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Short Questions of BBS 2nd Year Economics

Do you want to score good marks in your 2nd-year board exams? Then you need to prepare for the BBS 2nd Year Macroeconomics Short Questions properly.

Macroeconomics is an essential subject in the business course; especially in BBS. Short questions carry around 20 marks in the exams. The theories and formulas you memorize in the shorter questions will come in handy during the longer questions as well. 

Students should aim to complete these questions within the first 30-45 minutes. After that, you’ll have some additional time for other longer questions.

In this article, we’ve come up with the most important questions on this subject. So, without any delay, let’s head straight to the answers.

Lesson 1: Introduction to Macroeconomics

introduction to macroeconomics

Previously Asked Questions

Q: Define macroeconomics.

A: Macroeconomics is the study of the whole economy of a nation. Further elaborating, it is the branch or field of economics that deals with the analysis of economical aggregates like national income, employment, and other similar topics. As it deals with such larger ideas, economists and many books also call it the study of aggregates.

Q: Which are the major areas (scopes) that macroeconomics covers?

A: The major areas (scopes) include the following:

  • National income (measurement, difficulties, and importance)
  • Employment (concepts of unemployment, determinants, and importance)
  • Concept of Money
  • General price level (inflation, deflation, and other ideas around price level)
  • Economic growth (per capita income, monetary and fiscal policies)

Q: Why is macroeconomics important?

A: Importances:

  • Helps evaluate the performance of the economy
  • Helps to make better economic policies
  • Gives ideas on how to control the fluctuations in the economy
  • Provides information that is useful during international comparison

Q: What are the limitations of macroeconomics?

A: The major limitations of macroeconomics are as follows:

  • Has limited applications
  • Depends on single/individual units
  • All aggregates have different effects
  • Macroeconomics is not able to express heterogeneous units

Q: Define macro-dynamics.

A: When some economic variables change, they cause a shift or movement of equilibrium from one point to another. Therefore, macro-dynamics is the study of such movements of equilibrium points.

Other Important Questions

Q: What is macro static analysis?

A: At a particular point in time, the equilibrium of the economy reaches or gets to the final position. In such an instance, this equilibrium shows the stationary picture of the whole economy. This state or point is macro static analysis.

Q: Define stock variables.

A: There are certain macroeconomics variables that we measure at a particular point in time which we consider as stock variables.

Q: What are flow variables?

A: In simple words, those macroeconomic variables which we measure per unit of time are economic flow variables.

Q: State the conclusion of New Keynesian.

A: The conclusion of New Keynesian are as follows:

  • The economy fails to reach full employment because of imperfect competition in wages vs. price levels
  • Government intervention is crucial to stabilize the economy and increase employment

Lesson 2: National Income Accounting

national income accounting

Previously Asked Questions

Q: Transfer payments are not included in GDP. Why?

A: The income received from various factors of production (which have a contribution in producing goods and services) comes under Gross Domestic Product. As transfer payments are not income from such factors, they are not included in GDP.

Q: Explain the term ‘real GDP’.

A: The mathematical formula for real GDP is:

Real GDP = (Nominal GDP)/(GDP Deflator) X 100

So, we can define real GDP as the gross domestic product calculated at the market price of the base year.

Other Important Questions

Q: What is national income?

A: The sum received from factors of production like salaries, wages, rent, profit, interest, and net factor income from abroad is national income.

NI = (Salaries and Wages) + Interest + Profit + Rent + Net Factor Income from Abroad

Q: Explain the concept of National Income at the current price.

A: In simple terms, if we measure the NI at the current year’s market price, it becomes the national income at the current price.

Q: Define an open economy.

A: If an economy doesn’t allow or is not involved in international trade, we call it a closed economy. In this sense, an open economy is an economy that involves international trade.

Q: What do you mean by personal income?

A: Personal income is the total income of the population (of a nation) before the payment of personal-direct taxes in a year.

PI = NI – (corporate income tax + undistributed corporate profit + social security) + Transfer payment

Q: Define Disposable Income.

A: The sum of income received after the payment of direct and personal taxes is disposable income.

DI = PI – Personal/direct taxes

Q: Define net factor income from abroad.

A: Net factor income from abroad is the amount we get after reducing income earned by foreigners in a country from the income earned by the country’s citizens abroad.

Net factor income from abroad =  Abroad income – Income of foreigners (within that country)

Q: List the importance of NI.

