12th-Economics_EM_06-02-2020.pdf - GOVERNMENT OF TAMIL NADU HIGHER SECONDARY SECOND YEAR ECONOMICS A publication under Free Textbook Programme of

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Unformatted text preview: GOVERNMENT OF TAMIL NADU HIGHER SECONDARY SECOND YEAR ECONOMICS A publication under Free Textbook Programme of Government of Tamil Nadu Department of School Education Untouchability is Inhuman and a Crime 12th_Economics_First 6 pages_Folder.indd 1 06-02-2020 17:36:54 Government of Tamil Nadu First Edition – 2019 Revised Edition – 2020 Published under New Syllabus NOT FOR SALE The wise possess all SCERT 2019 II 12th_Economics_First 6 pages_Folder.indd 2 06-02-2020 17:36:55 HOW TO USE THE BOOK Chapter content Introduction It presents a complete overview of the chapter Summary of the presentation in every chapter Objectives Goals to transform the class room processes into learner centric with a list of bench marks Think and Do Amazing facts and rhetorical questions to lead students to economic inquiries Boxes Activity Additional inputs to the content is provided Directions are provided to students to conduct activities in order to explore and enrich the concept. To motivate the students to further explore and enrich the concept ICT The use of ICT for improving the teaching – learning skills is given Schedules Give the values derived from functions which are graphed in the diagrams Concept Diagrams Conceptual diagrams that depict relationships between concepts to enable students to learn the content schematically. Figures Glossary Model Question Papers References Web links To illustrate the situations. Explanation of scientific terms Evaluation List of related books for further details of the topic List of digital resources III 12th_Economics_First 6 pages_Folder.indd 3 06-02-2020 17:36:55 IV 12th_Economics_First 6 pages_Folder.indd 4 06-02-2020 17:36:57 Symbiosis School of Economics Indian Statistical Institute, Kolkata Bangalore Presidency College, Kolkata University of Hyderabad IIT Madras Banaras Hindu University For world recognised institution in the field of economics, everybody wishes to join London School of Economics IGIDR-Mumbai www. isical.ac.in BITS –Pilani Madras School of Economics IIT Kanpur Centre for Development Studies Thiruvananthapuram Gokhale Institute of Economics & Politics, Pune www. ravenshawuniversity.ac.in Ravenshaw University, Cuttack University of Bombay University of Agriculture Science St. Stephen College, Delhi University of Delhi, South Campus Jawaharlal Nehru University, Delhi Sri Ram College of Commerce Delhi School of Economics There are many institutes, colleges and universities that have economics in its BA, MA and Ph.D. level courses. Here are the lists of institutions offering economics. One can easily see other information related with the respective universities/colleges/institutes with their given website. FAMOUS UNIVERSITIES AND COLLEGES OFFERING ECONOMICS One makes a successful career as a Corporate Lawyer after BA in economics followed by LLB. BA in economics and MBA placed one at a better position in the private sector. Economic Journalism is another shining area for job perspective. The career prospects for economics graduates are many. Numerous fields are waiting for economic graduates both in public as well as private sectors. In the government sector, one may try for Indian Economic Services, jobs in Reserve Bank of India, PSUs and other public sector banks. All these jobs have wonderful career options. These jobs give social prestige along with financial stability. Private sector also offers jobs for economic graduates in the fields like private banks, MNCs, BPOs, KPOs, Business journals and newspapers. A good opportunity is also waiting for economic students in higher education. One can pursue Ph.D. in economics to enter into the field of teaching in schools, colleges and universities and research in hundreds of Research Institutes and funding agencies – national & international. CAREER PROSPECTS IN ECONOMICS CAREER GUIDANCE V 12th_Economics_First 6 pages_Folder.indd 5 06-02-2020 17:36:57 Government and Public Sector Claims Examiner Foreign Trade analyst Tax Auditor Public Administrator Legislative Assistant Regional/Urban Planner Financial Planner Banking and Finance Commodities Broker Bank Management Trainee Financial Analyst Economic Forecaster Investment Banker Loan Counsellor Securities Analyst Information Analyst Educational Television Advisor Higher Education, Administration Teacher Journalist/Columnist Technical Writer Professor Education and Communications CAREERS FOR AN ECONOMIST Business Administrator Strategic Planner Management Consultant Insurance Underwriting Trainee Staff Training and Development Specialist Retail Buyer Market Research Analyst Business Other than Government Sectors Job opportunities are also waiting in the private sectors, NGOs and International Aid Agencies. The firms like World Bank, Asian Development Bank, IMF, and other Development Banks, Aid