MACRO ECONOMICS
UNIT-I
NATIONAL INCOME AND RELATED AGGREGATES
Analyze the above picture and explain it taking a suitable example.
The illustration depicts a problem associated with
the estimation of national income. Identify the
same and explain it with a suitable example.
Look at the following picture and identify the limitation of GDP as an indicator of welfare Explain the identified limitat
Look at the following picture to identify the limitation of GDP
.
Read the following extract carefully and answer the questions that follow:
The primary difference between nominal GDP and real GDP is that real GDP is adjusted for inflation or
deflation, providing a more accurate measure of economic growth, while nominal GDP measures an economy's size at
current market prices.
Both measures have their advantages and limitations, and understanding these differences is essential for
making informed decisions in economics.
As the global economy continues to evolve, new methods for measuring economic performance may emerge. For
now, understanding the real and nominal GDP formulas, and the differences between the two remains valuable
for navigating the world of trading.
What is the major difference between real and nominal GDP?
How can we transform nominal GDP into real GDP?
Which of the two-real or nominal GDP is a better indicator of economic growth and why?
Read the following extract carefully and answer the questions that follow
In the case of pollution-the traditional example of a negative externality-a polluter makes decisions based only
on the direct cost of and profit opportunity from production and does not consider the indirect costs to those
harmed by the pollution. The social-that is total costs of production are larger than the private costs. Those
indirect costs which are not borne by the producer or user-include decreased quality of life, say in the case of a
home owner near a smokestack, higher health care costs, and forgone production opportunities, for example
when pollution harms activities such as tourism. In short, when externalities are negative, private costs are
lower than social costs.
There are also positive externalities, and here the issue is the differences between private and social gains.
For example, research and development (R&D) activities are widely considered to have positive effects beyond
those enjoyed by the producer-typically, the company that leads the research. This is because R&D adds to the
general body of knowledge, which contributes to other discoveries and developments. However, the private
returns from selling products based on its own R&D typically do not include the returns of others who
benefitted indirectly with positive externalities, private returns are smaller than social returns
When there are differences between private and social costs or private and social returns, the main problem is that
market outcomes may not be efficient. To promote the well-being of all members of society, social returns should
be maximized and social costs minimized. Unless all costs and benefits are internalized by households and
firms making buying and production decisions, market outcomes can lead to underproduction or overproduction in
terms of MONEY
UNIT-II a society's overall condition (what economists call the "welfare perspective")
AND
1. Define externalities
2. How do externalities act as a limitation of GDP as an index of welfare?
3. Give an example of positive and negative externality each.
Case study: Read the following extract and answer the questions that follow
Identify the type of exchange system depicted in the foll
(Hint: barter system
Study the following picture carefully:
State any three instruments through which economic
stability and growth can be achieved.
(hint: any three monetary policy instruments)
Generally, banks hold a maximum amount of money that they can create as a percentage of their reserves, which
is set forth by the fractional reserve banking system. As banks loan out their reserves, they produce
checkable deposits and estimate the amount of money that is available to be lent out by using their reserve
requirement ratio. Hence, the money multiplier can be seen as the opposite of the reserve requirement ratio, because
it is a ratio of the checkable deposit to the amount in the reserves.
An example of such an inverse relationship is when a bank posts a required reserve ratio of 24%, the deposit
multiplier would be 76%. The money multiplier allows for the bank to ensure that there is sufficient cash to cater
for withdrawals, as needed by the customers.
Define money multiplier.
What is meant by reserve requirement ratio? How is it related to money multiplier?
PICTURE 1
Q Study the picture and answer the following
Differentiate between repo rate and reverse repo rate.
Analyse the diagram and cite reasons for changes in the repo
rate from 2005 to 2022.
(hint: repo rate has been reduced from above 15% to about 6% over
the 20 years'
period which shows an effort to boost growth and employment and
pull the economy out of a situation of deflation)
Picture 3
Q Define cash reserve ratio. How can it be used for correcting the problems of excess and deficient demand?
CASE 1
A significant fluctuation in the growth rate of gross domestic product is observed, which comes along with
the fluctuations of other demand components from 1951- 52 to 2019-20. It is found that in the long run, out
of the components that significantly influence the aggregate demand and hence the economic growth of India, the
private final consumption expenditure plays the most significant role followed by private fixed investment. A 1%
increase in the PFCE leads to an average 0.96% increase in the GDP. The result also reveals that the structural policy
reforms implemented since 1991 have created the virtuous cycle of economic growth in the economy and should be
a policy
priority (economic and political weekly)
Q. Read the passage above and answer the following
● What are the components of the aggregate demand mentioned in the article?