A: The reasons why NI is a vital topic are as follows:

  • Helps us understand the economic structure and framework
  • Useful during international comparison
  • Provides valuable information while making budget policies and certain analysis

Q: Define Net Value Added.

A: It is the value obtained after reducing depreciation of fixed capital from gross value added.

Net Value Added = Gross Value Added – Depreciation

Some Important Terms and Formula

1. Gross Domestic Product: It is the market value of all the goods and services produced within a country in a span of a year.

GDP = P1Q1 + P2Q2 + … + PnQn (here, P is price and Q is Quantity of the produced goods and services)

2. Gross National Product: GNP is the sum of GDP and Net factor income from abroad.

GNP = GDP + Net factor income from abroad

3. Net National Product: NNP is the amount received after reducing depreciation from the GNP.

NNP = GNP – Depreciation

4: Per Capita Income: The amount received after diving national income by the total population of a nation.

Per Capita Income = National Income / Population

5. GDP at MP and FC: GDP calculated at actual market price is GDP at MP. On the other hand, GDP at FC is the value obtained after reducing Net Indirect Taxes from GDP at MP.

Relationship between GDP at MP and GDP at FC: GDP at FC = GDP at MP – Net Indirect Taxes

6: GNP at MP and FC: GNP calculated at actual market price is GNP at MP. Similarly, GNP at FC is the value obtained after reducing Net Indirect Taxes from GNP at MP.

The relation between GNP at MP and GNP at FC is as follows: GNP at FC = GNP at MP – Net Indirect Taxes

Lesson 3: Classical Theory of Employment

classical theory of employment

Previously Asked Questions

Q: Define disguised unemployment.

A: The scenario where an individual appears to be employed but in reality is not. In such cases, the marginal productivity of labor is null (zero). Such cases fall under disguised unemployment.

Q: What is voluntary unemployment?

A: The scenario where individuals remain unemployed due to their own choice and will with no interest to work at the existing wage rate is voluntary unemployment.

Other Important Questions

Q: Define unemployment and list down its types.

A: The problem of lack of jobs or works for the population of a country who are both capable as well as willing to work at the current wage rates. As it is a major problem around the world, countries try to find ways to reduce unemployment.

The various types of unemployment are listed below:

  • Open unemployment
  • Under unemployment
  • Cyclical unemployment
  • Frictional unemployment
  • Structural unemployment

Q: List down the assumptions of the classical theory of employment.

A: Assumptions:

  • All individuals are rational
  • There is perfect competition in the product and factor market
  • The economy is closed
  • Money is only a medium

Q: List down the criticisms faced by the classical theory of employment.

A: Criticisms:

  • Supply doesn’t create demand
  • The economy is not adjusted automatically
  • Incorrect assumptions of perfect competition as well as non-government intervention
  • Under Employment Equilibrium

Lesson 4: Keynesian Economics

keynesian economics

Previously Asked Questions

Q: Distinguish between financial investment vs. the real investment.

A: Real investments are those investments that are made on productive assets like plants and pieces of machinery. On the other hand, financial investments are those forms of investments that are made on financial matters like bonds and securities.

Q: Mention the propositions of the psychological law of consumption as described by Keynes.

A: Propositions of the psychological law of consumption as described by Keynes are as follows:

  • When total incomes rise, total consumption also rises but in a smaller amount
  • The increased portion of income is broken down into consumption and saving
  • If the income increases, both consumption, and saving also increase

Other Important Questions

Q: List down the factor determining investment.

A: The factors determining investment include the following topics:

  • Policies of the government and industries
  • Expected demand
  • Advancement in terms of technology
  • The rate of interest as well as the increase in the population

Q: What are the key differences between Keynesian theory and classical theory of employment.

A: The major differences are:

  • Classical theory assumes full employment in the economy. However, Keynesian assumes of scenario where there is less than full employment in the economy.
  • Keynesian theory is based on short-run analysis whereas classical theory uses long-run analysis.

Q: Define MEC.

A: Marginal Efficiency of Capital (MEC) is the expected rate of return from the purchase of capital assets.

Some Important Terms and Formula

1. Equation C = a + bY is the linear consumption function. Here, a is autonomous consumption while bY is the induced consumption.

2. Dissaving is the state of excessive consumption expenditure over the income level. Also, the saving is negative during dissaving.

