Category: Class 12

Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Economics Guide Pdf Chapter 5 Monetary Economics
Text Book Back Questions and Answers, Notes.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 5 Monetary Economics

12th Economics Guide Monetary EconomicsText Book Back Questions and Answers

Part – I

Multiple Choice questions

Question 1.
The RBI Headquarters is located at
a) Delhi
b) Chennai
c) Mumbai
d) Bengaluru
Answer:
c) Mumbai

Question 2.
Money is
a) acceptable only when it has intrinsic value
b) constant in purchasing power
c) the most liquid of all as sets
d) needed for allocation of resources
Answer:
c) the most liquid of all as sets

Question 3.
Paper currency system i s managed by the
a) Central Monetary authority
b) State Government
c) Central government
d) Banks
Answer:
a) Central Monetary authority

Question 4.
The basic distinction M₁ between and M₂ is with regard to.
a) post office deposits
b) time deposits of banks
c) saving deposits of banks
d) currency
Answer:
b) time deposits of banks

Question 5.
Irving Fisher’s Quantity Theory of Money was popularized in
a) 1908
b) 1910
c) 1911
d)1914
Answer:
c) 1911

Question 6.
MV stands for
a) demand for money
b) supply of legal tender money
c) supply of bank money
d) Total supply of money
Answer:
b) supply of legal tender money

Question 7.
Inflation means
a) Prices are rising
b) Prices are falling
c) Value of money is increasing
d) Prices are remaining the same
Answer:
a) Prices are rising

Question 8.
………………… inflation results in a serious depreciation of the value of money.
a) Creeping
b) Walking
c) running
d) Hyper
Answer:
d) Hyper

Question 9.
…………………… inflation occurs when general prices of commodities increase due to an increase in production costs such as wages and raw materials.
a) Cost – push
b) demand-pull
c) running
d) galloping
Answer:
a) Cost-push

Question 10.
During inflation, who are the gainers?.
a) Debtors
b) Creditors
c) wage and salary earners
d) Government
Answer:
a) Debtors

Question 11.
…………………. is a decrease in the rate of inflation.
a) Disinflation
b) Deflation
c) Stagflation
d) Depression
Answer:
a) Disinflation

Question 12.
Stagflation combines the rate of inflation with
a) Stagnation
b) employment
c) output
d) price
Answer:
a) Stagnation

Question 13.
The study of alternating fluctuations in business activity is referred to in Economics as
a) Boom
b) Recession
c) Recovery
d) Trade cycle
Answer:
d) Trade cycle

Question 14.
During depression, the level of economic activity becomes extremely
a) high
b) bad
c) low
d) good
Answer:
c) low

Question 15.
“Money can be anything that is generally accepted as a means of exchange and that the same time acts as a measure and a store of value”, This definition was given by
a) Crowther
b) A. C. Pigou
c) F.A. Walker
d) Francis Bacon
Answer:
a) Crowther

Question 16.
A debit card is an example of
a) Currency
b) Paper currency
c) Plastic money
d) Money
Answer:
c) Plastic money

Question 17.
Fisher’s quantity theory of money is based on the essential function of money as
a) measure of value
b) store of value
c) medium of exchange
d) standard of deferred payment
Answer:
c) medium of exchange

Question 18.
V in M V = PT equation stands for
a) Volume of trade
b) Velocity of circulation of money
c) Volume of transaction
d) Volume of bank and credit money
Answer:
b) Velocity of circulation of money

Question 19.
When prices rise slowly, we call it
a) galloping inflation
b) mild inflation
c) hyperinflation
d) deflation
answer:
b) mild inflation

Question 20.
……………… inflation is in no way dangerous to the economy.
a) walking
b) running
c) creeping
d) galloping
Answer:
c) creeping

PART-B

Answer the following questions in one or two sentences.

Question 21.
Define Money.
Answer:

1. Many economists developed definitions for money. Among these, definitions of Walker and Crowther are given below:
   “Money is, what money does ” – Walker.
2. “Money can be anything that is generally accepted as a means of exchange and at the same time acts as a measure and a store of value”. – Crowther
3. Money is anything that is generally accepted as payment for goods and services and repayment of debts and that serves as a medium of exchange.
4. A medium of exchange is anything that is widely accepted as a means of payment.

Question 22.
What is barter?
Answer:
Exchange of goods for goods was known as the ” Barter System”

Question 23.
What is commodity money?
Answer:

1. After the barter system and commodity money system, modem money systems evolved.
2. Among these, metallic standard is the premier one. ,
3. Under metallic standard, some kind of metal either gold or silver is used to determine the standard value of the money and currency.
4. Standard coins made out of the metal are the principal coins used under the metallic standard.
5. These standard coins are full bodied or full weighted legal tender.
6. Their face value is equal to their intrinsic metal value.

Question 24.
What is gold standard?
Answer:
Gold standard is a system in which the value of the monetary unit or the stan¬dard currency is directly linked with gold.

Question 25.
What is Plastic money? Give example.
Answer:

1. The latest type of money is plastic money.
2. Plastic money is one of the most evolved forms of financial products.
3. Plastic money is an alternative to cash or the standard “money”.
4. Plastic money is a term that is used predominantly in reference to the hard plastic cards used every day in place of actual banknotes.
5. 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. They aim at removing the need for carrying cash to make transactions.

Question 26.
Define inflation.
Answer:
” Too much of money chasing too few goods”- Coulbourn.

Question 27.
What is Stagflation?
Answer:
Stagflation is a combination of stagnant economic growth, high unemployment, and high inflation.

PART-C

Answer the following questions in a paragraph.

Question 28.
Write a note on metallic money.
Answer:

• Among the modern money systems evolved, the metallic standard is the premier one.
• Under the metallic standards, some kind of metal either gold or silver is used to determine the standard value of the money and currency.
• Standard coins made out of the metal are the principal coins used under the metallic standard.
• Their face value is equal to their intrinsic metal value.
• These standard coins are full-bodied full weighted legal tender.

Question 29.
What is money supply?
Answer:

1. Money supply means the total amount of money in an economy.
2. It refers to the amount of money which is in circulation in an economy at any given time.
3. Money supply plays a crucial role in the determination of price level and interest rates.
4. Money supply viewed at a given point of time is stock and over a period of time it is a flow.

Question 30.
What are the determinants of the money supply?
Answer:

• Currency deposits Ratio (CDR): It is the ratio of money held by the public in currency to that they held in bank deposits.
• Reserve Deposit Ratio (RDR) : It consists of two things (a) vault cash in banks and (b) deposits of commercial banks with RBI.
• Cash Reserve Ratio (CRR): It is the fraction of the deposits the banks must keep with RBI. .
  Statutory Liquidity Ratio (SLR): It is the fraction of the total demand and time deposits of the commercial banks in the form of specified liquid assets.

Question 31.
Write the types of inflation.
Answer:
The four types of inflation are –
1. Creeping Inflation:
Creeping inflation is slow-moving and very mild. The rise in prices will not be perceptible but spread over a long period. This type of inflation is in no way dangerous to the economy. This is also known as mild inflation or moderate inflation.

2. Walking Inflation:
When prices rise moderately and the annual inflation rate is a single digit. (3% – 9%), it is called walking or trolling inflation.

3. Running Inflation:
When prices rise rapidly like the running of a horse at a rate of speed of 10% – 20% per annum, it is called running inflation.

4. Galloping inflation:
Galloping inflation or hyperinflation points out to unmanageably high inflation rates that run into two or three digits. By high inflation, the percentage of the same is almost 20% to 100% from an overall perspective.

Other types of inflation (on the basis of inducement):

1. Currency inflation:
The excess supply of money in circulation causes rise in price level.

2. Credit inflation:
When banks are liberal in lending credit, the money supply increases and thereby rising prices. .

3. Deficit induced inflation:
The deficit budget is generally financed through the printing of currency by the Central Bank. As a result, prices rise.

4. Profit induced inflation:
When the firms aim at higher profit, they fix the price with higher margin. So prices go up.

5. Scarcity induced inflation:
Scarcity of goods happens either due to fall in production (e.g. farm goods) or due to hoarding and black marketing. This also pushes up the price. (This has happened is Venezula in the year 2018).

6. Tax induced inflation:
Increase in indirect taxes like excise duty, custom duty and sales tax may lead to rise in price (e.g. petrol and diesel). This is also called taxflation.

Question 32.
Explain Demand-pull and Cost-push inflation.
Answer:

• Demand-pull Inflation: If the demand is high for a product and supply is low, the price of the products increases.
• Cost-push Inflation: when the cost of raw materials and other inputs rises inflation results. An increase in wages paid to labour also leads to inflation.

Question 33.
State Cambridge equations of the value of money.
Answer:
Cambridge Approach (Cash Balances Approach):

1. Marshall’s Equation:
The Marshall equation is expressed as:
M = KPY
Where
M is the quantity of money Y is the aggregate real income of the community. P is Purchasing Power of money
K represents the fraction of the real income which the public desires to hold in the form of money.
Thus, the price level P = M/KY or the value of money (The reciprocal of the price level) is 1/P = KY/M
The value of money in terms of this equation can be found out by dividing the total quantity of goods that the public desires to holdout of the total income by the total supply of money. According to Marshall’s equation, the value of money is influenced not only by changes in M, but also by changes in K.

2. Keynes’Equation
Keynes equation is expressed as:
n = pk (or) p = n / k
Where
n is the total supply of money p is the general price level of consumption goods
k is the total quantity of consumption units the people decide to keep in the form of cash, Keynes indicates that K is a real balance, because it is measured in terms of consumer goods. According to Keynes, peoples’ desire to hold money is unaltered by the monetary authority. So, price level and value of money can be stabilized through regulating quantity of money (n) by the monetary authority.
Later, Keynes extended his equation in the following form:
n = p (k + rk’) or p = n / (k + rk’)
Where,
n = total money supply p = price level of consumer goods
k = peoples’ desire to hold money in hand (in terms of consumer goods) in the total income of them
r = cash reserve ratio
k’ = community’s total money deposit in banks, in terms of consumers goods.
In this extended equation also, Keynes assumes that k, k’, and r are constant. In this situation, price level (P) is changed directly and proportionately changing in money volume (n).

Question 34.
Explain disinflation.
Answer:

• Disinflation is slowing down the rate of inflation by controlling the amount of credit available to consumers without causing more unemployment.
• Disinflation may be defined as the process of reversing inflation without creating unemployment or reducing output in the economy.

PART – D

Answer the following questions in about a page.

Question 35.
Illustrate Fisher’s Quantity theory of money.
Answer:

• The general form of “Equation of Exchange” given by Fisher is
• M V = PT
• This equation is referred to as ‘Cash Transaction Equation.’ Where M = money supply/quantity of money
• v = velocity of money
• p = Price level
• T = volume of Transaction
• It is expressed as
• \(P=\frac{M V}{T}\)
• Later, Fisher extended his original equation of exchange to include bank deposits M₁ and its velocity V ₁
  The revised equation was :
  FT = MV+ M¹ V ¹
  \(P=\frac{M V+M^{\prime} V^{\mid}}{T}\)
  P = f(M)
     
• Figure (A) shows the effect of changes in the quantity of money on the price level.
• When the quantity of money is 0M, the price level is OP. When the quantity of money is doubled to OM₂, the price level is also double to OP₂. Further, when the quantity of money is increased four-fold to OM₄, the price level also increases by four times to OP₄. This relationship is expressed by the curve OP = f (M) from the origin at 45°.
• Figure (B) shows the inverse relationship between the quantity of money and the value of money where the value of money is taken on the vertical axis. When the quantity of money is 0M, the value of money, O₁/P₁ – But with the doubling of the quantity of money to OM₂, the value of money becomes one- half of what it was before, (0I/P2).
• But, with the quantity of money increasing by fourfold to OM₄. the value of money is reduced by 01/P₄.
• This inverse relationship between the quantity of money and the value of money is shown by downward sloping curve 1/ OP = f(M)

Question 36.
Explain the functions of money.
Answer:
The main functions of money can be classified into four. They are

1. Primary Functions
2. Secondary Functions
3. Contingent Functions
4. Other Functions

I.Primary Functions:

• Money as a Medium of Exchange:
  This is considered as the basic function of money. Money has the quality of general acceptability, and all exchanges take place in terms of money.
• Money as a measure of value :
  The prices of all goods and services are expressed in terms of money. Money is thus looked upon as a collective measure of value.

II. Secondary Functions:

• Money as a store of value :
  The difficulty of savings done by commodities is overcome by the invention of money. Money also serves as an excellent store of wealth, as it can be easily converted into other marketable assets, such as land, machinery, plant etc.,
• Money as a standard of Deferred payments: The modern money- economy has greatly facilitated the borrowing and lending processes. In other words, money now acts as the standard of deferred payments.
• Money as a means of Transferring purchasing power: The exchange of goods is now extended to distant lands. It is therefore, felt necessary to transfer purchasing power from one place to another.

III. Contingent Functions :

• Basis of the credit system: Money is the basis of the credit system. Business transactions are either in cash or on credit.
• Money facilitates the distribution of National Income: The invention of money facilitated the distribution of income as rent, wage, interest, and profit.
• Money helps to Equalize Marginal utilities and Marginal productivities: As the prices of all commodities are expressed in money it is easy to equalize marginal utilities derived from the commodities. Money also helps to equalize marginal productivities of various factors of production.
• Money Increases productivity of capital: Money is the most liquid form of capi¬tal. It is on account of this liquidity of money that capital can be transferred from the less productive to the more productive uses.

IV. Other functions:

• Money helps to maintain Repayment capacity
• Money represents Generalized purchasing power
• Money gives liquidity to capital

Question 37.
What are the causes and effects of inflation on the economy?
Answer:
Causes of Inflation:
The main causes of inflation in India are as follows:

1. Increase in Money Supply:
Inflation is caused by an increase in the supply of money which leads to an increase in aggregate demand. The higher the growth rate of the nominal money supply, the higher is the rate of inflation.

2. Increase in Disposable Income:
When the disposable income of the people increases, it raises their demand for goods and services. Disposable income may increase with the rise in national income or reduction in taxes or reduction in the saving of the people.

3. Increase in Pubiic Expenditure:
Government activities have been expanding due to developmental activities and social welfare programmes. This is also a cause for price rise.

4. Increase in Consumer Spending:
The demand for goods and services increases when they are given credit to buy goods on a hire-purchase and installment basis.

5. Cheap Monetary Policy:
Cheap monetary policy or the policy of credit expansion also leads to an increase in the money supply which raises the demand for goods and services in the economy.

6. Deficit Financing:
In order to meet its mounting expenses, the government resorts to deficit financing by borrowing from the public and even by printing more notes.

7. Black Assests, Activities and Money:
The existence of black money and black assets due to corruption, tax evasion, etc., increase the aggregate demand. People spend such money, lavishly. Black marketing and hoarding reduce the supply of goods.

8. Repayment of Public Debt:
Whenever the government repays its past internal debt to the public, it leads to increase in the money supply with the public.

9. Increase in Exports:
When exports are encouraged, domestic supply of goods decline. So prices rise.

Effects of Inflation:
The effects of inflation can be classified into two heads:

1. Effects on Production and
2. Effects on Distribution.

1. Effects on Production:
When inflation is very moderate, it acts as an incentive to traders and producers. This is particularly prior to full employment when resources are not fully utilized. The profit due to rising prices encourages and induces business class to increase their investments in production, leading to the generation of employment and income.

(I) However, hyperinflation results in a serious depreciation of the value of money.

(II) When the value of money undergoes considerable depreciation, this may even drain out the foreign capital already invested in the country.

(III) With reduced capital accumulation, the investment will suffer a serious setback which may have an adverse effect on the volume of production in the country.

(IV) Inflation also leads to hoarding of essential goods both by the traders as well as the consumers and thus leading to still hiher inflation rate.

(V) Inflation encourages investment in speculative activities rather than productive purposes.

2. Effects on Distribution:

1. Debtors and Creditors:
During inflation, debtors are the gainers while the creditors are losers.

2. Fixed – income Groups:
The fixed income groups are the worst hit during inflation because their incomes being fixed do not bear any relationship with the rising cost of living.

3. Entrepreneurs:
Inflation is a boon to the entrepreneurs whether they are manufacturers, traders, merchants or businessmen because it serves as a tonic for business enterprise.

4. Investors:
The investors, who generally invest in fixed interest yielding bonds and securities have much to lose during inflation.

