1

J M .H .S .S
12 Std E
Time : 1.30 hrs. June 2025 Lesson 1 & 2 Marks : 50
Instruc on : Use Black or Blue ink to write and pencil to draw diagrams.
Part - A
Choose the correct answers from the below op ons. 10 x 1= 10
1. The branches of the subject Economics are _____________.
a) Wealth and welfare b) produc on and consump on
c) Demand and supply d) micro and macro

2. Iden fy the other name for Macro Economics.

a) Price Theory b) Income Theory
c) Market Theory d) Micro Theory

3. Indicate the fundamental economic ac vi es of an economy.

a) Produc on and Distribu on b) Produc on and Exchange
c) Produc on and Consump on d) Produc on and Marke ng

4. Iden fy The Father of Socialism.

a) J M Keynes b) Karl Marx
c) Adam Smith d) Samuelson

5. Iden fy the flow variable.

a) money supply b) assets
c) income d) foreign exchange reserves

6. Net Na onal product at factor cost is also known as____________.

a) Na onal Income b) Domes c Income
c) Per capita Income d) Salary.

7. Na onal income is measured by using ___________. methods.

a) Two b) Three
c) Five d) Four

8. Expenditure method is used to es mate na onal income in ________.

a) Construc on sector b) Agricultural Sector
c) Service sector d) Banking sector
 2
9. The value of NNP at produc on point is called ___________.
a) NNP at factor cost b) NNP at market cost
c) GNP at factor cost d) Per capita income

10. The largest propor on of na onal income comes from ___________.

a) Private sector b) Local sector
c) Public sector d) None of the above

Part B
Answer any (Six) 6 ques ons. Q. No. 17 is Compulsory. 6 x 2 = 12
11. Define Macro Economics.
12. What is meant by an Economy?
13. ‘Circular Flow of Income’ - Define.
14. Define Na onal Income.
15. Why is self consump on difficult in measuring N.I.?
16. Define GDP deflator.
17. What is PQLI? And Its components

Part C
Answer any (Six) 6 ques ons. Q. No. 24 is Compulsory. 6 x 3 = 18
18. State the importance of Macro Economics.
19. Dis nguish between Capitalism and Globalism.
20. Briefly explain the two sector circular flow model.
21. Write a short note on per capita income.
22. Differen ate between personal and disposable income.
23. What are the difficul es in measuring N. I.?
24. List out the uses of Na onal Income.

Part D
Answer all the ques ons. 2x5 = 10
25. Discuss the scope of Macro Economics.
(OR)
Discuss the various methods of es ma ng the na onal income of a
country.
26. Compare the features among Capitalism, Secularism and Mixedism.
(OR)
What are the difficul es involved in the measurement of NI.?
 3

J M .H .S .S
12 Std E Marks : 50
KEY ANSWER FOR JUNE 2025 Lesson 1 & 2

Part A
1. D) Micro and Macro
2. B) Income Theory
3. C) Produc on and Consump on
4. B) Karl Marx
5. C) Income
6. A) Na onal Income
7. B) Three
8. A) Construc on Sector
9. A) NNP at factor cost
10. A) Private Sector

Part B
11) Define Macro Economics.
M E :
• The word ‘Macro’ is derived from the Greek word ‘Makros’ meaning ‘large’.
• Hence, Macro Economics is the study of the economy as a whole.
• Macro Economics is also known as ‘Income Theory’.
• J.M. Keynes is considered the ‘Father of Modern Macro Economics’.

12) What is meant by an ‘Economy’?

E :
• A. J. Brown defined an economy as “ A system by which people earn their
living”.
• J.R. Hicks defined an economy as “a coopera on of producers and workers
to make goods and services that sa sfy the wants of the consumers”.
• The two fundamental economic ac vi es are produc on and consump on.
 4
13) ‘Circular Flow of Income’ - Define.
• It is a model showing how money, goods and services move through the
economy.
• It connects economic agents such as firms, households, government and
na ons.
• This model helps in understanding Na onal Income and economic ac vi es.

14) Define Na onal Income.

N -A M
• “The labour and capital of a country ac ng on its natural resources produce
annually a certain net aggregate of commodi es, material and immaterial
including services of all kinds. This is the true net annual income or revenue of
the country or na onal dividend”.
• Na onal Income means the total money value of all final goods and services
produced in a country during a par cular period of me (One Year).

15) Why is self consump on difficult in measuring na onal income?