agencies, Financial Consultancy firms are hiring the economic graduates for their various positions. One can assume in these organisations as economist, economic advisor, executive, analyst, consultant, researcher, financial analyst, business analyst, economic research analyst and stock market analyst. As far as salary is concerned, lots of candidates are hired through campus placement. The average salary is Rs. 4 to 8 lakh per annum. But for the deserving candidates, the field opens plethora of options and remuneration is also beyond expectation. The filed like accountancy, actuarial, banking, insurance also open many jobs opportunities. Economics Employment Opportunities The various fields are offering better job opportunity after passing BA or MA in economics. Some of the high demand sectors are given below where job prospects are huge. • Indian Civil Services • Indian Economic Services • Reserve Bank of India • National Sample Survey • Ministry of Economic Affairs • Planning Board • Planning Commission (State & Central) • National Council for Applied Economic Research and • National Institute of Public Finance and Policy. Jobs in Economics Field An array of employment opportunities is available in economics field. Meritorious candidates can get excellent job opportunities after successfully completing their BA or MA in economics. Government Sectors Economics graduates can get prestigious jobs in the government sectors like Table of Contents ECONOMICS Chapters Content Page No Month 1 June Chapter 1 Introduction to Macro Economics Chapter 2 National Income 19 June Chapter 3 Theories of Employment and Income 37 June Chapter 4 Consumption and Investment Functions 52 July Chapter 5 Monetary Economics 76 July 95 August First Mid-Term 1 to 5 Chapters Chapter 6 Banking Chapter 7 International Economics 125 August Chapter 8 International Economic Organisations 154 September Quarterly 1 to 8 Chapters Chapter 9 Fiscal Economics 176 October Chapter 10 Environmental Economics 212 October Chapter 11 Economics of Development and Planning 237 November Second Mid-Term 9 to 11 Chapters Chapter 12 Introduction to Statistical Methods and Econometrics E - book Assessment 257 November DIGI links Lets use the QR code in the text books ! How ? • Download the QR code scanner from the Google PlayStore/ Apple App Store into your smartphone • Open the QR code scanner application • Once the scanner button in the application is clicked, camera opens and then bring it closer to the QR code in the text book. • Once the camera detects the QR code, a url appears in the screen.Click the url and goto the content page. VI 12th_Economics_First 6 pages_Folder.indd 6 06-02-2020 17:36:58 CHAPTER 1 Introduction to Macro Economics “Macro economics is very much about tying together facts and theories”. - Dorn Busch, Fischer and Startz Learning Objectives 1 2 To enlighten the evolution, importance and basic concepts of macroeconomics, and To understand the functioning of an economy. 1.1 the words ‘micro’ meaning small and ‘macro’ meaning large in the year 1933. However, macroeconomics in its modern form, began with John Maynard Keynes and his book “The General Theory of Employment, Interest and Money” published in 1936. Keynes offered an explanation for fallout from the Great Depression, when goods remained unsold and workers unemployed. Hence, Keynes is regarded as the ‘Father of Modern Macro Economics’. Introduction The subject Economics is classified into two branches, namely, Micro Economics and Macro Economics. Ragnar Frisch, a Norwegian economist and the co-recipient of the first Nobel Prize in Economic Sciences coined 1.2 Meaning of Macro Economics The word ‘Macro’ is derived from the Greek word ‘Makros’ meaning ‘large’. Hence, Macro Economics is the study of J.M.Keynes Father of Modern Macro Economics 1 12-Economics-Chapter_1.indd 1 Introduction to Macro Economics 05-02-2020 11:42:22 1.3 the economy as a whole. In other words, macro economics deals with aggregates such as national income, employment and output. Macro Economics is also known as ‘Income Theory’. T  here is a need to understand the functioning of the economy at the aggregate level to evolve suitable strategies and to solve the basic problems prevailing in an economy. Study of the Economy as a Whole Inflation Study of economy-wide phenomena em pl oy m en t al n o e ti Na com In Includes National, Regional & Global Economics Th Pi e B ct ig ur e Na O tion ut pu al t MACROECONOMICS Un  Understanding the future problems, needs and challenges of an economy as a whole is important to evolve precautionary measures.  Macro economics provides ample opportunities to use scientific investigation to understand the reality.  Macro economics helps to make meaningful comparison and analysis of economic indicators.  Macro economics helps for better prediction about future and to formulate suitable policies to avoid economic crises. Contrasts with Microeconomics The subject matters covered in Macro Economics are the areas such as employment, national income, inflation, business cycle, poverty, inequality, disparity, investment and saving, capital formation, infrastructure development, international trade, balance of trade and balance of payments, exchange rate and economic growth. 