Class 12 – Page 2 – Samacheer Kalvi

Samacheer Kalvi 12th Economics Solutions Chapter 10 Environmental Economics

Leave a Comment / Class 12 / By Prasanna

Students can Download Economics Chapter 10 Environmental Economics Questions and Answers, Notes Pdf, Samacheer Kalvi 12th Economics Book Solutions Guide Pdf helps you to revise the complete Tamilnadu State Board New Syllabus and score more marks in your examinations.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 10 Environmental Economics

Samacheer Kalvi 12th Economics Environmental Economics Text Book Back Questions and Answers

Part – A
Multiple Choice Questions.

Question 1.
The term environment has been derived from a French word …………………………
(a) Environ
(b) Environs
(c) Environia
(d) Envir
Answer:
(c) Environia

Question 2.
The word biotic means environment
(a) Living
(b) Non – living
(c) Physical
(d) None of the the above
Answer:
(a) Living

Question 3.
Ecosystem is smallest unit of …………………………
(a) Ionosphere
(b) Lithosphere
(c) Biosphere
(d) Mesosphere
Answer:
(c) Biosphere

Question 4.
Who developed Material Balance Models?
(a) Thomas and Picardy
(b) Non – market goods
(c) Joan Robinson and J.M. Keynes
(d) Joseph Stiglitz and Edward Chamberlin
Answer:
(d) Joseph Stiglitz and Edward Chamberlin

Question 5.
Environmental goods are …………………………
(a) Market goods
(b) Non – market goods
(c) Both
(d) None of the above
Answer:
(b) Non – market goods

Question 6.
In a pure public good, consumption is …………………………
(a) Rival
(b) Non – rival
(c) Both
(d) None of the the above
Answer:
(a) Rival

Question 7.
One of the most important market failures is caused by …………………………
(a) Positive externalities
(b) Negative externalities
(c) Both
(d) None of the above
Answer:
(b) Negative externalities

Question 8.
The common source of outdoor air pollution is caused by combustion processes from the following …………………………
(a) Heating and cooking
(b) Traditional stoves
(c) Motor vehicles
(d) All the above
Answer:
(b) Traditional stoves

Question 9.
The major contributor of Carbon monoxide is …………………………
(a) Automobiles
(b) Industrial process
(c) Stationary fuel combustion
(d) None of the above
Answer:
(a) Automobiles

Question 10.
Which one of the following causes of global warming?
(a) Earth gravitation force
(b) Oxygen
(c) Centripetal force
(d) Increasing temperature
Answer:
(d) Increasing temperature

Question 11.
Which of the following is responsible for protecting humans from harmful ultraviolet rays?
(a) UY – A
(b) UV – C
(c) Ozone layer
(d) None of the above
Answer:
(c) Ozone layer

Question 12.
Global warming also refers to as …………………………
(a) Ecological change
(b) Climate Change
(c) Atmosphere change
(d) None of the above
Answer:
(d) None of the above

Question 13.
Which of the following is the anticipated effect of Global warming?
(a) Rising sea levels
(b) Changing precipitation
(c) Expansion of deserts
(d) All of the above
Answer:
(b) Changing precipitation

Question 14.
The process of nutrient enrichment is termed as …………………………
(a) Eutrophication
(b) Limiting nutrients
(c) Enrichment
(d) Schistosomiasis
Answer:
(b) Limiting nutrients

Question 15.
Primary cause of Soil pollution is …………………………
(a) Pest control measures
(b) Land reclamation
(c) Agricultural runoff
(d) Chemical fertilizer
Answer:
(d) Chemical fertilizer

Question 16.
Which of the following is main cause for deforestation?
(a) Timber harvesting industry
(b) Natural afforestation
(c) Soil stabilization
(d) Climate stabilization
Answer:
(a) Timber harvesting industry

Question 17.
Electronic waste is commonly referred as …………………………
(a) Solid waste
(b) Composite waste
(c) E – waste
(d) Hospital waste
Answer:
(c) E – waste

Question 18.
Acid rain is one of the consequences of ………………………… Air pollution.
(a) Water Pollution
(b) Land pollution
(c) Noise pollution
(d) Soil Pollution
Answer:
(a) Water Pollution

Question 19.
Sustainable Development Goals and targets are to be achieved by …………………………
(a) 2020
(b) 2025
(c) 2030
(d)2050
Answer:
(c) 2030

Question 20.
Alkali soils are predominantly located in the ………………………… plains?
(a) Indus – Ganga
(b) North – Indian
(c) Gangetic plains
(d) All the above
Answer:
(d) All the above

Part – B
Answer The Following Questions In One or Two Sentences.

Question 21.
State the meaning of environment?
Answer:

Meaning of Environmental Economics is a different branch of economics that recognizes the value of both the environment and economic activity and makes choices based on those values.
The goal is to balance the economic activity and the environmental impacts by taking into account all the costs and benefits.
In short, Environmental Economics is an area of economics that studies the financial impact of environmental issues and policies.
Environmental Economics involves theoretical and empirical studies of the economic effects of national or local environmental policies around the world.

Question 22.
What do you mean by ecosystem?
Answer:

An ecosystem includes all living things (plants, animals and organisms) in a given area, interacting with each other, and also with their non-living environments (weather, earth, sun, soil, climate, atmosphere).
Ecosystems are the foundations of the Biosphere and they determine the health of the entire earth system.

Question 23.
Mention the countries where per capita carbondioxide emission is the highest in the world?
Answer:

United States of America – (USA)
Europian Union – (EU)
Japan
Russian Federation
United Arab Emirates (UAE)
Saudi Arabia
China.

Question 24.
What are environmental goods? Give examples?
Answer:
1. Environmental goods are typically non-market goods, including clear air, clean water, landscape, green transport infrastructure (footpaths, cycle ways, greenways, etc.), public parks, urban parks, rivers, mountains, forests, and beaches.

2. Concerns with environmental goods focus on the effects that the exploitation of ecological systems have on the economy, the well – being of humans and other species, and on the environment.

Question 25.
What are the remedial measures to control noise pollution?
Answer:
Remedial measures to control Noise Pollution

Use of noise barriers
Newer roadway for surface transport
Traffic control
Regulating times for heavy vehicles
Installations of noise barriers in the work place
Regulation of Loudspeakers

Question 26.
Define Global warming?
Answer:
1. Global warming is the current increase in temperature of the Earth’s surface (both land and water) as well as its atmosphere. Average temperatures around the world have risen by 0.75°C (1.4°F) over the last 100 years. About two thirds of this increase has occurred since 1975.

Carbon dioxide, methane, Chlorofluoro Carbon, nitrous oxides are the green house gases warming the earth’s surface. So it is also called green house effect. The CO₂ is the most important of the green house gases contributing to 50% of global warming.

2. Global warming adversely affects agriculture, horticulture and eco system.

Question 27.
Specify the meaning of seed ball?
Answer:

A seed ball (or seed bomb) is a seed that has been wrapped in soil materials, usually a mixture of clay and compost, and then dried.
Essentially, the seed is ‘pre-planted’ and can be sown by depositing the seed ball anywhere suitable for the species, keeping the seed safely until the proper germination window arises.
Seed balls are an easy and sustainable way to cultivate plants that provide a larger window of time when the sowing can occur.

Part – C
Answer The Following Questions In One Paragraph.

Question 28.
Brief the linkage between economy and environment?
Answer:
Linkage between Economy and Environment:

Man’s life is interconnected with various other living and non-living things.
The life also depends on social, political, ethical, philosophical and other aspects of economic system.
In fact, the life of human beings is shaped by his living environment.
The relationship between the economy and the environment is generally explained in the form of a “Material Balance Model”.
The model considers the total economic process as a physically balanced flow between inputs and outputs.
Inputs are bestowed with physical property of energy which is received from the environment.
The interdependence of economics and environment.

Economy – Environmental Interlinkages Material Balance Model

Question 29.
Specify the meaning of material balance principle?
Answer:

The relationship between the economy and the environment is generally explained in the form of a “Material Balance Model” developed by AlenKneese and R.V. Ayres.
The model considers the total economic process as a physically balanced flow between inputs and outputs.
Inputs are bestowed with physical property of energy which is received from the environment.

1. The interdependence of economics and environment.

2. The first law of thermodynamics, i.e. the law of conservation of matter and energy, emphasizes that in any production system “what goes in must come out”. This is known as the Material Balance Approach or Material Balance Principle.

3. Moreover, all resources extracted from the environment eventually become unwanted wastes and pollutants. Production of output by firms from inputs resulting in discharge of solid, liquid and gaseous wastes. Similarly, waste results from consumption activities by households.

4. In its simple form the Material Balance Approach can be put in form equation.
M = G – R_C – R_P + R^r_P + R^r_c = R^d_c + R^d_c

Question 30.
Explain different types of air pollution?
Answer:
Types of Air pollution:
1. Indoor Air Pollution:
It refers to toxic contaminants that we encounter in our daily lives in our homes, schools and workplaces. For example, cooking and heating with solid fuels on open fires or traditional stoves results in high levels of indoor air pollution.

2. Outdoor Air Pollution:
It refers to ambient air. The common sources of outdoor air pollution are caused by combustion processes from motor vehicles, solid fuel burning and industry.

Question 31.
What are the causes of water pollution?
Answer:
Causes of Water Pollution:
Water pollution is caused due to several reasons. Here are the few major causes of water
pollution:

(I) Discharge of sewage and waste water:

Sewage, garbage and liquid waste of households, agricultural runoff and effluents from factories are discharged into lakes and rivers.
These wastes contain harmful chemicals and toxins which make the water poisonous for aquatic animals and plants.

(II) Dumping of solid wastes:
The dumping of solid wastes and litters in water bodies cause huge problems.

(III) Discharge of industrial wastes:
Industrial waste contains pollutants like asbestos, lead, mercury, grease oil and petrochemicals, which are extremely harmful to both people and environment.

(IV) Oil Spill:

Sea water gets polluted due to oil spilled from ships and tankers while travelling.
The spilled oil does not dissolve in water and forms a thick sludge polluting the water.

(V) Acid rain:

Acid rain is pollution of water caused by air pollution.
When the acidic particles caused by air pollution in the atmosphere mix with water vapor, it results in acid rain.

(VI) Global warming:
Due to global warming, there is an increase in water temperature as a result aquatic plants and animals are affected.

(VII) Eutrophication:

Eutrophication is an increased level of nutrients in water bodies.
This results in bloom of algae in water.
It also depletes the oxygen in water which negatively affects fish and other aquatic animal population.

Question 32.
State the meaning of e – waste?
Answer:
1. Electronic waste which is commonly referred as “e-waste” is the new byproduct of the Info Tech society.

2. It is a physical waste in the form of old discarded, end of life electronics.

3. It includes a broad and growing range of electronic devices from large household appliances such as refrigerators, air conditioners, cellular phones, computers and other electronic goods”.

4. Similarly, e-waste can be defined as the result when consumer, business and household devices are disposed or sent for re-cycling (example, television, computers, audio-equipments, VCR, DVD, telephone, Fax, Xerox machines, wireless devices, video games, other household electronic equipments).

Question 33.
What is land pollution? Mention the causes of land pollution?
Answer:
1. The land pollution is defined as, “the degradation of land because of the disposal of waste on the land”. Any substance (solid, liquid or gaseous) that is discharged, emitted or deposited in the environment in such a way that it alters the environment causes land pollution.

Causes of Land Pollution:

(I) Deforestation and soil erosion:

Deforestation carried out to create dry lands is one of the major concerns.
Land that is once converted into a dry or barren land, can never be made fertile again, whatever the magnitude of measures to convert it.

(II) Agricultural activities:

With growing human and pet animal population, demand for food has increased considerably.
Farmers often use highly toxic fertilizers and pesticides to get rid off insects, fungi and bacteria from their crops.
However the overuse of these chemicals, results in contamination and poisoning of land.

(III) Mining activities:
During extraction and mining activities, several land spaces are created beneath the surface.

(IV) Landfills:

Each household produces tones of garbage each year due to changing economic lifestyle of the people.
Garbage like plastic, paper, cloth, wood and hospital waste get accumulated.
Items that cannot be recycled become a part of the landfills that cause land pollution.

(V) Industrialization:

Due to increasing consumerism more industries were developed which led to deforestation.
Research and development paved the way for modem fertilizers and chemicals that were highly toxic and led to soil contamination.

(VI) Construction activities:

Due to urbanization, large amount of construction activities are taking place.
This has resulted in large waste articles like wood, metal, bricks, plastic.
These are dumped at the outskirts of urban areas that lead to land pollution.

(VII) Nuclear waste:

The leftover radioactive materials, harmful and toxic chemicals affect human health.
They are dumped beneath the earth to avoid any casualty.

Question 33.
Write a note on
(a) Climate change and
(b) Acid rain.
Answer:
(a) Climate Change:
1. The climate change refers to seasonal changes over a long period with respect to the growing accumulation of greenhouse gases in the atmosphere.

2. Recent studies have shown that human activities since the beginning of the industrial revolution, have contributed to an increase in the concentration of carbon dioxide in the atmosphere by as much as 40%, from about 280 parts per million in the pre-industrial period, to 402 parts per million in 2016, which in turn has led to global warming.

3. Several parts of the world have already experienced the warming of coastal waters, high temperatures, a marked change in rainfall patterns, and an increased intensity and frequency of storms. Sea levels and temperatures are expected to be rising.

(b) Acid Rain:

Acid rain is one of the consequences of air pollution.
It occurs when emissions from factories, cars or heating boilers contact with the water in the atmosphere.
These emissions contain nitrogen oxides, sulphur dioxide and sulphur trioxide which when mixed with water becomes sulfurous acid, nitric acid and sulfuric acid.
This process also occurs by nature through volcanic eruptions.
It can have harmful effects on plants, aquatic animals and infrastructure.

Part – D
Answer The Following Questions In About A Page.

Question 35.
Briefly explain the relationship between GDP growth and the quality of environment?
Answer:
GDP Growth:

Ross domestic product is the money value of final goods and services produced in the domestic territory of a country during an accounting year.
GDP can determined in 3 ways in all of which should in principle give the same result.
The real Economic GDP growth rate expressed as percentage that shows the rate of change in a countries GDP.
The Four supply Factors are natural resources capital goods, human resources and technology.
GDP is a monetary measure of the market value of all the final goods and services.
The contribution of the nature to GDP as well as depletion of natural resources are not accounted in the present system of National Income.

Quality of Environment:

Environmental quality is a set of properties and characteristics of the environment either generalized or local as they impinge on human beings and other organisms.
It is measure of condition of an environment relative to one or more species any human need or purpose.
Environmental quality has been continuously declining due to capitalistic mode of functioning.
Environment is a pure public good that can be consumed simultaneously by everyone and from which no one can be excluded.
A pure public good is one for which consumption is non-revival and from which it is impossible to exclude a consumer.
The environment directly affects health status and plays a major role in quality of life lived and good health disparties.

Question 36.
Explain the concepts of externality and its classification?
Answer:

Externalities refer to external effects or spillover effects resulting from the act of production or consumption on the third parties. Externalities arise due to interdependence between economic units.

Positive Consumption Externality:
When some residents of a locality hire a private security agency to patrol their area, the other residents of the area also benefit from better security without bearing cost.

Negative Consumption Externality:
A person smoking cigarette gets may gives satisfaction to that person, but this act causes hardship (dissatisfaction) to the non – smokers who are driven to passive smoking.

Positive Production Externality:

The ideal location for beehives is orchards (first growing fields).
While bees make honey, they also help in the pollination of apple blossoms.
The benefits accrue to both producers (honey as well as apple). This is called reciprocal untraded interdependency.
Suppose training is given for the workers in a company. If those trained workers leave the. company to join some other company, the later company gets the benefit of skilled workers without incurring the cost of training.

Negative Production Externality:

Question 37.
Explain the importance of sustainable development and its goals?
Answer:
Sustainable Development Goals (SDGs):
1. It is crucial to harmonize three core elements such as economic growth, social inclusion and environmental protection.

2. A set of 17 goals for the World’s future can be achieved before 2030 with three unanimous principles fixed by United Nations such as Universality, Integration and Transformation.

End Poverty in all its forms everywhere
End hunger, achieve food security and improved nutrition and promote sustainable agriculture
Ensure healthy lives and promote well-being for all at all ages
Ensure inclusive and quality education for all and promote lifelong learning
Achieve gender equality and empower women.and girls
Ensure access to water and sanitation for all
Ensure access to affordable, reliable, sustainable and modem energy for all.
Promote inclusive and sustainable economic growth, employment and decent work for all.
Build resilient infrastructure, promote sustainable industrialization and foster innovation.
Reduce inequality within and among countries
Make cities inclusive, safe, resilient and sustainable
Ensure sustainable consumption and production pattern
Take urgent action to combat climate change and its impacts
Conserve and sustainably use the oceans, seas and marine resources
Sustainably manage forests, combat desertification, halt and reverse land degradation, halt biodiversity loss
Promote just, peaceful and inclusive societies
Revitalize the global partnership for sustainable development.

Samacheer Kalvi 12th Economics Environmental Economics Additional Questions and Answers

Part – A
I. Multiple Choice Questions.

Question 1.
“All the conditions, circumstances, and influences surrounding and affecting the development of an organism or group of organisms” is called ………………………..
(a) Environment
(b) Economics
(c) Eco system
(d) Biosphere
Answer:
(a) Environment

Question 2.
The relationship between the Economy and the environment is generally explained in the form of a …………………….. model.
(a) Material Economic
(b) Material Eco
(c) Material balance
(d) Material Environment
Answer:
(c) Material balance

Question 3.
…………………….. Economics involves theoretical and empirical studies of the Economic effects.
(a) Biosphere
(b) Political
(c) Environment
(d) Philosphical
Answer:
(c) Environment

Question 4.
Environmental externalities are called ……………………..
(a) Externality
(b) Economic externalities
(c) Nagative externalities
(d) Positive externalities
Answer:
(d) Positive externalities

Question 5.
…………………….. is of contaminants environment.
(a) Pollution
(b) Air Pollution
(c) Water pollution
(d) Noise Pollution
Answer:
(a) Pollution

Question 6.
Vehicles smoke happens to release high amounts of ……………………..
(a) Carbon – di – oxide
(b) Carbon – monoxide
(c) Carbon
(d) Oxygen
Answer:
(b) Carbon – monoxide

Question 7.
…………………….. it creates several respiratory and heart ailments along with cancer.
(a) Water pollution
(b) Noise pollution
(c) Air pollution
(d) Land pollution
Answer:
(c) Air pollution

Question 8.
…………………….. is an increase in water temperature as a result aquatic plants and animals are affected.
(a) Oil spill
(b) Acid rain
(c) Global warming
(d) Eutrophication
Answer:
(c) Global warming

Question 9.
…………………….. is unwanted or excessive sound that can have deleterious effects on human health and environmental quality.
(a) Air pollution
(b) Water pollution
(c) Noise pollution
(d) Land pollution
Answer:
(c) Noise pollution

Question 10.
…………………….. adversely affects agriculture, horticulture and eco system.
(a) Climate change
(b) Global warming
(c) Land pollution
(d) Acid rain
Answer:
(b) Global warming

Question 11.
Soil pollution is another form of …………………….. pollution.
(a) Land
(b) Fertilizer
(c) Chemical
(d) Medicinal
Answer:
(a) Land

Question 12.
…………………….. is the supplier of the forms of resources.
(a) Farmers
(b) Environment
(c) Chemicals
(d) Fertilizers
Answer:
(b) Environment

Question 13.
…………………….. is led to land pollution.
(a) Forestation
(b) Forest
(c) Fertilizers
(d) Deforestation
Answer:
(d) Deforestation

Question 14.
Acid rain is one of the consequences of …………………….. pollution.
(a) Land
(b) Air
(c) Water
(d) Soil
Answer:
(a) Land

Question 15.
Atmospheric noise or static is caused by lighting discharges in ……………………..
(a) Thunder storms
(b) Flood
(c) Land slide
(d) Drought
Answer:
(a) Thunder storms

Question 16.
Polluted water is harmful for ……………………..
(a) Industries
(b) Agriculture
(c) Land pollution
(d) Soil pollution
Answer:
(b) Agriculture

Question 17.
Electronic waste is commonly referred as …………………….. is the new by product of the Info Tech society.
(a) E – waste
(b) Plastic waster
(c) Waste
(d) Rubber waste
Answer:
(a) E – waste

Question 18.
…………………….. is the current increase in temperature of the Earth’s surface as well as its atmosphere.
(a) Globe warming
(b) Global warming
(c) Globe spoiled
(d) Temperature warming
Answer:
(b) Global warming

Question 19.
…………………….. is an increased level of nutrients in water bodies.
(a) Eutrophication
(b) Global warming
(c) Acid rain
(d) Oil spill
Answer:
(a) Eutrophication

Question 20.
…………………….. is the supplier of all forms of resources like renewable and non – renewable.
(a) Environment
(b) Environmental goods
(c) Environmental quality
(d) Environmental wastes
Answer:
(a) Environment

Question 21.
Heavy machineries located inside big factories and industrial plants also emit pollutants into the ……………………..
(a) Land
(b) Soil
(c) Air
(d) Water
Answer:
(c) Air

Question 22.
…………………….. causes great damage to human beings, animals and crops.
(a) Natural
(b) Factories
(c) Acid rain
(d) Global warming
Answer:
(c) Acid rain

Question 23.
…………………….. is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
(a) Alternative approach
(b) Environmental protection
(c) Economic growth
(d) Sustainable development
Answer:
(d) Sustainable development

Question 24.
…………………….. is a system of agricultural production which relies on animal manure, organic waste, crop rotation, legumes and biological pest control.
(a) Organic farming
(b) Land forming
(c) Land pollution
(d) Soil pollution
Answer:
(a) Organic farming

II. Match The following And Choose The Correct Answer By Using Codes Given Below.

Question 1.
A. Causes of air pollution – (i) Solid waste
B. Types of water pollution – (ii) Vehicle exhaust smoke
C. Types of land pollution – (iii) Deforestation
D. Causes of land pollution (iv) Ground water pollution
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iv) B (iii) c (ii) D(i)
(c) A (ii) B (iv) C (i) D (iii)
(d) A (iii) B(i) C (iv) D (ii)
Answer:
(c) A (ii) B (iv) C (i) D (iii)

Question 2.
A. Organic farming – (i) Global warming
B. Effects of noise pollution – (ii) Animal manure
C. Effects of water pollution – (iii) Hearing loss
D. Effects of air pollution – (iv) Death of aquatic animals
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iv) B (i) C (ii) D (iii)
(c) A (iii) B (iv) C (i) D (ii)
(d) A (ii) B (iii) C (iv) D(i)
Answer:
(d) A (ii) B (iii) C (iv) D(i)

Question 3.
A. World commision – (i) Seawater
B. Organic farming – (ii) Environment and Development
C. Oil spill – (iii) Nutrients in water
D. Eutrophication – (iv) Animal husbandry
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (ii) B (iv) C(i) D (iii)
(c) A (iii) B (i) C (iv) D (ii)
(d) A (iv) B (iii) C (ii) D (i)
Answer:
(b) A (ii) B (iv) C(i) D (iii)

Question 4.
A. Alkali soil – (i) High noise
B. Cardio vascular – (ii) Indo gangetic
C. Solid waste – (iii) Toxic chemicals
D. Skin cancer (iv) Rubbish
Codes:
(a) A (ii) B (i) C (iv) D (iii)
(b) A (i) B (ii) C (iii) D (iv)
(c) A (iii) B (iv) C (ii) D(i)
(d) A (iv) B (iii) C(i) D (ii)
Answer:
(a) A (ii) B (i) C (iv) D (iii)

Question 5.
A. Remedies of land pollution – (i) Sulphur dioxide
B. Acid rain – (ii) Degradation of land
C. Land pollution – (iii) Fossil fuel
D. Power plants – (iv) Usage of plastic
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (ii) B (iii) C(iv) D (i)
(c) A (iv) B (i) C (ii) D (iii)
(d) A (iii) B (iv) C(i) D(ii)
Answer:
(c) A (iv) B (i) C (ii) D (iii)

III. State Whether The Statements Are True or False.

Question 1.
(i) Environmental economics is a different branch of economics that recognizes the value of both the environment and economic activity.
(ii) Environmental Economics involves theoretical and empirical studies of the economic effects.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 2.
(i) The relationship between the economy and the environment is generally explained in the form of a “Material Balance Model”.
(ii) This model developed by Alenkneese and R.V. Ayres.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 3.
(i) Beneficial externalities are called “Positive externalities”.
(ii) Beneficial externalities are called “Negative externalities”.

(a) Both (i) and (ii) are true
(b) (i) is true but (ii) is false
(c) Both (i) and (ii) are false
(d) (i) is false but (ii) is true
Answer:
(b) (i) is true but (ii) is false

Question 4.
(i) Surface water includes natural water found on the earth’s surface, like rivers, lakes, lagoons and oceans.
(ii) Hazardous substances coming into contact with this surface water, dissolving or mixing physically with the water can be called surface of land pollution.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 5.
(i) Noise pollution is unwanted or excessive sound that can have deleterious effects on human health and environmental quality.
(ii) Noise pollution is also comes from highway, railway and airplane traffic and from outdoor construction activities.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

IV. Which Of The Following Is Correctly Matched:

Question 1.
(a) Types of noise pollution – Death of aquatic animals
(b) Effects of water pollution – Factory mechinery
(c) Types of water pollution – Respiratory and heart problems
(d) Causes of air pollution – Vehicle exhaust smoke
Answer:
(d) Causes of air pollution – Vehicle exhaust smoke

Question 2.
(a) Environmental goods – Human beings
(b) Types of pollution – Transport
(c) Human health – Land pollution
(d) Microbiological pollution – Water pollution
Answer:
(d) Microbiological pollution – Water pollution

Question 3.
(a) Global warming – Affects industry
(b) Acid rain – Usage of pesticides
(c) Electronic waste – e – waste
(d) SDGs – Poverty increased
Answer:
(c) Electronic waste – e – waste

Question 4.
(a) Crackers – Big industry
(b) Soil pollution – Damaged river
(c) Farmers – Use highly toxic fertilizers
(d) Deforestation – Due to urbanisation
Answer:
(c) Farmers – Use highly toxic fertilizers

Question 5.
(a) Seed ball – Providing oxygen
(b) E – waste – Sustainable development
(c) Fertilizers used – Water pollution
(d) Oil spill – Sea water polluted
Answer:
(d) Oil spill – Sea water polluted

V. Which Of The Following Is Not Correctly Matched.

Question 1.
(a) Acid rain – Sulphur dioxide
(b) Agro – Eco system
(c) Negative production – Factory emission
(d) Ozone layer – Major cause of death
Answer:
(d) Ozone layer – Major cause of death

Question 2.
(a) Fossil fuel – Power plants
(b) Forest – Replenish soil
(c) Environmental goods – Pre – planted
(d) Agriculture – Fertilizer
Answer:
(c) Environmental goods – Pre – planted

Question 3.
(a) Sustainable development – Monitors
(b) Oil spill – Seawater
(c) Water – Land pollution
(d) Tree – Lungs of the Earth
Answer:
(c) Water – Land pollution

Question 4.
(a) Natural pollution – Aquatic and Human illness
(b) Global warming – Increasing temperature
(c) Discharge of sewage – Outdoor air pollution
(d) Organic farming – Deforestation
Answer:
(d) Organic farming – Deforestation

Question 5.
(a) Acid rain – Land pollution
(b) Soil – Soil contamination
(c) Heavy industries – Land pollution
(d) Environmental goods – Environmental quality
Answer:
(c) Heavy industries – Land pollution

VI. Pick The Odd One Out.

Question 1.
Types of Noise pollution
(a) Atmospheric noise pollution
(b) Industrial noise pollution
(c) Man made noise pollution
(d) Acid rain pollution
Answer:
(d) Acid rain pollution

Question 2.
Causes of Noise pollution
(a) Construction
(b) Motor vehicles
(c) Crackers
(d) Factory machinery
Answer:
(a) Construction

Question 3.
Types of Land pollution
(a) Solid waste
(b) Cardiovascular effects
(c) Pesticides and fertilizers
(d) Deforestation
Answer:
(b) Cardiovascular effects

Question 4.
Causes of Land Pollution
(a) Deforestation and soil erosin
(b) Agriculture activities spoiled
(c) Fertilizer spoiled
(d) Mining activities spoiled
Answer:
(c) Fertilizer spoiled

Question 5.
Organic farming
(a) Manure
(b) Biofertilizers
(c) Crop rotation
(d) Solid waste
Answer:
(d) Solid waste

VII. Assertion And Reason.

Question 1.
Assertion (A): The natural pollution causes both aquatic and human illness.
Reason (R): Pollution is damage to eco system and aesthetics of our surrounding.

(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Question 2.
Assertion (A): Vehicles smoke happens to release high amounts of carbon monoxide.
Reason (R): Chemicals like carbon-di-oxide are released during the burning process.

Question 3.
Assertion (A): Sewage, garbage and liquid waste of households, agriculture runoff and effluents from factories are discharged into lakes and rivers.
Reason (R): These wastes contain useful chemicals and toxins.

Question 4.
Assertion (A): Remedial measures to control air pollution is growing more plants and trees.
Reason (R): Remedial measures to control air pollution is establishment of industries in the town and cities.

Question 5.
Assertion (A): Soil pollution is another form of water pollution.
Reason (R): The upper layer of the soil is damaged is caused by the over use of chemical fertilizers and pesticides.

Part – B
Answer The Following Questions In One or Two Sentences.

Question 1.
Define “Solid wastes”?
Answer:
Solid Wastes:

Non-liquid, non-soluble materials, ranging from municipal garbage to industrial wastes that contain complex, and hazardous, substances.
Solid wastes include sewage sludge, agricultural refuse, demolition wastes, and mining residues.

Question 2.
What is organic farming?
Answer:

Organic farming is a system of agricultural production which relies on animal manure, organic waste, crop rotation, legumes and biological pest control.
It avoids use of synthetic fertilizer, pesticides and livestock additives.
Organic inputs have certain benefits, such as enriching soil for microbes.

Question 3.
Define “Sustainable Development”?
Answer:

Sustainable Development is development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs.
“The alternative approach (to sustainable development) is to focus on natural capital assets and suggest that they should not decline through time.”

Question 4.
Define “Noise pollution”?
Answer:

Noise pollution is unwanted or excessive sound that can have deleterious effects on human health and environmental quality.
Noise pollution is commonly generated by many factories.
It also comes from highway, railway and airplane traffic and from outdoor construction ’ activities.

Question 5.
Define “Deforestation”?
Answer:

Humans depend on trees for many things including life.
Trees absorb carbon dioxide from the air and release Oxygen, which is needed for life.
Forest helps replenish soils and help retain nutrients being washed away.
Deforestation is led to land pollution.

Question 6.
What are the types of pollution?
Answer:
Types of Pollution:

Air pollution
Water pollution
Noise pollution
Land pollution.

Part – C
Answer The Following Questions In One Paragraph.

Question 1.
Write note on “Remedial Measures to control land pollution?
Answer:
Remedial measures to control Land Pollution:

Making people aware about the concept of a Reduce, Recycle and Reuse
Buying biodegradable products
Minimizing the usage of pesticides
Shifting cultivation
Disposing unwanted garbage properly either by burning or by burying under the soil.
Minimizing the usage of plastics.

Question 2.
Mention the Remedial Measures to control water pollution?
Answer:
Remedial measures to control Water Pollution:

Comprehensive water management plan.
Construction of proper storm drains and settling ponds.
Maintenance of drain line.
Effluent and sewage treatment plant.
Regular monitoring of water and waste water.
Stringent actions towards illegal dumping of waste into the water bodies.

Question 3.
Explain the types of Noise pollution?
Answer:
Types of Noise Pollution:
(I) Atmospheric Noise:
Atmospheric noise or static is caused by lighting discharges in thunderstorms and other natural electrical disturbances occurring in the atmosphere.

(II) Industrial Noise:

Industrial noise refers to noise that is created in the factories.
When sound becomes noise it becomes unwanted.
Heavy industries like ship building, iron and steel have long been associated with Noise Induced Hearing Loss (NIHL).

(III) Man made Noise:
The main sources of man-made noise pollution are ships, aircraft, seismic exploration, marine construction, drilling and motor boats.

Part – D
Answer The Following Questions In About A Page.

Question 1.
What are the effects of Land pollution?
Answer:
Effects of Land Pollution:
(I) Soil pollution:

Soil pollution is another form of land pollution, where the upper layer of the soil is damaged.
This is caused by the overuse of chemical fertilizers, and pesticides.
This leads to loss of fertile land.
Pesticides kill not only pests and also human beings.

(II) Health Impact:

The land when contaminated with toxic chemicals and pesticides lead to problem of skin cancer and human respiratory system.
The toxic chemicals can reach our body through foods and vegetables.

(III) Cause for Air pollution:

Landfills and waste dumping lead to air pollution.
The abnormal toxic substances spread in the atmosphere cause transmit respiratory diseases among the masses.

(IV) Effect on wildlife:

The animal kingdom has suffered mostly in the past decades.
They face a serious threat with regards to loss of habitat and natural environment.
The constant human activity on land is leaving it polluted, forcing these species to move farther away.
Sometimes several species are pushed to the verge of extinction or disappear due to no conducive environment.

Question 2.
Briefly explain effects of Noise pollution?
Answer:
Effects of Noise Pollution:
(a) Hearing Loss:

Chronic exposure to noise may cause noise-induced hearing loss.
Older people are exposed to significant occupational noise and thereby reduced hearing sensitivity.

(b) Damage Physiological and Psychological health:

Unwanted noise can damage physiological and psychological health.
For example, annoyance and aggression, hypertension, and high stress levels.

(d) Detrimental effect on animals and aquatic life:
Noise can have a detrimental effect on animals, increasing the risk of death.

(e) Effects on wildlife and aquatic animals:
It creates hormone imbalance, chronic stress, panic and escape behavior and injury.

Question 3.
Explain the causes of Air pollution?
Answer:
Causes of Air Pollution:
(I) Vehicle exhaust smoke:

Vehicles smoke happens to release high amounts of Carbon monoxide.
Millions of vehicles are operated every day in cities, each one leaving behind its own carbon footprint on the environment.

(II) Fossil fuel based power plants:

Fossil fuels also present a wider scale problem when they are burned for energy in power plants.
Chemicals like sulphur dioxide are released during the burning process, which travel straight into the atmosphere.
These types of pollutants react with water molecules to yield something known as acid rain.

(III) Exhaust from Industrial Plants and Factories:
Heavy machineries located inside big factories and industrial plants also emit pollutants into the air.

(IV) Construction and Agricultural activities:

Potential impacts arising from the construction debris would include dust particles and gaseous emissions from the construction sites.
Likewise, using of ammonia for agriculture is a frequent byproduct that happens to be one of the most dangerous gases affecting air.

(V) Natural Causes:

Earth is one of the biggest polluters itself, through volcanoes, forest fires, and dust storms.
They are nature-borne events that dump massive amounts of air pollution into the atmosphere.

(VI) Household activities:
Household activities like cooking, heating and lighting, use of various forms of mosquito repellents, pesticides and chemicals for cleaning at home and use of artificial fragrances are some of the sources that contribute to air pollution.

Question 4.
Explain different sources of E – waste?
Answer:

Samacheer Kalvi 12th Economics Solutions Chapter 8 International Economic Organisations

Leave a Comment / Class 12 / By Prasanna

Students can Download Economics Chapter 8 International Economic Organisations Questions and Answers, Notes Pdf, Samacheer Kalvi 12th Economics Book Solutions Guide Pdf helps you to revise the complete Tamilnadu State Board New Syllabus and score more marks in your examinations.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 8 International Economic Organisations

Samacheer Kalvi 12th Economics International Economic Organisations Text Book Back Questions and Answers

Part – A
Multiple Choice Questions.

Question 1.
International Monetary Fund was an outcome of …………………….
(a) Pandung Conference
(b) Dunkel Draft
(c) Bretton Woods Conference
(d) Doha Conference
Answer:
(c) Bretton Woods Conference

Question 2.
International Monetary Fund is having its headquarters at …………………….
(a) Washington D.C.
(b) New York
(c) Vienna
(d) Geneva
Answer:
(a) Washington D.C.

Question 3.
IBRD is otherwise called …………………….
(a) IMF
(b) World Bank
(c) ASEAN
(d) International Finance Corporation
Answer:
(b) World Bank

Question 4.
The other name for Special Drawing Rights is …………………….
(a) Paper gold
(b) Quotas
(c) Voluntary Export Restrictions
(d) None of these
Answer:
(a) Paper gold

Question 5.
The organization which provides long term loan is …………………….
(a) World Bank
(b) International Monetary Fund
(c) World Trade Organisation
(d) BRICS
Answer:
(a) World Bank

Question 6.
Which of the following countries is not a member of SAARC?
(a) Sri Lanka
(b) Japan
(c) Bangladesh
(d) Afghanistan
Answer:
(b) Japan

Question 7.
International Development Association is an affiliate of …………………….
(a) IMF
(b) World Bank
(c) SAARC
(d) ASEAN
Answer:
(b) World Bank

Question 8.
……………………. relates to patents, copyrights, trade secrets, etc.,
(a) TRIPS
(b) TRIMS
(c) GATS
(d) NAMA
Answer:
(a) TRIPS

Question 9.
The first ministerial meeting of WTO was held at …………………….
(a) Singapore
(b) Geneva
(c) Seattle
(d) Doha
Answer:
(a) Singapore

Question 10.
ASEAN meetings are held once in every ……………………. years.
(a) 2
(b) 3
(c) 4
(d) 5
Answer:
(b) 3

Question 11.
Which of the following is not the member of SAARC?
(a) Pakistan
(b) Sri Lanka
(c) Bhutan
(d) China
Answer:
(d) China

Question 12.
SAARC meets once in ……………………. years.
(a) 2
(b) 3
(c) 4
(d) 5
Answer:
(a) 2

Question 13.
The headquarters of ASEAN is …………………….
(a) Jaharta
(b) New Delhi
(c) Colombo
(d) Tokyo
Answer:
(a) Jaharta

Question 14.
The term BRIC was coined in …………………….
(a) 2001
(b) 2005
(c) 2008
(d) 2010
Answer:
(a) 2001

Question 15.
ASEAN was created in …………………….
(a) 1965
(b) 1967
(c) 1972
(d) 1997
Answer:
(b) 1967

Question 16.
The Tenth BRICS Summit was held in July 2018 at …………………….
(a) Beijing
(b) Moscow
(c) Johannesburg
(d) Brasilia
Answer:
(c) Johannesburg

Question 17.
New Development Bank is associated with …………………….
(a) BRICS
(b) WTO
(c) SAARC
(d) ASEAN
Answer:
(a) BRICS

Question 18.
Which of the following does not come under ‘Six dialogue partners’ of ASEAN?
(a) China
(b) Japan
(c) India
(d) North Korea
Answer:
(d) North Korea

Question 19.
SAARC Agricultural Information Centre (SAIC) works as a central information institution for agriculture related resources was founded on …………………….
(a) 1985
(b) 1988
(c) 1992
(d) 1998
Answer:
(b) 1988

Question 20.
BENELUX is a form of …………………….
(a) Free trade area
(b) Economic Union
(c) Common market
(d) Customs union
Answer:
(d) Customs union

Part – B
Answer The Following Questions.

Question 21.
Write the meaning of Special Drawing rights?
Answer:
Special Drawing Rights (SDRs):

The Fund has succeeded in establishing a scheme of Special Drawing Rights (SDRs) which is otherwise called ‘Paper Gold’.
They are a form of international reserves created by the IMF in 1969 to solve the problem of international liquidity.
They are allocated to the IMF members in proportion to their Fund quotas.
SDRs are used as a means of payment by Fund members to meet balance of payments deficits and their total reserve position with the Fund.
Thus SDRs act both as an international unit of account and a means of payment.
All transactions by the Fund in the form of loans and their repayments, its liquid reserves, its capital, etc., are expressed in the SDR.

