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Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 1 Introduction to Macro Economics
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Samacheer Kalvi 12th Economics Introduction to Macro Economics Text Book Back Questions and Answers
Part – A
Multiple Choice Questions
12th Economics 1st Chapter Question Answer 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
12th Economics Chapter 1 Question 2.
Who coined the word ‘Macro’?
(a) Adam Smith
(b) J M Keynes
(c) Ragnar Frisch
(d) Karl Matrix
Answer:
(c) Ragnar Frisch
12th Economics 1st Chapter Question 3.
Who is regarded as Father of Modem Macro Economics?
(a) Adam Smith
(b) J M Keynes
(c) Ragnar Frisch
(d) Karl Matrix
Answer:
(b) J M Keynes
Samacheer Kalvi Guru 12th Economics 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
12th Economics 1st Chapter Answer Question 5.
Macroeconomics is a study of –
(a) individuals
(b) firms
(c) a nation
(d) aggregates
Answer:
(d) aggregates
12th Economics Question Answer Question 6.
Indicate the contribution of JM Keynes to economics?
(a) Wealth of Nations
(b) General Theory
(c) Capital
(d) Public Finance
Answer:
(b) General Theory
Samacheer Kalvi 12th Economics Solution Book 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
Samacheer Kalvi 12th Economics Book Back Answers Question 8.
Identify the necessity of Economic policies?
(a) To solve the basic problems
(b) To overcome the obstacles
(c) To achieve growth
(d) All the above
Answer:
(d) All the above
12th Economics Lesson 1 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
Economic 12th Chapter 1 Question 10.
An economy consists of –
(a) consumption sector
(b) Production sector
(c) Government sector
(d) All the above
Answer:
(d) All the above
12th Economics Answer Pdf Question 11.
Identify the economic system where only private ownership of production exists.
(a) Capitalistic Economy
(b) Socialistic Economy
(c) Globalisic Economy
(d) Mixed Economy
Answer:
(a) Capitalistic Economy
12th Economics 1st Lesson Question 12.
The economic system representing equality in distribution is –
(a) Capitalism
(b) Globalism
(c) Mixedism
(d) Socialism
Answer:
(d) Socialism
12th Economics Solution Book Question 13.
Who is referred to as ‘Father of Capitalism’?
(a) Adam Smith
(b) Karl Marx
(c) Thackeray
(d) JM Keynes
Answer:
(a) Adam Smith
Samacheer Kalvi 12th Economics Question 14.
The country following Capitalism is –
(a) Russia
(b) America
(c) India
(d) China
Answer:
(b) America
12th Economics 1st Lesson Question And Answer Question 15.
Identify The Father of Socialism?
(a) JM Keynes
(b) Karl Marx
(c) Adam Smith
Answer:
(b) Karl Marx
12 Economics Chapter 1 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) Globalisic Economy
(d) Mixed Economy
Answer:
(b) Socialistic Economy
Samacheer Kalvi 12th Economics Book 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
Samacheer Kalvi Economics 12th Question 18.
Identify the flow variable?
(a) money supply
(b) assets
(c) income
(d) foreign exchange reserves
Answer:
(c) income
Economics 12th Class Chapter 1 Question 19.
Identify 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
12th Economics Samacheer Kalvi 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
Part – B
Answer The Following Questions In One or Two Sentences.
Class 12 Economics Chapter 1 Question 1.
Define Macro Economics?
Answer:
- Macros in Greek means Targe Macro Economics is a study of the economy as a whole
- It deals with aggregates such as national income, employment, and output.
Economics Samacheer Kalvi Question 2.
Define the term ‘Inflation’?
Answer:
- Inflation 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.
Question 3.
What is meant by an ‘Economy’?
Answer:
An Economy is referred to any system or area where economic activities are carried out.
(Or)
“An Economy is a cooperation of producers and workers to make goods and services that satisfy the wants of the consumers” – J.R.Hicks
Question 4.
Classify the economies based on the status of development?
Answer:
Status of Development:
Developed, underdeveloped, undeveloped, and developing economies.
Question 5.
What do you mean by Capitalism?
Answer:
Capitalism is an economic system where the role of the government is minimum and the market determines the economic activities.
Question 6.
Define ‘Economic Model’?
Answer:
- A model is a simplified representation of real situation.