Question 38.
Describe the phases of the trade cycle.
Answer:
The four different phases of the trade cycle are

1. Boom
2. Recession
3. Depression and
4. Recovery.

i) Boom or prosperity phase: The full employment and the movement of the economy beyond full employment is characterized as the boom period. During this period money wages rise, profits increase and interest rates go up The demand for bank credit increases and there is all-around optimism.

ii) Recession: The turning point from a boom is called recession. Generally, the failure of a company or bank bursts the boom and brings a phase of recession. Investments are drastically reduced, production comes down and income and profit decline. There is panic in the stock market and business activities show signs of dullness. As the liquidity preference rises money market becomes tight.

iii) Depression: During depression on the level of economic activity becomes extremely low. Depression is the worst – phase of the ‘business cycle Extreme point of depression is called ” trough ” An economy that fell down in trough could not come out from this without external help.

iv) Recovery – This is the turning point from depression to revival towards an upswing. It begins with the revival of demand for capital goods. Autonomous investments boost the activity. Recovery may be initiated by innovation or investment or by government expenditure.

12th Economics Guide Monetary Economics Additional Important Questions and Answers

II. Choose the best Answer

Question 1.
During Inflation?
(a) Businessmen gain
(b) Wage earners gain
(c) Salary gain
(d) Renters gain
Answer:
(a) Businessmen gain

Question 2.
The history of the Barter system starts in
a) 6000 B.C
b) 5000 B.C
c) 7000 B.C
d) 2500B.C
Answer:
a) 6000 B.C

Question 3.
The modem economy is described as –
(a) Demand Economy
(b) Supply Economy
(c) Money Economy
(d) Wage Economy
Answer:
(c) Money Economy

Question 4.
Indian currency symbol f was designed by ……..
a) Manmohan singh
b) Raguram Raj an
c) Arvind panakariya
d) Udayakumar
Answer:
d) Udayakumar

Question 5.
Currency notes in circulation are referred to as –
(b) Fiat money
(c) Value of money
(d) Cheap money
Answer:
(b) Fiat money

Question 6.
……………………………….. money consists of vault cash in banks and deposits of commercial banks with RBI
a) Reserve deposit Ratio
b) Currency Deposit Ratio
c) Cash Reserve Ratio
d) Statutory Liquidity Ratio
Answer :
a) Reserve deposit Ratio

Question 7.
“The Purchasing Power of Money” is a book written by ……………………
a) Marshall
b) Keynes
c) Adam smith
d) Irving Fisher
Answer:
d) Irving Fisher

Question 8.
Which is the most important function of money?
(a) Measure of value
(b) Store of value
(c) Medium of exchange
(d) Standard of deferred payments
Answer:
(c) Medium of exchange

Question 9.
Inflation is “A state of abnormal increase in the quantity of purchasing power” is said by
a) Coulbourn
b) Walker
c) Gregory
d) Fisher
Answer:
c) Gregory

Question 10.
What is the cheap money policy?
(a) High rates of Interest
(b) Low rates of Interest
(c) Medium rates of Interest
(d) Very high rates of Interest
Answer:
(b) Low rates of Interest

Question 11.
………………………….. inflation occurs when banks are liberal in lending credit.
a) Currency inflation
b) Profit induced inflation
b) Credit inflation
d) Scarcity induced inflation.
Answer:
c) Credit inflation

Question 12.
The extreme point of depression is called as ……………..
a) Recession
b) Trough
c) Depression
d) None of the above
Answer:
b) Trough

Question 13.
Monetary policy is usually effective in controlling –
(a) Bank
(b) Inflation
(c) Deflation
(d) Stagflation
Answer:
(b) Inflation

II. Match the following

Question 1.
A) Barter system – 1) Managed currency standard
B) Metallic standard – 2) Commodities
C) Paper currency standard – 3) Smart cards
D) Plastic money – 4) Coins

Answer:
a) 2 4 1 3

Question 2.
A) Primary function – 1) Basis of credit system
B) Secondary function – 2) Liquidity
C) Contingent function – 3) Medium of exchange
D) Other function – 4) Store of value

Answer:
c) 3 4 1 2

Question 3.
A) Creeping Inflation – 1) 20-100%
B) Walking Inflation – 2) Moderate inflation
C) Running Inflation – 3) 3-9 %
D) Galloping Inflation – 4) 10-20%

Answer :
d ) 2 3 4 1

III. Choose the correct pair

Question 1.
a) Cash Deposit Ratio – CRR
b) Reserve Deposit Ratio – RDR
c) Cash Reserve Ratio – SLR
d) Statutory Liquidity Ratio – CDR
Answer:
b) Reserve Deposit Ratio – RDR

Question 2.
a) Money is what money does – Crowther
b) Money – Medium of Exchange
c) Plastic currency – Managed currency standard
d) Cryptocurrency – Credit card
Answer:
b) Money – Medium of Exchange

Question 3.
a) M₁ – Broad money
b) M₄ – Narrow money
c) MV = PT
d) n – P (K + rk₁)
Answer:
c) MV = PT

IV. Choose the incorrect pair

Question 1.
In the equation MV = PT
a) M – Quantity of money
b) V – Velocity of money
c) P – Price level
d) T – Volume of Trade
Answer:
d) T – Volume of Trade

Question 2.
a) Quantity theory of money – J.M. Keynes
b) Keynes Equation – n = pk
c) Marshall’s Equation – M = KPY
d) Purchasing power of money – Irving Fisher
Answer:
a) Quantity theory of money – J.M. Keynes

Question 3.
a) Paper currency – Reserve Bank
b) Coins – Ministry of finance
c) Currency symbol -?
d) M₄ – Narrow money
Answer:
d) M₄ – Narrow money

V. Choose the correct Statement

Question 1.
a) The total amount of money is an economy denotes the demand for money.
b) Money supply refers to the amount of money which is in circulation in an economy at any given time.
c) Inflation is “A state of abnormal increase in the quantity of purchasing power.” Coulbourn.
d) The rate of Inflation is almost 20 to 100% per annum, it is called walking Inflation.
Answer:
b) Money supply refers to the amount of money which is in circulation in an economy at any given time.

Question 2.
a) When banks are liberal in lending credit, the money supply increases which is called credit inflation.
b) During inflation, debtors are the losers.
c) The fiscal measures to control inflation are adopted by the Central Bank.
d) During deflation prices rise.
Answer:
a) When banks are liberal in lending credit, the money supply increases which is called credit inflation.

Question 3.
a) During Boom the demand for bank credit decreases.
b) The turning point from the boom condition is called Depression.
c) Money is an asset that is generally accepted as a medium of Exchange.
d) An increase in business activities after the lowest point is called a Recession.
Answer:
c) Money is an asset that is generally accepted as a medium of Exchange.

VI. Choose the Incorrect Statement.

Question 1.
a) “Money is what money does” – Walker.
b) Phoenicians adopted bartering of goods with various other cities across oceans.
c) In the Gold standard the monetary unit is defined in terms of a certain weight of gold.
d) In India currency in circulation is being controlled by the central Government.
Answer:
d) In India currency in circulation is being controlled by the central Government.

Question 2.
a) The operation of cryptocurrency is controlled by the Central Bank.
b) Money is the basis of the credit system.
c) Money is the most liquid form of capital.
d) Fisher’s equation (MV=PT) is also called as “Equation of Exchange”.
Answer:
a) The operation of cryptocurrency is controlled by the Central Bank.

Question 3.
a) M₁ – Currency, coins, and demand deposits
b) M₂ – M₁ + Savings deposits with post office savings banks.
c) M₃ – M₁ + Time deposits of all commercial and cooperative banks.
d) M₄ – M₃ + Total deposits with post offices.
Answer:
c) M₃ – M₁ + Time deposits of all commercial and co-operative banks.

Pick the odd one out:

Question 1.
a) M₁
b) M₅
c) M₃
d) M₄
Answer:
b) M₅

Question 2.
a) CDR
b) RDR
c) SDR
d) CRR
Answer:
c) SDR

Question 3.
a) Cost-Push inflation
b) Creeping inflation
c) Walking inflation
d) Running inflation
Answer:
a) Cost-Push inflation

VIII. Analyse the Reason

Question 1.
Assertion (A) : Plastic money is an alternative to cash or standard money.
Reason (R) : Plastic money refers to the hard plastic cards used every day in place of actual banknotes.
Answer:
b) Assertion (A) and Reason (R) both are true, but (R) is not the correct explanation of (A).

Question 2.
Assertion (A) : Money acts as a collective measure of value,
Reason (R) : The prices of all goods and services are expressed in terms of money.
Answer:
a) Assertion (A) and Reason (R) both are true, and (R) is the correct explanation of (A).

Option:
a) Assertion (A) and Reason (R) both are true, and (R) is the correct explanation of (A).
b) Assertion (A) and Reason (R) both are true, but (R) is not the correct explanation of (A).
c) (A) is true but (R) is false.
d) (A) is false and (R) is true.

IX. 2 Mark Questions:

Question 1.
Define “Silver Standard”?
Answer:
Silver Standard: The silver standard is a monetary system in which the standard economic unit of account is a fixed weight of silver. The silver standard is a monetary arrangement in which a country’s Government allows the conversion of its currency into a fixed amount of silver.

Question 2.
When and by whom Barter system introduced?
Answer:

1. The Barter system was evolved in 6000 BC.
2. The barter system was introduced by Mesopotamia tribes.

Question 3.
What is the silver standard?
Answer:
The silver standard is a monetary system in which the standard economic unit of account is a fixed weight of silver.

Question 4.
Write RBI publishes information alternative measures of the money supply?
Answer:
RBI publishes information for four alternative measures of Money supply, namely M1, M₂ and M_3, and M₄
M₁ = Currency, coins, and demand deposits.
M₂ = M₁ + Savings deposits with post office savings banks.
M₃ = M₂ + Time deposits of all commercial and cooperative banks.
M₄ = M₃ + Total deposits with Post offices.

Question 5.
What is CryptoCurrency?
Answer:
Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.

Question 6.
State the meaning of Inflation.
Answer:
Inflation is a consistent and appreciable rise in the general price level.

Question 7.
Write Fisher’s Quantity Theory of money equation?
Answer:

1. The general form of the equation given by Fisher is MV = PT.
2. Fisher points out that in a country during any given period of time, the total quantity of money (MV) will be equal to the total value of all goods and services bought and sold (PT).
3. MV = PT

Question 8.
State Marshall’s equation in Cambridge Approach.
Answer:

• M = KPY
• M – Quantity of Money
• Y – aggregate real income of the community
• P – The purchasing power of money
• K – Fraction of the real income which the public desires to hold in the form of money.

Question 9.
What is creeping Inflation?
Answer:
Creeping Inflation is slow-moving and very mild. The rise in price will not be perceptible but spread over a long period.

Question 10.
What is Galloping inflation?
Answer:
Galloping inflation or hyperinflation points out to unmanageably high inflation rates that run ipto two or three digits.

Question 11.
What is Demand-pull Inflation?
Answer:
If the demand is high for a product and supply is low, the price of the products increase. This is called Demand-pull inflation.

Question 12.
What is cost-push inflation?
Answer:
When the cost of raw materials and other inputs rises inflation results. An increase in wages paid to labour also leads to inflation.

Question 13.
What is Deflation?
Answer:
Deflation is a situation of falling prices, reduced money supply, and unemployment.

Question 14.
What is Stagflation?
Answer:
The co-existence of a high rate of unemployment and inflation.

X. 3 Mark Question

Question 1.
Write the meaning of Money supply?
Answer:
Meaning of Money Supply:

1. In India, currency notes are issued by the Reserve Bank of India (RBI), and coins are issued by the Ministry of Finance, Government of India (GOI).
2. Besides these, the balance is savings, or current account deposits, held by the public in commercial banks is also considered money.
3. The currency notes are also called fiat money and legal tenders.

Question 2.
Explain the measures of the money supply.

• M₁ – Currency, coins, and demand deposits
• M₂ – M₁ + Savings deposits with post office savings banks.
• M₃ – M₂ + Time deposits of all commercial and cooperative banks.
• M₃ – M₄ + Total deposits with post offices.
• M₁ and M₂ are known as narrow money
• M₃ and M₄ are known as broad money

Question 3.
What is the meaning of the trade cycle?
Answer:
Meaning of Trade Cycle:

1. A Trade cycle refers to oscillations in aggregate economic activity particularly in employment, output, income, etc.
2. It is due to the inherent contraction and expansion of the elements which energize the economic activities of the nation.
3. The fluctuations are periodical, differing in intensity and changing in its coverage.

Question 4.
Write a note on Irving Fisher.
Answer:

• The quantity theory of money is a very old theory. It was first propounded in 1588 by an Italian economist, Davanzatti.
• The credit for popularizing this theory belongs to the well-known American economist, Irving Fisher who published the book, “The purchasing power of Money” in 1911.
• He gave it a quantitative form in terms of his famous ” Equation of Exchange”.

Question 5.
Explain wage Price spiral in inflation.
Answer:

• Wage – Price spiral is used to explaining the cause and effect relationship between rising wages and rising prices or inflation.
• If wages increases, demand for the products increases which results in a price increase and causes inflation.
• Wages increase because of the increase in general price level and the cost of production increase which further increases the price level and creates a spiral.

XI. 5 Mark Question

Question 1.
Explain the Measures of control inflation?
Answer:
Measures to Control Inflation:
Keynes and Milton Friedman together suggested three measures to prevent and control inflation.

• Monetary measures
• Fiscal measures (J.M. Keynes) and
• Other measures.

1. Monetary Measures: These measures are adopted by the Central Bank of the country. They are

• • Increase in Bankrate
  • Sale of Government Securities in the Open Market
  • Higher Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)
  • Consumer Credit Control and
  • Higher margin requirements
  • Higher Repo Rate and Reverse Repo Rate.

2. Fiscal Measures:

• Fiscal policy is now recognized as an important instrument to tackle an inflationary situation.
• The major anti-inflationary fiscal measures are the following:
• Reduction of Government Expenditure and Public Borrowing and Enhancing taxation.

3. Other Measures: These measures can be divided broadly into short-term and long-term measures.

(a) Short-term measures can be in regard to public distribution of scarce essential commodities through fair price shops (Rationing). In India whenever a shortage of basic goods has been felt, the government has resorted to importing so that inflation may not get triggered.

(b) Long-term measures will require accelerating economic growth especially of the wage goods which have a direct bearing on the general price and the cost of living. Some restrictions on present consumption may help in improving saving and investment which may be necessary for accelerating the rate of economic growth in the long run.

Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Business Maths Guide Pdf Chapter 4 Differential Equations Ex 4.5 Text Book Back Questions and Answers, Notes.

