Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Economics Guide Pdf Chapter 1 Introduction to Macro Economics Text Book Back Questions and Answers, Notes.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 1 Introduction to Macro Economics

12th Economics Guide Introduction to Macro Economics Text Book Back Questions and Answers

Multiple Choice questions

Question 1.
The branches of the subject Economics is
a) Wealth and welfare
b) Production and consumption
c) Demand and supply
d) Micro and macro
Answer:
d) Micro and macro

Question 2.
Who coined the word ‘macro’?
a) Adam Smith
b) J M Keynes
c) Ragnar Frìsch
d) Karl Marx
Answer:
c) Ragnar Frìsch

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 3.
Who is regarded as Father of Modern Macro Economics?
a) Adam smith
b) J M Keynes
c) Ragnar Frisch
d) Karl Marx
Answer:
b) J M Keynes

Question 4.
Identify the other name for macro Economics. .
a) Price Theory
b) Income Theory
c) Market Theory
d) Micro Theory
Answer:
b) Income Theory

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 5.
Macro economics is a study of …………………
a) individuals
b) firms
c) a nation
d) aggregates
Answer:
d) aggregates

Question 6.
Indicate the contribution of J M Keynes to economics
a) Wealth of nations
b) General Theory
c) Capital
d) Public Finance
Answer:
b) General Theory

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 7.
A steady increase in general price level is termed as ……………………
a) Wholesale price index
b) Business Cycle
c) Inflation
d) National Income
Answer:
c) Inflation

Question 8.
Identify the necessity of Economic policies.
a) to solve the basic problem
b) to overcome the obstacles
c) to achieve growth
d) all the above
Answer:
d) all the above

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 9.
Indicate the fundamental economic activities of an economy.
a) Production and Distribution
b) Production and Exchange
c) Production and Consumption
d) Production and Marketing
Answer:
c) Production and Consumption

Question 10.
An economy consists of
a) Consumption sector
b) Production sector
c) Government sector
d) All the above
Answer:
d) All the above

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economicsv

Question 11.
Identify the economic system where only private ownership of production exists.
a) Capitalistic Economy
b) Socialistic Economy
c) Globalistic Economy
d) Mixed Economy
Answer:
a) Capitalistic Economy

Question 12.
Economic system representing equality in distribution is
a) Capitalism
b) Globalism
c) Mixedism
d) Socialism
Answer:
d) Socialism

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 13.
Who is referred as ‘Father of capitalism ?
a) Adam smith
b) Karl Marx
c) Thackeray
d) JM keynes
Answer:
a) Adam smith

Question 14.
The country following Capitalism is ……………
a) Russia
b) America
c) India
d) China
Answer:
b) America

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 15.
Identity The Father of socialism
a) J M Keynes
b) Karl Marx
c) Adam smith
d) Samuelson
Answer:
b) Karl Marx

Question 16.
An economic system where the economic activities of a nation are done both by the private and public together is termed as ………….
a) Capitalistic Economy
b) Socialistic Economy
c) Globalistic Economy
d) Mixed Economy
Answer:
d) Mixed Economy

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 17.
Quantity of a commodity accumulated at a point of time is termed as ………………
a) production
b) stock
c) variable
d) flow
Answer:
b) stock

Question 18.
Identity the flow variable
a) money supply
b) assets
c) income
d) foreign exchange reserves
Answer:
c) income

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 19.
Identity the sectors of a Two sector Model.
a) Households and Firms
b) Private and Public ,
c) Internal and External
d) Firms and Government
Answer:
a) Households and Firms

Question 20.
The Circular Flow Model that represents an open Economy,
a) Two sector Model
b) Three sector Model
c) Four sector Model
d) All the above
Answer:
c) Four sector Model

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Paart – B 

Two Mark Questions

Question 21.
Define Macro Economics
Answer:

  1. Macro Economics is the study of the economy as a whole.
  2. In other words, macroeconomics deals with aggregates such as national income, employment, and output.
  3. Macro Economics is also known as ‘Income Theory’.

Question 22.
Define the term ‘Inflation.
Answer:
Inflation refers to a steady increase in the general price level.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 23.
What is meant by an Economy?
answer:

  1. An economy is referred to any system or area where economic activities are carried out. Each economy has its own character. Accordingly, the functions or activities also vary.
  2. In an economy, the fundamental economic activities are production and consumption.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 24.
Classify the economies based on status of development.
Answer:
Developed, underdeveloped, undeveloped and developing economies.