- Economists use models to describe economic activities, their relationships and their behaviour.
- A model is an explanation of how the economy, or part of the economy, works.
- Most economic models are built with mathematics, graphs and equations, and attempt to explain relationships between economic variables.
Question 7.
‘Circular Flow of Income’ – Define?
Answer:
The circular flow of income is a model of an economy showing connections between different sectors of an economy.
Part – C
Answer The Following Questions In One Paragraph.
Question 1.
State the importance of Macro Economics?
Answer:
- To solve the basic problems prevailing in an economy by understanding the economy as a whole.
- To evolve precautionary measures to avoid economic crises.
- It provides opportunities to use scientific investigation to understand reality.
- To compare and analyse the economic indicators.
Question 2.
Describe the different types of economic systems?
Answer:
1. Capitalism: It is an economic system where the role of the government is minimum and the market determines the economic activities.
2. Socialism: It is a system in which major industries are owned and controlled by the government.
3. Mixedism: In a mixed economy both private and public sectors co-exist.
Question 3.
Outline the major merits of capitalism?
Answer:
Merits of Capitalism:
- Automatic working
- Efficient use of Resources
- Incentives for Hard work
- Economic progress
- Consumers Sovereignty
- Higher rates of capital formation
- Development of New Technology.
Question 4.
Indicate the demerits of socialism?
Answer:
Demerits of Socialism:
1. Red Tapism and Bureaucracy:
As decisions are taken by government agencies, approval of many officials and movement of files from one table to another takes time and leads to red-tapism.
2. Absence of Incentive:
The major limitation of socialism is that this system does not provide an incentive for efficiency. Therefore, productivity also suffers.
3. Limited Freedom of Choice:
Consumers do not enjoy the freedom of choice over the consumption of goods and services.
4. Concentration of Power:
The State takes all major decisions. The private takes no initiative in making economic decisions. Hence, the State is more powerful and misuse of power can also take place.
Question 5.
Enumerate the features of the mixed economy?
Answer:
Features of Mixed Economy:
1. Ownership of Property and Means of Production: The means of production and properties are owned by both private and public. Public and Private have the right to purchase, use or transfer their resources.
2. Coexistence of Public and Private Sectors:
In mixed economies, both private and public sectors coexist. Private industries undertake activities primarily for profit. Public sector firms are owned by the government with a view to maximizing social welfare.
3. Economic Planning:
The central planning authority prepares the economic plans. National plans are drawn up by the Government and both private and public sectors abide. In general, all sectors of the economy function according to the objectives, priorities, and targets laid down in the plan.
4. Solution to Economic Problems:
The basic problems of what to produce, how to produce, for whom to produce, and how to distribute are solved through the price mechanism as well as state intervention.
5. Freedom and Control:
Though private has the freedom to own resources, produce goods and services, and distribute the same, the overall control on the economic activities rests with
the government.
Question 6.
Distinguish between Capitalism and Globalism?
Answer:
Capitalism:
The system where the means of production are privately owned and the market determines the economic activities.
Globalism:
An economic system where the economic activities of a nation are interconnected and interdependent on each other nation.
Question 7.
Briefly explain the two-sector circular flow model?
Answer:
Circular Flow of Income in a Two-Sector Economy:
There are only two sectors namely, the household sector and the firm sector.
1. Household Sector:
- The household sector is the sole buyer of goods and services, and the sole supplier of factors of production, i.e., land, labour, capital, and organisation.
- It spends its entire income on the purchase of goods and services produced by the business sector.
- The household sector receives income from the firm sector by providing the factors of production owned by it.
2. Firms:
- The firm sector generates its revenue by selling goods and services to the household sector.
- It hires the factors of production, i.e., land, labour, capital, and organisation, owned by the household sector.
- The firm sector sells the entire output to households.
- In a two-sector economy, production and sales are equal and there will be a circular flow of income and goods.
- The outer circle represents real flow (factors and goods) and the inner circle represents the monetary flow (factor prices and commodity prices).
- Real flow indicates the factor services flow from the household sector to the business sector, and goods and services flow from the business sector to the household.
- The basic identities of the two-sector economy are as under:
Y = C + 1
Where
Y is Income; C is Consumption; I is an investment.
Part – D
Answer The Following Questions In One Page.
Question 1.
Discuss the scope of Macro Economics?
