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Macro Economics Introduction NCERT Textbook With Solutions Book PDF Free Download
Chapter 1: Macro Economics Introduction
Macroeconomics, as a separate branch of economics, emerged after the British economist John Maynard Keynes published his celebrated book The General Theory of Employment, Interest, and Money in 1936.
The dominant thinking in economics before Keynes was that all the laborers who are ready to work will find employment and all the factories will be working at their full capacity. This school of thought is known as the classical tradition.
However, the Great Depression of 1929 and the subsequent years saw the output and employment levels in the countries of Europe and North America fall by huge amounts. It affected other countries of the world as well.
Demand for goods in the market was low, many factories were lying idle, and workers were thrown out of jobs.
In the USA, from 1929 to 1933, the unemployment rate rose from 3 percent to 25 percent (unemployment rate may be defined as the number of people who are not working and are looking for jobs divided by the total number of people who are working or looking for jobs).
Over the same period, aggregate output in the USA fell by about 33 percent. These events made economists think about the functioning of the economy in a new way.
The fact that the economy may have long-lasting unemployment had to be theorized about and explained.
Keynes’ book was an attempt in this direction. Unlike his predecessors, his approach was to examine the working of the economy in its entirety and examine the interdependence of the different sectors. The subject of macroeconomics was born.
We must remember that the subject under study has a particular historical context. We shall examine the working of the economy of a capitalist country in this book. In a capitalist country production activities are mainly carried out by capitalist enterprises.
A typical capitalist enterprise has one or several entrepreneurs (people who exercise control over major decisions and bear a large part of the risk associated with the firm/enterprise).
They may themselves supply the capital needed to run the enterprise, or they may borrow the capital. To carry out production they also need natural resources – a part consumed in the process of production (e.g. raw materials) and a part fixed (e.g. plots of land).
And they need the most important element of human labor to carry out production. This we shall refer to as labor.
After producing output with the help of these three factors of production, namely capital, land, and labour, the entrepreneur sells the product in the market.
The money that is earned is called revenue. Part of the revenue is paid out as rent for the service rendered by land, part of it is paid to capital as interest, and part of it goes to labor as wages.
The rest of the revenue is the earnings of the entrepreneurs and it is called profit.
Profits are often used by the producers in the next period to buy new machinery or to build new factories, so that production can be expanded.
These expenses which raise productive capacity are examples of investment expenditure.
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NCERT Solutions Class 12 Economics Chapter 1 Macro Economics Introduction
1. What is the difference between microeconomics and macroeconomics?
- Deals with the behavior, choices, and incentives of individuals or individual companies.
- Pioneered by economists such as Alfred Marshall
- Can be used to explain consumer behavior, the theory of price, and marketing principles.
- Deals with the economy as a whole, including governments, corporations and regulatory institutions.
- Pioneered by economists such as J.M. Keynes
- Can be used to explain aggregate market performance, unemployment, growth and overall market predictions.
2. What are the important features of a capitalist economy?
These are the important features of a capitalist economy
- The means of production are privately owned.
- The maximization of profit is the main motive for the producers.
- The market determines the price of the product based on demand and supply.
- There is competition among the producers and free enterprise is ensured.
3. Describe the four major sectors in an economy according to the macroeconomic point of view.
These are the four major sectors in the economy according to the macroeconomic point of view.
i) The production sector that is responsible for the production of goods and services
ii) The household sector that consumes the goods and services produced in the economy
iii) The government sector that is responsible for framing laws and regulating policies that affect the economy and the people.
iv) The external sector that refers to the rest of the world which is interconnected through trade. (Exports and Imports)
4. Describe the Great Depression of 1929.
The Great Depression of 1929 was one of the worst economic depressions in the history of the world. It began when the U.S. stock market crashed in 1929 and lasted until the end of the 1930s.
Several causes are considered to be responsible for this period of economic downturn. Raising debt levels, fall in profits and the gold standard system are some attributed causes.
The Great Depression led to a series of problems for the economy and the people. There was a drastic decrease in production and consumption in the economy.
The rate of unemployment skyrocketed resulting in hardships across the population. A lot of prominent banks failed and ran out of business.
Eventually, the great depression shaped the politics of the U.S. and laid the foundations for The New Deal.
NCERT Class 12 Economics Textbook Chapter 1 Macro Economics Introduction With Answer PDF Free Download