Question 25.
What do you mean by Capitalism?
Answer:

  1. Capitalism is total freedom and private ownership of means of production.
  2. The capitalist economy is also termed as a free economy (Laissez-faire, in Latin) or market economy where the role of the government is minimum and the market determines the economic activities.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 26.
Define ‘Economic Model’.
Answer:
A Model is a simplified representation of real situation. An Economic model is an explanation of how the economy or part of the economy, works.

Question 27.
‘Circular Flow Income’ – Define .
Answer:

  1. The circular flow of income is a model of an economy showing connections between different sectors of an economy.
  2. It shows flows of income, goods and services, and factors of production between economic agents such as firms, households, government, and nations.
  3. The circular flow analysis is the basis of national accounts and macroeconomics.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

PART – C

Answers the following questions in about a paragraph.

Question 28.
State the importance of Macro Economics.
Answer:
The importance and the need for introducing a macro outlook of an economy are given below:

  1. There is a need to understand the functioning of the economy at the aggregate level to evolve suitable strategies and to solve the basic problems prevailing in an economy.
  2. Understanding the future problems, needs, and challenges of an economy as a whole is important to evolve precautionary measures.
  3. Macroeconomics provides ample opportunities to use scientific investigation to understand reality.
  4. Macroeconomics helps to make meaningful comparisons and analyses of economic indicators.
  5. Macroeconomics helps for a better prediction about future and to formulate suitable policies to avoid economic crises, for which Nobel Prize in Economic Sciences is awarded.

Question 29.
Describe the different types of economic systems.
Answer:
There are three major types of economic systems. They are:

1. Capitalistic Economy (Capitalism):

  1. Capitalist economy is also termed as a free economy (Laissez-faire, in Latin) or market economy where the role of the government is minimum and market determines the economic activities.
  2. The means of production in a capitalistic economy are privately owned.
  3. Manufacturers produce goods and services with profit motive.
  4. The private individual has the freedom to undertake any occupation and develop any skill.
  5. The USA, West Germany, Australia and Japan are the best examples for capitalistic economies.
  6.  However, they do undertake large social welfare measures to safeguard the downtrodden people from the market forces.

2. Socialistic Economy (Socialism):

  1. The Father of Socialism is Karl Marx. Socialism refers to a system of total planning, public ownership and state control on economic activities.
  2. Socialism is defined as a way of organizing a society in which major industries are owned and controlled by the government.
  3. A Socialistic economy is also known as ‘Planned Economy’ or ‘Command Economy’.
  4. In a socialistic economy, all the resources are owned and operated by the government.
  5. Public welfare is the main motive behind all economic activities. It aims at equality in the distribution of income and wealth and equal opportunity for all.
  6. Russia, China, Vietnam, Poland and Cuba are the examples of socialist economies. But, now there are no absolutely socialist economies.

3. Mixed Economy (Mixedism):

  1. In a mixed economy system both private and public sectors co-exist and work together towards economic development.
  2. It is a combination of both capitalism and socialism. It tends to eliminate the evils of both capitalism and socialism.
  3. In these economies, resources are owned by individuals and the government.
  4. India, England, France and Brazil are examples of mixed economy.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 30.
Outline the major merits of Capitalism.
Answer:

  1. Automatic Working:
    Without any government intervention, the economy works automatically.
  2. Efficient Use of Resources:
    All resources are put into optimum use.
  3. Incentives for Hard work:
    Hard work is encouraged and entrepreneurs get more profit for more efficiency.
  4. Economic Progress:
    Production and productivity levels are very high in capitalistic economies.
  5. Consumers Sovereignty:
    All production activities are aimed at satisfying the consumers.
  6. Higher Rates of Capital Formation:
    An increase in saving and investment leads to higher rates of capital formation.
  7. Development of New Technology:
    As profit is aimed at, producers invest in new technology and produce quality goods.

Question 31.
Indicate the demerits of socialism.
Answer:

  • Red Tapism and Bureaucracy
  • Absence of Incentive
  • Limited Freedom of choice
  • Concentration of power.

