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12 - Economics
English Medium – Two Mark Study Material

M.Varadarajan, M.Com., M.Phil., M.A (Eco)., M.Ed.,

PG Assistant in Economics
E-mail: mvaradarajan76@gmail.com
Mobile: 9786868699
 www.nammakalvi.com

12 - Economics
Table of Contents

S. No. Chapter Title Page No.

Chapter - 1 Introduction to Macro Economics 1

Chapter - 2 National Income 2

Chapter - 3 Theories of Employment and Income 3

Chapter - 4 Consumption and Investment Functions 4

Chapter - 5 Monetary Economics 5

Chapter - 6 Banking 6

Chapter - 7 International Economics 7

Chapter - 8 International Economic Organisations 8

Chapter - 9 Fiscal Economics 9

Chapter - 10 Environmental Economics 10

Chapter - 11 Economics of Development and Planning 11

Chapter - 12 Introduction to Statistical Methods and Econometrics 12

Thank You

M.Varadarajan, M.Com., M.Phil., M.A (Eco)., M.Ed.,

PG Assistant in Economics
E-mail: mvaradarajan76@gmail.com
Mobile: 9786868699 & 9842868699
 www.nammakalvi.com

12 – Economics
Two Mark Question and Answer
(Very short answer questions)

M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,

PG Assistant in Economics
E-mail: mvaradarajan76@gmail.com
Mobile: 9786868699

Chapter - 1
Introduction to Macro Economics
Answer the following questions in one or two sentences
1. Define Macro Economics.
(i) The word „Macro‟ is derived from the Greek word „Makros‟ meaning „large‟.
(ii) Hence, Macro Economics is the study of the economy as a whole.
(iii) It deals with aggregates such as national income, employment and output.
(iv) Macro Economics is also known as „Income Theory‟.
2. Define the term ‘Inflation’.
(i) Inflation refers to steady increase in general price level.
(ii) Estimating the general price level by constructing various price index numbers such as
Wholesale Price Index, Consumer Price Index, etc, are needed.
3. What is meant by an ‘Economy’?
A. J. Brown
 “A system by which people earn their living.”
(OR)
J. R. Hicks
 “An economy is a cooperation of producers and workers to make goods and services that
satisfy the wants of the consumers.”
4. Classify the economies based on status of development.
(i) Developed economies (iii) Undeveloped economies
(ii) Underdeveloped economies (iv) Developing economies
5. What do you mean by Capitalism?
(i) Adam Smith is the „Father of Capitalism‟.
(ii) Capitalistic economy is also termed as a free economy or market economy where the role of
the government is minimum and market determines the economic activities.
6. Define ‘Economic Model’.
(i) A model is a simplified representation of real situation.
(ii) Economists use models to describe economic activities, their relationships and their
behaviour.
7. ‘Circular Flow of Income’ - Define.
(i) The circular flow of income is a model of an economy showing connections between
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different sectors of an economy.

(ii) It shows flows of income, goods and services and factors of production between economic
agents such as firms, households, government and nations.
Chapter - 2
National Income

M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,

1. Define National Income.
Alfred Marshall
 “The labour and capital of a country acting on its natural resources produce annually a
certain net aggregate of commodities, material and immaterial including services of all
kinds.
 This is the true net annual income or revenue of the country or national dividend”.
2. Write the formula for calculating GNP.
 GNP at Market Prices = GDP at Market Prices + Net Factor income from Abroad.
(C + I + G + (X-M) + (R-P))
C - Consumption
I - Investment
G - Government
X– M - Net export
R–P - net factor income from abroad
3. What is the difference between NNP and NDP?
Basic difference NNP NDP
Meaning NNP refers to the market value of NDP is the value of net output of
output. the economy during the year.
Formula NNP = GNP - Depreciation allowance NDP = GDP - Depreciation
4. Trace the relationship between GNP and NNP.
Basic difference GNP NNP
Meaning GNP is the total measure of the flow of NNP refers to the value of the net
final goods and services at market value output of the economy during the
resulting from current production in a year.
country during a year, including net NNP is obtained by deducting the
income from abroad. value of depreciation.
Formula GNP at Market Prices = GDP at Market NNP = GNP – depreciation
Prices + Net Factor income from Abroad allowance
5. What do you mean by the term ‘Personal Income’?
(i) Personal income is the total income received by the individuals of a country from all sources
before payment of direct taxes in a year.
(ii) Personal income is never equal to the national income, because the former includes the
transfer payments whereas they are not included in national income.

