Introductory Macro Economics Class 12th Notes pdf Download

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Introductory Macro Economics Class 12th Notes pdf Download

Introductory Macro Economics Class 12th Notes pdf Download

Introductory Macro Economics Class 12th Notes pdf Download


  • Macroeconomics, as a separate branch of economics, emerged after the British Economist John Maynard Keynes published his celebrated book The General Theory of Employment, Interest and Money in 1936.
  • Classical Thinking: The dominant thinking in economics before Keynes was that all the labourers who are ready to work will find employment and all the factories will be working at their full capacity. This school of thought is known as the classical tradition.
  • The Great Depression of 1929 and the subsequent years saw the output and employment levels in the countries of Europe and North America fall by huge amounts.
  • Unemployment rate may be defined as the number of people who are not working and are looking for jobs divided by the total number of people who are working or looking for jobs.
  • Approach of Keynes: approach was to examine the working of the economy in its entirety and examine the interdependence of the different sectors. This is how Macro Economics was born.


  • Production in a Capitalist country: production activities are mainly carried out by capitalist enterprises.
  • Natural resources: a part consumed in the process of production (e.g. raw materials) and a part fixed (e.g. plots of land).
  • Labour: The most important factor to carry the production is human labor.
  • After producing output with the help of these three factors of production, namely capital, land and labour, the Entrepreneur sells the product in the market. The money that is earned is called revenue.
  • After paying rent for services, interest, and wages to labor, the remaining part of income left is known as Profit.
  • Investment expenditure: When producer keep his profit in order to buy new machinery, factors of production, new factories in order to expand its productivity, this process is called as Investment Expenditure.
  • In short, a capitalist economy can be defined as an economy in which most of the economic activities have the following characteristics (a) There is private ownership of means of production (b) Production takes place for selling the output in the market (c) There is sale and purchase of labour services at a price which is called the wage rate (the labour which is sold and purchased against wages is referred to as wage labour).

Firms: Also known as Production Units.

  • In both the developed and developing countries, apart from the private capitalist sector, there is the institution of State. The role of the state includes framing laws, enforcing them and delivering justice. We shall use the term “Government” to denote state.
  • The state, in many instances, undertakes production – apart from imposing taxes and spending money on building public infrastructure, running schools, colleges, providing health services etc. These economic functions of the state have to be taken into account when we want to describe the economy of the country.
  • There is another section in an economy which is called as Household sectors. By a household we mean a single individual who takes decisions relating to her own consumption, or a group of individuals for whom decisions relating to consumption are jointly determined.
  • We must remember that the households consist of people. These people work in firms as workers and earn wages. They are the ones who work in the government departments and earn salaries, or they are the owners of firms and earn profits. Indeed the market in which the firms sell their products could not have been functioning without the demand coming from the households.
  • Fourth Important sector of economy: External Sector.
  • Trade with external sector is of two types: Imports and Exports.
  • All those goes out = Exports. And All those comes in = imports.
  • So we discussed four important factors: Production in capitalist economy, About State role, about household sector & External Sector.

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  • The economic wealth, or well-being, of a country thus does not necessarily depend on the mere possession of resources; the point is how these resources are used in generating a flow of production and how, as a consequence, income and wealth are generated from that process.
  • from the smallest items like pins or buttons to the largest ones like airplanes, automobiles, giant machinery or any saleable service like that of the doctor, the lawyer or the financial consultant – the goods and services produced are to be sold to the consumers.
  • The consumer may, in turn, be an individual or an enterprise and the good or service purchased by that entity might be for final use or for use in further production. When it is used in further production it often loses its characteristic as that specific good and is transformed through a productive process into another good.
  • An item that is meant for final use and will not pass through any more stages of production or transformations is called a final good.
  • Two types in final goods: Consumption Goods and Capital Goods. Consumption Goods:
  • Goods like food and clothing, and services like recreation that are consumed when purchased by their ultimate consumers
  • Are called consumer goods also.
  • includes services which are consumed but for convenience we may refer to them as consumer goods. Capital Goods:
  • goods that are of durable character which are used in the production process.
  • E.g. tools, implements and machines.
  • they make production of other commodities feasible
  • don‟t get transformed in the production process.
  • They are also final goods yet they are not final goods to be ultimately consumed. Consumer durables:
  • some commodities like television sets, automobiles or home computers,
  • they are for ultimate consumption, have one characteristic in common with capital goods – also durable
  • are not extinguished by immediate or even short period consumption;
  • have a relatively long life as compared to articles such as food or even clothing.
  • also undergo wear and tear with gradual use and often need repairs and replacements of parts, i.e., like machines they also need to be preserved, maintained and renewed. Intermediate goods:
  • Of the total production taking place in the economy a large number of products don‟t end up in final consumption and are not capital goods either. Such goods may be used by other producers as material inputs. Examples are steel sheets used for making automobiles and copper used for making utensils.
  • Intermediate Goods are not Final Goods.
  • The sum total of the monetary value of these diverse commodities gives us a measure of final output.
  • Question: Why we measure only final goods not intermediate goods? Answer: since we are dealing with value of output, we should realize that the value of the final goods already includes the value of the intermediate goods that have entered into their production as inputs. Counting them separately will lead to the error of double counting. Whereas considering intermediate goods may give a fuller description of total economic activity, counting them will highly exaggerate the final value of our economic activity.
  • Flows are defined over a period of time. Income, or output, or profits are concepts that make sense only when a time period is specified. These are called flows because they occur in a period of time. Therefore we need to delineate a time period to get a quantitative measure of these.
  • Stocks are defined at a particular point of time. The buildings or machines in a factory are there irrespective of the specific time period. There can be addition to, or deduction from, these if a new machine is added or a machine falls in disuse and is not replaced. These are called stocks.
  • Wear and tear of capital is called depreciation.
  • New addition to capital stock in an economy is measured by net investment or new capital formation, which is expressed as Net Investment = Gross investment – Depreciation.
  • Depreciation is it is the cost of the good divided by number of years of its useful life.


  • four kinds of contributions that can be during the production of goods and services (a) contribution made by human labour, remuneration for which is called wage (b) contribution made by capital, remuneration for which is called interest (c) contribution made by entrepreneurship, remuneration of which is profit (d) contribution made by fixed natural resources (called „land‟), remuneration for which is called rent. Simplified economy,
  • there is only one way in which the households may dispose of their earnings – by spending their entire income on the goods and services produced by the domestic firms.
  • other channels of disposing their income are closed: we have assumed that the households do not save, they do not pay taxes to the government – since there is no government, and neither do they buy imported goods since there is no external trade in this simple economy.
  • The aggregate consumption by the households of the economy is equal to the aggregate expenditure on goods and services produced by the firms in the economy. The entire income of the economy, therefore, comes back to the producers in the form of sales revenue.

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