Class XII - Economics - 2 - MS - Practice for Everyone

SAMPLE QUESTION PAPER (2021-22)

ECONOMICS

TERM II

CLASS 12

Time: 2 Hrs Max. Marks: 40

GENERAL INSTRUCTIONS

1. This is a subjective question paper containing 13 questions.

2. This paper contains 5 questions of 2 marks each, 5 questions of 3 marks each and 3 questions of 5 marks each.

3. 2 marks questions are Short Answer Type Questions and are to be answered in 30-50 words

4. 3 marks questions are Short Answer Type Questions and are to be answered in 50-80 words

5. 5 marks questions are Long Answer Type Questions and are to be answered in 80-120 words

6. This question paper contains Case/Source Based Questions.

Short Answer (SA) Type 1 Questions

1. In an economy, investment increases by ₹100 crore. As a result, income increases by ₹250 crore. What is the value of multiplier? What does this imply? On the basis of the multiplier calculated, find out the change in income, if investment changes by ₹750 crore.

Ans. Given Increase in Investment (ΔI) = ₹100 crore; Increase in Income (ΔY) = ₹250 crore

We know that, Investment Multiplier (K) = (ΔY)/ (ΔI)

250/100 = 2.5

This implies that for every unit increase in investment, income increases 2.5 times.

We know that,

Investment Multiplier = (ΔY)/ (ΔI)

So, 2.5 = (ΔY)/750

Change in Income (ΔY) = 2.5 x 750

= ₹1,875 crore

If MPC is 0.9, what is the value of multiplier? How much investment is needed to increase national income by ₹5,000 crores?

Ans. Given, Change in Income (ΔY) = ₹5,000 crore, MPC = 0.9, K =? ΔI =?

By formula

Investment Multiplier (K) = 1/(1 – MPC)

K = 1/(1 – 0.9)

= 1/0.1

K = 10

Also, K = ΔY/ ΔI

10 = 5,000/ ΔI

ΔI = 5,000/10

= 500

K = 10 and ΔI = ₹500 crore.

2. Are the following included in the estimation of national income of a country? Give reasons for your answer.

(i) Government expenditure on street lighting.

Ans. It is a part of the estimated value of output of services provided by government. Therefore, it is included in national income from the production angle.

(ii) Receipts from the sale of land

Ans. Land is a free gift of nature and does not constitute current production. So, receipts from the sale of land has nothing to do with the measurement of national income.

Why should exports be included in GDP?

Ans. this is because exports are the part of domestically produced goods and services or because epxorts are a part of goods and services produced within the domestic territory of a country.

3. Explain the role of legal reserve in correcting the inflationary gap in an economy.

Ans. Legal reserve ratio refers to that legal minimum fraction of deposits which the banks keep as cash with RBI and themselves. It is the sum total of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)

To Check inflationary gap, the legal reserve ratio is increased. This reduces the loan disbursement capacity of the commercial banks which further leads to a fall in the level of aggregate demand in the economy. With a fall in demand, the level of inflation is checked.

4. “Unemployment is related to poverty.” Comment.

Poverty and unemployment usually go together. Those who fail to get employment become a burden on the limited family income and thus, depress low levels of consumption.

Therefore, many programmes which aim at removing poverty provide employment opportunities to the poor like Prime Minister’s Rozgar Yojana, Swarna Jayanti Shahri Rozgar, etc. Most of the urban poor’s are either unemployed or intermittently employed as casual labourers.

Casual labourers are among the most vulnerable in society as they have no job security, no assets, limited skills, sparse opportunities and no surplus to sustain them. Poverty is therefore, closely related to unemployment.

The following table shows the population and worker population ratio for India in 1999-2000

Can you estimate the workforce (rural and urban) for India?

Worker Population Ratio = Total Number of Workers/Total Population x 100

Therefore, Number of Workers = Total Population/100 x Worker Population Ratio

5. “Sustainable development is a paradigm shift in development thinking.” Comment.

