Ncert Solutions for Class 12 Macro Economics Chapter 1 Introduction (Introductory Macroeconomics)

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Economics Class 12 Chapter 1 questions and answers: Introduction macroeconomics class 12 solutions

TextbookNCERT
ClassClass 12
SubjectEconomics
ChapterChapter 1
Chapter NameIntroduction class 12 ncert solutions
CategoryNcert Solutions
MediumEnglish

Are you looking for Ncert Solutions for Class 12 Macro Economics Chapter 1 Introduction? Now you can download economics class 12 chapter 1 questions and answers pdf from here.

Question 1: What is the difference between microeconomics and macroeconomics?

Answer 1:

MicroeconomicsMacroeconomics
Focuses on individual economic units like households, firms, and industries.Focuses on the economy as a whole, including national and global economic issues.
Analyzes supply and demand, pricing, and resource allocation at a smaller scale.Analyzes aggregate indicators like GDP, unemployment rates, and inflation.
Concerned with consumer behavior, production costs, and market structures.Concerned with government policies, economic growth, and overall economic stability.
Example: How a company sets its product prices.Example: How changes in interest rates affect national inflation.

Question 2: What are the important features of a capitalist economy?

Answer 2: A capitalist economy is characterized by several key features that distinguish it from other economic systems, such as socialism or communism. Here are the most important features:

1. Private Ownership of Property and Resources In a capitalist system, individuals and private entities (e.g., corporations) own and control property, businesses, and other economic resources. This includes land, factories, and capital (money, equipment, etc.). The role of the government in owning or controlling property is minimal, with most resources being privately held.

2. Market-Based Economy The capitalist economy operates primarily on market mechanisms, where supply and demand determine prices, production, and distribution of goods and services. Consumers and businesses engage in voluntary transactions, and prices fluctuate based on these market forces.

3. Profit Motive The primary motivation for businesses in a capitalist economy is to make a profit. Businesses aim to maximize their revenue by efficiently using resources and satisfying consumer needs.

4. Competition Free competition is a hallmark of capitalism. Multiple businesses compete to offer better products or services, which drives innovation, improves quality, and reduces prices. Competition also helps allocate resources efficiently, as businesses that can produce goods or services at a lower cost are rewarded in the marketplace.

5. Limited Government Intervention A capitalist economy is typically characterized by a limited role for the government in economic decision-making. The government’s primary functions are to enforce contracts, protect property rights, and maintain law and order. Government interference in the economy (through regulations, price controls, subsidies, etc.) is generally kept to a minimum to allow market forces to operate freely.

6. Consumer Sovereignty In capitalism, consumers have significant power. Consumer preferences dictate what goods and services are produced, as businesses seek to meet demand in order to make profits. This is known as consumer sovereignty, where the “votes” cast by consumers through their purchasing choices guide business decisions.

Question 3: Describe the four major sectors in an economy according to the macroeconomic point of view.

Answer 3: The four major sectors of an economy as per the macroeconomic point of view are:

  • (i) Households
  • (ii) Firms
  • (iii) Government
  • (iv) External sector

1. Household Sector: This sector comprises individuals and families who consume goods and services. Households are the primary consumers in the economy, and they also supply labor to businesses in exchange for wages. Their spending on goods and services (known as consumption) is a key driver of economic activity, and they make decisions about saving and investing their income.

2. Firms Sector: The Firms sector includes firms and companies that produce goods and services. These businesses invest in capital, hire labor, and use natural resources to generate output, which is then sold to households, other businesses, or the government. The investment made by businesses (in factories, machinery, technology, etc.) is a crucial component of economic growth and innovation.

3. Government Sector: The government plays an essential role in the economy by collecting taxes and using that revenue to provide public goods and services, such as infrastructure, education, and healthcare. The government also regulates economic activity and redistributes income through social programs. Its spending, known as government expenditure, directly influences overall demand and can help stabilize the economy during downturns.

4. External sector: The External sector represents international trade and financial exchanges between the domestic economy and other countries. It involves exports (goods and services sold to other countries) and imports (goods and services purchased from other countries). The External sector is important for understanding the trade balance and how global markets impact domestic economic conditions through currency exchange rates and global demand.

Question 4: Describe the Great Depression of 1929.

Answer 4: he Great Depression of 1929 was a severe economic crisis that was witnessed back in 1929. It was originated in the United States of America with the crash of the stock market and was gradually spread to other countries of the world. The main cause of this crisis was the fall in aggregate demand due to under consumption and over investment.

Due to the under consumption and over investment the stock of finished goods started piling up, which resulted in low price levels and consequently low profit levels. The money in the economy was then converted into unsold stock of finished goods that directly lead to an acute fall in the employment and hence income level fell drastically. The demand for goods in the economy was extremely low and eventually led to the considerably lower levels of employment too. In USA, the rate of unemployment significantly increased from 3% to 25%.

The Great depression had its own implications and importance in economics, as it led to the failure of the classical approach of economics. The believers of market forces of demand and supply, paved the way for emergence of the Keynesian approach. It was this incident only that provided the economists with sufficient evidence to recognise macroeconomics as a separate branch of economics.

The cause and effect relationship of the Great Depression can be summarised in this flow chart
Low demand → overinvestment → low level of employment → low level of output → low income → low demand.

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