Grade 12 Commerce: Economics

In this unit, 'National income and related aggregates', you learn to measure national income. You work with exam-style questions and written reasoning. You see it, say it, then do it alone.

• Place it: find where and when 'National income and related aggregates' happens, on a map, a timeline or in a local example.
• Gather: read or listen to two short sources and note who is speaking and why.
• Use it: measure national income. Give a reason and one piece of evidence for every point.
• Weigh it: say what another person might think, and why, before you decide.

Step by step.

1. Step 1, Use the expenditure method. Private consumption 600, investment 200, government spending 150, exports 100, imports 80. GDP at market price = 600 + 200 + 150 + (100 - 80) = 970. Net exports are exports minus imports.
2. Step 2, Move to national income. Depreciation 50, so NDP at market price = 970 - 50 = 920. Net factor income from abroad is -10, so NNP at market price = 910. Indirect taxes 70 minus subsidies 20 gives net indirect tax 50.
3. Step 3, Finish the chain. NNP at factor cost = 910 - 50 = 860, which is national income. Check with the income method: NDP at factor cost = 500 compensation + 280 operating surplus + 90 mixed income = 870. Subtracting 10 net factor income from abroad gives 860.
4. Step 4, Avoid double counting with value added. A farmer sells wheat for 40 to a miller; flour sells for 70 to a baker; bread sells for 120. Value added = 40 + 30 + 50 = 120, equal to the final product value, not 230.
5. Step 5, Real GDP. If nominal GDP is 970 and the price index is 110 with base 100, real GDP = 970 / 110 x 100 = 881.8 approximately. Model answer: 'Real GDP removes price changes, so it shows true output growth.'
6. Step 6, Your turn: GDP at market price 500, depreciation 30, net indirect tax 20, net factor income from abroad 5. Model answer: 'NDP at market price 470, NNP at market price 475, NNP at factor cost 455 (national income).'

Activity. About 40 to 50 minutes of class work, then one short practice task for home. Keep evidence: a timed paper and an error log.

Standard to meet. Measure national income: at least 70 percent on an exam-style task, with the method shown.

In this unit, 'Money, banking and income determination', you learn to explain money creation and income determination. You work with exam-style questions and written reasoning. You see it, say it, then do it alone.

• Place it: find where and when 'Money, banking and income determination' happens, on a map, a timeline or in a local example.
• Gather: read or listen to two short sources and note who is speaking and why.
• Use it: explain money creation and income determination. Give a reason and one piece of evidence for every point.
• Weigh it: say what another person might think, and why, before you decide.

Step by step.

1. Step 1, Show how banks create money. A deposit of 1,000 is made and the required reserve ratio is 10 percent. The bank keeps 100 and lends 900, which returns as deposits. The money multiplier is 1 / 0.10 = 10, so total deposits can reach 10,000.
2. Step 2, Name central bank tools. To reduce credit, it raises the repo rate, cash reserve ratio or sells securities in open market operations. To raise credit, it does the opposite. A higher reserve ratio of 20 percent cuts the multiplier to 5.
3. Step 3, Find equilibrium income. Consumption is C = 100 + 0.75Y and investment is 50. Y = (100 + 50) / (1 - 0.75) = 150 / 0.25 = 600. Check: consumption 550 and saving 50 equals investment 50, so planned saving equals investment.
4. Step 4, Use the multiplier. Multiplier = 1 / (1 - MPC) = 1 / 0.25 = 4. If investment rises by 20, income rises by 20 x 4 = 80, to 680. New consumption 610 plus investment 70 equals 680.
5. Step 5, Analyse a gap. Full-employment income is 700. At 700, aggregate demand is 625 + 50 = 675, so there is a deficient demand gap of 25. Raising investment by 25 brings income up by 100 to 700.
6. Step 6, Your turn: MPC is 0.8; investment increases by 50. Model answer: 'The multiplier is 1 / 0.2 = 5, so income rises by 50 x 5 = 250.'

Activity. About 40 to 50 minutes of class work, then one short practice task for home. Keep evidence: a timed paper and an error log.

Standard to meet. Explain money creation and income determination: at least 70 percent on an exam-style task, with the method shown.

In this unit, 'Government budget and the balance of payments', you learn to describe the budget and exchange rates. You work with exam-style questions and written reasoning. You see it, say it, then do it alone.

• Place it: find where and when 'Government budget and the balance of payments' happens, on a map, a timeline or in a local example.
• Gather: read or listen to two short sources and note who is speaking and why.
• Use it: describe the budget and exchange rates. Give a reason and one piece of evidence for every point.
• Weigh it: say what another person might think, and why, before you decide.

Step by step.

