NCERT Solutions for class 12th Economics Part B Chapter 1 Introduction


Question 1. What is the difference between Microeconomics and Macroeconomics?

Question 2. What are the important features of a capitalist economy?

Ans. A capitalist economy is one in which there is private ownership of factors of production and production is undertaken for profit motive.
1. Private ownership on factors of production : Factors of production are privately owned in a capitalist economy. Government concentrates on administrative tasks and social security measures.
2. Profit Motive : Production is undertaken with a view to earning profit.
3. Price mechanism to solve central problems : Central problems are solved through price mechanism i.e. the forces of demand supply together determine what is to be produced and in what quantity, how is it to be produced and for whom it is to be produced.

Question 3. Describe the four major sectors in an economy according to the macroeconomic point of view.

Ans. There are four major sectors in an economy according to the macroeconomic point of view:
(a) Households: Households is the sector that owns factors of production. It supplies these factors of production to the firms who pay for them in return.Consumption is the primary activity undertaken by households.
(b) Firms: Firms is the sector that hires factors of production to produce goods and services in an economy. Thus, production is the primary activity of the firms.
(c) Government: The government is the sector that receives taxes from both households and firms. It also gives subsidies and provides administrative services.
(d) Rest of the world: When the domestic sector of an economy buys goods and services from other countries, it is called imports. When the domestic sector sells goods and services to the external economy, it is termed as exports.

Question 4. Describe the Great Depression of 1929.

Ans. USA faced acute depression during 1929-1933 which is known as Great Depression of 1929. In 1929 and subsequent years, the output and employment levels in the countries of Europe and North America fell by huge amounts. It affected other countries of the world as well. Demand for the goods in the market was low. In USA during 1929-33, the unemployment rate increased from 3% to 25%. Over same period, the output fell by 33%. It failed classical theory which said supply creates its own demand. In these situations, a new way of understanding macro economics was given by J. M Keynes in his book titled ‘theory of Employment, Interest and Money’ in 1936.

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