Introduction To Macroeconomics - Class 12 Commerce Economics - Extra Questions

1-c, 2-d, 3-b, 4-a, 5-e

(1) Microeconomics- (c) Individualistic

Microeconomics is the branch of economics that studies the individual units of the economy such as individual consumer, individual firm, and individual producer.

(2) Ceterus Paribus- (d) Other things remaining constant

Ceterus Paribus is a Latin phrase meaning “all other things being equal” which is used in laws of Economics to assume that other factors affecting the phenomenon are held constant.

(3) Laissez Faire Policy- (b) No government Intervention

Laissez Faire is an economic policy that says governments should not interfere with the free market; let the market develop on its own. This means that the government cannot control restrictions, taxes, or businesses.

(4) Partial Equilibrium- (a) Independent

Partial equilibrium is a condition of equilibrium in the theory of Economics which takes into consideration only a part of the market to attain the equilibrium and is not dependent of other variables affecting the phenomenon.

(5) Market Mechanism- (e) Price determination

Market mechanism means mechanism by which the price in the market is decided by the forces of demand and supply.

The scope and subject matter of Macroeconomics can be describes as follow:

1.       Macroeconomics is concerned with the behaviour of the economy as a whole. It is the study of aggregates and averages of the entire economy.

2.       The subject matter of macroeconomics is income and employment, inflation, money supply,price level, investment and economic growth and development. 

The purpose of macroeconomics is to present a logical framework for the analysis of these phenomena.

3.       Having understood these phenomena, the aim is how to ensure the maximum level of income and employment in a country.

4.       Since the subject matter of macroeconomics revolves around determination of the level of income and employment, therefore, it is also known as ‘Theory of Income and Employment’.

5.       Correct economic policies formulated at macro level make it possible to control business cycles (inflation and deflation) in the economy.

(a) Macro Economics deals with overall economic behaviour of the people in the economy.
(b) It deals with the study of economy as a whole so the scope of economics is wide.
(c) It studies in detail the behaviour of economic aggregates like national income, national output, total employment, total consumption, total savings, general price level etc.
(d) It assumes interdependence between economic aggregates and follows general equilibrium analysis.

Macroeconomics is that branch of economics which deals with the study of national aggregates. The features of macroeconomics are:
(1) Study of Aggregates: Macro Economics deals with the study of entire economy. It studies the overall conditions in the economy, such as National Income, National Output, Total Employment, General Price Level etc.
(2) Lumping Method: Macro Economics uses the 'lumping' method for the purpose of Economic study. The approach of Macro Economics is aggregative in nature. It considers aggregates like National Income, total consumption, General aggregative price level etc., instead of personal income, per capital consumption, individual prices of commodities etc.
(3) A General Equilibrium Analysis: Macro Economics analysis is based on general equilibrium. This is because it deal with the economic system as a whole and studies the inter relationships and interdependence between the various macro variables in an economy. e.g. When aggregate demand and aggregate supply are equal. It will determine the level of income and employment.
(4) Income Analysis: Macro Economics is also known as income theory. It studies the factors determining National Income and employment and the causes of fluctuations in income and employment.
(5) Policy Oriented: The study of Macro Economics is useful in formulating economic policies to promote economic growth, to control inflation, to generate employment, to pull the economy out of depression etc. Macro Economics is a policy oriented science.
(6) Based on Interdependence: Interdependence is the core subject of Marco Economics. Everything depends on everything else. So the is an element of interdependence among the Macro - Economic variables. For examples. changes in the level of investment will finally result in changes in level of income, output, employment and economic growth.
(7) Dynamic Science: Macro economics studies the change in aggregate economic variables and analyses the dynamic nature of the economy. It helps us to study the progress of an economy in investment, total production, total employment, growth etc.

Final Goods: (i), (iii), (vi), (viii), (xii), (xiv), (xv)
Intermediate Goods: (ii), (iv), (v), (vii), (ix), (x), (xi), (xiii)

Normal goods are those goods, where there is direct relationship between income and demand. 

Current transfers refer to transfers made out of the current income of the payer and added to the current income of the recipient. 

Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole. It focuses on the aggregate changes in the economy such as unemployment, growth rate, gross domestic product and inflation. Hence, study of economy as a whole is called macro economics.

Following are the importance of macroeconomics:
1. Functioning of an Economy: Macroeconomic analysis is of paramount importance in getting us an idea of the functioning of an economic system. It is very essential for a proper and accurate knowledge of the behaviour pattern of the aggregative variables as the description of a large and complex economic system is impossible in terms of numerous individual items.

2. Formulation of Economic Policies: Macroeconomics is of great help in the formulation of economic policies. The days of ‘laissez faire’ are over and government intervention in economic matters is an accomplished fact. Governments deal not with individuals but with groups and masses of individuals, thereby establishing the importance of macroeconomic studies. For example, during depression, when the machines lie idle and men roam from pillar to post in search of employment, macroeconomics helps us to analyze the cause leading to depression and unemployment and to the adoption of suitable policies to cope with such a situation.

3. Understanding and Controlling Economic Fluctuations: Economic fluctuations are a characteristic feature of the capitalist form of society. The theory of economic fluctuations can be understood and built up only with the help of macroeconomics, for here we have to take into consideration aggregate consumption, aggregate saving and investment in the economy.

4. Inflation and Deflation: Macroeconomic approach is of utmost importance to analyse and understand the effects of inflation and deflation. Different sections of society are affected differently as a result of changes in the value of money.

5. Study of National Income: It is the study of macroeconomics which has brought forward the immense importance of the study of national income and social accounts. In micro-economy such a study was relegated to the background.

Disagree: Macroeconomics is the aggregate economic variable. It studies how an economy operates as a whole. It focuses on aggregate measures such as aggregate demand, aggregate supply and aggregate price level. It also studies how these variables are determined and how they change over time.

Across
2. The main component in aggregate demand are Investment and = Consumption.
7. This tax burden can be transferred to other parties = Indirect Tax.
8. Factor that influences imports = Foreign Exchange.
9. Three sector economy is also known as = Three sector model.
10. What is the formula of consumption function? = a + bY, where, a = Autonomous Consumption, b = Marginal Propensity to Consume (MPC), Y = Income.