Question 22.
Mention any two objectives of ASEAN?
Answer:

To accelerate the economic growth, social progress and cultural development in the region;
To promote regional peace and stability and adherence to the principles of the United Nations Charter.

Question 23.
Point out any two ways in which IBRD lends to member countries?
Answer:
The Bank advances loans to members in two ways

Loans out of its own fund,
Loans out of borrowed capital.

Question 24.
Define Common Market?
Answer:
Common market is established through trade pacts. A group formed by countries within a geographical area to promote duty free trade and free movement of labour and capital amongits members, e.g. European Common Market (ECM).

Question 25.
What is Free trade area?
Answer:

A free trade area is the region encompassing a trade bloc whose member countries have signed a free-trade agreement (FTA).
Such agreements involve cooperation between at least two countries to reduce trade barriers, e.g. SAFTA, EFTA.

Question 26.
When and where was SAARC Secretariat established?
Answer:
South Asian Association For Regional Co – Operation (SAARC):
1. The South Asian Association for Regional Co – operation (SAARC) is an organisation of South Asian nations, which was established on 8 December 1985 for the promotion of economic and social progress, cultural development within the South Asia region and also for friendship and co – operation with other developing countries.

2. The SAARC Group (SAARC) comprises of Bangaladesh, Bhutan, India, The Maldives, Nepal, Pakistan and Sri Lanka.

3. In April 2007, Afghanistan became its eighth member.

Question 27.
Specify any two affiliates of World Bank Group?
Answer:

Part – C
Answer The Following Questions.

Question 28.
Mention the various forms of economic integration?
Answer:
An economic union is composed of a common market with a customs union. The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of production and a common external trade policy, (e.g. European Economic Union)
EU > CM > CU > FTA
EU – Economic Union >
CM – Common – Market >
CU – Customs Union >
FTA – Free Trade Area
The regional economic integration among the trade blocks such as SAARC (South Asian nations), ASEAN (South East Asia) and BRICS and their achievements.

Question 29.
What are trade blocks?
Answer:
1. Trade blocks cover different kinds of arrangements between or among countries for mutual benefit. Economic integration takes the form of Free Trade Area, Customs Union, Common Market and Economic Union.

2. A free trade area is the region encompassing a trade bloc whose member countries have signed a free-trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce trade barriers, e.g. SAFTA, EFTA.

3. A customs union is defined as a type of trade block which is composed of a free trade area with no tariff among members and (zero tariffs among members) with a common external tariff, e.g. BENELUX (Belgium, Netherland and Luxumbuarg).

4. Common market is established through trade pacts. A group formed by countries within a geographical area to promote duty free trade and free movement of labour and capital among its members, e.g. European Common Market (ECM).

5. An economic union is composed of a common market with a customs union. The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of production and a common external trade policy. (e.g. European Economic Union).

Question 30.
Mention any three lending programmes of IMF?
Answer:
(I) Establishment of monetary reserve fund:

The Fund has played a major role in achieving the sizeable stock of the national currencies of different countries.
To meet the foreign exchange requirements of the member nations, IMF uses its stock to help the member nations to meet foreign exchange requirements.

(II) Monetary discipline and cooperation:

The IMF has shown keen interest in maintaining monetary discipline and cooperation among the member countries.
To achieve this objective, it has provided assistance only to those countries which make sincere efforts to solve their problems.

(III) Special interest in the problems of UDCs:

The notable success of the Fund is the maintenance of special interest in the acute problems of developing countries.
The Fund has provided financial assistance to solve the balance of payment problem of UDCs.
However, many UDCs continue to be UDCs, while the developed countries have achieved substantial growth.

Question 31.
What is Multilateral Agreement?
Answer:
1. Multilateral trade agreement:
It is a multi national legal or trade agreements between countries. It is an agreement between more than two countries but not many.

2. The various agreements implemented by the WTO such as TRIPS, TRIMS, GATS, AoA, MFA have been discussed.

Question 32.
Write the agenda of BRICS Summit, 2018?
Answer:

South Africa hosted the 10th BRICS summit in July 2018.
The agenda for BRICS summit 2018 includes Inclusive growth, Trade issues, Global governance, Shared Prosperity, International peace and security.

Question 33.
State briefly the functions of SAARC?
Answer:
Functions of SAARC:
The main functions of SAARC are as follows.

Maintenance of the co operation in the region
Prevention of common problems associated with the member nations.
Ensuring strong relationship among the member nations.
Removal of the poverty through various packages of programmes.
Prevention of terrorism in the region.

Question 34.
List out the achievements of ASEAN?
Answer:
The ASEAN Declaration states the aims and purposes of the Association as:

To accelerate the economic growth, social progress and cultural development in the region;
To promote regional peace and stability and adherence to the principles of the United Nations Charter;
To promote cooperation among the members of ASEAN through the exchange of knowledge and experience in the field of public sector auditing.
To provide a conducive environment and facilities for research, training, and education among the members
To serve as a centre of information and as an ASEAN link with other international organizations.

Part – D
Answer The Following Questions.

Question 35.
Explain the objectives of IMF?
Answer:
Objectives Of IMF:

To promote international monetary cooperation among the member nations.
To facilitate faster and balanced growth of international trade.
To ensure exchange rate stability by curbing competitive exchange depreciations.
To eliminate or reduce exchange controls imposed by member nations.
To establish multilateral trade and payment system in respect of current transactions instead of bilateral trade agreements.
To promote the flow of capital from developed to developing nations.
To solve the problem of international liquidity.

Question 36.
Bring out the functions of World Bank?
Answer:
Functions of IBRD (or) World Bank:
The World Bank performs the major role of providing loans for development works to member countries, especially to underdeveloped countries. The World Bank provides long¬term loans for various development projects. Article 1 of the Agreement states the functions performed by the world bank as follows.

(I) Investment for productive purposes:
The World Bank performs the function of assisting in the reconstruction and development of territories of member nations through facility of investment for productive purposes. It also encourages the development of productive facilities and resources in less developed countries.

(II) Balanced growth of international trade:
Promoting the long range balanced growth of trade at international level and the maintaining equilibrium in BOPs of member nations by encouraging international investment.

(III) Provision of loans and guarantees:
Arranging the loans or providing guarantees on loans by various other channels so as to execute important projects.

(IV) Promotion of foreign private investment:
The promotion of private foreign investment by means of guarantees on loans and other investment made by private investors. The Bank supplements private investment by providing finance for productive purpose out of its own resources or from borrowed funds.

(V) Technical services:
The World Bank facilitates different kinds of technical services to the member countries through Staff College and experts.

Question 37.
Discuss the role of WTO in India’s socio economic development?
Answer:
WTO and India:
India is the founding member of the WTO. India favours multilateral trade approach. It enjoys MFN status and allows the same status to all other trading partners. India benefited
from WTO on following grounds:

By reducing tariff rates on raw materials, components and capital goods, it was able to import more for meeting her developmental requirements. India’s imports go on increasing.
India gets market access in several countries without any bilateral trade agreements.
Advanced technology has been obtained at cheaper cost.
India is in a better position to get quick redressal from the trade disputes.
The Indian exporters benefited from wider market information.

Question 38.
Write a note on?
(a) SAARC
(b) BRICS.
Answer:
(a) South Asian Association For Regional Co – Operation (SAARC):

The South Asian Association for Regional Co – operation (SAARC) is an organisation of South Asian nations, which was established on 8 December 1985 for the promotion of economic and social progress, cultural development within the South Asia region and also for friendship and co-operation with other developing countries.
The SAARC Group (SAARC) comprises of Bangaladesh, Bhutan, India, The Maldives, Nepal, Pakistan and Sri Lanka.
In April 2007, Afghanistan became its eighth member.
The basic aim of the organisation is to accelerate the process of economic and social development of member states through joint action in the agreed areas of cooperation.
The SAARC Secretariat was established in Kathmandu (Nepal) on 16th January 1987.
The first SAARC summit was held at Dhaka in the year 1985.
SAARC meets once in two years. Recently, the 20th SAARC summit was hosted by Srilanka in 2018.

(b) BRICS:

BRICS is the acronym for an association of five major emerging national economies: Brazil, Russia, India, China and South Africa.
Since 2009, the BRICS nations have met annually at formal summits.
South Africa hosted the 10th BRICS summit in July 2018.
The agenda for BRICS summit 2018 includes Inclusive growth, Trade issues, Global governance, Shared Prosperity, International peace and security.
It’s headquarters is at Shanghai, China.
The New Development Bank (NDB) formerly referred to as the BRICS Development Bank was established by BRICS States.
The first BRICS summit was held at Moscow and South Africa hosted the Tenth Conference at Johanesberg in July 2018.
India had an opportunity of hosting fourth and Eighth summits in 2009 and 2016 respectively.
The BRICS countries make up 21 percent of global GDP. They have increased their share of global GDP threefold in the past 15 years.
The BRICS are home to 43 percent of the world’s population.
The BRICS countries have combined foreign reserves of an estimated $ 4.4 trillion

Samacheer Kalvi 12th Economics International Economic Organisations Addtional Questions and Answers

Part – A
I. Multiple Choice Questions.

1.
The IMF has ……………………. member countries with Republic.
(a) 169
(b) 179
(c) 189
(d) 199
Answer:
(c) 189

Question 2.
The Brettonwoods conference proposed IMF, World Bank and International Trade Organisation in …………………….
(a)1914
(b) 1924
(c) 1934
(d) 1944
Answer:
(d) 1944

Question 3.
The GATT was transformed into …………………….
(a) IMF
(b) World Bank
(c) WTO
(d) IDBI
Answer:
(c) WTO

Question 4.
International Monetary Fund headquarters are present in …………………….
(a) Geneva
(b) Washington DC
(c) England
(d) China
Answer:
(b) Washington DC

Question 5.
The IMF is maintaining exchange rate stability and emphasising …………………….
(a) valuvation
(b) Devaluevation
(c) Equilibrium
(d) Disequillibrium
Answer:
(b) Devaluevation

Question 6.
The buffer stock financing facility was started in …………………….
(a)1949
(b)1959
(c) 1969
(d) 1979
Answer:
(c) 1969

Question 7.
……………………. was setup to augment the availability to concessional resources to low Income countries.
(a) SAF
(b) IMF
(c) ESAF
(d) BSF
Answer:
(c) ESAF

Question 8.
Special Drawing called …………………….
(a) Gold
(b) Metal
(c) Paper Gold
(d) Gold Paper
Answer:
(c) Paper Gold

Question 9.
India has been beneficiaries of the major beneferciaries of the ……………………. fund.
(a) SDR
(b) ESAF
(c) IMF
(d) World Bank
Answer:
(c) IMF

Question 10.
IMF fund has provided finance assistance to solve the balance payment problems of …………………….
(a) SDR
(b) ESAF
(c) IMF
(d) World Bank
Answer:
(c) IMF

Question 11.
IBRD otherwise called the …………………….
(a) IMF
(b) SDR
(c) SAF
(d) World Bank
Answer:
(d) World Bank

Question 12.
IMF is a prerequisite to become a member of …………………….
(a) SDR
(b) SAF
(c) World Bank
(d) SAF
Answer:
(c) World Bank

Question 13.
……………………. was established to provide long term financial assistance to member countries.
(a) IMF
(b IBRD
(c) SAF
(d) ESAF
Answer:
(b IBRD

Question 14.
World Bank advances loans out of its own …………………….
(a) Fund
(b) Money
(c) Finance
(d) Credit
Answer:
(a) Fund

Question 15.
The IBRD has ……………………. member countries.
(a) 159
(b) 169
(c) 179
(d) 189
Answer:
(d) 189

Question 16.
World Bank’s membership has 151 countries in …………………….
(a) 1968
(b) 1978
(c) 1988
(d) 1998
Answer:
(c) 1988

Question 17.
……………………. grants loans to member countries only for productive purposes.
(a) IMF
(b) World bank
(c) SAF
(d) ESAF
Answer:
(b) World bank

Question 18.
……………………. the soft loan window of the bank provides loans to UDC at very low rate of interest.
(a) World Bank
(b) IDA
(c) IMF
(d) IBRD
Answer:
(b) IDA

Question 19.
……………………. was first suggested by India to the drafting committee.
(a) IBRD
(b) IDA
(c) IMF
(d) SAF
Answer:
(a) IBRD

Question 20.
India was the largest beneficiary of the ……………………. assistance.
(a) IBRD
(b) IDA
(c) IMF
(d) World bank
Answer:
(d) World bank

Question 21.
The WTO was established in 1995 as a 28 successor to the …………………….
(a) World Bank
(b) IDA
(c) GATT
(d) IFC
Answer:
(c) GATT

Question 22.
The first WTO conference was held at in ……………………. 1996.
(a) Argentia
(b) Kazakhstan
(c) Singapore
(d) America
Answer:
(c) Singapore

Question 23.
A result of ……………………. the dependence of LDCs on advanced countries for seeds, drugs, fertilizers and pesticides.
(a) TRIPS
(b) TRIMS
(c) GATS
(d) GATT
Answer:
(a) TRIPS

Question 24.
……………………. are related to conditions or restrictions in respect of foreign investment in the country.
(a) TRIPS
(b) TRIMs
(c) GATT
(d) GATS
Answer:
(b) TRIMs

Question 25.
……………………. is the first Multilateral set of rules covering trade in services like banking, insurance, transportation, communication, etc.
(a) TRIPS
(b) TRIMs
(c) GATT
(d) GATS
Answer:
(d) GATS

Question 26.
……………………. governed the world trade in textiles and garments since 1974.
(a) GATS
(b) GATT
(c) MFA
(d) TRIPS
Answer:
(c) MFA

Question 27.
Agriculture was included for the first time under …………………….
(a) GATS
(b) GATT
(c) MFA
(d) TRIMs
Answer:
(b) GATT

Question 28.
……………………. is the founding member of the WTO.
(a) India
(b) China
(c) Africa
(d) Russia
Answer:
(a) India

II. Match the following and choose the correct answer by using codes given below.

Question 1.
A. ITO – (i) 1945
B. IMF – (ii) 1944
C. WTO – (iii) 1945
D. World Bank – (iv) 1995
Codes:
(a) A (ii) B (iii) C (iv) D (i)
(b) A (i) B (ii) C (iii) D (iv)
(c) A (iii) B (iv) C (i) D (ii)
(d) A (iv) B (i) C (ii) D (iii)
Answer:
(a) A (ii) B (iii) C (iv) D (i)

Question 2.
A. International Monetary Fund – (i) Washington DC
B. World Trade Organisation – (ii) Washington DC
C. IBRD – (iii) 189 members
D. World Bank – (iv) Geneva
Codes:
(a) A(i) B (ii) C (iii) D (iv)
(b) A (ii) B (iii) C (iv) D (i)
(c) A (iii) B (iv) C (iv) D (ii)
(d) A (iv) B (i) C (ii) D (iii)
Answer:
(c) A (iii) B (iv) C (iv) D (ii)

Question 3.
A. SDR – (i) 1963
B. CFF – (ii) Paper Gold
C. BSF – (iii) 1986
D. SAF – (iv) 1969
Codes:
(a) A (iii) B (ii) C(i) D (iv)
(b) A (ii) B (i) C (iv) D (iii)
(c) A (i) B (iv) C (iii) D (ii)
(d) A (iv) B (iii) C (ii) D (i)
Answer:
(b) A (ii) B (i) C (iv) D (iii)

Question 4.
A. SAF – (i) Structural Adjustment Facility
B. BSF – (ii) Special Drawing Rights
C. CFF – (iii) Buffer Stock Facility
D. SDR – (iv) Compensatory Financing Facility
Codes:
(a) A (i) B (iii) C (iv) D (ii)
(b) A (ii) B (iv) C (iii) D (i)
(c) A (iii) B (ii) C(i) D (iv)
(d) A (iv) B (i) C (ii) D (iii)
Answer:
(a) A (i) B (iii) C (iv) D (ii)

Question 5.
A. IDA – (i) Multilateral Investment Guarantee Agency
B. IFC – (ii) International Development Association
C. MIGA – (iii) International Centre for Settlement of Investment Disputes
D. ICSID – (iv) International Finance Corporation
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iii) B (i) C (iv) D (ii)
(c) A (ii) B (iv) C (i) D (iii)
(d) A (iv) B (iii) C (ii) D (i)
Answer:
(c) A (ii) B (iv) C (i) D (iii)

III. State whether the statements are true or false.

Question 1.
(i) Functions of IBRD is called
(a) Investment for productive purposes
(b) Provision of loans and guarantees.
(ii) Functions of IBRD is called
(a) Balanced growth of International trade
(b) Promotion of foreign private investment.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 2.
Objectives of WTO are
(i) To ensure reduction of tariff and other barriers.
(ii) Low level of standard of living.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 3.
(i) GATS is the first multilateral set of rules covering trade in services like Banking, Insurance, Transportation, Communication, etc.
(ii) GATS are related to conditions or restrictions in respect of Foreign Investment.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 4.
Major objectives of SAARC
(i) To accelerate economic growth, social progress and cultural development in the region.
(ii) To promote and strengthen collective self – reliance among the countries of South Asia.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 5.
Major Functions of the ASEAN
(i) It fosters co – operations in many areas including agriculture.
(ii) It paves way for market and investment opportunities for the all nations.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(b) Both (i) and (ii) are false

IV. Which is the following is correctly matched.

Question 1.
(a) ITO – 1944
(b) World bank – 1946
(c) WTO – 1947
(d) IMF – 1995
Answer:
(a) ITO – 1944

Question 2.
(a) World Trade Organisation – Africa
(b) World Bank – Geneva
(c) International Monetary Fund – Washington DC
(d) GATT – Australia
Answer:
(c) International Monetary Fund – Washington DC

Question 3.
(a) Objectives of IMF – To promote textiles
(b) Functions of IMF – Exchange stability
(c) Facilities offered by IMF – Basic Debit Facility
(d) Achievements of IMF – Country discipline and co-operation
Answer:
(b) Functions of IMF – Exchange stability

Question 4.
(a) World Bank’s procedure – Loans out of its own fund
(b) Functions of IBRD – Promotion of government investment
(c) World Bank – Grants loans for Industry
(d) IDA – High interest of the loan
Answer:
(c) World Bank – Grants loans for Industry

Question 5.
(a) WTC headquarter – Newyork – USA
(b) WTO conference held at – Australia
(c) WTO Secretary General – Kazakhstan
(d) GATS service like – Industries
Answer:
(a) WTC headquarter – Newyork – USA

V. Which is the following is not correctly matched.

Question 1.
(a) MFA agreement – Textiles and garments
(b) WTO achievements – BOP problems has declined
(c) TRIPS – The dependence of LDCs on advanced countries for seeds, fertilizers, drugs has increased
(d) AOA – Trade development
Answer:
(d) AOA – Trade development

Question 2.
(a) Head quarters of SAARC – Kathmandu
(b) Member countries of IMF – 189
(c) World Trade Organisation – Geneva
(d) Long term loan – SAARC
Answer:
(d) Long term loan – SAARC

Question 3.
(a) GATT – WTO
(.b) SDR – 1969
(c) ITO – 1944
(d) SAARC – Investment
Answer:
(d) SAARC – Investment

Question 4.
(a) ASEAN – Bangkok
(b) IFC – 1996
(c) BRICS – 2001
(d) WTO conference – Singapore in 1996
Answer:
(b) IFC – 1996

Question 5.
(a) World Bank – 1945
(b) IFC – World Bank Group
(c) IBRD – World Bank
(d) SDRs – Monetary
Answer:
(d) SDRs – Monetary

VI. Pick the odd one out.

Question 1.
Objectives of WTO
(a) To ensure reduction of tariff and other barriers
(b) To eliminate discrimination in trade
(c) To facilitate low standard of living
(d) To facilitate optimal use of world’s resources
Answer:
(c) To facilitate low standard of living

Question 2.
WTO Agreements
(a) TRIPs
(b) TRIMs
(c) GAS
(d) GATS
Answer:
(c) GAS

Question 3.
Trade Blocks
(a) A free trade area
(b) A custom union
(c) Big market
(d) An economic union
Answer:
(c) Big market

Question 4.
ASEAN member countries
(a) Indonesia
(b) Malaysia
(c) Philippines
(d) America
Answer:
(d) America

Question 5.
Objectives of BRICs
(a) To increase trade co-operation by making an exclusive trade block
(b) To increase regional co-operation
(c) This group of nations is expecially meant for North-North frame work for co-operation
(d) To create a seperate trade block made for developing countries for trade co-operation
Answer:
(c) This group of nations is expecially meant for North-North frame work for co-operation

VII. Assertion and Reason.

Question 1.
Assertion (A): BRICS is the acronym for an association of five major emerging national economies Brazil, Russia, India, China and South Africa.
Reason (R): Originally the first four were grouped as “BRIC” before the Induction of South Africa in 2010.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Question 2.
Assertion (A): SAARC is promote the welfare of the people of South Asia and improve their quality of life.
Reason (R): To strengthen co-operation with other under developing countries.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(c) ‘A’ is true but ‘R’ is false

Question 3.
Assertion (A): TRIMs are related to conditions or restrictions in respect of foreign investment in the country.
Reason (R): TRIMs calls for introducing equal treatment for Indian companies.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(c) ‘A’ is true but ‘R’ is false

Question 4.
Assertion (A): WTO are to ensure reduction of tariff and other barriers.
Reason (R): WTO are standard of living is very low.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(c) ‘A’ is true but ‘R’ is false

Question 5.
Assertion (A): The Dunkel Draft, formulated by Arthur Dunkel, its Secretary General became the base for WTO.
Reason (R): The first WTO conference was held at Singapore in 1996.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Question 6.
Assertion (A): IMF objectives are facilitate faster and balanced growth of Internal trade.
Reason (R): IMF objectives are to promote international monetary co-operation among the member nations.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(d) ‘A’ is false but ‘R’ is true

Part – B
Answer The Following Questions In One or Two Sentences.

Question 1.
Write IMF Functions group?
Answer:
The functions of the IMF are grouped under three heads.

Financial – Assistance to correct short and medium tenn deficit in BOP;
Regulatory – Code of conduct and
Consultative – Counseling and technical consultancy.

Question 2.
Define IBRD?
Answer:

The International Bank for Reconstruction and Development (IBRD), otherwise called the World Bank (WB) was established in 1945 under the Bretton Woods Conference in 1944.
The purpose is to bring about a smooth transition from a war-time to peace-time economy.
It is known as a sister institution along with the International Monetary Fund.
The membership in International Monetary Fund is a prerequisite to become a member of IBRD.
The IBRD was established to provide long term financial assistance to member countries.

Question 3.
Write the World bank activities of Rural areas?
Answer:
The bank now also takes interest in the activities of the development of rural areas such as:

Spread of education among the rural people
Development of roads in rural areas and
Electrification of the villages.

Question 4.
Define World Trade Centre?
Answer:

The WTO was established in 1995 as a successor to the GATT.
It is a new international organization set up as a permanent body and is designed to play the role of watch dog in the spheres of trade in goods and services, foreign investment and intellectual property rights.
The Dunkel Draft, formulated by Arthur Dunkel, its Secretary General became the base for WTO.

Question 5.
Define World Trade Organisation?
Answer:

WTC headquarters located at New York, USA.
It featured the landmark Twin Towers which was established on 4th April 1973.
Later it was destroyed on 11th September 2001 by the craft attack.
It brings together businesses involved in international trade from around the globe.

Question 6.
What is meaning of SAPTA, SAIC, SADF?
Answer:

SAARC Preferential Trading Agreement (SAPTA)
SAARC Agricultural Information Centre (SAIC)
South Asian Development Fund (SADF)

Question 7.
Write the ‘ASEAN’ member of countries?
Answer:
ASEAN was established on 8 August 1967 in Bangkok by the five original member countries: Indonesia, Malaysia, Philippines, Singapore and Thailand.

Question 8.
Who are “dialogue partners”?
Answer:
The ASEAN, there are six “dialogue partners” which have been participating in its deliberations. They are China, Japan, India, South Korea, New Zealand and Australia.

Part – C
Answer The Following Questions In One Paragraph.

Question 1.
Brief notes on India and IMF?
Answer:
India and IMF:
1. Till 1970, India stood fifth in the Fund and it had the power to appoint a permanent Executive Director.

2. India has been one of the major beneficiaries of the Fund assistance.

3. It has been getting aid from the various Fund Agencies from time to time and has been regularly repaying its debt.

4. India’s current quota in the IMF is SDRs (Special Drawing Rights) 5,821.5 million, making it the 13th largest quota holding country at IMF with shareholdings of 2.44%.

5. Besides receiving loans to meet deficit in its balance of payments, India has benefited in certain other respects from the membership of the Fund.

Question 2.
Write the objectives of World Bank?
Answer:
The following are the objectives of the World Bank:

To help member countries for economic reconstruction and development.
To stimulate long-run capital investment for restoring Balance of Payments (BoP) equilibrium and thereby ensure balanced development of international trade among the member nations.
To provide guarantees for loans meant for infrastructural and industrial projects of member nations.
To help war ravaged economies transform into peace economies.
To supplement foreign private investment by direct loans out of its own funds for productive purposes.

Question 3.
Explain the objectives of WTO?
Answer:

To ensure reduction of tariff and other barriers.
To eliminate discrimination in trade.
To facilitate higher standard of living.
To facilitate optimal use of world’s resources.
To enable the LDCs to secure fair share in the growth of international trade.
To ensure linkages between trade policies, environmental policies and sustainable development.

Question 4.
Write the TRIPs agreement?
Answer:
Agreement on Trade Related Intellectual Property Rights (TRIPs):
1. Intellectual Property Rights include copy right, trade marks, patents, geographical indications, trade secrets, industrial designs, etc.

2. TRIPS Agreement provides for granting product patents instead of process patents.

3. The period of protection will be 20 years for patents, 50 years for copy rights, 7 years for trade marks and 10 years for layout designs.

4. As a result of TRIPS, the dependence of LDCs on advanced countries for seeds, drugs, fertilizers and pesticides has increased.

5. Farmers are depending on the industrial firm for their seeds.

Question 5.
Explain the functions of WTO?
Answer:
The following are the functions of the WTO
1. It facilitates the implementation, administration and operation of the objectives of the Agreement and of the Multilateral Trade Agreements.

2. It provides the forum for negotiations among its members, concerning their multilateral trade relations in matters relating to the agreements.

3. It administers the Understanding on Rules and Procedures governing the Settlement of Disputes.

4. It cooperates with the IMF and the World Bank and its affiliated agencies with a view to achieving greater coherence in global economic policy making.

Question 6.
Explain the functions of ASEAN?
Answer:
Functions of the ASEAN:
1. It facilitates free movement of goods, services and investments within ASEAN by creating a single regional market like the European Union.

2. It provides free access to the marketers of one member country to the markets of all other member countries, thus fostering growth in the region.

3. It improves business competitiveness between businesses from different countries and also narrow developmental gaps between member countries.

4. It paves way for market and investment opportunities for the member nations.

5. It fosters co – operations in many areas including industry and trade.
All the ASEAN economies experienced a great economic crisis in the year 1997.

Question 7.
Explain the major achievements of WTO?
Answer:
The major achievements of WTO are as follows
1. Use of restrictive measures for BoP problems has declined markedly;

2. Services trade has been brought into the multilateral system and many countries, as in goods, are opening their markets for trade and investment;

3. The trade policy review mechanism has created a process of continuous monitoring of trade policy developments.

Part – D
Answer The Following Questions In About A Page.

Question 1.
Explain the IMF functions?
Answer:
Functions of IMF:
(I) Bringing stability in exchange rate:
The IMF is maintaining exchange rate stability and emphasising devaluation criteria, restricting members to go in for multiple exchange rates and also to buy or sell gold at prices other than declared par value. .

(II) Correcting BOP Disequilibrium:
The IMF is helping the member countries in eliminating or minimizing the short-period disequilibrium in their balance of payments either by selling or lending foreign currencies to the member nation.

(III) Determining par values:
1. IMF enforces the system of determination of par values of the currencies of the member countries.

2. According to the Articles of Agreement of the IMF, every member nation should declare the par value of its currency in terms of gold or US dollars.

3. Under this article, IMF ensures smooth working of the international monetary system, in favour of some developed countries.

(IV) Balancing demand and supply of currencies:
1. IMF is entrusted with the important function of maintaining balance between demand and supply of various currencies.

2. The Fund (IMF) can declare a currency as scarce currency which is in great demand and can increase its supply by borrowing it from the country concerned or by purchasing the same currency in exchange of gold.

(V) Reducing trade restrictions:
The Fund also aims at reducing tariffs and other trade barriers imposed by the member countries with the purpose of removing restrictions on remittance of funds or to avoid discriminating practices.

(VI) Providing credit facilities:
1. IMF is providing different borrowing and credit facilities with the objective of helping the member countries.

2. These credit facilities offered by it include basic credit facility, extended fund facility for a period of three years, compensatory financing facility and structural adjustment facility.

Question 2.
Briefly explain facilities offered by IMF?
Answer:
Facilities offered by IMF:
The Fund has created several new credit facilities for its members. Chief among them are:

(I) Basic Credit Facility:

The IMF provides financial assistance to its member nations to overcome their temporary difficulties relating to balance of payments.
A member nation can purchase from the Fund other currencies or SDRs, in exchange for its own currency, to finance payment deficits.
The loan is repaid when the member repurchases its own currency with other currencies or SDRs.
A member can unconditionally borrow from the Fund in a year equal to 25% of its quota.
This unconditional borrowing right is called the reserve tranche.

(II) Extended Fund Facility:

Under this arrangement, the IMF provides additional borrowing facility up to 140% of the member’s quota, over and above the basic credit facility.
The extended facility is limited for a period up to 3 years and the rate of interest is low.

(III) Compensatory Financing Facility:

In 1963, IMF established compensatory financing facility to provide additional financial assistance to the member countries, particularly primary producing countries facing shortfall in export earnings.
In 1981, the coverage of the compensatory financing facility was extended to payment problem caused by the fluctuations in the cost of cereal inputs.

(IV) Buffer Stock Facility:

The buffer stock financing facility was started in 1969.
The purpose of this scheme was to help the primary goods (food grains) producing countries to finance contributions to buffer stock arrangements for the stabilisation of primary product prices.

(V) Supplementary Financing Facility:
Under the supplementary financing facility, the IMF makes temporary arrangements to provide supplementary financial assistance to member countries facing payments problems relating to their present quota sizes.

(VI) Structural Adjustment Facility:
1. The IMF established Structural Adjustment Facility (SAF) in March 1986 to provide additional balance of payments assistance on concessional terms to the poorer member countries.

2. In December 1987, the Enhanced Structural Adjustment Facility (ESAF) was set up to augment the availability of concessional resources to low income countries.

3. The purpose of SAF and ESAF is to force the poor countries to undertake strong macroeconomic and structural programmes to improve their balance of payments positions and promote economic growth.

Question 3.
Explain the achievements of World Bank?
Answer:
Achievements of World Bank:
The World Bank is said to be successful in achieving its primary objective of reconstruction and development of war ravaged nations. It helped greatly in the reconstruction of Europe after the World War II. It has been providing the developed and developing countries the same treatment in the process of growth.

(I) It is noted that the Bank’s membership has increased from the initial number of 30 countries to 68 countries in 1960 and to 151 countries in 1988. The IBRD has 189 member countries,

(II) The Bank grants medium and long-term loans (i.e., payable over a period of 15-20 years) for reconstruction and development purposes to the member countries. The actual term of a loan depends upon the estimated useful life of the equipment or plant financed.

(III) Initially the World Bank’s loans were mainly directed at the European countries for financing their programmes of reconstruction. Later it changed its development loan strategy and lays more emphasis of financing schemes for the poor masses of the developing countries.

(IV) The World Bank grants loans to member countries only for productive purposes particularly for agriculture, irrigation, power and transport. In other words, the Bank strengthens infrastructure needed for further development.

(V) The International Development Association (IDA), the Soft Loan Window of the Bank provides loans to UDCs at very low rate of interest. However, the economic inequality among the member-countries goes on increasing. Many African countries are yet to improve their economic status.

Question 4.
Bringout the objectives of SAARC?
Answer:
Objectives of SAARC:
According to Article I of the Charter of the SAARC, the objectives of the Association are as follows:

To promote the welfare of the people of South Asia and improve their quality of life
To accelerate economic growth, social progress and cultural development in the region
To promote and strengthen collective self – reliance among the countries of South Asia
To contribute to mutual trust, understanding and appreciation of one another’s problems
To promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields
To strengthen co – operation with other developing countries
To strengthen cooperation among themselves in international forums on matters of common interest
To cooperate with international and regional organisations with similar aims and purposes.

Question 5.
Briefly explain achievements of SAARC?
Answer:
Achievements of SAARC:
1. The establishment of SAARC Preferential Trading Agreement (SAPTA) and reduction in tariff and non-tariff barriers on imports.

2. The setting up of Technical Committees for economic cooperation among SAARC countries relating to agriculture, communications, education, health and population, rural development, science and technology, tourism, etc.

3. SAARC has established a three-tier mechanism for exchanging information on poverty reduction programmes which is passed on to member countries.

4. SAARC Agricultural Information Centre (SAIC) in 1988 works as a central information institution for agriculture related resources like fisheries, forestry, etc.

5. South Asian Development Fund (SADF) for development projects, human resource development and infrastructural development projects. With all these tall claims, the inter- SAARC Trade has not gone beyond three percent in the last 30 years.

Samacheer Kalvi 12th Economics Solutions Chapter 7 International Economics

Leave a Comment / Class 12 / By Prasanna

Students can Download Economics Chapter 7 International Economics Questions and Answers, Notes Pdf, Samacheer Kalvi 12th Economics Book Solutions Guide Pdf helps you to revise the complete Tamilnadu State Board New Syllabus and score more marks in your examinations.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 7 International Economics

Samacheer Kalvi 12th Economics International Economics Text Book Back Questions and Answers

Part – A
Multiple Choice Questions.

Question 1.
Trade between two countries is known as ………………………. trade
(a) External
(b) Internal
(c) Inter – regional
(d) Home
Answer:
(a) External

Question 2.
Which of the following factors influence trade?
(a) The stage of development of a product
(b) The relative price of factors of productions
(c) Government
(d) All of the above.
Answer:
(d) All of the above.

Question 3.
International trade differs from domestic trade because of ……………………….
(a) Trade restrictions
(b) Immobility of factors
(c) Different government policies
(d) All the above
Answer:
(d) All the above

Question 4.
In general, a primary reason why nations conduct international trade is because ……………………….
(a) Some nations prefer to produce one thing while others produce another
(b) Resources are not equally distributed among all trading nations
(c) Trade enhances opportunities to accumulate profits
(d) Interest rates are not identical in all trading nations
Answer:
(b) Resources are not equally distributed among all trading nations

Question 5.
Which of the following is a modem theory of international trade?
(a) Absolute cost
(b) Comparative cost
(c) Factor endowment theory
(d) None of these
Answer:
(c) Factor endowment theory

Question 6.
Exchange rates are determined in ……………………….
(a) Money market
(b) Foreign exchange market
(c) Stock market
(d) Capital market
Answer:
(b) Foreign exchange market

Question 7.
Exchange rate for currencies is determined by supply and demand under the system of ……………………….
(a) Fixed exchange rate
(b) Flexible exchange rate
(c) Constant
(d) Government regulated
Answer:
(b) Flexible exchange rate

Question 8.
Net export equals ……………………….
(a) Export × Import
(b) Export + Import
(c) Export – Import
(d) Exports of services only
Answer:
(c) Export – Import

Question 9.
Who among the following enunciated the concept of single factoral terms of trade?
(a) Jacob Viner
(b) G.S.Donens
(c) Taussig
(d) J.S.Mill
Answer:
(a) Jacob Viner

Question 10.
Terms of Trade of a country show ……………………….
(a) Ratio of goods exported and imported
(b) Ratio of import duties
(c) Ratio of prices of exports and imports
(d) Both (a) and (c)
Answer:
(c) Ratio of prices of exports and imports

Question 11.
Favourable trade means value of exports are ………………………. Than that of imports.
(a) More
(b) Less
(c) More or Less
(d) Not more than
Answer:
(a) More

Question 12.
If there is an imbalance in the trade balance (more imports than exports), it can be reduced by ……………………….
(a) Decreasing customs duties
(b) Increasing export duties
(c) Stimulating exports
(d) Stimulating imports
Answer:
(c) Stimulating exports

Question 13.
BOP includes ……………………….
(a) Visible items only
(b) Invisible items only
(c) Both visible and invisible items
(d) Merchandise trade only
Answer:
(c) Both visible and invisible items

Question 14.
Components of balance of payments of a country includes ……………………….
(a) Current account
(b) Official account
(c) Capital account
(d) All of above
Answer:
(d) All of above

Question 15.
In the case of BOT ……………………….
(a) Transactions of goods are recorded.
(b) Transactions of both goods and services are recorded.
(c) Both capital and financial accounts are included.
(d) All of these
Answer:
(a) Transactions of goods are recorded.

Question 16.
Tourism and travel are classified in which of balance of payments accounts?
(a) Merchandise trade account
(b) Services account
(c) Unilateral transfers account
(d) Capital account
Answer:
(b) Services account

Question 17.
Cyclical disequilibrium in BOP occurs because of ……………………….
(a) Different paths of business cycle.
(b) The income elasticity of demand or price elasticity of demand is different.
(c) Long – run changes in an economy
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 18.
Which of the following is not an example of foreign direct investment?
(a) The construction of a new auto assembly plant overseas
(b) The acquisition of an existing steel mill overseas
(c) The purchase of bonds or stock issued by a textile company overseas
(d) The creation of a wholly owned business firm overseas
Answer:
(c) The purchase of bonds or stock issued by a textile company overseas

Question 19.
Foreign direct investments not permitted in India ……………………….
(a) Banking
(b) Automic energy
(c) Pharmaceutical
(d) Insurance
Answer:
(b) Automic energy

Question 20.
Benefits of FDI include, theoretically ……………………….
(a) Boost in Economic Growth
(b) Increase in the import and export of goods and services
(c) Increased employment and skill levels
(d) All of these
Answer:
(d) All of these

Part – B
Answer The Following Questions Each Question Carries 2 Marks.

Question 21.
What is International Economics?
Answer:

International Economics is that branch of economics which is concerned with the exchange of goods and services between two or more countries. Hence the subject matter is mainly related to foreign trade.
International Economics is a specialized field of Economics which deals with the economic interdependence among countries and studies the effects of such interdependence and the factors that affect it.

Question 22.
Define international trade?
Answer:
International Trade refers to the trade or exchange of goods and services between two or more countries. In other words, it is a trade among different countries or trade across political boundaries. It is also called as ‘external trade’ or ‘foreign trade’ or ‘inter-regional trade’.

Question 23.
State any two merits of trade?
Answer:

Trade is one of the powerful forces of economic integration.
The term ‘trade’ means exchange of goods, wares or merchandise among people.

Question 24.
What is the main difference between Adam Smith and Ricardo with regard to the emergence of foreign trade?
Answer:
Adam Smith Foreign Trade:

According to Adam Smith the basis of International trade was absolute cost advantage.
Trade between two countries would be mutually beneficial when one country produces a commodity at an absolute cost advantage.
Adam Smith argued that all nations can be benefitted when there is free trade and specialisation interms of their absolute cost advantage.

