Commerce Exam > Commerce Notes > Crash Course of Macro Economics -Class 12 > Extra Question’s - Introduction and Circular Flow of Income and Product
Extra Question’s - Introduction and Circular Flow of Income and Product | Crash Course of Macro Economics -Class 12 - Commerce PDF Download
EXTRA QUESTION’S
(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?
(Q5) Explain
(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.
Flow items
(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.
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FAQs on Extra Question’s - Introduction and Circular Flow of Income and Product - Crash Course of Macro Economics -Class 12 - Commerce
| 1. What is the concept of the circular flow of income? |  |
Ans. The circular flow of income is a basic economic concept that shows how money flows within an economy. It illustrates the flow of income and spending between households, businesses, and the government. It demonstrates how income earned by individuals from their participation in the production process becomes their spending on goods and services, which in turn becomes income for businesses.
| 2. How does the circular flow of income relate to the concept of commerce? | |
Ans. The circular flow of income is closely related to the concept of commerce. Commerce refers to the buying and selling of goods and services, and it forms an integral part of the circular flow of income. In the circular flow, businesses produce goods and services, which are then sold in the market to households. The income earned by businesses from these sales becomes their revenue, and it flows back into the economy as income for households. Thus, commerce plays a vital role in the circular flow of income.
| 3. What are the main components of the circular flow of income and product commerce? | |
Ans. The main components of the circular flow of income and product commerce include households, businesses, and the government. Households provide the factors of production (such as labor and capital) to businesses, who use them to produce goods and services. These goods and services are then sold to households, and the income earned by businesses becomes the income for households. The government also plays a role by collecting taxes from households and businesses and using them to provide public goods and services.
| 4. How does government intervention impact the circular flow of income and product commerce? | |
Ans. Government intervention can have a significant impact on the circular flow of income and product commerce. Through fiscal policies such as taxation and government spending, the government can influence the level of income and spending in the economy. For example, by increasing taxes, the government can reduce the disposable income of households, which may lead to a decrease in their spending. On the other hand, government spending on infrastructure projects can stimulate economic activity and increase the income and spending in the economy.
| 5. What is the significance of the circular flow of income and product commerce for economic stability? | |
Ans. The circular flow of income and product commerce plays a crucial role in maintaining economic stability. It ensures a continuous flow of income and spending within the economy, which is essential for sustaining economic activity. When income earned by individuals is spent on goods and services, it creates demand, which encourages businesses to produce more. This, in turn, leads to job creation and income generation. The circular flow also helps in achieving a balance between production and consumption, which contributes to overall economic stability.
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