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6. Define GDP deflator.

(i) GDP deflator is an index of price changes of goods and services included in GDP.
Nominal GDP
(ii) GDP deflator = × 100
Real GDP
7. Why is self consumption difficult in measuring national income?
(i) Farmers keep a large portion of food and other goods produced on the farm for self
consumption.
(ii) The problem is whether that part of the produce which is not sold in the market can be
included in national income or not.
Chapter - 3
Theories of Employment and Income

M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,

1. Define full employment.
Lerner
 Full employment as “that level of employment at which any further increase in spending
would result in an inflationary spiral of wages and prices”.
2. What is the main feature of rural unemployment?
(i) India‟s rural economy has both unemployment and underemployment.
(ii) The major feature of rural unemployment is the existence of unemployment in the form of
disguised unemployment and seasonal unemployment.
3. Give short note on Frictional or Temporary unemployment.
(i) Frictional unemployment arises due to imbalance between supply of labour and demand
for labour.
(ii) This is because of immobility of labour, lack of necessary skills, break down of machinery,
shortage of raw materials etc.
(iii) The persons who lose jobs and in search of jobs are also included under frictional
unemployment.
4. Give reasons for labour retrenchment at present situation.
(i) Modern technology being capital intensive requires less labourers and contributes to
technological unemployment.
(ii) Now a days, invention and innovations lead to the adoption of new techniques there by the
existing workers are retrenched.
(iii) Labour saving devices are responsible for technological unemployment.
5. List out the assumptions of Say’s law.
(i) No single buyer or seller of commodity or an input can affect price.
(ii) Full employment
(iii) There will be a perfect competition in labour and product market.
(iv) Money acts only as a medium of exchange.
(v) Long - run analysis.
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6. What is effective demand?

(i) Effective demand denotes money actually spent by the people on products of industry.
(ii) The money which entrepreneurs receive is paid in the form of rent, wages, interest and
profit.
(iii) Therefore effective demand equals national income.
7. What are the components of aggregate supply?
(i) Aggregate (desired) consumption expenditure (C)
(ii) Aggregate (desired) private savings (S)
(iii) Net tax payments (T)
(iv) Personal (desired) transfer payments to the foreigners (Rf)
Aggregate Supply = C + S + T + Rf = Aggregate income generated in the economy

Chapter - 4
Consumption and Investment Functions
M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,
1. What is consumption function?
(i) The consumption function or propensity to consume refers to income consumption
relationship.
(ii) It is a “functional relationship between two aggregates viz., total consumption and gross
national income.”
(iii) Symbolically, the relationship is represented as
C = f (Y)
Where, C = Consumption Y = Income f = Function
2. What do you mean by propensity to consume?
(i) The consumption function or propensity to consume refers to income consumption
relationship.
(ii) When income increases consumption also increases.
3. Define average propensity to consume (APC).
(i) The average propensity to consume is the ratio of consumption expenditure to any
particular level of income.”
(ii) C
APC =
Y
Where, C = Consumption Y = Income
4. Define marginal propensity to consume (MPC).
(i) The marginal propensity to consume may be defined as the ratio of the change in the
consumption to the change in income.