Tamilnadu Samacheer Kalvi 12th Business Maths Solutions Chapter 4 Differential Equations Ex 4.5

Question 1.
\(\frac { d^2y }{dx^2}\) – 6\(\frac { dy }{dx}\) + 8y = 0
Solution:
Given (D² – 6D + 8) y = 0, D = \(\frac{d}{d x}\)
The auxiliary equations is
m² – 6m + 8 = 0
(m – 4)(m – 2) = 0
m = 4, 2
Roots are real and different
The complementary function (C.F) is (Ae^4x + Be^2x)
The general solution is y = Ae^4x + Be^2x

Question 2.
\(\frac { d^2y }{dx^2}\) – 4\(\frac { dy }{dx}\) + 4y = 0
Solution:
The auxiliary equations A.E is m² – 4m + 4 = 0
(m – 2)² = 0
m = 2, 2
Roots are real and equal
The complementary function (C.F) is (Ax + B) e^2x
The general solution is y = (Ax + B) e^2x

Question 3.
(D² + 2D + 3) y = 0
Solution:
The auxiliary equation is m² + 2m + 3 = 0
Here a = 1, b = 2, c = 3

The complementary function is
e^ax (Acosßx + Bsinßx)
∴ C.F = e^-x [Acos√2x + Bsin √2x]
∴ The general solution is
y = e^-x (Acos√2x + Bsin√2x)

Question 4.
\(\frac { d^2y }{dx^2}\) – 2k\(\frac { dy }{dx}\) + k²y = 0
Solution:
Given (D² – 2kD + k²)y = 0, D = \(\frac{d}{d x}\)
The auxiliary equations is m² – 2km + k = 0
⇒ (m – k)² = 0
⇒ m = k, k
Roots are real and equal
The complementary function (C.F) is (Ax + B) e^kx
The general solution is y = (Ax + B) e^kx

Question 5.
(D² – 2D – 15) y = 0
Solution:
The auxiliary equation is
m² – 2m + 15 = 0
m² + 3m – 5m – 15 = 0
m (m + 3) – 5 (m + 3) = 0
(m + 3) (m – 5) = 0
m = -3, 5
Roots are real and different
∴ The complementary function is
Ae^m₁x + Be^m₂x
C.F = Ae^-3x + Be^5x
∴ The general solution is
y = (Ae^-3x + Be^5x) ………… (1)
\(\frac { dy }{dx}\) = Ae^-3x (-3) + Be^5x (5)
\(\frac { dy }{dx}\) = -3Ae^-3x + 5Be^5x ………… (2)
\(\frac { d^2y }{dx^2}\) = 9Ae^-3x + 25Be^5x ……….. (3)
when x = 0; \(\frac { dy }{dx}\) = 0
-3 Ae° + 5Be° = 0
-3A + 5B = 0 ………. (4)
when x = 0; \(\frac { d^2y }{dx^2}\) = 2
Eqn (3) ⇒ 9Ae° + 25Be° = 2
9A + 25B = 2 ……… (5)
Solving equation (4) & (5)

Question 6.
(4D² + 4D – 3) y = e^2x
Solution:
The auxiliary equation is
4m² + 4m – 3 = 0
4m² + 6m – 2m – 3 = 0
2m (2m + 3) – 1 (2m + 3) = 0
(2m + 3) (2m – 1) = 0
2m = -3; 2m = 1
m = -3/2, 1/2
Roots are real and different
The complementary function is
Ae^m₁x + Be^m₂x

Question 7.
\(\frac { d^2y }{dx^2}\) + 16y = 0
Solution:
Given (D² + 16) y =0
The auxiliary equation is m² + 16 = 0
⇒ m² = -16
⇒ m = ± 4i
It is of the form α ± iβ, α = 0, β = 4
The complementary function (C.F) is e^0x [A cos 4x + B sin 4x]
The general solution is y = [A cos 4x + B sin 4x]

Question 8.
(D² – 3D + 2) y = e^3x which shall vanish for x = 0 and for x = log 2
Solution:
(D² – 3D + 2) y = e^3x
The auxiliary equation is
m² – 3m + 2 =0
(m – 1) (m – 2) = 0
m = 1, 2
Roots are real and different
The complementary function is
C.F = Ae^m₁x + Be^m₂x
C.F = A^x + Be^2x

when x = log 2; y = 0
Ae^{log 2} + Be^{2log 2} + \(\frac { e^{3xlog2} }{2}\) = 0
Ae^{log 2} + Be^{log (2)²} + \(\frac { e^{log2³} }{2}\) = 0
2A + 4B + \(\frac { 8 }{2}\) = 0
2A + 4B + 4 = 0
2A + 4B = -4 ……… (3)
Solving equation (2) & (3)
Eqn (2) × 2 ⇒ 2A + 2B = -1

Question 9.
(D² + D – 2) y = e^3x + e^-3x
Solution:
The auxiliary equation is
m² + m – 6 = 0
(m + 3) (m – 2) = 0
Roots are real and different
The complementary function is
C.F = Ae^m₁x + Be^m₂x
C.F = Ae^-3x + Be^2x

Question 10.
(D² – 10D + 25) y = 4e^5x + 5
Solution:
The auxiliary equation is
m² – 10m + 25 = 0
(m – 5) (m – 5) = 0
m = 5, 5
Roots are real and equal
C.F = (Ax + B) e^mx
C.F = (Ax + B) e^5x
P.I₍₁₎ = x. \(\frac { 4 }{2D-10}\) e^5x
Replace D by 5, 2D – 10 = 0 when D = 5

Question 11.
(4D² + 16D +15) y = 4e^{\(\frac { -3 }{2}\)}x
Solution:
The auxiliary equation is 4m² + 16m + 15 = 0
4m² + 16m + 10m + 15 = 0
2m (2m + 3) + 5 (2m + 3) = 0
(2m + 3) (2m + 5) = 0
2m = -3, -5
∴ m = -3/2, -5/2
Roots are real and different
C.F = (Ax + B) e^m₁x + Be^m₂x
C.F = Ae^{-3/2 x} + Be^{-5/2 x}

Question 12.
(3D² + D – 14) y – 13 e^2x
Solution:
The auxiliary equation is 3m² + m – 14 = 0
3m² – 6m + 7m – 14 = 0
3m (m – 2) + 7 (m – 2) = 0
(m – 2) (3m + 7) = 0
m = 2; 3m = -7
m = 2, -7/3
Roots are real and different
C.F = (Ax + B) e^m₁x + Be^m₂x
C.F = Ae^2x + Be^{-7/3 x}

Question 13.
Suppose that the quantity demanded Qd = 13 – 6p + 2\(\frac { dp }{dt}\) + \(\frac { d^2p }{dt^2}\) = and quantity supplied Qd = -3 + 2p where is the price. Find the equilibrium price for market clearence.
Solution:
For market clearance, the required condition is Qd = Qs

The auxiliary equation is
m² + 2m – 8 = 0
(m + 4) (m – 2) = 0
m = -4, 2
Roots are real and different

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Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Economics Guide Pdf Chapter 4 Consumption and Investment Functions Text Book Back Questions and Answers, Notes.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 4 Consumption and Investment Functions

12th Economics Guide Consumption and Investment Functions Text Book Back Questions and Answers

PART – A

Multiple Choice questions

Question 1.
The average propensity to consume is measured by
a) C\Y
b) C x Y
c) Y\C
d) C + Y
Answer:
a) C\Y

Question 2.
An increase in the marginal propensity to consume will:
a) Lead to consumption function becoming steeper
b) Shift the consumption function upwards
c) Shift the consumption function downwards
d) Shift savings function upwards
Answer:
a) Lead to consumption function becoming steeper

Question 3.
If the Keynesian consumption function is C = 10 + 0.8 Y then, if the disposable income is Rs 1000, What is the amount of total consumption?
a) ₹ 0.8
b) ₹ 800
c) ₹ 810
d) ₹ 081
Answer:
c) ₹ 810

Question 4.
If the Keynesian consumption function is C = 10 + 0.8 Y then when disposable income is Rs 100, What is the marginal propensity to consume?
a) ₹ 0.8
b) ₹ 800
c) ₹810
d) ₹0.81
Answer:
a) ₹ 0.8

Question 5.
If the Keynesian consumption function is C = 10 + 0.8 Y then, and disposable income is ₹ 100, what is the average propensity to consume?
a) ₹ 0.8
b) ₹ 800
c) ₹ 810
d) ₹ 50.9
Answer:
d) ₹ 50.9

Question 6.
As national income increases
a) The APC fall’s and gets nearer in value to the MPC
b) The APC increases and diverges in value from the MPC
c) The APC stays constant
d) The APC always approaches infinity.
Answer:
a) The APC fall’s and gets nearer in value to the MPC

Question 7.
An increase in consumption at any given level of income is likely to lead
a) Higher aggregate demand
b) An increase in exports
c) A fall in taxation revenue
d) A decrease in import spending
Answer:
a) Higher aggregate demand

Question 8.
Lower interest rates are likely to :
a) Decrease in consumption
b) increase the cost of borrowing
c) Encourage saving
d) increase borrowing and spending
Answer:
d) increase borrowing and spending

Question 9.
The MPC is equal to :
a) Total spending / total consumption
b) Total consumption / total income
c) Change in consumption/ change in income.
d) none of the above.
Answer:
c) Change in consumption/ change in income.

Question 10.
The relationship between total spending on consumption and the total income is the ………………………
a) Consumption function
b) Savings function
c) Investment function
d) aggregate demand function
Answer:
a) Consumption function

Question 11.
The sum of the MPC and MPS is ……………..
a) 1
b) 2
c) 0.1
d) 1.1
Answer:
a) 1

Question 12.
As income increases, consumption will ……………..
a) Fall
b) not change
c) fluctuate
d) increase
Answer:
d) increase

Question 13.
When the investment is assumed autonomous the slope of the AD schedule is determined by the …………………
a) marginal propensity to invest
b) disposable income
c) marginal propensity to consume
d) average propensity to consume.
Answer:
c) marginal propensity to consume

Question 14.
The multiplier tells us how many…………………… changes after a shift in
a) Consumption, income
b) investment, output
c) savings, investment
d) output, aggregate demand
Answer:
d) output, aggregate demand

Question 15.
The multiplier is calculated as
a) 1(1-MPC)
b) 1/ MPS
c) 1/ MPC
d) a and b
Answer:
d)a and b

Question 16.
If the MPC is 0.5, the multiplier is …………………
a) 2
b) 1/2
c) 0.2
d) 20
Answer:
a) 2

Question 17.
In an open economy import …………….. the value of the multiplier.
a) Reduces
b) increase
c) does not change
d) Changes
Answer:
a) Reduces

Question 18.
According to Keynes, investment is a function of the MEC and …………………
a) Demand
b) Supply
c) Income
d) Rate of interest
Answer:
d) Rate of interest

Question 19.
The term Super multiplier was first used by
a) J.R. Hicks
b) R.G.D Allen
c) Kahn
d) J.M. Keynes
Answer:
a) J.R. Hicks

Question 20.
The term MEC was introduced by.
a) Adam smith
b) J.M. Keynes
c) Ricardo
d) Malthus
Answer:
b) J.M. Keynes

PART – B (Two Mark Questions)

Answer the following questions in one or two sentences.

Question 21.
What is consumption function?
Answer:
The consumption function is a functional relationship between total consumption and gross national income.

Question 22.
What do you mean by a propensity to Consume?
Answer:
The propensity to consume refers to the income consumption relationship.

Question 23.
Define average propensity to consume (APC)
Answer:
Average Propensity to Consume: The average propensity to consume is the ratio of consumption expenditure to any particular level of income.” Algebraically it may be expressed as under:
Where, C = Consumption; Y = Income
APC = \(\frac{C}{Y}\)
Where, C = Consumption; Y = Income.

Question 24.
Define marginal propensity to consume (MPC)
Answer:
MPC may be defined as the ratio of the change in consumption to the change in income.
(°r)
MPC =ΔC / ΔY
ΔC = Change in consumption
ΔY = change in income

Question 25.
What do you mean by a propensity to save?
Answer:

1. Thus the consumption function measures not only the amount spent on consumption but also the amount saved.
2. This is because the propensity to save is merely the propensity not to consume.
3. The 45° line may therefore be regarded as a zero – saving line, and the shape and position of the C curve indicate the division of income between consumption and saving.

Question 26.
Define average propensity to save (APS)
Answer:
The average propensity to save is the ratio of saving to income.

Question 27.
Define marginal propensity to save (MPS).
Answer:
Marginal Propensity to Save (MPS): Marginal Propensity to Save is the ratio of change in saving to a change in income.
MPS is obtained by dividing change in savings by change in income. It can be expressed algebraically as MPS = \(\frac { \Delta S }{ \Delta Y } \)
∆S = Change in Saving; ∆Y = Change in Income
Since MPC + MPS = 1
MPS = 1 – MPC and MPC = 1 – MPS.

Question 28.
Define Multiplier.
Answer:
The multiplier is defined as the ratio of the change in national income to change in investment.
\(K=\frac{\Delta Y}{\Delta I}\)

Question 29.
Define Accelerator.
Answer:

1. “The accelerator coefficient is the ratio between induced investment and an initial change in consumption.”
2. Assuming the expenditure of ₹50 crores on consumption goods, if industries lead to an investment of ₹100 crores in investment goods industries, we can say that the accelerator is 2.
3. Accelerator = \(\frac { 100 }{ \Delta Y } \) = 2

PART – C

Answer the following questions in one paragraph.

Question 30.
State the propositions of Keynes’s psychological law of consumption.
Answer:
This law has three propositions:

1. when income increases, consumption expenditure also increases but by a smaller amount.
2. The increased income will be divided in some proportion between consumption expenditure and saving.
3. Increases in income always lead to an increase in both consumption and saving.

Question 31.
Differentiate autonomous and induced investment.
Answer:

Autonomous Investment

Induced Investment

• Independent Planned
•  Íncome inelastic Income elastic
• Welfare motive Profit motive

Question 32.
Explain any three subjective and objective factors influencing the consumption function.
Answer:
Subjective Factors:

1. The motive of precaution: To build up a reserve against unforeseen contingencies. e.g. Accidents, sickness. ,
2. The motive of foresight: The desire to provide for anticipated future needs. e.g. Old age.
3. The motive of calculation: The desire to enjoy interest and appreciation. Consumption and Investment Functions.

Objective Factors:
1. Income Distribution:
If there is large disparity between rich and poor, the consumption is low because the rich people have low propensity to consume and high propensity to save.

2. Price level:
Price level plays an important role in determining the consumption function. When the price falls, real income goes up; people will consume more and the propensity to save of society increases.

3. Wage level:
Wage level plays an important role in determining the consumption function and there is a positive relationship between wage and consumption. Consumption expenditure increases with the rise in wages. Similar is the effect with regard to windfall gains.

Question 33.
Mention the differences between accelerator and multiplier effect.
Answer:

Question 34.
State the concept of the super multiplier.
Answer:

• The concept of a super multiplier was developed by Hicks. He has combined multiplier and accelerator mathematically and named it the super multiplier.
• The super multiplier is worked out by combining both consumption and induced investment.
• The super multiplier which includes induced investment is greater than the simple multiplier.

Question 35.
Specify the leakages of the multiplier.
Answer:

• There is a change in autonomous investment.
• There is no induced investment
• The marginal propensity to consume is constant.
• Consumption is a function of current income.
• There are no time lags in the multiplier process.
• Consumer goods are available in response to effective demand for them.
• There is a closed economy unaffected by foreign influences.
• There are no changes in prices.
• There is less than a full-employment level in the economy.

PART – D

Answer the following questions on a page.

Question 36.
Explain Keynes’s psychological law of consumption function with a diagram.
Answer:
Keynes’s psychological law of consumption function implies that there is a tendency on the part of the people to spend on consumption less than the full increment of income.
Assumptions:

1. Ceteris paribus
2. Existence of Normal conditions
3. Existence of a laissez-faire capitalist Economy

Propositions of the law:

1. When income increases, consumption expenditure also increases but by a smaller amount.
2. The increased income will be divided in some proportion between consumption expenditure and saving.
3. An increase in income always leads to an increase in both consumption and saving.
   

The three propositions are explained in the figure. Income is measured horizontally and consumption and saving on the vertical axis.  is the consumption function curve and 45°  line represents income consumption equality.

Proposition (1):
When income increases from 120 to 180 consumption also increases from 120 to 170 but the increase in consumption is less than the increase in income. 10 is saved.

Proposition (2):
When income increases to 18 and 240 it is divided in some proportion between consumption by 170 and 220 and saving by 10 and 20 respectively.

Proposition (3):
Increases in income to 180 and 240 lead to increased consumption 170 and 220 and increased saving 20 and 10 than before. It is clear from the widening area below the C curve and the saving gap between 45° line and the C curve.

Question 37.
Briefly explain the subjective and objective factors of consumption function?
Answer:
Subjective Factors:

1. The motive of precaution: To build up a reserve against unforeseen contingencies. e.g. Accidents, sickness
2. The motive of foresight: The desire to provide for anticipated future needs, e.g. Old age
3. The motive of calculation: The desire to enjoy interest and appreciation.
4. The motive of improvement: The desire to enjoy for improving the standard of living.
5. The motive of financial independence.
6. The motive of the enterprise (desire to do forward trading).
7. The motive of pride.(desire to bequeath a fortune)
8. The motive of avarice.(purely miserly instinct)

Objective Factors:
1. Income Distribution:
If there is large disparity between rich and poor, the consumption is low because the rich people have low propensity to consume and high propensity to save.

2. Price level:

1. Price level plays an important role in determining the consumption function.
2. When the price falls, real income goes up; people will consume more and propensity to save of the society increases.

3. Wage level:

1. Wage level plays an important role in determining the consumption function and there is positive relationship between wage and consumption.
2. Consumption expenditure increases with the rise in wages.
3. Similar is the effect with regard to windfall gains.

4. Interest rate:

1. Rate of interest plays an important role in determining the consumption function.
2. Higher rate of interest will encourage people to save more money and reduces consumption.

