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Karnataka Class 12 Commerce Economics PART B Macro Economics Complete Notes

Karnataka Class 12 Commerce Economics PART B Macro Economics Complete Notes

Karnataka Class 12 Commerce Economics PART B Macro Economics : The Karnataka State Open University established on 1st June 1996 vide Karnataka Govt. Notification No. ED 1 UOV 95 dated 12th February 1996 – KSOU Act 1992 is considered to be a reputed Open University amongst the open learning institutions in the country. Keeping in view the educational needs of our country, in general, and state in particular the policies and programmes have been geared to cater to the needy.

The university was recognized with the “Potential for Excellence” by the University Grants Commission. The university is the second oldest university in the state of Karnataka after the University of Mysore. The Karnatak university once used to serve most of the Karnataka region including Dharwad, Belagavi, Uttara Kannada, Bijapur, Gulbarga, Raichur, Bidar and Bellary. until the 1980s (Manipal Institute of Technology and the Kasturba Medical College of Manipal were affiliated with Karnatak University at Dharwad and all degrees were awarded by Karnatak University in between the years from 1953 to 1965

Karnataka Class 12 Commerce Economics PART B Macro Economics Complete Notes

Karnataka Class 12 Commerce Economics PART B Macro Economics : The Economist’s Dictionary of Economics defines economics as “the study of the production, distribution, and consumption of wealth in human society.”

Saint Michael’s College answers the question, “what is economics?” with brevity: “most simply put, economics is the study of making choices.”

Indiana University answers the question with a longer, more academic approach stating that “economics is a social science that studies human behavior…[it] has a unique method for analyzing and predicting individual behavior as well as the effects of institutions such as firms and governments, or clubs and religions.”

Karnataka Class 12 Commerce Economics PART B Macro Economics Complete Notes

Karnataka Class 12 Commerce Economics PART B Macro Economics : Macroeconomics (Greek makro = ‘big’) describes and explains economic processes that concern aggregates. An aggregate is a multitude of economic subjects that share some common features. By contrast, microeconomics treats economic processes that concern individuals. Example: The decision of a firm to purchase a new office chair from company X is not a macroeconomic problem. The reaction of Austrian households to an increased rate of capital taxation is a macroeconomic problem. Here we provides Karnataka Class 12 Commerce Economics PART B Macro Economics Complete syllabus with note in PDF Format. Download and read well.

Part B: Introductory Macroeconomics

National Income and Related Aggregates


Money and Banking


Determination of Income and Employment


Government Budget and the Economy


Balance of Payments




Karnataka Class 12 Commerce Economics PART B Macro Economics Complete syllabus with note in PDF Format

Part B: Introductory Macroeconomics

Unit 5: National Income and related aggregates

Some basic concepts: consumption goods, capital goods, final goods, intermediate goods; stocks and flows; gross investment and depreciation.
Circular flow of income; Methods of calculating National Income – Value Added or Product method, Expenditure method, Income method.
Aggregates related to National Income: Gross National Product (GNP), Net National Product (NNP), Gross and Net Domestic Product (GDP and NDP) – at market price, at factor cost; National Disposable Income (gross and net), Private Income, Personal Income and Personal Disposable Income; Real and Nominal GDP.
GDP and Welfare

Unit 6: Money and Banking

Money – its meaning and functions.
Supply of money – Currency held by the public and net demand deposits held by commercial banks.
Money creation by the commercial banking system.
Central bank and its functions (example of the Reserve Bank of India): Bank of issue, Govt. Bank, Banker’s Bank, Controller of Credit through Bank Rate, CRR, SLR, Repo Rate and Reverse Repo Rate, Open Market Operations, Margin requirement.

Unit 7: Determination of Income and Employment

Aggregate demand and its components. Propensity to consume and propensity to save (average and marginal).
Short–run equilibrium output; investment multiplier and its mechanism.
Meaning of full employment and involuntary unemployment.
Problems of excess demand and deficient demand; measures to correct them – change in government spending, taxes and money supply.

Unit 8: Government Budget and the Economy

Government budget – meaning, objectives and components.

Classification of receipts – revenue receipts and capital receipts; classification of expenditure – revenue expenditure and capital expenditure.
Measures of government deficit – revenue deficit, fiscal deficit, primary deficit their meaning.

Unit 9: Balance of Payments

Balance of payments account – meaning and components; balance of payments deficit-meaning.
Foreign exchange rate – meaning of fixed and flexible rates and managed floating.
Determination of exchange rate in a free market.

