Introduction to Economics - Class XI

Operating Leverage is also known as “Degree of Operating Leverage or "DOL”. The fact is that  the greater use of fixed costs, greater will be  the impact of a change in sales on the operating income of a company. Degree of Operating Leverage Formula = % change in EBIT / % change in Sales.

• Market activity refers to the economic activity which includes the production and consumption of goods. These are performed for pay or profit. For example a teacher training in a school, a man working in the bank.
• Non-marketing activities include things which are not economic and comprises of the exchange system. These are performed for self-consumption. For example subsistence farming, processing of primary products, etc.

The closed economy is that economy in which neither imports nor exports take place in that particular country. As the name suggests the country provides the consumers with everything they need from within the country’s economy.

Clientele effect states that a firm will attract shareholders whose preferences for payment pattern and stability of dividend corresponds to the firm's payment patterns and stability of dividends. 

A closed economy is one that has no trading action with the external economy. The closed economy is independent, which means no import comes into the country and no exports depart the country. The reason for a closed economy is to provide household consumers with everything they need from within the country's limits.

A closed-household financial system is a society's economic system in which goods are not traded. As an alternative, those goods are shaped and extreme by the same households.

Thus, the correct option is A.

A two sector economy, consists of :

• Household sector, which possesses factors of production and earns factor incomes, which are used to purchase goods and services.
  
• Firms/Business sector produces goods and services with the use of factors provided by the households. The factor incomes paid are used to purchase the goods and services produced.
  

In the Keynesian model, aggregate demand is the primary driver of output and income in the short run because prices and wages are assumed to be sticky.

A closed economy is one that has no trading activity with outside economies. The closed economy is therefore entirely self-sufficient, which means no imports come into the country and no exports leave the country. The closed economy is self-sufficient, which means no imports come into the country and no exports leave the country. The purpose of a closed economy is to provide domestic consumers with everything they need from within the country's borders.

In a two sector economy, the household sector renders factor services and is in return rewarded with factor payments by the firms in the form of rent, wages, interest and profits.

A country that undertakes trade with other countries is termed as an open economy. The open economy is characterised with four sectors, namely, firms, households, government and the foreign sector.

Aggregate demand refers to the demand for the final output in the economy, which all the buyers in the economy desire to purchase, backed by sufficient purchasing power at the general price level and the employment level in the economy. 

Keynesian theory posits that in the short run, the level of economic activity is determined by the total spending (aggregate demand) in the economy.

In a two sector economy, the household sector renders factor services and in return receive factor payments from the firms, which includes rent, wages, interest and profits which is regarded as the factor income by the household sector. Thus, factor incomes equal factor payments in a two sector economy.

A country that undertakes trade with other countries, i.e, imports and exports goods and services, is termed as an open economy. The open economy is characterised with four sectors, namely, firms, households, government and the foreign sector.

A firm is said to be in equilibrium when it maximizes its profit. It is the point when it has no tendency either to increase or contract its output. ... So in order to be in equilibrium, the firm will attempt to maximize the difference between total revenue and total costs.When MC is falling, the cost of producing an additional unit of output tends to decrease. Under perfect competition, when price is constant, the difference between the total revenue and total variable cost tends to increase.

Binomial option pricing model is a risk-neutral model used to value path-dependent options. Under the binomial model, current value of an option equals the present value of the probability-weighted future payoffs from the options.

Repayment of 'illegal gains' to those who got affected by it is called disgorgement. The process of de-industrialisation was seen in case of all developed economies when the share of services sector started growing (and industry's share started falling)- it was recently used in case of India. Dissaving was seen in wake of the recession-hit western economies after 2007. Generally, those companies demerge which were created by mergers in past.

Gross Domestic Production. Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time. GDP per capita is often considered an indicator of a country's standard of living.

In 1965, when fourth plan was to be launched, Indo-Pakistan conflict led to war. The Pakistan favouring countries like US and others withdrew foreign aid to India. Again in 1966, due to drought, there was food shortage. The Indian government had to take help from USA and they were helped leading to financial crisis more severe. Amidst of these conditions, fourth five year plan was launched in 1969.

It was particularly for the development of the public sector and rapid industrialization. The plan was followed by Mahalanobis model, a economic development model developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953. The plan attempted the allocation of investment between productive sectors in order to maximize long-run economic growth. Its objective was Rapid industrialization, particularly basic and heavy industries such as iron and steel, heavy chemicals, fertilizers, heavy engineering and machine building industry.

After the worsening situation of balance of payment and inflation during 1990-91, the eighth five year plan was launched in 1992. The main focus was generation of adequate employment to achieve full employment level as it was realised that the problem of poverty could not be tackled through growth alone.

The duration of the first Five Year Plan was 1951 to 1956. It was based on the Harrod-Domar Model.

• The Planning Commission is an institution in the Government of India, which formulates India's Five-Year Plans, among other functions.
  
• It was established in accordance with article 39 of the constitution which is a part of directive principles of state policy.
• After India gained independence, a formal model of planning was adopted, and accordingly, the Planning Commission, reporting directly to the Prime Minister of India was established on 23rd March 1950, with Prime Minister Jawaharlal Nehru as the chairman. The Planning Commission does not derive its creation from either the Constitution or statute but is an arm of the Central Government.

