Oswaal Karnataka PUE, Mind Maps, economics, II PUC [ 1 To know about more useful books for class-12 click here Part-A cHAPTER – 1 : Introduction to Economics Introduction to Economics In macroeconomics, we try to get an understanding of the economy as a whole by focusing our attention on measures suchas,total output, employment, etc. In microeconomics, we study the behavior of individual economic agents in the market for different goods and services are determined through the interaction of individuals inthesemarkets. What ot Produce fiMore food fiMore luxury items fiMore agricultural products How to Produce fiWith the help of labour fiWith the help of machinery fiWhich technology to be adopted For Whom to Produce ‘‘What ought to be phenomenon. ‘‘Government should provide basic health care’’ is an example of normative economics. • • ’’ Positive economics focuses on ‘What is’ phenomenon. • • Government provided health care increases public expenditures is anexample ofpositive economics. In simple economy, only two sectors exist, viz. firm sector and household sector. Simple Economy Mar ket Economy Centrally Planned Economy Posit vi e Ec o n omics No mr ative Economics Microeconomics fiHow to distribute equal output to all fiHow everyone gets the benefit of production The Government and central authority plans all the important activities in the economy. The central problems of how much and what to produce are solved through the coordination of economic activities All economic activities are organised through the mark brought about by the price signals. et. • •
2 ] Oswaal Karnataka PUE, Mind Maps, economics, II PUC To know about more useful books for class-12 click here cHAPTER – 2 : Theory of Consumer Behaviour Con ditions of Consumer s' Equil bi r mui Theory of Consumer Behaviour Budget Set Budget Line nI i d ff e er nce Curve Mean ni g Indifference Map D me and Ana yl sis D me an d Meaning Law of demand states that the demand and price of a commodity are inverselyproportionate. O (Demand curve) Demand Utility is a measure of preferences over some set of goods and services. It represents satisfaction experienced by the consumer from a good. The law of diminishing marginal utility is a law of economics stating that as a person increases consumption ofaproduct, there is decline in the marginal utility that perso n derives from consuming each unit. The benefit gained by consuming one . additional unit of product or service fi Marginal utility of last rupee spent on each commodity is same. fi Marginal utility falls as consumption increases. rice P fi Convex to origin Downward sloping fi Good 2 Good 1 O The graph representation of two or more indifference curves showing the several combinations of different quantities of commodities, whichconsumer consume . s O Good 2 Good 1 IC1 IC2 IC3 Quantities of a commodity or a service that people are willing and able to buy rices at various p . Factors Affecting e =0,e.g., emand for rare medicine. d d e = , oes exits in real life. d fi d e < , e.g., d gasoline, salt , food, etc. 1 e = here is no perfect example of d ,t it. Close example is lothing. c 1 e < , e.g., d furniture, motor vehicles, etc. 1 MRS = xy MUx MUy Px Py = Indifference curve should be convex to origin. ff ff O O Price Demand Demand Price If the prices of other goods, the o umer's c ns income and his tastes and preferences change, demand curve shifts leftwards or rightwards. E al st ci % Change in quality demanded % Change in price e =d ff Number of Close Substitutes, Switching Cost, ff Degree of necessity, ff Habits of Consumers. ff A graph that shows a combination of two goods that giveaconsumer equal satisfaction and utility thereby making the consumer indifferent. Shows all the combinations of two commodities that a consumer can afford at given market prices and within the Set is the set of bundles of goods an agent can afford particular income level.
