Introduction to Macroeconomics Class 12 Important Questions and Answers Macroeconomics Chapter 1

Important Questions of Introduction to Macroeconomics Class 12 Macroeconomics Chapter 1

Question 1.
Give any two examples of flow concept. (Delhi 2019)
Answer:
Income and savings

Question 2.
Define stocks. (Delhi 2016)
Or
Give meaning of stock variables. (Delhi (C) 2013)
Or
Define stock variable. (Delhi 2012; All India 2011)
Answer:
Stock variables are defined as any quantity measured at a particular point of time. e.g. number of machines in a plant on 31st March amount in the bank account on 1st July.

Question 3.
Define flows. (All India 2016)
Or
Give meaning of flow variables. (Delhi (C) 2013)
Or
Define flow variable. (All India 2012; Delhi 2011)
Answer:
Flow variables are defined as any quantity measured per unit at a particular period of time, e.g. income or expenditure over a time period of one month or one year.

Question 4.
Define investment. (Delhi (C) 2014; Delhi (C) 2013)
Answer:
It is the process of capital formation by a firm or increase in the existing stock of capital.

Question 5.
Give the meaning of capital goods. (Delhi (C) 2014)
Or
Define capital goods. (Delhi 2012; All India 2010)
Answer:
The goods which are repeatedly used in the process of production are known as capital goods. They are the fixed assets of the producer, e.g. building, plant and machinery etc. They help to convert intermediate goods into final goods.

Question 6.
Give two examples of intermediate goods. (Delhi (C) 2014; All India 2013)
Answer:
Two examples of intermediate goods are

Steel used in the production of car.
Mobile sets purchased by a mobile dealer.

Question 7.
Define consumption goods. (Delhi (C) 2014; All India 2012)
Answer:
Goods which are directly used for satisfaction of human wants and which are not used in production of other goods are known as consumer goods or consumption goods, e.g. ice-cream and milk consumed by the households.

Question 8.
What is macroeconomics? (All India (C) 2013)
Answer:
Macroeconomics studies economic problems at the level of an economy as a whole. It is the study of aggregates.

Question 9.
Define final goods. (All India (C) 2013)
Or
Define final product. Delhi (C) 2010
Answer:
The goods, which have crossed the boundary line of production and are ready for use by their final users are known as final goods, e.g. clothes, milk consumed by a consumer.

Question 10.
Define depreciation. (All India 2011)
Answer:
It is the loss in the value of fixed assets in use on account of normal wear and tear, normal rate of accidental damages and expected or foreseen obsolescence. Depreciation is also called consumption of fixed capital.

Question 11.
Define intermediate goods. (Delhi (C) 2011)
Answer:
The goods purchased by a firm for the use in production of other goods or for the purpose of reselling are known as intermediate goods, e.g. steel used in the production of cars or milk purchased by a milk seller.

Question 12.
Distinguish between stock and flow variables with suitable examples. (April re-exom 2018)
Or
Distinguish between stocks and flows. Give an example of each. (All India (C) 2014)
Or
Distinguish between stock and flow. Give two examples of each. (All India 2013)
Answer:
Differences between stock and flow are (any three)

Basis	Stock	Flow
Time elements	It relates to a point of time.	It relates to the period of time.
Dimension	It is not time dimensional.	It is time dimensional as per hour, per month, per year.
Impact	It influences the flow. Greater the stock of capital greater is the flow of goods and services.	It influences the stock e.g. monthly increase in the supply of money leads to an increase in the quantity of money.
Concept	Static concept.	Dynamic concept.
Example	Money in bank account as on 31st March, 2016.	Number of births during the month of March 2016.

Question 13.
What are capital goods? How are they different from consumption goods? (April re-exam 2018)
Or
Consumption goods and capital goods (All India (C) 2016)
Answer:
The goods which are repeatedly used in the process of production are known as capital goods. They are the fixed assets of the producer, e.g. building, plant and machinery etc. They help to convert intermediate goods into final goods.