5. Fiscal Policy:
When the government reduces the tax the disposable income rises and the propensity to consume of community increases.

6. Consumer credit:

1. The availability of consumer credit at easy installments will encourage households to buy consumer durables like automobiles, fridges, computers.
2. This pushes up consumption.

7. Demographic factors:

1. Ceteris paribus, the larger the size of the family, the grater is the consumption.
2. Besides size of the family, stage in family life cycle, place of residence and occupation affect the consumption function.

8. Duesenberry hypothesis:
Duesenberry has made two observations regarding the factors affecting consumption.

1. The consumption expenditure depends not only on his current income but also past income and standard of living.
2. Consumption is influenced by the demonstration effect. The consumption standards of low-income groups are influenced by the consumption standards of high-income groups.

9. Windfall Gains or losses:
Unexpected changes in the stock market leading to gains or losses tend to shift the consumption function upward or downward.

Question 38.
Illustrate the working of Multiplier.
Answer:
Suppose the Government undertakes investment expenditure equal to Rs.100 crore on some public works, by way of wages, price of materials etc. Thus income of labourer and suppliers increases by Rs. 100 crore.

Suppose the MPC is 0.8 that is 80% A Sum of Rs. 80.crores is spent on consump¬tion. As a result, suppliers get an income of Rs. 80 crores. They in turn spend Rs. 64 crores. In this manner consumption expenditure and increase in income act in a chain-like manner.

The final result is Δy = 100 + 100 x \(\frac { 4 }{ 5 }\) + 100 x \(\left(\frac{4}{5}\right)^{2}\) + 100 x \(\left(\frac{4}{5}\right)^{3}\) or,
= 100 + 100 x 0.8 + 100 (0.8)² + 100 x (0.8)³
100 +80 + 64 + 51.2
500
(ie) 100 x 1/1 – 4/5
= 100 x 1/1/5
1000 x 5 = Rs. 500 crores
For instance if C = 100 + 0.8Y, I = 100,
Then Y = 100 + 0.8y + 100
0.2y = 200
Y = 200/ 0.2 = 1000 …………….. Point B
If I is increased to 110, then
0.2 Y = 210
Y – 210 / 0.2 = 1050 ………………….Point D
For Rs 10 increase in I, Y has increased by Rs,50
This is due to multiplier effect.
At point A, Y = C= 500
C = 100 + 0.8 (500) = 500; S = 0
At point B, Y = 1000
C = 100 + 0.8 (1000) = 900 : S = 100 = I
At point D, Y = 1050
C= 100 + 0.8 (1050) = 940 : S = 110 = I

when I is increased by 10, Y increases by 50
This is multiplier effect (K = 5)
k = \(\frac{1}{0.2}\) = 5

Question 39.
Explain the operation of the Accelerator.
Answer:
Operation of the Acceleration Principle:

1. Let us consider a simple example. The operation of the accelerator may be illustrated as follows.
2. Let us suppose that in order to produce 1000 consumer goods, 100 machines are required.
3. Also, suppose that the working life of a machine is 10 years.
4. This means that every year 10 machines have to be replaced in order to maintain the constant flow of 1000 consumer goods. This might be called replacement demand.
5. Suppose that demand for consumer goods rises by 10 percent (i.e. from 1000 to 1100).
6. This results in an increase in demand for 10 more machines.
7. So that total demand for machines is 20. (10 for replacement and 10 for meeting increased demand).
8. It may be noted here a 10 percent increase in demand for consumer goods causes a 100 percent increase in demand for machines (from 10 to 20).
9. So we can conclude even a mild change in demand for consumer goods will lead to wide change in investment.

Diagrammatic illustration:
Operation of Accelerator.

1. SS is the saving curve. II is the investment curve. At point E₁ the economy is in equilibrium with OY₁ income. Saving and investment are equal at OY₁ Now, investment is increased from OI₂ to OI₄.
2. This increases income from OY₁ to OY₃, the equilibrium point being E₃ If the increase in investment by I₂ I₄ is purely exogenous, then the increase in income by Y₁ Y₃ would have been due to the multiplier effect.
3. But in this diagram it is assumed that exogenous investment is only by I, I3 and induced investment is by I₃I₄.
4. Therefore, the increase in income by Y₁ Y₂ is due to the multiplier effect and the increase in income by Y₂ Y₃ is due to the accelerator effect.

Question 40.
What are the differences between MEC and MEI?
Answer:

12th Economics Guide Consumption and Investment Functions Additional Important Questions and Answers

I. Match the following

Question 1.
a) Y – 1) Consumption
b) C – 2) Income
c) S – 3) Investment
d) I – 4) Savings

Answer:
b) 2 1 4 3

Question 2.
a) MPC – 1) C+S
b) K – 2) ΔI/Δ\C
c) Y – 3) ΔC/ΔY
d) 13 – 4) 1
\(\text { 4) } \frac{1}{1-M P C}\)


Answer :
c) 3 4 1 2

Question 3.
a) APC – 1) ∆S/∆Y
b) MPC – 2) S/Y
c) APS – 3) ∆C/∆Y
d) MPS – 4) C/Y

Answer:
d) 4 3 2 1

II. Choose the correct pair.

Question 1.
a) Multiplier – Dusenberry
b) Psychological Law of Consumption – M.F.Khan
c) Consumption function – Constant in Longrun
d) Income Multiplier – J.M.Keynes
Answer:
d) Income Multiplier – J.M.Keynes

Question 2.
a) K – Accelerator
b) β – Multiplier
c) Consumption function – C= f (y)
d) Investment function – I = f (s)
Answer:
c) Consumption function – C= f (y)

Question 3.
a) K – ∆Y/∆I
b) K – \(\frac{1}{1-\mathrm{MPS}}\)
c) MEC – Flow concept
d) MEl – Stock concept
Answer :
a) K – ∆Y/∆I

Question 4.
a) MPS = ∆Y/∆S
b) APS = C/Y
c) MPC = ∆C/∆Y
d) APC = S/Y
Answer:
MPC = \(\mathrm{MPC}=\frac{\Delta \mathrm{C}}{\Delta \mathrm{Y}}\)

III. Choose the incorrect pair

Question 1.
a) Multiplier concept – – Mf.khan
b) Investment Multiplier – J.M.Clark
c) Income Multiplier – J.M.Keynes
d) Accelerator concept – J.B.Say
Answer:
b) Investment Multiplier – J.B.Say

Question 2.
a) Y – Total Income
b) C – Savings expenditure
c) I_A – Autonomous Investment
d) I_P – Induced private investment
Answer:
b) C – Savings expenditure

Question 3.
a) Consumption function – relation between income and consumption
b) Autonomous Investment – investment independent of change in Income
c) Super Multiplier – K and β interaction.
d) Investment function – relation between consumption and investment.
Answer:
d) Investment function – relation between consumption and investment.

IV. Choose the correct statement

Question 1.
a) The primary microeconomic objective is the acceleration of the growth of national income.
b) MPC is expressed in percentage and the MPC infraction.
c) Laissez-Faire exists in a Capitalist Economy.
d) Increase in rate of interest reduces savings.
Answer:
c) Laissez – Faire exists in capitalist Economy.

Question 2.
a) When the government reduces the tax the disposable income falls.
b) Autonomous investment does not depend on the national income.
c) There exists a negative relationship between the national income and induced investment.
d) Investment depended exclusively on the rate of interest.
Answer:
b) Autonomous investment does not depend on the national income.

Question 3.
a) In times of economic depression, the governments try to boost the induced investment.
b) Induced investment is not profit-motivated.
c) Autonomous investment is profit-motivated.
d) Marginal Efficiency of capital refers to the annual percentage yield earned by the last additional unit of capital.
Answer:
d) Marginal Efficiency of capital refers to the annual percentage yield earned by the last additional unit of capital.

V. Choose the incorrect statement

Question 1.
a) Multiplier is classified as static and Dynamic multiplier.
b) The accelerator expresses the ratio of the net change in investment to change in consumption.
c) The concept of super multiplier was introduced by J.M.Keynes.
d) The combined effect of the multiplier and the accelerator is also called the leverage effect.
Answer:
c) The concept of super multiplier was introduced by J.M.Keynes.

Question 2.
a) Marginal propensity to consume is the ratio of consumption to income.
b) Marginal propensity to consume is the ratio of change in consumption to change in income.
c) Average propensity to save is the Ratio of the saving to income.
d) Marginal propensity to save is the ratio of change in saving to change in income.
Answer:
a) Marginal propensity to consume is the ratio of consumption to income.

Question 3.
a) Super multiplier is the combined effect of the interaction of multiplier and accelerator.
b) Super multiplier includes both autonomous and induced investment.
c) The desire to secure liquid resources to meet emergencies is called liquidity preference.
d) The subjective factors that determine consumption function are real and measurable.
Answer:
d) The subjective factors that determine consumption function are real and measurable.

VI. Pick the odd one out:

Question 1.
a) The motive of precaution
b) The motive of transaction
c) The motive of enterprise
d) The motive of avarice
Answer:
b)The motive of transaction

Question 2.
a) Multiplier
b) Accelerator
c) Super multiplier
d) Consumption function
Answer:
d) Consumption function

Question 3.
a) Income multiplier
b) Tax multiplier
c) Investment multiplier
d) Employment multiplier
Answer:
a) Income multiplier

VII. Analyse the reason.

Question 1.
Assertion (A): The relationship between income and consumption is called as consumption function.
Reason (R): Change in Income should be equal to change in consumption.
Answer:
c) (A) is true but (R)is false.

Question 2.
Assertion (A): Keynes propounded the fundamental psychological law of consumption which forms the basis of the consumption function.
Reason (R): There is a tendency on the part of the people to spend on consumption less than the full increment of income.
Answer :
a) Assertion (A) and Reason (R) both are true, and (R) is the correct explanation of (A).

Options:
a) Assertion (A) and Reason (R) both are true, and (R) is the correct explanation of (A).
b) Assertion (A) and Reason (R) both are true, and (R) is not the correct explanation of (A).
c) (A) is true but (R)is false.
d) Both (A) and (R) are false.

VIII. Choose the best Answer.

Question 1.
Price level plays an important role in determining the ……………………
(a) Consumption function
(b) Income function
(c) Finance function
(d) Price function
Answer:
(a) Consumption function

Question 2.
Objective factors are the ………………………………………… factors which are real and measurable.
a) Internal
b) External
c) Capital
d) Production
Answer:
b) External

Question 3.
Keynes has divided factors influencing the consumption function into …………….
a) 4
b) 1
c) 2
d) 3
Answer:
c) 2

Question 4.
…………………… is influenced by demonstration effect.
(a) Investment
(b) Interest
(c) Expenditure
(d) Consumption
Answer:
(d) Consumption

Question 5.
…………………… is one of the key concepts in welfare economics.
a) Induced investment
b) Autonomous Investment
c) Motivated Investment
d) None of the above
Answer:
b) Autonomous Investment

Question 6.
In times of economic depression, the governments try to boost the ……………….
a) Induced investment
b) Induced Investment
c) Motivated Investment
d) All the above
Answer:
c) Motivated Investment

Question 7.
The formula for Multiplier

Answer:
\(K=\frac{\Delta Y}{\Delta I}}\)

Question 8.
The formula for accelerator

Answer:
\(\beta=\frac{\Delta I}{\Delta C}\)

Question 9.
The combined effect of the interaction of multiplier and accelerator is called ……………………
(a) Super accelerator
(b) Super multiplier
(c) Accelerator
(d) Multiplier
Answer:
(b) Super multiplier

Question 10.
The systematic development of the simple accelerator model was made by …………..
a) J.M.Clark
b) Hawtrey
c) J.R.Hicks
d) J.M.Keynes
Answer:
a) J.M.Clark

IX. Fill in the Blanks.

Question 1.

Answer :
C = 170, S = 60

Question 2.

Answer:
a) 1.11 b) 0.5 c) 4 d) 0.90 e) 0

X. 2 Mark Questions

Question 1.
Write “Propensity to consume” Equations?
Answer:

• The Average Propensity to Consume = \(\frac{c}{y}\)
• The Marginal Propensity to Consume = \(\frac{∆c}{∆y}\)
• The Average Propensity to Save = \(\frac{x}{y}\)
• The Marginal Propensity to Save = \(\frac{∆s}{∆y}\)

Question 2.
What is the investment function?
Answer:
The investment function refers to investment – interest rate relationship. There is a functional and inverse relationship between rate of interest and investment.

Question 3.
Define “Laissez-Faire” – Capitalist Economy?
Answer:
Existence of a Laissez-faire Capitalist Economy:
The law operates in a rich capitalist economy where there is no government intervention. People should be free to spend increased income. In the case of regulation of private enterprise and consumption expenditures by the State, the law breaks down.

Question 4.
What is the Marginal Efficiency of Capital?
Answer:
MEC refers to the annual percentage yield earned by the last additional unit of capital.

Question 5.
Mention the factors that MEC depends on.

• The prospective yield from a capital asset.
• The supply price of a capital asset.

Question 6.
What is autonomous consumption?
Answer:
Autonomous consumption is the minimum level of consumption or spending that must take place even if a consumer has no disposable income, such as spending for basic necessities.

Question 7.
Define “Autonomous consumption”?
Answer:
Autonomous Consumption:
Autonomous consumption is the minimum level of consumption or spending that must take place even if a consumer has no disposable income, such as spending for basic necessities.

Question 8.
Name the factors affecting MEC.
Answer:

• The cost of the capital asset.
• The expected rate of return during its lifetime.
• The market rate of interest.

Question 9.
State Keynes psychological law of consumption.
Answer:
The law implies that there is a tendency on the part of the people to spend on consumption less than the full increment of income.

Question 10.
What are objective factors?
Answer:
Objective factors are the external factors which are real and measurable.

Question 11.
What is the Leverage Effect?
Answer:
The combined effect of the multiplier and the accelerator is called the leverage effect.

Question 12.
What is the Marginal Efficiency of Investment?
Answer:
MEI is the expected rate of return on investment as additional units of investment are made under specified conditions and over a period of time.

Question 13.
Differentiate Positive and Negative Multiplier Effects.
Answer:
Positive Multiplier: When an initial increase in an injection leads to a greater final increase in real GDP.
Negative Multiplier: When an initial increase is an injection leads to a greater final decrease in real GDP.

Question 14.
Mention the uses of Multiplier.
Answer:

• Multiplier highlights the importance of investment in income and employment theory.
• The process throws light on the different stages of the trade cycle.
• It also helps is bringing equality between S and I.
• It helps in formulating Government Policies.
• It helps to reduce unemployment and achieve full employment.

XI. 5 Mark Questions

Question 1.
Name the determinants of investment functions?
Answer:

• Rate of Interest
• Level of Uncertainty
• Political Environment
• Rate of growth of population
• The stock of Capital goods
• The necessity of new products
• Level of income of investors
• Inventions and innovations
• Consumer demand
• The policy of the state.

Question 2.
Explain the Keynes Psychological Law’ of consumption assumptions?
Answer:
Keynes’s Law is based on the following assumptions:
1. Ceteris paribus (constant extraneous variables):
The other variables such as income distribution, tastes, habits, social customs, price movements, population growth, etc. do not change and consumption depends on income alone.

2. Existence of Normal Conditions:

• The law holds good under normal conditions.
• If, however, the economy is faced with abnormal and extraordinary circumstances like war, revolution, or hyperinflation, the law will not operate.
• People may spend the whole of increased income on consumption.

3. Existence of a Laissez-faire Capitalist Economy:

• The law operates in a rich capitalist economy where there is no government intervention.
• People should be free to spend increased income.
• In the case of regulation of private enterprise and consumption expenditures by the State, the law breaks down.

Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Business Maths Guide Pdf Chapter 4 Differential Equations Ex 4.4 Text Book Back Questions and Answers, Notes.

