1
MACRO ECONOMICS
CHAPTER 1
INTRODUCTION
I Choose the correct answer
1. The individuals or institutions which take economic decisions are:
a) Economic variables c) Economists
b) Economic Agents d) none of the above.
Ans: b) Economic Agents.
2. In 1936 British economist J.M.Keynes published his celebrated book
a) Wealth of Nations c) General theory of employment, interest and Money.
b) Theory of interest d) Theory of employment
Ans: (c) General theory of employment, interest and Money.
3. All the labourers who are ready to work will find employment and all the factories will
be working at their full capacity, this school of thought is known as
a) Modern thought c) Contemporary thought
b) Classical thought d) none of these
Ans: (c) Classical thought
4. The year of Great Depression
a) 1920 b) 1889 c) 1929 d) 2018
Ans: (c) 1929
5. In a capitalist country production activities are mainly carried out by
a) Private enterprises c) Government authority
b) Planning authority d) None of the above
Ans: (a) Private enterprises.
II Fill in the blanks:
1. Macro economics tries to address situation facing the
economy……… Ans: as a whole
2. A part of the revenue is paid out as................for the service rendered by land.
Ans: Rent
3. The domestic country may sell goods to the rest of the world. These are called…….
Ans: Exports
4. will be called as firms.
Ans: Production units
5. Policies are pursued by the state itself or statutory bodies like RBI, SEBI etc.
Ans: Macroeconomic
, 2
III Answer the following questions in a sentence or word.
1. Who are economic agents?
Ans: Economic agents are those individuals or institutions which take economic
decisions. They can be consumers, producers, Government, Corporation, Banks etc.
2. What does classical school of thought say?
Ans: The classical school of thought says that all the labourers who are ready to work
will find employment and all the factories will be working at their full capacity.
3. Give the meaning of imports.
Ans: When the economy buys goods from the rest of the world, they are called imports.
4. Name the well known work of Adam Smith.
Ans: An Enquiry into the Nature and Cause of the Wealth of Nations.
5. What do you mean by wage rate?
Ans: The price paid for purchase of labour services is called wage rate.
IV Answer the following questions in 4 sentences.
1. What are the features of capitalistic economy?
Ans: The important features of a capitalist of economy are as follows:
There is private ownership of means of productions.
Production takes place for selling the output in the market.
There is sale and purchase of labour services at a price which is called wage rate.
A typical capitalist enterprise has one or several entrepreneurs and
exercise control over major decisions.
The entrepreneurs may themselves supply the capital needed or they may
borrow the capital.
2. Name and write the meaning of two kinds of trade in external sector.
Ans: The two kinds of Trade in external sector are exports and imports.
A country may sell goods to the rest of the world – Exports.
A country may buy goods from other countries – Imports.
3. Who are the macroeconomic decision makers?
Ans: The macroeconomic decisions makers are State itself or statutory bodies like
the Reserve Bank of India, Securities and Exchange Board of India and similar
institutions. Each such statutory body will have one or more public goals to pursue as
defined by law or the constitution of India itself.
V Answer the following questions in 12 sentences.
1. Briefly explain in what way Macro Economics is different from
Micro Economics.
Ans: The micro and macro economics are distinguished on the following grounds:
, 3
Scope:
Micro Economics study in individual units so its scope is narrow.
Macro Economics study in aggregates, so its scope is wider.
Method of study:
The Micro Economics follows slicing method as it studies individual unit.
The Macro Economics follows lumping method as it studies in aggregates.
Economic Agents:
In Micro Economics, each individual economic agent thinks about its own
interest and welfare.
In Macro Economics, economic agents are different among individual
economic agents and their goal is to get maximum welfare of a
country.
Equilibrium:
Micro economics studies the partial equilibrium in the country.
Macro Economics studies the general equilibrium in the economy.
Domain:
Micro economics consists of theories like consumer’s behaviour, production and
cost, Rent, Wages, Interest, etc.
Macro economics comprises of theory of income, output and
employment, Consumption Function, Investment function, Inflation, etc.