Ans. Sustainable development implies meeting the basic needs of all and extending to all the opportunities to satisfy their aspirations for a better life, without compromising on the needs of future. The strategies for sustainable development imply the use of non-conventional sources of energy to minimise the adverse environmental impacts.

Promotion of natural resources, conservation, preserving regenerative capacity of ecological system and avoiding the imposition of environmental rules on future generations would lead to sustainable development.

Short Answer (SA) Type Questions

6. Government of India has recently launched ‘Jan-Dhan Yojana’ aimed at every household in the country to have at least one bank account. Explain how deposits made under the plan are going to affect national income of the country.

Ans. ‘Jan-Dhan Yojana’ was launched with the aim to bring every individual into the financial market and a large number of bank accounts has also been opened, which has lead to increase in the deposits with the commercial banks and hence it has enhanced their capacity to create credit in the economy. Increase in money supply would lead to increase in the rate of transactions and aggregate demand, leading to increase in national income of the economy.

Suppose the GDP at market price of a country in a particular year ₹2,200 crore. Net factor income from abroad was ₹200 crore. The value of indirect taxes less subsides was ₹300 crore and national income was ₹1,700 crore. Calculate the aggregate value of depreciation.

Ans. Given,

GDP_MP = ₹2,200 crore, NFIA = ₹200 crore,

NIT = ₹300 crore, NNP_FC = ₹1,700 crore

Therefore, GDP_FC = GDP_MP – NIT

= 2,200 – 300 = ₹1,900 crore

GNP_FC= GDP_FC + NFIA = 1,900 + 200 = ₹2,200 crore

GNP_FC= NNP_FC + Depreciation

2,100 = 1,700 + Depreciation

Depreciation = 2,100 – 1,700

= ₹400 crore

7. Observe the table give below carefully and answer the question

Public Health Infrastructure in India, 1951 – 2018

Item	1951	1981	2000	2018
Hospitals (Government)	2,694	6,805	15,888	25,778
Beds (Government)	1,17,000	5,04,538	7,19,861	7,13,986
Dispensaries	6,600	16,745	23,065	27,951
PHCs	725	9,115	22,065	25,743
Sub-centres	–	84,736	1,37,311	1,58,417
CHCs	–	761	3,043	5,624

Sources: National commission on Macroeconomics and Health, Ministry of Health and Family Welfare, Government of India, New Delhi, 2005: National Health Profile for various years available on www.cbhidghs.nic.in

Based upon the above table, critically evaluate the progress in India’s health infrastructure.

Ans. As shown in the given table between year 1951 to 2018, there has been constant improvement in the public health infrastructure in the country as the government’s investment increased for the provision of the health in the country. However, in the above time period, population have also increased rapidly and keeping in mind the growth rate of population the above health provision proved insufficient as there is a serious demand-supply mismatch leading to the poor of health infrastructure.

Read the following text carefully and answer questions 8 and 9 below:

8. Highlight the importance of seller and more productive employment of the self-employed in India and suggest some measures that would help to increase their productivity.

Ans. Self-employed includes employees, on account workers and unpaid family workers. In India, the self-employed constitute about 60% employees. The largest population of the self-employed is engaged in agriculture.

The incidence of under-employment is the highest among the self-employed. Therefore, priority should be given to improve their efficiency so that fuller and more productive employment yields them more reasonable incomes.

Following are some measures that may be taken to ensure fuller and more productive employment for the self-employed

(i) A comprehensive system of assistance to farmers should be setup. It should provide them with credit, inputs like improved seeds, saplings, fish seedlings, fertilisers, technical guidance, irrigation facilities, etc. These facilities should be made available to persons having tiny holdings or no holdings.

(ii) There should be redistribution of land, followed by an effective programme of assistance and guidance to the beneficiaries.

