Economics 3 Marks Question

Full employment is a situation in which all those who are able and willing to work at given wage rate find work.

Deflationary gap refers to a situation when AD falls short of AS at full employment.

When aggregate demand is higher than aggregate supply at full employment, the gap is called inflationary gap.

Higher rates of taxes can be levied on higher incomes and lower rates of taxes can be levied on lower incomes. More expenditure can be incurred on providing free services like education, health, etc. to the poor.

Microeconomics studies the behaviour of individual economic agents/units.

Voluntary unemployment is that part of the working force not willing to engage itself in gainful occupation whereas Involuntary unemployment is that part of the labour force which is willing and able to work at the prevailing wage rate but is out of work.

The economy in which the central problems are solved by the government through planning.

It is the value of the best alternative foregone.

Choice of technique at the micro level, every economy has to face three central problems, i.e.

1. What to produce: The first problem that an economy faces is to decide which goods and services are to be produced. Besides this, the economy also needs to decide in what quantities these goods and services should be produced
2. How to produce:It is concerning with, how to organise production. This problem is related to the choice of technique of production. It arises due to the availability of various techniques for the production of a commodity such as labour intensive technique and capital intensive technique. Depending upon the availability of resources, either technique is used.
3. For whom to produce:This economic problem basically focuses on the distribution mix of the final goods and services produced. The distribution of the final goods and services is equivalent to the distribution of National Income (or National Product) among the factors of production such as land, labour, capital and entrepreneur.

It refers to the problem of distribution of income.

National Income, Unemployment, inflation etc.

Study of consumer’s equilibrium, producer’s equilibrium, etc.

Unlimited wants and scarce resources having alternative uses.

Macro economics is the study of aggregates of an economy.

That branch of economics which deals with behaviour of aggregates relating to the economy as a whole.

There are some incomes which cannot be conveniently divided into distinctive factor incomes.Such income arises to the self-employed like practicing lawyers, doctors, etc. Take for example a practising lawyer. The fees charged by the lawyer is not only his wages but also interest of capital employed by him, rent of his office and profit of his entrepreneurship. Since no data is available to sub-divide the lawyer’s fees into wages, rent, interest and profit, it is called mixed income.

Stocks are economic variables measured at a point of time.
Flows are economic variable measured over a period of time.
Example:

When aggregate demand and aggregate supply are equal at below full employment level, it is called under-employment equilibrium.

Aggregate supply is the value of total quantity of final goods and services planned to be produced in an economy during a period.

Aggregate supply is the value of total quantity of final goods and services planned to be produced in the country during the year.

Full employment is a situation in which all those who are able and willing to work at the prevailing wage rate find work.

When people who are able and willing to work at the prevailing wage rate, do not get employment, it is a situation of involuntary unemployment.

Economy refers to the whole collection of production units in an area by which people get their living.

Excess of Aggregate supply over aggregate demand at full employment level.

Refers to that part of labour force which is able to work and willing to work at prevailing wage rate but is not able to find work.

The problem arises due to:

1. Limited resources

Resources, ie. land, labour, capital, etc. are available in limited quantities in an economy and cannot produce all what people want.

2. Unlimited wants

Wants of the people are unlimited and keep on multiplying and cannot be satisfied due to limited resources.

3. Resources have alternative uses

A resource can be used for producing more than one product. This creates a problem. Which product should be produced or which want should be satisfied first.

1. Demand by a consumer.
2. Price determination of a commodity.

Involuntary unemployment means that part of the labour force which is both able and willing to work at the prevailing wage rate but do not get work.

This problem involves selection of goods and services to be produced and the quantity to be produced of each selected commodity. Every economy has limited resources and thus, cannot produce all the goods. More of one good or service usually means less of others. For example, production of more sugar is possible only by reducing the production of other goods. Production of more war goods is possible only by reducing the production of civil goods. So, on the basis of the importance of various goods, an economy has to decide which goods should be produced and in what quantities. This is a problem of allocation of resources among different goods.

Study of aggregate demand, aggregagate supply, unemployment, inflation, etc.

It indicates growth of resources.Alternate Answer
Advancement of technology.

Because the problem relates to the economy as a whole.