Answer:
The study of macro eçonomics has a wide scope and it covers the following, major areas.
- National Income: Measurement of national income and its composition by sectors are the basic aspects of macroeconomic analysis. It provides a long-term understanding of the growth process of an economy.
- Inflation: It refers to a steady increase in the general price level. To estimate the general price level various price index numbers like wholesale price Index, consumer price Index, etc are needed.
- Business cycle: All economies face the problem of business fluctuations
and business cycles. It can be carefully studied based on aggregate economic variables. - Poverty and unemployment: The economic paradox of poverty and unemployment in resource-rich nations can be corrected by initiating macroeconomic measures.
- Economic growth: The factors determining the growth and development of an economy can be understood only through macro analysis.
- Economic policies: Macro Economics is significant for evolving suitable economic policies.
Question 2.
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. Each economy has its own character. Accordingly, the functions or activities also vary. The functioning of an economy by its activities is explained in the flow chart.
- In an economy, the fundamental economic activities are production and consumption.
- These two activities are supported by several other activities.
- The ultimate aim of these activities is to achieve growth. The ‘exchange activity’ 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 non – economic activities are environment, health, education, entertainment, governance, regulations, etc.
- In addition to these supporting activities, external activities from other economies such as import, export, international relations, emigration, immigration, foreign investment, foreign exchange earnings, etc. also influence the entire functioning of the economy.
Question 3.
Compare the features of capitalism and socialism?
Answer:
Features of Capitalistic Economy:
1. Private Ownership of Property and Law of Inheritance:
The basic feature of capitalism is that all resources namely, land, capital, machines, mines, etc. are owned by private individuals. The owner has the right to own, keep, sell or use these resources according to his will. The property can be transferred to heirs after death.
2. Freedom of Choice and Enterprise:
Each individual is free to carry out any occupation or trade at any place and produce any commodity. Similarly, consumers are free to buy any commodity as
per their choice.
3. Profit Motive:
Profit is the driving force behind all economic activities in a capitalistic economy. Each individual organization produces 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.’
4. Free Competition:
There is free competition in both product and factor market. The government or any authority cannot prevent firms from buying or selling in the market. There is a competition between buyers and sellers.
5. Price Mechanism:
The price mechanism is the heart of any capitalistic economy. All economic activities are regulated through price mechanisms i.e., market forces of demand and supply.
6. Role of Government:
As the price mechanism regulates economic activity, the government has a limited role in a capitalistic economy. The government provides basic services such as, defense, public health, education, etc.
7. Inequalities of Income:
A capitalist society is divided into two classes – ‘haves’ that is those who own property and ‘have-nots’ who do not own property and work for their living. The outcome of this situation is that the rich become richer and poor become poorer. Here, economic inequality goes on increasing.
Features of Socialism:
1. Public Ownership of Means of Production:
All resources are owned by the government. It means that all the factors of production are nationalized and managed by the public authority.
2. Central Planning:
Planning is an integral part of a socialistic economy. In this system, all decisions are undertaken by the central planning authority.
3. Maximum Social Benefit:
Social welfare is the guiding principle behind all economic activities. Investments are planned in such a way that the benefits are distributed to the society at large.
4. Non – existence of Competition:
Under the socialist economic system, there is the absence of competition in the market. The state has full control over the production and distribution of goods and services. The consumers will have a limited choice.
5. Absence of Price Mechanism:
The pricing system works under the control and regulation of the central planning authority.
6. Equality of Income:
Another essential feature of socialism is the removal and reduction of economic inequalities. Under socialism, private property and the law of inheritance do not exist.
7. Equality of Opportunity:
Socialism provides equal opportunity for all through free health, education and professional training.
8. Classless Society:
Under socialism, there is a classless society and so no class conflicts. In a true socialist society, everyone is equal as far as economic status is concerned.
Question 4.
Compare the feature of Capitalism, Secularism, and Mixedism?
Answer:
Samacheer Kalvi 12th Economics Introduction to Macro Economics Addtional Questions and Answers
Part – A
I. Multiple Choice Questions.
Question 1.
Inflation refers to
a) Decrease in price level and Increase in money value.
b) Increase in price level and decrease in money value.
c) Increase in price level and increase in money value.
d) None of the above.
Answer:
b) Increase in price level and decrease in money value.
Question 2.
