Odisha State Board CHSE Odisha Class 12 Economics Solutions Chapter 9 Meaning of Macroeconomics Questions and Answers.
CHSE Odisha 12th Class Economics Chapter 9 Question Answer Meaning of Macroeconomics
Group – A
Short type Questions with Answers
I. Answer within Two/Three sentence.
Question 1.
Macro economics is the study of aggregates.
Answer:
Macro means large; hence Macro-economics deals with these concepts relating to the economy as a whole. It studies national income, total employment, aggregate demand & supply which are nothing but the aggregative concepts.
Question 2.
Microeconomics is the study of individual units. Justify.
Answer:
The term Micro has been derived from the Greek word “Mikros” which means small. As such, this branch deals with analysis of individual units & small groups of individual units such as individual income, price and demand for a product, output of a firm, supply of a goods etc. In brief, micro economics is a microscopic study of the economy.
Question 3.
How does Macroeconomics study functioning of an economy ?
Answer:
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.
Question 4.
How does Macroeconomics study the National income ?
Answer:
It is the study of macroeconomics which has brought forward the immense importance of the study of national income and social accounts. In microeconomy such a study was relegated to the background. It is the study of national income which enables us to know that three-fourth of the world is living abject poverty. Without a study of national income, as a result of the development in macroeconomics, it was not possible to formulate correct economic policies.
Question 5.
Macro economics is the study of economic development. Justify.
Answer:
As a result of advanced study in macroeconomics, it has becomes possible to give more attention to the problem of development of underdeveloped countries. Study of macroeconomics has revealed not only the glaring inequalities of wealth within an economy but has also shown the vast differences in the standards of living of the people in various countries necessitating the adoption of important steps to promote their economic welfare.
II. Answer within Five/Six sentence :
Question 1.
What do you mean by Macroeconomics ?
Answer:
Macroeconomics studies the entire economic system or its major components such as households, business and Government. It deals with total private consumption expenditure, total private investment, total Government expenditure, and total imports and exports of goods as well as services. It seeks the causes and cures for unemployment, inflation and balance of payment deficits. Thus, macroeconomics is not concerned with a particular decision making unit, but with all such units combined together. It presents a complete picture of the economic system. That is why, macroeconomics is termed as aggregative economics.
Question 2.
Why do you study Macroeconomics ?
Answer:
The term macro is derived from the Greek word ‘makros’ which means large. Most of the modem economics is now macro-economics. Macro-economics studies the entire economic system or its major components such as households, business and Government. It deals with total private consumption expenditure, total private investment, total Government expenditure, and total imports and exports of goods as well as services. It seeks the causes and cures for unemployment, inflation and balance of payment deficits. Thus, macro-economics is not concerned with a particular decision making unit, but with all such units combined together. It presents a complete picture of the economic system. That is why, macro-economics is termed as aggregative economics.
Question 3.
Distinguish between Micro Economics & Macro Economics.
Answer:
- Macro economics is the study of economic actions of individuals. It includes economic actions of the individual’s demand, price & output determination of firm & industry etc. Macro economics is the study if aggregates covering the entire economy such as total employment, total income, output, total saving & investment etc.
- Micro economics does not study the problem of allocation of resources whereas macro economics studies the problem of allocation of resources.
- Micro economics is based on the partial equilibrium whereas macro economics is based on the general equilibrium.
Group – B
Long Type Questions With Answers
Question 1.
What is Macroeconomics ? Describe the Importance of study of Macroeconomics.
Answer:
Macroeconomics, also called income theory is concerned with the analysis of the economy as a whole and its large aggregates or averages such as total national income and output, total employment, aggregate demand and supply and the general price level. Macroeconomics studies the entire economic system or its major components such as households, business and Government. It deals with total private consumption expenditure, total private investment, total Government expenditure, and total imports and exports of goods as well as services. It seeks the causes and cures for unemployment, inflation and balance of payment deficits.
Thus, macro-economics is not concerned with a particular decision making unit, but with all such units combined together. It presents a complete picture of the economic system. That is why, macro-economics is termed as aggregative economics. In the words of Kenneth E. Boulding. “Macro-economics deals not with individual quantities but with aggregate of these quantities, not with individual incomes but with national income, not with individual prices but with price levels, not with individual outputs but with the national output.” Further, Gardner Ackley says: “Macro economics deals with economic affairs in large. It concerns the overall dimensions of economic life. It studies the character of forest, independently of trees which compose it.”
