NCERT Solutions for Class 12th: Ch 1 Introduction Macroeconomics


Page No: 7

1. What is the difference between microeconomics and macroeconomics?


Basis of difference
Meaning It studies behaviour of an individual economic unit such as a firm, a consumer etc. It studies behaviour of the whole economy such as national income, aggregate supply etc.
Scope It has a narrow scope i.e., a consumer, a market etc. It has a very wide scope i.e., a country
Central problem Its central problem is price determination. Its central problem is production and employement determination.
Method It is based on partial equilibrium i.e., other things being equal. It is based on general equilibrium.
Tools Main tools are demand and supply. Main tools are aggregate demand, aggregate supply, aggregate saving and invetement.
Variables Major variables are an individual market, price of a commodity, a consumer's demand etc. Major variables are aggregate consumtion, national income.

2. What are the important features of a capitalist economy?


Features of Capitalist economy:

• Private property: It allows individuals to have right over property. They can use their property in the way, they like.

• Economic Freedom: Capitalist economy grants freedom to decide. The producer will decide 'what to produce'. Also, consumers have the freedom to buy anything they want.

• Profit making: The main motive of capitalism is profit. All the decisions taken by individuals are for making more profit.

• Price mechanism: Prices of commodities are determined by the demand and supply factor without any interference by the government or any external forces.

• Less role of government: The government only provides basic framework for the smooth functioning of economy. It does not take part in day-to-day economic activity.

• Competition: It means presence of large number of buyers and sellers in the market. There is fair competition between them that determines the production, consumption and distribution of goods and services.

• Laissez Faire: Capitalist economy works under Laissez Faire. It has minimum state intervention in economic activities.

3. Describe the four major sectors in an economy according to the macroeconomics point of view.


According to the macroeconomics point of view, four major sectors in an economy are described below:

• Household Sector: Households buys goods and services to satisfy their wants. This sector spends their income for purchasing goods and services and paying taxes.

• Firms: This sector employ and organise factors of production and engaged in production various goods and services for profit making.

• Government: This sector frames and enforce laws and delivers justice. They impose taxes and spend money on building public infrastructure, running schools, colleges, providing health services etc. In many instances, they also undertake production activities however their motive is not to earn profits.

• External Sector: This sector is engaged in external trade i.e., exports and imports of goods and services. When domestic country sell goods to the rest of the world then it is called experts and when goods and services are purchased from the rest of the world it is called imports.

4. Describe the Great Depression of 1929.


The Great Depression was an economic crisis started in 1929 and continued for next several next years. It began in the United States of America after the stock market crash. The main cause behind it was the fall of aggregate demand due to under consumption and over investment. The output and employment levels in the countries of Europe and North America fall by huge amounts. It affected the whole world. The demand of the goods in the market during this period was very low so production was also lowered which lead to unemployment. In USA, from 1929 to 1933, unemployment rate rose from 3 per cent to 25 per cent.

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