These are those, which are used for:

1. Further processing (like sugar used for making sweets).
2. Resale in the same year (If car purchased by a car dealer for resale).

These are those which are used for:

1. Personal consumption (like bread purchased by consumer household).
2. Investment or capital formation (like building, machinery purchased by a firm).

Examples of macroeconomics theory are:

1. Theory of multiplier employment.
2. Income generation.

Two types of final goods are:

1. Final consumer goods.
2. Final producer goods.

Macroeconomics named General Theory of Employment, Interest and Money published in 1936.

The basic aim of Macroeconomic theory is to take decision regarding aggregate consumption, aggregate investment, aggregate savings etc. on the basis of income.

Non-durable.
Reason: As it loose their identity in a single act of consumption.

Intermediate goods.
Reason: As fertilizer is used for further production during the same year.

It refers to that fund which the producers keep to cope up with the depreciation losses in the process of production.

Intermediate goods.
Reason: As it is used up while making sweets.

Final Product.
Reason: It is a final product as it is used by a consumer for final consumption.

Excluded.
Reason: As it is outside the domestic territory of our country.

1936.

Income received without rendering any productive services is known as Transfer Income.

Final product.
Reason: It is a final product because it is purchased for investment.

Durable.
Reason: As it has expected life time of several years and of relatively high value.

Final product.
Reason: It is a final product as it is used by households for final consumption.

True.Explanation:
Microeconomics and Macroeconomics are not independent of each other and there is much common ground between the two. It means Microeconomics and Macroeconomics are interdependent.

The concept of domestic territory helps to estimate Domestic Product'. As we know Domestic Product includes goods and services produced by production units located in the domestic territory (irrespective of fact whether carried out by residents or non-residents). The money value of domestic product is termed as Domestic Income.

Transfer income.
Reason: It is received without rendering any productive services.

Consumer services.
Reason: End user is consumer.

It is the process of capital formation by a firm or addition to the stock of capital.

Macroeconomics.

Non-durable.
Reason: As it loose their identity in a single act of consumption.

Stock concept.
Reason: It is related to a point of time.

Normal Resident.
Reason: As their centre of economic interest lies in the home country.

Included.
Reason: As it is within the domestic territory of our country.

Economic agents refer to those individuals or institutions which take economic decisions.

False.
Explanation:
As the second name of macroeconomics is theory of income and employment.

Intermediate product.
Reason: These are intermediate products because these are purchased for resale.

Normal Resident.
Reason: As their centre of economic interest lies in the home country.

Flow concept.
Reason: It relates to a period of time.

Stock concept.
Reason: It is related to a point of time.

Income earned by factor of production by rendering their productive services in the production process is known as Factor Income.

The concept of Normal Resident helps to estimate 'National Product'. National Product includes production activities of normal residents irrespective of fact whether performed within the economic territory or outside it. The money value of national product is termed as National Income.

Intermediate product.
Reason: It is an intermediate product as wheat is used for further production during the same year or is meant for resale.

Flow concept.
Reason: It is related to a period of time. (1 year)

Flow concept.
Reason: It is related to a period of time.

Flow concept.
Reason: It is related to a period of one month or one year.

Capital goods are defined as all goods produced for use in future productive processes.

Production Phase, Distribution Phase and Disposition Phase.

The two examples of microeconomic variables are:

1. Price determination of a commodity.
2. The study of producer's equilibrium or consumer's equilibrium.

The flow of factor services from households to firms and flow of goods and services from firms to households is known as real flow.

False.Explanation:
The main tools of macroeconomics are aggregate demand and aggregate supply.

It refers to the withdrawal from the circular flow. When households and firms save part of their incomes, it constitutes leakages.

Consumer goods.
Reason: End user is consumer.

Excluded.
Reason: As it is outside the domestic territory of our country.

It refers to the estimated value of depreciation for all the producing units in the economy during the period of an accounting year.

Difference between depreciation and depreciation reserve fund:

S. No.	Basis	Depreciation	Depreciation reserve fund
1.	Concept	It is the loss of value of fixed assets in use, on account of normal wear and tear.	It is a provision of funds created by producers to cope up with depreciation losses.
2.	Effect	It leads to correct computation of profit.	These funds are used for the replacement of fixed assets when these are worn out.
3.	Reason	Expected or foreseen obsolescence, normal wear and tear.	Obsolete/ outdated assets need to be repalced.