Question 32.
Enumerate the features of mixed economy.
Answer:

  • Ownership of property and means of production
  • Coexistence of public and private sectors.
  • Solution to Economic problems. .
  • Freedom and control.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 33.
Distinguish between Capitalism and Globalism.
Answer:

Capitalism

Globalism

1. It is a free market economy where the role of the government is minimum. It is a ideology of globalisation that connects nations together through international trade.
2. The system is for national development It aims at global development.
3. It is also called as command economy. It is also termed as ‘Extended capitalism’.

Question 34.
Briefly explain the two-sector circular flow model.
Answer:

  • There are only two sector namely households and firms. Here,Production and sales are equal and there will be a circular flow of income and goods.
  • Real flow indicates the factor services flow from household sector to the business sector.
  • Monetary flow indicates the good and services flow from business sector to the household.
    The basic identity are Y = C + I

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

PART-D

Answer the following questions in one page.

Question 35.
Discuss the scope of Macro Economics.
Answer:
The study of macroeconomics has a wide scope and it covers the major areas as follows:
1. National Income:
Measurement of national income and its composition by sectors are the basic aspects of macroeconomic analysis. The trends in National Income and its composition provide a long term understanding of the growth process of an economy.

2. Inflation:
It refers to a steady increase in the general price level. Estimating the general price level by constructing various price index numbers such as Wholesale Price Index, Consumer Price Index, etc, are needed.

3. Business Cycle:
Almost all economies face the problem of business fluctuations and the business cycle. The cyclical movements (boom, recession, depression, and recovery) in the economy need to be carefully studied based on aggregate economic variables.

4. Poverty and Unemployment:
The major problems of most resource-rich nations are poverty and unemployment. This is one of the economic paradoxes. A clear understanding of the magnitude of poverty and unemployment facilitates the allocation of resources and initiating corrective measures.

5. Economic Growth:
The growth and development of an economy and the factors determining them could be understood only through macro analysis.

6. Economic Policies:
Macro Economics is significant for evolving suitable economic policies. Economic policies are necessary to solve the basic problems, to overcome the obstacles, and to achieve growth.

Question 36.
Illustrate the functioning of an economy based on its activities.
Answer:
An economy is referred to any system or area where economic activities are
carried out.
Samacheer Kalvi 12th Commerce Guide Chapter 1 Introduction to Macro Economics 2

  • In an economy, the fundamental economic activities are production and consumption.
  • The ‘exchange activity1 supports the production and consumption activities. These activities are influenced by several economic and non-economic activities.
  • The major economic activities include transportation, banking, advertising, planning, government policy, and others.
  • The major economic activities are environment, health, education, entertainment, governance, regulations etc.,
  • he external activities from other economies such as import, international relations, emigration,immigration, foreign investment, foreign exchange earnings etc .also influence the entire functioning of the economy.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 37.
Compare the features of capitalism and socialism.
Answer:

Features

Capitalism

Socialism

1. Ownership of means of production Private ownership Public ownership
2. Economic motive Profit Social welfare
3. Solution of central problems Free market system Central planning system
4. Government Role Internal regulation only. Complete involvement
5. Income Distribution unequal Equal
6. Nature of Enterprise Private Enterprise Government Enterprise
7. Economic Freedom Complete Freedom Lack of Freedom
8. Major problem Inequality Inefficiency

Question 38.
Compare the feature among capitalism, socialism and Mixedism
Answer:

S.No

Features Capitalism Socialism

Mixedism

1. Ownership of means of production Private ownership Public ownership Private and public ownership
2. Economic motive Profit Social welfare Social welfare and the profit motive
3. Solution of central problems Free market system Central Planning system Central planning ‘and Free market system
4. Government Role Internal regulation only Complete involvement Limited Role
5. Income Distribution unequal Equal Less unequal
6. Nature of Enterprise Private Enterprise Government Enterprise Both private and state Enterprise
7. Economic freedom Complete freedom Lack of freedom Limited freedom
8. Major Problem Inequality Inefficiency Inequality and Inefficiency.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

12th Economics Guide Introduction to Macro Economics Additional Important Questions and Answers

I . Choose the best Answer.