Download Pdf Format Karnataka Class 12 Commerce Economics PARTB Macro Economics Complete Notes

Karnataka Class 12 Commerce Economics PART B Macro Economics Complete Notes

Karnataka Class 12 Commerce Economics PART B Macro Economics : Macroeconomics (from the Greek prefix makro- meaning “large” and economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole. This includes national, regional, and global economies. Macroeconomics and microeconomics, a pair of terms coined by Ragnar Frisch, are the two most general fields in economics. In contrast to macroeconomics, microeconomics is the branch of economics that studies the behavior of individuals and firms in making decisions and the interactions among these individuals and firms in narrowly-defined markets.

Why macroeconomics and not only microeconomics?

The whole is more complex than the sum of independent parts. It is not possible to describe an economy by forming models for all firms and persons and all their cross-effects. Macroeconomics investigates aggregate behavior by imposing simplifying assumptions (“assume there are many identical firms that produce the same good”) but without abstracting from the essential features. These assumptions are used in order to build macroeconomic models. Typically, such models have three aspects: the ‘story’, the mathematical model, and a graphical representation

Macroeconomics is ‘non-experimental’:

like, e.g., history, macroeconomics cannot conduct controlled scientific experiments (people would complain about such experiments, and with a good reason) and focuses on pure observation. Because historical episodes allow diverse interpretations, many conclusions of macroeconomics are not coercive

Karnataka Class 12 Commerce Economics PART B Macro Economics-Classical motivation of macroeconomics:

politicians should be advised how to control the economy, such that specified targets can be met optimally.

System of National Accounts

Basic idea (not the definition):

Summary of all economic activities within a country’s territory and within a given time range (e.g., a year or quarter) yields the gross domestic product (GDP). The value of all goods and services is determined at market prices (final prices, purchasers’ prices). System for compilation of data and bookkeeping of all positions is called the System of National Accounts (SNA). In Europe, compilation of the SNA conforms to the ESA (European System of Accounts) standard. Economic activity is mainly measured by transactions. Phrases from text books: diversification of labor (not complete self-subsistence) causes transactions, exchange of money for goods or services, exchange of an asset or liability for a different asset or liability, etc. The transactions take place on markets. Money makes transactions easier than direct exchange of goods for goods, which may require ‘double coincidence’ (hungry tailor meets freezing baker).

Karnataka Class 12 Commerce Economics PART B Macro Economics-Matrix of transactions between sectors

The new SNA convention affects this traditional presentation (following Haslinger), though it remains instructive and valid in principle. The NPIsH sector is omitted here, an artificial sector ‘value changes’ completes the transaction matrix.

Economic circuit:

row sums = column sums (inflow=outflow), nothing is lost, often graphical presentation with arrows. (metaphorical analogy water: sector Atmosphere with input evaporation and output rain, sector Continents with input rain and output evaporation from inland water and outflow at estuaries, sector Oceans with input at estuaries and output evaporation from seas; earth is a closed circuit, amount of water is globally preserved) open and closed circuit: without value changes, the economic circuit is open, for example at X > Im more payments would flow to Austria than from Austria to non-residents. The hypothetical value changes sector (global bank?) loses X − Im and closes the circuit.

Karnataka Class 12 Commerce Economics PART B Macro Economics-Accounts of the SNA

The new SNA consists of a sequence of several accounts, in which many single positions are recorded, while others result as balancing items (bold type in the accounts). These accounts are calculated for all sectors (financial and non-financial corporations, public households, private households and NPIsH, rest of the world) and for the total economy.

Karnataka Class 12 Commerce Economics PART B Macro Economics-Variants of GDP

Once more the most important current and historical (partly still used) definitions

• Gross national income (GNI, formerly ‘gross national product’): GDP plus primary income of residents from the rest of the world minus primary income of non-residents from the economy; a GDP according to the concept of residency of income earners instead of residency of production units. International mobility (work abroad) confuses the concept (extreme examples Luxemburg, Kuwait). Persons with permanent residence in Austria are always counted as residents!

• Gross social product: obsolete expression for gross national income (GNI).

• Net domestic product: GDP minus depreciation.

• Net domestic product at factor costs: Net domestic product without all production taxes (minus Tind plus subv).

• Net national income (formerly ‘net national product’): gross national income minus depreciation.

• Net disposable income of the economy: net national income (at market prices, i.e. including all production taxes) plus balancing item of border-crossing transfers. Should be a future main indicator of the economy.

• GDP (etc.) at basic prices: Intermediate stage between the calculation at market prices (i.e. including all production taxes) and the calculation at producer prices (i.e. excluding all production taxes). Here, only goods taxes (comprises as its most important parts the value added tax and customs) minus goods subsidies are subtracted. Only after the further subtraction of ‘other production taxes minus other subsidies’ (e.g., payroll tax), the value at producer prices is obtained. According to convention, the original gross output is compiled at ‘basic prices’, GDP and NNI are then shown at market prices.

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