Service.
Reason: As it is non-material goods which satisfy the human wants directly.

Final product.
Reason: It is a final product as it is used by households for final consumption.

False.
Explanation:
It depends on the use of bread. When it is purchased by a household, it is a consumer good. If it is purchased by a restaurant, it is a producer intermediate goods.

It is that branch of economics which studies economic activities at the level of an economy as a whole, i.e. problems of inflation, unemployment, etc.

Flow concept.
Reason: It relates to a period of time.

Consumer goods.
Reason: End user is consumer.

Normal Resident.
Reason: As their centre of economic interest lies in the home country.

FalseEaplanation:
As macroeconomics is that part of economics theory which study the economy as a whole.

In macroeconomics, we study how the level of income, output and employment are determined in an economy and how unemployment can be removed.

Final product.
Reason: It is a final product as it is used by households for final consumption.

Transfer income.
Reason: It is received without rendering any productive services.

Macroeconomics is the study of the behaviour of aggregates covering the entire economy such as national income, full employment, unemployment, aggregate consumption, aggregate demand, aggregate supply, general price level etc.

The two examples of macroeconomic variables are:

1. National income.
2. Level of employment.
3. Aggregate investment.
4. Aggregate consumption.

True.
Explanation:
It directly satisfies human wants.

No, it is not necessary that machine purchased is a capital good. It will depend upon its use.

1. If a sewing machine is purchased by a tailor, then it is a fixed asset of the tailor and considered to be a capital good. But the same machine purchased by a consumer household is considered to be a durable use consumer goods.
2. If a car purchased by a taxi driver as a taxi or if purchased by a firm for use in its business is a capital good. But the same car purchased by a consumer household is a durable use consumer goods.

Note: So, finally, the end user of a good determine, whether it is capital good or durable use consumer goods. If an end user of a durable goods is a producer, it is a capital good. If an end user of a durable goods is a consumer household, it is a durable use consumer goods. So, capital goods are only those durable goods which are used as producer goods, not as consumer goods.

Producer goods are all those goods which are used in the process of production i.e., which are used in the production of other goods. Producer goods include two types of goods:

1. Single-use Producer Goods: Goods used as raw material by the producers. It includes raw material like coal, wood, etc. They are not capital goods as they cannot be repeatedly used in the production process.
2. Capital Goods: Goods which are used as fixed assets by the producers, like plant and machinery, which can be repeatedly used in the production process. So, it can be said that all capital goods are producer goods, but all producer goods are not capital goods.

No, it is not necessary that machine purchased is a final good. It will depend upon its use.

1. If a machine is purchased by a household, then it is a final good. For example, washing machine purchased by a consumer household is a final goods.
2. If it is purchased by a firm for its own use, then it is also a final good. For example, refrigerator purchased by a firm.
3. If it is bought by a firm for resale, then it is an intermediate good. For example, machine purchased by a machine dealer.

Included.
Reason: As it is within the domestic territory of our country.

Features of capitalist economy are:

1. Private ownership of land and capital.
2. Profit is the only motive.
3. Free play of the market forces of demand and supply.
4. Government looks after growth, stability and social justice in the economy.

Not a Normal Resident.
Reason: As their centre of economic interest lies in the foreign country.

The study of national income is a subject matter of Macroeconomics.

The central issues in macroeconomics relate to the overall level of employment, growth rate of national output, general price level and stability of the economy.

Stock concept.
Reason: It relates to a point of time.

Net investment refers to net addition in the stock of fixed assets of the producers during an accounting year.
Net Investment = Gross Investment - Depreciation.

Consumption goods are those goods which satisfy the wants of consumers directly.

Transfer income.
Reason: It is received without rendering any productive services.

Transfers made from the current income of the payer and added to the current income of the recipient (who receive) for consumption expenditure are called current transfers.

Transfer income.
Reason: It is received without rendering any productive services.

Service.
Reason: As it is non-material goods which satisfy the human wants directly.

