Answer any twenty questions (All 25 solved for full coverage): 1 x 20 = 20
Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole, focusing on aggregate variables such as national income, total employment, and inflation
.A two-sector economy is a simplified economic model consisting only of households and business firms
.Economic agents are individuals or institutions (such as consumers, producers, or the government) that make decisions influencing economic activities
.GDP_MP (Gross Domestic Product at Market Price) is the total market value of all final goods and services produced within the domestic territory of a country during a year, inclusive of indirect taxes but exclusive of subsidies
.A depreciation reserve fund is an account where a business sets aside money periodically to replace fixed assets when they wear out or become obsolete
.Personal income is the total income actually received by individuals and households from all sources (including transfer payments) before payment of personal direct taxes
.Transfer payment refers to a payment made by the government or an institution to an individual for which no productive service is rendered in return (e.g., old-age pensions or student scholarships)
.A Laissez-faire economy is a free-market system where the government does not interfere in economic transactions, allowing private individuals and firms to operate without regulation
.This statement is known as Say's Law, attributed to the French economist Jean-Baptiste Say
.Full employment is an economic situation where all available labor resources are being used in the most efficient way possible, and anyone willing to work at the current wage rate can find a job
.MPP_L (Marginal Physical Product of Labor) is the additional output produced by employing one more unit of labor while keeping all other inputs constant
.The fundamental assumption is that there is automatic full employment in the economy in the long run
.A consumption function describes the functional relationship between total consumption expenditure and the level of national income
.Yes, theoretically, Marginal Propensity to Consume (MPC) can be zero if an individual decides to save the entirety of an additional unit of income
.The multiplier (K) is calculated as K = 1 / (1 - MPC). For MPC = 0.50, K = 1 / (1 - 0.50) = 2.
As income increases, both APC and MPC tend to decline, but MPC falls faster than APC
.Ex-ante investment refers to the planned or intended investment that entrepreneurs desire to make at different levels of income
.Money is anything that is generally accepted as a medium of exchange, a measure of value, a store of value, and a standard for deferred payments
.One primary function is the acceptance of deposits from the public
.An overdraft facility allows a current account holder to withdraw more money than they actually have in their account, up to a pre-approved limit
.Acting as an agent for customers in the collection and payment of checks or bills
.Answer any five questions: 2 x 5 = 10
A stock is a quantity measured at a specific point in time (e.g., wealth or capital), whereas a flow is a quantity measured over a specified period of time (e.g., income or investment)
.A four-sector economy includes: 1. Households, 2. Business Firms, 3. The Government, and 4. The External (Rest of the World) sector
.Nominal national income is the value of final goods and services measured at current market prices, while real national income is the value measured at constant (base-year) prices to adjust for inflation
.According to classical economists, flexibility in wages, prices, and interest rates ensures the economy automatically returns to full employment
.Effective demand is the level of aggregate demand which is exactly equal to the aggregate supply in an economy, determining the equilibrium level of income and employment
.Answer any five questions: 8 x 5 = 40
Scope: Macroeconomics covers the theory of national income, employment, money, general price levels, and economic growth
. It examines how these large-scale factors interact to determine the overall state of an economy.Importance: It is crucial for formulating government policies, understanding the causes of economic fluctuations (like booms and recessions), and facilitating comparisons of economic performance between different countries
.In a three-sector economy, the government is added to the household and firm sectors
. Households and firms pay taxes to the government, which represents a leakage. The government, in turn, provides transfer payments to households and subsidies to firms, while also making direct purchases of goods and services, which act as injections into the flow.The value-added method (also known as the product method) measures national income by summing the value added by every producing enterprise in the domestic territory during a year
.Value Added = Value of Output - Intermediate Consumption
To avoid double counting, only the value added at each stage of production is considered, rather than the total value of sales at every stage
.Keynes' psychological law of consumption states that as income increases, consumption also increases, but by a smaller amount than the increase in income
. This implies that some portion of the additional income is always saved.Limitations: The law assumes a stable social and economic environment
. It may not hold true during periods of war, hyperinflation, or significant changes in the distribution of wealth, where consumption habits may shift drastically regardless of income levels.Quantitative instruments are tools used by the central bank to regulate the total volume of credit in the economy
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