Differences between consumer goods and capital goods are:

Basis	Consumer Goods	Capital Goods
Meaning	These goods are purchased by consumers for the satisfaction of their wants and not for resale.	These goods are purchased by manufacturers and producers for the production of other goods. These goods are not meant for resale.
Use	These are for own use.	These are used for production of goods and services.
Demand	High	Comparatively less
Examples	Bread, butter, jam, etc.	Machinery, equipment, etc.

Question 14.
Which among the following are final goods and which are intermediate goods? Give reasons.
(a) Milk purchased by a tea stall
(b) Bus purchased by a school
(c) Juice purchased by a student from the school canteen (March 2018)
Answer:
(a) ‘Milk purchased by a tea stall’ is intermediate goods.
Reason: It will be used for making tea as a raw material and involved value addition.
(b) ‘Bus purchased by a school is final good.
Reason: School purchase bus as long-term durable product and make investment for school i.e. not for re-sale.
(c) ‘Juice purchased by a student from school canteen’ is final good.
Reason: Here, juice is purchased for direct satisfaction of student’s need. i.e. juice is consumed by its end user.

Question 15.
Explain with the help of an example, the basis of classifying goods into final goods and intermediate goods. (All India 2017)
Answer:
The basis of classification is the end-use of the product. Goods which are used by the producers in the process of production such as raw material or goods purchased for resale, are known as intermediate goods, e.g. shirt purchased by a firm for resale. These goods are still within the production boundary. Goods which are outside the boundary line of production and are ready for use by their final users are called final goods, e.g. shirt purchased by a consumer.

Question 16.
Distinguish between final goods and intermediate goods. Give an example of each. (All India 2017)
Or
Distinguish between Final goods and intermediate goods.
Or
Distinguish between intermediate and final goods. Give two examples of each. (All India 2010)
Answer:
Differences between intermediate goods and final goods are (any three)

Basis	Intermediate Goods	Final Goods
Meaning	These goods may be used as raw materials for the production of other goods during the accounting year.	These goods are not used as raw materials for the production of other goods during the accounting year.
Purpose	These goods may be resold by the firms to make profits during an accounting year.	These goods are not resold by the firms to make profits during an accounting year.
Production boundary	These goods remain within the boundary line of production and are not ready for use by their final users.	These goods are outside the boundary line of production and are ready for use by their final users.
Examples	(i) Steel used in the production of cars. (ii) Sugar used in the making of candies.	(i) A microwave oven sold to consumers. (ii) A mixer grinder sold to consumers.

Question 17.
Explain the circular flow of income. (All India 2017; Delhi (C) 2014, 2012; All India (C) 2012)
Answer:
Circular flow of income refers to the unending flows of production of goods and services and income and expenditure in an economy. It shows the redistribution of income in a circular manner between production units (firms) and households. It can be better understood with the diagram given below

Question 18.
Explain the circular flow of income. (All India (C) 2016,2015; Delhi (C) 2015,2013)
Answer:
Circular flow of income refers to the unending flows of production of goods and services and income and expenditure in an economy. It shows the redistribution of income in a circular manner between production units (firms) and households. It can be better understood with the diagram given below

Phases of circular flow of income There are three different phases of generation, distribution and disposal in circular flow of income, as shown in the given diagram.

Income is first generated in production units, then, distributed to households and finally spent on goods and services produced by these units to make the circular flow complete its course.

Question 19.
Define intermediate goods and final goods. Can milk be an intermediate good? Give reason for your answer. (All India (C) 2015)
Answer:
Intermediate goods: The goods purchased by a firm for the use in production of other goods or for the purpose of reselling are known as intermediate goods, e.g. steel used in the production of cars or milk purchased by a milk seller.

Final goods: The goods, which have crossed the boundary line of production and are ready for use by their final users are known as final goods, e.g. clothes, milk consumed by a consumer.

Milk can be final good as well as intermediate good. It totally depends upon end use of milk.
Milk can be a final good if it is being consumed by a household and it can be a intermediate good for a firm which makes ice-creams.

