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Economics HSC

Economics HSC

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O MT E X C L A S S E S E C O N O MI C S

Successful l y steppi ng i nto 6
t h
year i n order to achi eve once agai n success
1



“Achieve Success Through”
O M T E X C L A S S E S
“The Home Of Text”







ECONOMICS





SUCCESSFULLY STEPPI NG I NTO 6
TH
YEAR I N ORDER
TO ACHI EVE ONCE AGAI N SUCCESS



NAME OF THE STUDENT : - _______________________________________

NAME OF THE COLLEGE : -_______________________________________

NAME OF THE CLASSES : - OMTEX CLASSES




FOR PRIVATE CIRCULATION ONLY
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Introduction:




Economics is a social science which studies economic behaviour of the people. Economic behaviour
means how a man is earning income & how he is spending income for the satisfaction of wants. Thus,
wants satisfaction through earning & spending is the main subject matter of economics.
There are two branches of Modern Economics. These two branches are Micro Economics and Macro
Economics. These two terms were first coined by Prof. Ragnar Frisch in 1933.

FATHER OF ECONOMICS



Adam Smith





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Q1. WHAT IS MICRO ECONOMICS? EXPLAIN ABOUT ITS FEATURES?

Meaning: -The term Micro Economics is derived from the Greek work ―Mikros‖ which means
―Small‖. Thus Micro Economics is the Study of the Economic actions of individuals units and small
group of individual units.
Micro economics may be defined as “that branch of economic analysis which studies the
economic behaviour of an individual unit”. It is the study of one unit, rather than all the units
combined together.

FEATURES OF MICRO ECONOMICS
1. Study of Individual Unit: - Micro Economics is the study of the economic actions of individuals
units such as individual consumer or producer, household, particular firm, price of particular
commodity etc.

2. Microscopic Study: - Micro Economics is Microscopic Study of the economy. It is like looking at
the economy through Microscope to find out behaviour of individual producers and consumers and
working of the market for the individual commodities.

3. Price Theory: - Price is the core (heart) of Micro Economics. It is concerned with the Theory of
Product Pricing with its two constituents. Theory of consumer‘s behaviour and theory of
production and costs.

4. Slicing Method: - Micro Economics is concerned with small or specific unit of an economy and a
detailed study of it. Since Micro economics splits up the entire economy into small parts, it is also
known as ―Slicing Method‖.

5. Science of Economising: - It suggests economising (optimum use of resources) as the way out to
solve major economic problems in an economy.


6. Tools for evaluating economic policies: - Micro Economics provides tool for evaluating
economic policies of the state (Government). It explains conditions of efficiency in production
and consumption.

7. Not a study of Aggregates: - Micro Economics is distinct from Macro Economics. In Macro
Economics we are concerned with the economy as a whole. In micro economics we are concerned
with the study of Individual units.

Micro Economic
Theory
Value theory Distribution
theory
Theory of
economic
welfare
Consumption
Analysis
Production
Analysis
Rent Wages
Interest Profits
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Q2. What is Macro Economics? What are the features of Macro economics?

Meaning: -The term Macro is derived from Greek word ―Makros‖ which means large. Thus Macro
economics deals with the economic system as a whole.
Macro economics may be defined as ―that branch of economic analysis which studies the behaviour of
not one individual unit but all the units combined together‖, that is the study of Aggregates.


FEATURES OF MACRO ECONOMICS

1. Overall economic growth: - Macro Economics is concerned with the economic fluctuations,
inflation, instability, international trade an economic growth etc.


2. Overall employment: - It is the study of the causes of unemployment and various determinants of
employment.


3. Trade cycle: - It also studies business cycles related to the effects of the investment on the total
output, total income and full employment.


4. Study of foreign trade: - It also studies about the international trade relation to the problems of
balance of payments.



5. Study of money and finance: - The study of macro economics is concerned with the effect of the
total quantity of money on the general price level.



6. Study of national income: - It concerns with the problems of determinants of national income of a
country and causes of its fluctuations.



Macro Economic
Theory
Theory of Income
and employment
Theory of General
Price level and
Inflation
Theory of
Economics
Growth
Macro Theory of
Distribution
Consumption
function
Investment
function
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Q3. WHAT IS UTILITY? WHAT ARE THE CHARACTERISTICS OF UTILITY?


Meaning: -In economics, utility refers to the ―Want satisfying power of a commodity‖. For example: -
Water has utility because it can satisfy the thirst of a person.

FEATURES OF UTILITY

1. Subjective concept: - Utility is a psychological concept. It depends on the state of mind of an
individual. For example (1) Cigarette has much utility to a smoker, rather than that of a Non –
smoker. (2) Walking stick has much utility to an old man, rather than that of a young man.



2. Relative concept: - Utility of a commodity changes from time to time and place to place. For
example (1) Woollen clothes has more utility in Kashmir, than in Mumbai. (2) Umbrella has more
utility in rainy season, than in summer.



3. Different from satisfaction: - Utility is not ame as that of satisfaction. Utility is not same as the
satisfaction. Utility is the power of commodity which a consumer expects before consuming a
commodity. But satisfaction is something which he realise after consuming it.



4. Different from pleasure: - A commodity may have utility but need not give pleasure. For ex:
Bitter medicine does not give pleasure. Yet it cures the disease.



5. Different from Usefulness: - Utility is the want satisfying power of the commodity. But
usefulness is the benefit the consumer enjoys. A commodity may have utility but may not be
useful. For ex: Liquor has utility to a drunkard, but it is not useful to his health.



6. Cannot be measured cardinally: - Utility, being a subjective concept, cannot be measured
numerically. But it can only be measured ordinally, i.e. in the order of preference.



7. Multi purposive: - A single commodity may have many utilities. For ex. Electricity, water, Coal
etc.
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4. WHAT IS PERFECT COMPETITION? WHAT ARE THE FEATURES OF PERFECT
COMPETITION?

Meaning: -A perfect competition is ―a perfectly competitive market is one in which there exist large
number of buyers and sellers engaged in buying and selling homogeneous products at uniform price
without any restriction and possessing perfect knowledge of market conditions‖

Features of perfective competition

1. Large number of buyers and sellers: - There exist large number of buyers and sellers in a
perfectly competitive market. The number of buyers and sellers are so large that a single buyer or a
single seller can‘t influence (manipulate) the price or output through his action.

2. Homogeneous Product: - The products sold in market are homogeneous, that is identical in its
taste, shape, size, colour, design, quality etc.

3. Freedom of entry and exit: - There is freedom of entry and exit to the firms under perfectly
competitive market. Any firm (buyer or seller) can enter into the market, without any restrictions.


4. Perfect Knowledge: - Buyers and sellers must have a perfect knowledge about the market
conditions. They should have complete information about the price at which goods are bought and
sold and the place where the transactions take place etc.


5. Perfect mobility of goods and factors: - Factors of production are free to move from one region
to other and from one occupation to other.


6. Absence of transportation cost: - It is assumed that ther is no transportation cost in carrying
products from one place to another. All the producers work sufficiently close to each other and that
there is no transportation cost.

7. Non Government Intervention: - Perfect competition is also characterised by Laissez – faire
policy or non intervention of the Government in the economic activities of the people.


8. Absence of Non – Price competitions: -Since the products are standardised or homogeneous,
there is no non – price competition in the market.


9. Single Goal: - It is assumed that every firm has only one goal. i.e. maximisation of profit.


10. Rationality: - It is assumed that all buyers and sellers behave rationally. While the buyers aim at
maximum satisfaction, the sellers aim at maximum profit.


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5. WHAT DO YOU MEAN BY MONOPOLY? WHAT ARE THE FEATURES OF MONOPOLY?


Meaning: -The word ―MONOPOLY‖ is derived from two Greek words ―Mono‖ which means
―Single‖ and ―Poly‖ which means ―Sellers‖. Thus Monopoly refers to ―market structure in which a
single seller controls the entire market‖.

Features of Monopoly


1. Single seller: - There exists single seller or producer for a product in the market. Since he is the
sole producer, he has complete control over the price or output sold in the market.
2. Absence of close substitutes: - There are no close substitutes for the products sold in the market.
Since there is no close substitute for the products, no other firms produces the same product.
3. Barrier to Entry and Exist: - Under Monopoly, there is a barrier to the Entry and Exist of firm in
the market. New firms are not allowed to enter into the market.
4. No distinction between firms and Industry: - Under Monopoly, there is no distinction between
the firm and industry. The firm itself is the industry. The demand curve faced by the firm is
industry demand curve itself.
5. Price Maker: - The firm under Monopoly is a price – maker, not a price taker. Monopolist can set
any price of his advantage.
6. Profit Motive: - The ultimate aim of the monopolist is maximisation of profit. Producer can fix
any price for his product and can take the whole income of the consumer.






DAVID RICARDO

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6. WHAT IS MONOPOLISTIC COMPETITION? WHAT ARE ITS FEATURES?

Meaning: -Monopolistic competition refers to a market situation, in which a large number of firms
sell a differentiated product. ―The competition is keen among many firms making or producing very
similar products.‖ Thus, Monopolistic competition refers to the competition among large number of
sellers producing close but not perfect substitutes to each other. There exists competition among large
number of sellers. At the same time, they have some degree of Monopoly power in the market, as they
sell differentiated product.

Features of Monopolistic competition are

1. Large number of sellers: - There exist large number of sellers in the market. The number of
sellers is so large that no one has complete control over the supply of the product in the market.

2. Product Differentiation: - Product differentiation is the most distinguishing feature of
Monopolistic competition. Various firms sell differentiated products which are close substitutes to
each other even though not so perfect. Differentiation may be in patent, trade mark, quality,
design, colour or style.


3. Large number of Buyers: - There exist large number of buyers in the market. Each buyer has a
preference for a specific brand of product. Thus he becomes patron (fan) of a particular seller.

4. Freedom of Entry and Exit: - There exist freedom of entry and exit of firms in the market.


5. Absence of Interdependence of firms: - Under Monopolistic competition, each firms are
independent not inter – dependent. Each firm have independent policies regarding price and
output.

6. Selling cost: - Selling costs are the cost incurred for the sales promotion. Since products are
differentiated and changes from time to time, advertising and other forms of sales promotion has
become an integral part of marketing of goods. Thus selling cost is the unique feature of
Monopolistic competition.


7. Two dimensional competitions: - Under Monopolistic competition, the competition among the
sellers take place in two dimensional.

i. Price competition: - Under Price competition the firms compete with each
other by lowering the price of the product to take advantage of higher sales.

ii. Non Price competition: - Under Non price competition the firms compete with
each other by making variation in the product or through selling cost. Through
this each seller tries to capture the market.

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7. WHAT IS LAND? WHAT ARE THE FEATURES OF LAND IN ECONOMICS?

Meaning: -

Following are the some of the important Features of Land

1. Natural factor: -Land is not a man made factor. It is the free gift of nature. It refers to all natural
resources that are found on, above and under the surface of earth. Hence land has no cost of
production.

2. Fixed supply: - Supply of land is fixed, as it is a natural factor. Man cannot increase its supply. He
can secure more land by drying up a lake or a part of the sea. But it cannot be a new land. It is the
part of the existing land not a new land. Thus it can neither be increased nor decreased.

3. Permanent factor: - Land is not a perishable factor, it is a permanent factor. It cannot be
destroyed. Thus, unlike labour and capital it is a permanent factor.

4. Passive factor: - Unlike labour and capital Land is a passive factor. Land by itself cannot produce
anything, thus it is not an active factor. It becomes active only if we apply other factors like labour
and capital to it.

5. Land is heterogeneous in character. The quality of land changes from place to place. All units of
land are not exactly same in terms of fertility. Some units of land are more fertile, while some units
are less fertile. Due to this difference in fertility, productivity of land differs from place to place.

6. Land is an immobile factor: - Land is geographically immobile because it cannot be shifted from
one place to another. But it has occupational mobility, since it can be put to alternative uses. I.e.
the same land can be used for producing various crops.

7. No cost of production: - Since land is a free gift of nature, it does not involve cost of
production. There is no cost of production involved in the supply of land.


Alfred Marshall
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8. WHAT IS LABOUR? WHAT ARE THE FEATURES OF LABOUR IN ECONOMICS?

Ans. Marshall Defined Labour as ―Any Exertion of mind of body undergone partly or wholly with a
view to earn some income, other than the pleasure derived from work‖
From the above definitions we can sum up the labour as_

1. Any physical or mental work (exertion)
2. Purpose behind the exertion is to earn some reward.
3. It is not undertaken only for pleasure.
4. It should add utility and create value.
5. If and only if work is done in order to earn some livelihood (reward), then only that exertion can
be regarded as Labour.
6. It is rendered by human beings.
7. Labour may be manual. Example physical work of carpenters, cobblers etc.
8. Labour may be Mental. Example work of Doctors, teachers, engineers, architects etc.

Following are the some of the important Features of Labour are

1. Labour is a human factor: - Labour is a human factor. It is the service provided by human beings
who participate in productive activities.

2. Labour is a living factor: - Since labour is a human factor, it is a living factor too. It is a part of
human being. Labour has his own likes and dislikes.


3. Most active factor: - Without labour, there will be no production and economic development. It is
the labour that makes use of all factors of production and makes the production possible. Hence
labour is the most active factor of production.

4. Perishable factor: - Labour is a perishable factor because labour cannot be stored. It is not
possible to store labour for future use. It a worker is absent for a day the day‘s labour is gone. In
the second day, he can supply the second day‘s labour, bit not the first day‘s labour. The amount of
labour lost is lost for ever.


5. Heterogeneous factor: - Since labour is a human factor, it is heterogeneous in nature. One labour
differs from other due to difference in skill, efficiency, talent, intelligence, willingness to work,
capacity to work etc.


6. Labour is inseparable from the labourer: - Land and capital can be separated from heir owners
but labour cannot be separated from their owners. All those who are interested in working have to
go to the place of work. They cannot sit at home and send the work to working place.


7. Labour is mobile. Labour enjoys both geographical as well as occupational mobility. However
the mobility of labour faces some limitations like age factor, language, climate, Transport, housing
problems etc.

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9. WHAT IS CAPITAL? WHAT ARE THE FEATURES OF CAPITAL IN ECONOMICS?

Meaning: -In Economics, the term capital refers to ―that part of wealth which is produced by man and
is used for further production.‖ Capital includes all man – made goods which are used for further
production.

Following are the some of the important Features of capital

1. Capital is a Man made factor: - Capital is not the free gift of nature. It is a man made factor of
production. It is born out of savings or investment made by man.

2. Capital is a Productive factor: - Capital is highly productive factor. Use of capital not only
improved efficiency of land and labour; but also increases the total production.

3. Capital is a Passive factor: - Like land, capital is also passive factor of production. But it
becomes active, when it is used along with labour.

4. Capital is a mobile factor: - Capital has highest mobility as compared to land and labour. It has
both geographical and occupational mobility.

5. Capital satisfied human wants indirectly. Capital goods cannot satisfy the human wants directly.
Capital goods are not demanded for their own sake. They are demanded because they help us to
produce other things. For, e.g., Cotton textiles were demanding for raw cotton to produce the
cotton textiles.

6. Physical capital assets have durability but are subject to depreciation: - Physical capital assets
such as factory, building, machinery, tools & implements are durable in nature. But they are tends
to be depreciation overtime. Hence after certain period of time they become useless in production
activity.

7. Capital is a part of wealth: - Capital is a part of wealth. This is because capital has all features of
wealth namely_


1. utility
2. scarcity
3. transferability &
4. externality

So all capital is wealth but all wealth is not capital.
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10. WHAT IS NATIONAL INCOME? WHAT ARE THE FEATURES OF NATIONAL INCOME?