Tamilnadu Samacheer Kalvi 12th Business Maths Solutions Chapter 4 Differential Equations Ex 4.4

Question 1.
\(\frac { dy }{dx}\) – \(\frac { dy }{dx}\) = x
Solution:

The required solution is

Question 2.
\(\frac { dy }{dx}\) + y cos x = sin x cos x
Solution:
It is of the form \(\frac { dy }{dx}\) + Py = Q
Here P = cos x; Q = sin x cos x
∫Pdx = ∫cos x dx = sin x
I.F = e^∫pdx = e^sinx
The required solution is
Y(I.F) = ∫Q (IF) dx + c
Y(e^sinx) = ∫Q (I-F) dx + c
y (e^sinx) = ∫sin x cos x e^sinx dx + c

Question 3.
x\(\frac { dy }{dx}\) + 2y = x⁴
Solution:
The given equation can be reduced to
\(\frac { dy }{dx}\) + \(\frac { 2y }{x}\) = x³
It is of the form \(\frac { dy }{dx}\) + Py = Q
Here P = \(\frac { 2 }{x}\); Q = x³
∫pdx = ∫\(\frac { 2 }{x}\)dx = 2∫\(\frac { 1 }{x}\)dx = 2log x – log x²
I.F = e^∫Pdx = e^logx² = x²
The required solution is
y(I.F) = ∫Q (IF) dx + c
y(x²) = ∫x³ (x²) dx + c
x²y = ∫x⁵ dx + c
x²y = \(\frac { x^6 }{6}\) + c

Question 4.
\(\frac { dy }{dx}\) + \(\frac { 3x^2 }{1+x^3}\) = \(\frac { 1+x^2 }{1+x^3}\)
Solution:

Question 5.
\(\frac { dy }{dx}\) + \(\frac { y }{x}\) = xe^x
Solution:
\(\frac { dy }{dx}\) + py = Q
Here P = \(\frac { 1 }{x}\); Q = xe^x
∫Pdx = ∫\(\frac { 1 }{x}\) dx = log x
I.F = e∫Pdx = e^log = x
The required solution is
y (I.F) = ∫Q (I.F) dx + c

Question 6.
\(\frac { dy }{dx}\) + y tan x = cos³ x
Solution:
It is of the form \(\frac { dy }{dx}\) + Py = Q
Here P = tan x; Q = cos³ x
∫Pdx = ∫tan x dx = ∫\(\frac { sin x }{cos x}\) dx = -∫\(\frac { -sin x }{cos x}\) dx
= -log cos x = log sec x
I.F = e^∫Pdx = e^{log sec x} = sec x
The required solution is
y(I.F) = ∫Q(I.F) dx + c
y (sec x) = ∫cos³x (sec x) dx + c
y(sec x) = ∫cos³x \(\frac { 1 }{cos x}\) dx + c
y (sec x) = ∫cos²x dx + c
y (sec x)= ∫(\(\frac { 1+cos 2x }{2}\)) dx + c
y (sec x) = \(\frac { 1 }{2}\) ∫(1 + cos2x) dx + c
y (sec x) = \(\frac { 1 }{2}\) [x + \(\frac { sin2x }{2}\)] + c

Question 7.
If \(\frac { dy }{dx}\) + 2y tan x = sinx and if y = 0 when x = π/3 express y in terms of x
Solution:
\(\frac { dy }{dx}\) + 2y tan x = sinx
It is of the form \(\frac { dy }{dx}\) + Py = Q
Here P = 2tan x ; Q = sin x
∫Pdx = ∫2 tan x dx = 2∫tan xdx = 2 log sec x
log sec² x
I.F = e^∫Pdx = e^log(sec²x) = sec² x
The required solution is
y(I.F) = ∫Q(I.F) dx + c
y (sec² x) = ∫sin x (sec²x) dx + c
y(sec²x) = ∫sin x(\(\frac { 1 }{cos x}\)) sec x dx + c
y sec²x = ∫(\(\frac { sin x }{cos x}\)) sec x dx + c
y(sec²x) = ∫tan x sec x dx + c
⇒ y(sec²x) = sec x + c ………. (1)
If y = 0 when x = /3, then (1) ⇒
0(sec²(π/3)) = sec(π/3) + c
0 = 2 + c
⇒ c = -2
∴ Eqn (1) ⇒ y sec²x = sec x – 2

Question 8.
\(\frac { dy }{dx}\) + \(\frac { y }{x}\) = xe^x
Solution:
It is of the form \(\frac { dy }{dx}\) + Py = Q
Here P = \(\frac { 1 }{x}\); Q = xe^x
∫Pdx = ∫\(\frac { 1 }{x}\) dx = log x
I.F = e^∫Pdx = e^{log x} = x
The required solution is

Question 9.
A bank pays interest by contionous compounding, that is by treating the interest rate as the instantaneous rate of change of principal. A man invests Rs 1,00,000 in the bank deposit which accures interest, 8% over year compounded continuously. How much will he get after 10 years?
Solution :
Let P(t) denotes the amount of money in the account at time t. Then the differential equation govemning the growth of money is
\(\frac { dp }{dt}\) = \(\frac { 8 }{100}\)p = 0.08 p
⇒ \(\frac { dp }{p}\) = 0.08 dt
Integrating on both sides
∫\(\frac { dp }{p}\) = ∫0.08 dt
log_e P = 0.08 t + c
P = e^{0.08 t} + c
P = e^{0.08 t}. e^c
P = C₁ e^{0.08 t} ………. (1)
when t = 0, P = Rs 1,00,000
Eqn (1) ⇒ 1,00,000 = C₁ e°
C₁ = 1,00,000
∴ P = 100000 e^{0.08 t}
At t = 10
P= 1,00,000 . e^0.08(10)
= 1,00,000 e^0.8 {∵ e^0.8 = 2.2255}
= 100000 (2.2255)
p = Rs 2,25,550

Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Economics Guide Pdf Chapter 3 Theories of  Employment and Income Text Book Back Questions and Answers, Notes.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 3 Theories of Employment and Income

12th Economics Guide Theories of Employment and Income Text Book Back Questions and Answers

PART – A

Multiple Choice questions

Question 1.
Every able bodied person who is willing to work at the prevailing wage rate is employed called as ……………..
a) Full employment
b) Under employment
c) Unemployment
d) Employment opportunity
Answer:
a) Full employment

Question 2.
Structural unemployment is a feature in a ……………
a) Static society
b) Socialist society
c) Dynamic society
d) Mixed economy
Answer:
c) Dynamic society

Question 3.
In disguised unemployment, the marginal productivity of labour is ……………..
a) Zero
b) One
c) Two
d) Positive
Answer:
a) Zero

Question 4.
The main concention of the classical Economic Theory is …………..
a) Under employment
b) Economy is always in the state of equilibrium
c) Demand creates its supply
d) Imperfect competition
Answer:
b) Economy is always in the state of equilibrium

Question 5.
J.B. say is a ……………
a) New classical Economist
b) Classical Economist
c) Modern Economist
d) New Economist
Answer:
b) Classical Economist

Question 6.
According to keynes, which type of unemployment prevails in capitalist economy?
a) Full employment
b) Voluntary unemployment
c) Involuntary unemployment
d) Under employment
Answer:
d) Under employment

Question 7.
The core of the classical theory of employment is
a) Law of Diminishing Return
b) Law of demand
c) Law of markets
d) Law of consumption
Answer:
c) Law of markets

Question 8.
Keynes attributes unemployment to ……………………..
a) A lack of effective supply
b) A lack of effective demand
c) A lack of both
d) None of the above
Answer:
b) A lack of effective demand

Question 9.
………………………….. Flexibility brings equality between saving and investment.
a) Demand
b) Supply
c) Capital
d) Interest
Answer:
d) Interest

Question 10.
…………………. theory is a turning point in the development of modern economic theory.
a) Keynes
b) Say’s
c) Classical
d) Employment
Answer:
a) Keynes

Question 11.
The basic concept used in keynes Theory of Employment and Income is ……………….
a) Aggregate demand
b) Aggregate supply
c) Effective demand
d) Marginal propensity to consume
Answer:
d) Marginal propensity to consume

Question 12.
The component of aggregate demand is …………………
a) Personal demand
b) Government expenditure
c) Only export
d) Only import
Answer:
b) Government expenditure

Question 13.
Aggregate supply is equal to ………….
a) ‘C + I + G
b) C+S+T + (x-m)
c) C+ S+ T+ (x – m)
d) C+ S+ T+ Rf
Answer:
d) C+ S+ T+ Rf

Question 14.
Keynes theory pursues to replace Laissez Faire by ………………….
a) No government intervention
b) Maximum intervention
c) State intervention in certain situation .
d) Private Sector Intervention
Answer:
c) State intervention in a certain situation

Question 15.
In Keynes theory of employment and income ……………………… is the basic cause of economic depression.
a) Less production
b) More demand
c) Inelastic supply
d) Less aggregate demand in relation to productive capacity
Answer:
d) Less aggregate demand in relation to productive capacity

Question 16.
Classical theory advocates ………………
a) Balanced budget
b) Unbalanced budget
c) Surplus budget
d) Deficit budget
Answer:
a) Balanced budget

Question 17.
Keynes theory emphasized on ………………….. equilibrium.
a) Very short run
b) Short-run
c) Very long run
d) Long run
Answer:
b) Short-run

Question 18.
According to classical theory, the rate of interest is a reward for …………….
a) Investment
b) Demand
c) Capital
d) Saving
Answer:
d) Saving

Question 19.
In Keynes theory, the demand for and supply of money are determined by …………………..
a) Rate of interest
b) Effective demand
c) Aggregate demand
d) Aggregate supply
Answer:
a) Rate of interest

Question 20.
Say’s law stressed the operation of ……………………. in the economy.
a) Induced price mechanism
b) Automatic price mechanism
c) Induced demand
d) Induced investment
Answer:
b) Automatic price mechanism

PART -B

Answer the following questions in one or two sentences.

Question 21.
Define full employment.
Answer:
Full employment refers to a situation in which every able-bodied person who is willing to work at the prevailing wage rate, is employed. In other words, full employment means that persons who are willing to work and able to work must have employment or a job.

Question 22.
What is the main feature of rural unemployment?
Answer:
The existence of disguised unemployment and seasonal unemployment is the main feature of rural unemployment.

Question 23.
Give a short note on frictional unemployment.
Answer:
Frictional Unemployment (Temporary Unemployment):

1. Frictional unemployment arises due to an imbalance between the supply of labour and demand for labour.
2. This is because of immobility of labour, lack of necessary skills, break down of machinery, shortage of raw materials etc.
3. The persons who lose jobs and in search of jobs are also included under frictional unemployment.

Question 24.
Give reasons for labour retrenchment at the present situation.
Answer:

• Capital intensive techniques.
• Invention and innovations
• Labour saving devices are reasons for retrenchment.

Question 25.
List out the assumptions of Say’s law.
Answer:
The Say’s Law of the market is based on the following assumptions:

1. No single buyer or seller of commodity or input can affect the price.
2. Full employment.
3. People are motivated by self-interest and self-interest determines economic decisions.
4. The laissez-faire policy is essential for an automatic and self-adjusting process of full employment equilibrium. Market forces determine everything right.
5. There will be perfect competition in labour and product market.
6. There is wage-price flexibility.
7. Money acts only as a medium of exchange.
8. Long-run analysis.
9. There is no possibility for overproduction or unemployment.

Question 26.
What is effective demand?
Answer:

• Effective demand denotes money actually spent by the people on products of industry.
• Effective demand equals national income.

Question 27.
What are the components of aggregate supply?
Answer:
Aggregate demand has the following four components:

1. Consumption demand
2. Investment demand
3. Government expenditure and
4. Net Export (export-import)

PART – C

Answer the following questions in a paragraph.
Question 28.
Explain the following in short
Answer:
(i) Seasonal unemployment
This type of unemployment occurs during certain seasons of the year.
(ii) Frictional unemployment
This type of unemployment arises due to an imbalance between supply and demand for labour.
iii) Educated unemployment
Sometimes educated people are underemployed or unemployed when qualification does not match the job.

Question 29.
Write a short note on the implications of Say’s law.
Answer:
Implications of Say’s Law:

1. There is no possibility for overproduction or unemployment.
2. If there exist unutilized resources in the economy, it is profitable to employ them up to the point of full employment. This is true under the condition that factors are willing to accept rewards on a par with their productivity.
3. As an automatic price mechanism operates in the economy, there is no need for government intervention. (However, J.M. Keynes emphasized the role of the State)
4. Interest flexibility brings about equality between saving and investment.
5. Money performs only the medium of exchange function in the economy, as people will not hold idle money.

Question 30.
Explain Keynes theory in the form of a flow chart.
Answer:

Question 31.
What do you mean by aggregate demand? Mention its components.
Answer:

1. The aggregate demand is the amount of money which entrepreneurs expect to get by selling the output produced by the number of labourers employed.
2. Therefore, it is the expected income or revenue from the sale of output at different levels of employment.
3. Aggregate demand has the following four components:
   • Consumption demand
   • InvestmenTdemand
   • Government expenditure and
   • Net Export (export-import)

Question 32.
Explain aggregate supply with the help of a diagram.
Answer:
In figure two aggregate supply curves are drawn with the assumption of fixed money wages and variable wages…

• Z curve is linear where money wages remain fixed; Z1.curve is non-linear since wage rate increases with employment.
• At full employment level (Nf) aggregate supply curve becomes inelastic.
• The slope of the aggregate supply curve depends on the relationship between employment and productivity.
• Based on this relation, the aggregate supply curve is expected to slope upwards. In reality, the aggregate supply curve will be like Z1.
• Therefore, the aggregate supply depends on the relationship between price and wages.

Question 33.
Write any five differences between classicism and Keynesianism.
Answer:

PART – D

Answer the following questions on the about page.

Question 34.
Describe the types of unemployment.
Answer:
1. Cyclical unemployment:
In a business cycle during the period of recession and depression, income and output fall leading to widespread unemployment. It can be cured by public investment or expansionary monetary policy.

2. Seasonal unemployment:
This type of unemployment occurs during certain seasons of the year.
Eg : Agriculture and Agro-based industries.

3. Frictional unemployment:
This type of unemployment arises due to an imbalance between supply and demand for labour.

4. Educated unemployment:
Sometimes educated people are underemployed or unemployed when qualification does not match the job.

5. Technical unemployment:
Modern technology being capital intensive requires less labourers and con-tributes to technological unemployment.

6. Structural unemployment:
Structural unemployment is due to a drastic change in the structure of society.

7. Disguised unemployment:
A person is said to be disguisedly unemployed if his contribution top out-put is less than what he can produce by working for normal hours per day. In this situation, the marginal productivity of labour is zero or less or negative.

Question 35.
Critically explain Say’s law of the market.
Answer:
Criticisms of Say’s Law: The following are the criticisms against Say’s law:

1. According to Keynes, supply does not create its demand. It is not applicable where demand does not increase as much as production increases.
2. The automatic adjustment process will not remove unemployment. Unemployment can be removed by an increase in the rate of investment.
3. Money is not neutral. Individuals hold money for unforeseen contingencies while businessmen keep a cash reserves for future activities.
4. Say’s law is based on the proposition that supply creates its own demand and there is no overproduction. Keynes said that overproduction is possible.
5. Keynes regards full employment as a special case because there is underemployment in capitalist economies.
6. The need for state intervention arises in the case of general overproduction and mass unemployment.

Question 36.
Narrate the equilibrium between ADF and ASF with a diagram.
Answer:

• Under the Keynes theory of employment, a simple two-sector economy is taken to understand the equilibrium between ADF and ASF.
• All the decisions concerning consumption expenditure are taken by the house-holds, while the business firms take decisions concerning investment.
• It is also assumed that the consumption function is linear and planned investment is autonomous.
  
• In the figure, the aggregate demand and aggregate supply reach equilibrium at point E. The employment level is No at that point.
• At ON1 employment, the aggregate supply is N₁R₁ But they are able to produce M₁N₁  M₁ R₁To the expected level of profit is M₁R₁ attain this level of profit, entrepreneurs will employ more labourers.
• The tendency to employ more labour will stop once they reach E. At all levels of employment beyond, ON_o, the AD curve is below the AS curve indicating loss to the producers.
• Hence they will never employ more than ON_o labor. Thus effective demand concept becomes a crucial point in determining the equilibrium level of output in the capitalist economy in the Keynesian system.
• The equilibrium level of employment need not be the full employment level (N)₁. The difference between (N_o –  N_f )is the level of unemployment.
• Thus Effective demand is significant to explain the under-employment equilibrium.

