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Class:12 Subject: Economics
CHAPTER – 1
PART – A
I. Multiple Choice Questions
1. An example of socialistic economy
a) India b) China
c) Russia d) America
Answer: b) China c) Russia
2. The branches of the subject economics is
a) Micro and Macro b) Production and consumption
c) Wealth and welfare d) Demand and supply
Answer: a) Micro and Macro
3. Identify the flow variable
a) Income b) Assets
c) Money supply d) Foreign Exchange reserves
Answer: a) Income
4. The circular flow model that represents an open Economy
a) Three sector model b) Four sector model
c) Two sector model d) All the above
Answer: b) Four sector model
5. Identify the sectors of a two-sector model
a) Firms and Government b) Households and firms
c) Internal and external d) Private and public
Answer: b) Households and firms
6. Macroeconomics is a study of
a) Individuals b) A nation
c) Aggregates d) Firms
Answer: c) Aggregates
7. A steady increase in general price level is termed as ___________
a) National income b) Business cycle
c) Inflation d) Wholesale price index
Answer: c) Inflation
8. Identify the other name for Macroeconomics
a) Income Theory b) Price Theory
c) Market Theory d) Micro theory
Answer: a) Income Theory
9. Identify the economic system where only private ownership of production exists
a) Globalist Economy b) Capitalistic Economy
c) Socialistic Economy d) Mixed Economy
Answer: b) Capitalistic Economy
10. Economic system representing equality in distribution is
a) Socialism b) Capitalism
c) Mixedism d) Globalism
Answer: a) Socialism
PART – B
II.Very Short Answer.
1. Define ‘Economic model’
- 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
2. What do you mean by Capitalism?
- Capitalism is total freedom and private ownership of means of production.
- 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.
3. Define Macro Economics
- Macro Economics is the study of the economy as a whole.
- In other words, macroeconomics deals with aggregates such as national income, employment, and output.
- Macro Economics is also known as ‘Income Theory’.
4. Define the term inflation?
- Inflation refers to a steady increase in the general price level.
5. Classify the economics based on status of development?
- Developed, underdeveloped, undeveloped and developing economies.
PART – C
III. Short Answer
1. Describe the different types of economic systems?
There are three major types of economic systems. They are:
1. Capitalistic Economy (Capitalism):
- 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.
- The means of production in a capitalistic economy are privately owned.
- Manufacturers produce goods and services with profit motive.
- The private individual has the freedom to undertake any occupation and develop any skill.
- The USA, West Germany, Australia and Japan are the best examples for capitalistic economies.
- However, they do undertake large social welfare measures to safeguard the downtrodden people from the market forces.
2. Socialistic Economy (Socialism):
- The Father of Socialism is Karl Marx. Socialism refers to a system of total planning, public ownership and state control on economic activities.
- Socialism is defined as a way of organizing a society in which major industries are owned and controlled by the government.
- A Socialistic economy is also known as ‘Planned Economy’ or ‘Command Economy’.
- In a socialistic economy, all the resources are owned and operated by the government.
- 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.
- Russia, China, Vietnam, Poland and Cuba are the examples of socialist economies. But, now there are no absolutely socialist economies.
3. Mixed Economy (Mixedism):
- In a mixed economy system both private and public sectors co-exist and work together towards economic development.
- It is a combination of both capitalism and socialism. It tends to eliminate the evils of both capitalism and socialism.
- In these economies, resources are owned by individuals and the government.
- India, England, France and Brazil are examples of mixed economy.
2. Indicate the demerits of socialism
- Red Tapism and Bureaucracy
- Absence of Incentive
- Limited Freedom of choice
- Concentration of power.
3. Outline the major merits of capitalism?
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.
- Production and productivity levels are very high in capitalistic economies.
- All production activities are aimed at satisfying the consumers.
Higher Rates of Capital Formation:
- An increase in saving and investment leads to higher rates of capital formation.
Development of New Technology:
- As profit is aimed at, producers invest in new technology and produce quality goods.
4. Briefly explain the two-sector circular flow, model
- 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
5. State the importance of Macro Economics
- The importance and the need for introducing a macro outlook of an economy are given below:
- 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.
- Understanding the future problems, needs, and challenges of an economy as a whole is important to evolve precautionary measures.
- Macroeconomics provides ample opportunities to use scientific investigation to understand reality.
- Macroeconomics helps to make meaningful comparisons and analyses of economic indicators.
- 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.
PART – D
IV.Write in detail.
1. Compare the feature among capitalism secularism and mixedism
2. Discuss the scope of Macro Economics
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.
- 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.
3. Define the merits and demerits of mixed economy?
Merits of Mixed Economy:
Rapid Economic Growth:
- It promotes rapid economic growth. Thus, both public requirements and private needs are taken care of.
Balanced Economic Growth:
- It promotes balanced growth between agriculture and industry, consumer goods and capital goods, rural and urban, etc.
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.
- The government uses progressive rates of taxation for levying income tax to bring about economic equality.
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:
Lack of coordination:
- As the private and public sectors work with divergent motives, it creates many coordination-related problems.
- 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.
- Most of the public sector enterprises remain inefficient due to lethargic bureaucracy red-tapism and lack of motivation.
Fear of Nationalization:
- In a mixed economy, the fear of nationalization discourages the private entrepreneurs in their business operations and innovative initiatives.
Widening Inequality: Ownership of resources, laws of inheritance, and profit motive of people widens the gap between rich and poor.
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