CBSE Class 12 Macro Economics Revision Notes Chapter 1

Introduction to NCERT Class 12 Macroeconomics Chapter 1

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Class 12 Macroeconomics Chapter 1

The CBSE Class 12 Macroeconomics is a branch of the economics Syllabus that deals with the decision making, behaviour and performance of the economy as a whole. Students can refer to Class 12 Macroeconomics Chapter 1 Notes on the Extramarks website for a Chapter-wise in-depth understanding of the critical topics. The subject is complex, but the Notes were prepared by the expert faculty of Extramarks, who have made the concepts simple and straightforward. 

The Syllabus has been described in the form of questions and answers that helps you revise the complete Syllabus efficiently. An economics graduate will have some specific and extensively sought-after skills, as the employment prospects are seemingly good. Many professionals employed in banking and accountancy have a degree in economics. Economics graduates have some of the most exciting career paths: financial risk analyst, data analyst, financial planner, economic researcher, investment analyst, and financial consultant. 

Key Topics Covered in Class 12 Macroeconomics Chapter 1 Notes 

Introduction to Macroeconomics

The term ‘Macro’ means “large” and is derived from the Greek word ‘Makro’. Macroeconomics deals with the description and explanation of economic processes involving aggregates. Macroeconomics is the segment of economic theory that considers the economy as a whole, such as aggregate consumption, national income, general price level, aggregate employment and aggregate investment. It looks into principles, issues, and policies associated with obtaining full employment and enlarging production capacity.

Economic units or economic agents are individuals or institutions making financial decisions like manufacturers or service providers, who choose what and how much to produce and entities such as the banks, government and corporations drive economic decisions such as spending, the interest rate charged on credit, tax price and so on.

The foundation for macroeconomic analysis is laid by four principal sectors of the economy that oversee four expenditures on the gross domestic product (GDP), which is given in detail in Class 12 Macroeconomics Chapter 1 Notes.

Economic Agents

A macroeconomic analysis regards all the factors of an economy as a whole. Therefore, firms and consumers are considered individual units. The central bank and governments are regarded as agents. 

Economic agents indicate to people, legal entities or organisations that play an active role in a financial process and have a financial consequence on capital markets. Economic agents conduct the economic interactions in an economy in the form of the exchange of goods, services and money. The choices individuals, firms and nations make to achieve their goals from available scarce resources are explained in detail in Class 12 Macroeconomics Chapter 1 Notes. 

They interconnect with each other in the form of economic incentives like marginal benefit equals the marginal cost. According to standard economic theory, the primary attributes of an agent are rationality and self-interest. 

Economic units or economic agents are individuals or institutions making financial decisions. 

• They can be consumers who decide what and how much to consume. 
• Service providers or manufacturers decide what to produce, how much to produce and when to make it. 
• Entities such as the government, banks or corporations make economic decisions such as what interest rate to charge, how much to spend, tax rate and credit.

There are three main groups of agents within the economy:

• Producers.
• Consumers.
• Government.

Great Depression

The Great Depression is broadly considered the worst and most lengthy economic downturn or recession in modern history. It began in the United States and went on to have a cascading effect on the world economies.

The Great Depression is mentioned to have begun in the October 1929 stock market crash in the United States. To be precise, the stock market collapsed on October 24, 1929, which is popularly known as Black Thursday in American history. The stock market crash created fear among Wall Street investors, generating the stock market to lose almost billions of dollars. This resulted in the failure of banks, which are the primary financial institutions.

The depression was generated by an excess of food grains in the market, which resulted in a fall in agricultural supply value. During the war, the United States, Canada, and Australia began cultivating wheat. Stocks of finished goods began to pile up because of under usage and extreme investment, resulting in low prices and low-profit margins. You can read more about the impact of the great depression in Class 12 Macroeconomics Chapter 1 Notes.

The Great Depression resulted in a drastic fall in employment and income levels. The consumer’s demand for goods was so short that production was lessened, resulting in unemployment. The unemployment rate rose from 3% to 25%. The Great Depression has its own set of conclusions and importance, and this phenomenon supplied economists with enough authentication to recognise Macroeconomics as a distinct field of economics. 

Capitalist Country or Economy

In the words of Ralph Waldo Emerson – “Doing well is the result of doing good. That’s what capitalism is all about.” In a capitalist country, capitalist enterprises execute most of the production activity. There are one or more entrepreneurs in a typical capitalist enterprise. They might supply the capital required to run the enterprise themselves or hire it. In a capitalist economy, the means of production are privately owned and fundamentally governed by the price mechanism, with no interference from the government.

The government’s role is wholly to maintain law and order. Profit is the prime motive behind the capitalist means of production. The capitalist economic pattern is also known as a ‘Free-market Economy’ or ‘laissez-faire’. 