Question 1.
John Maynard Keynes book “The General Theory of Employment, Interest, and Money” was published in –
(a) 1936
(b) 1946
(c) 1956
(d) 1966
Answer:
(a) 1936

Question 2.
The term ‘Globalism’ was coined by …………………………….
a) A.J. Brown V
b) Manfred D Steger
c) J. R. Hicks
d) J.M. Keynes
Answer:
b) Manfred D Steger

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 3.
………………….. is the driving force behind capitalism.
a) Social welfare
b) Equality
c) Profit motive
d) Private ownership
Answer:
c) Profit motive

Question 4.
Capitalism and Socialism are two extreme and ……………………… approaches.
(a) normal
(b) opposite
(c) upward
(d) downward
Answer:
(b) opposite

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 5.
Poverty and unemployment can be minimized by
a) Proper allocation of resource and initiating corrective measures.
b) Increasing the Role of Government.
c) Increasing production and Investment.
d) All the above.
Answer:
a) Proper allocation of resource and initiating corrective measures.

Question 6.
……….. helps to make meaningful comparison and analysis of economic indicators.
a) Micro Economics
b) Command Economy
c) Fiscal Economics
d) Macro Economics
Answer:
d) Macro Economics

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 7.
There are ………………………… major types of economic systems.
a) 4
b) 5
c) 3
d) 2
Answer:
c) 3

Question 8.
…………………… are planned in such a way that the benefits are distributed to the society at large.
(a) Investment
(b) Production
(c) Distribution
(d) Services
Answer:
(a) Investment

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 9.
The commonly used economic models are ………
a) The supply-demand models
b) Circular flow models
c) Smith models
d) All the above
Answer:
d) All the above

Question 10.
In …………………….. economies both private and public sectors coexist.
(a) Capitalism
(b) Socialism
(c) Globalism
(d) Mixed
Answer:
(d) Mixed

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

II. Match the following:

Question 1.

A) Micro – 1) JMKeynes
B) Macro – 2) Micro Economics
C) National Income – 3) Ragnar Frish
D) Individual Income – 4) Macro Economics
Samacheer Kalvi 12th Economic Guide Chapter 1 Introduction to Macro Economics 2

Answer:
b) 1 2 4 3

Question 2.
A) Macro Economics – 1) National Accounts
B) Micro Economics – 2) Depression
C) Business cycle – 3) Income theory
D) Circular flow of Income – 4) Price theory
Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics 3

Answer:
d) 3 4 2 1

Question 3.
A) Capitalism – 1.North Korea
B) Socialism – 2. United States
C) Communism – 3. India
D) Mixedism – 4. China
Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics 4

Answer:
a) 2 4 1 3

III. Choose the correct pair:

Question 1.
a) Father of Macro Economics – Adam smith
b) Father of Socialism – J.M. Keynes
c) Extended capitalism – Manfred D. Steger
d) Father of capitalism – Karl Marx
Answer :
c) Extended capitalism – Manfred D. Steger

Question 2.
a) Capitalist Economy – Foreign Exchange
b) Socialist Economy – Market Economy
c) Stock variable – Command Economy
d) Flow variable – Consumption
Answer:
d) Flow variable – Consumption

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 3.
a) Y – Government
b) C – Consumption
c) I – Income
d) G – Investment
Answer :
b) C – Consumption

IV. Choose the Incorrect pair:

Question 4.
a) Two sector Economy – Y = C + G
b) Three sector Economy – Y = C + I + G
c) Four sector Economy – Y = C + I + G +(X-M)
d) Socialist Economy – Planned Economy
Answer:
a) Two sector Economy – Y = C + G

Question 5.
a) Capitalist Economy – USA, West Germany
b) Socialist Economy – Australia, Japan
c) Mixed Economy – France, Brazil
d) Globalism – International trade
Answer:
b) Socialist Economy – Australia, Japan

Question 6.
a) Red tapism and corruption – Lassiez faire Economy
b) Bureaucratic Expansion – Socialism
c) Profit motive – Capitalism
d) Customs and tradition – Traditional Economy
Answer:
a) Red tapism and corruption – Lassiez faire Economy

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

V. Choose the correct statement

Question 1.
Answer:
a) J.M.Keynes was awarded first Nobel prize in Economics.
b) Ragnar Frisch wrote the General Theory of Employment, Interest and Money
c) Micro Economics studies the economy as a whole.
d) Macro Economics covers National income, inflation, business cycles, poverty and Inequality .
Answer:
d) Macro Economics covers National income, inflation, business cycles, poverty and Inequality.

