Class 12 Economics Model Question 2080 With Solution | Long Question Type

Class 12 Economics Model Question 2080 With Solution

MACROECONOMICS

Basic Concept of Macroeconomics

Class 12 Economics Model Question 2080 With Solution

LONG ANSWER TYPE QUESTIONS [10 MARKS]

1. What do you mean by macroeconomics? Explain its scope. Macroeconomics

Macroeconomics is known as the branch of economics, which deals with the economy as a whole. In other words, macroeconomics is the branch of economics that is concerned with aggregate and average variables of the entire economy, such as national income, total employment, total output, total saving, total consumption, per capita income, total investment, aggregate demand, aggregate supply, general price level, etc. In macroeconomics, we study how these aggregates and averages of the economy as a whole are determined and what causes fluctuations in them. Therefore, macroeconomics is also known as aggregative economics.

Macroeconomics can be defined as the study of the behavior and performance of the economy as a whole. It also explains how the equilibrium levels of national income and employment are determined. Therefore, macroeconomics is also known as the 'Theory of Income and Employment'. The major variables of macroeconomics are national income, national output, total consumption, total expenditure, total saving, total investment, etc.

Scope of Macroeconomics

The scope of macroeconomics can be explained as mentioned below:

i. Theory of national income: 

Macroeconomics deals with the various concepts of national income, its different elements, and methods of measuring national the measurement of national income. income, and difficulties in Macroeconomics also study social accounting, which refers to the systematic record and presentation of national income data.

ii. Theory of Employment:

Macroeconomics also studies problems related to unemployment and employment. It analyses the causes, consequences, and types of unemployment.

iii. Theory of money: 

The theory of money is an important part of macroeconomics. Under the theory of money, we study the demand and supply of money.

iv. Theory of general price level: 

The determination of and changes in general price level are studied under macroeconomics. Problems concerning inflation or rise in general price level and deflation or fall in general price level are studied under macroeconomics.

v. Theory of economic growth:

The study of theories of economic growth or increase in per capita income forms an important part of macroeconomics. It studies the economic development of both developed and developing countries.

vi. Theory of international trade: 

Macroeconomics also studies trade among different countries. The theories of international trade, gains, and losses of global trade, tariffs and protection, etc. are subjects of great importance to macroeconomics.

2. Probable Explain the concept of closed and open economies with their characteristics. 

Closed Economy

An economy that does not participate in international trade is called a closed economy. In other words, a closed economy trades only within its own border and does not get involved in the import and export of goods and services. Such a type of economy is completely self-sufficient and often backward or underdeveloped because such an economy has to depend on the raw materials, skills, and technology, which are available within the country.  All the countries of the world are involved in external trade, i.e. export and import. Self-sufficiency is not possible in the modern world.

Features of Closed Economy

The features of the closed economy are as follows:

1. A closed economy has no economic relation with the rest of the world.
2. It neither imports goods and services from foreign countries nor exports goods and services to foreign countries.
3. It neither borrows from the foreign countries nor lends to the foreign countries.
4. It neither takes foreign aid nor gives aid to other countries.
5. A citizen of a closed economy can not go to other countries to work and foreigners are also not allowed to work in the domestic territory of the closed economy.
6. Since income received from abroad and income paid to foreigners are zero, the GDP and GNP of the closed economy are equal.

Open Economy

An economy that participates in international trade is called an open economy. In other words, an open economy trades not only within its own border but also involves in export and import of goods and services. Such type of economy is also known as the four-sector economy because this economy consists of four sectors: household sector, business sector, government sector, and foreign sector. In the modern era, all economies of the other. They import and export raw materials, labor, technology, capital, etc. The world is open to economies. These economies are interdependent with each No country in the world can be self-dependent. This is a realistic or actual situation of the modern world. The degree of openness of the economies is increasing due to the increasing globalization of the world.

Features of Open Economy

The features of the open economy are as follows:

1. An open economy has economic relations with the rest of the world.
2. An open economy imports and exports goods and services or has trade relations with other countries of the world.
3. An open economy borrows from other countries and also lends to other countries.
4. A citizen of an open country can go to the other countries to work and foreigners are also allowed to work in the domestic territory of the open economy.
5.  It sends gifts and remittances to the foreigners and receives the same from them too.
6. Since citizens of the open economies receive income from abroad and pay income to foreigners, GDP and GNP are different.

3. Probable What is meant by macroeconomic variables? Explain the major macroeconomic variables.

Definition of Macroeconomic Variables

The variables that are used to evaluate the performance and analyze the behavior of the whole economy are called macroeconomic variables. In other words, macroeconomic variables are indicators that show the situation and trends of the whole economy. There are various macroeconomic variables like aggregate demand and supply, national income, GDP, GNP, economic growth rate, price level (rate of inflation and deflation), total investment, total saving, total consumption, trade balance, demand for and supply of money, level of employment and unemployment, total labor force, total export, total import, government budget, exchange rate, etc.

Major Macroeconomic Variables

The major macroeconomic variables are as follows:

1. Aggregate demand and aggregate supply:

The aggregate demand refers to the quantity of goods and services that households, firms, governments, and customers abroad want to purchase at each price level whereas the aggregated supply refers to the quantity of goods and services that firms choose to produce and sell at each price level.

2. Gross domestic production (GDP):

Gross domestic product can be defined as the market value of all the final goods and services produced within a domestic territory of a country in a year. It is measured in real and nominal terms.

3. Per capita income (PCI):

Per capita, income is defined as the national income divided by the total population of a country. It is obtained by dividing the national income by the total population of the country.

Per capita income = (National Income/Total Population) = (NI/ Total Population)

4. Economic growth rate: 

The economic growth rate is defined as the rate at which the real GDP of a country increases over some time. A higher economic growth rate can be achieved by increasing the number of factors of production and productivity.

5. Price level:

Price level can be defined as the average price of goods and services which are consumed by the consumers. The rise in price level is called inflation whereas the fall in price level is called deflation.

  

6. Rate of employment and unemployment: 

The rate of employment shows the percentage of the total labor force or workforce of the county that is at work. On the other hand, the rate of unemployment shows the percentage of the total labor force or workforce of the country that is out of a job despite a willingness to work at the existing wage rate. The total labor force refers to the percentage of the population that is willing and able to work.

7. Balance of trade and balance of the payment: 

The balance of trade is defined as the difference between the exports and imports of a country for a given period. It is an important component of the balance of payment of the country Balance of payment refers to the systematic record of receipt and payment of a country with the rest of the world.

8. Demand for and supply of money: 

Demand for money is defined as the desire to hold financial assets in the form of money, i.e. cash or bank deposits. Money supply can defined as the total quantity of money available in the economy.

9. Trade cycle (Business cycle): 

The trade cycle is defined as the regular upward and downward movement in aggregate economic activities in the economy. In other words, the trade cycle refers to the fluctuations in the total national output, income, employment, savings, investment, consumption, etc.

10. Government budget:

Government budget can be defined as the statement of the financial plan of the government relating to its income and expenditure.

11. Consumption, saving, and investment: 

Consumption is defined as the part of the national income that is spent on goods and services to derive mental or physical satisfaction. It involves the expenditure on services and goods, such as clothes, food, etc.

Saving can be defined as the part of the national income that is not spent on consumption. It is equal to the national income minus consumption.

Saving = National Income - Consumption

S=Y-C

Investment is defined as the part of the national income that is spent on the purchase of those goods that are used for further production of other goods and services or earning income. It involves the expenditure on capital goods such as machinery, factories, raw materials, etc.