1.4 Scope of Macro Economics The study of macro economics has wide scope and it covers the major areas as follows National Income: Measurement of national income and its composition by sectors are the basic aspects of macroeconomic analysis. The trends in National Income and its composition provide a long term understanding of the growth process of an economy.  Importance of Macro Economics The importance and the need for introducing a macro outlook of an economy are given below: Introduction to Macro Economics 12-Economics-Chapter_1.indd 2 Inflation: Inflation refers to steady increase in general price level. 2 05-02-2020 11:42:22 Estimating the general price level by constructing various price index numbers such as Wholesale Price Index, Consumer Price Index, etc, are needed. 1.  There is a danger of excessive generalisation of the economy as a whole. 2.  It assumes homogeneity among the individual units. Business Cycle: Almost all economies face the problem of business fluctuations and business cycle. The cyclical movements (boom, recession, depression and recovery) in the economy need to be carefully studied based on aggregate economic variables. 3. There is a fallacy of composition. What is good of an individual need not be good for nation and viceversa. And, what is good for a country is not good for another country and at another time. 4.  Many non - economic factors determine economic activities; but they do not find place in the usual macroeconomic books. Poverty and Unemployment: The major problems of most resource - rich nations are poverty and unemployment. This is one of the economic paradoxes. A clear understanding about the magnitude of poverty and unemployment facilitates allocation of resources and initiating corrective measures. 1.6 Economy and its Types The term economy has been defined by A. J. Brown as, “A system by which people earn their living.” J. R. Hicks defined as, “An economy is a cooperation of producers and workers to make goods and services that satisfy the wants of the consumers.” E conomic Growth: The growth and development of an economy and the factors determining them could be understood only through macro analysis. E conomic Policies: Macro Economics is significant for evolving suitable economic policies. Economic policies are necessary to solve the basic problems, to overcome the obstacles and to achieve growth. In short, an economy is referred to any system or area where economic activities are carried out. Each economy has its own character. Accordingly, the functions or activities also vary. The functioning of an economy by its activities is explained in flow chart 1. 1.5 Limitations Macro economics suffers from certain limitations. They are: 3 12-Economics-Chapter_1.indd 3 Introduction to Macro Economics 05-02-2020 11:42:22 Economies can be classified into different types based on the Flow Chart: 1 Functioning of an Economy Based on Activities 1.  Status of Development: Developed, underdeveloped, undeveloped and developing economies. Growth Production Activity 2.  System of Activities: Capitalistic, Socialistic and Mixed Economies. Consumption Activity 3. S cale of Activities: Small and Large Economies. Exchange Activity 4.  Nature of Functioning: Static and Dynamic Economies. Supporting Economic and NonEconomic Activities of an Economy 5. Nature of Operation: Closed and Open Economies. 6.  Nature of Advancement: Traditional and Modern Economies. External Activities (Activities of other Economies) 7. L evel of National Income: Low Income, Middle Income and High Income Economies. In an economy, the fundamental economic activities are production and consumption. These two activities are supported by several other activities. The ultimate aim of these activities is to achieve growth. The ‘exchange activity’ supports the production and consumption activities. These activities are influenced by several economic and non-economic activities. The major economic activities include transportation, banking, advertising, planning, government policy and others. The major non-economic activities are environment, health, education, entertainment, governance, regulations etc. In addition to these supporting activities, external activities from other economies such as import, export, international relations, emigration, immigration, foreign investment, foreign exchange earnings, etc. also influence the entire functioning of the economy. Introduction to Macro Economics 12-Economics-Chapter_1.indd 4 1.7 Economic Systems Economic System refers to the manner in which individuals and institutions are connected together to carry out economic activities in a particular area. It is the methodology of doing economic activities to meet the needs of the society. There are three major types of economic systems. They are: 1.  