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Friday, December 15, 2017

AHSEC Class 12 Economics Part B Notes: Unit - 1: Introduction to Macro Economics

1. What are macro economies?                                 2015
Ans. Macro economics is the study of aggregates of the entire economy like national income, full employment, total investment etc.
2. Who are the macroeconomic decision makers?
Ans: Households, firms and governments are macro economics decision makers.
3. What is general equilibrium?
Ans. General equilibrium relates to numerous variables or even the economy as a whole. It traces the overall effects of a disturbance in all sectors of the economy.
4. Distinguish between partial equilibrium and general equilibrium.
Ans. Partial equilibrium refers to the equilibrium in one particular market say product market. It is here assumed that there is no changes in other markets say labour market or capital market. General equilibrium, on the other hand, refers to the equilibrium in all markets of the economy simultaneously. Partial equilibrium is studied in microeconomics whereas general equilibrium is studied in macroeconomics.
5. Name the school of thought who believes that all the labourers who are ready to work get employment and all the factories works at their full capacity.
Ans: Before Keynes, classical school thought believes that all labourers who are ready to work and get employment.

6. Who is the author of the book, “The general theory of Employment, Interest and Money?
Ans: John Maynard Keynes (J.M. Keynes)
7. In which year the book ‘The general theory of Employment, Interest and Money was published?
Ans: In the year of 1936
8. Which of the following is not included in the subject matter of macro economics:
a)      Balance of Payment.
b)      National Income.
c)       Demand for Money.
d)      Consumer’s surplus.
Ans: Consumer’s Surplus
9. Write true or false: Macro economics deals with the aggregate economic variables of an economy.
Ans. True
10. What are economic agents in an economy? Name them.
Ans: By economic agents (or units) we mean those individuals or institutions which take economic decisions. Firms, households and government are the major economic agents in an economy.
11. What is Capitalist Economy? Mention the characteristics of a capitalist economy.
Ans: Capitalism is an economic system where private entities own the factors of production. The main characteristics of a capitalist economy are as follows:
a)      Under capitalism, the private ownership of property for all the people.
b)      Under capitalism, the main aim of producer is to attain maximum profit.
c)       Market forces determine the price of a commodity. That means all economic decisions are taken by market mechanism.
d)      The individuals and firms are free to choose occupation and use the available natural resources of the country.
12. Mention any three economic functions of a state.
Ans: The main economic functions of a state are as follows:
1)      Extension of Education.
2)      Extension and development of health services.
3)      Development of infrastructural facilities.
13. Why is macroeconomics known as ‘Theory of Income and Employment’?
Ans: The subject matter of macroeconomics revolves around the determination of national income and employment. Therefore, it is known as theory and income and employment.
14. What is meant by macroeconomic paradox?
Ans: What is desirable for an individual economic unit may not be desirable for the society as a whole. This is called macroeconomic paradox.
15. Why do we need a separate study of macro economics?
Ans: A separate study of macroeconomic is required because of the following reasons:
a)      What is true (good) to an individual may not be desirable for the society as a whole. For instance, saving is a virtue for an individual, as it brings future prosperity to him.
b)      There are certain ‘big issues’ like problems of growth and development, inflation, unemployment etc. which need to be handled only at the level of economy.
16. Describe the great depression of 1929.
Ans: During 1929-33 the output and employment fell by huge amount in the countries of Europe and North America. It affected the other countries of the world as well. The aggregate demand was low, many factories were lying idle, and workers were thrown out of jobs. Income levels were falling, there was widespread unemployment. In USA from 1929 to 1933, unemployment rate rose from 3% to 25% and output fell by about 33%.
17. What are macro economies? Explain its scope and objectives.
Ans: Macro economics is the study of aggregates of the entire economy like national income, full employment, total investment etc.                                                2015
Scope of Macro Economics or Areas with which macro economics deals with
Macro economics is concerned with the aggregates and averages of the entire economy, such as national income, national output, total employment, total consumption, general per capital income, price level etc. In it, we study how these aggregates and averages are determined and what causes fluctuations in them. Macro economics mainly deals with:
a) Theory of income and employment
b) General Price level
c) Theory of economic growth
d) Macro theory of distribution
Objectives of Macroeconomics
a) To determine income level of the economy.
b) To determine employment level of the economy.
18. Distinguish between micro economics and macro economics.
Ans: Following are the difference between micro and macro economics.
a)      Micro economics studies the behaviour of industries of the economy such as consumers, producers and explain how the prices of goods and services and factors are determined. On the other hand, Macro economics studies the economy as a whole and explains how aggregates of the entire economy such as national income, general price level, level of employment etc. are determined.
b)      The word micro has been derived from the Greek word mikros which means small. On the other hand, macro economics is also derived from the Greek word makros which means large.
c)       Micro economics is based on partial equilibrium analysis which helps to explain the equilibrium conditions of a individual, a firm, a industry and a factor. On the other hand, macro economics is based on general equilibrium analysis which is an extensive study of a number of variables working of the economic system as a whole.
d)      The objectives of micro economics on demand side is the maximize utility whereas on the supply side is to minimize profits at minimum cost. On the other hand, the main objectives of macro economics are full employment, price stability, economic growth etc.
19. Explain the four main sectors of an economy from macroeconomic point of view.
Ans: From macro point of view, a modern economy has four major sectors which are called basic economic agents of the economy. These major sectors include the following:
1)      Firms: Firms are the producing units. They purchase or hire different factors of production and produce a variety of goods and services.
2)      Households Sector: Households supply factor services to the firms and earn factor incomes for supplying these productive services.
3)      Government: It maintains law and order situation in the country and provides other services for public welfare. It also produces goods and services.

4)      External sector: In a modern economy, external sector plays an important role. External sector receives payments for exports and makes payments for imports.