Question 20.
Give reasons and categorise the following into stock and flow. (Delhi 2013)
(i) Capital
(ii) Saving
(iii) Gross Domestic Product
(iv) Wealth
Answer:
(i) Capital: It is a man made means of production. It is a stock because it is measured at given point of time.
(ii) Saving: It is the surplus of income over consumption. It is a flow as it is measured with reference to period of time.
(iii) Gross domestic product: It is a flow as it is the market value of final goods and services produced within the domestic territory during a period of time.
(iv) Wealth: It is a stock as it is measured at a particular point of time.

Question 21.
Should the following be treated as final expenditure or intermediate expenditure? Give reasons for your answer. (All India 2012)
(i) Purchase of furniture by a firm.
(ii) Expenditure on maintenance by a firm.
Answer:
(i) Purchase of furniture by a firm Final expenditure
Reason: A firm purchases furniture for long-term usp as an investment and not for re-sale,
(ii) Expenditure on maintenance by a firm Intermediate expenditure.
Reason: Expenditure on maintenance is a recurring expense and is undertaken to facilitate the production process.

Question 22.
Giving reasons, classify following into intermediate products and final products. (Delhi 2012)
(i) Furniture purchased by a school.
(ii) Chalks, dusters etc purchased by school.
Answer:
(i) Furniture purchased by school Final product
Reason: Schools buy furnitures for long-term use and it can be considered as an investment.
(ii) Chalks, dusters etc purchased by school Intermediate good.
Reason: Chalks, dusters etc; are purchased by a school for use in their day-to-day work. This is meant for further production in the form of services.

Question 23.
Give reason and identify whether the following are final expenditures or intermediate expenditure. (All India 2012)
(i) Expenditure on maintenance of an office building.
(ii) Expenditure on improvement of machine in a factory.
Answer:
(i) Expenditure on maintenance of an office building Intermediate expenditure Reason Expenditure on maintenance of office building is for production purpose.
(ii) Expenditure on improvement of machine in a factory Final expenditure Reason Expenditure on improvement of machine in a factory is a kind of capital investment, so it should be considered as final expenditure.

Question 24.
Giving reasons, classify following into intermediate products and final products.
(i) Computers installed in an office.
(ii) Mobile sets purchased by a mobile dealer. (Delhi 2011)
Answer:
(i) Computers installed in an office Final product.
Reason: Offices buy computers as long-term durable products and are investment for them.
(ii) Mobile sets purchased by a mobile dealer Intermediate products.
Reason: A mobile dealer purchases mobile sets for reselling purpose. That’s why it is considered as intermediate product.

Question 25.
Give reasons and categorise the following into stock and flow.
(i) Profits
(ii) Capital
(iii) Savings
(iv) Balance in bank account (All India 2011)
Answer:
(i) Profits: These are flow variables as it is measured over a period of time.
(ii) Capital: It is a man made means of production. It is a stock because it is measured at given point of time.
(iii) Savings: It is the surplus of income over consumption. It is a flow as it is measured with reference to period of time.
(iv) Balance in bank account: This is a stock variable which is measured on a specific date, i.e. point of time.

Question 26.
Give reasons and categorise the following in stock and flow. (Delhi (C) 2011)
(i) Losses
(ii) Capital
(iii) Production
(iv) Wealth
Answer:
(i) Losses: These are flows as they are measured over a period of time.
(ii) Capital: It is a man made means of production. It is a stock because it is measured at given point of time.
(iii) Production: It is a flow as it is measured over a period of time.
(iv) Wealth: It is a stock as it is measured at a particular point of time.

Question 27.
Giving reasons, classify the following into intermediate and final goods. (All India 2010)
(i) Machine purchased by a dealer of machines.
(ii) A car purchased by a household.
Answer:
(i) Machine purchased by a dealer of machines Intermediate goods.
Reason: A dealer purchases machines for reselling purpose, so it is an example of intermediate good.
(ii) A car purchased by a household Final goods
Reason: A household purchases a car for consumption purpose, so it is an example of final good.