Ricardo Foreign Trade:

Ricardo demonstrates that the basis of trade is the comparative cost difference.
Trade can take place even if the absolute cost difference is absent but there is comparative cost difference.
According to Ricardo a country can gain from trade when it produces at relatively lower costs.

Question 25.
Define Terms of Trade?
Answer:
Terms of Trade:

The gains from international trade depend upon the terms of trade which refers to the ratio of export prices to import prices.
It is the rate at which the goods of one country are exchanged for goods of another country’.
It is expressed as the relation between export prices and import prices.
Terms of trade improves when average price of exports is higher than average price of imports.

Question 26.
What do you mean by balance of payments?
Answer:
Balance of Payments (BOP):

1. BoP is a systematic record of a country’s economic and financial transactions with the rest of the world over a period of time.

2. When a payment is received from a foreign country, it is a credit transaction while a payment to a foreign country is a debit transaction.

3. The principal items shown on the credit side are exports of goods and services, transfer receipts in the form of gift etc., from foreigners, borrowing from abroad, foreign direct investment and official sale of reserve assets including gold to foreign countries and international agencies.

4. The principal items on the debit side include imports of goods and serv ices, transfer payments to foreigners, lending to foreign countries, investments by residents in foreign countries and official purchase of reserve assets or gold from foreign countries and international agencies.

Question 27.
What is meant by Exchange Rate?
Meaning of Foreign Exchange (FOREX):

1. FOREX refers to foreign currencies. The mechanism through which payments are effected between two countries having different currency systems is called FOREX system. It covers methods of payment, rules and regulations of payment and the institutions facilitating such payments.

2. “FOREX is the system or process of converting one national currency into another, and of transferring money from one country to another”.

Part – C
Answer The Following Questions Each Question Carries 3 Marks.

Question 28.
Describe the subject matter of International Economics?
Answer:
Subject Matter of International Economics:
The subject matter of International Economics includes large number of segments which are classified into the following parts.

1. Pure Theory of Trade:
This component explains the causes for foreign trade, composition, direction and volume of trade, determination of the terms of trade and exchange rate, issues related to balance of trade and balance of payments.

2. Policy Issues:
Under this part, policy issues such as free trade vs. protection, methods of regulating trade, capital and technology flows, use of taxation, subsidies and dumping, exchange control and convertibility, foreign aid, external borrowings and foreign direct investment, measures of correcting disequilibrium in the balance of payments etc are covered.

3. International Cartels and Trade Blocs:
This part deals with the economic integration in the form of international cartels, customs unions, monetary unions, trade blocs, economic unions and the like. It also discusses the operation of Multi National Corporations (MNCs).

4. International Financial and Trade Regulatory Institutions:
The financial institutions like International Monetary Fund IMF, IBRD, WTO etc which influence international economic transactions and relations shall also be the part of international economics.

Question 29.
Compare the Classical Theory of international trade with Modern Theory of International trade?
Answer:
Classical Theory of International Trade:

The classical theory explains the phenomenon of international trade on the basis of labour theory of value.
It presents a one factor (labour) model.
It attributes the differences in the comparative costs to differences in the productive efficiency of workers in the two countries.

Modern Theory of International Trade:

The modem theory explains the phenomenon of international trade on the basis of general theory of value.
It presents a multi – factor (labour and capital) model.
It attributes the differences in comparative costs to the differences in factor endowments in the two countries.

Question 30.
Explain the Net Barter Terms of Trade and Gross Barter Terms of Trade?
Answer:
1. Net Barter Terms of Trade:
This type was developed by Taussig in 1927.The ratio between the prices of exports and of imports is called the “net barter terms of trade’. It is named by Viner as the ‘commodity terms of trade’.
It is expressed as:
T_n = (P _x/P_m ) × 100
Where,
T_n = Net Barter Terms of Trade
P_x = Index number of export prices
P_m = Index number of import prices
This is used to measure the gain from international trade. If ‘Tn’ is greater than 100, then it is a favourable terms of trade which will mean that for a rupee of export, more of imports can be received by a country.

2. Gross Barter Terms of Trade:
This was developed by Taussig in 1927 as an improvement over the net terms of trade. It is an index of relationship between total physical quantity of imports and the total physical quantity of exports.
T = (Q_m/Q_x) × 100
Where,
Q_m = Index of import quantities
Q_x = Index of export quantities
If for a given quantity of export, more quantity of import can be consumed by a country, then one can say that terms of trade are favourable.

Question 31.
Distinguish between Balance of Trade and Balance of Payments?
Answer:
Balance of Trade:

Balance of Trade refers to the total value of a country’s exports of commodities and total value of imports of commodities.
Only export and import of commodities are included in the statement of Balance of Trade of a country.
The Balance of Trade between the values of goods exchanged between two countries.
Balance of Trade is a merchandise items or visible items only.

Balance of Payments:

Balance of payments is a systematic record of a country’s economic and financial transactions with the rest of the world over a period of time.
The principal items shown on the credit side are exports of goods and services, transfer receipts in the form of gift, etc.
The Balance of payments between the values of goods and services changed between two countries.
Balance of payments is a both visible and non – visible items.

Question 32.
What are import quotas?
Answer:
Import Control: Imports may be controlled by

Imposing or enhancing import duties
Restricting imports through import quotas
Licensing and even prohibiting altogether the import of certain non-essential items. But this would encourage smuggling.

Question 33.
Write a brief note on flexible exchange rate?
Answer:
Flexible Exchange Rates: Under the flexible exchange rate (also known as floating exchange rate) system, exchange rates are freely determined in an open market by market forces of
demand and supply

Question 34.
State the objectives of Foreign Direct Investment.
Answer:
Objectives of FDI:
FDI has the following objectives.

Sales Expansion
Acquisition of resources
Diversification
Minimization of competitive risk.
- FDI may help to increase the investment level and thereby the income and employment in the host country.
- Direct foreign investment may facilitate transfer of technology to the recipient country.
- FDI may also bring revenue to the government of host country when it taxes profits of foreign firms or gets royalties from concession agreements.
- A part of profit from direct foreign investment may be ploughed back into the expansion, modernization or development of related industries.
- It may kindle a managerial revolution in the recipient country through professional management and sophisticated management techniques.
- Foreign capital may enable the country to increase its exports and reduce import requirements. And thereby ease BoP disequilibrium.
- Foreign investment may also help increase competition and break domestic monopolies.
- If FDI adds more value to output in the recipient country than the return on capital from foreign investment, then the social returns are greater than the private returns on foreign investment.
- By bringing capital and foreign exchange FDI may help in filling the savings gap and the foreign exchange gap in order to achieve the goal of national economic development.
- Foreign investments may stimulate domestic enterprise to invest in ancillary industries in collaboration with foreign enterprises.

Part – D
Answer The Following Questions Each Question Carries 5 Marks.

Question 35.
Discuss the differences between Internal Trade and International Trade?
Answer:
Internal Trade:

Trade takes place between different individuals and firms within the same nation.
Labour and capital move freely from one region to another.
There will be free flow of goods and services since there are no restrictions.
There is only one common currency.
The physical and geographical conditions of a country are more or less similar.
Trade and financial regulations are more or less the same.
There is no difference in political affiliations, customs and habits of the people and government policies.

International Trade:

Trade takes place between different individuals and firms in different countries.
Labour and capital do not move easily from one nation to another.
Goods and services do not easily move from one country to another since there are a number of restrictions like tariff and quota.
There are different currencies.
There are differences in physical and geographical conditions of the two countries.
Trade and financial regulations such as interest rate, trade laws differ between countries.
Differences are pronounced in political affiliations, habits and customs of the people and government policies

Question 36.
Explain briefly the Comparative Cost Theory?
Answer:
Ricardo’s Theory of Comparative Cost Advantage:

1. David Ricardo, the British economist in his ‘Principles of Political Economy and Taxation’ published in 1817, formulated a systematic theory called ‘Comparative Cost Theory’.

2. Ricardo demonstrates that the basis of trade is the comparative cost difference. In other words, trade can take place even if the absolute cost difference is absent but there is comparative cost difference.

3. According to Ricardo, a country can gain from trade when it produces at relatively lower costs. Even when a country enjoys absolute advantage in both goods, the country would specialize in the production and export of those goods which are relatively more advantageous.

Assumptions:

There are only two nations and two commodities (2 × 2 model)
Labour is the only element of cost of production.
All labourers are of equal efficiency.
Labour is perfectly mobile within the country but perfectly immobile between countries, (v) Production is subject
To the law of constant returns.
Foreign trade is free from all barriers.
No change in technology.
No transport cost.
Perfect competition.
Full employment.
No government intervention.

Illustration:
Ricardo’s theory of comparative cost can be explained with a hypothetical example of production costs of cloth and wheat in America and India.

It is evident from the example that India has an absolute advantage in production of both cloth and wheat.

However, India should concentrate on the production of wheat in which she enjoys a comparative cost advantage. (80/120 < 90/100). For America the comparative cost disadvantage is lesser in cloth production. Hence America will specialize in the production of cloth and export it to India in exchange for wheat. (Any exchange ratio between 0.88 units and 1.2 units of cloth against one unit of wheat represents gain for both the nations).

With trade, India can get 1 unit of cloth and 1 unit of wheat by using its 160 labour units. In the absence of trade, for getting this benefit, India will have to use 170 units of labour. America also gains from this trade. With trade, America can get 1 unit of cloth and one unit of wheat by using its 200 units of labour. Otherwise, America will have to use 220 units of labour for getting 1 unit of cloth and 1 unit of wheat.

Question 37.
Discuss the Modern Theory of International Trade?
Answer:
Modern Theory of International Trade:
Introduction:
The modem theory of international trade was developed by Swedish economist Eli Heckscher and his student Bertil Ohlin in 1919. This model was based on the Ricardian theory of international trade. This theory says that the basis for international trade is the difference in factor endowments. It is otherwise called as ‘Factor Endowment Theory’.

The Theory:
The classical theory argued that the basis for foreign trade was comparative cost difference and it considered only labour factor. But the modem theory of international trade explains the causes for such comparative cost difference. This theory attributes international differences in comparative costs to:

Difference in the endowments of factors of production between countries, and
Differences in the factor proportions required in production.

Assumptions:

There are two countries, two commodities and two factors. (2 × 2 × 2 model)
Countries differ in factor endowments.
Commodities are categorized in terms of factor intensity.
Countries use same production technology.
Countries have identical demand conditions.
There is perfect competition in both product and factor markets in both the countries

Explanation:
According to Heckscher – Ohlin, “a capital – abundant country will export the capital – intensive goods, while the labour-abundant country will export the labour – intensive goods”. A factor is regarded abundant or scare in relation to the quantum of other factors. A country can be regarded as richly endowed with capital only if the ratio of capital to other factors is higher than other countries

Illustration:

In the above example, even though India has more capital in absolute terms, America is more richly endowed with capital because the ratio of capital in India is 0.8 which is less than that in America where it is 1.25. The following diagram illustrates the pattern of word trade.

Limitations:

Factor endowment of a country may change over time.
The efficiency of the same factor (say labour) may differ in the two countries. For example, America may be labour scarce in terms of number of workers. But in terms of efficiency, the total labour may be larger.

Question 38.
Explain the types of Terms of Trade given by Viner?
Answer:
Terms of Trade related to the Interchange between Productive Resources:

1. The Single Factoral Terms of Trade:
Viner has devised another concept called “the single factoral terms of trade” as an improvement upon the commodity terms of trade. It represents the ratio of export – price index to the import – price index adjusted for changes in the productivity of a country’s factors in the production of exports. Symbolically, it can be stated as
T_f = (P_x / P_m ) F_x
Where, T_f stands for single factoral terms of trade index. F_x stands for productivity in exports (which is measured as the index of cost in terms of quantity of factors of production used per unit of export).

2. Double Factoral Terms of Trade:
Viner constructed another index called “Double factoral terms of Trade”. It is expressed as
T_ff = (P_x / P_m )(F_x / F_m)
which takes into account the productivity in country’s exports, as well as the productivity of foreign factors.
Here, F_m represents import index (which is measured as the index of cost in terms of quantity of factors of production employed per unit of imports).

Question 39.
Bring out the components of balance of payments account?
Answer:
Components of BOPs:
The credit and debit items are shown vertically in the BOP account of a country. Horizontally, they are divided into three categories, i.e.

The current account,
The capital account and
The official settlements account or official reserve assets account.

1. The Current Account:
It includes all international trade transactions of goods and services, international service transactions (i.e. tourism, transportation and royalty fees) and international unilateral transfers (i.e. gifts and foreign aid).

2. The Capital Account:
Financial transactions consisting of direct investment and purchases of interest-bearing financial instruments, non-interest bearing demand deposits and gold fall under the capital account.

3. The Official Reserve Assets Account:
Official reserve transactions consist of movements of international reserves by governments and dfficial agencies to accommodate imbalances arising from the current and capital accounts.

The official reserve assets of a country include its gold stock, holdings of its convertible foreign currencies and Special Drawing Rights (SDRs) and its net position in the International Monetary Fund (IMF).
Balance of payment (BOP) Account Chart
Credit (Receipts) – Debit (Payments) = Balance [Deficit (-), Surplus (+)]
Deficit if Debit > Credit

Question 40.
Discuss the various types of disequilibrium in the balance of payments?
Answer:
Types BOP Disequilibrium:
There are three main types of BOP Disequilibrium, which are discussed below.

Cyclical Disequilibrium,
Secular Disequilibrium,
Structural Disequilibrium.

1. Cyclical Disequilibrium:
Cyclical disequilibrium occurs because of two reasons. First, two countries may be passing through different phases of business cycle. Secondly, the elasticities of demand may differ between countries.

2. Secular Disequilibrium:
The secular or long-run disequilibrium in BOP occurs because of long – run and deep seated changes in an economy as it advances from one stage of growth to another. In the initial stages of development, domestic investment exceeds domestic savings and imports exceed exports, as it happens in India since 1951.

3. Structural Disequilibrium:
Structural changes in the economy may also cause balance of payments disequilibrium. Such structural changes include development of alternative sources of supply, development of better substitutes, exhaustion of productive resources or changes in transport routes and costs.

Question 41.
How the Rate of Exchange is determined? Illustrate?
Answer:
Determinants of Exchange Rates:
Exchange rates are determined by numerous factors and they are related to the trading relationship between two countries.
Factors determining Exchange Rate:

Differentials in Inflation
Differential in Interest Rates
Current Account Deficits
Public Debt
Terms of Trade
Political and Economic Stability
Recession
Speculation

1. Differentials in Inflation:

Inflation and exchange rates are inversely related.
A country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies.

2. Differentials in Interest Rates:

There is a high degree of correlation between interest rates, inflation and exchange rates.
Central banks can influence over both inflation and exchange rates by manipulating interest rates.
Higher interest rates attract foreign capital and cause the exchange rate to rise and vice versa.

3. Current Account Deficits:

A deficit in the current account implies excess of payments over receipts.
The country resorts to borrowing capital from foreign sources to make up the deficit.
Excess demand for foreign currency lowers a country’s exchange rate.

4. Public Debt:

Large public debts are driving out foreign investors, because it leads to inflation.
As a result, exchange rate will be lower.

5. Terms of Trade:

A country’s terms of trade also determines the exchange rate.
If the price of a country’s exports rises by a greater rate than that of its imports, its terms ‘ of trade will improve.
Favorable terms of trade imply greater demand for the country’s exports and thus BoP becomes favorable.

6. Political and Economic Stability:
If a nation’s political climate is stable and economic performance is good, its currency value will be appreciated by attracting more foreign capital.

7. Recession:

Interest rates are low during the recession phase.
This will decrease inflow of foreign capital.
As a result, a currency will be depreciated against other currencies, thereby lowering the exchange rate.

8. Speculation:

If a country’s currency value is expected to rise, investors will demand more of that currency in order to make a profit in the near future.
This results in appreciation of the exchange rate.
Beside the above determinants, relative dominance in the global politics and the power to announce economic sanctions over other countries also determine exchange rates.

Question 42.
Explain the relationship between Foreign Direct Investment and economic development?
Answer:
Foreign Direct Investment (FDI) and Trade:

FDI is an important factor in global economy.
Foreign trade and FDI are closely related. In developing countries like India
FDI in the natural resource sector, including plantations, increases trade volume.
Foreign production by FDI is useful to substitute foreign trade.
FDI is also influenced by the income generated from the trade and regional integration schemes.
FDI is helpful to accelerate the economic growth by facilitating essential imports needed for carrying out development programmes like capital goods, technical know-how, raw materials and other inputs and even scarce consumer goods.
FDI may be required to fill the trade gap.
FDI is encouraged by the factors such as foreign exchange shortage, desire to create employment and acceleration of the pace of economic development.
Many developing countries strongly prefer foreign investment to imports.
However, the real impact of FDI on different sections of an economy.

Samacheer Kalvi 12th Economics International Economics Addtional Questions and Answers

Part – I
Multiple Choice Questions.

Question 1.
Foreign trade means ………………………..
(a) Trade between nations of the world
(b) Trade among different states
(c) Trade among two states
(d) Trade with one nation
Answer:
(a) Trade between nations of the world

Question 2.
Balance of Trade means
(a) Import and export of invisible items only
(b) Import and export of both visible and invisible items
(c) Import of visible items only
(d) Import and export of visible items only
Answer:
(d) Import and export of visible items only

Question 3.
International trade is regulated at present by ………………………..
(a) IBRD
(b) WTO
(c) OMF
(d) GATT
Answer:
(b) WTO

Question 4.
The exports of India are broadly classified into ……………………….. categories.
(a) Two
(b) Three
(c) Four
(d) Five
Answer:
(c) Four

Question 5.
The New Export – Import policy gives a further push to ………………………..
(a) Liberalisation
(b) Mixed system
(c) Capitalism
(d) Socialism
Answer:
(a) Liberalisation

Question 6.
The World Trade organisation is a ………………………..
(a) Promote of private foreign investment
(b) Promoter of International monetary co-operation
(c) Lateral trade agreement
(d) New trade body to settle trade disputes between nations
Answer:
(d) New trade body to settle trade disputes between nations

Question 7.
To promote ……………………….. stability is one of the aims of IMF.
(a) Exchange
(b) Money
(c) Investment
(d) Finance
Answer:
(a) Exchange

Question 8.
The New Export Import policy was implemented in ………………………..
(a) 1990 – 1995
(b) 1991 – 1996
(c) 1992 – 1997
(d) 1993 – 1998
Answer:
(c) 1992 – 1997

Question 9.
The role of WTO is to regulate trade among the nations of the ………………………..
(a) Trade
(b) Organisation
(c) World
(d) Regulation
Answer:
(c) World

Question 10.
The WTO was setup in the year ………………………..
(a) 1995
(b)1885
(c) 1875
(d) 1865
Answer:
(a) 1995

Question 11.
……………………….. means value of imports is in excess of the value exports.
(a) Balance of Trade
(b) Unfavourable balance of trade
(c) Favourable balance of trade
(d) Export trade
Answer:
(b) Unfavourable balance of trade

Question 12.
……………………….. items means the imports and exports of services and other foreign transfer transactions.
(a) Invisible
(b) Visible
(c) Exports
(d) Imports
Answer:
(a) Invisible

Question 13.
Foreign trade increases worker’s welfare atleast ……………………….. ways.
(a) Two
(b) Three
(c) Four
(d) Five
Answer:
(c) Four

Question 14.
……………………….. trade refers to the trade or exchange of goods and services between two or more countries.
(a) Internal
(b) External
(c) International
(d) Domestic
Answer:
(c) International

Question 15.
If trade is done on large scale it is called ………………………..
(a) Whole sale trade
(b) State trade
(c) Central trade
(d) World trade
Answer:
(a) Whole sale trade

Question 16.
The relationship between value of exports and value of imports is known as ………………………..
(a) EXIM
(b) Foreign exchange
(c) Trade
(d) Terms of trade
Answer:
(d) Terms of trade

Question 17.
If the value of exports is greater than value of imports then it is known as ……………………….. terms of trade.
(a) Unfavourable
(b) Favourable
(c) Moderate
(d) Low
Answer:
(b) Favourable

Question 18.
Imports of India may be divided into ……………………….. parts.
(a) Two
(b) Three
(c) Four
(d) Five
Answer:
(b) Three

Question 19.
……………………….. means imports and exports of commodities.
(a) EXIM
(b) Visible items
(c) Non visible items
(d) Foreign exchange
Answer:
(b) Visible items

Question 20.
……………………….. means exports and imports may be exactly equal.
(a) Balance of trade
(b) Balance of payments
(c) Balanced balance of Trade
(d) Balanced balance of payments
Answer:
(c) Balanced balance of Trade

Question 21.
A special branch of Economics which primarily deals with the basics of ……………………….. trade.
(a) Internal
(b) External
(c) International
(d) Foreign trade
Answer:
(c) International

Question 22.
FDI objective is called ………………………..
(a) Sales expansion
(b) Export expansion
(c) Import expansion
(d) EXIM expansion
Answer:
(a) Sales expansion

Question 23.
The currency of another country is called ………………………..
(a) Money transfer
(b) Money exchange
(c) Foreign exchange
(d) Foreign transfer
Answer:
(c) Foreign exchange

Question 24.
Abundance in the availability of a factor in a country is called ………………………..
(a) Endowment policy
(b) Comparative cost
(c) Absolute cost
(d) Factor Endowment
Answer:
(d) Factor Endowment

Question 25.
Foreign Investment mostly takes the form of ………………………..
(a) Indirect investment
(b) Direct investment
(c) IMF investment
(d) World bank investment
Answer:
(b) Direct investment

II. Match the following and choose the correct answer by using codes given below:

Question 1.
A. Internal Trade – (i) International trade
B. Modem Theory – (ii) Labour
C. Classical Theory – (iii) Geographical boundaries
D. Modem Theory – (iv) Eli Heckscher
Codes:
(a) A (ii) B (iii) C (iv) D (i )
(b) A (iii) B (i) C (ii) D (iv)
(c) A (iv) B (ii) C (i) D (iii)
(d) A (i) B (iv) C (iii) D (ii)
Answer:
(b) A (iii) B (i) C (ii) D (iv)

Question 2.
A. Export – (i) Disequillibrium
B. Secular – (ii) Surplus goods
C. Delibrate measure – (iii) Foreign loans
D. Monetary measures – (iv) Exchange control
Codes:
(a) A (ii) B (i) C (iii) D (iv)
(b) A (i) B (ii) C (iv) D (iii)
(c) A (iii) B (iv) C (ii) D (i)
(d) A (iv) B (iii) C (i) D (ii)
Answer:
(a) A (ii) B (i) C (iii) D (iv)

Question 3.
A. Adam Smith – (i) Foreign Exchange
B. Eli Heckscher – (ii) Absolute cost advantage
C. Movement of goods – (iii) Modem theory of International trade
D. FOREX – (iv) Visible trade
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (ii) B (iii) C (iv) D (i)
(c) A (iv) B (i) C (ii) D (iii)
(d) A (iii) B (iv) C (i) D (ii)
Answer:
(b) A (ii) B (iii) C (iv) D (i)

Question 4.
A. Term of trade – (i) Official reserve
B. FDI – (ii) Exchange rate
C. Gold stock – (iii) Income terms of trade
D. G.S; Dorrance – (iv) Global economy
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iv) B (iii) C (ii) D (i)
(c) A (ii) B (iv) C (i) D (iii)
(d) A (iii) B (i) C (iv) D (ii)
Answer:
(c) A (ii) B (iv) C (i) D (iii)

Question 5.
A. Net Barter Terms of Trade – (i) T_f = (P_x / P_m)F_s
B. Gross Barter Terms of Trade – (ii) T_n = (P_s / P_m) × 100
C. Income Terms of Trade – (iii) T_g = (Q_m / Q_s) × 100
D. Single Factoral Terms of Trade – (iv) T_s = (P_s / P_m)Q_s
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iv) B (iv) C (i) D (ii)
(c) A (iv) B (i) C (ii) D (iii)
(d) A (ii) B (iii) C (iv) D (i)
Answer:
(d) A (ii) B (iii) C (iv) D (i)

III. State whether the statements are true or false.

Question 1.
(i) Trade is one of the powerful forces of economic integration.
(ii) Price of a commodity is measured by the amount of labour required to produce it.

(a) Both (i) and (ii) are false
(b) Both (i) and (ii) are true
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(b) Both (i) and (ii) are true

Question 2.
(i) International Economics is a specialized field of economics.
(ii) Inflation and exchange rates are direct relationship.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is false but (ii) is true
(d) (i) is true but (ii) is false .
Answer:
(d) (i) is true but (ii) is false.

Question 3.
(i) Movement of goods are called “Visible Trade”.
(ii) Only export and import of commodities are included in the statement of balance of trade of the country.

(a) Both (i) and (ii) are false
(b) Both (i) and (ii) are true
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(b) Both (i) and (ii) are true

Question 4.
(i) The Income terms of trade was given by Taussig.
(ii) Gross Barter Terms of trade was developed by G.S. Dorrance.

(a) Both (i) and (ii) are false
(b) Both (i) and (ii) are true
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are false

Question 5.
(i) Viner constructed another index called “Double Factoral terms of Trade”.
(ii) Viner has devised another concept called the “Single factoral terms of trade”.

(a) Both (i) and (ii) are false
(b) Both (i) and (ii) are true
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(b) Both (i) and (ii) are true

IV. Which of the following is correctly matched.

Question 1.
(a) David Ricardo – Factor Endowment Theory
(b) Eli Heckscher – British Economist
(c) Marshall – Swedish Economist
(d) Adam Smith – Theory of Absolute cost advantage
Answer:
(d) Adam Smith – Theory of Absolute cost advantage

Question 2.
(a) T_N = (P_x / P_m) x 100 – Net Barter Term of Trade
(b) T = (Q_m / Q_x) x 100 – Income Terms of Trade
(c) T_y = (P_x / P_m) Q_x – Gross Barter Terms of Trade
(d) T_ff = (P_x / P_m)(F_x / F_m) – Single Factoral Terms of Trade
Answer:
(a) T_N = (P_x / P_m) x 100 – Net Barter Term of Trade

Question 3.
(a) SDR – Special Drawing Rights
(b) IMF – India Monetary Fund
(c) BOP – Balance of Price
(d) BOT – Balance of Technology
Answer:
(a) SDR – Special Drawing Rights

Question 4.
(a) NER – Normal Exchange Rate
(b) RER – Real Exchange Ratio
(c) NEER – Normal Effective Exchange Rate
(d) REER – Real Effective Exchange Rate
Answer:
(d) REER – Real Effective Exchange Rate

Question 5.
(a) FDI – Foreign Direct Investment
(b) FOREX – Foreign Export
(c) UDC – Under Development Consumption
(d) MNC – Multi National Country
Answer:
(a) FDI – Foreign Direct Investment

V. Which of the following is not correctly matched.

Question 1.
(a) P₂ – Price level in India
(b) P_f – Price level in abroad (say VS)
(c) e – Nominal exchange rate is flexible
(d) P_x – Price index of exports
Answer:
(c) e – Nominal exchange rate is flexible

Question 2.
(a) Internal Trade – Trade with in Nation
(b) External Trade – Trade between two countries
(c) Balance of Trade – Visible Trade
(d) Income Terms of Trade – Adam smith
Answer:
(d) Income Terms of Trade – Adam smith

Question 3.
(a) FOREX – Foreign Exchange
(b) WTO – World Trade Organisation
(c) FDI – Foreign Direct Investment
(d) IBRD – india Bank Recruitment Development
Answer:
(d) IBRD – india Bank Recruitment Development

Question 4.
(a) Cartels – Economic Integration
(b) Scarce factor – Imports
(c) Factor endowment theory – Ohlin and Ricardo
(d) Labour cost – Unrealistic
Answer:
(c) Factor endowment theory – Ohlin and Ricardo

Question 5.
(a) Intra – regional trade – Internal trade
(b) World Bank – IMF
(c) Types of Exchange Rate – Fixed exchange rate system
(d) Equillibrium Exchange Rate – David Ricardo
Answer:
(d) Equillibrium Exchange Rate – David Ricardo

VI. Pick the odd one out.

Question 1.
The major sectors benefied from FDi in India are ………………….
(a) Financial Sector
(b) Insurance
(c) Telecommunication
(d) Agriculture
Answer:
(d) Agriculture

Question 2.
Determinants of Exchange Rates
(a) Differentials in Inflation
(b) Differntials in Interest Rates
(c) Current Account Deficits
(d) Public people
Answer:
(d) Public people

Question 3.
Types of Exchange Rates
(a) REAL
(b) NEER
(c) Nominal exchange rate
(d) Real exchange rate
Answer:
(a) REAL

Question 4.
Export promotion is ………………….
(a) Reduction of duties
(b) Import Incentives
(c) Export subsidies
(d) Export Incentives
Answer:
(b) Import Incentives

Question 5.
Monetary measures is ………………………
(a) Monetary contraction
(b) Devaluation
(c) Tourism Development
(d) Exchange control
Answer:
(c) Tourism Development

VII. Assertion and Reason.

Question 1.
Assertion (A): David Ricardo was formulated as an explicit and precise theory.
Reason (R): David Ricardo developed the theory of absolute cost advantage.

Question 2.
Assertion (A): Gains from International trade.
Reason (R): International trade also known as domestic trade.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(c) ‘A’ is true but ‘R’ is false

Question 3.
Assertion (A): FDI is an Domestic Economy.
Reason (R): FDI is an Global Economy.

Question 4.
Assertion (A): Exchange control means the state intervention.
Reason (R): Exchange control means the forex market.

Question 5.
Assertion (A): Price of a commodity is measured by the amount of labour required to produce it.
Reason (R): Trade is one of the Demerit.

Part – B
Answer The Following Questions In One or Two Sentences.

Question 1.
Define “Domestic Trade”?
Answer:

It refers to the exchange of goods and services within the political and geographical boundaries of a nation.
It is a trade within a country.
This is also known as ‘domestic trade’ or ‘home trade’ or ‘intra-regional trade’.

Question 2.
State Ricardo’s Theory of comparative cost advantage criticisms?
Answer:
Criticisms:

Labour cost is a small portion of the total cost. Hence, theory based on labour cost is unrealistic.
Labourers in different countries are not equal in efficiency.

Question 3.
Write Factor endowment model?
Answer:
Factor endowment model:

Developed by Heckscher and Ohlin
Countries with a relative factor abundance can specialise and trade
Abundance of skilled labour → specialisation → export → exchange for goods are services produced by countries with abundance of unskilled labour
Exports embody the abundant factor
Imports embody the scarce factor

Question 4.
Write Modern Theory of International Trade differences in comparative costs?
Answer:
Modem Theory of International Trade theory attributes international differences in comparative costs to:

Difference in the endowments of factors of production between countries, and
Differences in the factor proportions required in production.

Question 5.
Write Modern Theory of International Trade Limitations?
Answer:
Limitations:

Factor endowment of a country may change over time.
The efficiency of the same factor (say labour) may differ in the two countries. For example, America may be labour scarce in terms of number of workers. But in terms of efficiency, the total labour may be larger.

Question 6.
Define “Visible Trade”?
Answer:
Visible Trade:
Only export and import of commodities are included in the statement of Balance of Trade of a country. Movements of goods (export and imports of commodities) are also known as ‘visible trade’,

Question 7.
Define “Balance of Payments Disequillibrium”?
Answer:
Balance of Payments Disequilibrium:
The BoP is said to be balanced when the receipts (R) and payments (P) are just equal, i.e.,
R / P = 1

Question 8.
Write favourable and unfavourable balance of payments and equations?
Answer:
Favourable BoP:
When receipts exceed payments, the BoP is said to be favourable. That is,
R / P > 1.

Unfavourable BOP:
When receipts are less than payments, the BoP is said to be unfavourable or adverse. That is,
R / P < 1.

Part – C
Answer The Following Questions In One Paragraph.

Question 1.
Write Adam Smith’s theory of Absolute Cost Advantage Assumptions?
Answer:
Assumptions:

There are two countries and two commodities (2 x 2 model).
Labour is the only factor of production.
Labour units are homogeneous.
The cost or price of a commodity is measured by the amount of labour required to produce it.
There is no transport cost.

Question 2.
Write Ricardo’s Theory of Comparative Cost Advantage Assumptions/
Answer:
Assumptions:

There are only two nations and two commodities (2 × 2 model)
Labour is the only element of cost of production.
All labourer s are of equal efficiency.
Labour is perfectly mobile within the country but perfectly immobile between countries.
Production is subject to the law of constant returns.
Foreign trade is free from all barriers.
No change in technology.
No transport cost.
Perfect competition.
Full employment.
No government intervention.

Question 3.
What are International Specialization gains?
Answer:
International specialization offers the following gains.

Better utilization of resources.
Concentration in the production of goods in which it has a comparative advantage.
Saving in time.
Perfection of skills in production.
Improvement in the techniques of production.
Increased production.
Higher standard of living in the trading countries.

Question 4.
Write favourable and unfavourable balance of Trade?
Answer:
Favourable BOT:
When the total value of commodity exports of a country exceeds the total value of commodity imports of that country, it is said that the country has a ‘favourable’ balance of trade.

Unfavourable BOT:
If total value of commodity exports of a country is less than the total . value of commodity imports of that country, that country is said to have an ‘unfavourable’ balance of trade.

Part – D
Answer The Following Questions In About A page.

Question 1.
Explain the Adam Smith’s Theory of Absolute Cost Advantage Theory and Assumptions with diagram?
Answer:
Adam Smith’s Theory of Absolute Cost Advantage:
Adam Smith argued that all nations can be benefitted when there is free trade and specialisation in terms of their absolute cost advantage.

The Theory:

1. According to Adam Smith, the basis of international trade was absolute cost advantage.

2. Trade between two countries would be mutually beneficial when one country produces a commodity at an absolute cost advantage over the other country which in turn produces another commodity at an absolute cost advantage over the first country.

Assumptions:

There are two countries and two commodities (2 × 2 model).
Labour is the only factor of production.
Labour units are homogeneous.
The cost or price of a commodity is measured by the amount of labour required to produce it.
There is no transport cost.

Illustration:

Absolute cost advantage theory can be illustrated with the help of the following example.

From the illustration, it is clear that India has an absolute advantage in the production of wheat over China and China has an absolute advantage in the production of cloth over India.
Therefore, India should specialize in the production of wheat and import cloth from China.
China should specialize in the production of cloth and import wheat from India.
This kind of trade would be mutually beneficial to both India and China.

Question 2.
Briefly explain the gains from International Trade Categories?
Answer:
Gains from International Trade:

International trade helps a country to export its surplus goods to other countries and secure a better market for it.
Similarly, international trade helps a country to import the goods which cannot be produced at all or can be produced at a higher cost.
The gains from international trade may be categorized under four heads.

I. Efficient Production:

International trade enables each participatory country to specialize in the production of goods in which it has absolute or comparative advantages.
International specialization offers the following gains.
1. Better utilization of resources.
2. Concentration in the production of goods in which it has a comparative advantage.
3. Saving in time.
4. Perfection of skills in production.
5. Improvement in the techniques of production.
6. Increased production.
7. Higher standard of living in the trading countries.

II. Equalization of Prices between Countries:
International trade may help to equalize prices in all the trading countries.

Prices of goods are equalized between the countries (However, in reality it has not happened).
The difference is only with regard to the cost of transportation.
Prices of factors of production are also equalized (However, in reality it has not happened).

III. Equitable Distribution of Scarce Materials:
International trade may help the trading countries to have equitable distribution of scarce resources.

IV. General Advantages of International Trade:

Availability of variety of goods for consumption.
Generation of more employment opportunities.
Industrialization of backward nations.
Improvement in relationship among countries (However, in reality it has not happened).
Division of labour and specialisation.
Expansion in transport facilities.

Question 3.
Describe the Types of Terms of Trades?
Answer:
Types of Terms of Trade:
The different concepts of terms of trade were classified by Gerald M.Meier into the following three categories:
Terms of Trade related to the Ratio of Exchange between Commodities:

1. Net Barter Terms of Trade:

This type was developed by Taussig in 1927.
The ratio between the prices of exports and of imports is called the “net barter terms of trade’.
It is named by Viner as the ‘commodity terms of trade’.

It is expressed as:
T_n = (P_x / P_m ) × 100
Where,
T_n = Net Barter Terms of Trade
P_x = Index number of export prices
P_m = Index number of import prices
This is used to measure the gain from international trade.
If ‘T_n’ is greater than 100, then it is a favourable terms of trade which will mean that for a rupee of export, more of imports can be received by a country.

2. Gross Barter Terms of Trade:

This was developed by Taussig in 1927 as an improvement over the net terms of trade.
It is an index of relationship between total physical quantity of imports and the total physical quantity of exports.

T = (Q_m / Q_x) × 100 Where,
Q_m = Index of import quantities .
Q_x = Index of export quantities
If for a given quantity of export, more quantity of import can be consumed by a country, then one can say that terms of trade are favourable.

3. Income Terms of Trade:

The income terms of trade was given by G.S.Dorrance in 1948.
It is the index of the value of exports divided by the price index for imports multiplied by quantity index of experts.
In other words, it is the net barter terms of trade of a country multiplied by its exports – volume index.

T = (P_x / P_m) Q
Where,
P_x = Price index of exports
P_m = Price index of imports
Q_x = Quantity index of exports

Question 4.
Briefly explain causes for Balance of payments disequillibrium?
Answer:
Causes for BoP Disequilibrium:
The following are the major causes producing disequilibrium in the balance of payments of a country.

(I) Cyclical Fluctuation:

Cyclical disequilibrium in different countries is caused by their cyclical fluctuations, their phases and magnitude.
World trade shrinks during depression while trade flourishes during prosperity.

(II) Structural Changes:

Structural disequilibrium is caused by the structural changes brought by huge development and investment programmes in the developing economies.
Such economies may have high propensity to import for want of capital for rapid industrialization, while export may not be boosted up to that extent.

(III) Development Expenditure:

Development disequilibrium is caused by rapid economic development which results in income and price effects.
The less developed countries in the early stage of development are not self sufficient.
Income, savings and investment are abysmally low.
They depend upon developed countries for import of commodities, capital and technology.
Export potential is low and import intensity is high.
So the LDCs suffer from adverse BoP.

(IV) Consumerism:

Balance of payments position of a country is adversely affected by a huge increase in consumption.
This increases the need for imports and decreases the capacity to export.

(V) Demonstration Effect:

Deficit in the balance of payments of developing countries is also caused by demonstration effect which influences the people in UDCs to imitate western styled goods.
This will raise the propensity to import causing adverse balance of payments.
This is good for the developed countries.

(VI) Borrowing:

International borrowing and investment may cause a deficit in the balance of payments.
When the international borrowing is heavy, a country’s balance of payments will be adverse since it repays loans with interest.
Servicing of debt is a huge burden. That is why the UDCs are forced to borrow more, (viz) Technological Backwardness:
Due to technological backwardness, the people (Indians) are unable to use the energy (Solar) available with them.
As a result they import huge petroleum products from foreign countries, increasing the trade deficit.

(VII) Technological Backwardness:

Due to technological backwardness, the people (Indians) are unable to use the energy (Solar) available with them.
As a result they import huge petroleum products from foreign countries, increasing the trade deficit.

(VIII) Global Politics:

1. The rich countries (e.g. USA) need to sell their weapons to promote their economy and generate employment.

2. Hence, wars between countries (for example Iran and Irag, Pakistan and India) are stimulated In order to win the wars, the poor countries are forced to buy the weapons from weapon – rich countries, using their export earnings and creating trade deficit.

3. Thus UDCs are trapped forever.

Samacheer Kalvi 12th Economics Solutions Chapter 5 Monetary Economics

Leave a Comment / Class 12 / By Prasanna

Students can Download Economics Chapter 5 Monetary Economics Questions and Answers, Notes Pdf, Samacheer Kalvi 12th Economics Book Solutions Guide Pdf helps you to revise the complete Tamilnadu State Board New Syllabus and score more marks in your examinations.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 5 Monetary Economics

Samacheer Kalvi 12th Economics Monetary Economics Text Book Back Questions and Answers

Part – A
Multiple Choice Questions.