In a nutshell, macro-economics examines and explains the determination of the level of composition, fluctuations (cycles) and trends (growth) in the over all economic activity, i.e., national income, output and employment. Further, here full employment is not assumed. We merely study the determinants of full employment and see how the fullest possible employment can be achieved. Importance of Macro- Economics
The analysis of the macro-economics has acquired great significance in recent years particularly for understanding economic problems like unemployment, poverty, inflation, depression, underdevelopment, etc. The study of the macro- economics is useful in many ways.
(a) Formulation and Execution of Economic Policies – Government’s intervention in the economic activities has been increasing day by day. The Government, however, can not deal with a particular individual or with small groups. Hence, the study of the macro-economics becomes very important,while formulating and executing economic policies. The economic policies for the removal of the poverty, the unemployment and the price instability are based upon aggregative requirements.
(b) Functioning of Economy- The macro- economics helps us to get an idea of how a complex economic system functions. It is very difficult to interpret the functioning of an economy in terms of micro-economics as there are numerous decision making units in the economy. We can understand the complex econofnic system through the study of national aggregates like income, output, expenditure, saving and investment.
(c) Helps to Understand Micro- Economics Better- The study of the macro-economics makes the understanding of the micro-economics better. Almost every micro-economic law is based on macro-economic study. For instance, the law of diminishing marginal utility (a fundamental law of consumption) has been framed by observing the behaviour of many consumers in the society.
(d) Study of Economic Development- Macro-economic developments have led to the study of the economic growth. This has enabled us to study and understand the problems of under developed countries. By analysing such problems, it has become possible for us to promote the development of the under developed countries. The macro economic analysis helps us to study the process of the income generation and to determine the factors accelerating the economic efficiency.
(e) Study of Welfare-It is not possible to measure the size of material welfare in terms of the micro-economics. The importance of macro- economics is enhanced, as the main objectives of the study of Economics is the welfare of society.
(f) Theory of Inflation and Deflation-In these days, the problem of inflation has assumed serious dimensions in both the developed and the underdeveloped countries. It is the result of excessive aggregate demand, as explained by Keynes. The theory of inflation is an important subject of macro-economics. In contrast, deflation is associated with a steady and sustained fall in the price level. The inflation as well as the deflation are explained in terms of aggregative economic variables like aggregate demand, output and money supply, which explain the general price level. The steps for curing these maladies are also based on the aggregative approach.
(g) International Comparisons-Macro- economics facilitates international comparisons by providing information about aggregate demand, national income, consumption and saving for different countries:
Business environment needs macro-economic analysis before decisions are taken by the firms. Macro-economic analysis as it exists today has been evolved through ages with contributions made by economists from different schools of thought. This analysis will help in evaluating the plans and policies towards the business firm.
Question 2.
What is Macro Economics ? Distinguish between Micro economics & Macro economics.
Answer:
Macro economics has been derived from Greek word “Makros” which means large. This macro economics is the study of economic system as a whole. In other words, it deals with the study of aggregates covering entire economy such as national income, national product, employment, general price level, aggregate demand, aggregate supply etc. This branch is not concerned with the individual quantities as in micro economics but it analyses the aggregates or averages of the entire economy.
On the other hand, the term Micro has been derived from the Greek word “Mikros” which means small. As such, this branch deals with analysis of individual units & small groups of individual units such as individual income, price and demand for a product, output of a firm, supply of a goods etc. In brief, micro economics is a microscopic study of the economy.
Micro & Macro economics stand as separate branches of economics because of certain distinctions which are mentioned below :
DIFFERENCE:-
(a) Micro economics is the study of economic behaviour of individuals such as individual consumers or producers, firms, markets, individual industries and thus, it studies one segment of the total economy.
On the other hand, macro economics is the study of aggregates covering the entire economy such as total volume of employment, national income, national output, total saving & investment etc.
(b) Micro economics studies the economic affairs in the large whereas micro economics studies a part of the entire economy.
(c) Micro economics uses the partial equilibrium analysis technique to study the prices of a particular commodity on the assumption that other things remaining unchanged. On the other hand, macro economics uses the technique of quasi-general equilibrium to study the determination of aggregate-price.
(d) Micro economics deals with consumption, production, sources of production for individual economics units whereas macro economics studies total consumption, total saving & investment, total production, total income etc.
(e) In Micro economic analysis total volume of employment is assumed to be constant & with
this its allocation among different sectors is studied. It assumes the prevalence of full employment in the economy. On the contrary, macro economics does not assume full employment as given rather it explains various factors for determining the total volume of employment.
(f) Being based on the assumption of full employment, micro economics does not provide suitable explanation for the emergence of trade cydes which is vividly described in macro economics.