The word ‘Macro’ is derived from the Greek word –
(a) Makros
(b) Macros
(c) Macrow
(d) Mac
Answer:
(a) Makros
Question 3.
………………….. is the driving force behind all economic activities in a capitalistic economy.
(a) Benefit
(b) Additional
(c) Profit
(d) Loss
Answer:
(c) Profit
Question 4.
…………………. countries are the examples of Mixedism.
a) India, Russia, England, France
b) England, China, Russia, Brazil
c) India, China, England, France
d) India, England, France, Brazil
Answer:
d) India, England, France, Brazil
Question 5.
Capitalist Economy has also termed an Economy.
(a) Free
(b) Costly
(c) Value
(d) Govt
Answer:
(a) Free
Question 6.
The USA, West Germany, Australia, and Japan are the best examples for economies.
(a) Socialistic
(b) Capitalistic
(c) Mixed
(d) Profit
Answer:
(b) Capitalistic
Question 7.
In a ……………………… Economy, all the resources are owned and operated by the government.
(a) Capitalistic
(b) Globalistic
(c) Socialistic
(d) Mixed
Answer:
(c) Socialistic
Question 8.
Circular flow of income representing the major economic systems are of ………………….. types.
a) 4
b) 3
c) 5
d) 2
Answer:
b)3
Question 9.
Who promotes the balanced growth of the economy?
(a) Capitalism
(b) Socialism
(c) Globalism
(d) Mixedism
Answer:
(d) Mixedism
Question 10.
In a four – sector economy
a) Y = C + I + G + (X /M)
b) Y=C+I+G+(X-M)
c) Y=C+I+G+ (X +M)
d)YC+I+G+(XxM)
Answer:
b) Y=C+I+G+(X-M)
Question 11.
…………………….. is considered as the Father of socialism.
(a) Adam Smith
(b) Keynes
(c) Karl Marx
(d) Marshall
Answer:
(c) Karl Marx
Question 12.
…………………………. is another name for economics.
(a) Political economy
(b) Socialist economy
(c) Capitalist economy
(d) Planned economy
Answer:
(a) Political economy
Question 13.
The socialist economy is also known as the economy.
(a) Market
(b) Common
(c) Traditional
(d) Mixed
Answer:
(b) Common
Question 14.
Economics is a ……………………. science.
(a) Political
(b) Social
(c) Physical
(d) Natural
Answer:
(b) Social
Question 15.
In a ………………….. economy there is no central coordinator.
(a) Mixed
(b) Capitalist
(c) Socialist
(d) Traditional
Answer:
(b) Capitalist
Question 16.
In a socialist economy, all decisions regarding production and distribution are taken by
(a) market forces
(b) central planning authority
(c) customs and traditions
(d) private sector
Answer:
(b) central planning authority
Question 17.
The coexistence of the public and private sectors is called the economy.
(a) Mixed
(b) Socialist
(c) Capitalist
(d) Traditional
Answer:
(a) Mixed
Question 18.
The government has a minimum role in …………………….. economy.
(a) Mixed
(b) Capitalist
(c) Socialist
(d) Traditional
Answer:
(b) Capitalist
Question 19.
Economic planning is an important feature of …………………… Economy.
(a) Mixed
(b) Capitalism
(c) Socialism
(d) Traditional
Answer:
(a) Mixed
Question 20.
Welfare is ignored in ……………………….. Economy.
(a) Mixidism
(b) Socialistic
(c) Capitalistic
(d) Traditional
Answer:
(c) Capitalistic
Question 21.
Free trade economy is otherwise called ……………………….. economy.
(a) Socialist
(b) Capitalist
(c) Traditionalist
(d) Mixidist
Answer:
(b) Capitalist
Question 22.
Extreme inequality is prevented in ……………………… system.
(a) Socialist
(b) Capitalist
(c) Mixidist
(d) Traditionalist
Answer:
(a) Socialist
Question 23.
Market forces have only a limited role to play in ………………………. economy.
(a) Mixidist
(b) Socialist
(c) Capitalist
(d) Traditionalist
Answer:
(b) Socialist
Question 24.
India is the best example for …………………………. economy.
(a) Capitalism
(b) Socialism
(c) Mixedism
(d) Traditionalism
Answer:
(c) Mixedism
Question 25.
What is main motive of capitalism?