Question 1.
The RBI Headquarters is located at ………………………
(a) Delhi
(b) Chennai
(c) Mumbai
(d) Bengalore
Answer:
(c) Mumbai

Question 2.
Money is ………………………
(a) Acceptable only when it has intrinsic value
(b) Constant in purchasing power
(c) The most liquid of all assets
(d) Needed for allocation of resources
Answer:
(c) The most liquid of all assets

Question 3.
Paper currency system is managed by the ………………………
(a) Central Monetary authority
(b) State Government
(c) Central Government
(d) Banks
Answer:
(a) Central Monetary authority

Question 4.
The basic distinction between M₁ and M₂ is with regard to ………………………
(a) Post office deposits
(b) Time deposits of banks
(c) Saving deposits of banks
(d) Currency
Answer:
(b) Time deposits of banks

Question 5.
Irving Fisher’s Quantity Theory of Money was popularized in ………………………
(a) 1908
(b) 1910
(c) 1911
(d) 1914
Answer:
(c) 1911

Question 6.
MV stands for ………………………
(a) Demand for money
(b) Supply of legal tender money
(c) Supply of bank money
(d) Total supply of money
Answer:
(b) Supply of legal tender money

Question 7.
Inflation means ………………………
(a) Prices are rising
(b) Prices are falling
(c) Value of money is increasing
(d) Prices are remaining the same
Answer:
(a) Prices are rising

Question 8.
………………………. inflation results in a serious depreciation of the value of money.
(a) Creeping
(b) Walking
(c) Running
(d) Hyper
Answer:
(d) Hyper

Question 9.
…………………… inflation occurs when general prices of commodities increases due to increase in production costs such as wages and raw materials.
(a) Cost – push
(b) Demand pull
(c) Running
(d) Galloping
Answer:
(a) Cost – push

Question 10.
During inflation, who are the gainers?
(a) Debtors
(b) Creditors
(c) Wage and salary earners
(d) Government
Answer:
(a) Debtors

Question 11.
…………………… is a decrease in the rate of inflation.
(a) Disinflation
(b) Deflation
(c) Stagflation
(d) Depression
Answer:
(a) Disinflation

Question 12.
Stagflation combines the rate of inflation with ……………………
(a) Stagnation
(b) Employment
(c) Output
(d) Price
Answer:
(a) Stagnation

Question 13.
The study of alternating fluctuations in business activity is referred to in Economics as ……………………
(a) Boom
(b) Recession
(c) Recovery
(d) Trade cycle
Answer:
(d) Trade cycle

Question 14.
During depression the level of economic activity becomes extremely ……………………
(a) High
(b) Bad
(c) Low
(d) Good
Answer:
(c) Low

Question 15.
“Money can be anything that is generally acceptable as a means of exchange and that the same time acts as a measure and a store of value”, This definition was given by ……………………
(a) Crowther
(b) A.C.Pigou
(c) F.A.Walker
(d) Francis Bacon
Answer:
(a) Crowther

Question 16.
Debit card is an example of ……………………
(a) Currency
(b) Paper currency
(c) Plastic money
(d) Money
Answer:
(c) Plastic money

Question 17.
Fisher’s Quantity Theory of money is based on the essential function of money as ……………………
(a) Measure of value
(b) Store of value
(c) Medium of exchange
(d) Standard of deferred payment
Answer:
(c) Medium of exchange

Question 18.
V in MV = PT equation stands for ……………………
(a) Volume of trade
(b) Velocity of circulation of money
(c) Volume of transaction
(d) Volume of bank and credit money
Answer:
(b) Velocity of circulation of money

Question 19.
When prices rise slowly, we call it ……………………
(a) Galloping inflation
(b) Mild inflation
(c) Hyper inflation
(d) Deflation
Answer:
(b) Mild inflation

Question 20.
…………………… inflation is in no way dangerous to the economy.
(a) Walking
(b) Running
(c) Creeping
(d) Galloping
Answer:
(c) Creeping

Part – B
Answer The Following Questions In One or Two Sentences.

Question 21.
Define Money?
Answer:

Many economists developed definition for money. Among these, definitions of Walker and Crowther are given below:
“Money is, what money does ” – Walker.
“Money can be anything that is generally acceptable as a means of exchange and at the same time acts as a measure and a store of value”. – Crowther
Money is anything that is generally accepted as payment for goods and services and repayment of debts and that serves as a medium of exchange.
A medium of exchange is anything that is widely accepted as a means of payments.

Question 22.
What is barter?
Answer:

Before money was invented, exchange took place by Barter, that is, commodities and services were directly exchanged for other commodities and services.
Such exchange of goods for goods was known as “Barter Exchange” or “Barter System”.

Question 23.
What is commodity money?
Answer:

After the barter system and commodity money system, modem money systems evolved.
Among these, metallic standard is the premier one. ,
Under metallic standard, some kind of metal either gold or silver is used to determine the standard value of the money and currency.
Standard coins made out of the metal are the principal coins used under the metallic standard.
These standard coins are full bodied or full weighted legal tender.
Their face value is equal to their intrinsic metal value.

Question 24.
What is gold standard?
Answer:

Gold Standard is a system in which the value of the monetary unit or the standard currency is directly linked with gold.
The monetary unit is defined in terms of a certain weight of gold.
The purchasing power of a unit of money is maintained equal to the value of a fixed weight of gold.

Question 25.
What is plastic money? Give example?
Answer:

The latest type of money is plastic money.
Plastic money is one of the most evolved forms of financial products.
Plastic money is an alternative to the cash or the standard “money”.
Plastic money is a term that is used predominantly in reference to the hard plastic cards used every day in place of actual bank notes.
Plastic money can come in many different forms such as Cash cards, Credit cards, Debit cards, Pre-paid Cash cards, Store cards, Forex cards and Smart cards.
They aim at removing the need for carrying cash to make transactions.

Question 26.
Define inflation?
Answer:

Inflation is a consistent and appreciable rise in the general price level.
In other words, inflation is the rate at which the general level of prices for goods and services is rising and consequently the purchasing power of currency is falling.
“Too much of Money chasing too few goods” – Coulbourn
“A state of abnormal increase in the quantity of purchasing power” – Gregorye

Question 27.
What is Stagflation?
Answer:
Stagflation is a combination of stagnant economic growth, high unemployment and high inflation.

Part – C
Answer The Following Questions In One Paragraph.

Question 28.
Write a note on metallic money?
Answer:

After the barter system and commodity money system, modem money systems evolved.
Among these, metallic standard is the premier one.
Under metallic standard, some kind of metal either gold or silver is used to determine the standard value of the money and currency.
Standard coins made out of the metal are the principal coins used under the metallic standard. Monetary Economics 93
These standard coins are full bodied or Ml weighted legal tender.
Their face value is equal to their intrinsic metal value.

Question 29.
What is money supply?
Answer:

Money supply means the total amount of money in an economy.
It refers to the amount of money which is in circulation in an economy at any given time.
Money supply plays a crucial role in the determination of price level and interest rates.
Money supply viewed at a given point of time is a stock and over a period of time it is a flow.

Question 30.
What are the determinants of money supply?
Answer:
Determinants of Money Supply:

Currency Deposit Ratio (CDR); It is the ratio of money held by the public in currency to that they hold in bank deposits.
Reserve deposit Ratio (RDR); Reserve Money consists of two things (a) vault cash in banks and (b) deposits of commercial banks with RBI.
Cash Reserve Ratio (CRR); It is the fraction of the deposits the banks must keep with RBI. (z’v) Statutory Liquidity Ratio (SLR); It is the fraction of the total demand and time deposits of the commercial banks is the form of specified liquid assests.

Question 31.
Write the types of inflation?
Answer:
The four types of inflation are –
1. Creeping Inflation:
Creeping inflation is slow-moving and very mild. The rise in prices will not be perceptible but spread over a long period. This type of inflation is in no way dangerous to the economy. This is also known as mild inflation or moderate inflation.

2. Walking Inflation:
When prices rise moderately and the annual inflation rate is a single digit . (3% – 9%), it is called walking or trolling inflation.

3. Running Inflation:
When prices rise rapidly like the running of a horse at a rate of speed of 10% – 20% per annum, it is called running inflation.

4. Galloping inflation:
Galloping inflation or hyper inflation points out to unmanageably high inflation rates that run into two or three digits. By high inflation the percentage of the same is almost 20%
to 100% from an overall perspective.

Other types of inflation (on the basis of inducement):

1. Currency inflation:
The excess supply of money in circulation causes rise in price level.

2. Credit inflation:
When banks are liberal in lending credit, the money supply increases and thereby rising prices. .

3. Deficit induced inflation:
The deficit budget is generally financed through printing of currency by the Central Bank. As a result, prices rise.

4. Profit induced inflation:
When the firms aim at higher profit, they fix the price with higher margin. So prices go up.

5. Scarcity induced inflation:
Scarcity of goods happens either due to fall in production (e.g. farm goods) or due to hoarding and black marketing. This also pushes up the price. (This has happened is Venezula in the year 2018).

6. Tax induced inflation:
Increase in indirect taxes like excise duty, custom duty and sales tax may lead to rise in price (e.g. petrol and diesel). This is also called taxflation.

Question 32.
Explain Demand-pull and Cost push inflation?
Answer:
Demand – Pull Vs Cost – Push inflation:

1. Demand – Pull Inflation:
Demand and supply play a crucial role in deciding the inflation levels in the society at all points of time. For instance, if the demand is high for a product and supply is low, the price of the products increases.

2. Cost – Push Inflation:
When the cost of raw materials and other inputsrises inflation results. Increase in wages paid to labour also leads to inflation.

Question 33.
State Cambridge equations of value of money?
Answer:
Cambridge Approach (Cash Balances Approach):

1. Marshall’s Equation:
The Marshall equation is expressed as:
M = KPY
Where
M is the quantity of money Y is the aggregate real income of the community . P is Purchasing Power of money
K represents the fraction of the real income which the public desires to hold in the form of money.
Thus, the price level P = M/KY or the value of money (The reciprocal of price level) is 1/P = KY/M
The value of money in terms of this equation can be found out by dividing the total quantity of goods which the public desires to holdout of the total income by the total supply of money. According to Marshall’s equation, the value of money is influenced not only by changes in M, but also by changes in K.

2. Keynes’Equation
Keynes equation is expressed as:
n = pk (or) p = n / k
Where
n is the total supply of money p is the general price level of consumption goods
k is the total quantity of consumption units the people decide to keep in the form of cash, Keynes indicates that K is a real balance, because it is measured in terms of consumer goods. According to Keynes, peoples’ desire to hold money is unaltered by monetary authority. So, price level and value of money can be stabilized through regulating quantity of money (n) by the monetary authority.
Later, Keynes extended his equation in the following form:
n = p (k + rk’) or p = n / (k + rk’)
Where,
n = total money supply p = price level of consumer goods
k = peoples’ desire to hold money in hand (in terms of consumer goods) in the total income of them
r = cash reserve ratio
k’ = community’s total money deposit in banks, in terms of consumers goods.
In this extended equation also, Keynes assumes that, k, k’ and r are constant. In this situation, price level (P) is changed directly and proportionately changing in money volume (n).

Question 34.
Explain disinflation?
Answer:
Disinflation:
Disinflation is the slowing down the rate of inflation by controlling the amount of credit (bank loan, hire purchase) available to consumers without causing more unemployment. Disinflation may be defined as the process of reversing inflation without creating unemployment or reducing output in the economy.

Part – D
Answer the following questions in one page.

Question 35.
Illustrate Fisher’s Quantity theory of money?
Answer:
(a) Fisher’s Quantity Theory of Money:
The quantity theory of money is a very old the¬ory. It was first propounded in 1588 by an Italian economist, Davanzatti. But, the credit for popularizing this theory in recent years rightly belongs to the well-known American economist, Irving Fisher who published his book, ‘The Purchasing Power of Money” in 1911. He gave it a quantitative form in terms of his famous “Equation of Exchange”.
The general form of equation given by Fisher is –
MV = PT

1. Fisher points out that in a country during any given period of time, the total quantity of money (MV) will be equal to the total value of all goods and services bought and sold (PT). MV = PT
Supply of Money = Demand for Money

2. This equation is referred to as “Cash Transaction Equation”.
Where M = Money Supply/quantity of Money
V = Velocity of Money
P = Price level
T = Volume of Transaction.
It is expressed as P = MV / T which implies that the quantity of money determines the price level and the price level in its turn varies directly with the quantity of money, provided ‘V’ and ‘T’ remain constant.

3. According to Marshall, peoples desire to hold money (the coefficient, K) is more powerful in determination of money, rather than quantity of money (M). So, peoples’ desire to hold money is a determinant of value of money.

4. The above equation considers only currency money. But, in a modem economy, bank’s demand deposits or credit money and its velocity play a vital part in business. Therefore, Fisher extended his original equation of exchange to include bank deposits M, and its velocity Vr The revised equation was:
PT = MV + M₁V₁
P = $\frac { MV+M_{ 1 }V_{ 1 } }{ T } $

5. From the revised equation, it is evident, that the price level is determined by (a) the quantity of money in circulation ‘M’ (b) the velocity of circulation of money ‘V’ (c) the volume of bank credit money M₁ (d) the velocity of circulation of credit money V₁, and the volume of trade (T)

Diagramatic Illustration:

Quantity of Money

1. Figure (A) shows the effect of changes in the quantity of money on the price level. When the quantity of money is OM, the price level is OP. When the quantity of money is doubled to OM₂, the price level is also doubled to OP₂. Further, when the quantity of money is increased four – fold to OM₄, the price level also increases by four times to OP₄. This relationship is expressed by the curve OP = f (M) from the origin at 45°.

2. Figure (B), shows the inverse relation between the quantity of money and the value of money, where the value of money is taken on the vertical axis. When the quantity of money is OM₁, the value of money is 01 / P₁. But with the doubling of the quantity of money to OM₂, the value of money becomes one – half of what it was before, (01 / P₂). But, with the quantity of money increasing by four – fold to OM₄, the value of money is reduced by 01 / P₄. This inverse relationship between the quantity of money and the value of money is shown by downward sloping curve 1 / OP = f (M).

Question 36.
Explain the functions of money?
Answer:

1. Primary Functions:

(I) Money as a medium of exchange:
This is considered as the basic function of money. Money has the quality of general acceptability, and all exchanges take place in terms of money.

(II) Money as a measure of value:
The second important function of money is that it measures the value of goods and services. In other words, the prices of all goods and services are expressed in terms of money. Money is thus looked upon as a collective measure of value.

2. Secondary Functions:

(I) Money as a Store of value:
Savings done in terms of commodities were not permanent. But, with the invention of money, this difficulty has now disappeared and savings are now done in terms of money. Money also serves as an excellent store of wealth, as it can be easily converted into other marketable assets, such as, land, machinery, plant etc.

(II) Money as a Standard of Deferred Payments:
Borrowing and lending were difficult problems under the barter system. In the absence of money, the borrowed amount could be returned only in terms of goods and services. But the modem money – economy has greatly facilitated the borrowing and lending processes.

(III) Money as a Means of Transferring Purchasing Power:
The field of exchange also went on extending with growing economic development. The exchange of goods is now extended to distant lands.

3. Contingent Functions:

(I) Basis of the Credit System:
Money is the basis of the Credit System. Business transactions are either in cash or on credit.

(II) Money facilitates distribution of National Income:
The task of distribution of national income was exceedingly complex under the barter system.

(III) Money helps to Equalize Marginal Utilities and Marginal Productivities:
Consumer can obtain maximum utility only if he incurs expenditure on various commodities in such a manner as to equalize marginal utilities accruing from them. Now in equalizing these marginal utilities, money plays an important role, because the prices of all commodities are expressed in money.

(IV) Money Increases Productivity of Capital:
Money is the most liquid form of capital. In other words, capital in the form of money can be put to any use.

4. Other Functions:

(I) Money helps to maintain Repayment Capacity:
Money possesses the quality of general acceptability. To maintain its repayment capacity, every firm has to keep assets in the form of liquid cash. The firm ensures its repayment capacity with money.

(II) Money represents Generalized Purchasing Power:
Purchasing power kept in terms of money can be put to any use. It is not necessary that money should be used only for the purpose for which it has been served.

(III) Money gives liquidity to Capital:
Money is the most liquid form of capital. It can be put to any use.

Question 37.
What are the causes and effects of inflation on the economy?
Answer:
Causes of Inflation:
The main causes of inflation in India are as follows:

1. Increase in Money Supply:
Inflation is caused by an increase in the supply of money which leads to increase in aggregate demand. The higher the growth rate of the nominal money supply, the higher is the rate of inflation.

2. Increase in Disposable Income:
When the disposable income of the people increases, it raises their demand for goods and services. Disposable income may increase with the rise in national income or reduction in taxes or reduction in the saving of the people.

3. Increase in Pubiic Expenditure:
Government activities have been expanding due to developmental activities and social welfare programmes. This is also a cause for price rise.

4. Increase in Consumer Spending:
The demand for goods and services increases when they are given credit to buy goods on hire-purchase and installment basis.

5. Cheap Monetary Policy:
Cheap monetary policy or the policy of credit expansion also leads to increase in the money supply which raises the demand for goods and services in the economy.

6. Deficit Financing:
In order to meet its mounting expenses, the government resorts to deficit financing by borrowing from the public and even by printing more notes.

7. Black Assests, Activities and Money:
The existence of black money and black assests due to corruption, tax evasion etc., increase the aggregate demand. People spend such money, lavishly. Black marketing and hoarding reduces the supply of goods.

8. Repayment of Public Debt:
Whenever the government repays its past internal debt to the public, it leads to increase in the money supply with the public.

9. Increase in Exports:
When exports are encouraged, domestic supply of goods decline. So prices rise.

Effects of Inflation:
The effects of inflation can be classified into two heads:

Effects on Production and
Effects on Distribution.

1. Effects on Production:
When the inflation is very moderate, it acts as an incentive to traders and producers. This is particularly prior to full employment when resources are not fully utilized. The profit due to rising prices encourages and induces business class to increase their investments in production, leading to generation of employment and income.

(I) However, hyper – inflation results in a serious depreciation of the value of money.

(II) When the value of money undergoes considerable depreciation, this may even drain out the foreign capital already invested in the country.

(III) With reduced capital accumulation, the investment will suffer a serious set-back which may have an adverse effect on the volume of production in the country.

(IV) Inflation also leads to hoarding of essential goods both by the traders as well as the consumers and thus leading to still hiher inflation rate.

(V) Inflation encourages investment in speculative activities rather than productive purposes.

2. Effects on Distribution:

1. Debtors and Creditors:
During inflation, debtors are the gainers while the creditors are losers.

2. Fixed – income Groups:
The fixed income groups are the worst hit during inflation because their incomes being fixed do not bear any relationship with the rising cost of living.

3. Entrepreneurs:
Inflation is the boon to the entrepreneurs whether they are manufacturers, traders, merchants or businessmen, because it serves as a tonic for business enterprise.

4. Investors:
The investors, who generally invest in fixed interest yielding bonds and securities have much to lose during inflation.

Question 38.
Describe the phases of Trade cycle?
Answer:
Phases of Trade Cycle
The four different phases of trade cycle is referred to as

Boom
Recession
Depression and
Recovery. These are illustrated in the figure:

Phases of Trade Cycle:

1. Boom or Prosperity Phase:
The full employment and the movement of the economy beyond full employment is characterized as boom period.

During this period, there is hectic activity in economy.
Money wages rise, profits increase and interest rates go up.
The demand for bank credit increases and there is all – round optimism.

2. Recession:

The turning point from boom condition is called recession.
This happens at higher rate, than what was earlier.
Generally, the failure of a company or bank bursts the boom and brings a phase of recession.
Investments are drastically reduced, production comes down and income and profits decline.
There is panic in the stock market and business activities show signs of dullness.
Liquidity preference of the people rises and money market becomes tight.

3. Depression:

During depression the level of economic activity becomes extremely low.
Firms incur losses and closure of business becomes a common feature and the ultimate result is unemployment.
Interest prices, profits and wages are low. The agricultural class and wage earners would be worst hit.
Banking institutions will be reluctant to advance loans to businessmen.
Depression is the worst phase of the business cycle.
Extreme point of depression is called as “trough”, because it is a deep point in business cycle.

4. Recovery:

After a period of depression, recovery sets in.
This is the turning point from depression to revival towards upswing.
It begins with the revival of demand for capital goods.
Autonomous investments boost the activity.
The demand slowly picks up and in due course the activity is directed towards the upswing with more production, profit, income, wages and employment.
Recovery may be initiated by innovation or investment or by government expenditure (autonomous investment).

Samacheer Kalvi 12th Economics Consumption and Investment Functions Additional Questions

Part – A
I. Multiple Choice Questions.

Question 1.
During Inflation?
(a) Business men gain
(b) Wage earners gain
(c) Salary gain
(d) Renters gain
Answer:
(a) Business men gain

Question 2.
Galloping Inflation is also known as –
(a) Deflation
(b) Persistent Inflation
(c) Stagflation
(d) Cost – push Inflation
Answer:
(b) Persistent Inflation

Question 3.
The modem economy is described as –
(a) Demand Economy
(b) Supply Economy
(c) Money Economy
(d) Wage Economy
Answer:
(c) Money Economy

Question 4.
The term ………………………… refers to a phase or policy when interest rates are high.
(a) Purchasing money
(b) Power money
(c) Fiat money
(d) Dear money
Answer:
(d) Dear money

Question 5.
Currency notes in circulation are referred to as –
(b) Fiat money
(c) Value of money
(d) Cheap money
Answer:
(b) Fiat money

Question 6.
What is the name of inflation without a rise in price level?
(a) Repressed Inflation
(b) Hyper Inflation
(c) Galloping Inflation
(d) Cost – Push Inflation
Answer:
(a) Repressed Inflation

Question 7.
Give the example of a country that experienced hyper Inflation?
(a) India
(b) China
(c) Germany
(d) Africa
Answer:
(c) Germany

Question 8.
Which is the most important function of money?
(a) Measure of value
(b) Store of value
(c) Medium of exchange
(d) Standard of deferred payments
Answer:
(c) Medium of exchange

Question 9.
What is the other name for “Equation of Exchange”?
(a) Fisher’s Equation
(b) Keynes Equation
(c) Marshall’s Equation
(d) Equation of Exchange
Answer:
(a) Fisher’s Equation

Question 10.
What is the cheap money policy?
(a) High rates of Interest
(b) Low rates of Interest
(c) Medium rates of Interest
(d) Very high rates of Interest
Answer:
(b) Low rates of Interest

Question 11.
Monetary policy is controlled by –
(a) Central bank
(b) State Government
(c) Private sector
(d) Central Government
Answer:
(d) Central Government

Question 12.
………………………… is usually effective for controlling inflation.
(a) Monetary policy
(b) RBI
(c) State Government
(d) Central government
Answer:
(a) Monetary policy

Question 13.
Monetary policy is usually effective in controlling –
(a) Bank
(b) Inflation
(c) Deflation
(d) Stagflation
Answer:
(b) Inflation

Question 14.
Money acts as a common measure of –
(a) Reserve money
(b) Fiat money
(c) Value
(d) Broad money
Answer:
(c) Value

Question 15.
Bank rate is lowered during –
(a) Inflation
(b) Price
(c) Employment
(d) Deflation
Answer:
(d) Deflation

Question 16.
Under dear money policy is –
(a) Rate of Interest is low
(b) Rate of interest is high
(c) Bank rate is high
(d) Money supply is more
Answer:
(b) Rate of interest is high

Question 17.
M₃ is called –
(a) Narrow money
(b) Reserve money
(c) Broad money
(d) Fiat money
Answer:
(c) Broad money

Question 18.
Price mechanism plays a vital role in –
(a) Capitalism
(b) Socialism
(c) Mixed economy
(d) Traditional economy
Answer:
(a) Capitalism

Question 19.
“Money is what money does” ………………………… this definition was given by –
(a) Crowther
(b) Fisher
(c) Grasham
(d) Walker
Answer:
(d) Walker

Question 20.
Currency with the public is known as –
(a) M₁
(b) M₂
(C) M₃
(d) M₄
Answer:
(a) M₁

Question 21.
Cost – push inflation is induced by rising –
(a) Costs
(b) Money
(c) Broad money
(d) Inflation
Answer:
(b) Money

Question 22.
The direct exchange of goods for goods is known as –
(a) Money exchange
(b) Money transfer
(c) Barter System
(d) Barter goods
Answer:
(c) Barter System

Question 23.
Money is a matter of functions –
(a) One
(b) Two
(c) Three
(d) Four
Answer:
(d) Four

Question 24.
Deflation is a period marked by ………………………… prices.
(a) Increasing
(b) Falling
(c) Constant
(d) High
Answer:
(d) High

Question 25.
Dear money refers to ………………………… rate being high.
(a) Money
(b) Finance
(c) Interest
(d) Cost
Answer:
(c) Interest

II. Match the following and choose the correct answer by using codes given below

A. Deficit financing – (i) Monetary policy objectives
B. Store of value – (ii) Currency notes
C. Price stability – (iii) Causes inflation
D. Fiat money – (iv) Function of money
Codes:
(a) A (iii) B (iv) C (i) D (ii)
(b) A (ii) B (iii) C (iv) D (i)
(c) A (iv) B (ii) C (iii) D (i)
(d) A (i) B (iv) C (ii) D (iii)
Answer:
(a) A (iii) B (iv) C (i) D (ii)

Question 2.
A. Falling prices – (i) Black money
B. Government securities – (ii) Business loss
C. Bank rate – (iii) Open Market operation
D. Unaccounted money – (iv) Credit control
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (ii) B (iii) C (iv) D (i)
(c) A (iii) B (iv) C (i) D (ii)
(d) A (iv) B (i) C (ii) D (iii)
Answer:
(b) A (ii) B (iii) C (iv) D (i)

Question 3.
A. Checking Inflation – (i) Irving Fisher
B. Great Depression – (ii) Narrow money
C. Quantity theory of money – (iii) Wage freeze
D. M₁ – 1930
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iii) B (iv) C(i) D (ii)
(c) A (ii) B (iii) C (iv) D (i)
(d) A (iv) B (i) C (ii) D (iii)
Answer:
(b) A (iii) B (iv) C(i) D (ii)

Question 4.
A. Cheap money policy – (i) Purchasing money
B. Prices pushed – (ii) Creeping inflation
C. Value of money – (iii) Low rate of interest
D. Selective credit control – (iv) Moral suasion
Codes:
(a) A (iii) B (ii) C (i) D (iv)
(b) A (ii) B (i) C (iv) D (iii)
(c) A (iv) B (iii) C (ii) D (i)
(d) A (i) B (iv) C (iii) D (ii)
Answer:
(a) A (iii) B (ii) C (i) D (iv)

Question 5.
A. Galloping Inflation – (i) Money Act
B. M₃is called – (ii) Hyperinflation
C. Measure of value – (iii) Broad money
D. Deflation Codes – (iv) Bank rate
Codes:
(a) A (i) B (ii) C (iv) D (iii)
(b) A (iv) B (i) C (iii) D (ii)
(c) A (iii) B (iv) C (ii) D (i)
(d) A (ii) B (iii) C (i) D (iv)
Answer:
(d) A (ii) B (iii) C (i) D (iv)

III. State whether the statements are true or false.

Question 1.
(i) Inflation is taxation without legislation was said by Milton Friedman.
(ii) Money is the most liquid form of capital.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 2.
(i) “The purchasing power of money” was a book published by Irving Fisher in 1911.
(ii) The general form of equation given by Fisher is M = KPY.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 3.
(i) The study of alternating fluctuations in business activity is referred to in Economics as Trade cycle.
(ii) During depression the level of economic activity becomes extremely high.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 4.
(i) Creeping Inflation is in no way dangerous to the economy.
(ii) Debit card is an example of paper currency.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 5.
(i) MV = PT equation stands for volume of Trade.
(ii) Fisher’s Quantity Theory of money is based on the essential function of money as measure of value.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(b) Both (i) and (ii) are false

IV. Which of the following is correctly matched:

Question 1.
(a) Medium of exchange – CRR
(b) Cash Reserve Ratio – Gold standard
(c) Goods exchange for goods – Barter system
(d) Full weighted legal tender – Plastic money
Answer:
(c) Goods exchange for goods – Barter system

Question 2.
(a) Depression – Starting stage
(b) Recession – Turning point from boom
(c) Boom – Economic activities
(d) Inflation – Hectic activity
Answer:
(b) Recession – Turning point from boom

Question 3.
(a) Store of value – Liquidity cash
(b) Deflation – Rise in price
(c) Trade cycle – Narrow money
(d) Quantity theory of money – J.M. Keynes
Answer:
(d) Quantity theory of money – J.M. Keynes

Question 4.
(a) The purchasing power of currency – Falling
(b) Monetary measures are adopted by – State bank
(c) The turning point from boom is – Inflation
(d) Money supply means the total – Inflation amount of money in – World
Answer:
(a) The purchasing power of currency – Falling

Question 5.
(a) The Marshall’s equation – MV = PT
(b) Cash Reserve Ratio – CRR
(c) Statutory Liquidity cash – SLC
(d) Functions of money – Money supply
Answer:
(b) Cash Reserve Ratio – CRR

Question 6.
(a) Barter System – Technology
(b) Gold Standard – Standard currency is directly linked with gold
(c) Plastic money – Money value
(d) Paper money – Smart card
Answer:
(b) Gold Standard – Standard currency is directly linked with gold

V. Which of the following is not correctly matched:

Question 1.
(a) Inflation – Rise in price
(b) Deflation – Fall in price
(c) Hyper Inflation – India
(d) Hyper deflation – Phases of Trade cycle
Answer:
(c) Hyper Inflation – India

Question 2.
(a) Currency Deposit Ratio – CDR
(b) Reserve Deposit Ratio – RDR
(c) Cash Reserve Ratio – CRR
(d) Statutory Liquidity Ratio – SRL
Answer:
(d) Statutory Liquidity Ratio – SRL

Question 3.
(a) M – Money supply / Quantity of money –
(b) V – Velocitu of money
(c) P – Price level
(d) T – Price rise slow moving
Answer:
(d) T – Price rise slow moving

Question 4.
(a) Creeping Inflation – Price rise slow moving
(b) Walking Inflation – Price rise moderately
(c) Running Inflation – Price rise rapidly running
(d) Galloping Inflation – Price rise very slow
Answer:
(d) Galloping Inflation – Price rise very slow

Question 5.
(a) Money supply – Central Bank
(b) Dear money policy – During Inflation
(c) Value of money – Purchasing power
(d) Black money – Narrow money
Answer:
(d) Black money – Narrow money

VI. Pick the odd one out.

Question 1.
The main functions of money can be classified
(a) Primary functions
(b) Secondary functions
(c) Contingent functions
(d) Territory functions
Answer:
(d) Territory functions

Question 2.
Money secondary functions are
(a) Money as a store of value
(b) Money as a standard of Deferred payments
(c) Money as a means of Transferring purchasing power
(d) Money as a modem exchange system
Answer:
(d) Money as a modem exchange system

Question 3.
Contingent functions are called
(a) Basis of the credit system
(b) Money facilitates distribution of state income
(c) Money’helps to equalize marginal utility
(d) Money increases productivity of capital
Answer:
(b) Money facilitates distribution of state income

Question 4.
RBI publishes information of money supply are
(a) M₂ = Currency coins and demand deposits
(b) M₂ = M₁ + Saving deposits with post office savings banks and Total Deposits
(c) M₃ = M₂ + Time deposits of all commercial and co – operative banks
(d) M₄ = M₃ + Total deposits with post offices
Answer:
(b) M₂ = M₁ + Saving deposits with post office savings banks and Total Deposits

Question 5.
Determinants of money supply are
(a) Consumer Deposit Ratio (CDR)
(b) Reserve Deposit Ratio (RDR)
(c) Cash Reserve Ratio (CRR)
(d) Statutory Liquidity Ratio (SLR)
Answer:
(a) Consumer Deposit Ratio (CDR)

Question 6.
Types of Inflation are
(a) Currency Inflation
(b) Credit Inflation
(c) Demand Induced Inflation
(d) Profit Induced Inflation
Answer:
(c) Demand Induced Inflation

Question 7.
The four different phases of trade cycle is referred to as
(a) Regression
(b) Recession
(c) Depression
(d) Recovery
Answer:
(a) Regression

VII. Assertion and Reason.

Question 1.
Assertion (A): Stagflation is a combination of stagnant economic growth, high unemployment and high inflation.
Reason (R): Stagflation is the slowing down the rate of inflation by controlling the amount of credit.

Question 2.
Assertion (A): Keynes and Milton Friedman together suggested Monetary measures, Fiscal measures and other measures to prevent and control of inflation.
Reason (R): Keynes and Milton Friedman together suggested other measures are Short term and Long – term measures.

Question 3.
Assertion (A): A trade cycle refers to oscillations in aggregate economic activity particularly in employment, output, income, etc.
Reason (R): The four different phases of trade cycle is referred to Boom, Recession, Depression and Recovery.

Question 4.
Assertion (A): Fiscal policy is now recognized as an important instrument to tackle an inflationary situation.
Reason (R): Monetary measures are adopted by the central bank.

Question 5.
Assertion (A): Currency is created by the RBI and Union Government.
Reason (R): Bank deposits are created by commercial banks and co-operative banks.

Question 6.
Assertion (A): Recovery may be initiated by Money balance.
Reason (R): Recovery may be government expenditure.

Part – B
Answer The Following Questions In One or Two Sentences.

Question 1.
Define “Silver Standard”?
Answer:
Silver Standard: The silver standard is a monetary system in which the standard economic unit of account is a fixed weight of silver. The silver standard is a monetary arrangement in which a country’s Government allows conversion of its currency into fixed amount of silver.

Question 2.
What is paper currency?
Answer:

The paper currency standard refers to the monetary system in which the paper currency notes issued by the Treasury or the Central Bank or both circulate as unlimited legal tender.
The paper standard is also known as managed currency standard.
The quantity of money in circulation is controlled by the monetary authority to maintain price stability.

Question 3.
Name the main functions of money?
Answer:

Question 4.
Write RBI publishes information alternative measures of money supply?
Answer:
RBI publishes information for four alternative measures of Money supply, namely M₂ , M₂ and M₃ and M₄
M₁ = Currency, coins and demand deposits
M₂ = M₁ + Savings deposits with post office savings banks
M₃ = M₂ + Time deposits of all commercial and cooperative banks.
M₄ = M₃ + Total deposits with Post offices.

Question 5.
Define “Currency symbol”?
Answer:
Currency Symbol ₹
The new symbol designed by D.Udaya Kumar, a post graduate of IIT Bombay was finally selected by the Union cabinet on 15th July, 2010. The new symbol, is an amalgamation of Devanagri ‘Ra’ and the Roman ‘R’ without the stem. The symbol of India rupee came into use on 15th July, 2010. After America, Britain, Japan, Europe Union. India is the 5th country to accept a unique currency symbol.

Question 6.
Write Fisher’s Quantity Theory of money equation?
Answer:

The general form of equation given by Fisher is MV = PT.
Fisher points out that in a country during any given period of time, the total quantity of money (MV) will be equal to the total value of all goods and services bought and sold (PT).
MV = PT

Question 7.
Define “Trade cycle”?
Answer:
“A trade cycle is composed of periods of good trade characterised by rising prices and low unemployment percentages altering with periods of bad trade characterised by falling prices and high unemployment percentages”.

Part – C
Answer The Following Questions In One Paragraph.

Question 1.
Write the meaning of Money supply?
Answer:
Meaning of Money Supply

In India, currency notes are issued by the Reserve Bank of India (RBI) and coins are issued by the Ministry of Finance, Government of India (GOI).
Besides these, the balance is savings, or current account deposits, held by the public in commercial banks is also considered money.
The currency notes are also called fiat money and legal tenders.

Question 2.
Explain the Deflation?
Answer:
Deflation:

The essential feature of deflation is falling prices, reduced money supply and unemployment.
Though falling prices are desirable at the time of inflation, such a fall should not lead to the fall in the level of production and employment.
But if prices fall from the level of full employment both income and employment will be adversely affected.

Question 3.
What is the meaning of trade cycle?
Answer:
Meaning of Trade Cycle:

A Trade cycle refers to oscillations in aggregate economic activity particularly in employment, output, income, etc.
It is due to the inherent contraction and expansion of the elements which energize the economic activities of the nation.
The fluctuations are periodical, differing in intensity and changing in its coverage.

Question 4.
Explain the Evolution of money?
Answer:
Barter System:

The introduction of money as a medium of exchange was orje of the greatest inventions of mankind.
Before money was invented, exchange took place by Barter, that is, commodities and services were directly exchanged for other commodities and services.
Under the barter system, buyers and sellers of commodities had to face a number of difficulties.
Surplus goods were exchanged for money which in turn was exchanged for other needed goods.
Goods like furs, skins, salt, rice, wheat, utensils, weapons, etc. were commonly used as money.
Such exchange of goods for goods was known as “Barter Exchange” or “Barter System”.

Question 5.
What is the meaning of Crypto currency?
Answer:
Crypto Currency:

A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a Central Bank.
Decentralised crypto currencies such as Bitcoin now provide an outlet for Personal Wealth that is beyond restriction and confiscation.

Question 6.
Explain the Trade cycle Depression?
Answer:
Depression:

During depression the level of economic activity becomes extremely low.
Firms incur losses and closure of business becomes a common feature and the ultimate result is unemployment.
Interest prices, profits and wages are low.
The agricultural class and wage earners would be worst hit.
Banking institutions will be reluctant to advance loans to businessmen.
Depression is the worst phase of the business cycle.
Extreme point of depression is called as “trough”, because it is a deep point in business cycle.
Any person fell down in deeps could not come out from that without other’s help.
Similarly, an economy fell down in trough could not come out from this without external help.
Keynes advocated that autonomous investment of the government alone can help the economy to come out from the depression.

Part – D
Answer The Following Questions In One Page.

Question 1.
Explain the Measures of control inflation?
Answer:
Measures to Control Inflation:
Keynes and Milton Friedman together suggested three measures to prevent and control of inflation.

Monetary measures
Fiscal measures (J.M. Keynes) and
Other measures.

1. Monetary Measures:

These measures are adopted by the Central Bank of the country.
They are
- Increase in Bankrate
- Sale of Government Securities in the Open Market
- Higher Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)
- Consumer Credit Control and
- Higher margin requirements
- Higher Repo Rate and Reverse Repo Rate.

2. Fiscal Measures:

Fiscal policy is now recognized as an important instrument to tackle an inflationary situation.
The major anti – inflationary fiscal measures are the following:
Reduction of Government Expenditure and Public Borrowing and Enhancing taxation.

3. Other Measures:
These measures can be divided broadly into short – term and long – term measures.

(a) Short – term measures can be in regard to public distribution of scarce essential commodities through fair price shops (Rationing). In India whenever shortage of basic goods has been felt, the government has resorted to import so that inflation may not get triggered.

(b) Long – term measures will require accelerating economic growth especially of the wage goods which have a direct bearing on the general price and the cost of living. Some restrictions on present consumption may help in improving saving and investment which may be necessary for accelerating the rate of economic growth in the long run.