● Define private final consumption expenditure
● How does increase in PFCE lead to increase in GDP?
(hints (1) C, I,G, X-M;
Consumption expenditure by household sector:
Increase in PFCE implies increase in the aggregate demand and hence GDP)
CHAPTER 1: INDIAN ECONOMY ON THE EVE OF INDEPENDENCE
On the basis of the following picture,
analyse the characteristics of the
Indian economy at the eve of
Independence.
(Ans Hint: At the eve of
independence,
Indian economy was
a) Backward b) stagnant
c) semi feudal d) depleted and
Look at the picture given below:
In context of foreign trade during the British rule,
Identify the concept exhibited in the above pictures and
explain the same.
(Ans Hint: Drain of Wealth)
Study the picture given below.
On the basis of the above picture, identify the characteristics of
industrial sector in India before the advent of British.
Why did the British systematically deindustrialize the Indian
economy?
Chapter-2 Indian economy-1950-1990
2.
On the basis of the above picture,
critically evaluate the economic policies
pursued by the Indian Government from
1950 to 1990.
Study the following picture and answer the questions that
follow.
When was the planning commission established and what
were its prime objectives?
Which is the successor organization of planning
commission and when was it established?
What are the main differences between Planning
commission and its successor organization
CASE STUDIES
Read the following extract carefully and answer the questions that follow:
Prior to the mid-1960s, increased crop production in India was largely achieved by expansion of cultivated area. To
gain self-sufficiency in food grain production, a new agricultural strategy popularly known as the 'Green Revolution'
was implemented in the mid-1960s. This strategy involved the use of modern technology, including HYV (high yielding
variety) seeds, chemical fertilizer, irrigation facilities, improved farm implements and crop protection measures. It
succeeded, and food self-sufficiency was attained. Food grain production increased due to both extensi◻cation and
intensification. The area under cultivation for food grain crops increased considerably. However the major concern
for the scientists and policymakers is to sustain the productivity in order to achieve food security to the fast growing
population.
In Punjab and Haryana the contribution to total national food grain production increased from 3% before the Green Revolution
to 20% at present, contributing 50 and 85% of government procurement of rice and wheat, respectively. The
increases achieved by the Green Revolution have created several environmental problems, viz. deforestation,
waterlogging, salinity, alkalinity, soil erosion and decline and rise of the ground water table linked to brackish water,
etc. These environmental problems became evident in the 1980s, and are becoming increasingly prominent through time.
Increasing pressure of the population on the land dictates the need for potential utilisation of all available land.
However, large parts of the land are degraded by deserti◻cation, soil salinity, waterlogging,◻oods, and droughts, due
to inefficient agricultural practices, and deforestation has caused excessive soil erosion (Gill, 1992; Randhawa, 1992).
The increasing demand for food fodder and fuel can only be met through bringing more of these degraded areas into
cultivation
a. Highlight the benefits of green revolution for Indian economy.
b. What have been the major environmental and economic concerns that have emerged from green revolution
CASE STUDY 2: READ THE FOLLOWING
IMAGE CAREFULLY AND ANSWER THE
QUESTIONS THAT FOLLOW:
There was an export surplus in India’s foreign
trade during the British rule. How did it affect the
India's economy?
What were the major features of foreign trade in
India during British rule?
CHAPTER 3-ECONOMIC REFORMS SINCE 1991
Picture 1
From the picture above,
What steps were taken by the government of India to
achieve liberalization in 1991?.
How does liberalization differ from privatization? (hint:
discuss economic reforms of 1991)
PICTURE 2
Q. Answer the following questions based on
the data
CASE 1 above
1. Which economic
Three decades reforms
of economic are being
reforms have ushered in a major transformation in the size and quality of the economy,
referred to in the above data?
said Madan Sabnavis, Chief Economist of CARE rating agency, in an interview with Money control on July 1.
2 Discuss
While reforms the limitations ofeconomy
have put the these economic
on the fast track and made it comparable to the world's developed countries in terms
ofreforms,
quality, ifthe
any.
trickle-down effects have worked in a limited manner, Sabnavis said.
"The poor have become less poor; the rich have become much richer with inequality getting exacerbated. Further, those
at the bottom 10 percent of the population still lack digni◻ed living and it is more people in the middle and higher levels on
the low-income scale, who have moved up," Sabnavis said.
Q. Read the above article and answer the questions below:
1. Discuss the main features of the economic reforms discussed above.
2 Critically analyze the achievements of the economic reforms since 1991.