Countries with capitalist economies consist of Hong Kong, the United Arab Emirates, Ireland, Singapore, Canada, and others. The Class 12 Macroeconomics Chapter 1 Notes describe the role of the capitalist economy in great detail.

Important Characteristics of the Capitalist Economy:

• No government interference
• Profit motive
• Private property
• Freedom of ownership
• Flexibility in labour markets
• Consumer sovereignty
• Freedom of enterprise
• Price mechanism

Revenue

By multiplying the average sales price, that is, the sum of money earned from normal business operations, the revenue is calculated by the number of units sold. 

Investment Expenditure

Investment expenditure is explained as any expense for the development of new capital assets such as machinery and buildings. The costs can be incurred by an individual, a business, or the government.

Wage Rate

The amount charged for the sale and purchase of labour services is known as the wage rate.

Wage Labour

The labour that is sold or purchased in exchange for a wage rate is wage labour.

Entrepreneurs

An individual or group of individuals who take the risk of starting their own business based on an idea or a product they created is known as an entrepreneur. The risk is huge, but so are the gains. 

Main Objectives of Macro-Economic Policies

The statutory or government bodies such as the Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), and other similar organisations have implemented macroeconomic policies. The main objectives of macroeconomic policies are elaborated in Class 12 Macroeconomics Chapter 1 Notes:

• External balance
• Sustainability
• Social objectives
• Price stability
• Full employment

The economy is categorised into four major sectors from a macroeconomic point of view:

• The Household Sector
• The Business Sector or firms
• The Government Sector 
• The Foreign Sector

These four aggregate macroeconomic sectors serve as the framework and base for macroeconomic study. These four functions control four expenditures on Gross Domestic Product (GDP).

Household Sector:

This sector includes a single or group of people like consumers, individuals, and every member of society who makes independent decisions about their consumption and production.

This sector includes consumers, individuals, families and every person in society. The household sector procures products and services for consumption while also contributing to producing inputs such as labour, land, capital, and entrepreneurs. This sector inspects the consumption expenditures component of GDP. 

A household is described as a single or group of people who make independent decisions about their economic activities, like consumption and production. 

Firms: 

This consists of sole proprietorships, partnerships, and corporations. People in the household sector make a living by working in firms that profitably produce goods and services.

People in the household sector are employed in firms and make a livelihood. Firms are economic units that manufacture goods and services. They utilise and coordinate production factors and carry out production processes with the aim of profit. 

This comprises partnerships, sole proprietorships, and corporations. This sector supervises the GDP’s investment expenditure.

Government Sector: 

A government’s primary goal is to levy taxes to fund development projects such as roads, large industries and dams. Also, maintain law and order, nurture growth and stability, and administer government services. 

A government maintains law and order, fosters growth and stability, and regulates government services. This sector is directing the government’s purchase involvement in GDP. A government’s principal goal is to levy taxes to fund expansion projects such as roads, dams, and large industries, which typically have extensive gestation periods. 

The government also finances the education and health sectors and provides low-cost services. Examples: the department of transportation and the environmental protection agency.

Foreign/ External Sector: 

The foreign sector monitors the export and import of products and services. Export happens when domestically manufactured goods and services are sold to other countries. Import is when goods and services are purchased from other countries.

Apart from the export and import of goods, there can be an inflow of goods in the form of welcoming capital from other countries and an outflow in the form of investing in foreign countries. The foreign sector’s expenditure on GDP is net exports (exports minus imports)

Class 12 Macroeconomics Chapter 1 Notes: Chapter Summary

Macroeconomics concentrates on the performance of economies – inflation, poverty reduction, changes in economic output, the balance of payments, interest and foreign exchange rates, social equity, and sustainable growth. A sound economy can establish strong monetary and fiscal policies.

Class 12 Macroeconomics Chapter 1 Notes: Exercises and  Solutions.

The Extramarks website presents the new and updated Class 12 Macroeconomics Chapter 1 Notes as per the NCERT regulations. The Extramarks also cater for the Syllabus of all other subjects of the Class 12 Board Examination. Students can clear their doubts by clicking on the links to prepare for the upcoming economics Board Examinations.

A list of detailed solutions for all the questions is listed below:

• Very Short Answer Type Questions and Solutions- 5 Questions
• Short Answer Type Questions and Solutions- 7 Questions
• Long Answer Type Questions and Solutions- 6 Questions

This was all about Class 12 Macroeconomics Chapter 1 Notes. Go through the Extramarks website to learn more about the subject, where you can access all the content by registering on the website. 

NCERT Exemplar Class 12 Macroeconomics

NCERT Exemplar Class 12 Macroeconomics Chapter 1 are provided here to assist the students in their final Examination preparation. These exemplar questions are a little more complex, but they cover a variety of concepts from each Chapter of Class 12 Macroeconomics Chapter 1 Notes.