2. Explain the working of the economy of a capitalist country.
Ans: Capitalist economy can be defined as an economy in which most of the
economic activities have the following characteristics:
a) There is private ownership of means of production.
b) Production takes place for selling the output.
c) There is sale and purchase of labour service at a price called wage rate.
In a capitalist country production activities are mainly carried out by capitalist
enterprises. A typical capitalist enterprise has one or several entrepreneurs. Entrepreneurs are
those who exercise control over major decisions and bear a large part of the risk associated with
the firm. They may themselves supply the capital needed to run the enterprise or they may
borrow the capital.
To carry out the production they also need natural resources. They need the most
important element of human labour to carry out production. This is called as labour. After
producing output with the help of land, labour and capital, the entrepreneur sells the product in
the market to earn money called revenue. Part of the revenue is paid out as rent for land, interest
for capital and wage for labour and keeps the rest of the revenue as profit.
, 4
Profits are often used by the producers in the next period to buy new machinery or to
build new factories, so that production can be expanded. These expenses which raise productive
capacity are examples of investment expenditure.
3. Explain the role of the Government (State) and household sector in
both developed and developing countries.
Ans:
Role of Government: In both the developed and developing countries, apart from
capitalist sector, there is the institution of State. The role of the state includes framing
laws, enforcing them and delivering justice. The State here refers to the Government
which performs various developmental functions for the society as whole. It
undertakes production, apart from imposing taxes and spending money on building
public infrastructure, running schools, providing health services etc. These economic
functions of the state have to be taken into account when we want to describe the
economy of the country.
Role of Household sector: By household we mean a single individual who takes
decisions relating to her own consumption or a group of individuals for whom the
decisions relating to consumption are jointly determined. Households consist of
people. These people work in firms as workers and earn wages. They are the ones
who work in government departments and earn salaries or they are the owners of
firms and earn profits. Therefore, the market in which the firms sell their products
could not have been functioning without the demand coming from the households.
Further, they also earn rent by leasing land or earn interest by lending capital.
****
MACRO ECONOMICS
CHAPTER 1
INTRODUCTION
I Choose the correct answer
1. The individuals or institutions which take economic decisions are:
a) Economic variables c) Economists
b) Economic Agents d) none of the above.
Ans: b) Economic Agents.
2. In 1936 British economist J.M.Keynes published his celebrated book
a) Wealth of Nations c) General theory of employment, interest and Money.
b) Theory of interest d) Theory of employment
Ans: (c) General theory of employment, interest and Money.
3. All the labourers who are ready to work will find employment and all the factories will
be working at their full capacity, this school of thought is known as
a) Modern thought c) Contemporary thought
b) Classical thought d) none of these
Ans: (c) Classical thought
4. The year of Great Depression
a) 1920 b) 1889 c) 1929 d) 2018
Ans: (c) 1929
5. In a capitalist country production activities are mainly carried out by
a) Private enterprises c) Government authority
b) Planning authority d) None of the above
Ans: (a) Private enterprises.
II Fill in the blanks:
1. Macro economics tries to address situation facing the
economy……… Ans: as a whole
2. A part of the revenue is paid out as................for the service rendered by land.
Ans: Rent
3. The domestic country may sell goods to the rest of the world. These are called…….
Ans: Exports
4. will be called as firms.
Ans: Production units
5. Policies are pursued by the state itself or statutory bodies like RBI, SEBI etc.
Ans: Macroeconomic
, 2
III Answer the following questions in a sentence or word.
1. Who are economic agents?
Ans: Economic agents are those individuals or institutions which take economic
decisions. They can be consumers, producers, Government, Corporation, Banks etc.
2. What does classical school of thought say?
Ans: The classical school of thought says that all the labourers who are ready to work
will find employment and all the factories will be working at their full capacity.
3. Give the meaning of imports.
Ans: When the economy buys goods from the rest of the world, they are called imports.
4. Name the well known work of Adam Smith.
Ans: An Enquiry into the Nature and Cause of the Wealth of Nations.