• Farmers keep a large por on of food and other goods produced for self
consump on.
• The problem is whether that part of the produc on which is not sold in the
market can be included in na onal income or not.

16) Define GDP deflator.

GDP :
• GDP deflator is an index of price changes of goods and services.
GDP deflator = Nominal GDP
x 100
C : Real GDP
17) What is PQLI? Write its components.
• The Physical Quality of Life Index (PQLI) is considered a be er indicator of
economic welfare.
• It includes standard of living, life expectancy at birth and literacy.
 5
Part C
18) State the importance of Macro Economics.
I M E :
1. Understand the func oning of the economy at the aggregate level and to
solve the basic problems in an economy.
2. Macro economics helps to make meaningful comparison and analysis of
economic indicators.
3. It Helps in understanding the future problems, needs and challenges of an
economy.
4. Macro economics helps for be er predic on about future.

19) Dis nguish between Capitalism and Globalism.

Capitalism Globalism
1 Private ownership It’s Extended Capitalism
2 It aims at Maximum Profit. It aims at Global development
All economic ac vi es are regulated
All economic ac vi es are regulated by
by government policies on imports and
3 price mechanism.
exports. i.e. Import policy and Export
i.e. demand and supply.
policy.
4 Adam Smith is the Father of Capitalism Coined by Manfred D Steger.

20) Briefly explain the two sector circular flow model.

T -S C F M :
1. There are only two sectors namely, household sector and firm sector.
• Household Sector: The household sector is the sole buyer of goods and
services, and the sole supplier of factors of produc on,. It spends its en re
income on the purchase of goods and it receives income from firm sector.
• Firms: The firm sector generates its revenue by selling goods and services to
the household sector. It hires the factors of produc on.The firm sector sells
the en re output to households.
2. In a two-sector economy, produc on and sales are equal
3. The Basic Iden es of the two sector economy are as under : Y=C+I
 6
Where, Y = Income. C=Consump on, I=Investment.

21) Write a short note on per capita income.

Per Capita Income:
• The average income of a person of a country in a par cular year is called
Per Capita Income.
• Per capita income is obtained by dividing na onal income by popula on.
Per capita income = Na onal income
Popula on
22) Differen ate between personal and disposable income.

Personal Income Disposable Income

1 Personal income is the total income Disposable income is also known as ‘Dis-
received by the individuals of a posable Personal Income. It is the individ-
country from all sources before ual’s income a er the payment of income
payment of direct taxes in a year. tax.
2 Personal income is never equal to This is the amount available for
the na onal income. households for consump on.
3 Personal Income = Na onal Income Disposable Income = Personal income –
– (Social Security Contribu on and Direct Tax.
undistributed corporate profits) +
Transfer payments
23) What are the difficul es in measuring Na onal Income?
Difficuli es in measuring NI:
i) Transfer payments
ii) Difficul es in assessing deprecia on allowance.
iii) Unpaid Services
iv) Income from illegal ac vi es.
v) Produc on for self consump on and changing price.
vi) Capital Gains
vii) Sta s cal problems
 7
C :
24) List out the uses of na onal income.
Uses of Na onal Income:
1. To know the contribu on of Na onal Income in different sectors.
2. To formulate the Na onal Policies such as Monetary Policy, Fiscal Policy and
other Policies.
3. To formulate Planning and evaluate plan progress.
4. To Build Economic Models both in short-run and long-run.
5. To make Interna onal Comparision
6. To know a country’s Per Capita income
7. To know the Distribu on of income for various factors of produc on in the
country.