3. Paradox of thrift (also known as saving is vice, not a virtue) is somewhat a topic for debate amongst economists. Generally, classical economists argue that saving is good for the economy. On the other hand, Keynes states that consumption is better for the economy and claims saving is not good.

4. Average Propensity to Consume (APC) is the ratio of aggregate consumption to aggregate income.

APC = C / Y (where C is consumption and Y is level of income)

5. Marginal Propensity to Consume (MPC) is the ratio of change in consumption to change in income.

MPC = △C / △Y (where △C is a change in consumption and △Y is a change in income)

6. Multiplier is the ratio of change income to the change in investment.

K = △Y / △I (where K is the coefficient of the multiplier, △Y is a change in income and △I is a change in investment)

Lesson 5: Income Determination (IS-LM) Model: Hicks-Hansen Approach

Income Determination (IS-LM) Model Hicks Hansen Approach

Previously Asked Questions

Q: Define the LM curve.

A: LM curve is the locus that gives the money market equilibrium. It passes through various combinations of levels of income and interest rates.

Q: Show the IS-LM curve in a diagram.

A:IS LM curve

Other Important Questions

Q: Define product market.

A: A product market refers to a market where customers (consumers) and businesses interact to purchase and sell the production of goods and services of an economy.

Q: Define the money market.

A: The market for short-term financial assets, credits, and funds (under 1 year) is the money market.

Lesson 6: Inflation

inflation

Previously Asked Questions

Q: What is deflation?

A: In simple terms, deflation is the fall or drop in the general price level due to various causes. The major causes for deflation include the money supply, growth in interest rates, etc.

Other Important Questions

Q: Mention the causes of deflation.

A: The major reasons for the causes of deflation are as follows:

  • Reduced money supply
  • Reduced bank credit
  • Growth in output
  • Growth in interest rate
  • Decreased government expenditure

Q: Define inflation.

A: Inflation is the process where the general price level increases while the value of money decreases. In addition, the general price level and money value are inversely related. That means, when one increases, the other decreases, and vice versa.

Q: Mention the types of inflation.

A: Types of inflation:

Based on Speed

  • Creeping inflation, walking inflation, running inflation, and Hyper Inflation

Based on Time

  • Peacetime inflation, wartime inflation, and post-war inflation

Based on Nature

  • Open inflation and suppressed inflation

Based on Scope

  • Comprehensive inflation and sporadic inflation

Based on Causes

  • caused by the growth in the effective demand (demand-pull inflation)
  • caused by the growth in the cost of production (cost-push inflation)

Q: What is stagflation?

A: Stagflation is the state when both high rates of inflation and unemployment occur at the same time.

Some Important Terms and Points

1. Demand-pull inflation is the situation when the demand for goods and services is more than the supply. This causes the price levels to rise and results in inflation. This form of inflation usually occurs due to the following reasons:

  • Growth in money supply
  • Increment in the expenditure of the government
  • Increase in exports as well as an increase in tax
  • Lack of goods and services

2. Cost-push inflation is the situation when the price level of goods and services increases due to the rise in the cost of production. The major causes for cost-push inflation include the following:

  • Growth in the margins of profit
  • Growth in salaries and wages
  • Rises the price of raw material

3. Effects of inflation on production:

  • Decrease in money-value
  • The inflow of foreign capital gets discouraged
  • Changes in production structure
  • Production quality degrades

4. Philips Curve: The curve which shows the non-linear and inverse relationship between change in money wage rate (in percent) and rate of change in unemployment (in percent) in an economy.

5. Consumer Price Index (CPI): A measure of the rate of inflation of certain goods and services purchased by a certain class of people at a particular place and time.

Lesson 7: Business Cycle

business cycle

Previously Asked Questions

Q: List down the various phases of the trade cycle.

A: Phases of a trade cycle:

  • Depression
  • Recovery
  • Prosperity
  • Recession

Q: Define ‘trough’ in a trade cycle.

A: Trough is the lowest point (in the depression phase) in a trade cycle. After this point, the depression phase ends while the recovery phase starts.

Other Important Questions

Q: Define ‘business cycle’.

A: The business cycle is the gradual and consistent fluctuation (upwards and downward) in the economic activities within an economy. Similarly, you can also refer to the business cycle as the trade cycle.

Q: What are the characteristics of the business cycle?

