Short Types Question And Answer

1. What Is Mean By National Income?

National income is the sum total of the value of all the goods and
services manufactured by the residents of the country, in a year., within
its domestic boundaries or outside. It is the net amount of income of the
citizens by production in a year.

2. What Is Called Production Function ?

Production Function is the relationship between physical inputs (land,

labour, capital, etc.) and physical outputs (quantity produced). It is a
technical relationship (not an economic relationship) that studies material
inputs on one hand and material outputs on the other hand. Material
inputs include variable and fixed factors of production. In a standard
equation, the Production function is represented by Q, Labour (Variable
element) is represented by L, and Capital (Fixed element) is represented
by K.
Q = f(L,K)

3. Explain The Concept Of National Income?

National income is the total value of all the final services and goods
produced in an economy during a specific period of time. It includes both
the public and private sectors and encompasses everything from haircuts
to housing, from medical care to national defence. National income is
also commonly referred to as gross domestic product (GDP).
Concept of national income:
National income is the money value of all the final services and goods
produced in an economy during a given period of time. It includes the
incomes of all factors of production, such as rent, wages, profits, and
interest.

The main concepts of national income are:

Gross Domestic Product (GDP): This is the market value of all final
services and goods produced within a country in a given period of time.
The formula of GDP is:
GDP = C + G + I + NX
(where G=government spending, C=consumption, I=Investment, and
NX=net exports).
GNP: This is the market value of all final services and goods produced
by a country’s residents in a given period of time, regardless of where
they are located.
The formula for GNP:
GNP = GDP + NF
(where NF=net factor income from abroad).
–NDP: This is the market value of all final services and goods produced
within a country in a given period of time, minus depreciation.
The formula for NDP: Net Domestic Product
NDP = GDP – Depreciation
– Net National Income (NNI): This is GDP minus depreciation.
Depreciation is the wear and tear on capital equipment and buildings.
The formula for NNI: Net National Income
NNI = GDP – Depreciation
– National Income (NI): This is NNI minus indirect taxes plus subsidies.
Indirect taxes are taxes on the sale of services and goods. Subsidies are
payments made by the government to producers.

National Income Formula:

National income Formula is
Y = C + I + G + (X-M)
where
Y = national income
C = consumption
I = investment
G = government spending
X = exports
M = imports.

National income can be measured in either physical units or currency

units. Physical units are things like tons of steel or the number of cars.
Currency units are things like dollars or euros.
All these concepts are important in the calculation of national income.
National income is a very important concept because it gives us an idea
of how well the economy is doing. It also helps us to compare the
standard of living between different countries.
 National income is usually measured in terms of GDP because it is the
most comprehensive measure of economic activity. However, there are
times when it is more useful to measure national income in terms of GNP.
Conclusion:
In conclusion, national income is a key concept in economics that refers
to the total value of all services and goods produced in a country over a
specific period of time. It is important to understand how national income
is calculated and what factors can affect it in order to make informed
economic decisions.

4. What Do You Understand By Investment Function?

A strategy or concept of economics that helps in identifying the

connection between shifts in the investment patterns of people and other
variable factors affecting investment in an economy is known
as Investment Function.
The expenditure incurred to create new capital assets is known
as Investment. These capital assets include buildings, machinery, raw
material, equipment, etc. The expenditure on these assets results in an
increase in the economy’s productive capacity. The investment
expenditure can be classified under the heads:
• Induced Investment
• Autonomous Investment

5. What Is Called Base Year And Current Year In National Income?

In order to compare the National Income of various years, it is calculated

with reference to a particular year. This reference year is called the Base
Year, the current year refers to the specific year for which economic
data, such as GDP or national income, is being measured. It's the year
during which the economic activity actually takes place. For instance, if
we're calculating the national income for 2024, then 2024 is the current
year.
6. What Is Effective Demand?
Effective demand refers to the willingness and ability of consumers to purchase
goods at different prices. It shows the amount of goods that consumers are
actually buying. In Keynesian economics, effective demand is the point of
equilibrium where aggregate demand equals aggregate supply.

7. What Do You Understand By Agriculture Policy , & When And Why Was It
Made?

Agriculture policy refers to the set of laws and regulations that a government
creates to manage and support the agricultural sector, including aspects like
production, pricing, distribution, and trade. It aims to ensure food security,
support farmers, and promote sustainable agricultural practices.
When and Why: India's first National Agriculture Policy was introduced in
2000 to address challenges like low productivity, income insecurity for farmers,
and to promote sustainable agricultural growth. It aimed to modernize
agriculture, improve infrastructure, and enhance the livelihoods of farmers.

8. Define The Policy To The Industry? ( Industrial Policy )

Industrial Policy is the set of standards and measures set by the Government to
evaluate the progress of the manufacturing sector that ultimately enhances
economic growth and development of the country.
The government takes measures to encourage and improve the competitiveness
and capabilities of various firms.