Question 2.
a) “An Economy is a cooperation of producers and workers to make goods and services that satisfy the wants of the consumers” – A.J. Brown.
b) “A system by which people earn their living” – J.R. Hicks
c) Inflation refers to Steady increase in general price level.
d) The means of production in a capitalistic economy are owned by Government.
Answer:
c) Inflation refers to steady increase in general price level.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

VI. Choose the incorrect statement

Question 1.
a) Socialism aims at equality in the distribution of income and wealth for all.
b) In a capitalist economy resources are owned by individuals and the government.
c) Stock refers to a quantity of a commodity measured at a point of time.
d) Flow variables are measured over a period of time.
Answer:
b) In a capitalist economy resources are owned by individuals and the government.

Question 2.
a) The circular flow of income is a model of an economy showing connections between different economies of the world.
b) Two sector model is for a simple economy with households and firms.
c) Three sector model is for a mixed and closed economy.
d) Four sector model is for an open economy.
Answer:
a) The circular flow of income is a model of an economy showing connections between different economies of the world.

VII. Choose the Odd Man Out

Question 1.
Four – Sector Economy comprises of
a) Households
b) Firms
c) Government
d) Internal sector
Answer:
d) Internal sector

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 2.
a) Traditional Economy
b) Socialism
c) Globalism
d) capitalism
Answer:
c) Globalism

Question 3.
a) Boom
b) Extension
c) Recession
d) Depression
Answer:
b) Extension

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

VIII. Analyse the Reason

Question 1.
Assertion (A): Profit is the driving force behind all economic activities in capitalism.
Reason (R): The golden rule for a producer under capitalism is to maximize profit.
a) Both (A) and (R) are true and R is the correct explanation of (A).
b) Both (A) and (R) are true but R is not the correct explanation of (A).
c) A is true but R is false
d) A is false but R is true.
Answer:
a) Both (A) and (R) are true and R is the correct explanation of (A).

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 2.
Assertion(A): In a socialistic economy all the resources are owned and operated by the Government.
Reason (R): Public welfare is the main motive behind all economic activities.
a) Both A and R are true but R is not the correct explanation of A.
b) Both A and R are true, R is the correct explanation of A.
c) (A) is true (R) is false.
d) (A) is false (R) is true.
Answer:
b) Both A and R are true, R is the correct explanation of A.

Question 3.
Assertion (A) ; A model is a simplified representation of a real situation.
Reason (R) : Economists use models to describe economic activities, their relationships, and their behaviour.
a) Both A and R are true R is the correct explanation of (A)
b) Both A and R are true R is not the correct explanation of (A)
c) (A)is true (R) is false
d) (A) is false (R) is true.
Answer:
b) Both A and R are true R is not the correct explanation of (A)

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

IX. Answer the following questions in one or two-sentences:

Question 1.
Name the divisions of Economics.
Answer:

  1. Micro Economics
  2. Macro Economics

Question 2.
Define Mixed Economy (or) Mixedism?
Answer:

  1. In a mixed economy system, both private and public sectors co-exist and work together towards economic development.
  2. It is a combination of both capitalism and socialism. It tends to eliminate the evils of both capitalism and socialism.
  3. In these economies, resources are owned by individuals and the government. India, England, France, and Brazil are examples of a mixed economy.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 3.
What is Unemployment?
Answer:
Unemployment is a situation when there are people, who are willing to work and able to work but cannot find suitable jobs.

Question 4.
What is Globalism?
Answer:
Globalism is the new market ideology of globalisation that connects nations together through international trade and aiming at global development.

Question 5.
What is Mixedism?
Answer:
Mixedism is an ideology that mixes or combines the principles of Capitalism and socialism.

Question 6.
What is an Economy?
Answer:
An Economy is ” A system by which people earn their living” – A.J.Brown.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 7.
Name the fundamental economic activities.
Answer:
1. Production
2. Consumption

Question 8.
What is an Economic System?
Answer:
Economic system refers to the manner in which individual and institutions are connected together to carry out economic activities in a particular area.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 9.
What is Red Tapism?
Answer:
In socialism, decision are taken by government agencies, approval of many officials and movement of files from one table to other takes time and leads to Red Tapism.