Question 37.
Explain the differences between classical theory and Keynes theory:
Answer:

12th Economics Guide Theories of Employment and Income Additional Important Questions and Answers

I. Match the following

Question 1.
a) J.B. Say – 1) Classical Economists
b) Adam Smith – 2) Law of Market
c) AC. Pigou – 3) Effective Demand
d) J.M.Keynes – 4) Wealth of Nations

Answer:
b) 2 4 1 3

Question 2.
a) Rural Areas – 1) Educated unemployment
b) Urban Areas – 2) Seasonal unemployment
c) Lack of employable skills – 3) Structural unemployment
d) Lack of demand – 4) Frictional unemployment

Answer:
a) 2 4 13

Question 3.
a) MPC – 1) C + I + G + (X – M)
b) MEC – 2) C + S + T + Rf
c) AD – 3) Marginal propensity to consume ’
d) AS – 4) Marginal Efficiency of capital

Answer :
d) 3 4 1 2.

II. Choose the correct pair

Question 1.
a) Long-run – Full employment
b) Market Economy – Government control
c) Keynes theory – Long run
d) Structural unemployment – Agriculture
Answer:
a) Long-run – Full employment

Question 2.
a) C – Private savings
b) S – Consumption Expenditure
c)T – Net tax payments ‘
d) Rf – Tax rate
Answer:
c) T – Net tax payments

Question 3.
a) Effective demand – Percapita Income
b) Equilibrium – Full employment
c) Aggregate supply function – Elastic
d) Say’s law – Underemployment
Answer:
b) Equilibrium – Full employment

III. Choose the incorrect pair

Question 1.
a) Price Mechanism- Lassiez faire Economy
b) J.B. Say – Classical theory
c) J.M. Keynes – Macro Economics
d) Law of the market – Underemployment
Answer:
d) Law of the market – Underemployment

Question 2.
a) Business cycle
b) Seasonal unemployment
c) New technology
d) Disguised unemployment
Answer:
b) Seasonal unemployment – Industrial sector

Question 3.
a) Aggregate supply price – Income
b) Consumption function – Straight line
c) Keynes theory – Induced Investment
d) Equilibrium – Underemployment
Answer:
d) Equilibrium – Underemployment

IV. Choose the correct statement

Question 1.
a) Equilibrium level of employment refers to full employment.
b) According to Say’s law demand creates its own supply.
c) Adam smith published his books “An enquiry into the nature and causes of the wealth of nations” in the year 1776.
d) Technical unemployment is due to drastic change in the structure of the society
Answer:
c) Adam smith published his books “An enquiry into the nature and causes of wealth of nations” in the year 1776.

Question 2.
Assumptions of Say’s law of markets :
a) Existence of underemployment.
b) Money is a prominent force in the economy.
c) Government interference is a must.
d) Long-run analysis.
Answer: Long run analysis.

Question 3.
a) Keynes supported the ideas of classical Economists.
b) An increase in the aggregate effective demand would increase the level of employment.
c) Effective Demand is less than National income.
d) Price refers to the cost of production.
Answer:
b) An increase in the aggregate effective demand would increase the level of employment.

V. Choose the incorrect statement

Question 1.
a) Keynes defines full employment as the absence of involuntary unemployment.
b) Full employment generally refers to the full employment of labour force of a country.
c) In developed countries the unemployment is purely structural.
d) Disguised unemployment occurs when more people are than what is actually required.
Answer:
c) In developed countries the unemployment is purely structural.

Question 2.
a) In Disguised unemployment and seasonal unemployment are seen in rural areas.
b) Due to Globalisation, a large number of people move from rural areas to urban areas.
c) Cyclical unemployment can be cured by public investment or expansionary monetary policy.
d) Seasonal unemployment occurs during certain seasons of the year.
Answer:
b) Due to Globalisation, a large number of people move from rural areas to urban areas.

Question 3.
a) In disguised unemployment marginal productivity of labour is positive.
b) Laissez-faire is a situation found in Market Economy.
c) According to J.B.Say “supply creates its own demand”.
d) Aggregate supply curve is inelastic.
Answer:
c) According to J.B.Say “supply creates its own demand”.

VI. Pick the odd one out:

Question 1.
The components of Aggregate supply are
a) Total Expenditure
b) Private savings
c) Net tax payments
d) Transfer payments to the foreigners
Answer:
a) Total Expenditure

Question 2.
The components of Aggregate Demand are
a) Consumption demand
b) Investment demand
c) Government expenditure
d) Net Import
Answer:
d) Net Import

VII. Analyse the reason:

Question 1.
Assertion (A): Aggregate supply is equal to the value of the national product.
Reason (R): Aggregate supply refers to the value of the total output of goods and services produced in an economy in a year.
Answer :
a) Assertion (A) and Reason (R) both are true and (R) is the correct explanation of (A)

Question 2.
Assertion (A): Supply creates its own demand.
Reason (R): Each product produced in the economy creates demand equal to its value in the market.
Answer:
a) Assertion (A) and Reason (R) both are true and (R) is the correct explanation of (A)

Question 3.
Assertion (A) : Seasonal unemployment occurs during certain seasons of the year.
Reason (R) : Seasonal unemployment exists during the downturn phase of the trade cycle in the economy.
Answer:
c) Assertion (A) is true, Reason (R) is false Options.

Question 4.
Assertion (A): Seasonal unemployment occurs during certain seasons of the year.
Reason (R): Seasonal unemployment exists during the downturn phase of the trade cycle in the economy.
Answer:
c) Assertion (A) is true, Reason (R) is false.
Options:
a)Assertion (A) and Reason (R) both are true and (R) is the correct explanation of (A).
b) Assertion (A) and Reason (R) both are true, but (R) is not the correct, explanation of (A).
c) Assertion (A) is true, Reason (R) is false.
d) Both (A) and (R) are false.

VIII. Choose the best Answer

Question 1.
Who is one of the greatest and most influential economists?
(a) J.M. Keynes
(b) Adam Smith
(c) Marshall
(d) Simon Kuznets
Answer:
(a) J.M. Keynes

Question 2.
Aggregate demand can be expressed as
a) AD = C + G + I + (M – X)
b) AD = I + G + C + (X – M)
c) AD = C + I + G + (X – M)
d) AD = C + I + G +(x – M)
Answer:
c) AD = C+I+G+(X-M)

Question 3.
The total stock of money circulating in an Economy is called –
(a) Money
(b) Capital
(c) Money Supply
(d) Finance
Answer:
(c) Money Supply

Question 4.
Capital intensive technology and innovations lead to ………………….. Unemployment.
a) Structural
b) Technical
c) Seasonal
d) Disguised
Answer:
b) Technical

Question 5.
How many components are there in the aggregate supply
a) 3
b) 4
c) 1
d) 2
Answer:
b) 4

Question 6.
…………………… is an increasing function of the level of employment –
(a) Aggregate supply function
(b) Aggregate demand function
(c) Aggregate consumption function
(d) Aggregate consumption expenditure
Answer:
(a) Aggregate supply function

Question 7.
Keynes defines full employment as the absence of ………………….. unemployment.
a) Structural
b) Involuntary
c) Seasonal
d) Voluntary
Answer:
b) Involuntary

Question 8.
…………………… Unemployment arises due to an imbalance between the supply of and demand for labour.
a) Frictional
b) Educated
c) Seasonal
d) Technical
Answer:
a) Frictional

Question 9.
Adam Smith published his book ‘An enquiry into the Nature and Causes of the Wealth of Nations” in ’ ……………………
a) 1767
b) 1776
c) 1676
d) 1176
Answer:
b) 1776

Question 10.
Frictional unemployment another name is called –
(a) Educated unemployment
(b) Seasonal unemployment
(c) Temporary unemployment
(d) Technical unemployment
Answer:
(c) Temporary unemployment

IX. Answer the following questions (2 Marks)

Question 1.
Write two approaches of the equilibrium level of Income in Keynesian theory?
Answer:
There are two approaches to the determination of the equilibrium level of income in Keynesian theory. These are:

1. Aggregate demand – Aggregate supply approach
2. Saving – An investment approach

Question 2.
What is marginal propensity to consume?
Answer:
Marginal propensity to consume is the additional consumption due to an additional unit of income.

Question 3.
Define “Marginal propensity to consume”?
Answer:
Marginal Propensity to Consume is the additional consumption due to an additional unit of income.

Question 4.
What is Underemployment?
Answer:
Underemployment is a situation where resources are not fully utilized in production.

Question 4.
Write the types of unemployment?
Answer:
Types of unemployment:

1. Cyclical Unemployment
2. Frictional Unemployment
3. Technical Unemployment
4. Disguised Unemployment
5. Seasonal Unemployment
6. Educated Unemployment
7. Structural Unemployment

Question 6.
State J.B.Say’s law of Market.
Answer:
J.B. Say enunciated the proposition that” Supply creates its own demand”.

X. Answer the following questions (3 Marks)

Question 1.
Mention the types of Unemployment.
Answer:
There are seven types of unemployment. They are

1. Cyclical Unemployment
2. Seasonal Unemployment
3. Frictional Unemployment
4. Educated Unemployment
5. Technical Unemployment
6. Structural Unemployment
7. Disguised Unemployment

Question 2.
Aggregate Supply Function meaning and components?
Answer:

1. Aggregate supply function is an increasing function of the level of employment.
2. Aggregate supply refers to the value of the total output of goods and services produced in an economy in a year.
3. In other words, aggregate supply is equal to the value of the national product, i.e., national income.

The components of aggregate supply are:

1. Aggregate (desired) consumption expenditure (C)
2. Aggregate (desired) private savings (S)
3. Net tax payments (T) (Total tax payment to be received by the government minus transfer payments, subsidy and interest payments to be incurred by the government)
4. Personal (desired) transfer payments to the foreigners (Rf) (e.g. Donations to international relief efforts)

Question 3.
What is the Marginal Efficiency of Capital?
Answer:

• Marginal Efficiency of Capital is the expected rate of return over costs of a new capital good.
• MEC depends on two factors namely prospective yield of a capital asset and sup-ply price of capital.

Question 4.
Name the Motives of Liquidity Preference.
Answer:
Liquidity preference is based on three motives namely

• Transaction Motive
• Precautionary Motive
• Speculative Motive

Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Business Maths Guide Pdf Chapter 4 Differential Equations Ex 4.3 Text Book Back Questions and Answers, Notes.

Tamilnadu Samacheer Kalvi 12th Business Maths Solutions Chapter 4 Differential Equations Ex 4.3

Question 1.
Solve:
x\(\frac { dy }{dx}\) = x + y
Solution:
x\(\frac { dy }{dx}\) = x + y
x\(\frac { dy }{dx}\) = x + y ⇒ \(\frac { dy }{dx}\) = \(\frac { x+y }{x}\) ……… (1)
It is a homogeneous differential equation, Same degree in x and y

Integrating on both sides
∫\(\frac { 1 }{x}\) dx = ∫dv
log x = v + c ⇒ x = e^(v+c)
x = e^v.e^c
x = e^v. c ⇒ x = ce^v [⇒ v = \(\frac { y }{x}\)]
⇒ x = ce^y/x

Question 2.
(x – y) \(\frac { dy }{dx}\) = x + 3y
Solution:
(x – y) \(\frac { dy }{dx}\) = x + 3y
\(\frac { dy }{dx}\) = \(\frac { x+3y }{(x-y)}\) ……… (1)
It is a homogeneous differential equation same degree in x and y

Integrating on both sides

Question 3.
x\(\frac { dy }{dx}\) – y = \(\sqrt { x^2+y^2}\)
Solution:

It is a homogeneous differential equation, same degree in x and y

Question 4.
\(\frac { dy }{dx}\) = \(\frac { 3x-2y }{2x-3y}\)
Solution:
\(\frac { dy }{dx}\) = \(\frac { 3x-2y }{2x-3y}\) …….. (1)
It is a homogeneous differential equation same degree in x and y

Integrating on both sides

Squaring on both sides

Question 5.
(y² – 2xy) dx = (x² – 2xy)dy
Solution:
(y² – 2xy) dx = (x² – 2xy)dy

Integrating on both sides

Cubing on both sides

Question 6.
The slope of the tangent to a curve at any point (x, y) on it is given by (y³ – 2yx²) dx + (2xy² – x³) dy = 0 and the curve passes throngh (1, 2). Find the equation of the curve.
Solution:
Given that equation of the slope of tangent
(y³ – 2yx²) dx + (2xy² – x²) dy = 0
(2xy² – x³) dy = – (y³ – 2yx²) dx
(2xy² – x³) dy = (2yx² – y³) dx
\(\frac { dy }{dx}\) = \(\frac { (2yx^2-y^3) }{(2xy^2-x^3)}\) ………. (1)
It is a homogeneous differential equation same degree in x and y.

⇒ 2v² – 1 = A(v² – 1) + B(v) (v + 1) + C(v) (v – 1) ………. (4)
Put v = 0 in (2)
-1 = A(-1) ⇒ A = 1
Put v = -1
2(-1)² – 1 = [A(-1)² -1] + B(0) + C(-1) (-1 -1)
2 – 1 = A(0) + B(0) + C(-1) (-2)
1 = 2C ⇒ C = 1/2
Put v = 1
2(1)² – 1 = [A(1)² – 1] + B(1) (1 +1) + C(1)(1 – 1)
2 – 1 = A(0) + B(2) + C(0)
2B = 1 ⇒ B = 1/2
Substitute A = 1, B = 1/2 and C = 1/2 in (1)

Question 7.
An electric manufacturing company makes small household switchs. The company estimates the marginal revenue function for these switches to be (x² + y²) dy = xy dx where x represents the number of units (in thounsands). What is the total revenue function?
Solution:
Given
Marginal revenue for the switches
(x² + y²) dy = xy dx
\(\frac { dy }{dx}\) = \(\frac { xy }{(x^2+y^2)}\) ……… (1)
It is a homogeneous differential equation same degree in x and y.

Integrating on both sides

The total revenue function is
⇒ y = ce^{\(\frac { x^2 }{2y^2}\)}

Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Economics Guide Pdf Chapter 2 National Income Text Book Back Questions and Answers, Notes.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 2 National Income

12th Economics Guide National Income Text Book Back Questions and Answer

PART – A

Multiple Choice questions

Question 1.
Net National Product at factor cost is also known as
a) National Income
b) Domestic Income
c) Per capita Income
d) Salary
Answer:
a) National Income

Question 2.
Primary sector is
a) Industry
b) Trade
c) Agriculture
d) Construction
Answer:
c) Agriculture

Question 3.
National income is measured by using ………… methods.
a) Two
b) Three
c) Five
d) Four
Answer:
b) Three

Question 4.
Income method is measured by summing up of all forms of
a) Revenue
b) Taxes
c) expenditure
d) Income
Answer:
d) Income

Question 5.
Which is the largest figure?
a) Disposable income
b) Personal Income
c) NNP
d) GNP
Answer:
d) GNP

Question 6.
Expenditure method is used to estimate national income in
a) Construction sector
b) Agriculture sector
c) Service sector
d) Banking sector
Answer:
a) Construction sector

Question 7.
Tertiary sector is also called as …………… sector
a) Service
b) Income
c) Industrial
d) Production
Answer:
c) Industrial

Question 8.
National income is a measure of the …………………. performance of an economy.
a) Industrial
b) Agricultural
c) Economic
d) Consumption
Answer:
c) Economic

Question 9.
Percapita income is obtained by dividing the National income by …………………..
a) Production
b) Population of a country
c) Expenditure
d) GNP
Answer:
b) Population of a country

Question 10.
GNP = ……………… + Net factor income from abroad.
a) NNP
b) NDP
c) GDP
d) Personal income
Answer:
c) GDP

Question 11.
NNP stands for ……………
a) Net National Product
b) National Net Product
c) National Net Provident
d) Net National Provident
Answer:
a) Net National Product

Question 12.
……………………. is deducted from gross value to get the net value.
a) Income
b) Depreciation
c) Expenditure
d) Value of final goods.
Answer:
b) Depreciation

Question 13.
The financial year in India is………………
a) April 1 to March 31
b) March 1 to April 30
c) March 1 to March 16
d) January 1 to December 31
Answer:
a) April 1 to March 31

Question 14.
When net factor income from abroad is deducted from NNP, the net value is ……………..
a) Gross National Product
b) Disposable Income
c) Net Domestic Product
d) Personal Income
Answer:
c) Net Domestic Product

Question 15
The value of NNP at the production point is called …………..
a) NNP at factor cost
b) NNP at market cost
c) GNP at factor cost
d) Per capita income
Answer:
a) NNP at factor cost

Question 16.
The average income of the country is …………….
a) Personal Income
b) Per capita Income
c) Inflation Rate
d) Disposal Income
Answer:
b) Per capita Income

Question 17.
The value of national income adjusted for inflation is called ………………..
a) Inflation Rate
b) Disposal income
c) GNP
d) Real national income
Answer:
d) Real national income

Question 18.
Which is a flow concept?
a) Number of shirts
b) Total wealth
c) Monthly income
d) Money supply
Answer:
c) Monthly income

Question 19.
PQLI is the indicator of
a) Economic growth
b) Economic welfare
c) Economic progress
d) Economic development
Answer:
b) Economic welfare

Question 20.
The largest proportion of national income comes from …………
a) Private sector
b) Local sector
c) Public sector
d) None of the above
Answer:
a) Private sector

PART-B

Answer the following questions in one or two sentences.

