Worksheet Solutions: Introduction to Macroeconomics - 1 | Economics Class 12 - Commerce PDF Download

Very Short Answer/Objective Type Questions

• Purchased by firms: They are bought by firms for use in the production of final goods.

• Non-durable in nature: They are typically used up or transformed during the production process.

• Meant for further processing: These goods undergo further processing or are combined with other goods to produce the final product.

Thus, all the statements are correct.

Q7: Interest is the reward for land as factor of production.
Ans: False. Interest is typically considered a reward for capital, not land.

Q8: Define capital goods.
Ans: Capital goods are long-lasting assets used in the production of other goods and services. They are not meant for immediate consumption but are used to enhance the production process.

Q9: Give two examples of consumer durables.
Ans: Two examples of consumer durables are refrigerators and cars.

 Short Answer Questions

Q10: What is meant by double counting? How can it be avoided?
Ans: Double counting refers to the inclusion of the same economic transactions or value multiple times in the calculation of national income. It can be avoided by considering only the final value of goods and services produced, which excludes the value of intermediate goods to prevent double counting.

Q11: Distinguish between intermediate and final goods. Why is the value of final goods not included in national income?
Ans: Intermediate goods are those used in the production process and are not meant for final consumption, while final goods are ready for consumption by end-users. The value of final goods is not included in national income to avoid double counting, as it has already been accounted for when calculating the value of intermediate goods.

Q12: Distinguish between domestic income and national income
Ans: Domestic income refers to the income earned within the geographical boundaries of a country, including both residents and non-residents. National income, on the other hand, includes only the income earned by residents of a country, regardless of where they earn it. National income excludes the income earned by foreign residents within the country.

Q13: Distinguish stock and flow variable.
Ans: Stock variables represent a quantity at a specific point in time (e.g., the total amount of money in a bank account), while flow variables represent a quantity per unit of time (e.g., income earned per month).

Q14: Machine purchased is always a final good. Do you agree? Explain
Ans: Machine purchases can be either intermediate or final goods, depending on their use. If a machine is purchased for immediate use in the production process, it is considered an intermediate good. If it is purchased for final consumption or to enhance long-term production capacity, it is a final good.

Long Answer Questions

• Households provide factors of production (e.g., labour) to firms in exchange for wages and salaries.
• Firms produce goods and services, which are sold to households in exchange for payments.

Firms → Financial Sector:

• Firms save a portion of their profits, which are deposited in banks or financial institutions.

Financial Sector → Households:

• Banks provide loans to households, allowing them to finance consumption and investment.

Households → Financial Sector:

• Households save a portion of their income by depositing it in banks or investing in financial instruments.

Financial Sector → Firms:

• Banks provide loans and credit to firms for investment in capital goods and expansion.

This flowchart represents the circular flow of income, where money circulates between households, firms, and the financial sector, facilitating economic activity.

Q16: Describe the four major sectors in an economy according to the macroeconomic point of view.
Ans: The four major sectors in an economy from a macroeconomic point of view are:

• Household Sector: This sector includes all individuals and families in the economy. It is the source of labor, consumption, and savings. Households provide labor to firms and receive income in the form of wages, salaries, rents, and profits.
• Business (Firm) Sector: Firms are involved in production and the creation of goods and services. They hire labor from households, invest in capital goods, and produce goods and services for households and other businesses. Firms generate income through sales and profits.
• Government Sector: The government sector includes all levels of government (local, state, and federal). It plays a role in the economy through taxation, public spending, and regulation. Government can influence the economy by adjusting fiscal and monetary policies.
• Foreign Sector: This sector represents international trade and interactions with foreign countries. It includes exports, imports, and foreign investments. The foreign sector affects an economy's balance of payments and trade balance.

These four sectors interact in the circular flow of income and contribute to the overall functioning of the economy.