Multiple Choice Questions

Question 1.
Which of the following is a flow? (Choose the correct alternative)
(a) Deposits in a bank
(b) Capital
(c) Depreciation
(d) Wealth (Delhi (C) 2016)
Answer:
(c) Depreciation

Question 2.
Which of the following is a stock? (Choose the correct alternative). All Indin [Cl 2016
(a) Savings
(b) Production
(c) Consumption of fixed capital
(d) Capital
Answer:
(d) Capital

Question 3.
Which of the following is not a flow? (Choose the correct alternative) (Delhi (C) 2015)
(a) Capital
(b) Income
(c) Investment
(d) Depreciation
Answer:
(a) Capital

Question 4.
Which of the following is a stock? (Choose the correct alternative) (All India (C) 2015)
(a) Wealth
(b) Saving
(c) Exports
(d) Profits
Answer:
(a) Wealth

Question 5.
Macroeconomics study the economy as a whole or in aggregates. Which of the following are the macroeconomics study aggregates/variables?
(a) Aggregate demand, aggregate supply, individual income and price level
(b) Individual demand, individual supply, national income and price level
(c) Aggregate demand, aggregate supply, national income and price level
(d) None of the above
Answer:
(c) Aggregate demand, aggregate supply, national income and price level

Question 6.
A study of how increase in the Goods and Service Tax (GST) rate will affect the national unemployment rate is an example of
(a) microeconomics
(b) descriptive economics
(c) macroeconomics
(d) None of the above
Answer:
(c) macroeconomics

Question 7.
From the following, which type of goods are ready for the use by their final users?
(a) Intermediate goods
(b) Final goods
(c) Capital goods
(d) All of the above
Answer:
(b) Final goods

Question 8.
The goods in which value to be added or used for resale are known as
(a) intermediate goods
(b) value added goods
(c) capital goods
(d) None of the above
Answer:
(a) intermediate goods

Question 9.
Purchase of computers, equipments, tools, power and raw materials, etc is a part of
(a) gross investment
(b) fixed investment
(c) inventory investment
(d) All of the above
Answer:
(a) gross investment

Question 10.
Which of the following is the reason of depreciation of fixed assets?
(a) Normal wear and tear and unforeseen obsolescence
(b) Normal wear and tear and foreseen obsolescence
(c) Abnormal wear and tear and foreseen obsolescence
(d) Abnormal wear and tear and unforeseen obsolescence
Answer:
(b) Normal wear and tear and foreseen obsolescence

Question 11.
Stock variable is defined as any quantity which is measured
(a) over a period of time
(b) at a particular point of time
(c) in a financial year
(d) All of the above
Answer:
(b) at a particular point of time

Question 12.
The quantity of a variable which is measured over a period of time, is known as
(a) stock
(b) flow
(c) goods
(d) All of the above
Answer:
(b) flow

Question 13.
Real flow includes
(a) factor services and production of goods and services
(b) factor payments and production of goods and services
(c) factor services and expenditure on goods and services
(d) factor payments and expenditure on goods and services
Answer:
(a) factor services and production of goods and services

Question 14.
From the following, which is not the part of injection?’
(a) Investment
(b) Savings
(c) Exports
(d) None of these
Answer:
(b) Savings

Question 15.
Money flow includes
(a) factor services and production of goods and services
(b) factor services and expenditure of goods and services
(c) factor payment and production of goods and services
(d) factor payment and expenditure on goods and services
Answer:
(d) factor payment and expenditure on goods and services

Question 16.
The services of doctors, lawyers, teachers, domestic maids, etc are
(a) final services
(b) intermediate services
(c) Both (a) and (b)
(d) None of the above
Answer:
(c) Both (a) and (b)

Question 17.
Macroeconomics study economic activities and problems as a whole. Macroeconomics does not include
(a) aggregates
(b) economic equilibrium
(c) consumer equilibrium
(d) All of the above
Answer:
(c) consumer equilibrium