A: Characteristics:

  • Cyclic in nature (wave-like)
  • Cumulative with regular fluctuations
  • Economy-wide occurrence

Q: List down the types of business cycles.

A: Types of the trade cycles (business cycles):

  • Juglar cycle
  • Kuznets cycle
  • Kitchen cycle
  • Kandratiett cycle
  • Building cycle

Q: Mention the most effective policy to control depression in the business cycle.

A: Fiscal policy is effective and more reliable to control depression in the business cycle. Generally, the government aims to increase its expenditure to overweigh the budgetary policy.

Lesson 8: Monetary Theory

monetary theory

Previously Asked Questions

Q: Mention the motives of demand for money according to Keynes.

A: The 3 motives of demand for money (according to Keynes) are as follows:

  • Transaction motives
  • Precautionary motives
  • Speculative motives

Q: What are the objectives of monetary policy?

A: Objectives:

  • Complete employment
  • Proper economic growth
  • Stability in price levels
  • Stability in the economy
  • Proper balance in terms of payment

Other Important Questions

Q: Define monetary policy.

A: It is the macroeconomic policy of the country that aims to achieve the objectives of general economic policy through changes in the supply of money as well as changes in interest rates.

Q: What is ‘money supply’?

A: It is the total stock or amount of money people and financial institutions (including the central bank) have at a certain point in time. You may define it as the total amount or quantity of money circulation within an economy at a particular time.

Q: List down the determinants of Money Supply.

A: Determinants:

  • Cash reserve ratio
  • Operation of the open market
  • High power money
  • Money multiplier
  • Level of bank reserves

Q: Define the terms ‘liquidity preference’ and ‘liquidity trap’.

A: Liquidity preference: It is the desire or intent of people to hold cash/money. Demand money is another term used instead of liquidity preference.

Liquidity trap: It is a situation when the liquidity preference curve becomes perfectly elastic at a low interest rate.

Q: Explain the term ‘money market’.

A: The market for short-term financial assets where such assets have a maturity period of less than a year. 

Q: Explain the term ‘capital market’.

A: The market for long-term financial assets where such assets have a maturity period of more than a year. 

Some Important Terms and Points

1. Narrow money: It is a money supply that includes the currency or cash held by the public as well as the demand deposits at the banks (including the central bank). Similarly, you may also call it ordinary money. 

M₁ = C + DD (here, M₁ is narrow money, C is currency held by the public and DD is demand deposits)

2. Broad money: It is the sum of narrow money and time deposits. Generally, time deposits consist of saving deposits, fixed deposits, etc. 

M₂ = M₁ + TD (here, M₂ is broad money, M₁ is narrow money while TD is time deposits)

3. High Power Money: It is the total sum of money held by the public along with the cash held at commercial banks as well as the central bank. You can also refer to it as the reserve money or monetary base.

H = C + R (here, ‘H’ is high power money while C and R are currency held by the public and reserves at banks respectively)

4. Money multiplier: It is the ratio of the total supply of money to the stock of high-power money.

m = M / H (here, m is money multiplier, M is money supply while H is high power money.

5. Expansionary monetary policy: It is the monetary policy prepared to increase or expand the money supply. Sometimes, it is also called the flexible monetary policy.

6. Contractionary monetary policy: It is the monetary policy prepared to decrease or contract the money supply. 

7. Devaluation: It is the fall or decline in the exchange rates between different currencies.

Lesson 9: Government Finance

government finance

Previously Asked Questions

Q: List down the methods of deficit financing.

A: Generally, deficit financing is done in the following ways:

  • Borrowing a sum of money as well as withdrawing cash balance from the central bank
  • Issuing of new currency
  • Borrowing from the market (market borrowing)

Q: List down the objectives of a fiscal policy.

A: Objectives:

  • Create price and economic stability
  • Create better employment opportunities
  • Make the economic growth sustainable 

Q: What are the components of a government budget?

A: The major components of a government budget include the following:

  • Government revenue and expenditure
  • Ways/sources for financing deficits

Q: Define ‘Fiscal Policy’ and list down its instruments.

A: Fiscal policy is a government policy that targets the goals of the general economic policy. In other words, it is the policy for the government revenue, public expenditure as well as public borrowing that aim to achieve the goals or objectives of any economic policy.