Question 2.
Briefly explain the Monetary Economics and money?
Answer:

Monetary Economics is a branch of economics that provides a framework for analyzing money and its functions as a medium of exchange, store of value and unit of account.
It examines the effects of monetary systems including regulation of money and associated financial institutions.
Meaning
Money is anything that is generally accepted as payment for goods and services and repayment of debts and that serves as a medium of exchange.
A medium of exchange is anything that is widely accepted as a means of payments.
In recent years, the importance of credit has increased in all the countries of the world.
Credit instruments are used on an extensive scale.
The use of cheques, bills of exchange, etc. has gone up.
It should however, be remembered that money is the basis of credit.

Question 3.
Explain the Inflation Effects of production?
Answer:
Effects on Production: When the inflation is very moderate, it acts as an incentive to traders and producers. This is particularly prior to full employment when resources are not fully utilized. The profit due to rising prices encourages and induces business class to increase their investments in production, leading to generation of employment and income.

1. However, hyper – inflation results in a serious depreciation of the value of money and it discourages savings on the part of the public.

2. When the value of money undergoes considerable depreciation, this may even drain out the foreign capital already invested in the country.

3. With reduced capital accumulation, the investment will suffer a serious set – back which may have an adverse effect on the volume of production in the country. This may discourage entrepreneurs and business men from taking business risk.

4. Inflation also leads to hoarding of essential goods both by the traders as well as the consumers and thus leading to still higher inflation rate.

5. Inflation encourages investment in speculative activities rather than productive purposes.

Samacheer Kalvi 12th Economics Solutions Chapter 4 Consumption and Investment Functions

Leave a Comment / Class 12 / By Prasanna

Students can Download Economics Chapter 4 Consumption and Investment Functions Questions and Answers, Notes Pdf, Samacheer Kalvi 12th Economics Book Solutions Guide Pdf helps you to revise the complete Tamilnadu State Board New Syllabus and score more marks in your examinations.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 4 Consumption and Investment Functions

Samacheer Kalvi 12th Economics Consumption and Investment Functions Text Book Back Questions and Answers

Part – A
Multiple Choice Questions.

Question 1.
The average propensity to consume is measured by –
(a) C / Y
(b) C × Y
(c) Y / C
(d) C + Y
Answer:
(a) C / Y

Question 2.
An increase in the marginal propensity to consume will:
(a) Lead to consumption function becoming steeper
(b) Shift the consumption function upwards
(c) Shift the consumption function downwards
(d) Shift savings function upwards
Answer:
(a) Lead to consumption function becoming steeper.

Question 3.
If the Keynesian consumption function is C = 10 + 0.8 Y then, if disposable income is Rs 1000, what is amount of total consumption?
(a) ₹ 0.8
(b) ₹ 800
(c) ₹ 810
(d) ₹ 0.81
Answer:
(c) ₹ 810

Question 4.
If the Keynesian consumption function is C = 10 + 0.8 Y then, when disposable income is Rs 100, what is the marginal propensity to consume?
(a) ₹ 0.8
(b) ₹ 800
(c) ₹ 810
(d) ₹ 0.81
Answer:
(a) ₹ 0.8

Question 5.
If the Keynesian consumption function is C = 10 + 0.8 Y then, and disposable income is ₹ 100, what is the average propensity to consume?
(a) ₹ 0.8
(b) ₹ 800
(c) ₹ 810
(d) ₹ 0.9
Answer:
(d) ₹ 0.9

Question 6.
As national income increases –
(a) The APC falls and gets nearer in value to the MPC.
(b) The APC increases and diverges in value from the MPC.
(c) The APC stays constant
(d) The APC always approaches infinity.
Answer:
(a) The APC falls and gets nearer in value to the MPC.

Question 7.
As increase in consumption at any given level of income is likely to lead –
(a) Higher aggregate demand
(b) An increase in exports
(c) A fall in taxation revenue
(d) A decrease in import spending
Answer:
(a) Higher aggregate demand

Question 8.
Lower interest rates are likely to:
(a) Decrease in consumption
(b) increase cost of borrowing
(c) Encourage saving
(d) increase borrowing and spending
Answer:
(d) increase borrowing and spending

Question 9.
The MPC is equal to:
(a) Total spending / total consumption
(b) Total consumption / total income
(c) Change in consumption / change in income
(d) None of the above
Answer:
(c) Change in consumption / change in income

Question 10.
The relationship between total spending on consumption and the total income is the –
(a) Consumption function
(b) Savings function
(c) Investment function
(d) aggregate demand function
Answer:
(a) Consumption function

Question 11.
The sum of the MPC and MPS is –
(a) 1
(b) 2
(c) 0.1
(d) 1.1
Answer:
(a) 1

Question 12.
As income increases, consumption will –
(a) fall
(b) not change
(c) fluctuate
(d) increase
Answer:
(d) increase

Question 13.
When investment is assumed autonomous the slope of the AD schedule is determined by the –
(a) marginal propensity to invest
(b) disposable income
(c) marginal propensity to consume
(d) average propensity to consume
Answer:
(c) marginal propensity to consume

Question 14.
The multiplier tells us how much changes after a shift in –
(a) Consumption, income
(b) investment, output
(c) savings, investment
(d) output, aggregate demand
Answer:
(d) output, aggregate demand

Question 15.
The multiplier is calculated as –
(a) 1 / (1 – MPC)
(b) 1 / MPS
(c) 1 / MPC
(d) a and b
Answer:
(d) a and b

Question 16.
It the MPC is 0.5, the multiplier is –
(a) 2
(b) 1/2
(c) 0.2
(d) 20
Answer:
(a) 2

Question 17.
In an open economy import ………………………. the value of the multiplier
(a) Reduces
(b) increase
(c) does not change
(d) changes
Answer:
(a) Reduces

Question 18.
According to Keynes, investment is a function of the MEC and –
(a) Demand
(b) Supply
(c) Income
(d) Rate of interest
Answer:
(d) Rate of interest

Question 19.
The term super multiplier was first used by –
(a) J.R.Hicks
(b) R.G.D. Allen
(c) Kahn
(d) Keynes
Answer:
(a) J.R.Hicks

Question 20.
The term MEC was introduced by –
(a) Adam Smith
(b) J.M. Keynes
(c) Ricardo
(d) Malthus
Answer:
(b) J.M. Keynes

Part – B
Answer The Following Questions In One or Two Sentences

Question 21.
What is consumption function?
Answer:
Meaning of Consumption Function:

1. The consumption function or propensity to consume refers to income consumption relationship. It is a “functional relationship between two aggregates viz., total consumption and gross national income.”

2. Symbolically, the relationship is represented as C = f (Y)
Where,
C = Consumption; Y = Income; f = Function

3. Thus the consumption function indicates a functional relationship between C and Y, where C is the dependent variable and Y is the independent variable, i.e., C is determined by Y. This relationship is based on the ceteris paribus (other things being same) assumption, as only income consumption relationship is considered and all possible influences on consumption are held constant.

Question 22.
What do you mean by propensity to consume?
Answer:

2. Symbolically, the relationship is represented as C = f(Y) Where, C = Consumption; Y = Income; f = Function

Question 23.
Define average propensity to consume (APC)?
Answer:
Average Propensity to Consume:

1. The average propensity to consume is the ratio of consumption expenditure to any particular level of income.” Algebraically it may be expressed as under:
Where, C = Consumption; Y = Income
APC = $\frac{C}{Y}$
Where, C = Consumption; Y = Income.

Question 24.
Define marginal propensity to consume (MPC)?
Answer:
Marginal Propensity to Consume:

1. The marginal propensity to consume may be defined as the ratio of the change in the consumption to the change in income. Algebraically it may be expressed as under:
MPC = $\frac { \Delta C }{ \Delta Y } $
Where, ∆C = Change in Consumption; ∆Y = Change in Income
MPC is positive but less than unity, 0 < $\frac { \Delta C }{ \Delta Y } $ < 1.

Question 25.
What do you mean by propensity to save?
Answer:

Thus the consumption function measures not only the amount spent on consumption but also the amount saved.
This is because the propensity to save is merely the propensity not to consume.
The 45° line may therefore be regarded as a zero – saving line, and the shape and position of the C curve indicate the division of income between consumption and saving.

Question 26.
Define average propensity to save (APS)?
Answer:
Average Propensity to Save (APS):

The average propensity to save is the ratio of saving to income.
APS is the quotient obtained by dividing the total saving by the total income. In other words, it is the ratio of total savings to total income. It can be expressed algebraically in the form of equation as under
APS = $\frac{S}{Y}$ Where, S = Saving; Y = Income

Question 27.
Define Marginal Propensity to Save (MPS)?
Answer:
Marginal Propensity to Save (MPS):

1. Marginal Propensity to Save is the ratio of change in saving to a change in income.

2. MPS is obtained by dividing change in savings by change in income. It can be expressed algebraically as MPS = $\frac { \Delta S }{ \Delta Y } $
∆S = Change in Saving; ∆Y = Change in Income
Since MPC + MPS = 1
MPS = 1 – MPC and MPC = 1 – MPS.

Question 28.
Define Multiplier?
Answer:

The multiplier is defined as the ratio of the change in national income to change in investment.
If AI stands for increase in investment and AY stands for resultant increase in income, the multiplier K =AY/AI.
Since AY results from AI, the multiplier is called investment multiplier.

Question 29.
Define Accelerator?
Answer:

“The accelerator coefficient is the ratio between induced investment and an initial change in consumption.”
Assuming the expenditure of ₹50 crores on consumption goods, if industries lead to an investment of ₹100 crores in investment goods industries, we can say that the accelerator is 2.
Accelerator = $\frac { 100 }{ \Delta Y } $ = 2

Part – C
Answer The Following Questions In One Paragraph.

Question 30.
State the propositions of Keynes’s Psychological Law of Consumption?
Answer:
Propositions of the Law:
This law has three propositions:
1. When income increases, consumption expenditure also increases but by a smaller amount. The reason is that as income increases, we wants are satisfied side by side, so that the need to spend more on consumer goods diminishes. So, the consumption expenditure increases with increase in income but less than proportionately.

2. The increased income will be divided in some proportion between consumption expenditure and saving. This follows from the first proposition because when the whole • of increased income is not spent on consumption, the remaining is saved. In this way, consumption and saving move together.

3. Increase in income always leads to an increase in both consumption and saving. This means that increased income is unlikely to lead to fall in either consumption or saving. Thus with increased income both consumption and saving increase.

Question 31.
Differentiate autonomous and induced investment?
Answer:
Autonomous Investment:

Independent
Income inelastic
Welfare motive

Induced Investment:

Planned
Income elastic
Profit Motive

Question 32.
Explain any three subjective and objective factors influencing the consumption function?
Answer:
Subjective Factors:

The motive of precaution: To build up a reserve against unforeseen contingencies. e.g. Accidents, sickness. ,
The motive of foresight: The desire to provide for anticipated future needs. e.g. Old age.
The motive of calculation: The desire to enjoy interest and appreciation. Consumption and Investment Functions.

Objective Factors:
1. Income Distribution:
If there is large disparity between rich and poor, the consumption is low because the rich people have low propensity to consume and high propensity to save.

2. Price level:
Price level plays an important role in determining the consumption function. When the price falls, real income goes up; people will consume more and propensity to save of the
society increases.

3. Wage level:
Wage level plays an important role in determining the consumption function and there is positive relationship between wage and consumption. Consumption expenditure increases with the rise in wages. Similar is the effect with regard to windfall gains.

Question 33.
Mention the differences between accelerator and multiplier effect?
Answer:
Accelerator Effect Multiplier Effect:

1. Accelerator is the numerical value of the relation between an increase in consumption and the resulting increasing in Investment. Multiplier is the ration of the change in national income to change in Investment.

2. Accelerator (β) = $\frac { \Delta I }{ \Delta C } $
ΔI = Change in Investment
ΔC = Change in consumption demand Multiplier (K) = $\frac { \Delta I }{ \Delta C } $
ΔI = Increase in Investment ΔY = Increase in Income ΔY results from ΔI

3. Accelerator Effects are –

Increase in consumer demand.
Films get close to fill capacity.
Film invest to meet rising demand. Multiplier Effects are

Multiplier Effect:
1. Multiplier is the ration of the change in national income to change in Investment.

2. Multiplier:
Multiplier (K) = $\frac { \Delta Y }{ \Delta I } $
ΔI = Increase in Investment
ΔY = Increase in Income
ΔY results from ΔI

Multiplier Effects are:

Positive Multiplier an initial increases is an injection (or a decrease in a leakage) leads to a greater final increase in real GDP.
Negative Multiplier an initial increases in an injection (or an increase in a leakage) leads to a greater final decrease in real GDP.

Question 34.
State the concept of super multiplier?
Answer:
Super Multiplier: (k and β interaction):

The super multiplier is greater than simple multiplier which includes only autonomous investment and no induced investment, while super multiplier includes induced investment.
In order to measure the total effect of initial investment on income, Hicks has combined the k and β mathematically and given it the name of the Super Multiplier.
The super multiplier is worked out by combining both induced consumption and induced investment.

Question 35.
Specify the limitations of the multiplier?
Answer:

There is change in autonomous investment.
There is no induced investment
The marginal propensity to consume is constant.
Consumption is a function of current income.
There are no time lags in the multiplier process.
Consumer goods are available in response to effective demand for them.
There is a closed economy unaffected by foreign influences.
There are no changes in prices.
There is less than full employment level in the economy.

Part – D
Answer The Following Questions In About A Page.

Question 36.
Explain Keynes psychological law of consumption function with diagram?
The three propositions of the law:

Proposition (1):
Income increases by ₹ 60 crores and the increase in consumption is by ₹ 50 crores.

Proposition (2):
The increased income of ₹ 60 crores in each case is divided in some proportion between consumption and saving respectively, (i.e., ₹ 50 crores and ₹ 10 crores).

Proposition (3):
As income increases consumption as well as saving increase. Neither consumption nor saving has fallen. Diagrammatically, the three propositions are explained in figure. Here, income is measured horizontally and consumption and saving are measured on the vertical axis. C is the consumption function curve and 45° line represents income consumption equality.

Proposition (1):
When income increases from 120 to 180 consumption also increases from 120 to 170 but the increase in consumption is less than the increase in income, 10 is saved.

Proposition (2):
When income increases to 180 and 240, it is divided in some proportion between consumption by 170 and 220 and saving by 10 and 20 respectively.

Proposition (3):
Increases in income to 180 and 240 lead to increased consumption 170 and 220 and increased saving 20 and 10 than before. It is clear from the widening area below the C curve and the saving gap between 45° line and C curve.

Question 37.
Briefly explain the subjective and objective factors of consumption function?
Answer:
Subjective Factors:

The motive of precaution: To build up a reserve against unforeseen contingencies. e.g. Accidents, sickness
The motive of foresight: The desire to provide for anticipated future needs, e.g. Old age
The motive of calculation: The desire to enjoy interest and appreciation.
The motive of improvement: The desire to enjoy for improving standard of living.
The motive of financial independence.
The motive of enterprise (desire to do forward trading).
The motive of pride.(desire to bequeath a fortune)
The motive of avarice.(purely miserly instinct)

2. Price level:

Price level plays an important role in determining the consumption function.
When the price falls, real income goes up; people will consume more and propensity to save of the society increases.

3. Wage level:

Wage level plays an important role in determining the consumption function and there is positive relationship between wage and consumption.
Consumption expenditure increases with the rise in wages.
Similar is the effect with regard to windfall gains.

4. Interest rate:

Rate of interest plays an important role in determining the consumption function.
Higher rate of interest will encourage people to save more money and reduces consumption.

5. Fiscal Policy:
When government reduces the tax the disposable income rises and the propensity to consume of community increases.

6. Consumer credit:

The availability of consumer credit at easy installments will encourage households to buy consumer durables like automobiles, fridge, computer.
This pushes up consumption.

7. Demographic factors:

Ceteris paribus, the larger the size of the family, the grater is the consumption.
Besides size of family, stage in family life cycle, place of residence and occupation affect the consumption function.

8. Duesenberry hypothesis:
Duesenberry has made two observations regarding the factors affecting consumption.

The consumption expenditure depends not only on his current income but also past income and standard of living.
Consumption is influenced by demonstration effect. The consumption standards of low income groups are influenced by the consumption standards of high income groups.

9. Windfall Gains or losses:
Unexpected changes in the stock market leading to gains or losses tend to shift the consumption function upward or downward.

Question 38.
Illustrate the working of Multiplier?
Answer:
Working of Multiplier:

Suppose the Government undertakes investment expenditure equal to ₹ 100 crore on some public works, by way of wages, price of materials etc.
Thus income of labourers and suppliers of materials increases by ₹ 100 crore. Suppose the MPC is 0.8 that is 80 %.
A sum of ₹ 80 crores is spent on consumption (A sum of ₹ 20 Crores is saved).
As a result, suppliers of goods get an income of ₹ 80 crores.
They intum spend ₹ 64 crores (80% of ₹ 80 cr).
In this manner consumption expenditure and increase in income act in a chain like maimer.

The final result is ∆Y = 100 + 100 × 4/5 + 100 × [4/5]² + 100 × [4/5]³ or,
∆Y = 100 + 100 × 0.8 + 100 × (0.8)² + 100 × (0.8)³
= 100 + 80 + 64 + 51.2… = 500 .
that is 100 × 1/1 – 4/5
100 × 1/1/5
100 × 5 = ₹ 500 crores
For instance if C = 100 + 0.8Y, I = 100,
Then Y = 100 + 0.8Y + 100
0.2Y = 200
Y = 200/0.2 = 1000 → Point B
If I is increased to 110, then
0.2Y = 210
Y = 210/0.2 = 1050 → Point D
For ₹ 10 increase in I, Y has increased by ₹ 50.
This is due to multiplier effect.
At point A, Y = C = 500
C = 100 + 0.8 (500) = 500; S = 0
At point B, Y = 1000
C = 100 + 0.8 (1000) = 900; S = 100 = I At point D, Y = 1050
C = 100 + 0.8 (1050) = 940; S = 110 = I
When I is increased by 10, Y increases by 50.
This is multiplier effect (K = 5)
K = $\frac{1}{0.2}$ = 5

Question 39.
Explain the operation of the Accelerator?
Answer:
Operation of the Acceleration Principle:

Let us consider a simple example. The operation of the accelerator may be illustrated as follows.
Let us suppose that in order to produce 1000 consumer goods, 100 machines are required.
Also suppose that working life of a machine is 10 years.
This means that every year 10 machines have to be replaced in order to maintain the constant flow of 1000 consumer goods. This might be called replacement demand.
Suppose that demand for consumer goods rises by 10 percent (i.e. from 1000 to 1100).
This results in increase in demand for 10 more machines.
So that total demand for machines is 20. (10 for replacement and 10 for meeting increased demand).
It may be noted here a 10 percent increase in demand for consumer goods causes a 100 percent increase in demand for machines (from 10 to 20).
So we can conclude even a mild change in demand for consumer goods will lead to wide change in investment.

Diagrammatic illustration:
Operation of Accelerator.

SS is the saving curve. II is the investment curve. At point E₁ the economy is in equilibrium with OY₁ income. Saving and investment are equal at OY₁ Now, investment is increased from OI₂ to OI₄.
This increases income from OY₁ to OY₃, the equilibrium point being E₃ If the increase in investment by I₂ I₄ is purely exogenous, then the increase in income by Y₁ Y₃ would have been due to the multiplier effect.
But in this diagram it is assumed that exogenous investment is only by I, I3 and induced investment is by I₃I₄.
Therefore, increase in income by Y₁ Y₂ is due to the multiplier effect and the increase in income by Y₂ Y₃ is due to the accelerator effect.

Question 40.
What are the differences between MEC and MEI?
Answer:
Marginal Efficiency of Capital (MEC):

It is based on a given supply price for capital.
It represents the rate of return on all successive units of capital without regard to existing capital.
The capital stock is taken on the X axis of diagram.
It is a “stock” concept.
It determines the optimum capital stock in an economy at each level of interest rate.

Marginal Efficiency of Investment (MEI):

It is based on the induced change in the price due to change in the demand for capital.
It shows the rate of return on just those units of capital over and above the existing capital stock.
The amount of investment is taken on the X – axis of diagram.
It is a “flow” concept.
It determines the net investment of the economy at each interest rate given the capital stock.

Samacheer Kalvi 12th Economics Consumption and Investment Functions Additional Questions and Answers

part – A
I. Multiple Choice Questions.

Question 1.
Price level plays an important role in determining the ……………………
(a) Consumption function
(b) Income function
(c) Finance function
(d) Price function
Answer:
(a) Consumption function

Question 2.
The progressive tax system increases the ……………………….. of the people by altering the income distribution in favour of poor?
(a) price level
(b) wage level
(c) propensity to consume
(d) Fiscal policy
Answer:
(c) propensity to consume

Question 3.
…………………….. means purchase of stocks and shares, debentures, government bonds and equities?
(a) Consumption
(b) Investment
(c) Finance
(d) Saving
Answer:
(b) Investment

Question 4.
…………………… is influenced by demonstration effect.
(a) Investment
(b) Interest
(c) Expenditure
(d) Consumption
Answer:
(d) Consumption

Question 5.
Additional investment that is independent of income is called ……………………
(a) Autonomous Investment
(b) Autonomous Consumption
(c) Average Investment
(d) Marginal Investment
Answer:
(a) Autonomous Investment

Question 6.
Induced investment is motivated?
(a) Investment
(b) Capital
(c) Saving
(d) Profit
Answer:
(d) Profit

Question 7.
MEI is the expected rate of return on investment as additional units of ……………………
(a) Saving
(b) Investment
(c) Consumption
(d) Expenditure
Answer:
(b) Investment

Question 8.
Dynamic multiplier is also known as ……………………
(a) Sequence multiplier
(b) Static multiplier
(c) Double multiplier
(d) Single multiplier
Answer:
(a) Sequence multiplier

Question 9.
The combined effect of interaction of multiplier and accelerator is called ……………………
(a) Super accelerator
(b) Super multiplier
(c) Accelerator
(d) Multiplier
Answer:
(b) Super multiplier

Question 10.
The tendency to initiate Superior consumption pattern is called ……………………
(a) Accelerator effect
(b) Multiplier effect
(c) Super Multiplier effect
(d) Demonstration effect
Answer:
(d) Demonstration effect

Question 11.
The multiplier is the reciprocal of one minus ……………………
(a) MPC
(b) MPS
(c) Multiplier
(d) Accelerator
Answer:
(a) MPC

Question 12.
The concept of multiplier was first developed by ……………………
(a) J.M. Keynes
(b) David Ricardo
(c) R.F. Khan
(d) J.B. Say
Answer:
(c) R.F. Khan

Question 13.
…………………… the larger size of the family, the greater is the consumption?
(a) Demographic factors
(b) Income Distribution
(c) Duesenberry hypothesis
(d) Wage level
Answer:
(b) Income Distribution

Question 14.
MPS is the ratio of change in saving to a change in ……………………
(a) profit
(b) money
(c) finance
(d) income
Answer:
(d) income

Question 15.
Consumption function is called the relationship between ……………………….. and Income?
(a) Money
(b) Consumption
(c) Finance
(d) Investment
Answer:
(b) Consumption

Question 16.
Consumer’s surplus is useful to the Finance Minister in formulating ……………………….. policies?
(a) Surplus
(b) Consumption
(c) Taxation
(d) Income
Answer:
(c) Taxation

Question 17.
Consumer surplus is called potential price – ……………………………. price?
(a) real
(b) actual
(c) normal
(d) high
Answer:
(b) actual

Question 18.
Dynamic multiplier is also known as ………………………. Multiplier.
(a) Sequence
(b) Static
(c) Timeless
(d) Logical
Answer:
(a) Sequence

Question 19.
Static Multiplier is otherwise known as …………………………… Multiplier.
(a) Dynamic
(b) Leakage
(c) Simultaneous
(d) Multi effect
Answer:
(c) Simultaneous

Question 20.
The propensity to consume refers to the portion of Income spent on ……………………….
(a) Income
(b) Profit
(c) Expenditure
(d) Consumption
Answer:
(d) Consumption

Question 21.
………………………. redefined it as investment multiplier.
(a) R.K. Khan
(b) David Ricardo
(c) J.M. Keynes
(d) Marshall
Answer:
(c) J.M. Keynes

Question 22.
Accelerator Model was made by ……………………
(a) J.M. Keynes
(b) J.M. Clark
(c) R.F. Khan
(d) Marshall
Answer:
(b) J.M. Clark

Question 23.
The multiplier tells us …………………………. changes after a shift in ……………………
(a) income
(b) investment
(c) aggregate demand
(d) savings
Answer:
(c) aggregate demand

Question 24.
The simple accelerated model was made by J.M. Clark in ……………………
(a) 1915
(b) 1916
(c) 1914
(d) 1917
Answer:
(d) 1917

II. Match the following and choose the correct answer by using codes given below

Question 1.
A. Consumption function – (i) Consmption increased
B. Induced Investment – (ii) Borrowings
C. Income Increases – (iii) Subjective and objective
D. Autonomous consumption – (iv) Profit motive
Codes:
(a) A (iii) B (iv) C (i) D (ii)
(b) A (iv) B (i) C (ii) D (iii)
(c) A (i) B (ii) C (iii) D (iv)
(d) A (ii) B (iii) C (iv) D (i)
Answer:
(a) A (iii) B (iv) C (i) D (ii)

Question 2.
A. MPS – measured – (i) K = 1/MPS
B. Multiplier developed by – (ii) MEC
C. Investment depends on – (iii) ∆S/∆Y
D. Value of multiplier – (iv) R.F. Khan
Codes:
(a) A (i) B (ii) C (iv) D (iii)
(b) A (ii) B (iii) C (i) D (iv)
(c) A (iii) B (iv) C (ii) D (i)
(d) A (iv) B (i) C (iii) D (ii)
Answer:
(c) A (iii) B (iv) C (ii) D (i)

Question 3.
A. Reduced Investment – (i) 1930
B. Keynes employment dependes on – (ii) Highest interest rate
C. Fall in investment – (iii) Zero
D. Long fun autonomous consumption will – (iv) Investment
Codes:
(a) A (i) B (iii) C (iv) D (ii)
(b) A (ii) B (iv) C (i) D (iii)
(c) A (iii) B (i) C (ii) D (iv)
(d) A (iv) B (ii) C (iii) D (i)
Answer:
(b) A (ii) B (iv) C (i) D (iii)

Question 4.
A. MPS – (i) AC/AY
B. MPC – (ii) C/Y
C. APS – (iii) S/Y
D. APC – (iv) AS/AY
Codes:
(a) A (iv) B (i) C (iii) D (ii)
(b) A (i) B (ii) C (iv) D (iii)
(c) A (ii) B (iii) C (i) D (iv)
(d) A (iii) B (iv) C (ii) D (i)
Answer:
(a) A (iv) B (i) C (iii) D (ii)

Question 5.
A. Investment means – (i) Expenditure on capital formation
B. Uses of multiplier – (ii) Consumption forgone
C. Saving is – (iii) Achieve full employment
D. Autonomous investment – (iv) Stocks and shares
Codes:
(a) A (ii) B (i) C (iv) D (iii)
(b) A (iii) B (ii) C (iii) D (iv)
(c) A (iv) B (iii) C (ii) D (i)
(d) A (i) B (iv) C (i) D (ii)
Answer:
(c) A (iv) B (iii) C (ii) D (i)

III. State whether the statements are true or false.

Question 1.
(i) Keynes propounded the fundamental psychological law of consumption.
(ii) J.M. Keynes has divided factors influencing the consumption function.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 2.
(i) The kinds of multiplier is called Tax Multiplier, Employment Multiplier, Foreign trade Multiplier, Investment Multiplier.
(ii) Investment means money collecting.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(d) (i) is false but (ii) is true

Question 3.
(i) The term investment means purchase of stocks and shares, debentures, government bonds and equities.
(ii) The term Investment means expenditure on capital formation.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 4.
(i) Leakages of multiplier is payment only.
(ii) Leakages of multiplier limitation is called full employment situation.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(d) (i) is false but (ii) is true

Question 5.
(i) The types of Investment is called Autonomous Investment, Induced Investment.
(ii) Induced Investment is the expenditure on fixed assets and stocks.

(a) Both (i) and (ii) are true
(b) Both 0) and (if) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

IV. Which of the following is correctly matched:

Question 1.
(a) J.M. Clark – Ceteris Paribus
(b) J.M. Keynes – Psychological law of consumption
(c) R.F. Khan – Accelerator model
(d) Duesenberry – Laissez – faire
Answer:
(b) J.M. Keynes – Psychological law of consumption

Question 2.
(a) Induced Investment – Profit motive
(b) MEC – Autonomous Investment
(c) MEI – Technology
(d) MPC – Accelerator
Answer:
(a) Induced Investment – Profit motive

Question 3.
(a) Dynamic Multiplier – Employment
(b) Static Multiplier – Wealth
(c) Accelerator Model – J.M. Clark
(d) Leakage Multiplier – Investment goods
Answer:
(c) Accelerator Model – J.M. Clark

Question 4.
(a) Afltalion – 1909
(b) Hawtrey – 1914
(c) Bickerdike – 1915
(d) J.M. Clark – 1916
Answer:
(a) Afltalion – 1909

Question 5.
(a) Aggregate Income – C
(b) Consumption expenditure – I_A
(c) Autonomous Investment – Y
(d) Induced Private Investment – I_P
Answer:
(d) Induced Private Investment – I_P

V. Which of the following is not correctly matched

Question 1.
(a) Static multiplier – Simultaneous multiplier
(b) Dynamic multiplier – Sequence multiplier
(c) Leakage multiplier – Timeless multiplier
(d) Kinds of multiplier – Tax multiplier
Answer:
(c) Leakage multiplier – Timeless multiplier

Question 2.
(a) Ratio of the consumption – APC expenditure to Income
(b) Ratio of change in consumption – MPC to change in Income
(c) Ratio of the saving to Income – APS
(d) Ratio of change in saving to change in Income – PSM change in Income
Answer:
(d) Ratio of change in saving to change in Income – PSM change in Income

Question 3.
(a) Demonstration Effect – Superior consumption pattern
(b) Subjective factors – Psychological feeling
(c) Objective factors – Real and Measurable
(d) Super multiplier – Investment demand
Answer:
(d) Super multiplier – Investment demand

Question 4.
(a) Average propensity to consume – C/Y
(b) Marginal propensity to consume – AC/AY
(c) Average propensity to consume – S/Y
(d) Marginal propensity to save – AY/AS
Answer:
(d) Marginal propensity to save – AY/AS

Question 5.
(a) The motive of precaution – Accidents, Sickness
{b) The motive of foresight – Old age
(c) The motive of improvement – Improve standard of living
(d) The motive of calculation – Money collecting
Answer:
(d) The motive of calculation – Money collecting

VI. Pick the odd one out.

Question 1.
(a) ∆C – Change in consumption
(b) ∆Y – Change in expenditure
(c) ∆S – Change in saving 4
(d) ∆Y – Change in income
Answer:
(b) ∆Y – Change in expenditure

Question 2.
(a) APC – Algebraically Propensity to Consume
(b) MPC – Marginal Propensity to Consume
(c) APS – Average Propensity to Consume
(d) MPS – Marginal Propensity to Save
Answer:
(a) APC – Algebraically Propensity to Consume

Question 3.
Keynes’s Law is based on the Assumptions.
(a) Ceteris paribus
(b) Existence of Normal conditions
(c) Existence of a Laissez – Faire
(d) Existence of a Technical attributes
Answer:
(d) Existence of a Technical attributes

Question 4.
Investment means
(a) Purchase of stocks and shares
(b) Debentures
(c) Government bonds and equities
(d) Bank amount
Answer:
(d) Bank amount

Question 5.
MEC – Short Run Factors
(a) Supply for the product
(b) Liquid Assets
(c) Sudden changes in Income
(d) Current rate of Investment
Answer:
(a) Supply for the product

VII. Assertion and Reason.

1. Assertion (A): Keynes Law of propositions – when Income increases, consumption expenditure also increases but by a smaller amount.
Reason (R): Keynes Law of propositions – Increase in Income always lead to an increase in both consumption and saving.

Question 2.
Assertion (A): J.M. Keynes has influencing consumption function into subjective factors are the Internal factors related to psychological feelings.
Reason (R): J.M. Keynes has influencing consumption function into objective factors are Internal factors are not measurable.

Question 3.
Assertion (A): Autonomous Investment is the expenditure on capital formation.
Reason (R): Autonomous Investment is Independent of the change in Income, rate of Interest or rate of profit.

Question 4.
Assertion (A): MEC – depends on the Demand yield from a capital asset.
Reason (R): MEC – depends on the Supply price of a capital asset.

Question 5.
Assertion (A): Keynes theory of the Multiplier Assumption is change in autonomous Investment.
Reason (R): Keynes theory of the Multiplier Assumption is no Induced Investment.

(а) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(а) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Part – B
Answer The Following Questions In One or Two Sentences.

Question 1.
Write “Propensity to consume” Equations?
Answer:
(i) The Average Propensity to Consume = $\frac{c}{y}$
(ii) The Marginal Propensity to Consume = $\frac{∆c}{∆y}$
(iii) The Average Propensity to Save = $\frac{x}{y}$
(iv) The Marginal Propensity to Save = $\frac{∆s}{∆y}$

Question 2.
Define “Ceteris paribus”?
Answer:
Ceteris paribus (constant extraneous variables):
The other variables such as income distribution, tastes, habits, social customs, price movements, population growth, etc. do not change and consumption depends on income alone.

Question 2.
Define “Laissez-Faire” – Capitalist Economy?
Answer:
Existence of a Laissez – faire Capitalist Economy:
The law operates in a rich capitalist economy where there is no government intervention. People should be free to spend increased income. In the case of regulation of private enterprise and consumption expenditures by the State, the law breaks down.

Question 3.
What do you mean “Windfall Gains” or “Losses”?
Answer:
Windfall Gains or losses:
Unexpected changes in the stock market leading to gains or losses tend to shift the consumption function upward or downward.

Question 4.
Define “Autonomous consumption”?
Answer:
Autonomous Consumption:
Autonomous consumption is the minimum level of consumption or spending that must take place even if a consumer has no disposable income, such as spending for . basic necessities.

Part – C
Answer the Following Questions In One Paragraph.

Question 1.
Explain the Keynes Psychological Law’ of consumption assumptions?
Answer:
Keynes’s Law is based on the following assumptions:
1. Ceteris paribus (constant extraneous variables):
The other variables such as income distribution, tastes, habits, social customs, price movements, population growth, etc. do not change and consumption depends on income alone.

2. Existence of Normal Conditions:

The law holds good under normal conditions.
If, however, the economy is faced with abnormal and extraordinary circumstances like war, revolution or hyperinflation, the law will not operate.
People may spend the whole of increased income on consumption.

3. Existence of a Laissez – faire Capitalist Economy:

The law operates in a rich capitalist economy where there is no government intervention.
People should be free to spend increased income.
In the case of regulation of private enterprise and consumption expenditures by the State, the law breaks down.

Question 2.
Explain the Marginal Efficiency of capital?
Answer:
Marginal Efficiency of Capital:

MEC was first introduced by J.M Keynes in 1936 as an important determinant of autonomous investment.
The MEC is the expected profitability of an additional capital asset.
It may be defined as the highest rate of return over cost expected from the additional unit of capital asset.
Meaning of Marginal Efficiency of Capital (MEC) is the rate of discount which makes the discounted present value of expected income stream equal to the cost of capital.

MEC depends on two factors:

The prospective yield from a capital asset.
The supply price of a capital asset.

Factors Affecting MEC:

Question 3.
Explain the uses of multiplier?
Answer:
Uses of multiplier

Multiplier highlights the importance of investment in income and employment theory
The process throws light on the different stages of trade cycle.
It also helps in bringing the equality between S and I.
It helps in formulating Government policies.
It helps to reduce unemployment and achieve full employment.

Question 4.
Write the Accelerator Assumptions?
Answer:
Assumptions:

Absence of excess capacity in consumer goods industries.
Constant capital – output ratio
Increase in demand is assumed to be permanent
Supply of funds and other inputs is quite elastic
Capital goods are perfectly divisible in any required size.

Question 5.
Write the “Leverage Effect” and Equation Explanation?
Answer:
Leverage Effect:
The combined effect of the multiplier and the accelerator is also called the leverage effect which may lead the economy to very high or low level of income propagation.
Symbolically
Y = C + I_A + I_P
Y = Aggregate income
C = Consumption expenditure
T = autonomous investment; I_P = induced private investment

Part – D
Answer The Following Questions In One Page.

Question 1.
Briefly explain the Leakages of Multiplier?
Answer:
Leakages of multiplier:

The multiplier assumes that those who earn income are likely to spend a proportion of their additional income on consumption.
But in practice, people tend to spend their additional income on other items. Such expenses are known as leakages.

Payment towards past debts:
If a portion of the additional income is used for repayment of old loan, the MPC is reduced and as a result the value of multiplier is cut.

Purchase of existing wealth:

If income is used in purchase of existing wealth such as land, building and shares money is circulated among people and never enters into the consumption stream.
As a result the value of multiplier is affected.

Import of goods and services:

Income spent on imports of goods or services flows out of the country and has little chance to return to income stream in the country.
Thus imports reduce the value of multiplier.

Non availability of consumer goods:

The multiplier theory assumes instantaneous supply of consumer goods following demand.
But there is often a time lag.
During this gap (D > S) inflation is likely to rise.
This reduces the consumption expenditure and there by multiplier value.

Full employment situation:

Under conditions of full employment, resources are almost fully employed.
So, additional investment will lead to inflation only, rather than generation of additional real income.

Question 2.
Explain Marginal Propensity to Consume [MPC] and Multiplier with diagram and Diagrammatic explanation?
Answer:
Marginal propensity to consume and multiplier.
The propensity to consume refers to the portion of income spent on consumption.
The MPC refers to the relation between change in consumption (C) and change in income (Y).

Symbolically MPC = ∆C/∆Y
The value of multiplier depends on MPC
Multiplier (K) = 1/1 – MPC
The multiplier is the reciprocal of one minus marginal propensity to consume.
Since marginal propensity to save is 1 – MPC. (MPC + MPS = 1).
Multiplier is 1/ MPS.
The multiplier is therefore defined as reciprocal of MPS.
Multiplier is inversely related to MPS and directly with MPC.
Numerically if MPC is 0.75, MPS is 0.25 and k is 4.
Using formula k = 1/1 – MPC
1/1 – 0.75 = 1/0.25 = 4
Taking the following values, we can explain the functioning of multiplier.

C = 100 + 0.8 y; 1 = 100 1 = 10
Y = C + I
Y = 100 + 0.8y = 100 + (1000) = 900;
S = 100 = I
After I is raised by 10, now I = 110
Y = 100 + 0.8y + 110
0.2y = 210
Y = $\frac{210}{0.2}$ = 1050
Here C = 100 = 0.8 (1050) = 940; S = 110 = 1
Diagrammatic Explanation.
At 45° line y = C + S
It implies the variables in axis and axis are equal.
The MPC is assumed to be at 0.8 (C = 100 + 0.8y)
The aggregate demand (C + I) curve intersects 45° line at point E.
The original national income is 500.
(C = 100 + 0.8y = 100 + 0.8 (500) = 500)
When I is 100, y = 1000, C = 900;
S = 100 = I
The new aggregate demand curve is C+F = 100 + 0.8y + 100 + 10
Y = $\frac{210}{0.2}$ = 1050
C = 940; S = 110 = 1

Question 3.
Explain about Marginal Efficiency of Capital [MEC] short run factors and long run factors?
Answer:
(a) Short – Run Factors

1. Demand for the product:

If the market for a particular good is expected to grow and its costs are likely to fall, the rate of return from investment will be high.
If entrepreneurs expect a fall in demand for goods and a rise in cost, the investment will decline.

2. Liquid assets:

If the entrepreneurs are holding large volume of working capital, they can take advantage of the investment opportunities that come in their way.
The MEC will be high.