Oswaal Karnataka PUE, Mind Maps, economics, II PUC [ 3 To know about more useful books for class-12 click here cHAPTER – 3 : Production and Cost
4 ] Oswaal Karnataka PUE, Mind Maps, economics , II PUC To know about more useful books for class-12 click here cHAPTER – 4 : The Theory of the Firm under Perfect Competition C
Oswaal Karnataka PUE, Mind Maps, economics , II PUC [ 5 To know about more useful books for class-12 click here cHAPTER – 5 : Market Equilibrium When On yl Demand Changes When Only Supply Changes Minimum price fixed by the Government above the equilibrium price. Example : Agricultural rice upport s P S rogrammes, inimum age egislation etc. P M W L , • Maximum price fixed by the Government for a commodity. In India, price ceiling is generally •imposed on necessary item like s wheat, rice, kerosene oil, etc. . . • When the e is increase in r demand, price increases When the e is decrease in • r demand, price decreases . . Market Equilibrium } } O S E E=Dx=Sx D Excess Demand X Excess Supply D S Y Demand / Supply rice P { Unemployment D S U T Y W’ W’’ W O N X Labour Ex { cess Demand D H G S E Determination of wages age Rate W
6 ] Oswaal Karnataka PUE, Mind Maps, economics , II PUC To know about more useful books for class-12 click here cHAPTER – 6 : Non-Competitive Markets
Oswaal Karnataka PUE, Mind Maps, economics, II PUC [ 7 To know about more useful books for class-12 click here part- b cHAPTER – 7: Introduction to Macroeconomic Introduction to Macroeconomics Branch of economics that studies the economic variables of an economy as a whole. • Theory of National Income • Theory of Money and Money Supply • Theory of General Price Level • Theory of Employment • Theory of International Trade • Theory of Employment • Theory of Economic Growth • Theory of Distribution • Theory of Trade Cycles • After Great Depression of 1929, the output and employment levels in the countries of Europe and North America fell by huge amounts. It affected other countries as well . • Demand for goods was low, unemployment rate rose, aggregate output fell. • These events made economists to think in new way • Keynes' book, 'The General Theory of Employment, Interest and Money', published in 1936, was an attempt in this direction. • In this way, subject of macroeconomics was born. Emergence Scope Meaning
8 ] Oswaal Karnataka PUE, Mind Maps, economics, II PUC To know about more useful books for class-12 click here cHAPTER – 8 : National Income Accounting National Income ccounting A Basic concepts t p mus no C noi o G do s C pa ti a Gl oods Depreciation nI te mr ediate Goods At Market Price GNP NDP NNP Wages, Rent, Interest, Profits Factor payments Households Financial Market adding the savings to the industry Consumption Expenditure Flow of Goods & Services Business Firms Income Method Product Method Expenditure Method G D ross omestic Income + Net Income from Overseas = Gross National Income – Depreciation = Net National Income G D ross omestic roduct P + Net Income from Overseas = Gross National Product – Depreciation = Net National Product G D ross omestic Expenditure + Net Income from Overseas and Exports – Imports = Gross National Expenditure + Subsidies – Tax = Gross National Expenditure – Depreciation = Net National Expenditure When inflation is considered while calculating GDP is called real GDP it and when inflation is not considered while calculating GDP is termed s it a nominal GDP. The in the reduction value of capital goods is called depreciation. Gross investment– depreciation Net Investment Aggregates related to GDP= GDP = GNP –NFIA FC FC GDP =NDP +Depreciation FC FC GNP= GNP = NNP + Depreciation FC FC NNP= NNP = NDP + NFIA FC FC NDP= NDP = NDP – Indirect FC MP Taxes+Subsidies NNP = GNP MP MP Depreciation NNP =GD MP MP P –Depreciation GNP =GDP +NFIA MP MP Goods & Services produced within domestic territory GDP is regarded as the Index of Welfare as:- Economic welfare increases fi with the Expansion in GDP. As the GDP expands, per fi capital income of the person also increases. Expansion of GDP enhances fi the infrastructure of the ountry. c Labour, Land, Capital & Entrepreneur e.g., Purchased for the purpose of final consumption, e.g, car, washing machine, etc. F ni al Goods Flows are defined over a period of time, for example, annual profit while stocks are defined at a particular point of time.
Oswaal Karnataka PUE, Mind Maps, economics, II PUC [ 9 To know about more useful books for class-12 click here cHAPTER – 9 : Money and Banking Money and Banking Funct oi ns of Money M1 Currency held by public+ demand deposits with commercial banks. M2 M + savings deposits with 1 post office savings banks. M3 M + net time deposits with 1 commercial banks. M4 M + total deposits with post 3 office savings organisations. Central Bank Functions Broad Money fi Bank rate. Repo rate. fi fi Reverse Repo rate. fi Open market operations, Cash reserve ratio, fi Statutory liquidity ratio. fi Margin requirements fi fi Issues currency on behalf of the Indian government. Banker's Bank. fi Government's Banker. fi Controls the credit. fi Credit Created by Commercial banks Cash Reserves where, RR=Reser × ve Requirements D me and of Money fi Medium of exchange, Value measurement, fi Acts as a store of value, fi Standard of Deferred Payments. fi Money is anything proclaimed by law as a medium of exchange • To conduct transactions • The value of transactions determine the demand of money • To hold money to provide for contingencies • Product of uncertainties of all kinds Transactive motive Precautionary mot vi e N arrow M o ney • To invest money • Affected by expected rise or fall of the future interest rates and inflation in the economy