Meaning: - The term National Income is defined by SIMON KUZNETS as ―the net output of
commodities and services flowing during the year from the country‘s productive system in the hands
of ultimate consumers.‖

Following are the some of the important Features of National Income


1. Overall study: - National income is a study of Macro economics.


2. Circular flow: - It is a flow concept in the process of production, income generation and
expenditure.


3. Money value: - National income is expressed in terms of money. It is measured annually.


4. Productive services: - It includes only productive services which are exchanged for money viz
services. E.g. Services by housewives are not included in national income. National income
includes net earnings from abroad.


5. Mathematical Expression: - National income = Net National Product at Market price – Indirect
taxes + Subsides.

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1. WHAT ARE THE TYPES OF UTILITIES?


Meaning: - In economics, utility refers to the “Want satisfying power of a commodity”.
For example: - Water has utility because it can satisfy the thirst of a person. There are five types of
utilities.
THERE ARE FIVE TYPES OF UTILITIES.

1. Time utility: - It is the utility created in a commodity due to change in time of utilisation. For ex.
Ice – cream has more utility in summer season than winter.

2. Place utility: - It is the utility created in a commodity by changing the place of utilisation. For ex.
By transporting foodgrains from abundant region to the scarce region, place utility is created.

3. Form utility: - It is the utility added in a commodity by changing its form or structure. For ex.
When a carpenter converts wood into a chair, form utility is created.

4. Service utility: - It is the utility derived from the personal services of Doctors, Lawyers, and
Teachers etc.

5. Possession utility: - It is the utility derived due to the possession of a commodity. For ex. A
person derives more utility from his own house, rather than from a rental house.

2. WHAT ARE THE TYPES OF MONOPOLY?

Ans. The word ―MONOPOLY‖ is derived from two Greek words ―Mono‖ which means ―Single‖ and
―Poly‖ which means ―Sellers‖. Thus Monopoly refers to ―market structure in which a single seller
controls the entire market‖.
Types of Monopoly

1. Pure, perfect or Absolute Monopoly: - Pure Monopoly refers to a market structure in which a
single firm controls the entire supply of a commodity, which has no substitutes. Pure Monopoly is
enjoyed by local public utility industries like Gas, Electricity, Water supply etc.

2. Imperfect Monopoly: - Under Imperfect Monopoly, firm lack absolute Monopoly power in
deciding price and output. Hence, imperfect monopoly is referred to as Limited or Relative
Monopoly.

3. Simple Monopoly: - If a firm charges a uniform price for its output sold to all the buyers, it is
called simple Monopoly. In this case there is no price discrimination in the market.

4. Discriminatory Monopoly: - If a firm charges different prices for the same product to the
different buyers, it is called Discriminatory Monopoly. There is no uniformity of price in such
market.

5. Private Monopoly: - When an individual or a private body controls the Monopoly firm, it is called
private monopoly.

6. Public Monopoly: - When the field of production is completely owned, managed, controlled and
operated by the state i.e. Govt. it is called public monopoly.
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3. WHAT ARE THE TYPES OF CAPITAL?


Meaning: - In Economics, the term capital refers to ―that part of wealth which is produced by man and
is used for further production.‖ Capital includes all man – made goods which are used for further
production‖.

Types of capital are


1. Private Capital: - It is the capital owned by individual or group of individuals or firms. Example:
private firm, plant etc.


2. Public Capital: - It is the capital owned collectively by the society or Govt. Example, Roadways,
Railways etc.


3. National Capital: - It is the summation of private and public capital.


4. Fixed capital: - It is the capital which can be used again and again in the process of production.
These are capital used repeatedly in the further production. They are ―Durable‖ in nature. For
example: Factory Building, Machinery etc.


5. Variable (working) capital: - It is the capital which can be used only once in the process of
production. It cannot be used again and again in the further production. After the use of variable
capital its utility gets exhausted. For example: raw material, fuel, coal, electricity etc.


6. Sunk Capital: - It is the capital which can be used only for a particular purpose. It is otherwise
called as ―Specific capital‖. For example: - Road roller, washing machine, sewing machine etc.


7. Floating capital: - It is the capital which can be put to several uses. It has many alternative uses. It
is multi – purposive capital. Example: Raw material like sugarcane can be used for producing
sugar or jaggery, fuel, electricity, Money etc.


8. Real Capital: - It is the Physical or tangible capital. It is the physical assets used in the production
process. Example: - Machinery, raw material, plant, factory building etc.



9. Money capital: - Capital invested in the form of money is known as money capital. It includes
cash, Investment in shares, debentures, deposits. etc.

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4. WHAT ARE THE TYPES OF MONEY?

Ans. According to Robertson, Money may be defined as ―Anything which is widely accepted in
payment for goods or in discharge of other kinds of business obligations is called money.‖
Types of Money are
Broadly speaking there are two main types of money.
i. Metallic Money
ii. Paper Money.
They are further classified into different types given as below.

1. Standard Money: - The standard money is made of gold, silver or sometimes both. Usually its real or
intrinsic value is equal to its face value.

2. Token Money: - Token money is made of cheaper metal. Its face value is greater than its intrinsic or
metallic value.

3. Representative money: - In early times, when notes were introduced, they were backed by an exactly equal
amount in gold or silver kept in reserve by the issuing authority. Such notes could be exchanged for coins
when needed and did nothing more than represent coins. They were known as representative money.

4. Bank Money: - Bank money refers to bank deposits. The bank deposits can be turned into money by their
depositors by means of cheques.

5. Money of account: - Money of account is the monetary unit in terms of which the accounts of a country are
kept and transaction made. The rupee for instance is money of account in India, Sterling of England, and
Dollar of U.S.A. Mark of West Germany etc.

5. CLASSIFICATION OR TYPES OR KINDS OF DEMAND?
Answer. Demand means a desire to have something. But mere desire is not a demand. In economic the word
‘demand’ is used in a particular sense. “Demand is desire backed with purchasing power and willingness
to pay for it”.

1. Individual Demand: -An individual demand is the number of items demanded by a single person at a
particular price at a particular time from a particular market. For eg. Mr. X demands 5kg of rice at Rs. 10/-
per kg.

2. Market demand: -Market demand is the total demand for a commodity made by all consumes. It is the
sum total of individual demand at a particular price from a particular period of time. For eg. Demand for
Rice is 15 tons at the rate of Rs. 10/- per. Kg.

3. Direct Demand: -A demand is said to be direct if a good is purchased for direct satisfaction of a want. For
eg. Demand for consumable like Food, oils, fruits etc.

4. Derived Demand: -A demand is said to be derived demand if a factor of production like labour is
demanded due to a demand for a final goods. For eg. When there is more demand for food grains, there is
more demand for land and labour for cultivation.

5. Joint demand: -When two or more than two goods are demanded jointly to satisfy a want it is called joint
or complementary demand. For eg. Bread And Butter, Pen and Ink, Car and Petrol etc.

6. Composite Demand: -When a good is demanded for several uses it is called composite demand For. eg.
Coal may be demanded for cooking, steam engines etc. Similarly steel may be demanded for manufacturing
cars, building, and construction of Railways etc.
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6. WHAT DO YOU MEAN BY COMMERCIAL BANKING? WHAT ARE THE TYPES OF
BANKING ORGANISATION?

Ans. According to Oxford Dictionary ―A Bank is an establishment for the custody of money, which it
pays out on a customer‘s order.‖
Organisation & Structure of Commercial Banks are not the same in every country. The banking
organization may be based on

1. Unit banking: - Under this system an individual banking company undertakes the whole banking
business from a single office. U.S.A. is the originator of it.

2. Branch Banking: - In this case a big bank establishes several branches in the different parts of the
country and undertakes banking business through these branches. In 1833 this type of banking was
started in England. Branch banking system becomes popular in India.

3. Chain Banking: - A person or a group of person will have control over the existing bank known
as chain banking. It was started in U.S.A. in 1925.

4. Group Banking: - Under this system, two or more banks are controlled by a corporation, trust,
associations. This type of banking was operative in the U.S.A. between 1925 & 1929.

5. Pure Banking: - Under this system a commercial banks are engaged in financing only short term
loans and other requirements of industry, trade and commerce. Short term loans are given only for
a period of six months. This system is very popular in England.

6. Mixed Banking: - Under this system both short term and long term loans are sanctioned.
Generally the banking business is undertaken by the mixed banking. In India commercial bank are
performing the functions of mixed banking.


7. WHAT ARE THE TYPES OF PRICE ELASTICITY OF DEMAND?

Meaning: -Price elasticity of demand can be defined as the percentage change in the quantity of a
commodity demanded in response to a given percentage change in its price.

The following are the different types of price elasticity of demand:

1. Unitary Elastic Demand: - The demand is said to be unitary elastic when proportionate change in
price is equal to proportionate change quantity demanded. The numerical value of unitary elastic
demand is one.
D
p P
1
r Ed = 1
i P
c P
2 D

e

Q
1
Q Q
2

Quantity demanded
2. Relatively Elastic Demand: -The demand is said to be relatively elastic when a proportionate
change in price is greater than the proportionate change in quantity demanded. The numerical
value of relatively elastic demand is greater than one [ PP
1
= QQ
1
] [PP
2
= QQ
2
]
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3. Relatively Inelastic Demand: -The demand said to be relatively inelastic when a proportionate
change in price is less than the proportionate change in quantity demanded. The numerical value of
relatively inelastic demand is less than one


4. Perfectly in elastic demand: -The demand is said to be perfectively inelastic demand when
proportionate change in the price is zero than the proportionate change in quantity demanded. The
numerical value of perfectively inelastic demand is zero.


5. Perfectly elastic demand: -The demand is said to be perfectly elastic when slight proportionate
change in the price is infinite (unlimited) proportionate change in quantity demanded. The
numerical value of perfectly elastic is ( infinite)


8. CLASSIFICATION OR TYPES OR KINDS OF INVESTMENT?

Meaning: - Investment refers to the use of saving for purpose of production made by an individual or
a business firm. The aim of investment is to acquire capital goods or assets e.g. Machinery, plant,
factory building, raw materials etc.


1. Gross investment: - Gross investment refers o total expenditure on capital goods. Includes all the
machines, factories, houses and other capital assets added in a year, it also includes depreciation.


2. Net investment: - Net investment refers to expenditure incurred on increasing stock of capital
goods it refers to the cost incurred by he firm against white washing, repairing of building,
replacement of certain parts of machineries etc. it excludes depreciation.



3. Autonomous investments:- These are investments made by the government for the welfare and
benefit of the people. These investments are made without any profit motives. This type includes
investments made by the government in roads, railways, dams, etc.


4. Induced investment: - These are investments made by the private sector or private entrepreneurs
mainly for profit motive; it is prominent in capitalistic and free market economics.



5. Financial Investment: - These are investments incurred on the purchase of shares, bonds,
securities. These do not add to the stock of capital.



6. Real Investment: - These are investments incurred on real capital assets like machinery, raw
materials, and buildings.
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9. CLASSIFICATION OR TYPES OF GOVERNMENT BUDGET?



Meaning: -Budget is a document containing estimates of revenue and capital receipts and also
expenditure of the government for the next financial year.




1. Balanced Budget: - Balanced budget provides for all expenditures of the government during the
next year from revenue receipts of that year.



2. Deficit budget: - if the budget provides for total expenditure of the government in excess of the
revenue during the next year, it is a deficit budget.



a. Revenue Deficit: -Revenue expenditure of the government exceeds revenue receipts.



b. Budgetary Deficit: -When government‘s total expenditure exceeds total receipts, the
difference is budget deficit.



c. Fiscal Deficit: - When government‘s total income exceeds revenue receipts and only a
few designated capital receipts, the difference is fiscal deficit.



d. Primary Deficit; -it is the deficit after deducting the interest payments from the fiscal
deficit.



3. Surplus Budget: -Surplus Budget provides for excess of revenue receipts over expenditure. It is a
surplus revenue budget.


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10. WRITE ABOUT GIFFEN‟S PARADOX OF VALUE?


Meaning: -A commodity may have high value in use but has no value in exchange. On the other hand,
some goods have high value in exchange but relatively less value in use. For e.g. Air has high utility
and high value in use but no value in exchange. On the other hand goods like gold, diamond have high
value in exchange but very low value in use. This distinction between value in use and value in
exchange is known as the paradox of value.

1. The phrase Giffen‘s Paradox is used to describe the unusual behaviour of the consumers in case of
the demand in relation to price.

2. Sir Robert Giffen found out that in case of inferior goods, the law of demand does not work.


3. The inferior goods such as cheap bread, match boxes, etc. are demanded less if their prices
decrease and vice versa.

4. When the prices of Giffen goods fall, the consumer‘s real income rises. Therefore, the consumer
prefers to buy superior product available in the market.

5. Thus in case of Giffen gods, even though the price falls, the demand remains constant or even
falls.

11. STATE THE PRACTICAL IMPORTANCE OF ELASTICITY OF DEMAND?

Meaning: - Elasticity of demand is the degree of responsiveness of the quantity demanded of a
commodity due to change in its determinants like Price, Income, prices of related goods, etc.

The practical importance of the elasticity of demand is explained as follows: -

1. Fiscal Policy: - Government may raise indirect taxes on those goods whose demand is highly
inelastic, for example, cigarettes, wine, etc.

2. Price Discrimination: -The monopolist can fix high prices for those commodities for which
demand is inelastic (for example, quality soap demanded by rich) and less prices for those
commodities for which demand is elastic (for example, ordinary soap demanded by masses)

3. Trade Unions: - Trade unions can successfully bargain for higher wages if they produce
commodities for which demand is relatively inelastic.

4. International Trade: - A country can export those goods whose demand are inelastic in world
market and should import those goods whose demand is more elastic in domestic market.

5. Public Utilities: -The necessary products have inelastic demand. Therefore, public utilities like
postal services, rail. Roads, electricity, etc. should be under government hold to avoid exploitation
by private sector.

6. Pricing: -The concept of elasticity of demand is useful in product pricing and factor pricing. The
commodities and the factors having inelastic demand command high prices and vice versa.


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1. STATE THE FACTORS INFLUENCING (DETERMINANTS) THE ELASTICITY OF DEMAND?


Meaning: - Elasticity of demand is the degree of responsiveness of the quantity demanded of a
commodity due to change in its determinants like Price, Income, prices of related goods, etc.

There are several factors influencing the Elasticity of Demand. They are as follows:

1. Nature of Commodity: -It is one of the important determinants of elasticity of demand. For
example, the demand tends to be elastic for luxury goods like cars, perfumes, etc. and inelastic for
necessities like salt, medicines, etc.


2. Availability of Substitute: - The commodities having many substitutes in the market have
relatively elastic demand for example, soaps, shampoo, biscuits, and cold drinks, etc. have many
substitutes; therefore, they have elastic demand. On the other hand, salt has no substitute and
therefore it has always inelastic demand.


3. Number of uses: -The commodity is having many uses have relatively elastic demand. When its
price falls, it can be put into many uses but when its price rises, it can be put only for important
purposes. For example, electricity. The demand for a commodity having a specific use has
relatively inelastic demand.



4. Income of the Consumer: - Change in price does not affect the demand of rich people. Thus
people who have high level of income have relatively inelastic demand. The demand of poor
individual changes according in price, thus it is relatively elastic.



5. Proportion of Income: - If an individual spends small proportion of his income on a commodity,
it has relatively inelastic demand. For example, Paper pins. On the other hand, if an individual
spends a major proportion of his income on a commodity, it has relatively elastic demand for
example, Perfumes.



6. Urgency and postponement: -If the use of commodity is urgent, the demand is relatively
inelastic. For example, medicines. On the other hand, if the use of commodity can be postponed to
a future date, demand will be relatively elastic. For example, ice cream.



7. Influence of habits: -If an individual becomes habituated to use certain commodity, then the
demand becomes inelastic. For example, smoker‘s demand for cigarette.