(a) Profit
(b) Benefit
(c) Excess money
(d) Loss
Answer:
(a) Profit
II. Match the following and choose the correct answer by using the codes given below
Question 1.
A. Father of Capitalism – (i) Adam Smith
B. Father of Socialism – (ii) Karl Marx
C. Net Economic Welfare – (iii) Samuelson
D. Father of Macro Economics – (iv) J.M. Keynes
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (ii) B (iii) C (iv) D (i)
(c) A (iii) B (iv) C (ii) D (i)
(d) A (iv) B (iii) C (ii) D(i)
Answer:
(a) A (i) B (ii) C (iii) D (iv)
Question 2.
A. Mixed Economy – (i) Welfare Oriented
B. Socialist Economy – (ii) Subsistence Economy
C. Capitalist Economics – (iii) Economic Planning
D. Traditional Economy – (iv) Profit Motive
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (ii) B (iii) C (iv) D (i)
(c) A (iii) B (i) C (iv) D (ii)
(d) A (iv) B (iii) C (ii) D (i)
Answer:
(c) A (iii) B (i) C (iv) D (ii)
Question 3.
A. Minimum Role of Government – (i) Freedom of choice
B. Absence of monopoly – (ii) Capitalism
C. Capitalist Economy – (iii) Socialism
D. Socialist Economy – (iv) Central planning
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (ii) B (iii) C (iv) D (i)
(c) A (iii) B (i) C (iv) D (ii)
(d) A (ii) B (i) C (iii) D (iv)
Answer:
(b) A (ii) B (iii) C (i) D (iv)
Question 4.
A. Traditional Economy – (i) Socialism
B. Minimum Role of Government – (ii) Traditions and customs
C. Absence of Monopoly – (iii) Capitalism
D. Administered prices – (iv) Mixed Economy
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iv) B (iii) C (ii) D(i)
(c) A (ii) B (iii) C (i) D (iv)
(d) A (ii) B (iv) C (iii) D(i)
Answer:
(c) A (ii) B (iii) C (i) D (iv)
Question 5.
A. Private property – (i) Capitalist Economy
B. Bureaucratic expansion – (ii) Laissez Faire Economy
C. Market Economy – (iii) Socialism
D. Socialism – (iv) China and Cubs
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iv) B (iii) C (ii) D (i)
(c) A (ii) B (iii) C (i) D (iv)
(d) A (i) B (iii) C (ii) D (iv)
Answer:
(c) A (ii) B (iii) C (i) D (iv)
III. State whether the statements are true or false.
Question 1.
(i) In Mixed Economy, both the public and private sector co-existence.
(ii) Mixed Economy followed by India.
(a) Both (i) and (ii) are true
(b) Both (0 and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true
Question 2.
(i) Profit Motive of Capitalist Economy.
(ii) Basic problems are solved by customs and traditions.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) is false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(i) is true but (ii) is false
Question 3.
(i) Father of Macro Economics – Adam Smith.
(ii) Father of Capitalism – Adam Smith
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true
Question 4.
(i) The Father of Socialism is Karl Marx.
(ii) Socialism is Profit Motive.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(i) is true but (ii) is false
Question 5.
(i) Capitalism and Socialism are the same approaches.
(ii) Capitalism and Socialism are two extreme and opposite approaches.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(i) is false but (ii) is true
IV. Which of the following is correctly matched:
Question 1.
(a) One Sector Model – firm
(b) Two Sector Model – firm, government
(c) Three Sector Model – firm, household, government
(d) Four Sector Model – firm, household, government Industry
Answer:
(c) Three Sector Model – firm, household, government
Question 2.
(a) Capitalist Economy – USA, West Germany, Australia
(b) Socialist Economy – Japan, USSR
(c) Mixed Economy – Russia, Cuba
(d) Traditional Economy – India, China
Answer:
(a) Capitalist Economy – USA, West Germany, Australia
Question 3.
(a) Capitalism – Marshall
(b) Socialism – Karl Marx
(c) Mixidism – Adam Smith
(d) Traditionalism – Samuelson
Answer:
(b) Socialism – Karl Marx
Question 4.
(a) Macro – Greek word – Makros
(b) Macro – Latin word – Maker
(c) Macro – French word – Macro
(d) Macro – English word – Large
Answer:
(a) Macro – Greek word – Makros
Question 5.