The tenth five year plan period was from 2002-2007. The main objectives of the Tenth Five-Year Plan were:

• Attain 8% GDP growth per year
  
• Reduction of poverty rate by 5% by 2007
  
• Providing gainful and high-quality employment at least to the addition to the labor force
  
• Reduction in gender gaps in literacy and wage rates by at least 50% by 2007
  
• 20-point program was introduced
  
• Target growth: 8.1% – growth achieved: 7.7
  
• The tenth plan was expected to follow a regional approach rather than sectoral approach to bring down regional inequalities.

• The free market is a summary description of all voluntary exchanges that take place in a given economic environment. Free markets are characterized by a spontaneous and decentralized order of arrangements through which individuals make economic decisions. Based on its political and legal rules, a country’s free market economy may range between very large or entirely black market.
  
• China is one of the countries which is not considered in free market economy.
  

The
prices in a free market are determined by the market forces through the interactions
of supply and demand in the marketplace. Where demand is the quantity of a
product that buyers are willing to purchase according to a given price and
supply is the amount of a product that sellers can give to customers at a given
price.

The first year plan (1951–56) was a plan, essentially a ‘repair plan’, made to take care of the severe damage to the country economy caused by war, famine (1943) and the partition of the sub-continent in 1947. The first year plan was Harrod – Domar model of development economics. FYP had a target of 2.1% PA growth in national income. Top priority was given to the development of agricultural sector. The idea was agricultural development would lead to higher rate of economic growth. The performance of the plan was good due to a good harvest and the National income increased at the rate of 3.6% PA.

National Development Council is also known as Rashtriya Vikas Parishad. It was set on 6 August 1952 with a purpose to strengthen the nation in support of the plan. It is the apex body for decision making on development matters in India presided over by the Prime Minister. The Council is responsible to prescribe guidelines for the formulation of Plan, to review and to give recommendations, if necessary.

The Integrated Rural Development Programme (IRDP) was started by Government of India during 1978 and it was put into effect in 1980. The objective of this program is to provide employment opportunity to the poor people as well as a chance for employment to improve their living habitation. IRDP is generally accomplished where the basic physical and organizational structures and facilities are available.

After India achieved Independence, a formal model of planning was adopted, and accordingly, the Planning Commission, reporting directly to the Prime Minister of India, was established on 15 March 1950 with Prime Minister Jawaharlal Nehru as the Chairman. Authority for the creation of the Planning Commission was not derived from the Constitution of India or statute; it is an arm of the Central Government of India.

• The Planning Commission was established in March 1950 by an executive resolution of the Government of India, on the recommendation of the Advisory Planning Board constituted in 1946, under the chairman of KC Neogi. Thus the Planning Commission is neither constitutional nor a statutory body.
• It is a non-constitutional (not created by the Constitution) and a non-statutory body (not created by an act of Parliament).
• In India, it is the supreme organ of planning for social and economic development. It is not responsible for taking and implementing decisions. This responsibility rests with the Central and State governments.
• The Planning Commission is only a staff agency- an advisory body and has no executive responsibility.
• The critics have described it as a 'Super Cabinet', an 'Economic Cabinet' a 'Parallel Cabinet', the 'Fifth Wheel of the Coach' etc.
  

Economic Planning is the making of major economic decisions. The principal reasons for planning in India are: 

BEP (in Rs. ) = $\frac{Fixed Cost}{P/V Ratio}$
                      =$\frac{10000}{25}\times100$
                      =40000
P/V Ratio = $\frac{Sales - Variable Cost}{Sales}\times100$
                =$\frac{120000-90000}{120000}\times100$
                 =$\frac{30000}{120000}\times100$
                  =25%.

SEZ stands for Special Economic Zone. Government provides a lot of subsidies and facilities to the firms of these areas in order to uplift the standard of economic conditions of those people living in these areas.

Industry refers to a number of market grouped together. So when an industry expands, there is a lot of sectors that is benefitted. All the firms in the economy, gets external economies that is they get the benefit of large scale business and they tend to grow further.

Open economy means that the nation exports and import in goods and services very freely following the rules and regulations of world trade organisation with both fixed as well as flexible exchange rates.

A closed economy is one that has no trading activity with outside economies. The closed economy is therefore entirely self-sufficient, which means no imports come into the country and no exports leave the country.

Capital surplus economy refers to an economy where the rate of investment is very high, i.e, quick capital accumulation takes place. Capital intensive techniques would, thus, be preferred as money can be converted into useful assets for production. 

Laissez-faire refers to a free market economy, where every individual has the right to take their own decisions with regards to economic activities. Under capitalism every individual approaches the central economic problems for maximizing their own personal gains.

Education and Inspections Act 2006 – this Act extended the law on schools' power to discipline and makes parents responsible for ensuring their excluded child is not in a public place during the first five days of any exclusion.

John Maynard Keynes was a British economist who presented his ideas on income and employment determination in 1936, in his book, 'The General Theory of Employment'. This came to be known as the Keynesian theory of income and employment, which has impacted many principles and practices of macroeconomics and the way economic policies are formed.