9. What Do You Understand By New Economical Policy?

The New Economic Policy (NEP) of 1991 in India introduced key economic
reforms aimed at liberalizing the economy, promoting privatization, and
integrating with global markets. It marked a shift from a state-controlled
economy to a market-oriented one to overcome the economic crisis and spur
growth
10. What Are The Difference Between Refers To Factor & Refer To Scale?

Refers to Factor: This involves the inputs used in production, like labor,
machinery, and raw materials. It’s about the resources needed to create goods or
services.
Refer to Scale: This deals with the size of production. It looks at how
increasing the number of products made (scale) affects costs and efficiency,
such as how producing more items can lower the cost per item.
Long Type Question Answer

1. Define Fiscal Policy And Explain Its Instruments ?

Fiscal Policy is the use of government spending and taxation to influence a
nation's economic performance. It is a key tool for managing economic stability
and growth, and is implemented through various measures to achieve
macroeconomic objectives such as controlling inflation, reducing
unemployment, and fostering economic growth.
Instruments of Fiscal Policy:
1. Government Spending:
o Public Expenditure: This includes spending on infrastructure
projects (roads, bridges, schools), public services (healthcare,
education), and social programs (pensions, unemployment
benefits). Increased government spending can stimulate economic
growth by creating jobs, increasing aggregate demand, and
improving public services. Conversely, reduced spending can help
control inflation and decrease national debt.
o Investment in Infrastructure: Investment in infrastructure
projects can boost economic activity by enhancing productivity and
connectivity, leading to long-term economic benefits.
2. Taxation:
o Tax Rates and Structures: Adjustments in tax rates (e.g., income
tax, corporate tax) can influence economic behavior. Lower taxes
can increase disposable income for individuals and reduce costs for
businesses, leading to higher consumption and investment. Higher
taxes can help control inflation and reduce government deficits.
 o Tax Incentives: Governments may offer tax breaks or incentives to
encourage specific activities, such as investment in renewable
energy or research and development. These incentives can drive
economic growth and innovation.
Fiscal Policy Objectives:
• Economic Growth: By adjusting spending and taxation, the government
can stimulate or cool down the economy. Increased spending and lower
taxes can boost growth during a recession, while reduced spending and
higher taxes can help control an overheating economy.
• Inflation Control: Fiscal policy can be used to manage inflation. For
example, reducing government spending or increasing taxes can help cool
down an overheating economy and reduce inflationary pressures.
• Unemployment Reduction: Government spending on public projects
and social programs can create jobs and reduce unemployment. Tax cuts
can also stimulate business investment and hiring.
• Budget Deficit and Debt Management: By altering spending and
taxation, the government can manage budget deficits and public debt
levels. Increased revenue from taxes or reduced spending can help
balance the budget and reduce debt.
Overall, fiscal policy is a critical tool for managing the economy, influencing
economic conditions, and achieving policy goals.

2. What Is A Market And Its Main Characteristics?

Meaning of market: Market may be defined as an arrangement of establishing
effective relationship between buyers and sellers of the commodity.
The essential characteristics of a market are:
1. An Area: In economics, a market does not mean a particular place but the
whole region where sellers and buyers of a product ate spread. Modern
modes of communication and transport have made the market area for a
product very wide.
2. One Commodity: In economics, a market is not related to a place but to a
particular product. Hence, there are separate markets for various
commodities. For example, there are separate markets for clothes, grains,
jewellery, etc.
3. Buyers and Sellers: The presence of buyers and sellers is necessary for the
sale and purchase of a product in the market. In the modem age, the
presence of buyers and sellers is not necessary in the market because they
 can do transactions of goods through letters, telephones, business
representatives, internet, etc.
4. Free Competition: There should be free competition among buyers and sellers
in the market. This competition is in relation to the price determination of a
product among buyers and sellers.
5. One Price: The price of a product is the same in the market because of free
competition among buyers and sellers.

Types of Market Structures

1. Monopolistic competition, also called competitive market, where there is a large

number of firms, each having a small proportion of the market share and slightly
differentiated products.

2. Oligopoly, in which a market is by a small number of firms that together control the
majority of the market share.

3. Duopoly, a special case of an oligopoly with two firms.

4. Monopsony, when there is only one buyer in a market.

5. Oligopsony, a market in which many sellers can be present but meet only a few
buyers.

6. Monopoly, in which there is only one provider of a product or service.

7. Natural monopoly, a monopoly in which economies of scale cause efficiency to

increase continuously with the size of the firm. A firm is a natural monopoly if it is
able to serve the entire market demand at a lower cost than any combination of
two or more smaller, more specialized firms.

