
Answer:

1. Sources of finance
2. Raw materials
3. Market potential
4. Profitability

Question 8.
How to get a statutory license?
Answer:
The entrepreneur has to obtain Municipal License from the authority concerned. Then the entrepreneur has to the registrar the unit with the Central and State Tax Department.

Short answer questions

Question 1.
What is stand-up India?
Answer:

1. It was launched in 2015, standup India seeks to leverage Institutional credit for the benefit of India’s underprivileged.
2. It aims at enabling economic participation of women entrepreneurs scheduled castes and scheduled tribes (SC and ST).
3. To share the benefits of Indian growth (SC / ST).
4. Granting a loan to one woman and one individual between 10 lakhs and 1 crore to set up greenfield enterprises in the manufacturing or service or trading sector.

Question 2.
Write a note on the following.
Answer:

1. Pradhan Mantra Kaushal Vikas Yojana (PMKVY): A flagship initiative of the Ministry of Skill Development and Entrepreneurship.
2. This is a skill certificate initiative which aims to train youth in industry-relevant skill to enhance employment opportunities for livelihood creation and employability.
3. Science for Equity Empowerment and Development (SEED):
   (a) SEED aims to provide opportunities to motivated scientists.
   (b) It should cover field-level workers to undertake action-oriented location-specific projects for socio-economic gain, particularly in rural areas.
   (c) SEED emphasizes equity in development so that the benefits of technology accrue to a vast section of the population particularly the disadvantaged.

Question 3.
Explain about Jan Dhan – Aadhaar – Mobile.
Answer:

1. JAM for the first time is a technological intervention that enables the direct transfer of subsidies to intended beneficiaries.
2. Therefore eliminates all intermediaries and leakages in the system which has a potential impact on the lives of millions of Indian citizens.

Long answer questions

Question 1.
Explain India’s efforts at promoting entrepreneurship and innovations.
Answer:
Startup India: Though the startup India Initiative, the Government of India promotes entrepreneurship by mentoring nurturing and facilitating startups throughout their life cycle. A fund to funds has been created to help startups gain access to funding.
Make in India: This scheme is designed to transform India into a global design and manufacturing hub, the make in India initiative was launched in September 2014.
Atal Innovation Mission: AIM is the Government of India’s endeavor to promote a culture of innovation and entrepreneurship and it serves as a platform for the promotion of world-class innovation Hubs Grand challenges, startup business.
Support to Training Employment Program for Women: STEP was launched by the Government of India’s Ministry of Women and Child Development to train women who have access to all skill training facilities especially in rural India.
Jan Dhan – Aadhaar – Mobile: JAM for the first time, is a technological intervention that enables direct transfer of subsidies to intended beneficiaries and therefore, eliminates all intermediaries and leakages in the system, which has a potential impact on the lives of millions of Indian citizens.

Question 2.
Why Government of India support innovation and entrepreneurship in India?
Answer:

1. The Government of India has undertaken several initiatives and instituted policy measures to foster a culture of innovation and entrepreneurship in the country.
2. Job creation is a foremost challenge facing India.
3. With a significant and unique demographic advantage, India has immense potential to innovate raise entrepreneurs, and create jobs for the benefit of the nation and the world.
4. A wide spectrum of new programs and opportunities to nurture innovation has been created by the Government of India across a number of sectors agriculture, chemicals and fertilizers, finance, commerce and Industry Corporate Affairs, and Technology, etc.

Multiple-choice questions

1. To raise the potential of entrepreneur and create jobs for the benefits of the nation through:
(a) Innovation
(b) Schemes
(c) Programmes
(d) Training
Answer:
(a) Innovation

2. In which year make in India initiative was launched:
(a) 2016
(b) 2013
(c) 2014
(d) 2010
Answer:
(c) 2014

3. The schemes that are designed to transform India into a global design:
(a) Make in India
(b) Digital India
(c) Standup India
(d) None
Answer:
(a) Make in India

4. It serves as a platform for the promotion of world-class innovation hubs and technology:
(a) Jandhan – Aadhaar – Mobile
(b) ATAL innovation mission
(c) National skill development mission
(d) Make in India
Answer:
(b) ATAL innovation mission

5. Which ministry trains women in rural India?
(a) Skill development and entrepreneurship
(b) National skill development mission
(c) Women and child development
(d) All the above
Answer:
(c) Women and child development

6. Transforming India into a digitally empowered society is known as:
(a) Make in India
(b) Digital India
(c) Stand up India
(d) Startup India
Answer:
(b) Digital India

7. In which year stand up India launches credit for India’s underprivileged and women entrepreneurs:
(a) 2010
(b) 2012
(c) 2014
(d) 2015
Answer:
(d) 2015

8. ……… aims to provide opportunities to the motivated scientist.
(a) Science for Equity Empowerment and Development (SEED)
(b) National skill development
(c) JanDhan – Aadhaar
(d) None
Answer:
(a) Science for Equity Empowerment and Development (SEED)

9. ……….. has been set up to provide high-class incubation facilities across various parts of India.
(a) Dairy entrepreneurship development scheme
(b) ATAL incubation centres
(c) Single point registration scheme
(d) ATAL innovation mission
Answer:
(b) ATAL incubation centres

10. How entrepreneurs may select a product?
(a) Aspiration
(b) Capacity
(c) Motivation
(d) All the above
Answer:
(d) All the above

11. Entrepreneurs requires finance namely:
(a) Long term
(b) Short term
(c) Both (a) and (b)
(d) None
Answer:
(c) Both (a) and (b)

12. An entrepreneur can get the report prepared by:
(a) Auditors
(b) Development agencies
(c) Consultants
(d) All the above
Answer:
(d) All the above

13. To train the youth in relevant skills to enhance employment for a livelihood is known as:
(a) Pradhan Mantri Kaushal Vikas Yojana (PMKVY)
(b) SEED
(c) TREAD
(d) STEP
Answer:
(a) Pradhan Mantri Kaushal Vikas Yojana (PMKVY)

14. Find out schemes to access credit among India’s underprivileged women:
(a) TREAD
(b) PMKVY
(c) SEED
(d) M-SIPS
Answer:
(a) TREAD

15. In which year national skill development mission was unveiled?
(a) 2000
(b) 2012
(c) 2010
(d) 2015
Answer:
(d) 2015