(g) Micro economics remains away from the topic of problem of allocation of resources of the economy. It is based on the objective of optimum allocation of resources, for individual units. But macro economics studies the problem of allocation of resources for the entire economy & it also deals with the problems, principles & losses for it.
(h) The objective of micro economics is concerned with maximisation of utility as well as maximisation of profit. On the other hand, in macro economics, the objective is to attain full employment, general price stability, economic growth & favourable balance of payments, etc.
The distinctions as mentioned above are not rigid. It can be changed under varied circumstances. This distinction is really a matter of degree only. Only, the visible distinction what a common man observes is that micro economics is concerned .with the individual economic units whereas macro economics covers the entire economy as a whole.
Question 3.
What is Macro-economics ? Why do we study it.
Answer:
The term macro is derived from the Greek word ‘makros’ which means large. Most of the modem economics is now macro-economics. Macro-economics studies the entire economic system or its major components such as households, business and Government. It deals with total private consumption expenditure, total private investment, total Government expenditure, and total imports and exports of goods as well as services. It seeks the causes and cures for unemployment, inflation and balance of payment deficits. Thus, macro-economics is not concerned with a particular decision making unit, but with all such units combined together. It presents a complete picture of the economic system. That is why, macro-economics is termed as aggregative economics. The theoretical and the practical importance of macroeconomics would be deaf1 from the following arguments:
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 Taissez 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 analyse the cause leading to depression and unemployment and to the adoption of suitable policies to cope with such a situation.
3. Understanding Macroeconomics : The study of macroeconomics is essential for the proper understanding of microeconomics. No Microeconomic law could be framed without a prior study of the aggregates; for example, the theory of individual firm could not have been formulated with reference to the behaviour pattern of one single firm, howsoever representative it might have been; the theory was possible only after the behaviour pattern of several firms had been examined and analysed, for example, the forest, though an aggregation of trees, does not exhibit the behaviour and characteristics of individual trees. Microeconomics has been, and to some extent, remains a jungle of special-assumptions, special cases, unsatisfactory measurements and abstract theorising.
4. 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. Thus, we are led to analyse the causes of fluctuations in income, output and employment, and make attempts to control them or at least to reduce their severity.
5. 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. Macroeconomic analysis enables us to take certain steps to counteract the adverse influences of inflation and deflation
6. 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 microeconomy such a study was relegated to the background. It is the study of national income which enables us to know that three-fourth of the world is living abject poverty. Without a study of national income, as a result of the development in macroeconomics, it was not possible to formulate correct economic policies.
7. Study of Economic Development: As a result of advanced study in macroeconomics, it has becomes possible to give more attention to the problem of development of underdeveloped countries. Study bf macroeconomics has revealed not only the glaring inequalities of wealth within an economy but has also shown the vast differences in the standards of living of the people in various countries necessitating the adoption of important steps to promote their economic welfare.
8. Performance of an Economy: Macroeconomics helps us to understand and analyse the performance of an economy. It implies the result-oriented study of an economy- in terms of actual and factual achievements. Gross National Product (GNP) or National Income (NI) estimates are used to measure the performance of an economy over time by comparing the production of goods and services in one period with that of the other periods, the composition of GNP gives information about the quantum of contribution of each sector of the economy to GNP.
9. Nature of Material Welfare: Macroeconomics enables us to study the nature and size of the material welfare of the nations. The problem of measuring social welfare is not easy; even welfare economics does not help us. Those who are interested in the material and social welfare of all must study problems in their-macroeconomic setting. This adds to the importance of macroeconomics because when the chief objective of the studies of economics is the welfare of entire society, economics becomes the study of macroeconomics.
Question 4.
What is Macro-economics ? State its limitation.
Answer:
The term macro is derived from the Greek word ‘makros’ which means large. Most of the modem economics is now macro-economics. “The modem developments in macro economics are most closely associated with the work of Mr. J. M. Keynes”. Macro-economics, also called income theory is concerned with the analysis of the economy as a whole and its large aggregates or averages such as total national income and output, total employment, aggregate demand and supply and the general price level. Thus, macro-economics is not concerned with a particular decision making unit, but. with all such units combined together. It presents a complete picture of the economic system. That is why, macro-economics is termed as aggregative economics.
LIMITATIONS:
1. Excessive Generalisation : Despite theimmense importance of macro-economics, there is the danger of excessive generalisation from individual experience to the system as a whole, ff an individual withdraws his deposits from the bank, there is no-harm in it, but if all the persons rushed to withdraw deposits, the bank would perhaps collapse.