Question 21.
Define National Income.
Answer:
National Income means the total money value of all final goods and services produced in a country during a particular period of time (one year).

Question 22.
Write the formula for calculating GNP.
Answer:
GNP at market prices = C + I + G + (X – M) + (R-P) .
C – consumption
I – Investment
G-Government
X – M – Net export
R-P – net factor income from abroad.

Question 23.
What is the difference between NNP and NDP?
Answer:
NNP:

1. NNP refers to the market value of output.
2. NNP at factor cost is the total income payment made to factors of production.

NDP:

1. NDP is the value of the net output of the economy during the year.
2. The country’s capital equipment wears out of becomes outdated each year during the production process.

Question 24.
Trace the relationship between GNP and NNP
Answer:

• GNP is the total measure of the flow of final goods and services at market value during a year.
• NNP is the value of the net output of the economy during the year.
• NNP = GNP – depreciation

Question 25.
What do you mean by the term Personal Income?
Answer:
Personal income is the total income received by the individuals of a country from all sources before payment of direct taxes in a year.

Question 26.
Define GDP deflator.
Answer:
The GDP deflator is an index of price changes of goods and services included in GDP.

Question 27.
Why is self-consumption difficult in measuring national income?
Answer:

1. Farmers keep a large portion of food and other goods produced on the farm for self-consumption.
2. The problem is whether that part of the product which is not sold in the market can be included in national income or not.

PART-C

Answer the following questions in one paragraph.

Question 28.
Write a short note on per capita income
Answer:
The average income of a person of a country in a particular year is called per capita income, per capita income is obtained by dividing national income by population.
Per capita income = \(\frac{\text { National Income }}{\text { Population }}\).

Question 29.
Differentiate between personal and disposable income.
Answer:
Personal income:
Personal income is the total income received by the individuals of a country from all sources before payment of direct taxes in a year.

Disposable income:
Disposable Income is also known as Disposable personal income. It is the individual’s income after the payment of income tax. This is the amount available for households for consumption.

Question 30.
Explain briefly NNP at factor cost.
Answer:
NNP refers to the market value of output, whereas NNP at factor cost is the total income payment made to the factor of production.
NNP at factor cost = NNP at market prices – Indirect taxes + subsidies

Question 31.
Give a short note on the Expenditure method.
Answer:
The Expenditure Method (Outlay method):

1. The total expenditure incurred by the society in a particular year is added together.
2. To calculate the expenditure of a society, it includes personal consumption expenditure, net domestic investment, government expenditure on consumption as well as capital goods and net exports.

Question 32.
What is the solution to the problem of double counting in the estimation of national income?
Answer:

• Double counting is to be avoided under the value-added method. Any commodity
  which is either raw material or intermediate good for the final product should not be included. ‘
• For example, value of cotton enters value of yarn as cost, and value of yam in cloth and that of cloth in garments. At every stage value-added only should be calculated.

Question 33.
Write briefly about national income and welfare.
Answer:
National Income and Welfare:
National Income is considered as an indicator of the economic wellbeing of a country. The per capita income as an index of economic welfare suffers from limitations which are stated below:

1. Economic welfare depends upon the composition of goods and services provided. The greater the proportion of capital goods over consumer goods, the improvement in economic welfare will be lesser.
2. Higher GDP with greater environmental hazards such as air, water, and soil pollution will be little economic welfare.
3. The production of war goods will show an increase in national output but not welfare.
4. An increase in per capita income may be due to the employment of women and children or forcing workers to work for long hours. But it will not promote economic welfare.

Question 34.
List out the uses of national income.
Answer:

• To know the sectoral contribution.
• To formulate the national policies.
• To formulate planning and evaluate plan progress. !
• To build economic – models.
• To make international comparison.
• To know a country’s per capita income for various factors of production.
• To know the distribution of income for various factors of production.
• To arrive at many macroeconomic variables.

Question 35.
Explain the importance of national income.
Answer:
National income is of great importance for the economy of a country. Nowadays the national income is regarded as accounts of the economy, which are known as social accounts. It enables us:
1. To know the relative importance of the various sectors of the economy and their contribution towards national income; from the calculation of national income, we could find how income is produced, how it is distributed, how much is spent, saved or taxed.

2. To formulate the national policies such as monetary policy, fiscal policy and other policies; the proper measures can be adopted to bring the economy to the right path with the help of collecting national income data.

3. To formulate planning and evaluate plan progress; it is essential that the data pertaining to a country’s gross income, output, saving, and consumption from different sources should be available for economic planning.

4. To build economic models both in the short-run and long-run.

5. To make an international comparison, inter-regional comparison, and intertemporal comparison of growth of the economy during different periods.

6. To know a country’s per capita income which reflects the economic welfare of the country (Provided income is equally distributed)

7. To know the distribution of income for various factors of production in the country.

8. To arrive at many macroeconomic variables namely, Tax – GDP ratio, Current Account Deficit – GDP ratio, Fiscal Deficit – GDP ratio, Debt – GDP ratio, etc.

Question 36.
Discuss the various methods of estimating the national income of a country.
Answer:
There are three methods that are used to measure national income.
Product Method:

• Product method measures the output of the country. It is also called inventory
  method. Under this method, the gross value of output from different sectors are obtained for the entire economy during a year. The value obtained is actually the GNP at market prices.
• In this method Double counting should be carefully avoided.

Income Method:
This method approaches national income from the distribution side. Under this method, national income is calculated by adding up all the incomes generated in the course of producing national product.
Y = W + r + i + π + (R-P)
W – wages  r – rent
i – interest  π – profit
R- P – net factor income from abroad.
The Expenditure Method:
In this method, the total expenditure incurred by the society in a particular year is added together. To calculate the expenditure of a society, it includes personal consumption expenditure (c) net domestic investment (I), government expenditure on consumption (G) as well as capital goods and net export (X-M)
GNP = C+I+G+(X-M)
If the above methods are done correctly, the following equation must hold
Output = Income = Expenditure

Question 37.
What are the difficulties involved in the measurement of national income?
Answer:
In India because of various problems posed, a valuation of output is very difficult.

Transfer payments:
The government expenditure like pensions, unemployment allowance, subsidies etc are not included in the national income, Because they are paid without adding anything to the production process. Interest on national debt is also considered as transfer payment

Difficulties in assessing depreciation allowance :
It requires high degree of judgment to assess the depreciation allowance and other charges. Deduction of these from national income is not an easy task.

Unpaid services:
The service of housewife are not included in National income whereas the similar service performed by paid servants are included. Similarly there are number of goods and services which are difficult to be assessed in money terms are not included.

Income from illegal activities :
Income earned through illegal activities are not included in national income.

Production for self-consumption and changing price :
Farmers keep a large portion of their produce for self-consumption. The problem is whether they can be included in national income or not. National income by-product method is measured by the value of final goods and services at current market prices. But prices do not remain stable. To solve this constant price level is considered.

Capital Gains:
Capital gains arise when a capital asset is sold at higher price than was paid for it at the time of purchase, capital gains are excluded from national income.

Statistical problems:
Statistical data may not be perfectly reliable, when they are compiled from numerous sources, skill and efficiency of the statistical staff and cooperation of people at large are also equally important in estimating national income.

Question 38.
Discuss the importance of social accounting in economic analysis.
Answer:
National Income and Social Accounting:

1. National income is also being measured by the social accounting method.
2. Under this method, the transactions among various sectors such as firms, households, government, etc., are recorded and their interrelationships traced.
3. The social accounting framework is useful for economists as well as policy makers, because it represents the major economic flows and statistical relationships among various sectors of the economic system.
4. It becomes possible to forecast the trends of economy more accurately.

Social Accounting and Sector:

1. Under this method, the economy is divided into several sectors.
2. A sector is a group of individuals or institutions having common interrelated economic transactions.
3. The economy is divided into the following sectors:
   1. Firms
   2. Households
   3. Government
   4. Rest of the world and
   5. Capital sector.
4. “Firms” undertake productive activities. Thus, they are all organizations which employ the factors of production to produce goods and services.
5. “Households” are consuming entities and represent the factors of production, who receive payment for services rendered by them to firms. Households consume the goods and services that are produced by the firms.
6. “The Government sector” refers to the economic transactions of public bodies at all levels, centre, state and local.
7. The main function of the government is to provide social goods like defence, public health, education, etc.
8. “Rest of the world sector” relates to international economic transactions of the country. It contains income, export and import transactions, external loan transaction, and allied overseas investment income and payments.
9. “Capital sector” refers to saving and investment activities. It includes the transactions of banks, insurance corporations, financial houses, and other agencies of the money market.

12th Economics Guide National Income Additional Important Questions and Answers

I. Match the following

Question 1.
A) Noble laureate – 1. Banking
B) Primary sector – 2. Simon kuznet
C) Secondary sector – 3. Agriculture
D) Tertiary sector – 4. Industry

Answer:
d) 2 3 4 1

Question 2.
A) PQLI – 1. C + I + G + (X-M)
B) GNP_MP – 2. GNP- depreciation allowance
C) NNP – 3. Economic welfare
D) GNP – 4. C + I + G + (X – M) + (R – P)

Answer:
b) 3 4 2 1

Question 3.
A) Disposable Income – 1. \(\text { 1. } \frac{\text { Nominal GDP }}{\text { Real GDP }} \times 100\)
B) Per capita Income – 2. GDP – Depreciation
c) GDP deflator – 3. Personal income – Direct Tax
D) NDP –  \(\text { 4. } \frac{\text { National Income }}{\text { Population }}\)
Answer:
a) 3 4 1 2

II. Choose the correct pair

Question 1.
a) Disposable income – Consumption + saving
b) Per capita income – \(\frac{\text { National Income }}{\text { Disposable Income }}\)
c) Capital gains – Included in National Income
d) National income – Four methods
Answer:
a) Disposable income – Consumption + saving

Question 2.
a) Expenditure method – Value method
b) Income method – Output method
c) Product method – Factor Earning Method
d) Inputs – Factors of production
Answer :
d) Inputs – Factors of production

Question 3.
a)Transfer payment – Purchase of shares
b) Double counting – Value added method
c) National income – Y = w+r+i+(R-P)
d) Value of output – Cost x Quantity sold
Answer :
b) Double counting – Value added method

III. Choose the incorrect pair

Question 1.
a)Labour income – wages and salaries
b) Capital income – profit, dividend
c) National income – domestic factor income + gross factor income
d) Mixed income – farming, sole proprietorship
Answer:
c) National income – domestic factor income + gross factor income

Question 2.
a) w – wages
b) π – loss
c) r – rent
d) i – interest
Answer :
b) π – loss

Question 3.
a) C – Private consumption expenditure
b) I – Private Investment Expenditure
c) G – Government expenditure.
d) X-M – Net import
Answer:
d) X-M – Net import

Choose the best answer

Question 1.
Personal Income is
a) National Income – Direct taxes
b) National Income – Indirect taxes
c) National Income – (Social security “contribution and undistributed corporate profits) +Transfer payments
d) National Income – Net Income from abroad
Answer:
c) National Income – (Social security contribution and undistributed corporate profits) +Transfer payments

Question 2.
Real income is
a) National Income at current price + P1 /PO
b) National Income at the current price – P1/PO
c) National Income at current price x P1 /PO
d) National Income at current price ÷ P1/P0
Answer :
d) National Income at current price ÷ P1/P0

Question 3.
National income by income method is
a) Y = w + r + i + π + (R – P)
b) Y = w + r + i + π – (R – P)
c) Y = w + r + i + π + (R + P)
d) Y = w + r + π – i – (R – P)
Answer:
a)Y = w + r + i + π + (R-P)

Question 4.
………………………. is of great importance for the economy of a country?
(a) Personal Income
(b) National Income
(c) Industry Income
(d) Village Income
Answer:
(b) National Income

Question 5.
Transfer payments are
a) Pensions, unemployment allowance, and subsidies given by Government.
b) Pension, unemployment allowance, and subsidies given by private.
c) Pension, unemployment allowance, and subsidies given by N. G. O. S.
d) None of the above.
Answer:
a) Pensions, unemployment allowance, and subsidies given by Government.

Question 6.
Percapita income is
a) National income – Population
b) National income – Real income
c) National income – Population
d) National income – Disposable income .
Answer :
c) National income – Population

Question 7.
The Economy is divided into the ………………….. sectors?
(a) two
(b) three
(c) four
(d) five
Answer:
(d) five

v

Question 8.
Which method of calculating National income is called as Factor Earning Method?
a) Product method
b) Expenditure method
c) Income method
d) Inventory method
Answer:
c) Income method

Question 9.
NDP is
a) GNP – Depreciation
b) GNP – Taxes
c) GDP – Depreciation
d)GDP -NNP
Answer:
c) GDP – Depreciation

Question 10.
While assessing sectoral contribution to GDP, the economy is Sectors?
(a) two
(b) three
(c) four
(d) five
Answer:
(b) three

V. Choose the correct statement

Question 1.
a) J.M.Keynes introduced the concept of national income.
b) GDP is the total market value of final goods and services produced within the country during a year.
c) NDPis the value of net exports of the economy during the year.
d) Net National product refers to the value of the net imports of the economy during the year.
Answer:
b) GDP is the total market value of final goods and services produced within the country during a year.

Question 2.
a) Disposable Income is the amount available for households for investment.
b) The average income of a person of a country in a particular year is called National Income.
c) Real income is the buying power of nominal income.
d) Entire disposable income is spent on consumption.
Answer:
c) Real income is the buying power of nominal income.

Question 3.
a) There are three methods that are used to measure National Income.
b) Factor incomes are grouped as labour income, capital income, and national income.
c) Double counting is avoided under the Income method.
d) Capital sector relates to international economic transactions of the country.
Answer:
a) There are three methods that are used to measure National Income.

IV. Choose the incorrect statement

Question 1.
a) National income denotes the country’s purchasing power.
b) Product method measures the output of the country.
c) Double counting is avoided under the value-added method.
d) Income method is also called as inventory method.
Answer:
d) Income method is also called as inventory method.

Question 2.
a) Transfer payments are to be included in the estimation of national income.
b) Expenditure on intermediate goods is to be excluded from national income.
c) Interest on the national debt is considered as transfer payments.
d) PQLI includes standard of living, life expectancy at birth, and literacy.
Answer:
a) Transfer payments are to be included in the estimation of national income.

Question 3.
a) The Government sector refers to the economic transactions of public bodies at all levels.
b) Households undertake productive activities.
c) Rest of the world sector relates to the international economic transaction of the country.
d) Capital sector refers to saving and investment activities.
Answer:
b) Households undertake productive activities.

VII. Pick the odd one out:

Question 1.
a) Product method
b) Income method
c) Investment method
d) Expenditure method
Answer:
c) Investment method

Question 2.
a) Transfer payments
b) Social Accounting
c) Unpaid services
d) Capital gains
Answer:
a) Transfer payments

Question 3.
a) Factor income
b) Labour income
c) Capital income
d) Mixed income
Answer:
a) Factor income

VIII. Analyse the reason

Question 1.
Assertion (A): National income estimates are not very accurate in our country.
Reason (R): Proper valuation of output is very difficult because of the existence of a largely unorganised and non-monetized subsistence sector.
a) Both A and R are true and R is the correct explanation of A.
b) Both A and R are true but R is not the correct explanation of A.
c) Both A and R are false.
d) A is true but R is false
Answer:
a) Both A and R are true and R is the correct explanation of A.