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2. EXPLAIN THE DIFFERENT METHODS OF MEASURING PRICE ELASTICITY OF DEMAND.

i. Ratio or Percentage method: The percentage method measures the elasticity of demand by
means of percentage change in the price and the demand for the commodity. The formula used
for the measurement of elasticity is as follows.












ii. Total outlay method: The total outlay or expenditure method of elasticity of demand was
developed by Prof. Alfred Marshall. With the help of the following demand schedule, elasticity
of demand is measured as follows. This method is also called as Total Revenue or Total Expenditure
method. The total outlay method can be expressed in the form of equation as follows.
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TOTAL OUT LAY METHOD PRICE PER UNIT X QUANTITY DEMANDED.

This is Marshall‟s method of measuring elasticity of Demand.

Price (in Rs. ) Quantity demanded Total outlay Elasticity
50

40
5

10
250

400
Relatively Elastic

E
p
> 1

If a change in price brings about a change in quantity demanded in such a way that the total outlay goes
on increasing, then demand is relatively elastic.

Price (in Rs. ) Quantity demanded Total outlay Elasticity
30

20
20

30
600

600
Unitary Elastic

E
p
= 1

If a change in price brings about a change in quantity demanded in such a way that the total outlay
remains the same, then demand is unit elastic.

Price (in Rs. ) Quantity demanded Total outlay Elasticity
10

05
40

50
400

250
Relatively inelastic

E
p
< 1

If a change in price brings about a change in quantity demanded in such a way that the total outlay goes
on falling, then demand is relatively inelastic.

iii. Geometric Method: - This method is also called point method. This is the most simple and scientific
method given by Marshall to measure elasticity of Demand at any point of the demand curve. A demand
curve may be linear or not linear.





The above diagram No (1) shows that
The point A and B is a segment. P is the point divides the segment into two parts. AP is the upper segment and
BP is the lower segment. The price elasticity at point P is measured by a ratio of lower segment of the demand
curve from point P. i.e. PB and the upper segment from point P i.e. PA. The formula is used.

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3. EXPLAIN THE RELATIONSHIP BETWEEN TOTAL UTILITY AND MARGINAL UTILITY


Total utility is the sum total of the utilities derived at a particular level of consumption where as
marginal utility is an additional utility derived by consuming one more unit of the commodity.
The following illustration of a schedule and a diagram explain the relationship between total utility
and Marginal utility. Let us assume that an individual consumer Mr. „X‟ found of mangoes and start
consuming unit of mangoes in quick successive unit of mangoes.


Units of mangoes Total Utility (T.U) Marginal Utility(M.U)
1
2
3
4
5
6
7
10
18
24
28
30
30
28
10
8
6
4
2
0
-2

DI AGRAM



With the help of the Schedule and Diagram we derives the following three conclusion

1. To begin with as the consumer consumes unit after unit of a commodity the total utility goes on
increasing in the early stages but the marginal utility goes on falling right from the beginning.

2. Then if the consumer keeps on consuming more units of mangoes a stage is reached where T.U.
remains constant. Hence M.U. becomes Zero. Therefore Total Utility is constant or maximum
when M.U. is zero.


3. If the consumer consumes still more and more units of Mangoes, then instead of adding to his
level of satisfaction he finds that total utility goes on decrease. When total utility decreases, the
marginal utility becomes negative.

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4. WHAT ARE THE DETERMINANTS OF INDIVIDUAL DEMAND?


Introduction: - There are various factors which influence the quantity demanded of a commodity by all/ many
individuals in a market.



The demand for a commodity is determined by the following factors



1. Price of a commodity: -Demand depends on price of a commodity. The higher the price the lower
is the demand. The lower the price the higher is the demand.



2. Price of substitute: -Demand depends on the price of substitute for e.g. the demand for LUX soap
depends on the price or other soaps like Hamam, Rexona, etc.



3. Availability of related goods: -In case of complimentary goods like ink and pen, car and petrol,
bread and butter etc the demand will be more even if the price or only one product goes down.



4. Income: -The income of the person also determines the demand. The higher the income the higher
is the demand. The lower the income the income the lower is the demand.



5. Utility: -The demand for a commodity depends on its utility. The higher the utility of a commodity
the greater is the demand for it.


6. Quality: -The better the quality, the higher is the demand. Individual will buy a product of better
quality even if the price is more.


7. Taste and Habit: -Demand for a commodity depends on taste, fashion and habit. A consumer will
buy certain goods on account of force of habit e.g. Cigarette, tobacco, pan masala, wines etc.
Therefore the quantity demands of these goods would change when there is a change in habit, such
as giving up smoking, wines etc. Therefore the quantity demands of these goods would change
when there is a change in habit, such as giving up smoking, wines etc.


8. Advertisement and salesmanship: -Advertisement and salesmanship also influences the demand.
Individuals give preference for the products which are advertised. The better the advertisement, the
higher is the demand

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5. WHAT IS AGGREGATE DEMAND? WHAT ARE ITS DETERMINANTS?

Meaning: - Aggregate demand is the total demand in an economy which includes consumption, investment,
government expenditure and foreign demand. The aggregate demand is sympollically stated as:
AD =C+I+G+ (X-M)

Where, C = aggregate consumption expenditure
I = aggregate investment expenditure
G =aggregate Government expenditure
X = Exports and M = Imports.

Following are some of the determinants of Aggregate Demand

1. Consumption Expenditure: -Consumption Expenditure refers to the total consumption expenditure
incurred on final goods and services by the individual and firms to fulfil their consumption needs in an
economy. This consumption can be autonomous or induced.

2. Investment Expenditure: -Investment Expenditure refers to the expenditure incurred by the individuals,
firms and the government for acquiring new capital assets.

3. Government Expenditure: -Government Expenditure implies expenditure incurred by the government on
providing services, social welfare measures and development of infrastructure.

4. Foreign Transaction: -The Foreign Transactions are in the form of imports and exports. When earnings
from the exports are greater than the payments made for imports, the net income is added to aggregate
demand and vice-versa.


6. WHAT IS AGGREGATE SUPPLY? WHAT ARE ITS DETERMINANTS?

Meaning: -Aggregate Supply refers to the sum total of the output of goods and services produced and supplied
in an economy during a given period of time usually a year. Thus aggregate supply includes the goods produced
by all the sectors namely, Primary, Secondary and Tertiary sector. The production of goods and services
depends on the availability and the use of natural resources, labour, capital and technology.

1. The determinants of the aggregate supply are Natural resources (N), Labour (L), Stock of Capital (K) and
State of Technical Knowledge (T). The aggregate supply (AS) or Output (O) is the function of or depends
upon the Natural Resources (N) Labour (L), Stock of Capital (K) and state of Technical Knowledge (T).

2. Thus, AS = O = f (N, L, K, T) where N, K and T are constant in the short run.


3. Natural Resources (N): -Renewable natural resources like land, water, etc. non-renewable resources like
mineral, oil, etc. determine the level of aggregate supply.

4. Labour (L): -Labour is the most active and human factor determinants aggregate supply. Trainings,
Experience, education increase labor‘s productivity and in turn aggregate supply.

5. Stock of Capital (K): - All kinds of capital assets like machinery, infrastructure, transport, communication,
etc. influences the level of aggregate supply.


6. State of Technology (T): - Technical knows how determinants Labour productivity and in turns determines
aggregate supply. Advanced and sophisticated technology increases aggregate supply and vice versa.


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7. WHAT ARE THE DETERMINANTS OF MARKET SUPPLY?


The market supply of any commodity X depends on a number of factors:



1. Price of commodity: - Firms produce goods and services to earn profit. So, higher the price of
commodities, the larger is the supply and vice versa.



2. Price of factor of production: -The cos of production increases in prices of factor of production.
Therefore, the supply rises if prises of factors of production are less and vice versa.



3. State of Technology: -Advanced and sophisticated technology increases the production and thus
supply of goods. On the other hand, traditional and outdated technology decreases supply.



4. Transport and communication facility; -Modern and speedy transport facilitates increase the
supply of goods in different markets but slow transport, breakdown, strikes, etc. decrease the
supply of goods.



5. Export and Imports: -Export of goods result in reduced supply of goods in domestic market. On
the other hand, import of goods increases the supply of different goods and services.



6. Time Period: - Supply can be more in the long run but less in short and very short period.



7. Weather Conditions: - The supply of agricultural products is determined by weather conditions,
favourable climate, rainfall, temperature, etc. Increase the supply of agricultural products. On the
other hand drought, floods, extreme variations in temperature, etc. reduce supply.


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8. WHAT ARE THE DIFFICULTIES INVOLVED IN THE MEASUREMENT OF
NATIONAL INCOME?
OR
THERE ARE NO DIFFICULTIES INVOLVED IN THE MEASUREMENT OF NATIONAL
INCOME? DO YOU AGREE OR NOT?


Definition: - The term National Income is defined by SIMON KUZNETS as ―the net output of
commodities and services flowing during the year from the country‘s productive system in the hands
of ultimate consumers.‖


Following are some of the difficulties involved at the time of measurement of national income:


1. Incomplete Records: -In villages and even in cities, many people do not maintain regular and
complete accounts. Hence it is very difficult to obtain the correct information for the national
income estimate.


2. Lack of systematic occupational classification: -It is very difficult to have a proper classification
of the occupations of the people in rural areas because the majority of the people work on farms
for sometime and also takes up other jobs during the off-season. Hence, no accurate measurement
of national income is possible.


3. Indifference of the people: -Most of the people in rural areas, being uneducated, are indifferent to
the work of preparing national income estimates. They do no co-operate fully with the government
officials in supplying the required information.


4. Illegal income: -In India, there is a parallel unaccounted (black) economy which is as significant
as the official Indian economy. The earnings from the barter economy and personal services in the
‗non-magnetized sectors‘ are a hidden fact.


5. Unpaid services: -The services of house-wives, self-employed persons and their family members
in various sectors such as agricultural, industrial and tertiary are not computed.


6. Non-monetized sector: -Barter exchange is still prevalent in some areas. Because of the existence
of such a non-monetized sector, it is not possible to know the correct market value of the many
goods produced and sold.


7. Double Counting: -When the value added method is followed, there is always a possibility of
double counting of income, e.g., value of sugar is to be included in the national income and not the
value of sugar cane, because the value of sugar includes the value of the sugarcane.

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9. WHAT ARE THE FUNCTIONS OF MONEY?

Meaning: -Money is anything that is generally accepted as a means of exchange and which at the
same time acts as a measure and has store of value. The limitation and difficulties of the barter system
led to the evolution of money as a common medium or means of exchange.

The different functions of money are summed up in the following couplet:
―Money is a matter of functions four, a medium, a measure, a standard and a store.‖

Definition: - According to Robertson, Money may be defined as ―Anything which is widely accepted
in payment for goods or in discharge of other kinds of business obligations is called money.‖

Definition: - According to Geoffrey Crowther, ―Money is one of the most important fundamental of
all man‘s inventions. Every branch of knowledge has its fundamental discovery. In mechanism it is the
wheel, in science it is fire, similarly in economics and in the whole commercial side of man‘s social
existence, money is the essential invention on which all the rest is based‖.


FOLLOWING ARE SOME OF THE IMPORTANT FUNCTIONS OF MONEY


1. Medium of Exchange: -The primary function of money is to serve as a medium of exchange.
Money serves as a means through which goods or services are exchanged, i.e. bought or sold.


2. Measure of Value: -Money serves as a common measure of value. It is a common yardstick of
value. Values of all goods and services are expressed in terms of money is called price. Thus, the
price comes into existence due to the use of money.


3. Store of value: -Today, we can store our wealth or other assets in the form of money. Money is
not perishable and it can be converted into any other form of assets whenever necessary.


4. Standard for deferred payment: - Money also serves as a standard for deferred payments, i.e.
payments to be made at a future date. All the payments of debts are finally received and paid along
with interest, in terms of money. Money also facilitates credits transactions.


5. Miscellaneous Functions: - In addition to the fundamental functions mentioned above, there are
many other functions which money performs. They are

1. Money is the most liquid asset. Money imparts liquidity to wealth. that is wealth can
Be easily converted into money.
2. Money makes wealth and capital more mobile.
3. Money is productive. It facilitates large-scale production and distribution of goods and
services.
4. Money provides a base for the modern banking and credit system.

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10. DEFINE A BANK AND OUTLINE THE FUNCTIONS OF COMMERCIAL BANK?

Meaning: -A bank is a dealer in the money market. It accepts deposits repayable on demand by
cheques and lends or invests the surplus money as a part of normal business. It makes a profit by
accepting deposits at a lower rate of interest and lending money at a higher rate of interest.

Definition; -According to Prof, Sayers defines Commercial bank has ―Institutions whose debts-
usually referred to as ‗bank deposits-are commonly accepted in final settlement of other peoples
debts‖.

Following points are some of the important functions of commercial banks

1. Accepting Deposits: -One of the fundamental functions of the commercial banks is to attract and
mobilize the savings of community in the form of deposits. The deposits are classified into the
following categories.

A. DEMAND DEPOSITS: -Demand Deposits are those deposits which are withdrawable on demand.
The demand deposits can be classified as follows:

a. Current account deposits: -They are mainly maintained by the business community to
facilitate frequent transactions with big amounts. Such accounts are mostly held by companies,
institutions, governments and private businessmen, etc. Generally no interest or very low rate
of interest is paid on current account holder.
b. Saving Bank Account: -It is a kind of demand deposits which is generally kept by people for
the sake of safety. This facility is given for small savers and normally a small rate of interest is
paid on this account.
c. Time deposit: -Time deposits are those which can be withdrawn only after a specified period
of time deposits can be classified as 1. Short term deposits 2. Fixed deposits 3. Recurring
deposits etc.

B. LENDING LOANS AND ADVANCES: -The second important function is lending loans and advances
to corporate sector. Business man and individuals. Loans can be classified into the following types.

1. Call loans: -These loans are called back at any time. Normally, these loans are taken by bill-
brokers or stock-brokers.
2. Short term Loans: -These are sanctioned for a period up to one year.
3. Medium term loans: -These are sanctioned for a period varying between one and five years.
4. Long Term Loans: -These are sanctioned for a period more than five years. Like deposits, there
are various kinds of advances given by the commercial banks. They are as follows.
a. Over Draft b. Cash Credit Bills of Exchange etc.


C. DEVELOPMENT OF CHEQUE SYSTEM: - Development of Cheque System is another important
primary function of a commercial bank. Cheques are basically of two types: - 1. Bearer Cheque 2.
Crossed Cheque. Commercial banks have encouraged the use of cheques in modern days.

D. REMITTANCE OF FUNDS: -Commercial banks help their customers in remitting funds from one
place to another place by issuing bank drafts, mail transfer, telegraphic transfer, etc. by charging
nominal commission.
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11. DEFINE AND EXPLAIN THE FUNCTIONS OF CENTRAL BANK?

Meaning: - A central bank is the apex financial institution of the banking system. It controls a
country‘s money and banking system. A central bank is a must for a modern state as the highest
financial authority. It is indeed indispensable. A central bank controls the monetary and the banking
system. It is the agency through which the state enforces the monetary part of its economic policy.

A central bank performs many important functions. These are:

1. Issue of notes
2. To act as a Government‘s bank
3. To act as a banker‘s bank
4. To be the custodian of exchange reserves
5. To be a lender of last resort
6. To act as a clearing House
7. To regulate credit

Following are the some of the important functions of central bank

1. Monopoly of note-issue: -In most of the countries, the Central Bank enjoys the monopoly of note-
issue. As such, it can function as the monetary authority and exercise control over the volume of
the currency of a country.

2. Government‟s Bank: -A Central Bank performs most of the monetary functions on behalf of the
government. The government and municipalities have their accounts in the Central Bank. It acts as
the custodian of the government funds and manager of public debts. In short, the Central Bank is
an agent, advisor and banker to the government.

3. Lender of the last resort: -Whenever a bank is in difficulty or does not have enough cash to pay
to customer, it approaches the Central Bank for help. There fore the Central Bank is called the
lender of the last resort.