2. Excessive Thinking in terms of Aggregates: Again, macroeconomics suffers from excessive thinking in terms of aggregates, as it may not be always possible to have the homogeneous constituents. Prof. Boulding has pointed out that 2 apples + 3 apples = 5 apples is a meaningful aggregate; 2 apples + 3 oranges = 5 fruits may be described as a fairly meaningful aggregate; but 2 apples + 3 sky scrappers constitute a meaningless aggregate; it is the last aggregate which brings forth the fallacy of excessive aggregative thinking.
3. Heterogeneous Elements: It may, however, be remembered that macro-economics deals with such aggregates as aggregate consumption, saving, investment and income, all composed of heterogeneous quantities. Money is the only measuring rod. But the value of money itself keeps on changing, rendering economic aggregates immeasurable and incomparable in real terms. As such, the sum or average of heterogeneous individual quantities lose their significance for accurate economic analysis and economic policy.
4. Differences within Aggregates: Under this approach one is likely to overlook the differences within aggregates. For example, during the first decade of planning in India (from 1951 -1961) the national income increased by 42% ; this, however, doesn’t mean that the income of all the constituents, i.e., the wage earners or salaried persons increased by as much as that of entrepreneurs or businessmen. Hence, it takes no account of differences within aggregates.
5. Aggregates must be functionally related: The aggregates forming the main body of macroeconomic theory must be significant and mutually consistent. In other words, these should be functionally related. For example, aggregate consumption and investment expenditures -. which form part of the macroeconomic theory (Y= G + I) would have no importance, if they were not
functionally related to the levels of income, interest and employment. If these composing aggregates are mutually inconsistent or are not functionally related, the study of macroeconomic theory will be of little use.
6. Limited Application: Macroeconomics deals with positive economics in the sense of an analysis or how the aggregate theoretical models work-these are far removed from policy applications. These models explain the functioning of an economy and working of things in abstract and precise terms. Their abstraction and precision make such models unsuitable for use due to changes in significant variables from time to time and from one situation to another.
But these limitations, may be taken more in the nature of practical difficulties in formulating meaningful aggregates rather than factors invalidating the immense importance of macroeconomic analysis. With the commencement of Keynes’s General Theory and his basic equation, Y= C + I; interest in the study of macroeconomics has deep-ened. Significant breakthroughs in the computation of national income accounts (the study of which forms the very basis of macroeconomics) prove it beyond doubt that the limitations of rqacroeconomic studies are not insurmountable.
Is Meaningful Macroeconomics Possible ?
Sometimes a question is raised whether a meaningful macroeconomics is at. all possible? It is useless if macroeconomic variables simply confine to definitional relationships. Macroeconomics must study relationships amongst economic variables which express motivation and behaviour. The use of such an economics would depend upon whether or not aggregative theories of behaviour are possible. However, it may be understood that despite its limitations it can exist as an approximation to reality because:
(a) It depends upon certain macroeconomic truisms. Experience has shown that individuals do react in a certain generally common ways to changes in circumstances that confront them. With the increase in income, for example, other things remaining the same, individuals will increase then- expenditure though not in the same proportion. It will vary from person to person on account of variations in income, size of family, saving, expected income and so many other factors. Thus, while dealing with aggregates for the economy as a whole, we take into consideration the grater regularity of m&ss than of individual behaviour.
(b) The composition of many aggregates is relatively stable or varies regularly with changes in the magnitues of the aggregates so as to pave the way for meaningful aggregative theories.
(c) Many of the variables most significant in explaining individual economic behaviour cancel out, at least roughly, when dealing with the entire economy. This is more true in the short- run. Consumption behaviour of individual family, for example, depends op income, size of family, age, sex composition of its members, number of durable goods already ih possession, etc. While considering behaviour of aggregate families, many of these variables cancel out, specially in the short-run thus paving the way for more meaningful aggregative economics.
But these limitations may be taken more in the nature of practical difficulties in formulating meaningful aggregates rather than factors invalidating the immense importance of macroeconomic analysis. With the commencement of Keynes’s General Theory and his basic equation, Y= C + 1, interest in the study of macroeconomics has deepened. Significant ‘breakthroughs’ in the computation of national income accounts (the study of which forms the very basis of macroeconomics) prove it beyond doubt that the limitations of macroeconomic studies are not insurmountable.
Group – C
Objective type Questions with Answers
I. Multiple Choice Questions with Answers :
Question 1.
Macro economics deal with
(i) individual units
(ii) Price determination
(iii) aggregate of quantities
(iv) All of the above
Answer:
(iii) aggregate of quantities
Question 2.
Which is not included in Macro economics ?