(ii) ΔC
MPC =
ΔY
ΔC = Change in Consumption MPC is positive but less than unity

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ΔY = Change in Income
5. What do you mean by propensity to save?
(i) Propensity to save is the proportion of total income or of an increase in income that
consumers save rather than spend on goods and services.
(ii) The propensity to save is merely the propensity not to consume.
6. Define average propensity to save (APS).
(i) The average propensity to save is the ratio of saving to income.
(ii) APS is the quotient obtained by dividing the total saving by the total income.
(iii) In other words, it is the ratio of total savings to total income.
S
(iv) APS =
Y
Where, S = Saving Y = Income
7. Define Marginal Propensity to Save (MPS).
(i) Marginal Propensity to save is the ratio of change in saving to a change in income.
(ii) MPS is obtained by dividing change in savings by change in income.
ΔS
(iii) MPS =
ΔY
ΔS = Change in Saving ΔY = Change in Income
(iv) Since MPC + MPS = 1
MPS = 1 - MPC and MPC = 1 - MPS
8. Define Multiplier.
(i) The multiplier is defined as the ratio of the change in national income to change in
investment.
(ii) If ΔI stands for increase in investment and ΔY stands for resultant increase in income, the
multiplier K =ΔY/ΔI.
(iii) Since ΔY results from ΔI, the multiplier is called investment multiplier.
9. Define Accelerator.
(i) Accelerator is the numerical value of the relation between an increase in consumption and
the resulting increase in investment.
ΔI
(ii) Accelerator β =
ΔC
(iii) ΔI = Change in investment outlays ΔC = Change in consumption demand
Chapter - 5
Monetary Economics
M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,
1. Define Money.
Walker
 “Money is, what money does”.
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Crowther
 “Money can be anything that is generally acceptable as a means of exchange and at the
same time acts as a measure and a store of value”.
2. What is barter?
(i) Exchange of goods for goods was known as “Barter Exchange” or “Barter System”.
(ii) The commodities and services were directly exchanged for other commodities and services.
3. What is commodity money?
 Goods like furs, skins, salt, rice, wheat, utensils, weapons, etc. were commonly used as
money, which is called as commodity money.
4. What is gold standard?
(i) Gold Standard is a system in which the value of the monetary unit or the standard currency
is directly linked with gold.
(ii) The monetary unit is defined in terms of a certain weight of gold.
5. What is plastic money? Give example.
(i) Plastic money is a term that is used predominantly in reference to the hard plastic cards
used every day in place of actual bank notes.
(ii) Plastic money can come in many different forms such as Cash cards, Credit cards, Debit
cards, Pre-paid Cash cards, Store cards, Forex cards and Smart cards.
6. Define inflation.
Coulbourn
 “Too much of Money chasing too few goods”.
Gregorye
 “A state of abnormal decrease in the quantity of purchasing power”.
7. What is Stagflation?
 Stagflation is a combination of stagnant economic growth, high unemployment and high
inflation.
Chapter - 6
Banking
M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,
1. Define Commercial banks.
 Commercial bank refers to a bank, or a division of a large bank, which more specifically
deals with deposit and loan services provided to corporations or large/ middle-sized
business - as opposed to individual members of the public/small business.
2. What is credit creation?
(i) Credit Creation means the multiplication of loans and advances.
(ii) Commercial banks receive deposits from the public and use these deposits to give loans.
(iii) However, loans offered are many times more than the deposits received by banks.
(iv) This function of banks is known as „Credit Creation‟.

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3. Define Central bank.

(i) A central bank, reserve bank, or monetary authority is an institution that manages a state‟s
currency, money supply, and interest rates.
(ii) Central banks also usually oversee the commercial banking system of their respective
countries.
4. Distinguish between CRR and SLR.
Basis for
CRR SLR
comparison
1. Meaning CRR is the percentage of money The bank has to keep a certain
which the bank has to keep with the percentage of their Net Time and
Central Bank of India in the form of Demand Liabilities in the form of liquid
cash. assets as specified by RBI.
2. Maintained RBI Bank itself
with
5. Write the meaning of Open market operations.
(i) In narrow sense, the Central Bank starts the purchase and sale of Government securities in
the money market.
(ii) In Broad Sense, the Central Bank purchases and sells not only Government securities but
also other proper eligible securities like bills and securities of private concerns.
6. What is rationing of credit?
(i) This is the oldest method of credit control.
(ii) Rationing of credit as an instrument of credit control was first used by the Bank of England
by the end of the 18th Century.
(iii) It aims to control and regulate the purposes for which credit is granted by commercial
banks.
7. Mention the functions of agriculture credit department.
(a) To maintain an expert staff to study all questions on agricultural credit.
(b) To provide expert advice to Central and State Government, State Co-operative Banks and
other banking activities.
(c) To finance the rural sector through eligible institutions engaged in the business of
agricultural credit and to co-ordinate their activities.
Chapter - 7
International Economics

M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,

1. What is International Economics?
(i) International Economics is that branch of economics which is concerned with the exchange
of goods and services between two or more countries.
(ii) Hence the subject matter is mainly related to foreign trade.

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2. Define international trade.