5. What do you mean by wage rate?
Ans: The price paid for purchase of labour services is called wage rate.
IV Answer the following questions in 4 sentences.
1. What are the features of capitalistic economy?
Ans: The important features of a capitalist of economy are as follows:
There is private ownership of means of productions.
Production takes place for selling the output in the market.
There is sale and purchase of labour services at a price which is called wage rate.
A typical capitalist enterprise has one or several entrepreneurs and
exercise control over major decisions.
The entrepreneurs may themselves supply the capital needed or they may
borrow the capital.
2. Name and write the meaning of two kinds of trade in external sector.
Ans: The two kinds of Trade in external sector are exports and imports.
A country may sell goods to the rest of the world – Exports.
A country may buy goods from other countries – Imports.
3. Who are the macroeconomic decision makers?
Ans: The macroeconomic decisions makers are State itself or statutory bodies like
the Reserve Bank of India, Securities and Exchange Board of India and similar
institutions. Each such statutory body will have one or more public goals to pursue as
defined by law or the constitution of India itself.
V Answer the following questions in 12 sentences.
1. Briefly explain in what way Macro Economics is different from
Micro Economics.
Ans: The micro and macro economics are distinguished on the following grounds:
, 3
Scope:
Micro Economics study in individual units so its scope is narrow.
Macro Economics study in aggregates, so its scope is wider.
Method of study:
The Micro Economics follows slicing method as it studies individual unit.
The Macro Economics follows lumping method as it studies in aggregates.
Economic Agents:
In Micro Economics, each individual economic agent thinks about its own
interest and welfare.
In Macro Economics, economic agents are different among individual
economic agents and their goal is to get maximum welfare of a
country.
Equilibrium:
Micro economics studies the partial equilibrium in the country.
Macro Economics studies the general equilibrium in the economy.
Domain:
Micro economics consists of theories like consumer’s behaviour, production and
cost, Rent, Wages, Interest, etc.
Macro economics comprises of theory of income, output and
employment, Consumption Function, Investment function, Inflation, etc.
2. Explain the working of the economy of a capitalist country.
Ans: Capitalist economy can be defined as an economy in which most of the
economic activities have the following characteristics:
a) There is private ownership of means of production.
b) Production takes place for selling the output.
c) There is sale and purchase of labour service at a price called wage rate.
In a capitalist country production activities are mainly carried out by capitalist
enterprises. A typical capitalist enterprise has one or several entrepreneurs. Entrepreneurs are
those who exercise control over major decisions and bear a large part of the risk associated with
the firm. They may themselves supply the capital needed to run the enterprise or they may
borrow the capital.
To carry out the production they also need natural resources. They need the most
important element of human labour to carry out production. This is called as labour. After
producing output with the help of land, labour and capital, the entrepreneur sells the product in
the market to earn money called revenue. Part of the revenue is paid out as rent for land, interest
for capital and wage for labour and keeps the rest of the revenue as profit.
, 4
Profits are often used by the producers in the next period to buy new machinery or to
build new factories, so that production can be expanded. These expenses which raise productive
capacity are examples of investment expenditure.
3. Explain the role of the Government (State) and household sector in
both developed and developing countries.
Ans:
Role of Government: In both the developed and developing countries, apart from
capitalist sector, there is the institution of State. The role of the state includes framing
laws, enforcing them and delivering justice. The State here refers to the Government
which performs various developmental functions for the society as whole. It
undertakes production, apart from imposing taxes and spending money on building
public infrastructure, running schools, providing health services etc. These economic
functions of the state have to be taken into account when we want to describe the
economy of the country.
Role of Household sector: By household we mean a single individual who takes
decisions relating to her own consumption or a group of individuals for whom the
decisions relating to consumption are jointly determined. Households consist of
people. These people work in firms as workers and earn wages. They are the ones
who work in government departments and earn salaries or they are the owners of
firms and earn profits. Therefore, the market in which the firms sell their products
could not have been functioning without the demand coming from the households.
Further, they also earn rent by leasing land or earn interest by lending capital.
****