4. Exchange Control: -A Central Bank controls all the foreign exchange dealings of a country. It
acts as the custodian of the foreign exchange reserves. It is the Central Bank‘s duty to stabilise the
exchange value of the home currency.

5. Clearing House: - A Central Bank arranges for the clearing of cheques through the clearing house.
Clearing of cheques enables banks to settle their mutual dues by the process of book entries. Thus,
inter banking payments are facilitated by the clearing system.

6. Control of Credit: -A Central Bank controls credit created by the banks in the country. Banks
may advance unduly more or less credit. A Central Bank sees that the volume of credit in the
country is adequate. It ensures that excessive bank credit is not used for speculative activities or to
rig prices or to hoard essential goods.

7. Promoters of development: - A Central Bank also helps the government in its effort‘s to promote
economic development by developing the financial sector of the economy.


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12. EXPLAIN ABOUT THE FUNCTIONS OF THE ENTERPRENEUR?

The function of an entrepreneur can be broadly classified into the following three categories.

1. Organising Function 2. Risk and Uncertainty Bearing Function 3. Innovation Function

1. ORGANISING FUNCTION:

As an organiser, an entrepreneur performs the following functions:

 Planning: -He takes economic decisions regarding what, how, where, how much to produce, etc.

 Factor Co-ordination: -He co-ordinates land, labour and capital in the right proportion to
produce maximum output at minimum cost.

 Supervision: - He supervises the activities of labours and functioning of capital for optimum
utilisation of time, money, energy and material.

 Policy making: -Entrepreneur should also make entire business policies – i.e. Policy regarding
inputs (factor of Production), size of the firm, advertisement and sales strategies etc. He should
frame all such business policies in such a way that cost of production should e minimum and
revenue (Profit) should be Maximum.

 Making Factor payments: -It is the responsibility of entrepreneur to make payments or
remuneration to the factors (inputs) of Production. He should pay remuneration to the factors
according to their contribution in the production process.

2. RISK AND UNCERTAINTY BEARING FUNCTION: -










3. INNOVATION FUNCTION : -
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13. OUTLINE THE QUALITIES OF A SUCCESSFUL ENTERPRENEUR?


Meaning: -Entrepreneurs is regarded as the ‗captain of an industry‘ it is the Entrepreneurs who
co-ordinates or combines, organise different factors of production. He not only organises, but also
control directs supervises and administers the productive activities. Thus, the work of
Entrepreneurs is rather tough complex and complicated. So, it requires special ability and
experience.


An efficient and successful Entrepreneur must possess the following qualities.


1. Efficiency: -He should be highly intelligent, able and efficient so as to tackle day to day
problems arising in business.


2. Organisation: - He should be a good organiser. He should have the ability to combine al
factors of production optimally i.e. in such a way that the cost of production is minimum. Thus
he should be a well co-ordinator.


3. Supervision: -He should be an efficient supervisor. He should be well equipped with
supervising the working of factors inputs. He should be a good initiator of business. He should
put right person in a right job.


4. Policy Maker: - He should be a good policy maker. He should be able to make entire business
policies such as policy regarding input, size of the firm, sales, advertisement payments of
remuneration to the factors etc.


5. Decision Maker: -He should be a quick decision maker. He should have the capacity to take
quick decisions regarding location of industry, investment, product to be produced, price of it,
cost of production, nature of production sales, etc. because delay in taking decision may result
in financial losses to the firm.


6. Self Confident: -He should be confident and should be able to develop confidence in others
regarding his integrity and honesty of purpose. It will help in building up and marinating good
will and reputation to his firm in the market.


7. Innovator: -He should be a good innovator. He should introduce new techniques of
production which minimise cost of production and should explore new raw material and
market for his product.

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14. EXPLAIN THE DIFFERENT METHOD OF MEASURING NATIONAL INCOME?



Meaning: - National Income may be defined as the money value of the aggregate of goods and
services produced and exchanged by the people of a country during a given period. National Income is
thus, the aggregate or total of all the incomes earned by the factors of production in the form of rent,
wages, interest and profits in a country.


Methods of measuring the National income:


There are three methods of measuring the National Income.


1. The Output Method: -The Output method also known as inventory method or the production
method. It implies the measurement of the national income by taking into consideration the sum
total of the gross value of the final goods and services manufactured in different sectors like
agriculture, industrial and tertiary sector, i.e. service sector of the economy, during the financial
year under consideration.



2. The Income Method: - The income method is also known as factor cost method. it implies the
summation of all the factor payments, viz rent, wages, interest and profits received by all the
persons and enterprises during a financial year. Under this system the national income is computed
by using the following formula:
National Income = Rent +Wages + Interest - Profit +undistributed profit +self-employed income
+ Net income from private and public property + Net income from abroad –Depreciation –
Transfer income.



3. The Expenditure Method: - The Expenditure method implies the summation of all the
expenditures incurred by the households, firms and government during the financial year under
consideration. Under this method, the national income is computed by considering the following
items: National Income = Private Final Consumption expenditure + Government Consumption
Expenditure + Net Capital Formation + Depreciation + Net foreign Income.

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15. WRITE SHORT NOTES ON SAVING FUNCTIONS?

Meaning: -The Saving Function or propensity to save explains the functional relationship between
income and saving. It shows how much a consumer will save at different levels of income.
Symbolically, saving function can be shown as: S = f (Y).

Following are the brief explanation of the Saving Function

1. Excess of income over consumptions called saving. Saving Function refers to the functional
relationship between the aggregate level of income, consumption expenditure and saving.

2. Saving Function states that saving tends to increase with increase in income and decrease in
Consumption.

3. In symbolically it can be defined as, S = Y =C and S = f (Y) where S stands for Saving, Y stands
for Income and C stands for Consumption.

4. Saving Function is explained with the help of the following schedule and diagram

INCOME
(Y)
CONSUMPTION
(C)
SAVING
(S = Y-C)
6000
9000
12000
15000
18000
21000
7200
9000
10500
11700
12600
13200

-1200
0
1500
3300
5400
7800


Y
C 18000
O
N 15000
S
U 12000
M
P 9000
T
I 6000
O
N 3000

O 3000 6000 9000 12000 15000 18000 21000 X

INCOME
5. From the schedule and diagram, we can observe that with the increase in income, the consumption
increases at a lower rate and thereby saving increases at a higher rate.
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16. WHAT IS THE CONSUMPTION FUNCTION? WHAT ARE THE FACTORS
INFLUENCING CONSUMPTION FUNCTION?

Meaning: -Consumption Function or propensity to consume between income and consumption. It
shows how much a consumer will spend on goods and services at different levels of income.
Symbolically, consumption function can be shown as: C = f (Y)

(A) Consumption Function: - Expenditure incurred by a consumer for the fulfilment of the
needs is called the consumption function. Consumption Function refers to the schedule, which
shows different levels of income. It expresses the direct relationship between consumption and
income. Consumption expenditure goes on increasing with the rise in the level of income but not
in proportion to the rise in the level of income.

(B) Objective Function influencing the consumption function: - The factors that influence the
consumption function are as follow:


1. Income: -According to Keynes, as the income increases, the consumption too increases but in
a lesser proportion.


2. Price Level: - The consumption is inversely related to the price level. When the prices of the
commodities increase, the purchasing power of the consumers declines and, as a consequence,
the consumption decreases.


3. Distribution of incomes: -An even distribution of income among the people will result in an
overall increase in the consumption.


4. Unexpected profits and losses: -The unexpected profits add to and the lowers force a
reduction in the consumption.


5. Burden of debts: -The burden of debts and repayment of the borrowed funds along with
interest force individual to reduce the expenditure on the consumption and vice versa.


6. Credit facility: -Credit facilities and schemes like hire purchase system generate higher
consumption demand for comport and luxury goods.


7. Future Expectation: -Low-income and middle income group reduce consumption with a view
to making provision for future.


8. Saving Tendency: - The people with a conservative outlook try to save as much as possible
from their income and thereby reduce consumption.



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17. WHAT ARE THE TYPES OF BANKS ACCOUNT?


Meaning: -Bank accepts money as deposits mostly in four ways: 1. Current Account 2. Saving
Account 3. Fixed Deposit Account 4. Recurring Deposit Account.


Following are some of the important types of Bank‟s Accounts:


1. Current Account: - A Current Account is meant for businessmen and institutions. There are no
restrictions on the number and amounts of withdrawals from this account. On opening this
account, the account holder is given a paying-in-slip book, a Chequebook and a Pass book.
Cheques, bills of exchange, dividend warrants received from outside parties can be deposited in
this account for collection overdraft facility is granted only to current account holder.


2. Saving Account: -A Saving Account aims at promoting the habit of saving among the fixed
income earners. Interest at certain rates is paid on the balance in this account. Money can be
withdrawn by cheque or withdrawal slip. Howe ever, there are restrictions on the number of
withdrawals including the maximum amount that can be withdrawn art a time. Overdraft facility is
not granted for this account.


3. Fixed Deposit Account: - A fixed deposit account is opened by those who have surplus funds.
Under this account, a certain amount is deposited for a fixed period. Higher rate of interest is paid
on the fixed deposits. The rate of interest depends upon the period of deposits. Money can not be
withdrawn before the date of maturity.


4. Recurring Deposits Account: - A recurring deposit account is opened for some long-term
objective such as marriage or education of children or purchase of costly articles, etc. under this
account, a fixed sum is to be deposited every month for the fixed period.



















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18. EXPLAIN IN BRIEF THE DIFFERENT TYPES OF CHEQUES?

Meaning: -



A. A cheque may be
1. Bearer Cheque
2. An order cheque
3. An open cheque
4. A Crossed Cheque
5. A post dated Cheque
6. An anti-dated cheque
7. A stale Cheque
8. Blank Cheque


The following are some of the important types of Cheques:


1. Bearer Cheque: -When the word ―or bearer‖ appearing on the face of the cheque are not struck
off, the cheque is called a ‗bearer cheque‘. The bearer cheque is payable to the person specified
therein or to any one else who presents it to the bank for payment. It is also called a risk cheque.


2. Order Cheque: -When the word ‗bearer‘ appearing on the face of the cheque is struck off or when
in its place the word ‗order‘ is mentioned or when there is neither the word ‗bearer‘ nor ‗order‘ on
the face of the cheque, the cheque is called an order cheque‘. Such a cheque is payable to the
person specified therein as the payee, or to any one else to whom it is endorsed.


3. Open Cheque: -When a cheque is not crossed, it is known as an ‗open cheque‘ or ‗uncrossed
cheque‘. The Payment of such a cheque can be obtained at the counter of the bank. An open
cheque may be a bearer cheque or an order one.

4. Crossed Cheque: -When a cheque bears across its face two parallel lines with or without
additional words like ‗& Co‘. or ‗Account Payee‘ or ‗Not Negotiable‘. It is known as a ‗crossed
cheque‘. A crossed cheque cannot be Encashed at the cash counter of a bank but it can only be
credited to the payee‘s account.

5. Ante-dated Cheque: - If a Cheque bears a date earlier then the date on which it is presented to the
bank, it is called an ‗antedated‘ cheque. Such a cheque is valid up to six months from the date of
the cheque.


6. Post-dated cheque: - If a Cheque bears a date which is later than the date of presentation, it is
known as ‗post-dated cheque‘. A post dated cheque cannot be honoured earlier than the date on the
cheque.

7. Stale Cheque: -If a cheque is presented for payment after six months form the date of the cheque
it is called ‗Stale Cheque‘. A stale cheque is not honoured by the bank.
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19. WHAT IS A BUDGET? EXPLAIN THE OBJECTIVES OF A BUDGET?


Meaning: -Budget is a document containing estimates of revenue and capital receipts as also
expenditure of the government for the next financial year. Budget of the government indicates next
year‘s expenditure plans and programmes and attempts to find resources for the same.


Budget has two main components, namely revenue budget and Capital Budget.


A. Revenue Budget: - Revenue budget presents estimates of income from and expenditure on
current goods and services by the government in the next year and revised estimates of these
magnitudes for the current accounting year which comes to a close.

1. Revenue Receipt: -They are composed of receipts of the government which neither create a
liability nor lead to reduction in assets. They are as follows :

 Tax receipt: -Government‘s revenue receipts are mainly composed of various taxes-direct
and indirect-and customs, i.e., taxes on exports and imports.

 Non-Tax receipts: -These include incomes from profits of state-owned enterprises,
earnings from public services like police, judiciary, etc. interest on loans advanced and sale
of services.

2. Revenue Expenditure: - This is composed of payments for services received and transfer
payments.
 Consumption Expenditure: - Government spends on direct consumption of services-
administrations, law and order and legislation.

 Transfer Payments: -These are payments for the past services rendered or for charity:
Grants to local self-governments like Panchayats, etc. pensions to retired persons,
unemployment benefits and a part of defence expenditure.

B. Capital Budget: -This part of the budget includes receipts and expenditure on capital account
projected for the next financial year.

1. Capital Receipts: -These consist of government borrowings from the market, sale proceeds
of treasury Bills, Borrowings from the Central Bank and Foreign debt.

2. Capital Expenditure: - Any projected expenditure which is incurred for creating assets with
a long life is capital expenditure. Thus, expenditure on land, machines, equipments, irrigation
projects, oil explorations and expenditure by way of investment in long term physical or
financial assets are capital expenditure. A part of defence expenditure also is on Capital
account.

Thus, the budget mirrors projected receipts and expenditure.
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20. WHAT IS A BUDGET? EXPLAIN THE OBJECTIVE OF A BUDGET?


Meaning: -Budget is a document containing estimates of revenue and capital receipts as also
expenditure of the government for the next financial year. Budget of the government indicates next
year‘s expenditure plans and programmes and attempts to find resources for the same.

Budget containing the following information relating to the economy:

1. A comprehensive account of the programmes and policies of the government during the last year
and their effects on the economy.
2. Current economic situations of the country and analytical account of the government‗s finances.
3. Estimates of receipts from various sectors of the economy and the proposed expenditure in
different sectors, projects and programmes.
4. Revised estimates of receipts and expenditure for the current year and analysis of variations in
budget figures.
5. The budget has a decisive impact on the prices, output, savings, investments, etc. it has great
importance as a document that mirrors the economic policies of the government.

Following are some of the Important Objectives of Budget:

The objectives and the emphasis on a particular objective may vary with the government‘s economic
Philosophy. The three main objectives of a budget are
1. Economic Stability
2. Economic Growth
3. Economic equality

1. Economic Stability: -It is a major policy objective, both in the developed and developing
countries. It means that the budget should aim at maximising incomes and employment without
undue rise in prices
 During Recession or depression: -The budget would provide for more expenditure, exceeding
revenues, so as to increase effective demand. Taxes would be reduced.

 During Inflation or prosperity: -The budget would aim at reducing government expenditure
wherever possible, increase direct taxes and provide incentives for more production.

2. Economic Growth: -Economic Growth is an overriding objective in the developing countries.
The budget is an instrument to help achieve this objective. The measures that government may
take include:
 Incentives for Savings and investments by tax policies.
 Provision of programmes which would help both public and private sectors to expand
production.
 Special Tax-holidays to certain areas and sectors.
 Promotional policies for business and industry.

3. Economic Equality: - Very often, economic growth does not automatically benefit the poor and
low middle class people. It therefore becomes the duty of the government to transfer a part of
increased incomes to the poor by fiscal measures. The budget may provide for high taxes on the
rich and high expenditure for providing facilitates to the poor in the form of food, clothing,
housing, education, health care, etc. A budget may provide for great reliance on direct taxes,
indirect taxes on luxury goods, lower interest rates on loans to the poor, subsidies to essential
consumer goods etc.
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1. DISTINGUISH BETWEEN

DESIRE DEMAND
1. The term desire is used by anybody to show the
willingness or wish to get something. For e.g. a
beggar wishing for a car.
2. Desire has no limits.