(i) It refers to the trade or exchange of goods and services between two or more countries.
(ii) In other words, it is a trade among different countries or trade across political boundaries.
(iii) It is also called as „external trade‟ or „foreign trade‟ or „inter-regional trade‟.
3. State any two merits of trade.
(i) Trade is one of the powerful forces of economic integration.
(ii) The term „trade‟ means exchange of goods, wares or merchandise among people.
4. What is the main difference between Adam Smith and Ricardo with regard to the emergence
of foreign trade?
Adam Smith Foreign Trade Ricardo Foreign Trade
According to Adam Smith, the basis of Ricardo demonstrates that the basis of trade is
international trade was absolute cost advantage. the comparative cost difference.
Trade between two countries would be Trade can take place even if the absolute cost
mutually beneficial when one country produces difference is absent but there is comparative
a commodity at an absolute cost advantage. cost difference.
5. Define Terms of Trade.
(i) The gains from international trade depend upon the terms of trade which refers to the ratio
of export prices to import prices.
Index of Export Prices
(ii) Terms of Trade TOT = × 100
Index of Import Prices

6. What do you mean by balance of payments?

 Balance of payments is a systematic record of a country‟s economic and financial
transactions with the rest of the world over a period of time.
7. What is meant by Exchange Rate?
(i) The transactions in the exchange market are carried out at exchange rates. It is the external
value of domestic currency.
(ii) Thus, exchange rate may be defined as the price paid in the home currency (say ` 75) for a
unit of foreign currency (say 1 US $).
Chapter - 8
International Economic Organisations

M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,

1. Write the meaning of Special Drawing rights.
(i) International monetary reserve currency created by the International Monetary Fund (IMF)
that operates as a supplement to the existing money reserves of member countries.
(ii) Special Drawing Rights is also known as paper gold.
2. Mention any two objectives of ASEAN.
(i) To accelerate the economic growth, social progress and cultural development in the region.
(ii) To promote regional peace and stability and adherence to the principles of the United
Nations Charter.
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3. Point out any two ways in which IBRD lends to member countries.
(i) Loans out of its own fund (ii) Loans out of borrowed capital
4. Define Common Market.
(i) Common market is established through trade pacts.
(ii) A group formed by countries within a geographical area to promote duty free trade and
free movement of labour and capital among its members.
(iii) Example European Common Market (ECM)
5. What is Free trade area?
(i) A free trade area is the region encompassing a trade bloc whose member countries have
signed a free-trade agreement (FTA).
(ii) Such agreements involve cooperation between at least two countries to reduce trade
barriers.
(iii) Example SAFTA, EFTA.
6. When and where was SAARC Secretariat established?
 The SAARC Secretariat was established in Kathmandu (Nepal) on 16th January 1987.
7. Specify any two affiliates of World Bank Group.
(i) International Bank for Reconstruction and Development (IBRD).
(ii) International Development Association (IDA).
(iii) International Finance Corporation (IFC).
Chapter - 9
Fiscal Economics
M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,
1. Define public finance.
Huge Dalton
 “Public finance is one of those subjects that lie on the border line between Economics and
Politics.
 It is concerned with income and expenditure of public authorities and with the adjustment
of one to the other”.
2. What is public revenue?
 Public revenue deals with the methods of raising public revenue such as tax and non-tax,
the principles of taxation, rates of taxation, impact, incidence and shifting of taxes and their
effects.
3. Differentiate tax and fee.
TAX FEE
1. A tax is a compulsory made to the Fees are another important source of revenue
government. for the government.
2. Tax revenue sources are Income tax, Fees are charged for issuing of passports,
Corporate tax, Sales tax, Surcharge and Cess. driving licenses, etc.

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4. Write a short note on zero based budget.

(i) The Government of India presented Zero-Base-Budgeting (ZBB first) in 1987-88.
(ii) It involves fresh evaluation of expenditure in the Government budget, assuming it as a new
item.
(iii) The review has been made to provide justification or otherwise for the project as a whole in
the light of the socio-economic objectives which have been already set up for this project
and as well as in view of the priorities of the society.
5. Give two examples for direct tax.
(i) Income Tax (ii) Corporation Tax
6. What are the components of GST?
 The components of GST are of 3 types.
 They are: CGST, SGST & IGST.
(i) CGST
 Collected by the Central Government on an intra-state sale.
 Example: Within state/ union territory
(ii) SGST
 Collected by the State Government on an intra-state sale.
 Example: Within state/ union territory
(iii) IGST
 Collected by the Central Government for inter-state sale.
 Example: Maharashtra to Tamil Nadu
7. What do you mean by public debt?
(i) Public debt with the methods of raising loans from internal and external sources.
(ii) The burden effects and redemption of public debt fall under this head.
Chapter - 10
Environmental Economics

M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,

1. State the meaning of environment.
(i) The term environment has been derived from a French word “Environia” means to
surround.
(ii) Environment means “all the conditions, circumstances, and influences surrounding and
affecting the development of an organism or group of organisms”.
2. What do you mean by ecosystem?
(i) An ecosystem includes all living things (plants, animals and organisms) in a given area,
interacting with each other, and also with their non-living environments (weather, earth,
sun, soil, climate, atmosphere).
(ii) Ecosystems are the foundations of the Biosphere and they determine the health of the entire
earth system.