10 ] Oswaal Karnataka PUE, Mind Maps, economics, II PUC To know about more useful books for class-12 click here cHAPTER – 10 : Determination of Income & Employment fi Y fiI fi Ratio of change in income to change in investment. fi K = Determination of Income & Employment e M na ni g Total planned expenditure on goods and services in a n economy during a period of time. Components fi Consumption (c) ff fi Investment (I) ff fi Government spending (G) ff fi Net exports (X – M) ff S A.D. = C + I + G + (X – M) o ot Consume Ratio of total consumption to total income. Symbolically, APC = C/Y to m Consu e Ratio of change in consumption to change in income. Symbolically, Marginal Propensity to Save Ratio of change in savings to change inincome. Symbolically MPS = S/ Y fi fi Ratio oftotal savings to total income. Symbolically,APS = S/Y Problematic Situations & their Measures Excess Demand It refers to a situation in which aggregate demand is in excess of aggregate supply corresponding to full employmentlevel. fi Rise in prices, fi Rise in inflation, fi Deficit currency value. e D if i c Dt me dna It refers to a situation where aggregate demand is deficit of aggregate supply. fi Involuntary unemployment, fi Price falls, fi The Lock out of industries. employment is a situation in which all available resources are being used in most economic ways. Involuntary unemployment occurs when a person is willing to work at the prevailing wage butisunemployed. fi Change in government saving, Change in availability of credit, fi Change in quantitative investments fi like bank rate, SLR, Change in government policies. fi fi C Y fi MPC = Propensity e t v o aS M s a n r e ginal Prop ity Average Propensity n E Ru Short quilibrium S<I S>I Y X O E Point of Equilibrium AS=y=(C+S) AD=(C+I) Consumption/ Expenditure 45° Income/Employment
Oswaal Karnataka PUE, Mind Maps, economics, II PUC [ 11 To know about more useful books for class-12 click here cHAPTER – 11 : Government Budget and the Economy Government Budget and the Economy e M na ni g A government budget is a gover nment document presenting the government's proposed revenues and spending for a financial year. Objec e tiv s fi Reallocation of resources. Reducing inequalities in income and wealth. fi Economic stability. fi Management of public enterprises. fi Types of Government Deficit Revenue Deficit The revenue deficit refers to the excess of government's revenue expenditure over revenue receipts. Revenue deficit = Revenue expenditure –Revenue receipt Fiscal deficit is the difference between government's total expenditure and its total receipt excluding borrowings. Gross fiscal deficit = Total expenditure – [revenue receipts + non debt creating capitalreceipts] Pr mi a yr e D if i c t The goal of measuring primar y deficit is to focus on presentfiscal imbalance. Gross primar y deficit = Gross fiscal deficit – net interest liabilities. fi Revenue Receipts fi Tax Revenue, fi Non-tax Revenue e.g., free fines, etc fi Revenue Expenditure fi Administrative expenses, fi Social welfare expenses, etc. Capital Account Capital Receipt fi Borrowings, fi Recovery of loans, fi Other receipts, e.g., proceeds from disinvestment, etc. Capital Expenditure fi Expediture on purchase of shares. fi Expenditure of building infrastructure, etc. • Fiscal policy • Changes in Government expenditure • Changes in Taxes • Debt
12 ] Oswaal Karnataka PUE, Mind Maps, economics, II PUC To know about more useful books for class-12 click here Open Economy Macroeconomics Me na ni g nop mo C ne st Current Accou nt Current account generally includes visible goods, invisible goods and unilateraltransfers. Capital Account It includes those entries which cause a change in the assets or liabilities of the residents of a country orits government. Fore gi n ExchangeRa et s It is the type of exchange rate where a currency's value is determined by the government against the value of another single currency or to a basket of other currencies or to another measure of value suchas gold. It is a type of exchange rate which is determined by the market that can rapidly change due to supply and demand and arenotpeggednor controlledby central banks. Managed floating is a mixture of a flexible exchange rate system and a fixed rate system. Under this system, central banks intervene to buy and sale foreign currencies in an attempt to moderate exchange rate movements wheneverthey feelthat suchactions are appropriate. In a free market, the exchange rate between currencies is determined by demandandsupply ofthe market. The balance of payment account records the transactions in goods, services and assets between residents of a country with the rest of the world for a specified time periodtypically one year. Decrease/Increase in official reserves is called the overall balance of payments deficit/ surplus. In an open economy, the demand for domestic goods is equal to the domestic demand for goods (consumption, investment and government spending) plus exports minus imports. Meaning Open Economy Y =ASAD =C+I+G+NX C+I+G Y–C=S=I+G+NX C+I C C X C+I+G+N D Y’E YE National income (Y) } } } } F • NX G I E• 45° E cHAPTER – 12 : Open Economy Macroeconomics