CBSE Class 12 Economics Introduction to Macroeconomics VBQs

Q1. Ms. Nidhi is interested in knowing the change in quantity produced by a farmer with a fall in the price of the product. Which branch of economics would she study to ascertain the change?

Ans .Micro Economics

Q2. Give an example to show that an item which is kept constant in micro economics is considered a variable in macro economics.

Ans. National Income is kept constant in micro economics, but in macro economics, it is considered as an important variable.

Q3. What is the rationale for not taking into account the value of intermediate goods in the measure of Gross Domestic Product? 

Ans. To avoid the problem of double counting.

Q4.Will the commission given to a broker for sale of an old house be included in national income?

Ans. Yes, it will be included in national income as it is a payment for productive service received.

Q5.Why leisure is not included in Gross National Product?

Ans. It is very difficult to measure the value of leisure.

Q6.State whether money supply is a stock variable or flow variable?

Ans. Money supply is a stock variable because it is expressed at particular point of time.

Q7.What will be the effect of a rise in the bank rate on money supply?

Ans. Money supply will reduce. 

Q8.Can the value of Average Propensity to Consume be greater than one?

Ans. Yes, the value of APC can be more than 1.At low levels of income; consumption tends to be more than income. So ,APC >1 before the break- even point is attained.

Q9.Can Average Propensity to Consume be ever zero?

Ans. APC can never be equal to zero as consumption can never be zero at any level of income.

Q10.What happens when the credit availability is restricted and credit made costlier?

Ans. Limited and costly credit leads to contraction of credit and it has a deflationary impact on the economy.

Q11.Why is an entertainment tax, an indirect tax ?

Ans. The burden of entertainment tax can be shifted to other persons (ultimate consumers).

Q12.The price of 1 US Dollar has fallen from Rs 50 to Rs48.Has the Indian currency appreciated or depreciated?

Ans. Indian currency has appreciated.

Q13.Why are exports entered as positive items in the balance of payments accounts?

Ans. Exports lead to an inflow of foreign exchange in the country. Thus they are recorded as positive (credit) items.

Q14.How is purchase of an asset in another country treated in the capital account?

Ans .Purchase of an asset in a foreign country appears as a negative (debit) item in the capital account (as there is an outflow of foreign exchange).

Q15.Should a current account deficit be a cause for alarm? Explain.

Ans. Since deficit in current account is met by the surplus of capital account, it is not taken as a cause for alarm.

Q16.How does real flow consist of factor flow and product flow?

Ans .Real flow consists of two kinds of flows: (i)Factor flow :It is the flow of factor services from households to firms. (ii)Product flow :It is the flow of goods and services from firm to households.

Q17. “All producer goods are not capital goods.”Comment.

Ans. It must be noted that all goods used by producer (known as producer goods) are not capital goods. Producer goods include ( i)Raw material;(ii)Fixed assets like plant and machinery .The first type of producer goods (i.e. raw material, like coal,wood,etc.),are not capital goods as they lose their identity in the production process. They are single- use producer goods and cannot 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.

Q18.Why do we have different methods to measure the national income? Why all the methods lead to same estimate ?

Ans. We have three different methods to measure the national income(value added method, income method and expenditure method )because production, income and expenditure are three different phases of circular flow of income. Use of particular method depends on the availability of reliable data. All the three methods lead to same estimate because they are used to measure the same physical output at three different phases.

Q19.The Reserve Bank of India aims to make the credit costly for the general public in order to reduce the availability of credit. What should be done ?

Ans. The Reserve Bank of India should increase the bank rate. An increase in the bank rate increases the costs of borrowing from the central bank.It forces the commercial banks to increase their lending rates, which discourages the borrowers from taking loans.It makes the credit costly for the general public and reduces the availability of credit.

Q20.If inflation is higher in country A than country B ,and the exchange rate between the countries is fixed .What is likely to happen to the trade balance between the two countries ?

Ans. In this situation, the exports from country B to country A will rise and it will lead to surplus trade balance for country B.However , due to higher prices in country A ,its imports will increase from country B and it will lead to deficit in trade balance for country A.