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3. Mention the countries where per capita carbondioxide emission is the highest in the world.
(i) United States of America (iii) Canada (v) Europian Union
(ii) Japan (iv) Netherlands (vi) Russian Federation
4. What are environmental goods? Give examples.
 Environmental goods are typically non-market goods, including clear air, clean water,
landscape, green transport infrastructure (footpaths, cycle ways, greenways, etc.), public
parks, urban parks, rivers, mountains, forests, and beaches.
5. What are the remedial measures to control noise pollution?
(i) Use of noise barriers (iv) Regulating times for heavy vehicles
(ii) Newer roadway for surface transport (v) Installations of noise barriers in the work place
(iii) Traffic control (vi) Regulation of Loudspeakers
6. Define Global warming.
 Global warming is the current increase in temperature of the Earth‟s surface (both land and
water) as well as its atmosphere.
7. Specify the meaning of seed ball.
 A seed ball (or seed bomb) is a seed that has been wrapped in soil materials, usually a
mixture of clay and compost, and then dried.
Chapter - 11
Economics of Development and Planning

M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,

1. Define economic development.
(i) Economic development refers to the systematic use of scientific and technical knowledge to
meet specific objectives and requirements.
(ii) It deals with the problem of under developed countries.
2. Mention the indicators of development.
(i) Gross National Product (GNP) (iii) Welfare
(ii) GNP per capita (iv) Social Indicators
3. Distinguish between economic growth and development.
Economic Growth Economic Development
1. Deals with the problems of Developed Deals with the problems of UDCs.
countries.
2. Change is gradual and steady. Change is discontinuous and spontaneous.
3. Means more output Means not only more output but also its
composition.
4. What is GNP?
 GNP is the total market value of all final goods and services produced within a nation in a
particular year, plus income earned by its citizens (including income of those located
abroad), minus income of non-residents located in that country.

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5. Define economic planning.

Robbins
 Economic Planning is “collective control or suppression of private activities of production
and exchange”.
6. What are the social indicators of economic development?
(i) Social indicators are normally referred to as basic and collective needs of the people.
(ii) The direct provision of basic needs such as health, education, food, water, sanitation and
housing facilities check social backwardness.
7. Write a short note on NITI Aayog.
(i) NITI Aayog (National Institution for Transforming India) was formed on January 1, 2015
through a Union Cabinet resolution.
(ii) NITI Aayog is a policy think-tank of the Government of India.
(iii) It replaced the Planning Commission from 13th August, 2014.
(iv) The Prime Minister is the Chairperson of NITI Aayog.
(v) Union Ministers will be Ex-officio members.
(vi) The Vice- Chairman of the NITI Aayog is the functional head.
Chapter - 12
Introduction to Statistical Methods
and Econometrics

M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,

1. What is Statistics?
 Statistics may be defined as the collection, organisation, presentation, analysis and
interpretation of numerical data.
2. What are the kinds of Statistics?
 There are two major types of statistics.
(i) Descriptive Statistics (ii) Inferential Statistics
3. What do you mean by Inferential Statistics?
 The branch of statistics concerned with using sample data to make an inference about a
population of data is called Inferential Statistics.
4. What are the kinds of data?

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5. Define Correlation.
(i) Correlation is a statistical device that helps to analyse the covariation of two or more
variables.
(ii) Sir Francis Galton, is responsible for the calculation of correlation coefficient.
6. Define Regression.
 Regression means going back and it is a mathematical measure showing the average
relationship between two variables.
7. What is Econometrics?
(i) Econometrics means economic measurement.
(ii) Econometrics deals with the measurement of economic relationships.
(iii) {Economics + Statistics + Mathematics} + Empirical Data = Econometrics

Thank You

M.Varadarajan, M.Com., M.Phil., M.A., M.Ed.,

PG Assistant in Economics
E-mail: mvaradarajan76@gmail.com
Mobile: 9786868699

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