(a) The first Noble Prize in Economic Science – Ragnar Frisch
(b) The General Theory of Employment – Adam Smith
(c) Planned Economy – J.M. Keynes
(d) Free Economy – Karl Marx
Answer:
(a) The first Noble Prize in Economic Science – Ragnar Frisch
V. Which of the following is not correctly matched:
Question 1.
(a) Equal opportunity – Mixidism
(b) Profit Motive – Capitalism
(c) Social Benefit – Socialism
(d) Traditional – Traditionalism
Answer:
(a) Equal opportunity – Mixidism
Question 2.
(a) Micro – small
(b) Macro – large
(c) Micro – very very small
(d) Macro – makros
Answer:
(c) Micro – very very small
Question 3.
(a) Traditional Economy – Subsistence Economy
(b) Economics is a – social science
(c) Economics another name – Political Economy
(d) Consumers Enjoy – Socialism
Answer:
(d) Consumers Enjoy – Socialism
Question 4.
(a) Private ownership – Capitalism
(b) Public ownership – Socialism
(c) Ownership of property – Mixidism
(d) Social welfare – Traditionalism
Answer:
(d) Social welfare – Traditionalism
Question 5.
(a) Traditional Government Involvement only
(b) Capitalist – Internal Regulation only
(c) Socialistic – Complete Involvement
(d) Mixodistic – Limited Role Answers
Answer:
(a) Traditional Government Involvement only
VI. Pick the odd one out.
Question 1.
(a) Rapid Economic growth
(b) Balanced Economic growth
(c) Economic Equality
(d) Inefficiency
Answer:
(d) Inefficiency
Question 2.
(a) Public ownership
(b) Central planning
(c) Price Mechanism
(d) Maximum Social Benefit
Answer:
(c) Price Mechanism
Question 3.
(a) Households
(b) Firms
(c) Government
(d) Factories
Answer:
(d) Factories
Question 4.
(a) National Income
(b) Inflation
(c) Business cycle
(d) Non – Economic factor
Answer:
(d) Non – Economic factor
Question 5.
(a) Capitalism
(b) Socialism
(c) Globalism
(d) Mixidism
Answer:
(c) Globalism
VII. Assertion and Reason.
Question 1.
Assertion (A): Macro Economics is the study of the economy as a whole.
Reason (R): Macro Economics is also known as “Income theory”.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘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 to ‘A’
Question 2.
Assertion (A): Inflation refers to steady increase in general price level.
Reason (R): Deflation refers to steady increase in general price level.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(c) ‘A’ is true but ‘R’ is false
Question 3.
Assertion (A):
The major economic activities include transportation, banking, advertising.
Reason (R): The major economic activities include only Industrial development.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
Question 4.
Assertion (A): Capitalistic Economy is Social Welfare Economy.
Reason (R): Capitalistic Economy is also free Economy or market Economy.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(d) ‘A’ is false but ‘R’ is true
PART – B
Answer The Following Questions In One or Two Sentences.
Question 1.
Define Globalism?
Answer:
Globalism:
The term coined by Manfred D Steger (2002) denotes the new market ideology of globalization that connects nations together through international trade and aiming at global development. This ideology is also termed ‘Extended Capitalism’.
Question 2.
Define National Income.
Answer:
National Income is the total money value of all final goods and services produced in a country during a particular period of time.
Question 3.
What is meant by Four Sector Economy?
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
- In four – sector economy, expenditure for the entire economy include domestic expenditure (C + I + G) and net exports (X – M).
Question 4.
Mention the limitations of Macro Economics.
Answer:
- There is a danger of excessive generalization of the economy as a whole.
- It assumes homogeneity among the individual units.
- There is a fallacy of composition.
- Many non-economic factors determine economic activities but are not considered in Macro Economics.
PART – C
Answer The Following Questions In One Paragraph.
Question 1.
Explain the merits and demerits of capitalism.
Answer:
Merits of capitalism:
- Automatic working: Without any government intervention, the economy works automatically.
- Efficient use of Resources: All resources are put into optimum use.
- Incentives for Hard work: Hard work is encouraged and entrepreneurs get more profit for more efficiency.
- Consumer Sovereignty: All production activities are aimed at satisfying the consumers.
- Development of New Technology: As profit is aimed at, producers invest in New technology and produce quality goods.