Capitalistic Economy (Capitalism), 2.  Socialistic Economy (Socialism)and 3.  Mixed Economy (Mixedism) 4 05-02-2020 11:42:22 The means of production in a capitalistic economy are privately owned. Manufacturers Adam Smith produce goods and services with profit motive. The private individual has the freedom to undertake any occupation and develop any skill. The USA, West Germany, Australia and Japan are the best examples for capitalistic economies. However, they do undertake large social welfare measures to safeguard the downtrodden people from the market forces. Globalism The term coined by Manfred D Steger (2002) to denote the new market ideology of globalisation that connects nations together through international trade and aiming at global development. This ideology is also termed as ‘Extended Capitalism’. Capitalism and socialism are two extreme and opposite approaches. In capitalism, there is total freedom and private ownership of means of production. In socialism, there is no freedom for private and there is public ownership of means of production. Mixedism denotes the Co-existence of capitalism and socialism. The features, merits and demerits of various economic systems are discussed below. Socialism Features of Capitalistic Economy 1. Private Ownership of Property and Law of Inheritance: The basic feature of capitalism is that all resources namely, land, capital, machines, mines etc. are owned by private individuals. The owner has the right to own, keep, sell or use these resources according to his will. The property can be transferred to heirs after death. Capitalism Mi xe d ism 2. Freedom of Choice and Enterprise: Each individual is free to carry out any occupation or trade at any place and produce any commodity. Similarly, consumers are free to buy any commodity as per their choice. 3. Profit Motive: Profit is the driving force behind all economic activities in a capitalistic economy. Each individual and organization produce only those goods which ensure high profit. Advance technology, division of labour, and specialisation are followed. The golden rule for a producer under capitalism is ‘to maximize profit.’ 1.7.1 Capitalistic Economy (Capitalism) Adam Smith is the ‘Father of Capitalism’. Capitalistic economy is also termed as a free economy (Laissez faire, in Latin) or market economy where the role of the government is minimum and market determines the economic activities. 5 12-Economics-Chapter_1.indd 5 Introduction to Macro Economics 05-02-2020 11:42:22 4. Free Competition: There is free competition in both product and factor market. The government or any authority cannot prevent firms from buying or selling in the market. There is competition between buyers and sellers. 5. C onsumers Sovereignty: All production activities are aimed at satisfying the consumers. 6. Higher Rates of Capital Formation: Increase in saving and investment leads to higher rates of capital formation. 7. Development of New Technology: As profit is aimed at, producers invest on new technology and produce quality goods. 5. Price Mechanism: Price mechanism is the heart of any capitalistic economy. All economic activities are regulated through price mechanism i.e, market forces of demand and supply. Demerits of Capitalism 6.  Role of Government: As the price mechanism regulates economic activity, the government has a limited role in a capitalistic economy. The government provides basic services such as, defense, public health, education, etc. 1. C oncentration of Wealth and Income: Capitalism causes concentration of wealth and income in a few hands and thereby increases inequalities of income. 7.  Inequalities of Income: A capitalist society is divided into two classes – ‘haves’ that is those who own property and ‘have-nots’ who do not own property and work for their living. The outcome of this situation is that the rich become richer and poor become poorer. Here, economic inequality goes on increasing. 3. C lass Struggle: Capitalism leads to class struggle as it divides the society into capitalists and workers. 2. Wastage of Resources: Large amount of resources are wasted on competitive advertising and duplication of products. 4. Business Cycle: Free market system leads to frequent violent economic fluctuations and crises. 5.  Production of non essential goods: Even the harmful goods are produced if there is possibility to make profit. Merits of Capitalism 1. Automatic Working: Without any government intervention, the economy works automatically. 1.7.2  Socialistic Economy (Socialism) 2.  Efficient Use of Resources: All resources are put into optimum use. The Father of Socialism is Karl Marx. Socialism refers to a system of total planning, public ownership and state control on economic activities. Socialism is defined as a way of organizing a society in which major industries are owned and controlled by the government, A Socialistic economy is also known 3. Incentives for Hard work: Hard work is encouraged...
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