Part D
25) Discuss the scope of Macro Economics.
S M E :
1) N I :
• Measurement of na onal income and its composi on by sectors are the
basic aspects of macroeconomic analysis.
• The trends in Na onal Income and its composi on provide a long term
understanding of the growth process of an economy.
2) I :
• Infla on refers to steady increase in general price level.
• Es ma ng the general price level by construc ng various price index
numbers such as Wholesale Price Index, Consumer Price Index, etc, are
needed.
3) B C :
• Almost all economies face the problem of business fluctua ons and
business cycle.
• The cyclical movements in the economy need to be carefully studied
based on aggregate economic variables.
 8
4) P U :
• The major problems of most resource - rich na ons are poverty and un-
employment. This is one of the economic paradoxes.
• A clear understanding about the magnitude of poverty and unemploy-
ment facilitates alloca on of resources and ini a ng correc ve measures.
5) E G :
• Economic growth refers to the increase in a country’s produc on of goods
and services over me.
• It leads to higher employment, be er infrasturcture and improved living
standards.
• Economic Growth is measured by the increase in GDP.
6) E P :
• Macro Economics is significant for evolving suitable Economic Policies.
• Economic Policies help solve economic problems, overcome obstacles
and achive sutained economic growth .
• Macro economic policies create a balanced and well-func oning economy.
(OR)
Discuss the various methods of es ma ng the na onal income of a country.
Methods of Measuring Na onal Income.
There are three methods that are used to measure na onal income.
1. Produc on (or) value added method
2. Income method (or) factor earning method
3. Expenditure method.
1. Produc on or value added method:
• Product method measures the output of the country. It is also called
inventory method
• In this method, the gross value of output from different sectors like
agriculture, industry, trade and commerce, etc., is obtained for the en re
economy during a year.
• Care must be taken to avoid double coun ng.
 9
• To avoid double coun ng, either the value of the final output should be
taken into the es mate of GNP or the sum of value added should be taken

2. Income Method (Factor Earning Method):

• This method approaches na onal income from the distribu on side.
• In this method, na onal income is calculated by adding up all the incomes
generated in the course of producing na onal product.
• Na onal income is calculated as domes c factor income plus net factor
incomes from abroad.
In short, Y = w + r + i + π + (R-P)
w = wages, r = rent, i = interest, π = profits, R = Exports and P = Imports
Precau ons:
1. Transfer payments are not to be included
2. Lo eries are not to be included
3. Rent for self occupied houses or offices is to be included
4. Owners of produc on units is to be included

3. The Expenditure Method (Outlay method)

• Under this method, the total expenditure incurred by the society in a
par cular year is added together.
• To calculate the expenditure of a society, it includes personal consump on
expenditure, net domes c investment, government expenditure on
consump on as well as capital goods and net exports.
• Symbolically,
GNP = C + I + G + (X-M)
C - Private consump on expenditure,
I - Private Investment Expenditure
G - Government expenditure,
X-M = Net exports
Precau ons : Include government expenditure capital goods and net exports
 10

26) Compare the feature among Capitalism, Secularism and Mixedism.

Features Capitalism Socialism Mixedism

Ownership Private Ownership

Public
1 of Means of Private Ownership and Public
Ownership
Produc on Ownership

Social Welfare and

2 Economic Mo ve Profit Social Welfare
Profit Mo ve

Central Planning
Solu on of Free Market Sys- Central Planning
3 System and Free
Central Problems tem System
Market System
Government Internal Regula on Complete
4 Limited Role
Role only Involvement
Income
5 Unequal Equal Less unequal
Distribu on
Nature of Government Both Private and
6 Private Enterprise
Enterprise Enterprise State Enterprises.
Economic Complete Lack of Free-
7 Limited Freedom
Freedom Freedom dom
Inequality and
8 Major Problem Inequally Inefficiency
Ineffiency
• India
• North Korea
• United States • England
9 Countries • China
• Japan • France
 11
(OR)
What are the difficul es involved in the measurement of na onal income?
Difficul es in measuring Na onal Income:
1. Transfer payments:
• Government makes payments in the form of pensions, unemployment
allowance, subsidies, etc. These are Government expenditure.
• But they are not included in the Na onal Income. Because they are paid
without adding anything to the produc on process.
2. Difficul es in assessing deprecia on allowance:
• The deduc on of deprecia on allowances, accidental damages, repair and
replacement charges from the na onal income is not an easy task.
• It requires high degree of judgment to assess the deprecia on allowance
and other charges.
3. Unpaid services:
• A housewife renders a number of useful services like prepara on of meals,
serving, tailoring, mending, washing, cleaning, bringing up children, etc.
• She is not paid for them and her services are not directly included in na onal
income.
4. Income from illegal ac vi es:
• Income earned through illegal ac vi es like gambling, smuggling, illicit
extrac on of liquor, etc., is not included in na onal income.
5. Produc on for self-consump on and changing price:
• Farmers keep a large por on of food and other goods produced on the farm
for self consump on. The problem is whether that part of the produce which
is not sold in the market can be included in na onal income or not.
6. Capital Gains:
• The gain is the difference between a higher selling price and the lower
purchasing price
• Capital gains are excluded from na onal income.
 12
7. Sta s cal problems:
• Sa s cal data may not be perfectly reliable.
1. Most of the stas cal staff are untrained and inefficient.
2. In animal husbandary, there are no authen c produc on data
avaliable