Question 2.
Assertion (A): The income method approaches national income from the distribution side.
Reason(R): In this method, national income is calculated by adding up all the incomes generated in the course of producing the national products.
a) Both A and R are true and R is the correct explanation of A
b) Both A and R are true but R is not the correct explanation of A
c) A is true but R is false
d) A is false but R is true
Answer:
b) Both A and R are true but R is not the correct explanation of A

IX. Answer the following questions (2 Marks)

Question 1.
Write the Factor Incomes group?
Answer:
Factor incomes are grouped under labour income, capital income, and mixed-income.

1. Labour income – Wages and salaries, fringe benefits, employer’s contribution to social security.
2. Capital income – Profit, interest, dividend, and royalty.
3. Mixed-income – Farming, sole proprietorship, and other professions.

Question 2.
Name some of the concepts used in measuring national income.
Answer:

1. Gross Domestic Product (GDP)
2. Gross National Product (GNP)
3. Net National Product (NNP)
4. Personal Income
5. Per Capita Income

Question 3.
Define “Capital Gains”?
Answer:
The problem also arises with regard to capital gains. Capital gains arise when a capital asset such as a house, other property, stocks or shares, etc. is sold at a higher price than was paid for it at the time of purchase. Capital gains are excluded from national income.

Question 4.
What is per capita Income?
Answer:
The average income of a person of a country is a particular year is called per capita income.
per capita Income = \(\frac{\text { National Income }}{\text { Population }}\)

Question 5.
Define “National Income & Erosion of National Wealth”?
Answer:
For achieving higher GDP, larger natural resources are being depleted or damaged. This means a reduction of potential for future growth. Hence, it is suggested that while assessing national income, loss of natural resources should be subtracted from national income.

Question 6.
What are transfer payments?
Answer:

• Transfer payments are payments of the Government that are paid without adding anything to the production processes.
• Eg: Unemployment allowances, subsidies

Question 7.
What is Market Price?
Answer:
The Market Price is the price that consumers will pay for the product when they purchase it from the sellers.
Market Price = Factor Cost – Subsidies

Question 8.
What is meant by income from illegal activities?
Answer:
Illegal activities like gambling, smuggling, etc have value and satisfy the wants of the people but they are not considered as productive.
Income from these illegal activities is not included in National income.

Question 9.
What are capital gains?
Answer:
Capital gains arise when a capital asset such as a house, other property, stocks or shares, etc. is sold at higher price than was paid for it at the time of purchase.

Question 10.
What is meant by PQLI?
Answer:
The Physical Quality of Life Index (PQLI) is considered a better indicator of economic welfare. It includes standard of living, life expectancy at birth, and literacy.

Answer the following questions (3 Marks)

Question 1.
How is Gross National Product measured?
Answer:

• GNP is the total measure of the flow of final goods and services at market value resulting from current production in a country during a year, including net income from abroad.
• GNP = C + I+G + (X-M) + (R-P)
• C – Consumption
• I – Gross Investment G – Government expenditure
• X-M – Net export
• R-P – Net factor income from abroad

Question 2.
Explain the Expenditure Method (Outlay Method) precautions?
Answer:
Precautions:

1. Second-hand goods:
   The expenditure made on second-hand goods should not be included.
2. Purchase of shares and bonds:
   Expenditures on the purchase of old shares and bonds in the secondary market should not be included.
3. Transfer payments:
   Expenditures towards payment incurred by the government like old age pension should not be included.
4. Expenditure on intermediate goods:
   Expenditure on seeds and fertilizers by farmers, cotton, and yam by textile industries are not to be included to avoid double counting. That is only expenditure on final products are to be included.

Question 3.
Write a note National Income in terms of US $?
Answer:

• The national income of a country in money terms describes the economic performance of a country.
• When Indian national Income is expressed in terms of US $, the former looks very low.
• If purchasing power parity (PPP) method is adopted India looks better.

Question 4.
What is a sector? Name its divisions.
Answer:

• A sector is a group of individuals or institutions having common interrelated economic transactions. The economy is divided into the following sectors:
• Firms: The organizations which employ the factors of production to produce goods and services.
• Households: They are consuming entities and represent the factors of production.
• The government sector: It refers to the economic transactions of public bodies at all levels, centre, state and local.
• Rest of the world sector: It relates to international economic transactions of the country.
• Capital sector: It refers to saving and investment activities.

Question 5.
Explain the precautionary measures taken while calculating National income in the expenditure method.
Answer:
Second-hand goods:
The expenditure made on secondhand goods should not be included.

Purchase of shares and bonds:
Expenditures on the purchase of old shares and bonds in the secondary market should not be included.

Transfer payments:
Expenditures towards payment incurred by the government like old-age pensions should not be included.

Expenditure on intermediate goods:
Expenditure on seeds and fertilizers by farmers, cotton, and yarn by textile industries are not to be included to avoid double counting only expenditure on final products are to be included.

Question 6.
Explain the steps involved in the Income method.
Answer:
1. The enterprises are classified into various industrial groups.
2. Factor incomes are grouped under labour income, capital income, and mixed-income.

• Labour Income – Wages and salaries, fringe benefits, employer’s contribution to social security.
• Capital Income – Profit, internet, dividend, and royalty.
• Mixed-Income – Farming, sole proprietorship, and other professions.

3. National income is calculated as domestic factor income plus net factor income from abroad.
In short Y = w + r + i + n + (R-P)
W = Wages,
r – rent,
i = interest,
FI – Profits,
R = Export,
P=Import

XII. Answer the following questions (5 Marks)

Question 1.
How is National income calculated under the product method?
Answer:
The product method measures the output of the country. It is also called the inventory method. Under this method, the gross value of output from different sectors like agriculture, industry, trade and commerce etc., is obtained for the entire economy during a year.

To avoid double-counting, either the value of the final output should be taken into the estimate of GNP or the sum of values added should be taken.
In India, the gross value of the farm output is obtained as follows.

• Total production of 64 agriculture commodities is estimated. The output of each crop is measured by multiplying the area shown by the average yield per hectare.
• The total output of each commodity is valued at market prices.
• The aggregate value of total output of these 64 commodities is taken to measure the gross value of agricultural output.
• The net value of the agricultural output is measured by making deductions for the cost of seed, manures and fertilizers, market charge, repairs and depreciation from the gross value.
• Similarly, the gross values of the output of animal husbandry, forestry, fishery, mining and factory establishments are obtained by multiplying their estimates of total production with market prices.

Net value of the output in these sectors is derived by making deductions for cost of materials used in the process of production and depreciation allowances, etc., from gross value of output.

Question 2.
Explain the basic concepts of measuring National income.
Answer:
The following are some of the concepts used in measuring national income.
1. Gross Domestic Product (GDP)
GDP is the total market value of final goods and services produced within the country during a year.
GDP = C + 1 + G + (X-M)

2. Net Domestic Product (NDP)
NDP is the value of net output of the economy during the year.
NDP = GDP – Depreciation

3. Gross National Product (GNP)
GNP is the total measure of the flow of final goods and services at market value resulting from current production in a country during a year, including net income from abroad.
GNP = C+I+G+(X-M)+(R-P)

4. Net National Product (NNP)
NNP refers to the value of the net output of the economy during the year.
NNP = GNP – depreciation allowance

5. Personal Income:
Personal income is the total income received by the individuals of a country from all sources before payment of direct taxes in a year.
Personal Income = National Income – (Social security contribution and undistributed corporate profits) + Transfer Payments

6. Per Capita Income :
The average income of a person of a country in a particular year is called per capita income.
Per Capita income =\(\frac{\text { National Income }}{\text { Population }}\)

Questions 3.
Explain Gross Domestic Product by the sum of Expenditure, Factor Incomes, or Output.
Answer:

Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Business Maths Guide Pdf Chapter 4 Differential Equations Ex 4.2 Text Book Back Questions and Answers, Notes.

Tamilnadu Samacheer Kalvi 12th Business Maths Solutions Chapter 4 Differential Equations Ex 4.2

Question 1.
Solve:
(i) \(\frac { dy }{dx}\) = ae^y
Solution:
\(\frac { dy }{dx}\) = ae^y
\(\frac { dy }{e^y}\) = adx ⇒ e^-y dy = adx
Integrating on both sides
∫e^-y dy = ∫adx
\(\frac { e^y }{(-1)}\) = ax + c
-e^-y = ax + c ⇒ e^-y + ax + c = 0

(ii) \(\frac { 1+x^2 }{1+y}\) = xy \(\frac { dy }{dx}\)
Solution:

Question 2.
y(1 – x) – x \(\frac { dy }{dx}\) = 0
Solution:

Question 3.
(i) ydx – xdy = 0 dy
Solution:
ydx – xdy = 0
ydx = xdy
\(\frac { 1 }{x}\) dx = \(\frac { 1 }{y}\) dy
Integrating on both sides
∫\(\frac { 1 }{x}\)dx = ∫\(\frac { 1 }{y}\)dy
log x = log y + log c
log x = log cy
⇒ x = cy

(ii) \(\frac { dy }{dx}\) + e^x + ye^x = 0
Solution:

Question 4.
Solve : cosx (1 + cosy) dx – siny (1 + sinx) dy = 0
Solution:
cos x (1 + cos y) dx – sin y (1 + sin x) dy = 0
cos x (1 + cos y) dx = sin y (1 + sin x) dy

Question 5.
Solve: (1 – x) dy – (1 + y) dx = 0
Solution:
(1 – x) dy – (1 + y) dx = 0
(1 – x) dy = (1 + y) dx
\(\frac { dy }{(1+y)}\) = \(\frac { dx }{(1-x)}\)
Integrating on both sides

Question 6.
Solve:
(i) \(\frac { dy }{dx}\) = y sin 2x
Solution:

(ii) log(\(\frac { dy }{dx}\)) = ax + by
Solution:

Question 7.
Find the curve whose gradient at any point P (x, y) on it is \(\frac { x-a }{y-b}\) and which passes through the origin.
Solution:
The gradient of the curve at P (x, y)
\(\frac { dy }{dx}\) = \(\frac { x-a }{y-b}\)
(y – b) dy = (x – a) dx
Integrating on both sides
∫(y – b)dy = ∫(x – a)dx
⇒ \(\frac { (y-b)^2 }{2}\) = \(\frac { (x-a)^2 }{2}\) + c
(Multiply each term by 2)
∴ (y – b)² = (x – a)² + 2c ……… (1)
Since the curve passes through the origin (0, 0)
eqn (1) (0 – b)² = (0 – a)² + 2c
b² = a² + 2c
b² – a² = 2c ………. (2)
Substitute eqn (2) in eqn (1)
(y – b)² = (x – a)² + b² – a²

Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Business Maths Guide Pdf Chapter 4 Differential Equations Ex 4.1 Text Book Back Questions and Answers, Notes.

Tamilnadu Samacheer Kalvi 12th Business Maths Solutions Chapter 4 Differential Equations Ex 4.1

Question 1.
Find the order and degree of the following differential equations.
(i) \(\frac { dy }{dx}\) + 2y = x³
Solution:
Highest order derivative is \(\frac { dy }{dx}\)
∴ order = 1
Power of the highest order derivative \(\frac { dy }{dx}\) is 1
∴ degree = 1

(ii) \(\frac { d^3y }{dx^3}\) + 3(\(\frac { dy }{dx}\))³+ 2\(\frac { dy }{dx}\) = 0
Solution:
Highest order derivative is \(\frac { d^3y }{dx^3}\)
∴ order = 3
Power of the highest order derivative \(\frac { d^3y }{dx^3}\) is 1
∴ degree = 1

(iii) \(\frac { d^2y }{dx^2}\) = \(\sqrt{y – \frac { dy }{dx}}\)
Solution:
[ \(\frac { d^2y }{dx^2}\) ]² = y – \(\frac { dy }{dx}\)
Highest order derivative is \(\frac { d^2y }{dx^2}\)
∴ order = 2
Power of the highest order derivative \(\frac { d^2y }{dx^2}\) is 2
∴ degree = 2

(iv) \(\frac { d^3y }{dx^3}\) = 0
Solution:
Highest order derivative is \(\frac { d^3y }{dx^3}\)
∴ order = 3
Power of the highest order derivative \(\frac { d^3y }{dx^3}\) is 1
∴ degree = 1

(v) \(\frac { d^3y }{dx^3}\) + y + [ \(\frac { dy }{dx}\) – \(\frac { d^3y }{dx^3}\) ]^3/2 = 0
Solution:

Highest order derivative is \(\frac { d^3y }{dx^3}\)
∴ order = 3
Power of the highest order derivative \(\frac { d^3y }{dx^3}\) is 3
∴ degree = 3

(vi) (2 – y”)2 = y”² + 2y’
Solution:
(2)² – 2(2) (y”) + (y”)² = (y”)² + 2y’
4 – 4y” = 2y’
Highest order derivative is y”
∴ order = 2
Power of the highest order derivative y” is 2
∴ degree = 2

(vii) (\(\frac { dy }{dx}\))³ + y = x – \(\frac { dx }{dy}\)
Solution:

Highest order derivative is \(\frac { dy }{dx}\)
∴ order = 1
Power of the highest order derivative \(\frac { dy }{dx}\) is 4
∴ degree = 4

Question 2.
Find the differential equation of the following
(i) y = cx + c – c³
(ii) y = c (x – c)²
(iii) xy = c²
(iv) x² + y² = a²
Solution:
(i) y = cx + c – c³ ……. (1)
Here c is a constant which has to be eliminated
Differentiating w.r.t x, \(\frac{d y}{d x}\) = c …… (2)
Using (2) in (1) we get,
\(y=\left(\frac{d y}{d x}\right) x+\frac{d y}{d x}-\left(\frac{d y}{d x}\right)^{3}\) which is the required differential equation.

(ii) y = c (x – c)² ……… (1)
y = c (x² – 2cx + c²)
y = cx² – 2c²x + c³
Differentiating w.r. to x

Substituting this value of c and (x – c) in (1), we get

(iii) xy = c²
Differentiating w.r. to x
x(\(\frac { dy }{dx}\)) + y(1) = 0
∴ x(\(\frac { dy }{dx}\)) + y = 0

(iv) x² + y² = a²
Differentiating w.r. to x

Question 3.
Form the differential equation by eliminating α and ß from (x – α)² + (y – α)² = γ²
Solution:
(x – α)² + (y – α)² = γ² ……… (1)
where α and ß are parameters.
Since equation (1) contains two orbitary constants,
We differentiate it two times w.r.t. x
Differentiating (1) w.r.t. x, we get

Substituting the value of (x – α) and (y – ß) in (5) we get

This is the required differential equation.

Question 4.
Find the differential equation of the family of all straight lines passing through the origin.
Solution:
The general equation for a family of lines passing through the origin is
y = mx ……. (1)
Differentiating w.r.t x,
\(\frac{d y}{d x}\) = m ……. (2)
Using (2) in (1)
y = (\(\frac{d y}{d x}\)) x is the required differential equation

Question 5.
Form the differential equation that represents all parabolas each of which has a latus rectum 4a and whose axes are parallel to the x-axis.
Solution:
The equation of the family of the parabola is
(y – k)² = 4a (x – h) ……. (1)
where h and k are arbitrary constants,
[we have to differentiate the equation twice to eliminate h and k]
Differentiating equation (1) w.r.t. x

Question 6.
Find the differential equation of all circles passing through the origin and having their centers on the y axis, x² + (y – k)² = r²
Solution:
Equation of circle whose centre is (h, k)
(x – h)² + (y – k)² = r²
since the centre is on the y-axis (ie) (0, k) be the centre
(x – 0)² + (y – k)² = r²
x² + (y – k)² = r² ………. (1)
since the circle passing the origin (0, 0)
Eqn (1) becomes
0 + (0 – k)² = r²
k² = r² ⇒ r = k
Eqn (1) ⇒ x² + (y – k)² = k²
x² + y² – 2yk + k² = k²
x² + y² – 2yk = 0
x² + y² = 2yk ……….. (2)
Differentiating w.r.t. x

Question 7.
Find the differential equation of the family of parabola with foci at the origin and axis along the x axis, y² = 4a (x + a)
Solution:
Equation of parabola with foci at the origin and axis along the x-axis is
y² = 4a(x + a) ……… (1)
Differentiate w.r.t. x
2y \(\frac { dy }{dx}\) = 4a (1 + 0)
2y = \(\frac { dy }{dx}\) = 4a ⇒ a = \(\frac { y }{2}\), \(\frac { dy }{dx}\)
Substitute the value of a = \(\frac { y }{2}\) \(\frac { dy }{dx}\) in equ (1)