3. Desire is an independent term for e.g. a person can
desire to go the moon.


4. Desire plays a negative role in the minds of people
because desire without the capacity to pay for the
want will only being frustration.
1. The term Demand is a desire backed by
purchasing power and willingness to pay.

2. Demand has many limits such as income,
fashion, etc.

3. Demand is a dependent term related to
money for eg. A person can have a
demand for food if he has enough money
to purchase it.
4. Demand place a positive role in the mind
of people because
(willingness‘)



2. INDIVIDUAL DEMAND MARKET DEMAND
1. An individual demand is the number of items
demanded by a single person at a particular price
at a particular time from a particular market.

2. Mr. ‗X‘ demands 5kg of rice at Rs. 10 per Kg. is
an example of individual demand.

3. It is less in quantity.

4. It can be zero at a particular time.



Y
O
X
P
r
i
c
e

(
i
n

R
s
.
)
Quantity Demanded
Individual Demand
D
D

1. Market demand is the total demand for
a commodity made by all consumers, at
a particular price from particular period
of time.
2. Demand for rice is 15 thousand kg. is
an example of market demand.

3. It is larger in quantity.

4. It is rarely zero in the market.



Y
O
X
P
r
i
c
e

(
i
n

R
s
.
)
Quantity Demanded
Market Demand
D
D




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MICRO ECONOMICS V/S MACRO ECONOMICS
3. MICRO ECONOMICS MACRO ECONOMICS
1. It is derived from the Greek word Mikros i.e.
Small

2. Dr. Marshall was first to adopt this approach


3. Micro Economics concepts are independent in
nature.

4. Individuals‘ consumers may spend more or
less money then he receives in a given period.

5. 5. It is basically refers to Product theory or
Price Theory related to micro variables.
1. It is derived from the Greek word Makros i.e.
Large

2. Lord Keynes developed the concept of macro
economics during the great depression

3. Macro economics concepts are interdependent
in nature

4. Total income of economy should be equal to
the total expenditure for economic stability.

5. It is basically refers to growth theory as its
relates to economic stability and macro
variables.

GROSS NATIONAL PRODUCT V/S NET NATIONAL PRODUCT
4. GROSS NATIONAL PRODUCT NET NATIONAL PRODUCT
1. GNP refers to aggregate market value of all
final gods and services produced in an
economy during a year.

2. GNP is expressed as GNP = C+I+G+(X-M)
+ (R-P)

3. It involves consumption, investment
Government services net earning from abroad
and net receipts from foreign transaction.

4. GNP is always greater than NNP
1. NNP refers to the total money value of the net
output of an economy during a year.


2. NNP is expressed as NNP = GNP –
Depreciation

3. It is derived by deducting depreciation which
refers to wear and tear of capital goods during
the process of production.

4. NNP is less than GNP


NNP AT MARKET PRICE V/S NNP AT FACTOR COST
5. NI AT MARKET PRICE NI AT FACTOR COST
1. Meaning: -National Income at market price is
the value of the goods produced in a year at
the prices of the goods prevailing in the
market.
2. Indirect Taxes: -It shows the value of all
goods and services produced at current market
price which therefore includes indirect taxes.
3. Formula: -NI at market price: NNP at factor
Cost + Indirect taxes – subsidies.
4. Use: -It is useful in knowing the total income
arising in the country.
5. Volume: -It is generally higher than national
income at factor cost.
1. National Income at factor costs is the value of
the goods produced in a year when valued at
their cost of production.

2. It shows the income actually received by the
factors of production which therefore does not
include indirect taxes.
3. NI at factor cost: NNP at cost = NNP at
market price – Indirect taxes + subsidies.
4. It is useful for knowing the true income of the
people in the country.
5. It is generally lower than national income at
market price.


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STOCK V/S SUPPLY
6. STOCK SUPPLY
1. Stock is the entire quantity that is kept by the
seller in a stored-up form.
2. Stock is potential supply and it is static in
nature
3. The nature of stock varies from commodity to
commodity. For perishable commodities, the
stock is either zero or very small irrespective
of the price level. However for durable
commodities the stock could be large.

4. Stock can be greater than supply because it
can contain the currently produced goods as
well as the carried over goods from the
previous stock.
1. Supply is that quantity which the seller
actually brings out into the market for sale.
2. Supply is the actual supply and it is a flow
concept.
3. The nature of the supply varies from
commodity to commodity. For perishable
commodities whatever is available is supplied
irrespective of the price level. However for
durable commodities the supply can be varied
according to the price level.
4. Supply cannot be greater than stock. It can
either be equal to stock or less than the stock.

FIXED CAPITAL V/S VARIABLE CAPITAL
7. FIXED CAPITAL VARIABLE CAPITAL
1. It refers to the capital which can be used again
and again in the process of production.
2. It refers to machinery, plant, factory building,
equipments etc. which can be used again and
again in the production.
3.
Y
c
o C FC
s
t O X
Out put
4. It indirectly participates in the process of
production.
5. In the short period it remains fixed.

1. It refers to the capital which can be used
only once in the process of production.
2. It refers to power, fuel, raw material etc.
which can be used in only once in the
process of production.
3.
Y VC
c
o C
s
t O X
Out put
4. It directly participate in the process of
production
5. In the short period it changes.


8. TOTAL UTILITY MARGINAL UTILITY
1. Total utility is the sum total of the utilities
derived at a particular level of consumption.

2. The formula for Total utility is
3. In the beginning total utility goes on
increasing but at diminishing rate.
4. It‘s numerical value always positive.


1. Marginal utility is an additional utility derived
by consuming one more unit of the Commodity.
2. The formula for marginal utility is

3. Marginal Utility goes on falling right from the
beginning.
4. Its Numerical value can be positive, negative
or ever Zero.


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9. INDIVIDUAL SUPPLY MARKET SUPPLY
1. An individual supply is the number of items
supplied by a single person at a particular
price at a particular time from a particular
market.
2. Mr. ‗X‘ supplied 5 kg of rice at Rs. 10 per kg.
Is an example of individual demand.

3. It is less in quantity.
4. It can be zero at a particular price
1. Market supply is the total supply of a
commodity made by all consumers, at a
particular price from a particular period of
time.
2. 15 tones of rice supplied by the producer at
the rate of Rs. 10 per kg. Is an example of
market supply.
3. It is larger in quantity.
4. It is rarely zero in the market

10. PURE COMPETITION PERFECT COMPETITION
1. The characteristics of pure competition are
large number of buyers and sellers,
homogeneous product & free entry and exit of
firms.

2. Pure competition may not be always perfect.
3. Pure competition is simpler and less inclusive
concept.
4. Pure competition is a real concept. Market for
agricultural commodities like wheat, rice is
pure competition.
1. The characteristics of perfect competition are
large number of buyers and sellers,
homogeneous product, free entry and exist of
firms, perfect knowledge, no transport const,
no government intervention.
2. Perfect competition is always pure.
3. Perfect competition is wider, more perfect and
more competitive in character.
4. Perfect competition is not a reality, it is not
found anywhere in the world.

11. AUTONOMOUS INVESTMENT INDUCED INVESTMENT
1. Autonomous investment means investment
which is not dependent on current level of
production.
2. Autonomous investment includes
investment in new products, new techniques
or investment by government.
3. Autonomous investment is not continuous
investment and can rise or fall suddenly.

4. Autonomous investment plays a dominant
role in the economic socialistic countries
like china.
1. Induced investment means investment which
depends on the current level of production.

2. Induced investment includes investment in
new machines and other capital goods for
producing more finished goods.
3. Induced investment is continuous and
changes in proportion to output of goods.

4. Induced investment play a dominant role in
the countries like U.S.A.

12. GROSS INVESTMENT NET INVESTMENT
1. Gross investment refers to total expenditure
on capital goods.
2. Gross investment = Net investment +
Depreciation.
3. It is always more than net investment.
4. It includes all the machines, factories,
houses and other capital assets added in a
year.
5. It is a wider concept.
1. Net investment refers to expenditure incurred
on increasing stock of capital goods.
2. Net investment = Gross investment +
Depreciation.
3. It is always less than Gross investment.
4. It refers to the cost incurred by the firm
against white washing, repairing of building,
replacement of certain part of machines etc.
5. It is a narrow concept.




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13. CONSUMPTION INVESTMENT
1. Consumption expenditure means money
spends on goods and services which satisfy
human wants directly.
2. Money spend on food, clothing etc are the
example of consumption expenditure.

3. In the volume of consumption is more or
equal to the production, there will be no scope
for investment.
4. Consumption depends upon the capacity to
spend.
1. Investment expenditure means money spend
on goods which help to produce other goods.

2. Money spend on machines, Building,
Transport etc are the example of investment
expenditure.
3. If the volume of production is more than the
volume of consumption there will be scope
for investment.
4. Investment depends upon the capacity to
save.

14. FINANCIAL INVESTMENT REAL INVESTMENT
1. It refers to the expenditure incurred on the
purchase of bonds, shares, securities.

2. It results in addition to the money capital of a
nation.
3. This refers to financial assets.
4. It does not actually produce any goods and
services.
1. It refers to the expenditure incurred on real
capital assets like machinery, raw materials
and buildings.
2. It results in addition to the real capital of a
nation.
3. This refers to Physical assets.
4. It leads to production of carious goods and
services.

15. CONSUMPTION SAVING
1. Expenditure made for fulfillment of the needs
is called consumption.
2. Consumption = Income – saving
3. Consumption is a component of aggregate
demand. I.e. C =Y-S.
4. The consumption is guided by the intensity of
wants and availability of funds.
1. Saving is that part of income which is not
spent on consumption.
2. Saving = Income – Consumption.
3. Saving is not a component of aggregate
Demand.
4. The investment of saving is guided by the rate
of interest.

16. AGGREGATE DEMAND AGGREGATE SUPPLY
1. Aggregate demand refers to the total demand
for different types of goods and services in an
economy at different prices during a given
period of time.
2. It depends upon the availability of aggregate
consumption expenditure, government
expenditure and net foreign expenditure.
3. Symbolically_

4. It is mainly related to income.

1. Aggregate supply refers to the total quantity
of goods and services produced and supplied
during a particular period of time.
2. It depends upon the availability of natural
resources, Labour, capital and level of
technology.

3. Symbolically_

4. It is mainly related to cost of production.





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17. CENTRAL BANK COMMERCIAL BANK
1. Central bank is the apex of the banking
system of the country.
2. The central bank has the sole authority to
issue notes (except for the standard money;
via Rs one note.
3. The Central bank regulates money supply in
the country it plays the role of banker, agent
and advisor to the government,
4. Central bank is owned by the Government.

5. The objective of the central bank is not profit
but maintaining price stability and economic
growth of the country
6. Central Bank has supervisory and regulating
power over the country‘s financial system

1. Commercial banks are a part of the country‘s
banking system.
2. Commercial banks cannot print and issue
currency.

3. Commercial banks accept deposits for the
purpose of lending

4. The main objectives of the commercial banks
are to earn more profits.
5. Commercials Banks includes the nationalized
and non-nationalized banks as well as the
foreign banks.
6. Commercial bank can regulate only for their
own branches.

18. DIRECT DEMAND DERIVED DEMAND
1. Direct demand is a demand for consumer
goods which satisfy a human demand
directly.
2. This demand comes from the consumer
directly.
3. Demand for food, cloth and house etc. are
direct demand.
4. All the finished goods have direct demand.
1. Derived or indirect demand is the demand for
goods which satisfies producer‘s want.

2. This demand comes from the producer.

3. Demand for land, Labour, capital etc. is
derived demand.
4. All factor of production have derived demand.

19. INDIVIDUAL SUPPLY MARKET SUPPLY
1. An individual supply is the number of items
supplied by a single person at a particular
price at a particular time from a particular
market.
2. Mr. ‗X‘ supplied 5 kg of rice at Rs. 10 per kg.
is an example of individual demand.

3. It is less in quantity.
4. It can be zero at a particular price.
1. Market supply is the total supply of a
commodity made by all consumers, at a
particular price from a particular period of
time.
2. 15 tones of rice supplied by the producer at
the rate of Rs. 10 per kg. is an example of
market supply .
3. It is larger in quantity.
4. It is rarely zero in the market.

20. BUDGETARY DEFICIT FISCAL DEFICIT
1. Budgetary deficit defined as the excess if total
expenditure over the revenue.
2. Budgetary deficit = Total Expenditure – Total
Receipts =(Revenue expenditure + Capital
Expenditure) – (Revenue receipts + Capital
receipts)
3. It is a narrower concept
4. The implication of budgetary deficit are (1)
Rise in inflation (2) Rise in money supply (3)
Rise in inequalities of income, etc.
1. Fiscal deficit is over and above budgetary
deficit. I.e. if borrowing and other liabilities
are added to budgetary deficit, we obtain
fiscal deficit.
2. Fiscal deficit = Total expenditure – (Revenue
receipts + Recoveries + Sale of Public assets)
3. It is a broader concept.
4. The implications of fiscal deficit are (1) More
growing inflation (2) More rise in money
supply (3) More rise in inequalities of income
etc.


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21. LAND CAPITAL
1. Meaning: - Land refers to all kinds of natural
resources on, below and above the surface of
the earth.
2. Nature: -Land is a natural factor of
production
3. Mobility; -Land is perfectively immobile
4. Elasticity of Supply: -The supply of land is
perfectively inelastic. It cannot be increased
or decreased.
5. Durability; -land is permanent factor of
production.
6. Social Cost: -There is no social cost in
making land.
1. Capital refers to that part of wealth, which is
issued for the production of goods and
services
2. Capital is a man made factor of production

3. Capital is perfectly mobile
4. The supply of capital is elastic. It can be
increased or decreased.

5. Capital is not a permanent factor as it
depreciates.
6. There is a social cost in making Capital.


22. LAND LABOUR
1. Meaning: - Land refers to all kinds of natural
resources on, below and above the surface of
the earth.
2. Durability; -Land is permanent factor of
production
3. Nature: -Land is a passive factor of
production
4. Mobility: -Land is perfectly immobile. It
cannot be physically shifted from one place to
another place
5. Payment: -Land receives rent as reward.


1. Labour refers to any physical or mental
exertion directed towards the production of
goods and services.
2. Labour is a perishable factor of production

3. Labour is an active factor of production

4. Labour are imperfectly mobile. They can shift
from one place another place up to a certain
extent.
5. Labour receives wages as a reward.



23. CAPITAL WEALTH
1. Meaning: -Capital refers to that of production
which is used for the production of goods and
services
2. Interrelationship: - All capital is wealth/t of
producer capital goods of wealth is known as
capital
3. Concept: -Capital is a narrower concept that
wealth.
4. Creation; -Capital is a produced means of
production i.e. it is a man made factor.
5. Example: - (1) money (2) Land (3)
Machinery
1. Wealth refers to all the economic goods which
possess (1) utility (2) Scarcity (3)
Transferability and (4) externality
2. all wealth is not capital, as wealth includes
producer/ capital goods as well as consumer
goods
3. Wealth is a broader concept than capital.

4. Wealth is created by nature as well as
manufactured by man.
5. The examples of wealth are: - (1) Money (2)
Land (3) Machinery (4) Clothes (5) Furniture


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24. CONSUMPTION FUNCTION SAVING FUNCTION
1. Meaning: - Consumption function is defined
as the amount of expenditure spent out of
given level of income.
2. Relationship: -It shows the functional
relationship between national income and
total consumption.
3. Formula: -C =f (Y) OR C = Y-S where, C, Y
and S stands for consumption, income and
savings respectively.
4. Interrelationship: -Increase in consumption
decreases the savings and vice versa
1. Saving function is defined as the amount of
money saved out of given level of income.

