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1. Define economics.
Ans Economics is a subject matter that focus on rational management of scarce resourse
in a manner such that our economic welfare is maximized.
2. Define micro economics.
Ans Economic problems relating to individual economic units
3. Define macroeconomics.
Ans : Economic problems relating to economy as a whole.
4. State reasons why does an economic problem arises.
Ans : 1) Resources are scarce .2) Resources have alternative uses.
5. What is meant by production possibility curve?
Ans : PPC show the different combination of two goods which can be produced with
given technology and resources.
6. What does the slope of PPC shows?
Ans : Slope of PPC shows marginal opportunity cost.
7. Give one reason for rightward shift in PPC.
Ans : When resourses are increased.
8. Define opportunity cost.
Ans : Value of the factor in its next best alternative use.
9. Define marginal opportunity cost or MRT.
Ans : MOC is the rate at which output of GOOD-Y is to be sacrificed for every
additional unit of GOOD-X. it refers to the slope of PPC.
10. Define Marginal utility.
Ans. Utility from consumption of one additional unit of a copmmodityic.
11. What is SC ?
Ans. Acurve that shows various combinations of two goods that give a consumer equall level of
satisfaction.
Ans. Quantity supplied of a commodity at various price levels in a given period of time.
Ans.Upward sloping.
Q.29 Supply curve is upward sloping beging from X axis what is elasticity?supply
Ans.A marketwhaen there are large no. of buyer and seller homogeneous goods at the same
price.
TP=AP*L
MPorMPP=TPn -TPn-1
1. What are the three central problems of an economy? Why do they arise?
Ans : 1) What to produce. 2) How to produce. 3) For whom to produce. These central
problem arises because scarcity of resources.
2. Explain the problem how to produce with the help of example.
Ans : How to produce refer to choice of technique of production. There are two types of
technique of production: (i) labour intensive technique (ii) capital intensive technique.
The choice between labour intensive and capital intensive becomes a problem because
the producers need to minimize their cost and at the same time maximize their efficiency.
3. Why production possibility curve is concave?
Ans : it is because of rising marginal opportunity cost that PPC must be concave to the
origin.
4. What does a production possibility curve show? When will it shift to the right?
Ans : it shows the different combination of two goods which can be produced with given
technology and resources. It will shift to right when resources are increased.
5. Explain the problem What to produce with the help of example.
Ans : this problem is related to (i) What goods and services are to be produced and (ii) in
what kind of goods and services are to be produced.because of fact resources are limited
every society must find an ans to these questions.
6. Explain the problem For whom to produce with the help of example.
Ans : The problem relates to the distribution of output in the economy it has two aspects
(i) Factoral distribution (ii) inter personal distribution.
7. Distinguish between a centrally planned economy and a market economy.
Ans : (i) Centrally planned economy is one in which central problems are addressed by
some central authority of the government.
(ii) Marketeconomy is free economy in which central problems are solved by
market forces of supply and demand .
8. Distinguish between microeconomics and microeconomics.
Ans : (i) microeconomics study economic variables at the level of an individual-an
individual firm and individual household
(ii) macroeconomics studies economic variables at the level of economy as whole-
AD,AS,NY
9. Which factors lead to a shift of the PPC?
Ans : shift in PPC because of resourses and technology. (i) shift in PPC because resourses
are increased (ii) efficient technology is used.
Q7. Explain the relationship between marginal product and total product? 3
Units of labour TP AP MP
1 40
2 80
3 110
4 130
5 140
6 140
7 130
Ans.
1 40 40 40
2 80 40 40
3 110 36.66 30
4 130 32.5 20
5 140 28 10
6 140 23.33 0
Q9. Identify different stages of production and state the related law? 4
Units of labour: 1 2 3 4 5 6 7 8
Units of output: 2 6 12 16 18 18 14 8
Ans.
2 6 4
3 12 6
5 18 2
6 18 0
8 8 -6
Definition
Formula
Steps to be taken in income method
Precautions
Numerical
Q8. Distinguish between factor income and transfer payments. Give suitable examples.
Q9. What is the problem of double counting? State which method is used to avoid this problem
of double counting in the estimation of national income.
Q11. Difference between Gross domestic product at market price and net national product at
market price?
Q12.Difference between Gross domestic product at market price and net national product at
factor cost?
