(Q1) Give an example of money flow from household and firm to govt. and govt. to household and producing sector
(Q2) Saving is both a virtue as well as a vice. Explain how.
(Q3) Write an equation corresponding to a circular flow model which shows national income of a country.
(Q4) Explain how national income and national product are identical in a circular flow model?
(i) how income is a flow
(ii) how the flow of income is circular
(Q6) Give the alternative name of Macro economic theory ?
(Q7) What are the two main problem studied in macro economics ?
(Q8) Define say’s law of market ?
(Q9) Household and Firm depends upon each other in the circular flow of income . Justify with two sector model
(Q10) Circular Flow model establishes the equality between production , income and expenditure . Explain
(Q11) Is S always a virtue, as it is a source of investment ?
Ans: Saving is not always a virtue. Saving is a vice as well. Increasing S causes a cut in consumption expenditure. Implying a cut in AD. Accordingly, economy may be driven into a state of underemployment /unemployment.
(Q12) ‘Circular Flow of Money’ model suggests that the economy finds its equilibrium ( AD = AS) when injections are exactly equal to withdrawals. Explain how, citing an example of one type of withdrawal and one type of injection.
Ans: Investment is an example of injection (which raise the level of GDP) and saving is an example of withdrawal (which lowers the level of GDP). Circular flow model suggest that if the entire income generated is spent on the purchase of goods and services, then income (AS) = expenditure (AD) and the equilibrium is struck. The equilibrium is disturbed if a part of income is saved. Because, saving causes a situation of deficient demand. However, if there is autonomous investment (injection) equivalent to saving (withdrawal) then the deficiency of demand is corrected, and the economy finds its equilibrium.
(Q13) A joint stock company was floated a capital of Rs. 500 crores as on 1 April, 2012. It had working capital of Rs. 600 crores during 2012-13. Besides closing stock of the firm was Rs.20 crores and sales Rs. 7200 crs. Of all these items determine which is a stock and which of them is a flow variable. Explain with giving reasons.
Ans: Stock items :
(a) Capital : Rs. 500 crores is stock because it is mentioned at point of time (1 April 2012)
(b) Closing Stock : Rs. 20 crores is a stock item as it is measured over a point of time.
(a) Sales : An amount of Rs. 7200 crs. is flow item as it is measured over a period of time.
(b) Working capital : Rs. 600 crs. is a flow item because it is measured over a period of one year i.e., 2012-13.