2. It shows the functional relationship between
national income and total savings.

3. S = f (Y) or S=Y-C where, S, Y and C stands
for Savings, income and consumption
respectively.
4. Increase in savings decreases the consumption
and vice versa.

25. STANDARD COINS TOKEN COINS
1. Meaning: -Standard Coins are those coins,
whose face value is equal to the value of the
metal contained in it.
2. Face Value: -The face Value of the Standard
Coins is equal to their intrinsic value.
3. Material Used: - Standard Coins are made
out of costly metals like Gold, Silver, etc.
4. Purpose: - Standard Coins are usually minted
for the higher considerations.
5. Circulation: - Standard Coins are rarely used
in circulation
1. Token Coins are those, whose face value is
greater than the value of metal contained in it.

2. The face value of Token Coins is greater than
their intrinsic value.
3. Token Coins are made out of relatively
cheaper metals like copper, bronze, etc.
4. Token Coins are usually minted for the lower
denominations.
5. Token Coins are commonly used in
circulation.


26. ELASTIC DEMAND INELASTIC DEMAND
1. If for a small change in price, there is a big
change in demand, it is known as elastic
demand.
2. Luxuries have elastic demand e.g. T.V,
Refrigerator etc.
3. Its measure is more than one or infinitive.
4. In elastic demand, the demand curve is either
parallel to the x-axis or gently sloped.
1. If for a big change in price, there is small
change demand, it is known as inelastic
demand.
2. Necessaries have inelastic demand e.g. Rice,
salt etc.
3. Its measure is less than one.

4. In inelastic, demand the demand curve is
either parallel to Y-axis or Steeply Sloped.

27. BANK RATE OPEN MARKET OPERATION
1. Meaning: -Bank Rate is the rate at which the
Central Bank discounts the bills of exchange of
commercial bank.
2. Types of Control: -Bank Rate is a direct or
quantitative credit control method.
3. Quality: -This method of credit control is inferior
to open market operations.
4. Measures: - The Central Bank raises bank rate to
control credit, and decreases the bank rate to
expand credit.
5. Limitations: - The important limitations of bank
rate are lack of flexible economic structure
dependence of commercial banks for
rediscounting, etc.
1. Open market operations refers to deliberate
direct sale and purchase of government securities
by the Central government
2. Open Market operations are indirect or qualitative
credit control method.
3. This method of credit control is superior to bank
rate policy.
4. The Central Bank sells the securities to control
credit, and purchase the securities to expand
credit.
5. The Important limitation of open market
operations are unsuitability during depression,
lack of adequate stocks of cash and securities with
the Central Bank, etc.
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28. SHORT PERIOD LONG PERIOD
1. Meaning: -Short period is that period of
time in which the quantity produced and
supplied can be increased to a small extent
by optimum utilization of the existing
resources.
2. Duration: - According to Marshall, short
period can be of a few days or few months,
depending upon the nature of the product
and the gestation period of production
3. Supply Position: -
S
Y

P
R
I
C
E S

O quantity supplied X

During this period, the supply tends to be
inelastic as it can be only marginally
increased. The supply curve slopes
steeply upwards.

4. Price Determination: - Since the Supply is
inelastic, the price is to a large extent,
determined by the forces of demand.

1. Long Period is that period of time in which
the quantity produced and supplied can be
increased to meet the market demand.


2. According to Marshall, long period can be of
a few months or few years, depending upon
the nature of the product and the gestation
period of production.

S




S


O quantity supplied X

During this period, the supply tends to be elastic
as it can be increased to the extent of demand in
market. The supply curves slopes gently upwards.


Since the supply is elastic, the price is determined
by the interaction of demand and supply.

29. DEMAND CURVE 53 SUPPLY CURVE
1. Meaning: -A demand Curve is the graphical;
representation of price and demand
relationship.
2. Representation; - Demand curve represents
variations in the quantity demanded in
response to changes in the price
3. Relation with price: -It represents inverse
relationship between price and demand.
4. Diagram: -
D
P
1


P
P
2


O Q
1
Q Q
2
DEMAND

5. Explanation: - The demand curve slopes
downwards from left to the right. It has a
negative slope.
1. A Supply is the graphical representation of
price and supply relationship.
2. Supply curve represents variations in the
quantity supplied in response to changes in
the price.
3. It represents direct relationship between price
and Supply.

4. Diagram: -








5. The Supply curve slopes upwards from left
to the right. It has a positive slope.
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30. QUANTITATIVE CREDIT CONTROL QUALITATIVE CREDIT CONTROL
1. Meaning: - The methods which are used
to control the total volume of credit in the
economy are called quantitative credit
controls.
2. Nature: -They are macro economic in
nature and influence the whole economy.
3. Alternative uses: They are also called as
General credit control measures.
4. Measures: -Quantitative credit controls
include :
1. Bank Rate Policy
2. Open Market Operations
3. Variables reserve ratio
1. The methods which are used to control the
flow of credit into particular sector or use are
called qualitative credit controls.

2. They are micro economics in nature and do
not influence the whole economy.
3. They are also called as selective credit control
measures.
4. Qualitative credit controls include:
1. fixation of margins
2. Consumer credit regulation
3. issue of directives
4. Rationing of credit
5. Moral Suasion
6. Direct action
7. publicity




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1. EXPLAIN THE LAW OF D.M.U? AND EXPLAIN ITS ASSUMPTION AND EXCEPTION?

Meaning: -The law of diminishing Marginal utility is one of the fundamental laws in economics, advocated by
Prof. Alfred Marshal. The law explains the human behaviour in relation to consumption of goods. A consume
buys a commodity because it gives him some satisfaction.

Definition: -In he words of Marshal the Law states that, “Other thing being equal, with every increase in the
stock of a commodity consumed, its marginal utility diminishes.”

The law of diminishing Marginal Utility can be explained with the help of a schedule and a diagram.

Units of consumption Total Utility (T.U) Marginal Utility(M.U)
1
2
3
4
5
6
7
10
18
24
28
30
30
28
10
8
6
4
2
0
-2

The schedule shows that with every increase in the units of Consumption, the total utility is increasing. It
reaches Maximum with the 5
th
& 6
th
unit and remains the same, but with 7
th
unit the total utility
decreases from 30-28.

The Marginal Utility can be derived from total utility. It is observed the Marginal Utility is falling
continuously. It reaches zero and then become negative.

The Marginal Utility is Zero when total utility is Maximum and Marginal utility is negative when total
utility is falling.



In the above diagram
X- Axis represents units of consumption and Y-Axis represents Marginal Utility. Various points from the table
are plotted on graph. Join those points we can get a curve known as Marginal utility curve. The curve slopes
down wards from left to right. It touches X- axis and becomes negative. It is observed from the diagram that at
6
th
unit of consumption the marginal utility becomes zero, when the total utility becomes maximum. It is the
point of Satiety i.e. the want is completely satisfied and its intensity is nil. With the 7
th
unit of consumption the
total utility started falling and the Marginal Utility becomes negative.
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ASSUMPTION TO THE LAW OF DIMINISHING MARGINAL UTILITY.


a. Homogeneous Units: - The law of Diminishing Marginal utility will be true only when the units of a
commodity consumed are homogeneous or identical in all respect i.e. same size, colour and taste etc.

b. Suitable and reasonable size: - The units of a commodity consumed must be of standard units. They
should not be too small or too big for e.g. the law of diminishing marginal utility of water is counted in
number of glasses and not in drops or spoons of water.

c. Continuous consumption: - There is no time gap or time interval between the consumption of two units.
It is assumed that the consumer has many units continuously and he gets lesser marginal utility with every
additional unit. For e.g. a person eats mangoes one after another without any time interval.

d. Rationality: -The consumer is a rational human being whose behaviour is normal. He can take decision by
himself according to the changing circumstances.

e. Taste and preference remain unchanged: - The like and dislikes of the consumer remains the same
during the period. No new habit should be started and no old habit should be dropped by the consumer.

f. Income is constant: - It is also assumed that the money income of the consumer and marginal utility of
money also remain constant. It is because of income changes that additional commodity consumed may be
superior and hence give more utility than the first one.

g. Utility can be measured: -Marshallian's Utility analysis is based on the assumption that utility can be
measured in cardinal number.


EXCEPTIONS TO THE LAW OF DIMINISHING MARGINAL UTILITY


1. Hobbies: - It is observed that law of Diminishing Marginal Utility is not applicable in case of Hobbies.
Many people are interested in rare collection of Stamps, old coins etc. The person who is found of doing
that will get more and more satisfaction with every additional item.

2. Money: - It is generally argued that in case of Money, as the stock of Money increases the Utility from
additional Money goes on increasing instead of diminishing. As money represent general purchasing power
of a commodity.

3. Music & Books: - A music lover may get more marginal utility with more number of songs if the song is
not repeated. As well as a scholar reading books may also get more satisfaction with every additional book,
provided the books are not same.

4. Love and Affection: - In case of love and affection of a mother toward the children goes on increasing
instead of diminishing. Hence the law of diminishing marginal utility is not applicable to love and affection.

5. Drunkards: - The law of Diminishing marginal utility is inapplicable in case of Drunkards. As the
intoxication of a drunkards increase with every successive dose or liquor. He gets more and more
satisfaction as he drinks more and more liquor.

6. Miser: - In case of miser, his greed increases with every increase in the stock of goods or money and hence
Marginal utility goes on increasing instead of diminishing with more and more use of money or goods.
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2. EXPLAIN THE LAW OF Demand? AND EXPLAIN ITS ASSUMPTION AND EXCEPTION?

Meaning: -The law of demand is given to us by Prof. Alfred Marshall. In this law the general tendency of
Consumer‘s behaviors in demanding a commodity in relation to the change in its price is described. The law of
demand expresses the nature of functional relationship between two variables. Viz. The price and the quantity
demanded.

Definition: -According to Marshall the law of demand, is defined as “Other thing being equal, the amount
demanded increases with a fall in price and diminished with the rise in price.”

We can explain this law with the help of a schedule and a diagram.

PRICE (RS.) QUANTITY DEMANDED
1
2
3
4
5
50
40
30
20
10

The Schedule shows that with an increase in Price the quantity demanded is decreasing. It indicates
inverse relationship between the two variables price and quantity demanded. When the price is Re. 1 the
consumer demand 50 units and when the price rises to Rs. 5 he demands the least that is 10 units.

Thus D = F (P)
Where: D = Demand
Where: F = Function
Where: P = Price





In the above diagram X-axis represents quantity demanded and Y-axis represents price. Various points from the
schedule are plotted on the graph, joint those points we will be getting demand curve. DD is the demand curve
which slopes downward from left to right indicating inverse relationship between price and Quantity demanded.
This happens when the price is more, demand is less and when price is less, and demand is more.
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ASSUMPTIONS TO THE LAW OF DEMAND

1. No change in Consumer‟s income: -Income of the consumer remains the same. If the income changes the
consumer may buy more even when the price more.

2. No change in Consumer‟s Taste, Preference and habit: -Consumer‘s taste, preference and habits should
remain the same. If a commodity has gone out of fashion the consumer may not buy the product even when
the price is less.

3. No change in prices of related goods: -Price of the related goods should be same. If prices changes than
the law may not be applicable. For e.g. If price of Coffee goes up then demand for tea increases.


4. No Change in future expectation. -If the consumer expects a fall or rise in price of goods in future then
the law may not be applicable. For e.g. If a consumer expect fall in price after two months, he may prefer to
purchase less, even though price is low at present. This due to expectation.

5. No change in Government policy: -The level of taxation of the government should be remaining the same
through out the operation of the law. Otherwise changes in income tax may bring about change in the
consumer preference and so the law may not be applicable.

6. No change in Weather condition: -It is assumed that climatic and weather conditions should remain the
same. If there is a changes in weather condition may also bring about changes in demand for goods like
woollen clothes. Umbrella, ice creams etc.

7. No change in population. -It is also assumed that the size of population should remain the same in a
country. Otherwise, if population changes there will be additional buyers in the market as a result the law
may not be applicable.

EXCEPTION TO THE LAW OF DEMAND

1. Prestige goods: -Prestige goods are those, bought by the rich class to show off their economic status in the
society. When the price of such prestige goods like Diamonds, ruby, car etc rises, people buy more of them
not because they are needed, but to show off.

2. Giffen Goods: -Sir. Robert Giffen was an economist who pointed out that the law of demand is not
applicable in case of inferior goods. He said that when the price of inferior goods falls people buy less of
that product. They try to save money to buy superior goods. For e.g. when price of jaggery falls instead of
buying more people buy less. They save money and try to buy sugar which is considered as superior goods.

3. Illusion effect.: -The consumer dies not know the technical difference between electronic goods produced
by different companies like T.V, Radio, V.C.R etc. They only feel if the price is more quality is better so
they try to buy the product with higher price.

4. Share market :-In the share market if the prices of the company shares rises quantity demanded also rises,
because people believe that the company is well managed and that is why prices of the shares are going up.
As a result people buy more shares at higher rate.

5. Fashion:-Sometimes due to fashionable thinking people fall under the impression that certain item provides
them more satisfaction and prefer to pay higher prices. This is called as snap appeal. For e.g. the demand
for Reebok, cat shoes etc. has been ever increasing in spite of the price hike every year.

6. Speculation: - If the consumer expects change in Price of commodity in future he may act against the law
of demand. If the consumer expect future rise in the price of sugar he will purchase sugar at large scale and
store them at home though the price is high at present.
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3. EXPLAIN THE LAW OF SUPPLY? AND EXPLAIN ITS ASSUMPTION AND
EXCEPTION?

Meaning: -The law of supply is given to us by Prof. Alfred Marshall. The law explains the seller‘s behaviors
according to change in price. It states that generally seller prefer to supply more when price increases and
supply less when price decreases.

Definition: -According to Marshall the law of supply is defined as” Other thing being equal, the supply of a
commodity expands with the rise in its price and contracts with a fall in price.”

THE LAW CAN BE EXPLAINED WITH THE HELP OF SUPPLY SCHEDULE AND A DIAGRAM.

SUPPLY SCHEDULE

PRICE (RS.) QUANTITY SUPPLY
1
2
3
4
5
10
20
30
40
50

The schedule shows that with an increase in price the quantity supplied is also increasing. It indicates direct
relationship between the two variables Price and quantity supplied. When the price is Re. 1 the seller offers only
10 units for sale. When Price increases to Rs. 5 he expands supply to 50 units.

Thus S = F (P)
Where: S = Supply
Where: F = Function of
Where: P = Price


In the above diagram
X-axis represents quantity supplied and Y-axis represents price. Various points from the schedule are plotted on
the graph join those points we will be getting supply curve which is called as named as SS. SS sloped upward
from left to right showing direct relationship between price and quantity supplied. This happens when price is
more, supply is also more and when price is less, and supply is also less.
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ASSUMPTIONS TO THE LAW OF SUPPLY


1. Cost of production remains the same: -It is assumed that cost of production remain unchanged. If
cost of production changes supply also changes. I.e. if the cost of production is high supply will be
less and vice versa.


2. Technology of production remains the same: -The technology of production is not allowed to
change. If technology changes, cost of production, quality of product etc will be changed and as
the reason the law may not be applicable.


3. Government policy remains the same: -The law assumed that government policy like taxation,
trade policy should be constant. If the taxation policies changes the law may not be applicable.


4. Weather condition remains the same: -If weather conditions are same, supply will increase and
if there is a change in weather conditions supply will decrease.


5. Transport facilities remain the same: -It is also assumed that transport facilities and its cost
remain unchanged. Otherwise if there is rise in transport cost, the supply will decrease and vice
versa.


6. Future Expectation remains the same: -It is assumed that the seller should not expect any
change in the price in future. If they expect change in future they will not supply product at
present.


EXCEPTION TO LAW OF SUPPLY


1. Labour Supply: -Generally when price raises supply also rises. However the law of supply is not
applicable in case of labour supply. It is observed that with every increase in the price of labour the
supply of labour will not increase.