Question 10.
What is meant by circular flow of Income?
Answer:
The circular flow of income is a model of an economy showing connections between different sectors of an economy.

X. 3 Mark Questions

Question 4.
Define Profit Motive?
Answer:
Profit Motive:
Profit is the driving force behind all economic activities in a capitalistic economy. Each individual and organization produce only those goods which ensure high profit. Advance technology, division of labour, and specialisation are followed. The golden rule for a producer under capitalism is to maximize profit.

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

  • Capitalism increases inequalities of income.
  • Large amounts of resources are wasted on competitive advertising and duplication of products.
  • Capitalism leads to class struggle as it divides society into capitalists and workers.
  • The free market system leads to frequent violent economic fluctuations and crises.
  • Even harmful goods are produced if there is the possibility to make a profit.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 3.
State the merits of Socialism?
Answer:

  • There is a reduction in Inequalities and exploitation.
  • The central planning authority allocates the resources in a planned manner. So wastages are minimized.
  • As inequalities are minimum there is no conflict between rich and poor class.
  • Planning authority takes control over production and distribution. Therefore economic fluctuations can be avoided.
  • It promotes social welfare. There is the absence of exploitation, reduction in economic inequalities.

Question 4.
Explain the features of a mixed Economy.
Answer:

  • The means of production and properties are owned by both private and public.
  • In mixed economies, both private and public sectors coexist. Private industries work for profit whereas the public sector had a view to maximizing social welfare.
  • The central planning authority prepares the economic plans. National plans are drawn up by the Government and both public and private abode.
  • The basic problems of the economy are solved through the price mechanism as well as state intervention.
  • The overall control of the economic activities rests with the government.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 5.
What is a circular flow of income?
Answer:

  • The circular flow of income is a model of an economy showing connections between different sectors of an economy.
  • It shows flows of income, goods and services, and factors of production between economic agents such as firms, households, government, and nations.
  • The circular flow analysis is the basis of national accounts and macroeconomics.

XI. 5 Mark Questions

Question 1.
Discuss the limitations of Macro Economics?
Answer:
Macroeconomics suffers from certain limitations. They are:

  1. There is a danger of excessive generalization of the economy as a whole.
  2. It assumes homogeneity among the individual units.
  3. There is a fallacy of composition. What is good for an individual need not be good for the nation and vice versa. And, what is good for a country is not good for another country and at another time.
  4. Many non – economic factors determine economic activities, but they do not find a place in the usual macroeconomic books.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 2.
Explain the merits and demerits of a Mixed economy.
Answer:
Merits of Mixed Economy:

  1. Rapid Economic Growth: It promotes rapid economic growth. Thus, both public requirements and private needs are taken care of.
  2. Balanced Economic Growth: It promotes balanced growth between agriculture and industry, consumer goods and capital goods, rural and urban, etc.
  3. Proper utilization of Resources: The government can ensure proper utilization of resources. The government controls most of the important activities directly and the private sector indirectly.
  4. Economic Equality: The government uses progressive rates of taxation for levying income tax to bring about economic equality.
  5. Special Advantages to society: The government safeguards the interest of the weaker sections by legislating on minimum wages and rationing, establishing fair price shops, and formulating social welfare measures.

Demerits of Mixed Economy:

  1. Lack of coordination: As the private and public sectors work with divergent motives, it creates many coordination-related problems.
  2. Competitive Attitude: It is expected that both government and private should work with a complementary spirit towards the welfare of the society, but is the reality they are competitive in their activities.
  3. Inefficiency: Most of the public sector enterprises remain inefficient due to lethargic bureaucracy red-tapism and lack of motivation.
  4. Fear of Nationalization: In a mixed economy, the fear of nationalization discourages the private entrepreneurs in their business operations and innovative initiatives.
  5. Widening Inequality: Ownership of resources, laws of inheritance, and profit motive of people widens the gap between rich and poor.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics

Question 3.
Briefly explain the circular flow of Income in a Three Sector Economy?
Answer:
Circular Flow of Income in a Three-Sector Economy:

  • 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 a three-sector economy model:
  • Under the three-sector model, national income (Y) is obtained by adding Consumption expenditure (C), Investment expenditure (I) and Government expenditure (G).
  • Therefore: Y = C + I + G.

Samacheer Kalvi 12th Economics Guide Chapter 1 Introduction to Macro Economics