8. Perfect competition, a theoretical market structure that features no barriers to

entry, an unlimited number of producers and consumers, and a perfectly elastic
demand curve.

3. Explain Monetary Policy And Its Tools ?

Monetary Policy is nothing but an economic policy which is able to manage the
growth rate and size of the money supply in a given economy. Monetary policy
is one powerful tool that regulates macroeconomy-based variables like
unemployment and inflation. In the following article, we shall learn and
understand about all the major aspects related to the monetary policy in India.
The monetary policy (credit policy) of RBI involves the two instruments given in
the flow chart below:

Quantitative Measures
Quantitative measures refer to those measures that affect the variables, which in
turn affect the overall money supply in the economy.
Instruments of quantitative measures:
1. Bank rate − The rate at which central bank provides loan to commercial
banks is called bank rate. This instrument is a key at the hands of RBI to control
the money supply.
Increase in the bank rate will make the loans more expensive for the
commercial banks; thereby, pressurising the banks to increase the rate of
lending. The public capacity to take credit will gradually fall leading to the fall
in the volume of credit demanded. The reverse happens in case of a decrease in
the bank rate. The increased lending capacity of banks as well as increased
public demand for credit will automatically lead to a rise in the volume of
credit.
2. Varying reserve ratios
The reserve ratio determines the reserve requirements, wherein banks are liable
to maintain reserves with the central bank.
The three main ratios are:
(i) Cash Reserve Ratio (CRR)
It refers to the minimum amount of funds that a commercial bank has to
maintain with the Reserve Bank of India, in the form of deposits. For example,
suppose the total assets of a bank are worth Rs.200 crores and the minimum
cash reserve ratio is 10%. Then the amount that the commercial bank has to
maintain with RBI is Rs.20 crores. If this ratio rises to 20%, then the reserve
with RBI increases to Rs.40 crores. Thus, less money will be left with the
commercial bank for lending. This will eventually lead to considerable decrease
in the money supply. On the contrary, a fall in CRR will lead to an increase in
the money supply.
(ii) Statuary Liquidity Ratio (SLR)
SLR is concerned with maintaining the minimum reserve of assets with RBI,
whereas the cash reserve ratio is concerned with maintaining cash balance
(reserve) with RBI. So, SLR is defined as the minimum percentage of assets to
be maintained in the form of either fixed or liquid assets with RBI. The flow of
credit is reduced by increasing this liquidity ratio and vice-versa. In the previous
example, this can be understood as rise in SLR will restrict the banks to pump
money in the economy, thereby contributing towards decrease in money supply.
The reverse case happens if there is a fall in SLR, as it increases the money
supply in the economy.
3. Open Market Operations (OMO)
Open Market operations refer to the buying and selling of securities in an open
market, in order to affect the money supply in the economy. The selling of
securities by RBI will wipe out the extra cash balance from the economy,
thereby limiting the money supply, whereas in the case of buying securities by
RBI, additional money is pumped into the economy stimulating the money
supply.
Qualtative Measures
The measures that affect the credit qualitatively are
1. Marginal Requirements
The commercial banks’ function to grant loan rests upon the value of security
being mortgaged. So, the banks keep a margin, which is the difference between
the market value of security and the loan value. For example, a commercial
bank grants loan of Rs.80,000 against security of Rs.1,00,000. So, the margin is
calculated as 1,00,000 − 80,000 = 20,000. When the central bank decides to
restrict the flow of money, then the margin requirement of loan is raised and
vice-versa in the case of expansionary credit policy.
2. Selective Credit Control (SCC’s)
An instrument of the monetary policy that affects the flow of credit to particular
sectors positively and negatively is known as selective credit control. The
positive aspect is concerned with the increased flow of credit to the priority
sectors. However, the negative aspect is concerned with the measures to restrict
credit to a particular sector.
3. Moral Suasions
A persuasion technique followed by the central bank to pressurise the
commercial banks to abide by the monetary policy is termed as moral suasion.
This involves meetings, seminars, speeches and discussions, which explains the
present economic scenario and thereby persuading the commercial banks to
adapt the changes needed. In other words, this is an unofficial monetary policy
that exercises the power of talk.

4. What Do You Understand By Equilibrium Consumer Behaviour ?

5. What Is Gdp & GNP , Explain Inn Details?

6. What Is Meant By Elasticity Of Demand. Describe The Factors

Effecting It?

7. What Do You Understand By Utility Ordinal And Quantitative

Understand Satisfaction ?

8. Define Production Function And Describe Its General Characteristics?

9. What Is Monopolistic Competition, Its Types And Objective?

10. What Do You Understand By Returns To Scale And Its Type?

11. What Is Market And Its Feature?

12. Define NDP And NNP?

[Link] Competition Market And Its Objective And Features?