2. Capital supply (or) Savings: -The law of supply is not applicable in case of capital supply. Many
times saving will not increase even when rate of interest goes up.


3. Auction: -In case of auction, the goods are sold away on whatever price is offered. It is possible if
a seller faces urgent need of money, he may supply more units of a commodity even at a lower price.
This is also a case of exception to law of supply.


4. Speculation.: -When a price of a commodity has risen, a seller may not sell his commodity as he
expects further rise in price and similarly a fall in the price of a commodity he will sell more, if he
expects a further fall in price.

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4. WHAT IS CONSUMPTION FUNCTION? GRAPHICALLY EXPLAIN THE PSYCHOLOGICAL
LAW OF CONSUMPTION? Or EXPLIAN THE RELATION BETWEEN INCOME AND CONSUMPTION.

Meaning; - Consumption Functions is also known as propensity to consume. It is defined as the
amount of expenditure spent out of given level of income. It is the functional relationship between
income and consumption. Symbolically, C=f (Y) or C = f (Y
d
) where ‗C‘ stands for Consumption f
stands for function of an d Y OR Y
d
stands for disposable income. Consumption functions

explain the
relationship between Consumption and disposable income.

Consumption implies the utilisation of economic goods for the satisfaction of wants. Consumption
function refers to a schedule which shows the changing consumption expenditure at different levels of
income. It expresses the direct functional relationship between the income and consumption
expenditure. According to J.M.Keynes, when income increases, the consumption increases too but at a
lower rate. This is because the increased income gets divided into consumption and savings. The
relationship between the income and consumption has been explained in the schedule given below.

CONSUMPTION FUNCTION SCHEDULE
Disposable Income Rs Consumption (C) Rs Saving (S) Rs
0

3000
6000
9000
12000

1200 (autonomous
consumption)
3000 (break-even point)
5400
7800
10200

-1200

0
600
1200
1800

From the above schedule, it is observed that when income increases, Consumption increases, but at a
diminishing rate and savings increases at an increasing rate.

The details in the schedule have been plotted on the diagram given below

Y (Y =C)
15000 U
C SAVING C
O 12000
N
S 9000
U
M 6000
P
T 3000
I
O B
N A 45
0


O 3000 6000 9000 12000 15000 18000 X
Disposable Income (Y)

From the above diagram, the line OU is shown through the origin (O) and it makes 45
0
angles

at ‗O‘.
All the points on OU indicate equality between the income and Consumption. The line ABC is the
Consumption Function curve. It slopes upwards from the left to the right. It has positive slope,
indicating that as the income increases, the Consumption also increases but at a slow rate.

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1. Explain the Law of Equi-Marginal Utility.

Meaning: -The Law of Equi-Marginal utility states that the consumer will distribute his money
income between the goods in such a way that the utility derived from the last rupee spent on each
goods is equal.

Following are some of the brief explanation about the Law of Equi-Marginal Utility

1. The Consumer is in equilibrium when the marginal utility of money expenditure on each goods
is the same.

2. Symbolically, MUm = MUx = MUy
Px Py

3. The law can be explained with the help of the following examples:
 It is assumed that the consumer consumes commodity X (apple) and commodity Y
(banana)
 Price of a banana is Rs. 2 and price of an apple is Rs. 3.
 Marginal utility of money is constant at Rs. 1 = 6 units.
 Consumer has total 19 rupees.
Units MUx MUy MUx
Px
MUy
Py
1
2
3
4
5
6

20
18
16
14
12
10
24
21
18
15
9
3
10
9
8
7
6
5

8
7
6
5
3
1


4. From the above table it can be observed that MUx is equal to 6 units when consumer buys 5 ban
Px
Bananas and is equal to 6 units when he buys 3 apples.

5. Consumers will be in equilibrium when he buys 5 bananas and 3 apples and will be spending
(Rs. 2 * 5 + Rs. 3 * 3) = total Rs. 19.


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A. WRITE SHORT NOTES ON BANK RATE POLICY?

Meaning: -
Bank Rate is the rate charged by the Central
Bank for rediscounting the bills of exchange
presented by the commercial banks. When the
bank rate is raised by the Central Bank, market
rates of interest tend to rise. Then credit
becomes costly and so there is contraction of
the credit given by the banks. Lowering of the
bank rate results in the expansion of bank
credit.

1. Bank rate policy may be defined as the rate at
which the Central Bank rediscounts he first
class commercial bills of exchange or at which
it will advance loans against approved
securities.
2. When the bank rate is increased, the cost of
borrowing from Central Bank also increases.
3. This in turn forces the commercial banks to
charge higher lending rate to cover up their
increased cost.
4. As a result businessmen are discounted to
borrow.
5. Therefore, during inflationary period Central
Banks raises the bank rate.
6. When the bank rate is decreased, the cost of
borrowing decreases which in turn reduces the
lending rate of commercial bank.
7. The decreased lending rate encourages the
businessman to borrow more.
8. Therefore, during deflationary periods Central
Bank reduces the bank rate.


B. WRITE SHORT NOTES ON OPEN MARKET OPERATIONS

1. Open Market operations means, the purchase
and sale by the Central Bank not only of
Government securities but also eligible papers
like bills and securities of private concerns.
2. The sale of securities reduces credit creating
base of commercial bank which in turn leads to
credit contraction
3. The Purchase of securities increases credit
creating base of commercial bank which in turn
leads to credit expansion.
C. BALANCED BUDGET

1. Balanced Budget is a budget where total receipts of the government and total expenditure of the
government are equal over a period of time.
2. In balanced budget there is neither any surplus, nor any deficit.
3. Thus, balanced is a type of budget where, Government Receipts = Government Expenditure

D. CASH RESERVE RATIO

1. A ratio by which a commercial bank holds
minimum cash reserves of its total deposit
liabilities is known as cash reserve ratio.
2. Under the RBI Act of 1935, every commercial
bank has to keep certain minimum cash
reserves with RBI.
3. It can very between 3% to 15% of the total
time and demand deposit.
4. Increases in cash reserves ratio reduce the
capacity of credit creation of commercial bank
and vice versa

E. CREDIT CRDITS

1. Credit cards are a facility provided by commercial banks to its customers which allows a person to
buy goods and services up to a certain limit without immediate payment.
2. The amount is paid to the shops, restaurants, etc. by the banks.
3. The bank collects the due amounts from the customers by debiting their account.




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Explain the following concepts:
1. Balanced Budget:
1.Balanced budget is a budget where total receipts of the government and total expenditure of
the government are equal over a period of time.
2.In balanced budget there is neither any surplus, nor any deficit.
3.Thus, balanced is a type of budget where, Government Receipts = Government Expenditure.

2. Surplus Budget: -
1.Surplus budget is a budget where total receipts of the government are greater than total
expenditure of the government.
2.Normally, developed economics have surplus budget.
3.Thus, surplus budget is a type of budget where, Government receipts > Government
Expenditure.
3. Deficit budget: -
1. Deficit budget is a budget where total government expenditure is greater than total receipts of the
government.
2. Normally, developing economics have deficit budget.
3. Thus, deficit budget is a type of budget where, Government Receipts < Government Expenditure.

4. Bank Draft: -
1. A bank draft is a cheque drawn by a bank on its branch or vice versa.
2. It is useful for remitting money from one place to another.
3. In case of bank draft the drawer and drawee banks are the same. Therefore, it cannot be dishonoured.

5. Bank Money: -
1. It is also called as Credit money
2. The money that is based on the promise of the bank to pay is called bank money.
3. The bank deposits kept by the people with banks which are payable on the demand are included in
this type of money.
4. Cheques, Bank drafts, Traveller‘s cheque, Credit cards, are the instruments of bank money.

6. Personal Disposable Income: -
1. The Personal Disposable income (PDI) is the total income of an individual in the community which
can be actually spent or save by him.
2. It is an income of the households available for consumption and saving.
3. Disposable income is obtained by subtracting the personal direct taxes like income tax, wealth tax,
professional tax, etc. from the personal income.
4. It is calculated by using the following equation:
 Personal Disposable Income (PDI) = Personal Income – Direct taxes.
 Alternatively, PDI = C+ S.
 Where, C stands for Consumption and S stands for saving.
7. Inflation: -
1. Inflation refers to a persistent and rapid rise in the general price level.
2. It may be small and gradual or large and accelerating.
3. It reduces the value of money or the purchasing power.
4. It is the phenomenon of ―too much money chasing too few goods.‖

8. Reservation Price: -
1. An expected minimum price by seller for his goods and services is called the reservation price.
2. In order to cover the production cost and to earn reasonable profits, sellers determine the
reservation price.
3. The seller cannot afford to sell his product below the reservation price.

9. Demand for Salt is inelastic. (True)
1. Any change in the price of salt does not affect the demand of salt, as it is an utmost necessary
product.
2. Salt is a basic necessity. It is necessary to make our food more palatable.
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3. If the Prices of salt fall or rise, consumers keep on demanding the same quantities of salt as
earlier.
4. Salt has no other substitute. Therefore, its demand remains almost fixed. Therefore, demand for
salt is inelastic.
10. An entrepreneur is called as a captain of the industry. (True)
1. An entrepreneur is the pioneer, organiser, controller and risk-taker of an enterprise.
2. He brings together all other factors of production like land, labour and capital for producing different goods
and services.
3. He takes the decisions regarding what to produce, when to produce, where to produce, how to produce, etc.
4. He also bears different risks and uncertainties involved in business. There fore, an entrepreneur ……,

11. Utility is a Subjective Concept: - (True)
1. Utility gets affected by personal likes, dislikes, preferences, habits, etc.
2. Utility, thus, changes from person to person.
3. For example, a non-vegetarian person finds utility in mutton, but a vegetarian person will not.
4. Thus, utility is psychological feeling which is subject to change from person to person.therefore…

12. Why has water less price though it is of much use?
1. Price of any commodity gets affected by marginal utility.
2. Water is essential for survival. Thus its total utility is more.
3. Water is available in plenty; therefore, its marginal utility is very less.
4. As marginal utility of water is negligible, it has less value in exchange. Therefore,
13. Medicines are exception to the law of demand?
1. Medicines are essential for the survival of patient.
2. Though the prices of medicines rise, people cannot purchase less or postpone it. Thus, their demand
remains constant.
3. Similarly, though the prises of medicines fall, people cannot purchase more of it than requirement and
store them.
4. Thus, as medicines are necessary products, the demand for them remains almost constant, though their
price changes. Therefore…
14. Define Economic Man
1. The term ‗Economic Man‘ implies that individuals act rationally in specifying their objectives and
then take decisions that are consistent with those objectives.
2. Thus, an economic man is an assumption that rational consumer, producer, etc. tries to maximise their
level of satisfaction.
3. For example, entrepreneur will set a goal of profit maximisation. He will accordingly adjust the output
and prises of his product to achieve this goal.
15. Slicing Method ;-
1. Slicing method is a method used by microeconomics for an in depth analysis.
2. Microeconomics studies the behaviour of individual firms, prices of a particular product, etc. rather
than the aggregates like national income, general price level, etc.
3. Thus, slicing method is useful for microscopic study of small individual units.
4. Speaking metaphorically, this method of microeconomics is applied to examine a particular tree or
trees and not the entire forest.

16. Partial Equilibrium: -
1. Partial equilibrium is a technique used by microeconomics to study the equilibrium position of an
individual, a firm, an industry or a market.
2. It assumes ceteris paribus, i.e., ‗Other things being constant.‘
3. For example, the law of demand in microeconomics studies relationship between price and demand on
the assumption that factors other than price (like population, fashion, etc.)Remain constant.

17. Stock of Perishable commodities tends to be almost zero?
1. Stock refers to the entire quantity of the goods kept or stored by the seller in a stored form for the
purpose of sale.
2. In case of perishable commodities like vegetables, flowers, fruits, eggs, etc. storing cost is high.
3. Therefore, the sellers try to sell these products as early as possible; some times even at fewer prices.
So, stock of perishable commodities tends to be almost zero.
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18. National Income: -
1. National income refers to the money value of final goods and services produced by the people of a
country during a given period of time.
2. National income is a macroeconomics concept. It is expressed and counted in money terms for one
year.
3. According to National Income Committee (1951), ―A national income estimates measures the volume
of commodities and services turned out during a given period and counted without duplication‖.
4. National income can be calculated in three ways: - 1. Output method, 2. Income Method. 3.
Expenditure method.

19. Lumping Method: -
1. Lumping Method is used by macroeconomics for studying overall dimensions of economic life.
2. Macroeconomics is largely concerned with the behaviour of economic aggregates such as national
income, total investment, import-export, price level, etc.
3. It also assumes and analyses interdependence of these aggregates.
4. To summarize and connect various aggregates and to show relations between them, macroeconomics
uses lumping method.
20. Stock
1. The term refers to the quantity of a commodity available with the producer or trader, for a sale at a
particular point of time.
2. It includes the total quantity produced in current year plus the balance remaining from last year‘s
stock.
3. Thus, Stock = Total current production + Balance of last year.

22. All Factors of production have direct demand. (No or False)

No, I do not agree with this statement, because,
1. Land, Labour, Capital and Entrepreneur are the four factors of production.
2. These factors of production are considered as inputs which produce the output.
3. Thus land, labour, capital, etc. are used for producing different consumer goods and services.
4. For example, to produce food grains, the land, labour, capital, are demanded.
5. Thus, factors of production cannot satisfy human wants directly. They are used in producing different
consumable goods.
6. If demand for consumer goods increases, the demand for land, labour, capital and entrepreneur
increases and vice versa.
7. Thus, demand for all factors of production is determined by demand for consumer goods which they
produce.
8. Therefore, all factors of production do not have direct demand rather they have derived (indirect)
demand.

23. Price is the only/ sole determinant of demand?
No, I do not agree with this statement, because-
1. Though price of a commodity is the main determinant of demand, there are many other factors which
determine the demand of a commodity.
2. The following diagram will help to under stand there are many determinants of demand.
. Price + * Price of Substitutes
 Price of Complementary goods ,Income , Taste, habits, preferences, Quality, Utility, Advertisement
 Fashion etc.
3. From the diagram it is clear that many non-price factors like income, habits, quality of a product,
advertisements, size of population, etc. also have great impact on demand.
4. For example, Price of Substitutes: if the price of substitutes (T-shirts) falls, the demand for original
commodity (shirts) rises, even though its (shirts) price remains constant.
5. For example, Fashion: if a commodity goes out of fashion, people start demanding less of such
commodity even though the prices are constant or even less than earlier.
6. For example Income:
7. Thus, the demand of a particular commodity gets determined by price as well as many other non-
price factors.
8. Therefore, price is not only the sole/single determinant of demand.
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COMPLETE THE FOLLOWING BY CHOOSING THE CORRECT ALTERNATIVES.