- Economic progress: Production and productivity levels are very high in capitalistic economies.
- Higher rates of capital Formation: An increase in savings and investment leads to higher rates of capital formation.
Demerits of capitalism:
- The concentration of wealth and Income: Capitalism causes the concentration of wealth and income in a few hands and thereby increases inequalities of income.
- Wastages of Resources: A large number of resources are wasted on competitive advertising and duplication of products.
- Class struggle: Capitalism leads to class struggle as it divides the society into capitalists and workers.
- Business cycle: Free market system leads to frequent violent economic fluctuations and crises.
- Production of non-essential goods: Even the harmful goods are produced if there is the possibility to make a profit.
Question 2.
Outline the Major Demerits of Capitalism?
Answer:
- The concentration of Wealth and Income: Capitalism causes the concentration of wealth and income in a few hands and thereby increases inequalities of income.
- Wastage of Resources: A large number of resources are wasted on competitive advertising and duplication of products.
- Class Struggle: Capitalism leads to class struggle as it divides society into capitalists and workers.
- Business Cycle: The free market system leads to frequent violent economic fluctuations and crises.
- Production of non-essential goods: Even harmful goods are produced if there is the possibility to make a profit.
Question 3.
Indicates the Merits of Socialism?
Answer:
- Reduction in Inequalities: No one is allowed to own and use private property to exploit others.
- Rational Allocation of Resources: The central planning authority allocates the resources in a planned manner. Wastages are minimized and investments are made in a pre-planned manner.
- Absence of Class Conflicts: As inequalities are minimum, there is no conflict between the rich and poor class. Society functions in a harmonious manner.
- End of Trade Cycles: The planning authority takes control over the production and distribution of goods and services. Therefore, economic fluctuations can be avoided.
- Promotes Social Welfare: Absence of exploitation, reduction in economic inequalities, avoidance of trade cycles, and increase in productive efficiency help to promote social welfare.
PART – D
Answer The Following Questions In One Page.
Question 1.
State the Merits and Demerits of Mixed Economy?
Answer:
Merits of Mixed Economy:
1. Rapid Economic Growth:
The best advantage of a mixed economy is that it promotes rapid economic growth. Thus, both public requirements and private needs are taken care of.
2. Balanced Economic Growth:
Mixedism promotes the balanced growth of the economy. It promotes balanced growth between agriculture and industry, consumer goods and capital goods, rural and urban, etc.
3. Proper Utilization of Resources:
In a mixed economy, the government can ensure the 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 the Society:
The government safeguards the interest of the workers and 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:
The greatest drawback of mixedism is lack of coordination between public sector and private sector. As both 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 in 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. Ultimately the inequality of capitalism and inefficiency of socialism are found in mixed economies.
Question 2.
Explain the 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.
Circular flow of Income in a two-sector Economy:
There are only two sectors namely, the household sector and the firm sector.
1) Household sector:
The household sector is the sole buyer of goods and services, and the sole supplier of factors of production.
2) Firms:
The firm sector hires the factors of production owned by the household sector. It sells the entire output to households.
In a two-sector economy, production and sales are equal and there will be a circular flow of income and goods.
Therefore, here. Y= C +I
Where Y – Income C – Consumption I – Investment
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.
Under 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
Circular flow of Income in a Four – sector Economy :
In a Four-sector economy, in addition to households, firms, and government, a fourth sector namely, the external sector is included.
The external sector comprises exports and imports.
Y = C + I +G + (X-M)
Question 3.
Classify the concepts of Macro Economics?
Answer:
The important concepts used in macroeconomics are presented below:
Stock and Flow Variables:
Variables used in economic analysis are classified as stock and flow. Both stock and flow variables may increase or decrease with time.
1. Stock refers to a quantity of a commodity measured at a point in time. In macroeconomics, money supply, unemployment level, foreign exchange reserves, capital, etc are examples of stock variables.
2. Flow variables are measured over a period of time. National Income, imports, exports, consumption, production, investment, etc are examples of flow variables.
3. Economic Models A model is a simplified representation of a real situation. Economists use models to describe economic activities, their relationships, and their behaviour. A model is an explanation of how the economy, or part of the economy, works. Most economic models are built with mathematics, graphs, and equations, and attempt to explain relationships between economic variables. The commonly used economic models are the supply-demand models and circular flow models and Smith models.
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