3. Sudden changes in income:

The MEC is also influenced by sudden changes in income of the entrepreneurs.
If the business community gets windfall profits, or tax concession the MEC will be high and hence investment in the country will go up.
On the other hand, MEC falls with the decrease in income.

4. Current rate of investment:

Another factor which influences MEC is the current rate of investment in a particular industry.
If in a particular industry, much investment has already taken place and the rate of investment currently going on in that industry is also very large, then the marginal efficiency of capital will be low.

5. Waves of optimism and pessimism:

The marginal efficiency of capital is also affected by waves of optimism and pessimism in the business cycle.
If businessmen are optimistic about future, the MEC will be likely to be high.
During periods of pessimism the MEC is under estimated and so will be low.

(b) Long – Run Factors
The long run factors which influence the marginal efficiency of capital are as follows:

1. Rate of growth of population:

Marginal efficiency of capital is also influenced by the rate of growth of population.
If population is growing at a rapid speed, it is usually believed that the demand of various types of goods will increase.
So a rapid rise in the growth of population will increase the marginal efficiency of capital and a slowing down in its rate of growth will discourage investment and thus reduce marginal efficiency of capital.

2. Technological progress:

If investment and technological development take place in the industry, the prospects of increase in the net yield brightens up.
For example, the development of automobiles in the 20th century has greatly stimulated the rubber industry, the steel and oil industry etc.
So we can say that inventions and technological improvements encourage investment in various projects and increase marginal efficiency of capital.

3. Monetary and Fiscal policies:
Cheap money policy and liberal tax policy pave the way for greater profit margin and so MEC is likely to be high.

4. Political environment:
Political stability, smooth administration, maintenance of law and order help to improve MEC.

5. Resource availability:
Cheap and abundant supply of natural resources, efficient labour and stock of capital enhance the MEC.

Samacheer Kalvi 12th Economics Solutions Chapter 6 Banking

Leave a Comment / Class 12 / By Prasanna

Students can Download Economics Chapter 6 Banking Questions and Answers, Notes Banking Pdf, Samacheer Kalvi 12th Economics Book Solutions Guide Pdf helps you to revise the complete Tamilnadu State Board New Syllabus and score more marks in your examinations.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 6 Banking

Samacheer Kalvi 12th Economics Banking Text Book Back Questions and Answers

Part – A
Multiple Choice Questions.

Question 1.
A Bank is a …………………………
(a) Financial institution
(b) Corporate
(c) An Industry
(d) Service institutions
Answer:
(a) Financial institution

Question 2.
A Commercial Bank is an institution that provides services …………………………
(a) Accepting deposits
(b) Providing loans
(c) Both a and b
(d) None of the above
Answer:
(c) Both a and b

Question 3.
The Functions of commercial banks are broadly classified into …………………………
(a) Primary Functions
(b) Secondary functions
(c) Other functions
(d) a, b, and c
Answer:
(d) a, b, and c

Question 4.
Bank credit refers to …………………………
(a) Bank Loans
(b) Advances
(c) Bank loans and advances
(d) Borrowings
Answer:
(c) Bank loans and advances

Question 5.
Credit creation means …………………………
(a) Multiplication of loans and advances
(b) Revenue
(c) Expenditure
(d) Debt
Answer:
(a) Multiplication of loans and advances

Question 6.
NBFI does not have …………………………
(a) Banking license
(b) Government approval
(c) Money ministry approval
Answer:
(a) Banking license

Question 7.
Central bank is …………………………….. authority of any country.
(a) Monetary
(b) Fiscal
(c) Wage
(d) National Income
Answer:
(a) Monetary

Question 8.
Who will act as the banker to the Government of India?
(a) SBI
(b) NABARD
(c) ICICI
(d) RBI
Answer:
(d) RBI

Question 9.
Lender of the last resort is one of the functions of …………………………
(a) Central Bank
(b) Commercial banks
(c) Land Development Banks
(d) Co – operative banks
Answer:
(a) Central Bank

Question 10.
Bank Rate means …………………………
(a) Re – discounting the first class securities
(b) Interest rate
(c) Exchange rate
(d) Growth rate
Answer:
(a) Re – discounting the first class securities

Question 11.
Repo Rate means …………………………
(a) Rate at which the Commercial Banks are willing to lend to RBI
(b) Rate at which the RBI is willing to lend to commercial banks
(c) Exchange rate of the foreign bank
(d) Growth rate of the economy
Answer:
(b) Rate at which the RBI is willing to lend to commercial banks

Question 12.
Moral suasion refers …………………………
(a) Optimization
(b) Maximization
(c) Persuasion
(d) Minimization
Answer:
(c) Persuasion

Question 13.
ARDC started functioning from …………………………
(a) June 3, 1963
(b) July 3, 1963
(c) June 1, 1963
(d) July 1, 1963
Answer:
(d) July 1, 1963

Question 14.
NABARD was set up in …………………………
(a) July 1962
(b) July 1972
(c) July 1982
(d) July 1992
Answer:
(c) July 1982

Question 15.
EXIM bank was established in …………………………
(a) June 1982
(b) April 1982
(c) May 1982
(d) March 1982
Answer:
(d) March 1982

Question 16.
The State Financial Corporation Act was passed by …………………………
(a) Government of India
(b) Government of Tamilnadu
(c) Government of Union Territories
(d) Local Government.
Answer:
(a) Government of India

Question 17.
Monetary policy is formulated by …………………………
(a) Co – operative banks
(b) Commercial banks
(c) Central Bank
(d) Foreign banks
Answer:
(c) Central Bank

Question 18.
Online Banking is also known as …………………………
(a) E – Banking
(b) Internet Banking
(c) RTGS
(d) NEFT
Answer:
(b) Internet Banking

Question 19.
Expansions of ATM.
(a) Automated Teller Machine
(b) Adjustment Teller Machine
(c) Automatic Teller mechanism
(d) Any Time Money
Answer:
(a) Automated Teller Machine

Question 20.
2016 Demonetization of currency includes denominations of …………………………
(a) ₹ 500 and ₹ 1000
(b) ₹ 1000 and ₹ 2000
(c) ₹ 200 and ₹ 500
(d) All the above
Answer:
(a) ₹ 500 and ₹ 1000

Part – B
Answer The Following Questions In One or Two Sentences.

Question 21.
Define Commercial banks?
Answer:
Commercial bank refers to a bank, or a division of a large bank, which more specifically deals with deposit and loan services provided to corporations or large/middle-sized business – as opposed to individual members of the public/small business.

Question 22.
What is credit creation?
Answer:

Credit Creation means the multiplication of loans and advances.
Commercial banks receive deposits from the public and use these deposits to give loans.
However, loans offered are many times more than the deposits received by banks.
This function of banks is known as ‘Credit Creation’.

Question 23.
Define Central bank?
Answer:

A central bank, reserve bank, or monetary authority is an institution that manages a state’s currency, money supply, and interest rates.
Central banks also usually oversee the commercial banking system of their respective countries.

Question 24.
Distinguish between CRR and SLR?
Answer:
CRR:

The Central Bank controls credit by changing the Cash Reserves Ratio.
Commercial Banks have excessive cash reserves on the basis of which they are creating too much of credit, this will be harmful for the larger interest of the economy.
So it will raise the cash reserve ratio which the Commercial Banks are required to maintain with the Central Bank.

SLR:

Statutory Liquidity Ratio (SLR) is the amount which a bank has to maintain in the form of cash, gold or approved securities.
The quantum is specified as some percentage of the total demand and time liabilities.
The liabilities of the bank which are payable on demand anytime, and those liabilities which are accruing in one month’s time due to maturity.

Question 25.
Write the meaning of Open market operations?
Answer:

In narrow sense, the Central Bank starts the purchase and sale of Government securities in the money market.
In Broad Sense, the Central Bank purchases and sells not only Government securities but also other proper eligible securities like bills and securities of private concerns.
When the banks and the private individuals purchase these securities they have to make payments for these securities to the Central Bank.

Question 26.
What is rationing of credit?
Answer:

This is the oldest method of credit control. Rationing of credit as an instrument of credit control was first used by the Bank of England by the end of the 18th Century.
It aims to control and regulate the purposes for which credit is granted by commercial banks.
It is generally of two types.

Question 27.
Mention the functions of agriculture credit department?
Answer:
Functions of Agriculture Credit Department:

To maintain an expert staff to study all questions on agricultural credit;
To provide expert advice to Central and State Government, State Co – operative Banks and other banking activities.
To finance the rural sector through eligible institutions engaged in the business of agricultural credit and to co-ordinate their activities.

Part – C
Answer The Following Questions In One Paragraph.

Question 28.
Write the mechanism of credit creation by commercial banks?
Answer:
Mechanism / Technique of Credit Creation by Commercial Banks:

Bank credit refers to bank loans and advances.
Money is said to be created when the banks, through their lending activities, make a net addition to the total supply of money in the economy.
Money is said to be destroyed when the loans are repaid by the borrowers to the banks and consequently the credit already created by the banks is wiped out in the process.
Banks have the power to expand or contract demand deposits and they exercise this power through granting more or less loans and advances and acquiring other assets.
This power of commercial bank to create deposits through expanding their loans and advances is known as credit creation.

Question 29.
Give a brief note on NBFI?
Answer:
Non – Banking Financial Institution (NBFI):

1. A non – banking financial institution (NBFI) or non-bank financial company (NBFC) is a financial institution that does not have a full banking license or is not supervised by the central bank.

2. The NBFIs do not carry on pure banking business, but they will carry on other financial transactions. They receive deposits and give loans. They mobilize people’s savings and use the funds to finance expenditure on investment activities. In short, they are institutions which undertake borrowing and lending. They operate in both the money and the capital markets.

3. NBFIs can be broadly classified into two categories. Viz.., (1) Stock Exchange; and (2) Other Financial institutions. Under the latter category comes Finance Companies, Finance Corporations, ChitFunds, Building Societies, Issue Houses, Investment Trusts and Unit Trusts and Insurance Companies.

Question 30.
Bring out the methods of credit control?
Answer:
Methods of Credit Control:
I. Quantitative or General Methods:

1. Bank Rate Policy:
The bank rate is the rate at which the Central Bank of a country is prepared to re – discount the first class securities.

2. Open Market Operations:

In narrow sense, the Central Bank starts the purchase and sale of Government securities in the money market.
In Broad Sense, the Central Bank purchases and sells not only Government securities but also other proper eligible securities like bills and securities of private concerns.

3. Variable Reserve Ratio:
(I) Cash Reserves Ratio:

Under this system the Central Bank controls credit by changing the Cash Reserves Ratio.
For example, if the Commercial Banks have excessive cash reserves on the basis of which they are creating too much of credit,this will be harmful for the larger interest of the economy.
So it will raise the cash reserve ratio which the Commercial Banks are required to maintain with the Central Bank.

(II) Statutory Liquidity Ratio:

Statutory Liquidity Ratio (SLR) is the amount which a bank has to maintain securities.
The quantum is specified as some percentage of the total demand and time liabilities (i.ethe liabilities of the bank which are payable on demand anytime, and those liabilities which are accruing in one month’s time due to maturity) of a bank.

Question 31.
What are the functions of NABARD?
Answer:
Functions of NABARD:
NABARD has inherited its apex role from RBI i.e, it is performing all the functions performed
by RBI with regard to agricultural credit.

1. NABARD acts as a refinancing institution for all kinds of production and investment credit to agriculture, small-scale industries, cottage and village industries, handicrafts and rural crafts and real artisans and other allied economic activities with a view to promoting integrated rural development.

2. NABARD gives long-term loans (upto 20 Years) to State Government to enable them to subscribe to the share capital of co – operative credit societies.

3. NABARD gives long-term loans to any institution approved by the Central Government or contribute to the share capital or invests in securities of any institution concerned with agriculture and rural development.

4. NABARD has the responsibility of co – ordinating the activities of Central and State Governments, the Planning Commission (now NITI Aayog) and other all India and State level institutions entrusted with the development of small scale industries, village and cottage industries, rural crafts, industries in the tiny and decentralized sectors, etc.

5. It maintains a Research and Development Fund to promote research in agriculture and rural development

Question 32.
Specify the functions of IFCI?
Answer:

Long – term loans; both in rupees and foreign currencies.
Underwriting of equity, preference and debenture issues.
Subscribing to equity, preference and debenture issues.
Guaranteeing the deferred payments in respect of machinery imported from abroad or purchased in India; and
Guaranteeing of loans raised in foreign currency from foreign financial institutions.

Question 33.
Distinguish between money market and capital market?
Answer:
Money Market:

Money market is the mechanism through which short term funds are loaned and. borrowed. It designates financial institutions which handle the purchase, sale and transfer of short term credit instruments.
Commercial banks, acceptance houses, Non Banking Financial Institutions and the Central Bank are the institutions catering to the requirements of short term funds in the money Market.

Capital Market:

Capital Market is a part of financial system which is concerned with raising capital by dealing in shares, bonds and other long term investments.
The market where investment instruments like bonds, equities and mortgages are traded is known as the capital market.

Question 33.
Mention the objectives of demonetizations?
Answer:
Objectives of Demonetisation:

Removing Black Money from the country.
Stopping of Corruption.
Stopping Terror Funds.
Curbing Fake Notes.

Demonitisation is the act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change of national currency. The current form or forms of money is pulled from circulation, often to bereplaced with new coins or notes.

Part – D
Answer The Following Questions In About A Page.

Question 34.
Explain the role of Commercial Banks in economic development?
Answer:
Role of Commercial Banks in Economic Development of a Country Role of Commercial Banks:

Capital Formation
Creation of Credit
Channelizing the funds
Encouraging Rights Type of Industries
Banks Monetize Debt
Finance to Government
Employment Generation
Bank Promote Entrepreneurship

1. Capital Formation:

Banks play an important role in capital formation, which is essential for the economic development of a country.
They mobilize the small savings of the people scattered over a wide area through their network of branches all over the country and make it available for productive purposes.

2. Creation of Credit:

Banks create credit for the purpose of providing more funds for development projects.
Credit creation leads to increased production, employment, sales and prices and thereby they bring about faster economic development.

3. Channelizing the Funds towards Productive Investment:

Banks invest the savings mobilized by them for productive purposes.
Capital formation is not the only function of commercial banks.

4. Encouraging Right Type of Industries:

Many banks help in the development of the right type of industries by extending loan to right type of persons.
In this way, they help not only for industrialization of the country but also for the economic development of the country.
They grant loans and advances to manufacturers whose products are in great demand.

5. Banks Monetize Debt:

Commercial banks transform the loan to be repaid after a certain period into cash, which can be immediately used for business activities.
Manufacturers and wholesale traders cannot increase their sales without selling goods on credit basis.

6. Finance to Government:

Government is acting as the promoter of industries in underdeveloped countries for which finance is needed for it.
Banks provide long – term credit to Government by investing their funds in Government securities and short-term finance by purchasing Treasury Bills.

7. Employment Generation:

After the nationalization of big banks, banking industry has grown to a great extent.
Bank’s branches are opened frequently, which leads to the creation of new employment opportunities.

8. Banks Promote Entrepreneurship:

In recent days, banks have assumed the role of developing entrepreneurship particularly in developing countries like India by inducing new entrepreneurs to take up the well- formulated projects and provision of counseling services like technical and managerial guidance.

Question 36.
Elucidate the functions of Commercial Banks?
Answer:
The functions of commercial banks are broadly classified into primary functions and secondary functions.

Functions of Commercial Banks

(a) Primary Functions:
1. Accepting Deposits:
It implies that commercial banks are mainly dependent on public deposits.
There are two types of deposits

(I) Demand Deposits:
It refers to deposits that can be withdrawn by individuals without any prior notice to the bank. In other words, the owners of these deposits are allowed to withdraw money anytime by writing a withdrawal slip or a cheque at the bank counter or from ATM centres using debit card.

(II) Time Deposits:
It refers to deposits that are made for certain committed period of time. Banks pay higher interest on time deposits. These deposits can be withdrawn only after a specific time period by providing a written notice to the?bank.

2. Advancing Loans:

(a) It refers to granting loans to individuals and businesses. Commercial banks grant loans in the form of overdraft, cash credit, and discounting bills of exchange.

(b) Secondary Functions:
The secondary functions can be classified under three heads, namely, agency functions, general utility functions, and other functions.

1. Agency Functions:
It implies that commercial banks act as agents of customers by performing various functions.

(I) Collecting Cheques:
Banks collect cheques and bills of exchange on the behalf of their customers through clearing house facilities provided by the central bank.

(II) Collecting Income:
Commercial banks collect dividends, pension, salaries, rents, and interests on investments on behalf of their customers. A credit voucher is sent to customers for information when any income is collected by the bank.

(III) Paying Expenses:
Commercial banks make the payments of various obligations of customers, such as telephone bills, insurance premium, school fees, and rents.

2. General Utility Functions:
It implies that commercial banks provide some utility services to customers by performing various functions.

(I) Providing Locker Facilities:
Commercial banks provide locker facilities to its customers for safe custody of jewellery, shares, debentures, and other valuable items. This minimizes the risk of loss due to theft at homes. Banks are not responsible for the items in the lockers.

(II) Issuing Traveler’s Cheques:
Banks issue traveler’s cheques to individuals for traveling outside the country. Traveler’s cheques are the safe and easy way to protect money while traveling.

(III) Dealing in Foreign Exchange:
Commercial banks help in providing foreign exchange to businessmen dealing in exports and imports. However, commercial banks need to take the permission of the Central Bank for dealing in foreign exchange.

3. Transferring Funds:
It refers to transferring of funds from one bank to another. Funds are transferred by means of draft, telephonic transfer, and electronic transfer.

4. Letter of Credit:
Commercial banks issue letters of credit to their customers to certify their creditworthiness.

(I) Underwriting Securities:
Commercial banks also undertake the task of underwriting securities. As public has full faith in the credit worthiness of banks, public do not hesitate in buying the securities underwritten by banks.

(II) Electronic Banking:
It includes services, such as debit cards, credit cards, and Internet banking.

(I) Money Supply:
It refers to one of the important functions of commercial banks that help in increasing money supply.

(II) Credit Creation:
Credit Creation means the multiplication of loans and advances. Commercial banks receive deposits from the public and use these deposits to give loans.

Question 37.
Describe the functions of Reserve Bank of India?
Answer:
Functions of Central Bank (Reserve Bank of India):
The Reserve Bank of India (RBI) is India’s central banking institution, which controls the monetary policy of the Indian rupee.

1. Monetary Authority:
It controls the supply of money in the economy to stabilize exchange rate, maintain healthy balance of payment, attain financial stability, control inflation, strengthen banking system.

2. The issuer of currency:
The objective is to maintain the currency and credit system of the country. It is the sole authority to issue currency. It also takes action to control the circulation of fake currency.

3. The issuer of Banking License:
As per Sec 22 of Banking Regulation Act, every bank has to obtain a banking license from RBI to conduct banking business in India.

4. Banker to the Government:
It acts as banker both to the central and the state governments. It provides short-term credit. It manages all new issues of government loans, servicing the government debt outstanding and nurturing the market for government securities. It advises the government on banking and financial subjects.

5. Banker’s Bank:
RBI is the bank of all banks in India as it provides loan to banks, accept the deposit of banks, and rediscount the bills of banks.

6. Lender of last resort:
The banks can borrow from the RBI by keeping eligible securities as collateral at the time of need or crisis, when there is no other source.

7. Act as clearing house:
For settlement of banking transactions, RBI manages 14 clearing houses. It facilitates the exchange of instruments and processing of payment instructions.

8. Custodian of foreign exchange reserves:
It acts as a custodian of FOREX. It administers and enforces the provision of Foreign Exchange Management Act (FEMA), 1999. RBI buys and sells foreign currency to maintain the exchange rate of Indian rupee v/s foreign currencies.

9. Regulator of Economy:
It controls the money supply in the system, monitors different key indicators like GDP, Inflation, etc.

10. Managing Government securities:
RBI administers investments in institutions when they invest specified minimum proportions of their total assets/liabilities in government securities.

11. Regulator and Supervisor of Payment and Settlement Systems:
The Payment and Settlement Systems Act of 2007 (PSS Act) gives RBI oversight authority for the payment and settlement systems in the country. RBI focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms.

12. Developmental Role:
This role includes the development of the quality banking system in India and ensuring that credit is available to the productive sectors of the economy. It provides a wide range of promotional functions to support national objectives.

It also includes establishing institutions designed to build the country’s financial infrastructure. It also helps in expanding access to affordable financial services and promoting financial education and literacy.

13. Publisher of monetary data and other data:
RBI maintains and provides all essential banking and other economic data, formulating and critically evaluating the economic policies in India. RBI collects, collates and publishes data regularly.

14. Exchange manager and controller:
RBI represents India as a member of the International Monetary Fund [IMF], Most of the commercial banks are authorized dealers of RBI.

15. Banking Ombudsman Scheme:
RBI introduced the Banking Ombudsman Scheme in 1995. Under this scheme, the complainants can file their complaints in any form, including online and can also appeal to the Ombudsman against the awards and the other decisions of the Banks.

16. Banking Codes and Standards Board of India:
To measure the performance of banks against Codes and standards based on established global practices, the RBI has set up the Banking Codes and Standards Board of India (BCSBI).

Question 38.
What are the objectives of Monetary Policy? Explain?
The specific objectives of monetary policy are Objectives of monetary policy:

Neutrality of Money
Stability of Exchange Rates
Price Stability
Full Employment
Economic Growth
Equilibrium in the Balance of Payments

1. Neutrality of Money:

Economists like Wicksteed, Hayek and Robertson are the chief exponents of neutral money.
They hold the view that monetary authority should aim at neutrality of money in the economy.
Monetary changes could be the root cause of all economic fluctuations.
According to neutralists, the monetary change causes distortion and disturbances in the proper operation of the economic system of the country.

2. Exchange Rate Stability:

Exchange rate stability was the traditional objective of monetary authority.
This was the main objective under Gold Standard among different countries.
When there was disequilibrium in the balance of payments of the country, it was automatically corrected by movements.

3. Price Stability:

Economists like Crustave Cassel and Keynes suggested price stabilization as a main objective of monetary policy.
Price stability is considered the most genuine objective of monetary policy.
Stable prices repose public confidence.
It promotes business activity and ensures equitable distribution of income and wealth.

4. Full Employment:

During world depression, the problem of unemployment had increased rapidly.
It was regarded as socially dangerous, economically wasteful and morally deplorable.
Thus, full employment was considered as the main goal of monetary policy.

5. Economic Growth:

Economic growth is the process whereby the real per capita income of a country increases over a long period of time.
It implies an increase in the total physical or real output, production of goods for the satisfaction of human wants.
Monetary policy should promote sustained and continuous economic growth by maintaining equilibrium between the total demand for money and total production capacity and further creating favourable conditions for saving and investment.

6. Equilibrium in the Balance of Payments:

Equilibrium in the balance of payments is another objective of monetary policy which emerged significant in the post war years.

Samacheer Kalvi 12th Economics Banking Additional Questions and Answers

Part – A
I. Multiple Choice Questions.

Question 1.
Reserve Bank of India was nationalised in …………………………
(a) 1947
(b) 1948
(c) 1949
(d)1950
Answer:
(c) 1949

Question 2.
Overdraft is a facility offered by commercial banks to …………………………
(a) Exporters
(b) Importers
(c) Farmers
(d) Businessmen
Answer:
(d) Businessmen

Question 3.
Current account deposites are operated by …………………………
(a) Agriculturists
(b) Business mens
(c) Goverment servants
(d) Labourers
Answer:
(b) Business mens

Question 4.
Primary functions of the commercial bank is …………………………
(a) Accepting deposits from the public
(b) Making loans and advances to public
(c) Discounting bills of exchange
(d) Inter bank borrowing
Answer:
(a) Accepting deposits from the public

Question 5.
The first bank in India was established in …………………………
(a) 1670
(b) 1770
(c) 1870
(d) 1872
Answer:
(b) 1770

Question 6.
The coins are issued by …………………………
(a) Ministry of Finance
(b) RBI
(c) Central Bank
(d) State Bank
Answer:
(a) Ministry of Finance

Question 7.
The amount of cash kept by commercial banks to meet the day to day transactions is known as …………………………
(a) Bank cash
(b) Commercial bank cash
(c) Reserve cash
(d) Cheque
Answer:
(c) Reserve cash

Question 8.
In India, Central bank is known as –
(a) SBI
(b) RBI
(c) Commercial bank
(d) IDBI
Answer:
(b) RBI

Question 9.
Open Market operations enable the ………………………… to reduce the money supply in the economy.
(o) Commercial bank
(b) SBI
(c) ICICI
(d) RBI
Answer:
(d) RBI

Question 10.
………………………… Bank Finance the Import and Export trade.
(a) Industrial Bank
(b) Exim Bank
(c) Co – operative Bank
(d) RBI
Answer:
(b) Exim Bank

Question 11.
Commercial Banks create credit in favour of the …………………………
(a) Consumers
(b) Business men
(c) Customers
(d) Agriculturists
Answer:
(c) Customers

Question 12.
………………………… is a non profit making financial institution of the country.
(a) Central Bank
(b) Commercial Bank
(c) Co – operative Bank
(d) Industrial Bank
Answer:

Question 13.
Extending banking facilities to the rural and semi urban areas is the promotional activity of the …………………………
(a) Co – operative Bank
(b) Commercial Bank
(c) RBI
(d) State Bank
Answer:
(a) Co – operative Bank

Question 14.
The qualitative credit control methods are also called …………………………
(a) Selective cash control
(b) Selective expenditure control
(c) Selective credit control
(d) Selective money control
Answer:
(c) Selective credit control

Question 15.
Withdraw money more than deposit is called …………………………
(a) Cash credit
(b) Discounting bill
(c) Current account
(d) Over draft
Answer:
(d) Over draft

Question 16.
………………………… help in proper allocation of funds among different regions of the economy.
(a) Central banks
(b) Co – operative banks
(c) Commercial banks
(d) Agriculture banks
Answer:
(c) Commercial banks

Question 17.
Lowering the Bank rate off sets ……………………….. tendencies.
(a) Deflationary
(b) Inflationary
(c) Stagflationary
(d) Hyper inflationary
Answer:
(a) Deflationary

Question 18.
The main aim of the Central bank is …………………………
(a) Full employment
(b) Economic stability
(c) Balance of payment
(d) International capital movement
Answer:
(b) Economic stability

Question 19.
………………………… Bank regulates the credit and currency according to the economic situation of the country.
(a) State
(b) Commercial
(c) RBI
(d) Agriculture
Answer:
(b) Economic stability

Question 20.
………………………… credit control method mean the Regulation and control of the supply of the credit among its possible users.
(a) Quantitative
(b) Qualitative
(c) General
(d) Possible
Answer:
(b) Qualitative

Question 21.
The issue of paper money is the most important function of a …………………………
(a) Commercial Bank
(b) Central Bank
(c) ICICI Bank
(d) State Bank
Answer:
(b) Central Bank

Question 22.
………………………… stimulate saving and investment.
(a) Credit
(b) Bank
(c) Debit
(d) Cheque
Answer:
(b) Bank

Question 23.
The commercial banks only deal in foreign exchange under the directions of the …………………………
(a) State bank
(b) Central bank
(c) Commercial bank
(d) Co – operative bank
Answer:
(b) Central bank

Question 24.
Fixed Deposits are otherwise known as …………………………
(a) Bank Deposits
(b) Customer’s Deposits
(c) Time Deposits
(d) Money Deposits
Answer:
(c) Time Deposits

Question 25.
The rate of interest of every Central bank is known as …………………………
(a) Interest rate
(b) Credit rate
(c) Debit rate
(d) Bank rate
Answer:
(d) Bank rate

II. Match the following and choose the correct answer by using codes given below.

Question 1.
A. Saving Deposits – (i) Official minimum rate
B. Cash credit – (ii) Cheque facilities
C. Bank rate – (iii) Facility to business man
D. Over draft – (iv) Collateral security
Codes:
(a) A (ii) B (iv) C (i) D (iii)
(b) A (i) B (ii) C (iii) D (iv)
(c) A (iii) B (i) C (iv) D (ii)
(d) A (iv) B (iii) C (ii) D (i)
Answer:
(a) A (ii) B (iv) C (i) D (iii)

Question 2.
A. Transfer of funds – (i) Buying and selling
B. Commercial bank – (ii) Clearing
C. Open market operation – (iii) Interest not given
D. Demand deposits – (iv) Profit making
Codes:
(a) A (ii) B (iv) C (i) D (iii)
(b) A (i) B (iii) C (ii) D (iv)
(c) A (iii) B (ii) C (iv) D (i)
(d) A (iv) B (i) C (iii) D (ii)
Answer:
(a) A (ii) B (iv) C (i) D (iii)

Question 3.
A. NBFI – (i) Monetary policy
B. Per Capita Income – (ii) Minimum amount of fund
C. Inflation – (iii) Economic growth
D. RTGS – (iv) Non – bank Financial Institution
Codes:
(a) A (iii) B (ii) C (iv) D (i)
(b) A (iv) B (iii) C (i) D (ii)
(c) A (ii) B (i) C (iii) D (iv)
(d) A (i) B (iv) C (ii) D (iii)
Answer:
(b) A (iv) B (iii) C (i) D (ii)

Question 4.
A. UTI – (i) Quantitative credit control
B. Open market operation – (ii) Mutual fund
C. Bank – (iii) Automatic Teller mechine
D. ATM – (iv) Financial Institution
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iii) B (iv) C (ii) D (i)
(c) A (iv) B (iii) C (i) D (ii)
(d) A (ii) B (i) C (iv) D (iii)
Answer:
(d) A (ii) B (i) C (iv) D (iii)

Question 5.
A. NABARD – (i) Internet banking
B. SFC – (ii) Short term seasonal credit
C. Rationing of credit – (iii) State level institution
D. Online banking – (iv) Qualitative credit control of RBI
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iii) B (iv) C (i) D (ii)
(c) A (ii) B (iii) C (iv) D (i)
(d) A (iv) B (i) C (ii) D (iii)
Answer:
(c) A (ii) B (iii) C (iv) D (i)

III. State whether the statements are true or false.

Question 1.
(i) Business men operates the current account deposits.
(ii) State Bank organization established EXIM Bank

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 2.
(i) The Central bank of a country acts as the banker, fiscal agent and advisor to the government.
(ii) The banks expand their loans resulting in the expansion of investment employment production and prices.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 3.
(i) NABARD provides agriculture finance to medium and long term basis.
(ii) Bank observed that credit is the lubricant of all commerce and trade.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 4.
(i) State Bank is the financial advisor to the government.
(ii) Central Bank possesses the monopoly of note issue.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(d) (i) is false but (ii) is true

Question 5.
(i) For maintaining saving deposits, cheque facilities can be enjoyed.
(ii) Fixed Deposits are otherwise known as time deposits.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

IV. Which of the following is correctly matched.

Question 1.
(a) EXIM Bank – Export and Import
(b) NABARD – Industrial finance
(c) Bank – Excess money
(d) Fixed Deposits – Bank saving
Answer:
(a) EXIM Bank – Export and Import

Question 2.
(a) CRR – Current Reserve Ratio
(b) Saving deposits – Cheque facilities
(c) Bank rate policy – High interest
(d) Adviser to government – SBI
Answer:
(b) Saving deposits – Cheque facilities

Question 3.
(a) ICICI Bank – Three tier Export Bank
(b) NABARD – Agriculture Finance
(c) IDBI – Co – operative Bank
(d) IFCI – State Bank
Answer:
(b) NABARD – Agriculture Finance

Question 4.
(a) South African Reserve Bank – 1921
(b) The Central bank of China – 1934
(c) The Reserve Bank of Newzealand – 1928
(d) The Reserve Bank of India – 1935
Answer:
(d) The Reserve Bank of India – 1935

Question 5.
(a) Forex cards – Smart card
(b) Paper currency – Legal tender
(c) Medium of Exchange – Functions of money
(d) CRR – Credit Reserve Ratio
Answer:
(c) Medium of Exchange – Functions of money

V. Which of the following is not correctly matched.

Question 1.
(a) RBI – Reserv e Bank of India
(b) SBI – State Bank of India
(c) IMF – International Monetary Fund
(d) ATM – Any Time Money
Answer:
(d) ATM – Any Time Money

Question 2.
(a) Qualitative credit control of RBI – Rationing of credit
(b) Agricultural credit department – To finance the rural sector
(c) NABARD – Short term seasonal credit
(d) UTI – Mutual fund
Answer:
(d) UTI – Mutual fund

Question 3.
(a) RBI – Central Bank of SBI
(b) ARDC – The agricultural refinance development corporation
(c) Bank Crdit – Bank loans and advances
(d) Moral suasion – Persuasion
Answer:
(a) RBI – Central Bank of SBI

Question 4.
(a) Traveler’s cheques – Group of people
(b) Credit creation – Multiplication of loans and advances
(c) Primary deposits – Passive deposits
(d) Bank – Financial Institution
Answer:
(a) Traveler’s cheques – Group of people

Question 5.
(a) RBI – Monetary authority
(b) Bank rate – Re – discounting
(c) Recession – Monetary policy
(d) Keynes – Economic growth
Answer:
(d) Keynes – Economic growth

Question 6.
(a) RTGS – Real Time Gross Settlement
(b) NEFT – National Electronic Fund Transfer
(c) ATM – Any Time Money
(d) SIDCO – Small Industrial Development Corporation
Answer:
(c) ATM – Any Time Money

VI. Pick the odd one out.

Question 1.
1. Commercial Bank Secondary Functions
(a) Agency functions
(b) General utility services
(c) Transfer of bank
(d) Credit creation
Answer:
(c) Transfer of bank

Question 2.
Functions of Central Bank
(a) Monetary Authority
(b) The issuer of currency
(c) Banker to the foreign level
(d) Banker’s Bank
Answer:
(c) Banker to the foreign level

Question 3.
The frequent methods of credit control under Selective method is called ……………………..
(a) Rationing of credit
(b) Direct Action of Industries
(c) Method of publicity
(d) Moral persuasion
Answer:
(b) Direct Action of Industries

Question 4.
Functions of ICICI is called ……………………..
(a) Assistance to Industries
(b) Merchant banking
(c) Credit bank operation
(d) Project promotion
Answer:
(c) Credit bank operation

Question 5.
The main objectives of Demonetisation ……………………..
(a) Removing black money from the country
(b) Stopping of corruption
(c) Stopping Terror Funds
(d) Fake notes given
Answer:
(d) Fake notes given

VII. Assertion and Reason.

Question 1.
Assertion (A): Commercial banks provide some utility services to the customers.
Reason (R): Credit creation leads to increased production, employment, sales and prices.

Question 2.
Assertion (A): Bank rate means re – discounting the first class securities.
Reason (R): Credit creation means not given loans and advances.

Question 3.
Assertion (A): Bank is service institution.
Reason (R): Commercial Bank is an institutions that provides accepting deposits and providing loans to the public.

Question 4.
Assertion (A): Credit creation leads to increase in production.
Reason (R): Credit creation means the multiplication of loans and advances.

Question 5.
Assertion (A): The objectives of demonetization is called issuing currency notes.
Reason (R): Black money accepted.

Question 6.
Assertion (A): Primary deposits are also called as passive deposits.
Reason (R): Passive deposits are also called as time deposits.

Part – B
Answer The Following Questions In One or Two Sentences.

Question 1.
What is meaning of primary deposite and derived deposit?
Answer:

The modem banks create deposits in two ways. They are primary deposit and derived deposit.
When a customer gives cash to the bank and the bank creates a book debt in his name called a deposit, it is known as a “primary deposit”.
But when such a deposit is created, without there being any prior payment of equivalent cash to the bank, it is called a ‘derived deposit’.

Question 2.
What are the functions of primary deposits?
Answer:
Primary Deposits:

It is out of these primary deposits that the bank makes loans and advances to its customers.
The initiative is taken by the customers themselves. In this case, the role of the bank is passive.
So these deposits are also called “Passive deposits”.

Question 3.
What are the credit control measures?
Answer:

Question 4.
Define RBI Rural credit?
Answer:
Reserve Bank of India and Rural Credit:
In a developing econorqy like India, the Central bank of the country cannot confine itself to the monetary regulation only, and it is expected that it should take part in development function in all sectors especially in the agriculture and industry.

Question 5.
Write RBI granting Regional Rural Banks concessions?
Answer:
The RBI has been granting many concessions to RRBs:

1. They are allowed to maintain cash reserve ratio at 3 per cent and statutory liquidity ratio at 25 per cent; and
2. They also provide refinance facilities through NABARD.

Question 6.
Define Three Tier co – operative credit structure?
Answer:

Part – C
Answer The Following Questions In One Paragraph.

Question 1.
What are the functions of RBI agricultural credit?
Answer:
Role of RBI in agricultural credit:

RBI has been playing a very vital role in the provision of agricultural finance in the country.
The Bank’s responsibility in this field had been increased due to the predominance of agriculture in the Indian economy and the inadequacy of the formal agencies to cater to the huge requirements of the sector.
In order to fulfill this important role effectively, the RBI set up a separate Agriculture Credit Department.
However, the volume of informal loans has not declined sufficiently.

Question 2.
What are the ARDC – objectives?
Answer:
Objectives of the ARDC:

To provide necessary funds by way of refinance to eligible institutions such as the Central Land Development Banks, State Co – operative Banks, and Scheduled banks.
To subscribe to the debentures floated by the Central Land Development banks, State Co-operative Banks, and Scheduled banks, provided they were approved by the RBI.

Question 3.
Describe the functions of IDBI?
Answer:
Functions of IDBI:

The functions of IDBI fall into two groups
1. Assistance to other financial institutions; and –
2. Direct assistance to industrial concerns either on its own or in participation with other institutions.
The IDBI can provide refinance in respect of term loans to industrial concerns given by the IFC, the SFCs, other financial institutions notified by the Government, scheduled banks and state cooperative banks.
A special feature of the IDBI is the provision for the creation of a special fund known as the Development Assistance Fund.
The fund is intended to provide assistance to industries which require heavy investments with low anticipated rate of return.
Such industries may not be able to get assistance in the normal course.
The financing of exports was also undertaken by the IDBI till the establishment of EXIM BANK in March, 1982.

Question 4.
Difference between NEFT and RTGS?
Answer:
NEFT:

National electronic Fund Transfer
Transactions happens in batches hence slow
Timings: 8:00 am to 6:30 pm (12:30 pm on Saturday)
No minimum limit

RTGS:

Real Time Gross Settlement
Transactions happens in real time hence fast
Timings : 9:00 am to 4:30 pm (1:30 pm on Saturday)
Minimum amount for RTGS transfer is ₹ 2 lakhs

Question 5.
What is E – Banking?
Answer:

Online banking, also known as internet banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution’s website.
The online banking system typically connects to or be part of the core banking system operated by a bank and is in contrast to branch banking which was the traditional way customers accessed banking services.

Part – D
Answer The Following Questions In One Page.

Question 1.
Describe the frequent methods of selective method credit control?
Answer:
Qualitative or Selective Method of Credit Control:

The qualitative or the selective methods are directed towards the diversion of credit into particular uses or channels in the economy.
Their objective is mainly to control and regulate the flow of credit into particular industries or businesses.
The following are the frequent methods of credit control under selective method:
Rationing of Credit:
1. Direct Action
2. Moral Persuasion
3. Method of Publicity
4. Regulation of Consumer’s Credit
5. Regulating the Marginal Requirements on Security Loans
6. Rationing of Credit:

1. Rationing of Credit:

This is the oldest method of credit control.
Rationing of credit as an instrument of credit control was first used by the Bank of England by the end of the 18th Century.
It aims to control and regulate the purposes for which credit is granted by commercial banks. It is generally of two types.