1. The term ‗microeconomics‘ derived from the Greek Word _____________
2. Microeconomics is concerned with the study of ______________/__________________
3. Microeconomics is a _______________ equilibrium analysis.
4. Microeconomics adopts ______________approach
5. The credit for the development of micro economics approach goes to ____________
6. ________________ implies that every individual under consideration behaves in an economically rational
manner.
7. Microeconomics deals with Factor Pricing.
8. A rational Consumer wants ________________ Satisfaction.
9. Utility depends on the __________________ of the want.
10. Marshall assumes ____________________ measurement or utility.
11. _______________Utility is the sum of all the marginal utilities from the consumption of a commodity.
12. The utility from an extra unit of consumption is called ______________ utility.
13. When Total utility falls, the marginal utility becomes___________________.
14. The Marginal utility tends to diminish with the ___________________ in the units of consumption of a
commodity.
15. When Marginal Utility is zero, the total utility will be the ________________.
16. The law of demand is based on the concept of ________________.
17. The Law of DMU is not applicable for ________________.
18. Producing Sugar from sugarcane is an example of _________________.
19. The law of DMU is useful for ________________.
20. A desire backed by ability to buy and willingness to pay for a commodity is called_________.
21. The law of demand is based on the Law of _______________.
22. Other thing remaining constant, when the price of a product increases, the demand for it_____.
23. The relationship between the price and demand is ______________.
24. The normal demand curve slopes ________________.
25. Electricity has_______________demand.
26. Salt has _________________ demand.
27. The demand for necessities is _______________ demand.
28. ______________ Demand curve is parallel to Y-axis.
29. Demand for Pin is ________________.
30. The demand for Luxuries is _______________.
31. The relation between the price of a commodity and its supply is _____________.
32. The slope of the supply curve is _________________.
33. If monsoon fails, the supply of food grains would _______________.
34. Reservation price is _______________- expected price.
35. The Law of Supply represents general tendency of Sellers.
36. Stock refers to the State Concept.
37. Discriminating monopoly implies that the monopolist charges Different Prices.
38. A single Seller market category is Monopoly.
39. Selling Cost is an important feature of Monopolistic Competition.
40. Demand Curve for a firm in a perfect competition is Horizontal line.
41. The land is a ________________ factor.
42. There are _______________ factor of production.
43. Labour has a _______________ bargaining power.
44. _____________is an activity that results in goods and services intended for exchange.
45. Labour is _______________factors of production.
46. Reward paid for capital is known as _________________.
47. Land is subject to ___________ returns.
48. Capital is a _____________ factor of production.
49. _____________ is regarded as primary factors of production.
50. Reward obtained by entrepreneur is known as PROFIT.
51. The Captain of the Industry is ENTREPRENEUR.
52. Land does not include Machinery.
53. The Supply of labour in short run is _________________.
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54. The term macroeconomics is derived from the Greek word_________________.
55. Macroeconomics is concerned with the study of_________________.
56. Macroeconomics follows _________________ equilibrium.
57. In _________________, there was worldwide depression.
58. The credit for the development of macro – economic approach goes to _________________.
59. Microeconomics assumes _________________.
60. Subject matter of macroeconomics deals with _________________.
61. The word ‗macro‘ is derived from makros, which is a _________________ word.
62. Macroeconomics does not deal with _________________.
63. The revolutionary book named ―The General Theory of Employment, Interest and Money‖ was written by
_________________.
64. The value of national _________________ indicates national income.
65. A _________________ economy does not have transactions with other countries.
66. Real national income means the national income at _________________ prices.
67. Net _________________ is added to gross expenditure in order to derive national income in an open economy.
68. By adding together rents, wages, interest and profits, national _________________ is obtained.
69. When we deduct indirect taxes from National Income at Market Price, we get National income at
_________________.
70. When we deduct Net factor Income from abroad from National Income, we get _________________.
71. When we add net factor income from abroad to Domestic Income we get. _________________.
72. For obtaining Net National Product, we deduct _________________ from Gross National Product.
73. The estimates of National Income in India are prepared by _________________.
74. The value of output within the country in an accounting year is called.
75. The value of output contributed by citizens of a country in an accounting year is called _________________.
76. Macroeconomics is related to the study of the _________________.
77. The determination of national Income is a subject matter of _________________ economics.
78. The distribution of national income among factors of production is known as _________________ distribution.
79. National income refers to value of goods and services produced in a _________________.
80. Depreciation is also called as _________________.
81. The economy, having foreign trade relations is called _________________.
82. The aggregate output is based on total _________________.
83. _________________ is the sum total of the output of goods and services produced in an economy.
84. Except _________________, all the other factors of the aggregate supply remain constant.
85. Effective demand is the point of _________________ employment equilibrium.
86. Real investment implies creation of new _________________.
87. When exports are greater then imports, earnings will be _________________.
88. The level of output has _________________ relationship with the level of employment.
89. At full employment level, the aggregate supply function will be a _________________straight line.
90. In a closed economy, AD is determined by ___________________.
91. Intersection between aggregate demand and aggregate supply curves determines the point of effective demand.
92. The General Theory of Employment, Interest and Money was propounded by J.M. Keynes.
93. The Aggregate Demand constitutes the flow of Expenditure.
94. Lord Keynes gave the concept of Consumption Function.
95. Consumption Function is refers to the propensity to consume.
96. The expenditure incurred on railways, public parks, etc. is treated as Public Capital Expenditure.
97. Consumption Expenditure at Zero income level is called autonomous consumption Expenditure.
98. Investment based on profit motive is called as Induced Investment.
99. Aggregate Demand is determined by Government Demand.
100. Aggregate Supply is determined by Natural Resources.
101. Net exports will be negative if Imports exceeds Exports.
102. Net exports are added to aggregate demand.
103. Investment made irrespective of the rate of interest or the profit motive is called autonomous.
104. A cheque which bears a future date is called a __________________cheque.
105. _____________ Cheques are not payable at the counter of the bank.
106. Loans advanced by banks create derivative deposits.
107. A _____________ cheque is safest cheque.
108. Deposits on current account are referred to as ______________ deposits.
109. A current account is most suitable for __________________.
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110. The payee gets cash on bank‘s counter against ________________ cheque.
111. Investment Corporation of India is an example of _________________bank.
112. Overdraft facility is given to _____________________ account holder.
113. Cash credit is given for a ____________________ period
114. Use of cheques, is a sign of ___________________money.
115. Saving bank account is suitable for people from ____________class.
116. _______________account holder earns lowest interest rate from the commercial banks.
117. Safe deposit lockers facility provided by the bank is one of the Utility functions.
118. Higher the cash reserve ratio lower is the power to create credit by commercial bank.
119. E-Banking is provided through _______________.
120. Deposits received by a bank are its Liabilities.
121. Credit creation is a function of Commercial bank.
122. Money-at-call is a loan for a Very short Period.
123. ____________ Functions is not performed by the commercial bank.
124. Primary function of a commercial bank is accepting deposits.
125. ATM facility is available for 24 hours.
126. Cheque which can be Encashed immediately at bank counter is bearer cheque.
127. _____________ Banks that develops saving habits.
128. Loan facility is given to all the account holders.
129. Bills discounted method is popular in developed countries.
130. The currency notes issued by the central banks are ____________legal tender.
131. The monetary policy of the Central Bank regulates money supply to realize_________goals.
132. Quantitative Credit Control weapons aim at controlling the Volume of Credit.
133. To control inflation, the bank rate must be ______________________.
134. ____________________ acts as the banks of banks.
135. _________rate is a rate at which the Central Bank rediscounts bills of exchange from commercial bank.
136. The bank of England is the oldest Central Bank in the World.
137. Cash reserve ratio is the Quantitative measures of credit control.
138. Central bank is the render of the last resort.
139. The Central banks lends loans to government and commercial bank
140. The number of Central Bank in a Country is one
141. During Depression, the Central Bank adopts the _______________________.
142. The Budget is presented by the _____________________before the parliament. (PM, HM,CM,FM)
143. _________________contains estimates of anticipated revenue by way of taxes and other means.
144. In India budget is also known as ___________________________.
145. The Budget is a ______________________statement.
146. _______________________taxes are paid directly by the people to the government.
147. _______________Policy is related with public revenue and pubic expenditure.
148. The Income of government through all sources is called public__________________________.
149. If the total expenditure exceeds revenue receipts, the budget is ________________________.
150. The right of minting coins is the monopoly of the State.
151. ___________________money is issued at the time of emergency.
152. Refusal to accept the legal tender is a punishable offence.
153. In India, all the currency notes, except one (1) rupee notes, are issued by Reserve Bank of India.
154. Value expressed in terms of money is called Price.
155. Paper money was first initiated by Shroffs.
156. Paper money was first introduced in ______________. (China, Russia, India, Canada, U.S.A)
157. At Break-even point Income=Consumption.
158. The part of income not spent on consumption is called as saving.
159. An increase income leads to Increase in consumption and saving.
160. In poor countries marginal propensity to save is Low.
161. Consumption is a Decreasing function of saving.

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STATE WHETHER THE FOLLOWING STATEMENTS ARE TRUE OR FALSE

1. Microeconomics adopts general equilibrium approach—
2. National Income is studied under Macroeconomics—
3. Scarcity of resources arises only in poor countries—
4. The subject matter of economics is divided into microeconomics and macroeconomics—
5. Utility is a subjective concept—
6. The law of DMU is not applicable to music—
7. Utility means the power of the commodity to satisfy wants—
8. Utility can be measured cardinally—
9. When the marginal utility is maximum, the total utility will be zero—
10. The marginal utility derived from the consumption of extra unit of commodity—
11. As consumption increases the marginal utility also increases--
12. Demand means a want or desire--
13. A desire backed by purchasing power is called a demand--
14. Demand is a relative term—
15. The law of demand is based on the Law of diminishing Marginal Utility—
16. The Law of Demand is Universal—
17. There is inverse relationship between Price and Demand—
18. Demand curve slopes downwards to the right—
19. Demand Curve usually slopes upwards from the left to the right—
20. Demand curve slopes downwards from the right to the left—
21. Price is the sole determinants of Demand—
22. A rise in the price is followed by a rise in the demand—
23. A rise in the price followed by a decrease in the demand—
24. Exceptional demand curve slopes upwards—
25. The factors of production have indirect demand—
26. Demand for food grains is elastic—False
27. The demand for luxuries is highly inelastic—False
28. Larger the number of substitutes, the more elastic is the demand—True
29. Fans and air conditioners have positive cross elasticity of demand—True
30. ink and pen have zero cross elasticity of demand—False
31. Supply is a relative term—True
32. Stock cannot exceed supply—False
33. Furniture is perishable product—False
34. Labour supply curve always slopes upward—false
35. The reservation price for flowers is low—True
36. Supply inversely related to the price—
37. Stock and price have inverse relationship—
38. Supply is a flow concept—
39. Supply can exceed Stock—
40. The law of supply is inapplicable in case of handicraft products—
41. Under perfect competition, commodities are heterogeneous in nature—
42. Price discrimination is not possible in perfect competition—
43. In a monopoly market, firm and industry are the same—
44. Perfect competition is a theoretical concept—
45. the demand curve of monopolistic competitive market is horizontal—
46. Land is free gift of nature—
47. Capital is a natural factor—
48. Labour cannot be stored—
49. Labour and Labourers are inseparable—
50. Demand for Labour is direct demand—
51. Labour is geographically immobile—
52. All wealth is Capital—
53. Capital is a human factors—
54. Labours are homogeneous—
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55. Machinery and factory building are fixed capital—
56. Rainfall is included in land—
57. Labours earn Profit—
58. Labours earns wages—
59. Capital is artificial in nature—
60. An entrepreneur should be rigid in thoughts—
61. Working capital is durable in nature—
62. Macroeconomics provides solution to the problem to the problem rising prices—
63. Macroeconomics studies individual economic unit—
64. Macroeconomics relies upon marginal utility analysis—
65. Inflation is a state of slowing down business activities—
66. Macroeconomics uses lumping method—
67. Macroeconomics estimates aggregates on the basis of homogeneity—
68. National income is a Macroeconomics aggregate—
69. National income is a heterogeneous whole—
70. NNP can exceed GNP—
71. NNP is derived from GNP by adding depreciation—
72. The net exports add to GNP—
73. Government borrows to invest in development projects—
74. Total expenditure means total income—
75. Autonomous consumption can be zero—
76. The consumption tends to increase with the rise in the income—True
77. For an open economy, aggregate demand is equal to C+I+G—False
78. Aggregate supply is equal to nation‘s aggregate output—True
79. The state of technology affects the growth rate of the aggregate supply—True
80. The net export can be negative or positive—True
81. Propensity to consume means a mere desire to consume—
82. The part of income that is not consumed is called as investment—False
83. Saving function is a counterpart of consumption function—True
84. MPC refers to the effect of additional income on consumption—True
85. According to Keynes, income and consumption increases by same proportion—false
86. As Income raises, Saving also rises—True
87. As incomes rises, consumption rises more than proportionately—False
88. Consumption remains zero when income is zero—False
89. There is no difference between MPC and APC—False
90. Higher rate of interest reduces saving tendencies—False
91. Even at zero income, consumption will be incurred—True
92. credit facilities increase the consumption expenditure—True
93. Unexpected boom in stock market, reduces the consumption expenditure—
94. Aggregate Consumption depends upon he size of the income—
95. India‘s one rupee coin is a token coin—
96. Money is what money does—
97. Money is not a good measure of value—
98. Token coins are made of silver or gold—
99. A cheque is an example of state money—
100. Credit cards are treated as money—
101. Near money is as liquid as currency—
102. paper money is regarded as token money—
103. Fifty paise coins are limited legal tender money in India—
104. Money is not a good store of value—
105. Money is not involved in transaction—
106. The face value is less than its intrinsic value in case of token money—
107. Medium of exchange is a primary function of money—
O MT E X C L A S S E S E C O N O MI C S
Successful l y steppi ng i nto 6
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year i n order to achi eve once agai n success 67
108. A cheque is an optional money—
109. The primary function of money is that money serves as medium of exchange—
110. A crossed cheque is safer than bearer cheque—
111. Bank mobilize the savings of people—
112. A commercial bank is a trader and creditor of money—
113. Acceptance of deposits from public is the secondary function of the commercial bank—
114. Commercial bank controls the activities of Central Bank—
115. The saving bank deposits can be opened with a small amount—
116. Every loan creates deposit—True
117. Cheques are money—False
118. A commercial bank is a profit making financial institution—
119. stale cheque is valid for payment for a period of one year—
120. Every account holder of a bank gets cheque book—
121. Bearer cheque is the safest cheque—
122. Deposits are created out of loans—
123. A cheque drawn on nationalized bank is a legal tender—
124. Current deposits yields high interest rate—
125. The reserve bank of India is a commercial bank—
126. Cash Credit is given for a long period—
127. ATM facilities are available for saving accounts holder—
128. Overdraft facilities are available for savings account holders—
129. A bank usually does not pay interest in case of current account—
130. It is necessary to give prior intimation to the bank for withdrawing money form the current deposit—
131. The saving bank account can be opened with a small amount—
132. A central banks works solely for profit—
133. A central bank supplies bank money—
134. A central bank controls bank money—
135. The central bank of India is India‘s Central Bank
136. A central bank acts as the bankers to the public—
137. A central bank is the lender of money in the market—
138. A central bank is the lender of the last resort—
139. Open market sales policy results in credit contraction—
140. Clearing house system economizes cash—
141. A central bank does not deal with the public money—
142. The Reserve Bank of India is the Central Bank of India—
143. RBI has no power to issue currency—
144. Coins, one and two rupee notes are issued by government of India—
145. Government is the lender of last resort—
146. RBI is the banker to the government—
147. The Central Bank does not control credit—
148. Raising bank rate is aimed at the expansion of credit—
149. Usually , a central bank has the monopoly of note-issue—
150. The values of mother‘s service is not included in the nationals income—
151. Wine is not a Wealth—
152. In Surplus budget expenditure exceeds receipts—
153. Keynes advocated unbalanced budget approach—
154. Fiscal policy is a budgetary policy of government—
155. Modern concept of budgetary principle is sound finance—
156. Direct taxes are levied on goods and services—
157. Budget carries summarized information about government‘s activities—
158. Excise duty is a indirect tax—
159. A government budget should not always be balanced—
160. Entrepreneur is a captain of the Industry—
161. The demand for necessities is elastic—false.

OMTEX CLASSES

ECONOMICS

Introduction:

Economics is a social science which studies economic behaviour of the people. Economic behaviour means how a man is earning income & how he is spending income for the satisfaction of wants. Thus, wants satisfaction through earning & spending is the main subject matter of economics. There are two branches of Modern Economics. These two branches are Micro Economics and Macro Economics. These two terms were first coined by Prof. Ragnar Frisch in 1933.

FATHER OF ECONOMICS

Adam Smith

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