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:
- 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.
- Inflation: Inflation refers to a steady increase in the general price level.
- 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.
- 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.
- Economic growth: Macroeconomic studies will give us a clear picture of the factors determining the growth and development of an economy.
- 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:
- Capitalistic economy (capitalism),
- Socialistic economy (socialism) and
- 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:
- Status of Development: Developed, underdeveloped, undeveloped, and developing economies.
- System of Activities: Capitalistic, Socialistic, and Mixed Economies.
- The scale of Activities: Small and Large Economies.
- Nature of Functioning: Static and Dynamic Economies.
- Nature of Operation: Closed and Open Economies.
- Nature of Advancement: Traditional and Modem Economies.
- 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:
- Excessive generalization of the economy as a whole.
- Assumption of homogeneity among individual units.
- The composition of good and bad will vary between individual and the nation,
- Non-economic factors will determine the Economic activities.
Long answer questions
Question 1.
What are the features of a capitalist economy?
Answer:
- 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.
- Freedom of choice and enterprise: The individuals are free to do any trade or occupations anywhere and consumers are also free to use them.
- Profit motive: The technology is advanced and specializations are implemented, so the producers follow the golden rule of maximization of profit.
- Free competition: There is competition between buyers and sellers. The Government cannot prevent competition in the free market.
- Price mechanism – All economic activities are regulated through a price mechanism.
- 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.
- 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:
- The concentration of wealth and income: The inequalities of income prevails in a capitalist economy, as the concentration of wealth is with few.
- Wastage of resources: Because of product duplication and advertising, resources are wasted.
- Class struggle: In capitalism, the society is divided into capitalists and workers due to class struggle.
- Business cycle: Frequent economic fluctuations because of the free market.
- Production of Non-Essential goods: To maximize profit, even harmful goods are produced.
Question 3.
Explain the features of socialism.
Answer:
- Public ownership of means of production: The factors of productions (resources) are nationalized.
- All decisions are taken by the central planning authority.
- Maximum social benefit: Social welfare is the aim of socialism.
- Non – existence of competition: The Government has total control of production and distribution, there is no competition.
- Absence of price mechanism: Price is controlled and fixed by the central planning authority.
- Equality of income: There is no inequality of income in a socialist economy.
- Equality of opportunity: Equal opportunity is for all in socialism.
- Classless society: There are no class distinctions in socialism. All are equal.
Question 4.
Explain the merits of socialism.
Answer:
- Reduction in inequalities: No private property or exploitation is allowed.
- Rational allocation of resources: Wastages are minimized as the allocation of resources is done by the central planning authority.
- Absence of class conflicts: There are no inequalities, society is harmonious.
- End of trade cycles: Economic fluctuations are controlled because of the planning authority.
- Promotes social welfare: Social welfare is promoted by reducing exploitation, inequalities in society.
Question 5.
Explain the merits of a mixed economy.
Answer:
- Rapid Economic growth: In a mixed economy, the public and private needs are met.
- Balanced economic growth: There is balanced growth between agriculture and industry, consumer and capital goods, and rural and urban areas.
- Proper utilization of resources: In a mixed economy, utilization of resources is controlled directly in the Government sector and indirectly in the private sector.
- Economic equality: The government introduces a progressive rate of taxation for economic equality.
- 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:
- Lack of coordination: Co-ordination related problems exist between the private and public sectors due to different ideas.
- Competitive attitude: Both the private and public sectors should work complementary but they are competitive in a real sense.
- Inefficiency: Due to inefficiency and corruption, public sector enterprises remain inefficient.
- Fear of nationalization: The fear of nationalization affects the business operations of private enterprises.
- 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,
- Households
- Firms
- Government,
- 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