1. Step 1, A government budget lists revenue and spending. Revenue is 800 and spending is 920, so the budget deficit is 920 - 800 = 120. If national income is 4,000, the deficit is 120 / 4,000 = 3 percent of national income. If revenue were bigger than spending it would be a surplus.
2. Step 2, Taxes raise revenue. Direct taxes, such as income tax, are paid on income. Indirect taxes, such as sales tax, are paid on goods. A progressive tax takes a larger share as income rises. If the first 10,000 is untaxed and the rest pays 20 percent, income of 30,000 pays 20 percent of 20,000, which is 4,000, an average rate of 13.3 percent.
3. Step 3, Fiscal policy uses spending and taxes to steer the economy. In a recession the government spends more or cuts taxes. If households spend 0.8 of extra income, the multiplier is 1 / (1 - 0.8) = 5, so extra spending of 50 raises national income by up to 250. In high inflation it does the reverse.
4. Step 4, The balance of payments records a country's dealings with the world. In the current account, goods exports 500 and imports 560 give a trade balance of -60. Add net services +30, net income -20 and transfers +15: -60 + 30 - 20 + 15 = -35, a current account deficit. Financial account inflows pay for it.
5. Step 5, Exchange rates. Say 1 foreign currency unit (FC) = 80 local units. A local good priced at 400 costs foreigners 400 / 80 = 5 FC. If the local currency depreciates to 100 per FC, the good costs 400 / 100 = 4 FC, so exports become cheaper, while an imported good priced at 5 FC now costs 500 local units.
6. Step 6, Your turn: revenue is 650 and spending is 600. Find the budget balance. If 1 FC = 50 local units, what is a 2,000 local-unit item worth in FC? Answer: a surplus of 650 - 600 = 50; and 2,000 / 50 = 40 FC.

Activity. About 40 to 50 minutes of class work, then one short practice task for home. Keep evidence: a timed paper and an error log.

Standard to meet. Describe the budget and exchange rates: at least 70 percent on an exam-style task, with the method shown.

In this unit, 'Indian economy and development', you learn to analyse development, poverty and reforms. You work with exam-style questions and written reasoning. You see it, say it, then do it alone.

• Place it: find where and when 'Indian economy and development' happens, on a map, a timeline or in a local example.
• Gather: read or listen to two short sources and note who is speaking and why.
• Use it: analyse development, poverty and reforms. Give a reason and one piece of evidence for every point.
• Weigh it: say what another person might think, and why, before you decide.

Step by step.

1. Step 1, Date the policy phases. Planning began with the first Five Year Plan in 1951, which stressed agriculture, and from 1956 the plans gave priority to public sector heavy industry. By 1991 a balance of payments crisis, with very low foreign exchange reserves, led to reforms.
2. Step 2, Explain the 1991 reforms. They are summarised as liberalisation (fewer licences), privatisation (smaller state role in some sectors) and globalisation (lower import duties, foreign investment). Model answer should state both gains and costs in a balanced way.
3. Step 3, Compute growth. If GDP rises from 1,000 to 1,060 units, growth is (1,060 - 1,000) / 1,000 x 100 = 6 percent. If population grows 1.5 percent, per capita income grows roughly 4.5 percent, which affects living standards.
4. Step 4, Read sector shares. Agriculture has employed a large share of workers, often near 40 to 45 percent, but produces under 20 percent of output (check the current figure), so productivity per worker is low there. This gap explains why rural incomes lag and why shifting work to industry and services is a goal.
5. Step 5, Measure poverty. Head count ratio = poor / population x 100. If 220 million of 1,000 million live below the poverty line, the ratio is 22 percent. Compare using HDI as well, which includes health and education, not just income.
6. Step 6, Your turn: assess one effect of the 1991 reforms. Model answer: 'Services and exports grew faster because of openness, but inequality between regions and sectors persisted, so growth needs jobs and skills too.'

Activity. About 40 to 50 minutes of class work, then one short practice task for home. Keep evidence: a timed paper and an error log.

Standard to meet. Analyse development, poverty and reforms: at least 70 percent on an exam-style task, with the method shown.

On the slide: L1 Basic · Scarcity and choice

Notes: Name what scarcity means and give one opportunity cost from daily life. Notes: a farmer can grow 40 tonnes of wheat or 20 of maize on one field; learners say what giving up one tonne of wheat costs in maize.

On the slide: L2 Awareness · Demand and supply

Notes: Explain why price changes move buyers and sellers in opposite directions. Notes: draw a demand line and a supply line for a market stall, then shift one at a time and say what happens to price and quantity.

On the slide: L3 Foundation · Equilibrium and elasticity

Notes: Calculate equilibrium and price elasticity of demand from simple equations. Notes: demand Q = 100 minus 2P and supply Q = 20 plus 2P give price 20 and quantity 60; raising price to 22 cuts quantity by about 6.7 per cent, elasticity about minus 0.67.

On the slide: L4 Practitioner · Growth, inflation and the multiplier

Notes: Apply the multiplier and measure inflation from index numbers. Notes: an index rising from 200 to 210 is 5 per cent inflation; a marginal propensity to consume of 0.8 gives a multiplier of 5, so an injection of 10 raises income by 50.

On the slide: L5 Specialist · Market failure and policy

Notes: Analyse an externality and compare a tax, a subsidy and regulation. Notes: with a marginal external cost of 4 per unit and 1,000 units sold, a tax of 4 raises 4,000; learners list who gains, who loses and one unintended effect.

This course: Grade 12 Commerce Economics is at this level. Its units include National income and related aggregates; Money, banking and income determination; Government budget and the balance of payments; Indian economy and development.

On the slide: L6 Advanced · Market power and welfare

Notes: Derive monopoly output and deadweight loss and compare with competition. Notes: demand P = 100 minus Q with marginal cost 20 gives monopoly output 40 at price 60 and profit 1,600; competition gives 80, so the welfare loss is 800.

On the slide: L7 Super expert · Growth models and causal evidence

Notes: Evaluate a growth model and the identification strategy behind a policy claim. Notes: with saving rate 0.2, depreciation plus population growth 0.05 and capital share 0.5, steady-state capital per worker is 16; discuss what instrument would justify a causal reading.