(i) National output
(ii) National income
(iii) Household income
(iv) General price-level
Answer:
(iii) Household income
Question 3.
The term MACRO is derived from the Greek word ‘Macros’ which means
(i) Small
(ii) Medium
(iii) Large
(iv) None of the above
Answer:
(iii) Large
Question 4.
Which of the following belongs to Macroeconomics ?
(i) Price theory
(ii) Income theory
(iii) Expenditure theory
(iv) All of the above
Answer:
(ii) Income theory
Question 5.
The word Macro was derived from
(i) Latin word
(ii) Greek word
(iii) Indian word
(iv) European word
Answer:
(ii) Greek word
Question 6.
Which of the followings is studied in Macroeconomics ?
(i) Individuals Income
(ii) National Income
(iii) Price determination of a firm
(iv) All of the above
Answer:
(ii) National Income
Question 7.
What is the importance of Macroeconomics ?
(i) Formulation and Execution of Economic Policies
(ii) Functioning of Economy
(iii) Study of Economic Development-
(iv) All of the above
Answer:
(iv) All of the above
Question 8.
Which is the subject matter of Macroeconomics ?
(i) Inflation
(iii) Theory of income determination
Answer:
(iv) All of the above
Question 9.
Which is not the Macroeconomic concept ?
(i) National Income
(ii) Aggregate demand
(iii) Individual demand
(iv) Aggregate supply
Answer:
(iii) Individual demand
Question 10.
Which is the Macroeconomic concept ?
(i) Income distribution among the factor
(ii) Price determination of the firms
(iii) National Savings and investment
(iv) None of the above
Answer:
(iii) National Savings and investment
II. Fill in the blanks :
Question 1.
Microeconomic study _____ equilibrium.
Answer:
Partial
Question 2.
The National income is studied in _____ economics.
Answer:
Macro
Question 3.
_____ is the other name of Macroeconomics.
Answer:
Theory of income
Question 4.
The concept of aggregate demand is analysed in _____ econmics.
Answer:
Macro
Question 5.
The theory of employment is studied in _____ economics.
Answer:
Macro
Question 6.
Consumer’s choice is a subject matter of _____ economics:
Answer:
Micro
Question 7.
Macro is derived from the greek word _____
Answer:
Markos
Question 8.
The term micro is derived from the Greek word _____
Answer:
Mikros
Question 9.
Mikros literaly means _____
Answer:
Small
Question 10.
The price determination of a good is analysed in _____ economics.
Answer:
Micro
III. Correct the Sentences :
Question 1.
Macroeconomics deals with individual quantities.
Answer:
Incorrect.
Correct – Macroeconomics deals with the aggregates for the economy as a whole.
Question 2.
Micro economics deals with the functioning of the economy as a whole.
Answer:
Incorrect.
Correct – Macroeconomics deals with the functioning of the economy as a whole.
Question 3.
National Income analysis is the subject matter of micro economics.
Answer:
Incorrect.
Correct – National Income analysis is the subject matter of macro economics.
Question 4.
Macro-economics deals with the economic affairs “in the large”.
Answer:
Correct.
Question 5.
The theory of income determination is another name of Microeconomics.
Answer:
Incorrect
Correct – The theory of income determination is another name of Macroeconomics.
Question 6.
The theory of employment is studied in Microeconomics.
Answer:
Incorrect
Correct – The theory of employment is studied in Macroeconomics.
Question 7.
Price theory is another name of Macroeconomics
Answer:
Incorrect
Correct – Price theory is another name of Microeconomics
IV. Answer the following questions in one word:
Question 1.
What is Macro economics ?
Answer:
Macro economics studies the concepts of large agreement considering the economy as a whole.
Question 2.
What is Micro economics ?
Answer:
the term Micro has been derived from the Greek word “Mikros” which means small. As such, this branch deals with analysis of individual units & small groups of individual units such as individual income, price and demand for a product, output of a firm, supply of a goods etc. In brief, micro economics is a microscopic study of the economy.
Question 3.
Describe one difference between Microeconomics and Macroeconomics.
Answer:
Micro economics deals with consumption, production, sources of production for individual economics units whereas macro economics studies total consumption, total saving & investment, total production, total income etc.
Question 4.
Microeconomics deals with the individual units.
Answer:
Micro economics is the study of economic behaviour of individuals such as individual consumers or producers, firms, markets, individual industries and thus, it studies one segment of the total economy.
Question 5.
How does Macroeconomics deal with formulating economic policies ?
Answer:
The study of the macro-economics becomes very important while formulating and executing economic policies. The economic policies for the removal of the poverty, the unemployment and the price instability are based upon aggregative requirements.