(I) The variable portfolio ceiling:
It refers to the system by which the central bank fixes ceiling or maximum amount of loans and advances for every commercial bank.

(II) The variable capital asset ratio:
It refers to the system by which the central bank fixes the ratio which the capital of the commercial bank should have to the total assets of the bank.

2. Direct Action:
Direct action against the erring banks can take the following forms.

The central bank may refuse to altogether grant discounting facilities to such banks.
The central bank may refuse to sanction further financial accommodation to a bank whose existing borrowing are found to be in excess of its capital and reserves.
The central bank may start charging penal rate of interest on money borrowed by a bank beyond the prescribed limit.

3. Moral Suasion:

This method is frequently adopted by the Central Bank to exercise control over the Commercial Banks.
Under this method Central Bank gives advice, then requests and persuades the Commercial Banks to co-operate with the Central Bank in implementing its credit policies.

4. Publicity:

Central Bank in order to make their policies successful, take the course of the medium of publicity.
A policy can be effectively successful only when an effective public opinion is created in its favour.

5. Regulation of Consumer’s Credit:

The down payment is raised and the number of installments reduced for the credit sale, (vz) Changes in the Marginal Requirements on Security Loans:
This system is mostly followed in U.S.A.
Under this system, the Board of Governors of the Federal Reserve System has been given the power to prescribe margin requirements for the purpose of preventing an excessive use of credit for stock exchange speculation.

Question 2.
Describe the Merger of Banks?
Answer:
Merger of Banks:

1. Union Cabinet decided to merge all the remaining five associate banks of State Bank Group with State Bank of India in 2017.

2. After the Parliament passed the merger Bill, the subsidiary banks have ceased to exist.

3. Five associates and the Bharatiya Mahila Bank have become the part of State Bank of India (SBI) beginning April 1, 2017.

4. This has placed State Bank of India among the top 50 banks in the world.

5. The five associate banks that were merged are State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT).

6. The other two Associate Banks namely State Bank of Indore and State Bank of Saurashtra had already been merged with State Bank of India.

7. After the merger, the total customer base of SBI increased to 37 crore with a branch network of around 24,000 and around 60,000 ATMs across the country.

Question 3.
Briefly describe the ATM?
Answer:
ATM (Automated Teller Machine):

ATMs transformed the bank tech system when they were first introduced in 1967.
The next revolution in ATMs is likely to involve contactless payments.
Much like Apple Pay or Google Wallet, soon we will be able to conduct contactless ATM transactions using a smartphone.
Some ATM innovations are already available overseas.
For example, biometric authentication is already used in India, and its recognition is in place at Qatar National Bank ATMs.
These technologies can help overall bank security by protecting against ATM hacks.

Question 4.
Explain the State Industrial Development Corporations?
Answer:
State Industrial Development Corporations (SIDCOs):

The Industrial Development Corporations have been set up by the state governments and they are wholly owned by them.
These institutions are not merely financing agencies; they are entrusted with the responsibility of accelerating the industrialization of their states.

SIDCO (Small Industrial Development Corporation):

SIDCOs provide financial assistance to industrial concerns by way of loans guarantees and underwriting of or direct subscriptions to shares and debentures.
In addition to these, they undertake various promotional activities, such as conducting techno-economic surveys, project identification, preparation of feasibility studies and selection and training of entrepreneurs.
They also promote joint sector projects in association with private promoter in such type of projects.
SIDCOs take 26 percent, private co-promoter takes 25 percent of the equity, and the rest is offered to the investing public.
SIDCOs undertake the development of industrial areas by providing all infrastructural facilities and initiation of new growth centers.
They also administer various State government incentive schemes.
SIDCOs get refinance facilities form IDBI.
They also borrow through bonds and accept deposits.

Samacheer Kalvi 12th Economics Chapter 3 Solutions Theories of Employment and Income

Leave a Comment / Class 12 / By Prasanna

Students can Download Economics Chapter 3 Theories of Employment and Income Questions and Answers, Notes Pdf, Samacheer Kalvi 12th Economics Book Solutions Guide Pdf helps you to revise the complete Tamilnadu State Board New Syllabus and score more marks in your examinations.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 3 Theories of Employment and Income

Samacheer Kalvi 12th Economics Theories of Employment and Income Text Book Back Questions and Answers

Part – A
Multiple Choice Questions.

Question 1.
Every able bodied person who is willing to work at the prevailing wage rate is employed called as –
(a) Full employment
(b) Under employment
(c) Unemployment
(d) Employment opportunity
Answer:
(a) Full employment

Question 2.
Structural unemployment is a feature in a –
(a) Static society
(b) Socialist society
(c) Dynamic society
(d) Mixed economy
Answer:
(c) Dynamic society

Question 3.
In disguised unemployment, the marginal productivity of labour is –
(a) Zero
(b) One
(c) Two
(d) Positive
Answer:
(a) Zero

Question 4.
The main concention of the Classical Economic Theory is –
(a) Under employment
(b) Economy is always in the state of equilibrium
(c) Demand creates its supply
(d) Imperfect competition
Answer:
(b) Economy is always in the state of equilibrium

Question 5.
J.B. Say is a –
(a) Neo Classical Economist
(b) Classical Economist
(c) Modem Economist
(d) New Economist
Answer:
(b) Classical Economist

Question 6.
According to Keynes, which type of unemployment prevails in capitalist economy?
(a) Full employment
(b) Voluntary unemployment
(c) Involuntary unemployment
(d) Under employment
Answer:
(d) Under employment

Question 7.
The core of the classical theory of employment is –
(a) Law of Diminishing Return
(b) Law of Demand
(c) Law of Markets
(d) Law of Consumption
Answer:
(c) Law of Markets

Question 8.
Keynes attributes unemployment to –
(a) A lack of effective supply
(b) A lock of effective demand
(c) Alack of both
(d) None of the above
Answer:
(b) A lock of effective demand

Question 9.
…………………… Flexibility brings equality between saving and investment.
(a) Demand
(b) Supply
(c) Capital
(d) Interest
Answer:
(d) Interest

Question 10.
……………………. theory is a turning point in the development of modem economic theory.
(a) Keynes’
(b) Say’s
(c) Classical
(d) Employment.
Answer:
(a) Keynes’

Question 11.
The basic concept used in Keynes Theory of Employment and Income is –
(a) Aggregate demand
(b) Aggregate supply
(c) Effective demand
(d) Marginal Propensity Consume
Answer:
(c) Effective demand

Question 12.
The component of aggregate demand is –
(a) Personal demand
(b) Government expenditure
(c) Only export
(d) Omli import
Answer:
(b) Government expenditure

Question 13.
Aggregate supply is equal to –
(a) C +1 + G
(b) C + S + G + (x – m)
(c) C + S + T + (x-m)
(d) C + S + T + Rf
Answer:
(d) C + S + T + Rf

Question 14.
Keynes theory pursues to replace laissez faire by –
(a) No government intervention
(b) Maximum intervention
(c) State intervention in certain situation
(d) Private sector intervention
Answer:
(c) State intervention in certain situation

Question 15.
In Keynes theory of employment and income, ……………………… is the basic cause of economic depression.
(a) Less production
(b) More demand
(c) Inelastic supply
(d) Less aggregate demand in relation to productive capacity.
Answer:
(d) Less aggregate demand in relation to productive capacity.

Question 16.
Classical theory advocates –
(a) Balanced budget
(b) Unbalanced budget
(c) Surplus budget
(d) Deficit budget
Answer:
(a) Balanced budget

Question 17.
Keynes theory emphasized on ……………………….. equilibrium.
(a) Very short run
(b) Short run
(c) Very long run
(d) Long run
Answer:
(b) Short run

Question 18.
According to classical theory, rate of interest is a reward for –
(a) Investment
(b) Demand
(c) Capital
(d) Saving
Answer:
(d) Saving

Question 19.
In Keynes theory, the demand for and supply of money are determined by –
(a) Rate of interest
(b) Effective demand
(c) Aggregate demand
(d) Aggregate supply
Answer:
(a) Rate of interest

Question 20.
Say’s law stressed the operation of ……………………… in the economy.
(a) Induced price mechanism
(b) Automatic price mechanism
(c) Induced demand
(d) Induced investment
Answer:
(b) Automatic price mechanism

Part – B
Answer The Following Questions In One or Two Sentences.

Question 21.
Define full employment?
Answer:
Full employment refers to a situation in which every able bodied person who is willing to work at the prevailing wage rate, is employed. In other words full employment means that persons who are willing to work and able to work must have employment or a job.

Question 22.
What is the main feature of rural unemployment?
Answer:

India’s rural economy has both unemployment and underemployment.
The major feature of rural unemployment is the existence of unemployment in the form of disguised unemployment and seasonal unemployment.
In agriculture and agro based industries like sugar, production activities are carried out only in some seasons.

Question 23.
Give short note on frictional unemployment?
Answer:
Frictional Unemployment (Temporary Unemployment):

Frictional unemployment arises due to imbalance between supply of labour and demand for labour.
This is because of immobility of labour, lack of necessary skills, break down of machinery, shortage of raw materials etc.
The persons who lose jobs and in search of jobs are also included under frictional unemployment.

Question 24.
Give reasons for labour retrenchment at present situation?
Answer:

Modem technology being capital intensive requires less labourers and contributes to ’ technological unemployment.
Now a days, invention and innovations lead to the adoption of new techniques there by the existing workers are retrenched.
Labour saving devices are responsible for technological unemployment.

Question 25.
List out the assumptions of Say’s law?
Answer:
The Say’s Law of market is based on the following assumptions:

No single buyer or seller of commodity or an input can affect price.
Full employment.
People are motivated by self interest and self – interest determines economic decisions.
The laissez faire policy is essential for an automatic and self adjusting process of full employment equilibrium. Market forces determine everything right.
There will be a perfect competition in labour and product market.
There is wage-price flexibility.
Money acts only as a medium of exchange.
Long – run analysis.
There is no possibility for over production or unemployment.

Question 26.
What is effective demand?
Answer:

The starting point of Keynes theory of employment and income is the principle of effective demand.
Effective demand denotes money actually spent by the people on products of industry.
The money which entrepreneurs receive is paid in the form of rent, wages, interest and profit.
Therefore effective demand equals national income.

Question 27.
What are the components of aggregate supply?
Answer:
Aggregate demand has the following four components:

Consumption demand
Investment demand
Government expenditure and
Net Export (export – import)

Part – C
Answer The Following Questions In A Paragraph.

Question 28.
Explain the following in short:

Seasonal unemployment
Frictional unemployment
Educated unemployment

Answer:
Seasonal Unemployment:

This type of unemployment occurs during certain seasons of the year.
In agriculture and agro based industries like sugar,production activities are carried out only in some seasons.
These industries offer employment only during that season in a year. Therefore people may remain unemployed during the off season.
Seasonal unemployment happens from demand side also; for example ice cream industry, holiday resorts etc.

Frictional Unemployment (Temporary Unemployment):

Frictional unemployment arises due to imbalance between supply of labour and demand for labour.
This is because of immobility of labour, lack of necessary skills, break down of machinery, shortage of raw materials etc.
The persons who lose jobs and in search of jobs are also included under frictional unemployment.

Educated Unemployment:

Sometimes educated people are underemployed or unemployed when qualification does not match the job.
Faulty education system, lack of employable skills, mass student turnout and preference for white collar jobs are highly responsible for educated unemployment in India.

Question 29.
According to classical theory of employment, how wage reduction solves the problem of unemployment? Diagrammatically explain?
Answer:
The classical theory of employment assumes that the economy operates at the level of full employment without inflation in the long period. It also assumes that wages and prices of goods are flexible and the competitive market exists in the economy (laissez – faire economy). According to the classical theory of employment, full employment condition can be achieved by cutting down the wage rate. Unemployment would be eliminated when wages are determined by the mechanism of economy itself. The following figure shows the relationship between wage rate and employment:

In the figure, when the wage rate is OW, then the employment is ON. As the wage rate is reduced to OW¹, then the employment has increased to ON¹. Prof. Pigou has taken this theory as base for developing the solution of unemployment problem.

Question 30.
Write short note on the implications of Say’s law?
Answer:
Implications of Say’s Law:

There is no possibility for over production or unemployment.
If there exist unutilized resources in the economy, it is profitable to employ them up to the point of full employment. This is true under the condition that factors are willing to accept rewards on a par with their productivity.
As automatic price mechanism operates in the economy, there is no need for government intervention. (However, J.M. Keynes emphasized the role of the State)
Interest flexibility brings about equality between saving and investment.
Money performs only the medium of exchange function in the economy, as people will not hold idle money.

Question 31.
Explain Keynes’ theory in the form of flow chart?
Answer:

Question 32.
What do you mean by aggregate demand? Mention its components?
Answer:

The aggregate demand is the amount of money which entrepreneurs expect to get by selling the output produced by the number of labourers employed.
Therefore, it is the expected income or revenue from the sale of output at different levels of employment.
Aggregate demand has the following four components:
1. Consumption demand
2. InvestmenTdemand
3. Government expenditure and
4. Net Export (export – import)

Question 33.
Explain about aggregate supply with the help of diagram?
Answer:

Aggregate supply function is an increasing function of the level of employment.
Aggregate supply refers to the value of total output of goods and services produced in an economy in a year.
In other words, aggregate supply is equal to the value of national product, i.e., national income.
Aggregate Supply = C + S + T + Rf = Aggregate income generated in the economy.
The following figure shows the shape of the two aggregate supply curves drawn for the assumption of fixed money wages and variable wages.

Aggregate Supply Curve

Z curve is linear where money wages remains fixed; Z<sub>1</sub> curve is non – linear since wage rate increases with employment.
When full employment level of Nf is reached it is impossible to increase output by employing more men.
So aggregate supply curve becomes inelastic (Vertical straight line).
The slope of the aggregate supply curve depends on the relation between the employment and productivity.
Based upon this relation, the aggregate supply curve can be expected to slope upwards.
In reality the aggregate supply curve will be like Z₁
Therefore, the aggregate supply depends on the relationship between price and wages.

Question 34.
Write any five differences between classism and Keynesianism?
Answer:
Comparison of Classicism and Keynesianism
Keynesianism:

Short – run equilibrium Saving is a vice
The function of money is a medium of exchange on the one side and a store of value on the other side.
Macro approach to national problems
State intervention is advocated

Classicism:

Long – run equilibrium
Saving is a social virtue
The function of money is to act as a medium of exchange.
Micro foundation to macro problems
Champions of Laissez – fair policy

Part – D
Answer The Following Questions In One Page.

Question 35.
Describe the types of unemployment?
Answer:
The following are the types of unemployment.
Types of unemployment:

Cyclical Unemployment
Frictional Unemployment
Technical Unemployment
Disguised Unemployment
Seasonal Unemployment
Educated Unemployment
Structural Unemployment

1. Cyclical Unemployment:

This unemployment exists during the downturn phase of trade cycle in the economy.
In a business cycle during the period of recession and depression, income and output fall leading to widespread unemployment.
It is caused by deficiency of effective demand.
Cyclical unemployment can be cured by public investment or expansionary monetary policy.

2. Seasonal Unemployment:

This type of unemployment occurs during certain seasons of the year.
In agriculture and agro based industries like sugar, production activities are carried out only in some seasons.
These industries offer employment only during that season in a year. Therefore people may remain unemployed during the off season.
Seasonal unemployment happens from demand side also; for example ice cream industry, holiday resorts etc.

3. Frictional Unemployment (Temporary Unemployment):

Frictional unemployment arises due to imbalance between supply of labour and demand for labour.
This is because of immobility of labour, lack of necessary skills, break down of machinery, shortage of raw materials etc.
The persons who lose jobs and in search of jobs are also included under frictional unemployment.

4. Educated Unemployment:

Sometimes educated people are underemployed or unemployed when qualification does not match the job.
Faulty education system, lack of employable skills, mass student turnout and preference for white collar jobs are highly responsible for educated unemployment in India.

5. Technical Unemployment:

Modem technology being capital intensive requires less labourers and contributes to technological unemployment.
Now a days, invention and innovations lead to the adoption of new techniques there by the existing workers are retrenched.
Labour saving devices are responsible for technological unemployment.

6. Structural Unemployment:

Structural unemployment is due to drastic change in the structure of the society.
Lack of demand for the product or shift in demand to other products cause this type of unemployment.
For example rise in demand for mobile phones has adversely affected the demand for cameras, tape recorders etc.
So this kind of unemployment results from massive and deep rooted changes in economic structure.

7. Disguised Unemployment:

Disguised unemployment occurs when more people are than what is actually required.
Even if some workers are withdrawn, production does not suffer.
This type of unemployment is found in agriculture.
A person is said to be disguisedly by unemployed if his contribution to output is less than what he can produce by working for normal hours per day.
In this situation, marginal productivity of labour is zero or less or negative.

Question 36.
Critically explain Say’s law of market?
Answer:
Criticisms of Say’s Law:
The following are the criticisms against Say’s law:

According to Keynes, supply does not create its demand. It is not applicable where demand does not increase as much as production increases.
Automatic adjustment process will not remove unemployment. Unemployment can be removed by increase in the rate of investment.
Money is not neutral. Individuals hold money for unforeseen contingencies while businessmen keep cash reserve for future activities.
Say’s law is based on the proposition that supply creates its own demand and there is no over production. Keynes said that over production is possible.
Keynes regards full employment as a special case because there is under – employment in capitalist economies.
The need for state intervention arises in the case of general over production and mass unemployment.

Question 37.
Narrate the equilibrium between ADF and ASF with diagram? Equilibrium between ADF and ASF?
Answer:

Under the Keynes theory of employment, a simple two sector economy consisting of the household sector and the business sector is taken to understand the equilibrium between ADF and ASF.
All the decisions concerning consumption expenditure are taken by the individual households, while the business firms take decisions concerning investment.
It is also assumed that consumption function is linear and planned investment is autonomous.
There are two approaches to determination of the equilibrium level of income in Keynesian theory. These are:
1. Aggregate demand – Aggregate supply approach
2. Saving – Investment approach –
In this chapter, out of these two, aggregate demand and aggregate supply approach is alone explained to understand the determination of equilibrium level of income and employment.
The concept of effective demand is more clearly shown in the figure.
In the figure, the aggregate demand and aggregate supply reach equilibrium at point E. The employment level is N0 at that point.
At ON₁ employment, the aggregate supply is N, Rr But they are able to produce M₁ N₁ The expected level of profit is M₁, R₁
To attain this level of profit, entrepreneurs will employ more labourers.
The tendency to employ more labour will stop once they reach point E.
At all levels of employment beyond, ON₀, the aggregate demand curve is below the aggregate supply curve indicating loss to the producers.
Hence they will never employ more than ON₀ labour.
Thus effective demand concept becomes a crucial point in determining the equilibrium level of output in the capitalist economy or a free market economy in the Keynesian system.
It is important to note that the equilibrium level of employment need not be the full employment level (N<sub>1</sub>) from the Figure, it is understood that the difference between N₀ – N₀ is the level of unemployment.
Thus the concept of effective demand becomes significant in explaining the under employment equilibrium.

Question 38.
Explain the differences between classical theory and Keynes theory?
Answer:
Keynesianism:

Short – run equilibrium
Saving is a vice
The function of money is a medium of exchange on the one side and a store of value on the other side.
Macro approach to national problems
State intervention is advocated.
Applicable to all situations – full employment and less than full employment.
Capitalism has inherent contradictions
Budgeting should be adjusted to the requirements of economy.
The equality between saving and investment is advanced through changes in income.
Rate of interest is determined by the demand for and supply of money.
Rate of interest is a flow.
Demand creates its own supply.
Rate of interest is a reward for parting with liquidity.

Classicism:

Long – run equilibrium
Saving is a social virtue.
The function of money is to act as a medium of exchange
Micro foundation to macro problems
Champions of Laissez – fair policy
Applicable only to the full employment situation.
Capitalism is well and good.
Balanced budget
The equality between saving and investment is achieved through changes of rate of interest.
Rate of interest is determined by saving and investment.
Rate of interest is a stock.
Supply creates its own demand.
Rate of interest is a reward for saving.

Samacheer Kalvi 12th Economics Theories of Employment and Income Addtional Questions and Answers

Part – A
I. Multiple Choice Questions.

Question 1.
Who is one of the greatest and most influential economist?
(a) J.M. Keynes
(b) Adam Smith
(c) Marshall
(d) Simon Kuznets
Answer:
(a) J.M. Keynes

Question 2.
Keynes book “The General theory of Employment, Interest and Money” published in –
(a) 1926
(b) 1936
(c) 1946
(d) 1956
Answer:
(b) 1936

Question 3.
The total stock of money circulating in an Economy is called –
(a) Money
(b) Capital
(c) Money Supply
(d) Finance
Answer:
(c) Money Supply

Question 4.
The …………………… function depends upon Income of the people and marginal propensity to consume?
(a) demand
(b) consumption
(c) supply
(d) marginal
Answer:
(b) consumption

Question 5.
Every economy in the world aims at attaining the level of –
(a) full employment
(b) under employment
(c) un employment
(d) employment opportunity
Answer:
(a) full employment

Question 6.
…………………… is an increasing function of the level of employment –
(a) Aggregate supply function
(b) Aggregate demand function
(c) Aggregate consumption function
(d) Aggregate consumption expenditure
Answer:
(a) Aggregate supply function

Question 7.
Effective demand signifies the money spent on consumption of goods and services and on –
(a) capital
(b) investment
(c) profit
(d) finance
Answer:
(b) investment

Question 8.
Who has given importance to the concept of liquidity preference?
(a) Kuznet
(b) Marshall
(c) Keynes
(d) Adam Smith
Answer:
(c) Keynes

Question 9.
…………………….. was a French Economist and an Industrialist?
(a) J.B. Say
(b) Keynes
(c) Adam Smith
(d) David Ricardo
Answer:
(a) J.B. Say

Question 10.
Frictional unemployment another name is called –
(a) Educated unemployment
(b) Seasonal unemployment
(c) Temporary unemployment
(d) Technical unemployment
Answer:
(c) Temporary unemployment

Question 11.
Discussed unemployment is mostly found in –
(a) agriculture
(b) sericulture
(c) industry
(d) architecture
Answer:
(a) agriculture

Question 12.
The main reason for massive unemployment is poor –
(a) economic planning
(b) educational planning
(c) military planning
(d) man power planning
Answer:
(d) man power planning

Question 13.
The Employment Assurance Scheme was launched in the year –
(a) 1983
(b) 1993
(c) 2003
(d) 2013
Answer:
(b) 1993

Question 14.
Cyclical unemployment is caused by …………………………. cycles.
(a) business
(b) money
(c) trade
(d) finance
Answer:
(c) trade

Question 15.
The problem of rural unemployment can be solved only by ………………………….. agriculture.
(a) modernising
(b) agro based
(c) innovative
(d) new method followed
Answer:
(a) modernising

Question 16.
Unemployment is classified as voluntary unemployment and –
(a) involuntary unemployment
(b) cyclical unemployment
(c) rural unemployment
(d) seasonal unemployment
Answer:
(b) cyclical unemployment

Question 17.
Existence of Joint Family System in India promotes –
(a) educational unemployment
(b) disguised unemployment
(c) seasonal unemployment
(d) voluntary unemployment
Answer:
(b) disguised unemployment

Question 18.
Educated and skilled persons who may not accept casual work. This is called ………………………. unemployment.
(a) closed
(b) open
(c) seasonal
(d) disguised unemployment
Answer:
(b) open

Question 19.
………………………. law of market was the basis for assuming the situation of full employment.
(a) J.B. Say
(b) Keynes
(c) Marshall
(d) Lemer
Answer:
(a) J.B. Say

Question 20.
The aggregate effective demand would increase the level of –
(a) unemployment
(b) employment
(c) cyclical unemployment
(d) open unemployment
Answer:
(b) employment

Question 21.
…………………. refers to the labour force of a country.
(a) Employment
(b) Unemployment
(c) Full employment
(d) Open employment
Answer:
(c) Full employment

Question 22.
…………………. means that persons who are willing to work and able to work must have employment or a job?
(a) Full employment
(b) Unemployment
(c) Educational unemployment
(d) Seasonal unemployment
Answer:
(a) Full employment

Question 23.
………………….. is the principle of effective demand?
(a) Profit
(b) Income
(c) Money
(d) Interest
Answer:
(a) Profit

Question 24.
When goods are produced by firms in the economy, they pay reward to the factors of the production is called –
(a) J.M. Keynes
(b) Adam Smith
(c) J.B. Say
(d) Ricardo
Answer:
(c) J.B. Say

Question 25.
…………………….. defines “Full employment as that level of employment at which any further increase in spending would resort in an inflationary spiral of wages and prices”
(a) Lemer
(b) J.M. Keynes
(c) J.B. Say
(d) Adam Smith
Answer:
(a) Lemer

II. Match the following and choose the correct answer by using codes given below

Question 1.
A. Full employment – (i) Qualified job
B. Educated unemployment – (ii) Deficiency of effective demand
C. Cyclical unemployment – (iii) During season of the year
D. Seasonal unemployment – (iv) Learner
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (ii) B (iv) C (i) D (iii)
(c) A (iv) B (i) C (ii) D (iii)
(d) A (iii) B (iv) C (i) D (ii)
Answer:
(c) A (iv) B (i) C (ii) D (iii)

Question 2.
A. Public Investment – (i) Temporary unemployment
B. Production activities only in Some seasons – (ii) Deficiency of effective demand
C. Frictional unemployment – (iii) During season of the year
D. Educated unemployment – (iv) Learner
Codes:
(a) A (ii) B (ii) C (iii) D (iv)
(b) A (iii) B (ii) C (iv) D (i)
(c) A (i) B (iii) C (ii) D (iv)
(d) A (iv) B (i) C (iii) D (ii)
Answer:
(a) A (ii) B (ii) C (iii) D (iv)

Question 3.
A. ED – (i) Income of the people
B. ADF – (ii) Y = C + I = Output = Employment
C. ASF – (iii) C + I + G + (X – M)
D. CF – (iv) C + S + T + Rf = Aggregate Income generated in the economy
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iii) B (i) C (iv) D (i)
(c) A (iv) B (ii) C (i) D (iii)
(d) A (iv) B (iii) C (iv) D (i)
Answer:
(d) A (iv) B (iii) C (iv) D (i)

Question 4.
A. Keynes concept – (i) Aggregate spending
B. Demand – (ii) Liquidity preference
C. Aggregate supply – (iii) To spend on domestic output
D. Aggregate demand – (iv) The value of national product
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (ii) B (i) C (iv) D (iii)
(c) A (iii) B (iv) C (ii) D (i)
(d) A (iv) B (iii) C (i) D (ii)
Answer:
(b) A (ii) B (i) C (iv) D (iii)

Question 5.
A. Keynesianism – (i) Long run – equilibrium
B. Classicism – (ii) Short run – equilibrium
C. Keynesianism – (iii) State intervention is advocated
D. Classicism – (iv) Saving is a vice
Codes:
(a) A (ii) B (i) C (iv) D (iii)
(b) A (i) B (ii) C (iii) D (iv)
(c) A (iii) B (iv) C (ii) D(i)
(d) A (iv) B (iii) C (i) D (ii)
Answer:
(a) A (ii) B (i) C (iv) D (iii)

III. State whether the statements are true or false

Question 1.
(i) The function of money is a medium of exchange on the one side and a store of value on the other side is called Keynesianism.
(ii) Macro approach to national problems.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 2.
(i) Aggregate demand has the four components are consumption demand, investment demand, Government expenditure and Net export.
(ii) Aggregate demand refers to the required amount of labourers and materials to produce the neccessary output.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 3.
(i) Keynesian theory is – Aggregate demand – Aggregate supply approach. Saving – Investment approach.
(ii) This approach explained the determination level of Income and employment.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 4.
(i) Effective demand denotes money actually spent by the people on products of Industry and agriculture.
(ii) Effective demand equals to State Income.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(b) Both (i) and (ii) are false

Question 5.
(i) “Supply creates its own Demand”.
(ii) The aggregate demand and aggregate supply reach equilibrium at point ‘E’.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

IV. Which of the following is correctly matched

Question 1.
(a) Seasonal unemployment – Type of unemployment
(b) Technical unemployment – Some season only
(c) Cyclical unemployment – Public capital
(d) Full employment – Not willing to job
Answer:
(a) Seasonal unemployment – Type of unemployment

Question 2.
(a) Frictional unemployment – Permanant
(b) Educated unemployment – White collar jobs
(c) Structural unemployment – In search job
(d) Disguised unemployment – Found in industry
Answer:
(b) Educated unemployment – White collar jobs

Question 3.
(a) Keynes – A general theory
(b) Aggregate supply – A level of money
(c) Keynesianism – Champions of Laissez – Faire
(d) Effective demand – Classical Economy
Answer:
(a) Keynes – A general theory

Question 4.
(a) Effective demand – Income Effective
(b) Aggregate demand – Money demand
(c) Say’s law – Supply creates own demand
(d) Aggregate supply – Money supply
Answer:
(c) Say’s law – Supply creates own demand

Question 5.
(a) J.B. Say – Industrialist
(b) Adam Smith – Classical Economist
(c) David Ricardo – Capitalist Economist
(d) Lemer – Socialist
Answer:
(a) J.B. Say – Industrialist

V. Which of the following is not correctly matched

Question 1.
(a) Say’s law of Market – Classical theory of Employment
(b) Adam Smith – Wealth of nations
(c) Keynes – The General theory of Employment, Interest and Money
(d) A.C. Pigou – French Economist
Answer:
(d) A.C. Pigou – French Economist

Question 2.
(a) Full Employment – Willing to work and able to work
(b) Unemployment – Cannot find suitable job
(c) Underemployment – Not fully utilized
(d) Disguised unemployment – More people not working
Answer:
(d) Disguised unemployment – More people not working

Question 3.
(a) Keynes – Liquidity preference
(b) Aggregate demand – Consumption demand
(c) Consumption function – Money supply
(d) Marginal effeciency of capital – Investment level
Answer:
(c) Consumption function – Money supply

Question 4.
(a) Effective demand – Y = C + I = Output = Employment
(b) Aggregate supply – C + S + T + Rf = Aggregate Income
(c) Aggregate demand – C + I + G + (X – M)
(d) Aggregate private saving – C + S + T
Answer:
(d) Aggregate private saving – C + S + T

Question 5.
(a) Keynesianism – Capitalism has inherant contradictions
(b) Classism – Capitalism well and good
(c) Keynesian theory – Saving – Investment approach
(d) Frictional – Full employment
Answer:
(d) Frictional – Full employment

VI. Pick the odd one out

Question 1.
Types of unemployment
(a) Cyclical unemployment
(b) Seasonal unemployment
(c) Frictional unemployment
(d) nature unemployment
Answer:
(d) nature unemployment

Question 2.
Classical theory was developed by –
(a) David Ricardo
(b) Adam Smith
(c) J.S. Mill
(d) J.B. Say
Answer:
(b) Adam Smith

Question 3.
The Say’s law of Market Assumptions are –
(a) No single buyer
(b) Full employment
(c) Money is not neutral
(d) Wage flexibility
Answer:
(c) Money is not neutral

Question 4.
Keynesianism is called –
(a) Short run equilibrium
(b) saving is social virtue
(c) Macro approach to national problems
(d) State intervention is advocated
Answer:
(b) Saving is social virtue

Question 5.
Classicism is called –
(a) Capatalism is well and good
(b) Balanced Budget
(c) savinf is vice
(d) Micro foundation to Macro problems
Answer:
(c) Saving is vice

VII. Assertion and Reason

Question 1.
Assertion (A): Modem technology being capital intensive requires less labourers, and contributes to technological unemployment.
Reason (R): Now – a – days invention and innovations lead to the adoption of new techniques there by the existing workers are retrenched.

(a) Both ‘A’ and ‘R’ are tme and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are tme but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is tme but ‘R’ is false
(d) ‘A’ is false but ‘R’ is tme .
Answer:
(a) Both ‘A’ and ‘R’ are tme and ‘R’ is the correct explanation to ‘A’

Question 2.
Assertion (A): According to say, “when goods are produced by firms in the Economy”.
Reason (R): There was no single theory which could be labeled as classical theory of employment.

(a) Both ‘A’ and ‘R’ are tme and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(c) ‘A’ is true but ‘R’ is false

Question 3.
Assertion (A): Keynes book “The General theory of Employment, Interest and Money” published in 1916.
Reason (R): A turning point in the development of modem economic theory – Keynes.

Question 4.
Assertion (A): Aggregate supply function is increasing function of the level of employment.
Reason (R): Aggregate supply is only state product.

Question 5.
Assertion (A): Keynesianism is Macro approach to national problems.
Reason (R): Keynesianism is state intervention is advocated.

(a) Both ‘A’ and ‘R’ are tme and ‘R’ is the correct explanation to ‘A’
(.b) Both ‘A’ and ‘R’ are tme but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is tme but ‘R’ is false
(d) ‘A’ is false but ‘R’ is tme
Answer:
(d) ‘A’ is false but ‘R’ is tme

Part – B
Answer The Following Questions In One or Two Sentences

Question 1.
Write two approaches of the equilibrium level of Income in Keynesian theory?
Answer:
There are two approaches te determination of the equilibrium level of income in Keynesian theory. These are:

Aggregate demand – Aggregate supply approach
Saving – Investment approach

Question 2.
Define “Unemployment”?
Answer:
Unemployment:
When there are people, who are willing to work and able to work but cannot find suitable jobs.

Question 3.
Define “Marginal propensity to consume”?
Answer:
Marginal Propensity to Consume is the additional consumption due to an additional unit of income.

Question 4.
Write the types of unemployment?
Answer:
Types of unemployment:

Cyclical Unemployment
Frictional Unemployment
Technical Unemployment
Disguised Unemployment
Seasonal Unemployment
Educated Unemployment
Structural Unemployment

Part – C
Answer The Following Questions In One Paragraph.

Question 1.
Explain the Aggregate Demand Function with Diagram?
Answer:

In the Keynesian model, output is determined mainly by aggregate demand.
The aggregate demand is the amount of money which entrepreneurs expect to get by selling the output produced by the number of labourers employed.
Therefore, it is the expected income or revenue from the sale of output at different levels of employment.
- Aggregate demand has the following four components:
  - Consumption demand
  - Investment demand
  - Government expenditure and
  - Net Export (export – import)
The desired or planned demand (spending) is the amount that households, firms, the governments and the foreign purchasers would like to spend on domestic output.
In other words, desired demand in the economy is the sum total of desired private consumption expenditure, desired investment expenditure, desired government spending and desired net exports (difference between exports and imports).
Thus, the desired spending is called aggregate spending (demand), and can be expressed as:
AD = C + I + G + (X – M)
The diagram explains that aggregate demand price increases or decreases with an increase or decrease in the volume of employment.
Aggregate demand curve increases at an increasing rate in the beginning and then increases at a decreasing rate.
This shows that as income increases owing to increase in employment, expenditure of the economy increases at a decreasing rate.

Question 2.
Aggregate Supply Function meaning and components?
Answer:

Aggregate supply function is an increasing function of the level of employment.
Aggregate supply refers to the value of total output of goods and services produced in an economy in a year.
In other words, aggregate supply is equal to the value of national product, i.e., national income.

The components of aggregate supply are:

Aggregate (desired) consumption expenditure (C)
Aggregate (desired) private savings (S)
Net tax payments (T) (Total tax payment to be received by the government minus transfer payments, subsidy and interest payments to be incurred by the government) and (iv) Personal (desired) transfer payments to the foreigners (Rf) (e.g. Donations to international relief efforts)

Question 3.
Describe the features of classicism?
Answer:

Long – run equilibrium
Saving is a social virtue.
The function of money is to act as a medium of exchange
Micro foundation to macro problems
Champions of Laissez-fair policy
Applicable only to the full employment situation.
Capitalism is well and good.
Balanced budget
The equality between saving and investment is achieved through changes of rate of interest.
Rate of interest is determined by saving and investment.
Rate of interest is a stock.
Supply creates its own demand.
Rate of interest is a reward for saving.

Part – D
Answer The Following Questions In One Page.

Question 1.
Describe the Say’s Law of Market?
Answer:

Say’s law of markets is the core of the classical theory of employment.
J.B.Say (1776 – 1832) was a French Economist and an industrialist.
He was influenced by the writings of Adam Smith and David Ricardo.
J.B. Say enunciated the proposition that “Supply creates its own demand”.
Hence there cannot be general over production or the problem of unemployment in the economy.
According to Say, “When goods are produced by firms in the economy, they pay reward to the factors of production.
The households after receiving rewards of the factors of production spend the amount on the purchase of goods and services produced by them.
Therefore, each product produced in the economy creates demand equal to its value in the market.
In short, this classical theory explains that “A person receives his income from production which is spent on the purchase of goods and services produced by others.
For the economy as a whole, therefore, total production equals total income.

Question 2.
Explain the features of Keynesianism?
Answer:

Short – run equilibrium
Saving is a vice
The function of money is a medium of exchange on the one side and a store of value on the other side.
Macro approach to national problems
State intervention is advocated.
Applicable to all situations – full employment and less than full employment.
Capitalism has inherent contradictions.
Budgeting should be adjusted to the requirements of economy.
The equality between saving and investment is advanced through changes in income.
Rate of interest is determined by the demand for and supply of money.
Rate of interest is a flow.
Demand creates its own supply.
Rate of interest is a reward for parting with liquidity.

Question 3.
Describe the Effective demand?
Answer:

The starting point of Keynes theory of employment and income is the principle of effective demand.
Effective demand denotes money actually spent by the people on products of industry.
The money which entrepreneurs receive is paid in the form of rent, wages, interest and profit.
Therefore effective demand equals national income.
An increase in the aggregate effective demand would increase the level of employment.
A decline in total effective demand would lead to unemployment.
Therefore, total employment of a country can be determined with the help of total demand ‘ of a country.
According to the Keynes theory of employment, “Effective demand signifies the money spent on consumption of goods and services and on investment.
The total expenditure is equal to the national income, which is equivalent to the national output”.
The relationship between employment and output of an economy depends upon the level of effective demand which is determined by the forces of aggregate supply and aggregate demand.
ED = Y = C + I = Output = Employment
Effective demand determines the level of employment in the economy.
When effective demand increases, employment will increase.
When effective demand decreases, the level employment will decline.
The effective demand will be determined by two determinants namely consumption and investment expenditures.
The consumption function depends upon income of the people and marginal propensity to consume.
According to Keynes, if income increases, consumption will also increase but by less than the increase in income.

Samacheer Kalvi 11th English Writing Non-Verbal Interpretation

Tamilnadu Samacheer Kalvi 11th English Writing Non-Verbal Interpretation

A. Tabular Representation Of Data
(i) Study the following table pertaining to the monthly expenditure of two families and write three sentences on your inference about the data:

Heads of Expenses	The Sridharan’s	The Hariharan’s
Food	35%	30%
Transport	10%	5%
Education	25%	20%
Recreation	15%	10%
Savings	10%	25%
Miscellaneous	5%	10%

Answer:

The Sridharans are more lavish than the Hariharan’s
They spend more money on food and recreation and enjoy life without much worry about the future.
The Hariharans are judicious in spending and save more for a rainy day.

(ii) Study the table and write three inferences on Agricultural yield (Rice) in India.

Answer:
(i) West Bengal tops in the cultivation of rice in terms of area under the plow. Next, Punj ab is doing sound rice cultivation with good yield. Thirdly, Andhra is doing fanning and cultivating rice successfully.

(iii) Study the following calendar and write three sentences of your inferences in March, 2018.

Answer:
(i) There are four Sundays.
(ii) There are five Saturdays.
(iii) There are 22 working days for Government organizations in March 2018.