The instruments of a fiscal policy include the following points:

  • Budget and taxation
  • Government expenditure
  • Public borrowing and public work

Some Important Terms and Points

1. Direct tax: When a person pays a tax that is directly imposed on him/her and when the burden of such tax is not transferable to someone else, it is a direct tax.

2. Indirect tax: There are some types of taxes that the government imposes on goods and services. Such taxes are indirect taxes and are transferable.

Lesson 10: Contemporary Issues (With Reference to Nepal)

Contemporary issues with reference to nepal

Previously Asked Questions

Q: List down the methods of privatization.

A: Generally, privatization occurs through the following methods:

  • selling shares of public enterprises
  • selling or leasing the property of public enterprises
  • providing the management rights (of the public sector) to the private sector 

Q: Differentiate between absolute poverty and relative poverty.

A: Absolute poverty is a condition when it is not possible to achieve and sustain a minimum standard of living. On the other hand, relative poverty is the state when an individual is capable to sustain the minimum standards of living but has an income that is less than the rest of the society.

Q: What are the major causes of poverty? List them down.

A: Usually, poverty is a result of the following causes:

  • Population growth at a rapid pace
  • Problems like unemployment and inequality
  • Lack of development in rural regions
  • Lack of infrastructural development

Q: What are the advantages of privatization?

A: The major benefits or advantages of privatization are:

  • Reduced cost-push inflation
  • Diverse ownership of shares
  • Generation of revenue for the government
  • Increased employment opportunities

Q: List down the major demerits of foreign direct investment.

A: Demerits:

  • Might create problems for local investment opportunities
  • Causes the exchanges rates to fluctuate
  • Risky method of globalizing an economy
  • Might result in underdeveloped political and legal systems
  • Can increase inequality in an economy

Q: List the pros of foreign employment.

A: The pros (benefits) of foreign employment are as follows:

  • The decline in unemployment rates as well as poverty rates
  • Generation of remittance
  • Production of skilled manpower

Q: List the causes of economic inequality in Nepal.

A: The major causes for economic inequality in Nepal are as follows:

  • Unemployment
  • Improper/unmanaged assets or properties
  • Lack of economic opportunities

Other Important Questions

Q: What is privatization?

A: It is the process of transferring government-owned assets to private sectors. To put it another way, it is the active involvement of private sectors in the managerial processes of public enterprises. It can be done through selling, leasing, or even transferring ownership from the government sector to the private sector.

Q: Define economic liberalization.

A: It is the state of releasing the economy from the government to create better roles and responsibilities for private sectors in the economy.

Q: What is globalization?

A: The process of integrating a local (national) economy to an international economy whether it be through trade, foreign direct investment, or any other method is referred to as globalization.

Q: List down the merits of foreign direct investment.

A: Some benefits of foreign direct investment are as follows:

  • The rapid development of the economy
  • Creates employment opportunities
  • Might increase the productivity of labor
  • Helps an economy get access to the foreign market

Q: What is economic inequality?

A: The situation where income and wealth distribution is uneven or unequal among the residents of a country. In other words, it is the gap between rich vs poor. Similarly, terms like income inequality, wealth gap, or disparity are related to economic inequality.

Q: What is some measures to control economic inequality in Nepal:

A: Some useful measures to control economic inequality in Nepal are:

  • Proper utilization of natural resources
  • Availability of affordable as well as quality education
  • Higher wage rates, especially for low-wage workers
  • Increment in employment opportunities

Some Tips For Your BBS 2nd Year Economics Exam

Some Tips For Your BBS 2nd Year Economics Exam

  • The board asks newer questions every year. So, go through all the additional short questions in your course books. Similarly, highlight terms and formulas that your teacher says are important.
  • Generally, short questions require an answer that is not long and tedious to read. However, if the question asks you to explain a certain idea in detail, you might have to write a longer answer. Try breaking it down into points that clarify what you’re trying to say.
  • It is best to try and answer each question in your own words whenever possible. This will create a good impression with the person who’s checking your answers and you might score excellent marks.
  • If you have the time, you might want to read the whole lesson rather than just memorizing the answers to question. Doing so will help you answer newer questions that were not asked in previous board examinations.

Conclusion

This article consists of the short questions of BBS 2nd year economics from chapter 1 to chapter 5. Also, some of these questions might appear in your board examination. Make sure to memorize all the formulas and key terms so that you’ll be able to solve the longer questions with ease.

You can use this article as a revision just a few hours before your exam. Good luck!

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