UNIT 6
ANS: Commercial banks are the institutions that mayu short term loans to business and in the
processes to creat money ?According to CULBERTSON .
1. Accepting deposits .
2. Advancing loans.
Ans : Central bank is a apex institution of a country that control and regulate the moneand
financia system of a country.
3. Bankers bank.
4. Lenders of last resort.
5. Control of credit.
UNIT 7
Ans. Ex-ante savings refers to the amount of savings which savers plan to save at different levels
of income in the economy.
Ans. Saving function refers to the functional relationship between savings and income.
Ans. Ex-ante investment refer to the amount of investments which investors plan to invest at
different levels of income in an economy.
Ans. Ex-post savings refers to the actual savings in an economy during a year.
Relationships:
(1) APC+APS = 1
= Y/Y = 1
(2) MPC+MPS = 1
= Y/Y
= 1
Ans. Investment multiplier (K) is the ratio of increase in income (Y) due to an increase in
investment(I)
i.e, K = Y/I
Ans. Excess demand refers to the situation when aggregrate demand is in excess of aggregrate
supply corresponding to full employment in the economy.
Ans. Deficient demand refer to a situation when AD<AS corresponding to the full employment
level of output in the economy.
Ans. Deficient demand causes fall in prices and fall in the output and employment level.
(i) . Taxes.
Ans. Monetory policy refes to the policy of the central bank of a country to control money
supply and credit in the economy.
1.Quantitative measures:
2. Qualitative measures:
(ii).Moral suasion.
Q) Define a budget.
Ans. It is an annual statement of the estimated receipts and expenditure of the government over
the fiscal year.
Ans.1) Reallocation of Resources: The govt.has to reallocate the resources to ensure social &
economic objectives.
Q) Define Direct taxes & Indirect Taxes& give two examples each.
Ans.1) Direct Tax: Theseare those taxesleviedimmediately on the property and income of
persons and are directly paid by people to the government.
2) Indirect Taxes: These are those taxesthat leviedon one person but are paid by another person.
Q) What arethenon-taxreceipts?
B) Interest andDividends.
Ans. It is the expenditure incurred for the normal running of government departments and
provision of various services like interest payment, subsidies.
Ans. BalancedBudget: It is one where the estimated revenue equals the estimated expenditure.
b) Surplus Budget: It is one where the estimated revenue is greater than the estimated
expenditures.
c) Deficit Budget: : It is one where the estimated revenue is less than the estimated expenditures.
Ans. a)Budget Deficit: When budget expenditure is more than budget revenue.
Formula: B.D.= B.E. > B.R.(B.D.= Budget Deficit,B>E> = Budget Expenditure. B. R.= Budget
Revenue
b) Fiscal Deficit: It is the difference between the total expenditure of the government,the revenue
receipts plus those capital receipts which finally accrue to the government.
Formula: F.D. = B. E.-B. R. ( B.E.>B.R. other than borrowings) F.D.= Fiscal Deficit,B.E.=
Budget Expenditure,B.R. = Budget receipts.
c) Revenue Deficit: It is the excess of government revenue expenditures over revenue receipts.
Formula: R. D.= R. E.-R.R., When R.E. > R.R.,R.D.= Revenue deficit, R.E.= Revenue
Expenditure, R.R. =Revenue Receipts.
Formula: P.D. = F.D.-I.P., P.D.= Primary Deficit ,F.D. = Fiscal Deficit, I.P.= Interest Payment.
UNIT 9
Q4: What determines the flow of foreign exchange into the country?
Q7: The balance of trade shows a deficit of Rs. 600 crore, the value of export is Rs. 1000 crore.
What is value of import?
Q8: Name three such items which are not included in Balance of trade?
ANSWERS
Ans1: The foreign exchange market is the market where international currencies are traded for
one another.
Ans2: Disequilibrium in BOP is means either there is surplus or deficit in Balance of payment
account.
Ans4: Following factors contribute to the flow of foreign exchange into the country:
Ans5: Appreciation of a currency occurs when its exchange value in relation to currencies of
other country increases.
Ans6: Equilibrium exchange rate occur when supply of and demand for foreign exchange are
equal to each other.
= 1000-(-600)
=1600.
1) Foreign investment:
2) Loans/borrowing:
i) Commercial borrowing
ii) Borrowings as external assistance.
Ans10: BoT is different from BoP. BoT records visible items only. BoP records both visible and
invisible items, besides capital transfers.