B. PIE-CHART
(i) Study the pie-chart given and answer the questions that follow:

(a) What are the two types of movies liked by equal percentage of people?
(b) Which type of movie is preferred by most number of people?
(c) Which type is least enjoyed and favoured by people?
Answer:
(a) Science fiction based movies and comedies are liked by equal percentage of people.
(b) Romantic movies are preferred by most number of people.
(c) Drama is least enjoyed and favoured by people.

(ii) Study the pie-chart given and answer the questions that follow:

(a) What gets the maximum attention in Saravana’s home?
(b) Does the family spend a lot on education? How?
(c) What is your opinion about Saravana’s spending habit?
Answer:
(a) Food gets the maximum attention in Saravana’s home.
(b) No, the family spends only 10% of the income on education.
(c) He is a spendthrift. He spends more on entertainment and less on health and education.

C. Dialogue Writing
(i) Build up a conversation between a Principal and a parent.
Parent : Good morning, Sir. I was told that you wanted to meet me.
Principal : Good morning. Please sit down. Your son has got excellent drawing skills.
Parent : I am really glad to hear it. But what about his studies, Sir?
Principal : Please don’t get upset. He is a clever boy. He can do well in studies also.
Parent : How can I help him?
Principal : I have given him the address of a nearby Art school.
Parent : Thanks, Sir. I shall send him in the weekends.
Principal : This is a cheque for his fees there.
Parent : Thank you so much, Sir.
Principal : He has earned it. He only painted all the boards. He will become a great artist one day.

(ii) Build up a dialogue between an employer and a candidate at the interview.
Candidate : Good morning, Sir.
Employer : Welcome. Please sit down. Give me your certificates.
Candidate : Here they are! Along with the letter from Prof. Vašanth.
Employer : You mean Prof. Vasanth from American college?
Candidate : Yes, Sir. He was impressed with my acting as Othello.
Employer : Great! Have you participated in debates and elocution contests.
Candidate : Yes, Sir. These are my certificates.
Employer : Do you have experience in documenting?
Candidate : I video-documented NSS work during tsunami, Sir.
Employer : Do you have experience in edking newsletters?
Candidate : Yes, Sir.
Employer : Great. We are looking for a talented person to work as Media Documentation Officer. Will you accept the job for Rs 20,000 per month?
Candidate : Yes, Sir. Thanks.

(iii) Build up a dialogue between a policeman and a tourist who needs some guidance.
Tourist : Excuse me, Sir.
Police : Yes. How can I help you?
Tourist : Thank you, Sir. I just need to know the way to Chennai Airport.
Police : It is just five kilometers from here. By. what mode do you plan to go?
Tourist : I shall take a bus.
Police : Then cross the road to the opposite side. Take bus route No. 18G.
Tourist : Does the bus stop right at the Airport?
Police : Yes, right in front of the airport at Tirusulam stop.
Tourist : Thank you very much, Sir. Very kind of you.
Police : You’re most welcome.

Build up a dialogue between two friends regarding the use of plastics.
A : Hello… How are you?
B : Hello… Fine, nice to meet you.
A : It seems you are on your way to the bazaar.
B : Quite right. How do you know?
A : The cloth bag in your hand of course.
B : Your guess is absolutely right.
A : I haven’t brought any. The shopkeeper will give carrybags.
B : Yes. But they are plastic or polythene. We should not use them.
A : Why? What’s wrong?
B : Plastic bag pollutes the soil. It is non-bio-degradable. Cloth bag is simple but bio-degradable.
A : Thank you. I will carry a cloth bag hereafter.

(v) Write a dialogue with at least five utterances between a Post Master and a student who wants to open a savings account in the post office.
Student : Good morning, Sir.
PM : Good morning. What shall I do for you?
Student : Sir, I want to open a savings account.
PM : Have you brought your Aadhar card?
Student : Yes, Sir.
PM : Have you brought two copies of passport size photograph of yourself?
Student : Yes, Sir.
PM : Fill in this application. How much do you want to deposit now?
Student : Rs 500, Sir.
PM : That is good to start with.
Student : Thank you, Sir.

D. E-MAIL
E-mail is one of the fastest and latest ways of communication. It is concise and one needs to be more technical. In such communication both the addresser and addressee need an E-mail ID where one can write a message. It is communicated through a server. So at both ends there should be a computer or laptop to receive the message.

Hints for writing E-mail

– Maintain brevity,
– Make it personal.
– Answer swiftly.
– Use proper structure & layout.
– Do not write in CAPITALS.
– Do not overuse Reply to All.
– Be careful with formatting.
– Use a meaningful subject.
– Use simple and lucid language.
– Use templates for frequently used responses.
– Do not attach unnecessary files.
– Do not overuse the high priority option.
– Revise/Review the e-mail before you send it.
– Take care with .abbreviations and emoticons.
– Do not use e-mail to discuss confidential matter.

Layout of an E-mail

Solved Questions
(i) You are Seema/Suresh, living at Chennai, Tamil Nadu. Write an e-mail to the health officer of your city drawing his attention to the unsanitary conditions of your locality.
Answer:

To	[email protected]
From	[email protected]
Subject	Insanitation in locality
Sir I would like to draw your kind attention to the unsanitary conditions that have pervaded in our locality. It is a new locality where one can find big and beautiful buildings. When it was brought into being a few years ago, the municipal authorities had given a word to look into the needs of the residents. Unfortunately, their promises proved to be. mere words. The roads of our locality are all muddy and take a shabby look whenever it rains. During sunny days, people spread dust in the surroundings. The drains stink as they are not regularly cleaned. Since there are no dustbins around, people throw the waste material on the roadside. Flies and mosquitoes buzz about all the time. These conditions have made residents vulnerable to diseases. I, therefore, request you to please look into the matter seriously and take steps to curb the situation. We will be thankful if you do accordingly and help us. Yours sincerely Seema

(ii) You are Varghese/Mary. You have been invited to attend the wedding of your friend’s sister during summer vacation. Write an e-mail to him/her regretting your inability to attend it.
Answer:

To	[email protected]
From	[email protected]
Subject	Inability to attend the wedding
Dear Ancy Thank you for your cordial invitation on the occasion of your sister’s wedding. I, however, regret my inability to be with you on this happy occasion as we shall be leaving for Ooty for the summer holidays on 1 May, 20XX. Please excuse my absence. Do convey my regards and best wishes to the couple.Yours sincerely Varghese/Mary

Samacheer Kalvi 12th Economics Solutions Chapter 2 National Income

Leave a Comment / Class 12 / By Prasanna

Students can Download Economics Chapter 2 National Income Questions and Answers, Notes Pdf, Samacheer Kalvi 12th Economics Book Solutions Guide Pdf helps you to revise the complete Tamilnadu State Board New Syllabus and score more marks in your examinations.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 2 National Income

Samacheer Kalvi 12th Economics National Income Text Book Back Questions and Answers

Part – A

Multiple Choice Questions.

Question 1.
Net National product at factor cost is also known as –
(a) National Income
(b) Domestic Income
(c) Per capita Income
(d) Salary
Answer:
(a) National Income

Question 2.
Primary sector is –
(a) Industry
(b) Trade
(c) Agriculture
(d) Construction
Answer:
(c) Agriculture

Question 3.
National income is measured by using ………………. methods.
(a) Two
(b) Three
(c) Five
(d) Four
Answer:
(b) Three

Question 4.
Income method is measured by summing up of all forms of –
(a) Revenue
(b) Taxes
(c) Expenditure
(d) Income
Answer:
(d) Income

Question 5.
Which is the largest figure?
(a) Disposable income
(b) Personal Income
(c) NNP
(d) GNP
Answer:
(d) GNP

Question 6.
Expenditure method is used to estimate national income in –
(a) Construction sector
(b) Agricultural Sector
(c) Service sector
(d) Banking sector
Answer:
(a) Construction sector

Question 7.
Tertiary sector is also called as ……………………….. sector.
(a) Service
(b) Income
(c) Industrial
(d) Production
Answer:
(a) Service

Question 8.
National income is a measure of the performance of an economy.
(a) Industrial
(b) Agricultural
(c) Economic
(d) Consumption
Answer:
(c) Economic

Question 9.
Per capita income is obtained by dividing the National income by –
(a) Production
(b) Population of a country
(c) Expenditure
(d) GNP
Answer:
(b) Population of a country

Question 10.
GNP = ……………………… + Net factor income from abroad.
(a) NNP
(b) NDP
(c) GDP
(d) Personal income
Answer:
(c) GDP

Question 11.
NNP stands for ………………………
(a) Net National Product
(b) National Net product
(c) National Net Provident
(d) Net National Provident
Answer:
(a) Net National Product

Question 12.
…………………… is deducted from gross value to get the net value.
(a) Income
(b) Depreciation
(c) Expenditure
(d) Value of final goods
Answer:
(b) Depreciation

Question 13.
The financial year in India is –
(a) April 1 to March 31
(b) March 1 to April 30
(c) March 1 to March 16
(d) January 1 to December 31
Answer:
(a) April 1 to March 31

Question 14.
When net factor income from abroad is deducted from NNP, the net value is –
(a) Gross National Product
(b) Disposable Income
(c) Net Domestic Product
(d) Personal Income
Answer:
(c) Net Domestic Product

Question 15.
The value of NNP at production point is called –
(a) NNP at factor cost
(b) NNP at market cost
(c) GNP at factor cost
(d) Per capita income
Answer:
(a) NNP at factor cost

Question 16.
The average income of the country is –
(a) Personal Income
(b) Per capita income
(c) Inflation Rate
(d) Disposal Income
Answer:
(b) Per capita income

Question 17.
The value of national income adjusted for inflation is called –
(a) Inflation Rate
(b) Disposal Income
(c) GNP
(d) Real national income
Answer:
(d) Real national income

Question 18.
Which is a flow concept?
(a) Number of shirts
(b) Total wealth
(c) Monthly income
(d) Money supply
Answer:
(c) Monthly income

Question 19.
PQLI is the indicator of –
(a) Economic growth
(b) Economic welfare
(c) Economic progress
(d) Economic development
Answer:
(b) Economic welfare

Question 20.
The largest proportion of national income comes from –
(a) Private sector
(b) Local sector
(c) Public sector
(d) None of the above
Answer:
(a) Private sector

Part – B
Answer The Following Questions In One or Two Sentences.

Question 21.
Define National Income?
Answer:
National Income means the total money value of all final goods and services produced in a country during a particular period of time (one year).

Question 22.
Write the formula for calculating GNP?
Answer:
GNP at market prices means the gross value of final goods and services produced annually in a country plus net factor income from abroad
(C + I + G + (X – M) + (R – P)).

Question 23.
What is the difference between NNP and NDP?
Answer:
NNP:

NNP refers to the market value of output.
NNP at factor cost is the total of income payment made to factors of production.

NDP:

NDP is the value of net output of the economy during the year
The country’s capital equipment wears out of becomes outdated each year during the production process.

Question 24.
Trace the relationship between GNP and NNP?
Answer:
GNP:
1. Total money value of final goods and services produced in a country during a particular year (one year).

NNP:
1. Total money value of final goos and services produced in a country in a country during a particular year (one year).

Question 25.
What do you mean by the term ‘Personal Income’?
Answer:
Personal income is the total income received by the individuals of a country from all sources before payment of direct taxes in a year.

Question 26.
Define GDP deflator?
Answer:
GDP is the total market value of final goods and services produced within the country during a year. This is calculated at market prices and is known as GDP at market prices. Thus GDP by expenditure method at market prices = C + I + G + (X – M)
Where C – consumption goods;
I – Investment goods;
G – Government purchases;
(X – M) is net export which can be positive or negative.

Question 27.
Why is self consumption difficult in measuring national income?
Answer:

Farmers keep a large portion of food and other goods produced on the farm for self consumption.
The problem is whether that part of the produce which is not sold in the market can be included in national income or not.

Part – C
Answer The Following Questions In One Paragraph.

Question 28.
Write a short note on per capita income?
Answer:
Per Capita Income:

The average income of a person of a country in a particular year is called Per Capita Income.
Per capita income is obtained by dividing national income by population.

Question 29.
Differentiate between personal and disposable income?
Answer:
Personal income:
Personal income is the total income received by the individuals of a country from all sources before payment of direct taxes in a year.

Disposable income:
Disposable Income is also known as Disposable personal income. It is the individuals income after the payment of income tax. This is the amount available for households for consumption.

Question 30.
Explain briefly NNP at factor cost?
Answer:
Net National Product refers to the value of the net output of the economy during the year. NNP is obtained by deducting the value of depreciation, or replacement allowance of the capital assets from the GNP. It is expressed as, NNP = GNP – depreciation allowance.

Question 31.
Give short note on Expenditure method?
The Expenditure Method (Outlay method):
Answer:

The total expenditure incurred by the society in a particular year is added together.
To calculate the expenditure of a society, it includes personal consumption expenditure, net domestic investment, government expenditure on consumption as well as capital goods and net exports.

Question 32.
What is the solution to the problem of double counting in the estimation of national income?
Answer:

The value obtained is actually the GNP at market prices. Care must be taken to avoid double counting.
The value of the final product is derived by the summation of all the values added in the productive process.
To avoid double counting, either the value of the final output should be taken into the estimate of GNP or the sum of values added should be taken.
Double counting is to be avoided under value added method.
Any commodity which is either raw material or intermediate good for the final production should not be included.
For example, value of cotton enters value of yam as cost, and value of yam in cloth and
that of cloth in garments.
At every stage value added only should be calculated.

Question 33.
Write briefly about national income and welfare?
Answer:
National Income and Welfare:
National Income is considered as an indicator of the economic wellbeing of a country. The per capita income as an index of economic welfare suffers from limitations which are stated below:

The economic welfare depends upon the composition of goods and services provided. The greater the proportion of capital goods over consumer goods, the improvement in economic welfare will be lesser.
Higher GDP with greater environmental hazards such as air, water and soil pollution will be little economic welfare.
The production of war goods will show the increase in national output but not welfare.
An increase in per capita income may be due to employment of women and children or forcing workers to work for long hours. But it will not promote economic welfare.

Question 34.
List out the uses of national income?
Answer:
The following are some of the concepts used in measuring national income?
GDP:

GDP is the total market value of final goods and services produced within the country during a year.
This is calculated at market prices and is known as GDP at market prices. Thus GDP by expenditure method at market

prices = C + I + G + (X-M)
Where C – Consumption goods;
I – Investment goods;
G – Government purchases;
(X – M) is net export which can be positive or negative.

Net National Product (NNP) (at Market price):

Net National Product refers to the value of the net output of the economy during the year.
NNP is obtained by deducting the value of depreciation, or replacement allowance of the capital assets from the GNP. It is expressed as,
NNP = GNP – depreciation allowance.

NNP at Factor cost:

NNP refers to the market value of output.
NNP at factor cost is the total of income payment made to factors of production.

Personal Income:

Personal income is the total income received by the individuals of a country’ from all sources before payment of direct taxes in a year.

Per Capita Income:

The average income of a person of a country in a particular year is called Per Capita Income.
Per capita income is obtained by dividing national income by population.

Disposable Income:

Disposable Income is also known as Disposable personal income.
It is the individuals income after the payment of income tax.
This is the amount available for households for consumption.

Real Income:

Nominal income is national income expressed in terms of a general price level of a particular year in other words, real income is the buying power of nominal income.

GDP deflator:

GDP deflator is an index of price changes of goods and services included in GDP.
It is a price index which is calculated by dividing the nominal GDP in a given year by the real GDP for the same year and multiplying it by 100.

Part – D
Answer The Following Questions In One Page.

Question 35.
Explain the importance of national income
Importance of National Income Analysis
Answer:
National income is of great importance for the economy of a country. Nowadays the national income is regarded as accounts of the economy, which are known as social accounts. It enables us:
1. To know the relative importance of the various sectors of the economy and their contribution towards national income; from the calculation of national income, we could find how income is produced, how it is distributed, how much is spent, saved or taxed.

2. To formulate the national policies such as monetary policy, fiscal policy and other policies; the proper measures can be adopted to bring the economy to the right path with the help of collecting national income data.

3. To formulate planning and evaluate plan progress; it is essential that the data pertaining to a country’s gross income, output, saving and consumption from different sources should be available for economic planning.

4. To build economic models both in short – run and long – run.

5. To make international comparison, inter – regional comparison and inter – temporal comparison of growth of the economy during different periods.

6. To know a country’s per capita income which reflects the economic welfare of the country (Provided income is equally distributed)

7. To know the distribution of income for various factors of production in the country.

8. To arrive at many macro economic variables namely, Tax – GDP ratio, Current Account Deficit – GDP ratio, Fiscal Deficit – GDP ratio, Debt – GDP ratio etc.

Question 36.
Discuss the various methods of estimating the national income of a country?
Answer:
There are three methods that are used to measure national income.

Production or value added method
Income method or factor earning method
Expenditure method

And if these methods are done correctly, the following equation must hold
Output = Income = Expenditure
This is because the three methods are circular in nature. It begins as production, through recruitments of factors of production, generating income and going as incomes to factors of production.

Product Method:
Product method measures the output of the country. It is also called inventory method. Under this method, the gross value of output from different sectors like agriculture, industry, trade and commerce, etc., is obtained for the entire economy during a year. The value obtained is actually the GNP at market prices. Care must be taken to avoid double counting.

Income Method (Factor Earning Method):
This method approaches national income from the distribution side. Under this method, national income is calculated by adding up all the incomes generated in the course of producing national product.
National income is calculated as domestic factor income plus net factor incomes from abroad. In short,
Y = w + r + i + π + (R – P)
w = wages, r = rent, i = interest, n = profits,
This method is adopted for estimating the contributions of the remaining sectors, viz., small enterprises, banking and insurance, commerce and transport, professions, liberal arts and domestic service, public authorities, house property and foreign sector transaction.

The Expenditure Method (Outlay method): \
The total expenditure incurred by the society in a particular year is added together. To calculate the expenditure of a society, it includes personal consumption expenditure, net domestic investment, government expenditure on • consumption as well as capital goods and net exports. Symbolically,
GNP = C + I + G + (X – M)
C – Private consumption expenditure
I – Private Investment Expenditure
G – Government expenditure
X – M = Net exports

Question 37.
What are the difficulties involved in the measurement of national income?
Answer:
Difficulties in Measuring National Income:

In India, a special conceptual problem is posed by the existence of a large, unorganised and non-monetised subsistence sector where the barter system still prevails for transacting goods and services.
Here, a proper valuation of output is very difficult.

Transfer payments:

Government makes payments in the form of pensions, unemployment allowance, subsidies, etc. These are government expenditure.
But they are not included in the national income.
Because they are paid without adding anything to the production processes.
During a year, Interest on national debt is also considered transfer payments because it is paid by the government to individuals and firms on their past savings without any productive work.

Difficulties in assessing depreciation allowance:

The deduction of depreciation allowances, accidental damages, repair and replacement charges from the national income is not an easy task.
It requires high degree of judgment to assess the depreciation allowance and other charges.
Unpaid services:
A housewife renders a number of useful services like preparation of meals, serving, tailoring, mending, washing, cleaning, bringing up children, etc.
She is not paid for them and her services are not directly included in national income.

Income from illegal activities:

Income earned through illegal activities like gambling, smuggling, illicit extraction of liquor, etc., is not included in national income.
Such activities have value and satisfy the wants of the people but they are not considered as productive from the point of view of society.

Production for self-consumption and changing price:

Farmers keep a large portion of food and other goods produced on the farm for self consumption.
The problem is whether that part of the produce which is not sold in the market can be included in national income or not.

Capital Gains:

The problem also arises with regard to capital gains.
Capital gains arise when a capital asset such as a house, other property, stocks or shares, etc. is sold at higher price than was paid for it at the time of purchase.
Capital gains are excluded from national income.

Statistical problems:

There are statistical problems, too. Great care is required to avoid double counting. Statistical data may not be perfectly reliable, when they are compiled from numerous sources.
Skill and efficiency of the statistical staff and cooperation of people at large are also equally important in estimating national income.

Question 38.
Discuss the importance of social accounting in economic analysis?
Answer:
National Income and Social Accounting:

National income is also being measured by the social accounting method.
Under this method, the transactions among various sectors such as firms, households, government, etc., are recorded and their interrelationships traced.
The social accounting framework is useful for economists as well as policy makers, because it represents the major economic flows and statistical relationships among various sectors of the economic system.
It becomes possible to forecast the trends of economy more accurately.

Social Accounting and Sector:

Under this method, the economy is divided into several sectors.
A sector is a group of individuals or institutions having common interrelated economic transactions.
The economy is divided into the following sectors:
1. Firms
2. Households
3. Government
4. Rest of the world and
5. Capital sector.
“Firms” undertake productive activities. Thus, they are all organizations which employ the factors of production to produce goods and services.
“Households” are consuming entities and represent the factors of production, who receive payment for services rendered by them to firms. Households consume the goods and services that are produced by the firms.
“The Government sector” refers to the economic transactions of public bodies at all levels, centre, state and local.
The main function of the government is to provide social goods like defence, public health, education, etc.
“Rest of the world sector” relates to international economic transactions of the country. It contains income, export and import transactions, external loan transaction, and allied overseas investment income and payments.
“Capital sector” refers to saving and investment activities. It includes the transactions of banks, insurance corporations, financial houses, and other agencies of the money market.

Samacheer Kalvi 12th Economics National Income Additional Questions

Part – A
I. Multiple Choice Questions.

Question 1.
Who first introduced the concept of national Income?
Answer:
(a) Simon Kuznets
(b) Karl Marx
(c) Marshall
(d) Adam Smith
Answer:
(a) Simon Kuznets

Question 2.
………………. is the total market value of final goods and services produced with in the country during a year?
(a) GNP
(b) NDP
(c) GDP
(d) NNP
Answer:
(c) GDP

Question 3.
……………………. is also known as Disposable Personal Income?
(a) Personal Income
(b) Disposable Income
(c) Consumer Income
(d) Product Income
Answer:
(b) Disposable Income

Question 4.
………………………. is great importance for the economy of a country?
(a) Personal Income
(b) National Income
(c) Industry Income
(d) Village Income
Answer:
(b) National Income

Question 5.
…………………….. helps to build economic models both in short run and long run?
(a) National Income
(b) Personal Income
(c) Per Capita Income
(d) State Income
Answer:
(a) National Income

Question 6.
……………….. Sector refer to Saving and Investment activities?
(a) Government
(b) World
(c) Capital
(d) Accounting
Answer:
(c) Capital

Question 7.
The Economy is divided into the ………………….. sectors?
(a) two
(b) three
(c) four
(d) five
Answer:
(d) five

Question 8.
…………………….. is considered as a better Indicator of economic welfare?
(a) PQLI
(b) NNP
(c) GDP
(d) NNP
Answer:
(a) PQLI

Question 9.
……………………. means the total money value of all final goods and services produced in a country?
(a) Personal Income
(b) Disposable Income
(c) National Income
(d) Per Capita Income
Answer:
(c) National Income

Question 10.
While assessing sectoral contribution to GDP, the economy is Sectors?
(a) two
(b) three
(c) four
(d) five
Answer:
(b) three

Question 11.
The growth of an economy is indicated by an –
(a) increase in general price level
(b) increase in National Income
(c) increase in contribution of agriculture
(d) increase in Investment
Answer:
(b) increase in National Income

Question 12.
Per Capital Income of an economy can be established by –
(a) Dividing GDP by population
(b) dividing GNP by population
(c) multiplying GNP by population
(d) Multiplying GDP by population
Answer:
(b) dividing GNP by population

Question 13.
Write the Four Sector Model of National Income?
(а) Y = C + I + G + (X – M)
(b) Y = C + I + G + X
(c) Y = C + I + G + M
(d) Y – C + I + G (M – X)
Answer:
(а) Y = C + I + G + (X – M)

Question 14.
Which includes profits earned from Capital Invested abroad?
(a) GNP
(b) GDP
(c) NNP
(d) NDP
Answer:
(a) GNP

Question 15.
Write two components of National Income?
(a) Consumers and producers
(b) Consumers and Industries
(c) Consumers and agricultures
(d) Agricultures and Industries
Answer:
(a) Consumers and producers

Question 16.
The country’s economic performance has been measured by Indicators of –
(a) per Capita Income
(b) national Income
(c) per People’s Income
(d) state Income
Answer:
(b) national Income

Question 17.
NNP is arrived by deducting value of depreciation from –
(a) NDP
(b) GDP
(c) GNP
(d) NNP
Answer:
(c) GNP

Question 18.
Income Method of National Income is the side of our National Income?
(a) Production
(b) Agriculture
(c) Income
(d) Distribution
Answer:
(d) Distribution

Question 19.
The difference between NNP and NDP is –
(a) net Factor Income from abroad
(b) depreciation
(c) current transfer
(d) direct taxes
Answer:
(a) net Factor Income from abroad

Question 20.
In …………………… method, the measures of GDP?
(a) Income
(b) Expenditure
(c) Product
(d) Capital
Answer:
(c) Product

Question 21.
………………… is measure of Income flow from production.
(a) Per Capita Income
(b) National Income
(c) Personal Income
(d) Income method
Answer:
(b) National Income

Question 22.
In estimating national Income, Net value added method is also known as –
(a) income Method
(b) expenditure Method
(c) product Method
(d) investment Method
Answer:
(c) product Method

Question 23.
National Income as commonly understood by everyone refers to –
(a) GNP
(b) GDP
(c) NDP
(d) NNP
Answer:
(d) NNP

Question 24.
Economic growth is determined by changes in ……………………… National income of the country.
(a) Real
(b) Total
(c) True
(d) GDP
Answer:
(c) True

Question 25.
GDP is measure of an economy’s total ………………………..
(a) inflation
(b) deflation
(c) product
(d) output
Answer:
(d) output

II. Match the following and choose the correct answer by using codes given below:

Question 1.
A. Nominal Income – (i) Facrtor earninig method
B. Production – (ii) National Income
C. Income Method – (iii) Final value of goods
D. Expenditure Method – (iv) Value added method
Codes:
(a) A (ii) B (iv) C (i) D (iii)
(b) A (iii) B(ii) C (iv) D (i)
(c) A (ii) B (iv) C (iii) D (i)
(d) A (iv) B (iii) C (i) D (ii)
Answer:
(a) A (ii) B (iv) C (i) D (iii)

Question 2.
A. GDP – (i) NNP
B. Net Income Abroad – (ii) Foreign trade excluded
C. GNP – Depreciation – (iii) X – M
D. Net National Product – (iv) GNP – Depreciation
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (ii) B (iii) C (i) D (iv)
(c) A (iv) B (i) C (ii) D (iii)
(d) A (iii) B (ii) C (iv) D (i)
Answer:
(b) A (ii) B (iii) C (i) D (iv)

Question 3.
A. Per Capita Income – (i) Half of our National Income
B. Purchasing power of Income – (ii) C + I + G + (X – M)
C. Service Sector – (iii) Standard of Living
D. Expenditure method – (iv) National Income
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iv) B (iii) C (i) D (ii)
(c) A (ii) B (i) C (iii) D (iv)
(d) A (iii) B (iv) C (i) D (ii)
Answer:
(d) A (iii) B (iv) C (i) D (ii)

Question 4.
A. Labour Income – (i) Profit and Interest
B. Capital Income – (ii) Domestic Factor Income
C. Mixed Income – (iii) Wages and Salaries
D. National Income – (iv) Farming, Sole proprietorship
Codes:
(a) A (i) B (ii) C (iv) D (iv)
(b) A (i) B (iii) C (ii) D (i)
(c) A (iii) B (i) C (iv) D (ii)
(d) A (iv) B (ii) C (ii) D (iii)
Answer:
(c) A (iii) B (i) C (iv) D (ii)

Question 5.
A. Income Method – (i) Outlay Method
B. Expenditure Method – (ii) Y = w + r + π + 7t + (R – P)
C. Income Method – (iii) GNP = C + I + G + (X-M)
D. Expenditure Method – (iv) Factor Earning Method
Codes:
(a) A (ii) B (i) C (iv) D (iii)
(b) A (i) B (ii) C (iii) D (iv)
(c) A (iii) B (ii) C (i) D (iv)
(d) A (i) B (iv) C (iii) D (ii)
Answer:
(a) A (ii) B (i) C (iv) D (iii)

III. State whether the statements are true or false.

Question 1.
(i) Net Factor Income earned abroad is always positive.
(ii) Per Capita Income is influenced vastly by population growth.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(d) (i) is false but (ii) is true

Question 2.
(i) Income Method estimates National Income from the production side.
(ii) The value added method is also known as output method.

(a) Both (i) and (ii) are true
(b) Both (0 and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(d) (i) is false but (ii) is true

Question 3.
(i) National Income at current prices is vastly influenced by a rise in general price levels.
(ii) Percentage share of agriculture sector in the national income is increasing.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 4.
(i) GNP is Crude Indicator for living standard.
(ii) The non – resident Indian income will be added to GDP to arrive at our GNP.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 5.
(i) Secondary Sector is Agriculture.
(ii) Tertiary Sector is Industry.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(b) Both (i) and (ii) are false

IV. Which of the following is correctly matched:

Question 1.
(a) Disposable Income – Gross National Product
(b) Three Method – Domestic Income
(c) Parallel Economy – Industries
(d) Transfer Earnings – Medical payments
Answer:
(a) Disposable Income – Gross National Product

Question 2.
(a) National Income – Employment
(b) GDP Indicates – Productive capacity
(c) Output = Income = – Price
(d) Primary Sector – Banking
Answer:
(b) GDP Indicates – Productive capacity

Question 3.
(a) Expenditure Method – Per Capita Income
(b) Product Method – Self consumption
(c) Income Method – Factor Earning Method
(d) Revenue Method – Outlay Method
Answer:
(c) Income Method – Factor Earning Method

Question 4.
(a) Labour Income – Farming, Sole proprietorship
(b) Capital Income – Profit, Interest, Dividend & Royalty
(c) Mixed Income – Domestic Factor Income
(d) National Income – Wages and Salaries
Answer:
(b) Capital Income – Profit, Interest, Dividend & Royalty

Question 5.
(a) PQLI – Physical Quantity of Life Index
(b) PQLI – Personal Quantity of Life Index
(c) PQLI – Personal Quality of Life Index
(d) PQLI – Physical Quality of Life Index
Answer:
(d) PQLI – Physical Quality of Life Index

V. Which of the following is not correctly matched:

Question 1.
(a) Simon Kuznets introduced – National Income
(b) Illegal activities are – Gambling and Smuggling
(c) Product Method, the measures – GDP
(d) Income Method – Expenditure Method
Answer:
(a) Income Method – Expenditure Method

Question 2.
(a) Disposable Income – Disposable Personal Income
(b) Per Capita Income – The average income of a person
(c) Real Income – Production
(d) Nominal Income – National Income
Answer:
(c) Real Income – Production

Question 3.
(a) Product Method – Inventory Method
(b) Income Method – Factor Earning Method
(c) Expenditure Method – Outlay Method
(d) Value added Method – Transfer Payments
Answer:
(d) Value added Method – Transfer Payments

Question 4.
(a) Two Sector Model – Households, firms
(b) Four Sector Economy – Foreign Earning Method
(c) Four Sector Model – outlay Method
(d) Major Problem – Transfer Payments
Answer:
(a) Two Sector Model – Households, firms

Question 5.
(a) Transfer payments – Pensions, unemployement
(b) Unpaid services – House Wife
(c) Illegal activities – Smuggling
(d) The Government Sector – Private Enterprises
Answer:
(d) The Government Sector – Private Enterprises

VI. Pick the odd one out.

Question 1.
The concepts used in Measuring National Income?
(a) GDP
(b) NNP
(c) NNP at factor cost
(d) Personal Expenditure
Answer:
(d) Personal Expenditure

Question 2.
GNP – Includes these types of final goods and services?
(a) Consumption
(b) Investment
(c) Government
(d) Capital
Answer:
(d) Capital

Question 3.
The Expenditure Method precautions are –
(a) Second hand goods should not be included
(b) Purchase of shares and bonds are not be included
(c) Transfer payments of old age pension added
(d) Avoid double counting
Answer:
(c) Transfer payments of old age pension added

Question 4.
The Economy is divided into the following sectors –
(a) Investment Sector
(b) Firms
(c) Households
(d) Government Sector
Answer:
(a) Investment Sector

Question 5.
Dispsoable Income is the individuals Income after the payment of Income tax?
(a) Disposable Income = Personal Income – Direct tax
(b) Disposable Income = Consumption + Saving
(c) Disposable Income = Agriculture + Industry
(d) Disposable Income = Individual Income + Income Tax
Answer:
(c) Disposable Income = Agriculture + Industry

VII. Assertion and Reason.

Question 1.
Assertion (A): National Income is a measure of the total value of the goods and services produced in an economy for a year.
Reason (R): GNP – is the total value of output produced and income received in a year by domestic residence of a country.

(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false (id) ‘A’ is false but ‘R’ is true
(d) ‘A’ is false but ‘R’ is true
Answer:
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Question 2.
Assertion (A): Product method measures the output of the country.
Reason (R): Product method measures the agriculture field only.

Question 3.
Assertion (A): Deflation is the common feature in almost all the economies.
Reason (R): Inflation is the common feature in almost all the economies.

Question 4.
Assertion (A): The Income method is called Factor Earning Method.
Reason (R): This method approaches National Income from the distribution side.

Question 5.
Assertion (A): The Expenditure method is called outlay method.
Reason (R): This method is used only private sector.

Part – B
Answer The Following Questions In One or Two Sentences.

Question 1.
Write the Factor Incomes group?
Answer:
Factor incomes are grouped under labour income, capital income and mixed income.

Labour income – Wages and salaries, fringe benefits, employer’s contribution to social security.
Capital income – Profit, interest, dividend and royalty
Mixed income – Farming, sole proprietorship and other professions.

Question 2.
Write the headlines of difficulties in Measuring National Income?
Answer:
Difficulties in Measuring National Income:

Transfer payments:
Difficulties in assessing depreciation allowance:
Unpaid services:
Income from illegal activities:
Production for self-consumption and changing price:
Capital Gains:
Statistical problems

Question 3.
Define “Capital Gains”?
Answer:
The problem also arises with regard to capital gains. Capital gains arise when a capital asset such as a house, other property, stocks or shares, etc. is sold at higher price than was paid for it at the time of purchase. Capital gains are excluded from national income.

Question 4.
Define “Social and Environmental Cost”?
Answer:
Social and Environmental Cost: While producing economic goods, many environmental and social bads are also generated. Hence, they also must be considered while enumerating National income.

Question 5.
Define “National Income & Erosion of National Wealth”?
Answer:
For achieving higher GDP, larger natural resources are being depleted or damaged. This means reduction of potential for future growth. Hence, it is suggested that while assessing national income, loss of natural resources should be subtracted from national income.

Part – C
Answer The Following Questions In One Paragraph.

Question 1.
Write the statistical problems?
Answer:
The following are the some of the statistical problems:

Accurate and reliable data are not adequate, as farm output in the subsistence sector is not completely informed. In animal husbandry, there are no authentic production data available.
Different languages, customs, etc., also create problems in computing estimates.
People in India are indifferent to the official inquiries. They are in most cases non – cooperative also.
Most of the statistical staff are untrained and inefficient.

Question 2.
Discuss the estimating the national income through the Income Method precautions?
Answer:

Transfer payments are not to be included in estimation of national income as these payments are not received for any services provided in the current year such as pension, social insurance etc.
The receipts from the sale of second hand goods should not be treated as part of national income as they do not create new flow of goods or services in the current year.
Windfall gains such as lotteries are also not to be included as they do not represent receipts from any current productive activity.
Corporate profit tax should not be separately included as it has been already included as a part of company profit.

Question 3.
What is Market price and Equations?
Answer:

Part – D
Answer The Following Questions In One Page.

Question 1.
Write the gross value of the farm output in India?
Answer:
In India, the gross value of the farm output is obtained as follows:

Total production of 64 agriculture commodities is estimated. The output of each crop is measured by multiplying the area sown by the average yield per hectare.
The total output of each commodity is valued at market prices.
The aggregate value of total output of these 64 commodities is taken to measure the gross value of agricultural output.
The net value of the agricultural output is measured by making deductions for the cost of seed, manures and fertilisers, market charges, repairs and depreciation from the gross value.

Question 2.
Explain the Expenditure Method (Outlay Method) precautions?
Answer:
Precautions:

Second hand goods:
The expenditure made on second hand goods should not be included.
Purchase of shares and bonds:
Expenditures on purchase of old shares and bonds in the secondary market should not be included.
Transfer payments:
Expenditures towards payment incurred by the government like old age pension should not be included.
Expenditure on intermediate goods:
Expenditure on seeds and fertilizers by farmers, cotton and yam by textile industries are not to be included to avoid double counting. That is only expenditure on final products are to be included.

Question 3.
Explain the Importance of Factor Cost?
Answer:

Samacheer Kalvi 12th English Vocabulary Blended Words

Tamilnadu Samacheer Kalvi 12th English Vocabulary Blended Words

advertisement and editorial	advertorial
alphabetic and numeric	alphanumeric
American and Indian	Amerind
appropriate and acronym	aptronym
botulism and toxin	botox
binary and digit	bit
biology and electronic	bionic
Bombay and Hollywood	Bollywood
Britain and exit	Brexit
brain and maniac	brainiac
breakfast and lunch	brunch
breath and analyzer	breathalyzer
cellulose and diaphane	define
chuckle and snort	chortle
coder and decoder	codec
Cybernetic and organism	cyborg
camera and recorder	camcorder
car and hijack	carjack
chill and relax	chillax
Chinese and English	Cfcmgfisto
chocolate and alcoholic	chocoholic
cinema and complex	cineplex
costume and play	cosplay
crazy and drunk	can
documentary and drama	docudrama
dumb and confound	dumbfound
dance and exercise	exercise
drama and comedy	dramedy
electricity and execute	electrocute
education and entertainment	edutainment
electronic and mail	email
emotion and icon	emoticon
endogenous and morphine	endorphin
fact and fiction	faction ‘
fanatic and magazine	fanzine
flimsy and miserable	mimsy
free and software	freeware
fantastic and fabulous	fantabulous
flame and glare	flare
foreign and exchange	forex
friend and enemy	frenemy
global and English	Globish
giant and enormous	Ginormous
glamorous and camping	glamping
glamour and Ritz	glitz
guess and estimate	guesstimate
hazardous and material	hazmat
huge and monstrous	humongous
hungry and anger	hanger
internal and communication	intercom
international and network	internet
information and commercial	infomercial
keyboard and guitar	keytar
lion and tiger	liger
lithe and slimy	slithy
labrador and poodle	labradoodle
malicious and software	malware
mass and prestige	masstige
melody and drama	melodrama
motor and hotel	motel
marionette and puppet	muppet
man and explaining	mansplaining
man and purse	murse
mechanics and electronics	mechatronics
melt and weld	meld
metropolitan and heterosexual	metrosexual
mock and cocktail	mocktail
modulator and demodulator	modem
motor and cavalcade	motorcade
news and broadcast	newscast
Nigeria and Hollywood	Nollywood
Oxford and Cambridge	Oxbridge
parachute and troop	paratrooper
picture and element	pixel
pulsating and star	pulsar
porter (to carry) and manteau (a cloak)	portmanteau
sex and exploitation	sexploitation
sheep and people	sheeple
situation and comedy	sitcom
skirt and short	skort
smack and mash	smash
sound and landscape	soundscape
Sensitive and Index	Sensex
spoon and fork	spork
squirm and wiggle	squiggle
stay and vacation	staycation
television and marathon	telethon
television and evangelist	televangelist
tomato and tobacco	tomacco
transfer and resistor	transistor
video and blog	vlog
vital and amine	vitamin
web and seminar	webinar
web and log	blog
worker and alcoholic	workaholic