Consumer goods.
Reason: End user is consumer.

Capital transfers are defined as transfers in cash and in kind for the purpose of investment to recipient made out of the wealth or saving of a donor.

It refers to the change in the stock of finished goods, semi-finished goods and raw materials. This stock keeps varying over time. This is also called as change in stock and is calculated is as,
Inventory Investment = Closing Stock - Opening Stock.

Macroeconomics.

Flow concept.
Reason: It relates to a period of time.

Because this is a transfer payment. Value: Implement of Knowledge.

Flow concept.
Reason: It is related to a period of time.

Stock concept.
Reason: It relates to a particular point of time.

JM Keynes.

Capital goods.
Reason: End user is producer.

Final product.
Reason: It is a final product because it is purchased for investment.

General Theory of Employment, Interest and Money.

Included.
Reason: As it is within the domestic territory of our country.

Intermediate product.
Reason: It is an intermediate product as cotton is used for further production during the same year.

Excluded.
Reason: As it is outside the domestic territory of our country.

The study of money and banking is a subject matter of Macroeconomics.

Not a Normal Resident.
Reason: As their centre of economic interest lies in the foreign country.

Intermediate product.
Reason: These are intermediate products because fertilizer is used for further production during the same year.

Macroeconomics theory is called Theory of Income and Employment' because in it we try to explain how the level of income and employment are determined in an economy.

Intermediate product.
Reason: It is an intermediate product as coal is used for further production during the same year.

Macroeconomics is that part of economics theory which study the economy as a whole.

An Indian working in Indian Embassy in the USA will be treated as normal resident of India.

Factor income.
Reason: It is earned by rendering productive services.

Factor income.
Reason: It is earned by rendering productive services.

Macroeconomics is the study of the behaviour of aggregates covering the entire economy such as national income, full employment, unemployment, aggregate consumption, aggregate demand, aggregate supply, general price level etc.

Flow concept.
Reason: It relates to a period of time.

Semi-durable.
Reason: As it have an expected life time of use of one year or slightly more.

The study of cotton textile industry is a microeconomic study.

Microeconomics is the study of individuals and small groups of individuals whereas Macroeconomics studies the aggregates of an economy.

Excluded.
Reason: As it is outside the domestic territory of our country.

It refers to flow of money income or the flow of goods and services across different sectors of the economy in a circular form.

Normal Resident.
Reason: As their centre of economic interest lies in the home country.

Final product.
Reason: It is a final product as the unsold coal is an investment for the trader.

Excluded.
Reason: As it is outside the domestic territory of our country.

Consumer goods.
Reason: End user is consumer.

Intermediate product.
Reason: It is an intermediate product as paper is used for further production during the same year.

Transfer income.

Factor income.
Reason: It is earned by rendering productive services.

Intermediate product.
Reason: It is an intermediate product as sugar is used for further production during the same year.

Included.
Reason: As it is within the domestic territory of our country.

2. Real flow.

1. Without any exchange of goods and services.

1. Population of a country is an example of stock as it is measured at a point of time.
2. Number of births is an example of flow as it is measured per unit of time.

1. Households.

4. Can be Consumption goods and intermediate goods.

4. All of these.

4. All of these.

4. All of them.

S. No.	Basis	Microeconomics	Macroeconomics
1.	Meaning	Microeconomics is the study of individual Economic units.	Macroeconomics is the study of the economy as a whole or its aggregates.
2.	Objectives	It lays emphasis on the allocation of resources and price determination.	It lays emphasis on the determination of National income and employment.
3.	Examples	Consumer's equilibrium, individual demand, pricing of good etc.	Economy's equilibrium. national income' Aggregate demand. inflation etc.

S. no.	Basis	Current Transfers	Capital Transfers
1.	Made out of	Transfers made from the current income of the payer and added to the current income of the recipient the current income of the recipient expenditure are called current transfers.	Capital transfers are defined as transfers in cash and in kind for the purpose of investment wealth or saving of the donor.
2.	Concept	Recurring or regular in nature.	Non-recurring or irregular in nature.
3.	Example	Scholarships, gifts, old age pension, etc.	Investment grant, capital gains, tax, war damages, etc.