(iii) The policy should emphasise further improvements in the support mechanism for the self-employed engaged in non-agriculture. Eg. Technical guidance, credit, easy availability of equipment, infrastructural facilities, raw materials at reasonable prices, market guidance, etc.

9. “Infrastructure contributes to the economic development of a country”, Do you agree? Explain.

Ans. Yes, I agree. Infrastructure and economic development go hand-in-hand. Infrastructure contributes to the economic development of a country in the following ways.

(i) Impact on Productivity: Infrastructure plays a major role in the raising productivity of all the three sectors, viz. primary, secondary and the tertiary sector.

(ii) Induces Investment: Infrastructure induces investment. A well-developed infrastructure attracts foreign investors which opens new investment avenues and gives birth to profitable ventures.

(iii) Enhances Ability to Work: Social infrastructure improves the quality of life of workers, thereby increasing their efficiency. Healthcare centres, educational institutions and other such facilities develop the skills of the workers, which increases their ability and efficiency to work.

(iv) Facilitates Outsourcing: India is emerging to be a global destination for all kinds of outsourcing. For example, call centres, study centres, medical transcription and such other services, owing largely to its sound system of social and economic infrastructure.

10. What do you understand by Aggregate Demand (AD)? Briefly explain two of its components.

Ans. Aggregate Demand (AD) refers to the sum total of expenditure that the people plan to incur on the purchase of goods and services produced in an economy (during the period of an accounting year) corresponding to their different levels of income.

Components of AD are

(i) Household Consumption Expenditure (C): This measures the demand for consumer goods i.e., that expenditure which people wish to make on consumer goods corresponding to different levels of income in economy.

(ii) Producer Investment Expenditure (I): This measures the demand for producer goods which lead to capital formation i.e., that expenditure which people wish to make on producer goods corresponding to different levels of income in economy.

(iii) Government Expenditure (G): It refers to public consumption expenditure (such as purchase of foods and clothes for military personnel) and investment expenditure (such as construction of road) made by government.

(iv) Net Exports (X – M) Exports (X) increase aggregate demand in domestic economy, while Imports (M) decrease it. Therefore, value of net exports (X – M) contributes to AD in domestic economy.

Long Answer (LA) Type Questions

11. Given that national income is ₹80 crore and consumption expenditure is ₹64 crore, find out Average Propensity to Save (APS). When income rises to ₹100 crore and consumption expenditure to ₹78 crore, what will be the Average Propensity to Consume (APC) and Marginal Propensity to Consume (MPC)?

Ans. Here in first condition, Y = ₹80 crore and C = ₹64 crore

Hence, Average Propensity to Save (APS)

APS = S/Y = 16/80 = 0.20

Again, when income and consumption expenditure rise,

Y = ₹100 crore and C = ₹78 crore

So, Average Propensity to Consume (APC)

APC = C/Y = 78/100 = 0.78

Here, ΔY = 100 – 80 = ₹20 crore

ΔC = 78 – 64 = ₹14 crore

So, Marginal Propensity to Consume (MPC)

MPC = ΔC/ ΔY = 14/20 = 0.70

Where, ΔC= Change in consumption, ΔY = Change in Income; ΔI = Change in Investment,

K = Multiplier;

MPC = Marginal Propensity to consume, APC = Average Propensity to Consume

APS = Average Propensity to Save

12. (i) Calculate Gross Domestic Product at Market Price (GDP_MP) by using income method

S. No	Items	₹ (in crores)
(a)	Intermediate Consumption of Primary SectorSecondary SectorTertiary Sector	1,000 800 600
(b)	Value of Output of Primary SectorSecondary SectorTertiary Sector	2,000 1,800 1,400
(c)	Rent and Royalty	20
(d)	Compensation of Employee	800
(e)	Benefits of Rend Free Accommodation and Interest Free Loans to the Employees	400
(f)	Mixed Income of the People Using Family Inputs	1,300
(g)	Operating Surplus	600
(h)	Net Factor Income to Rest of the World	40
(i)	Interest	10
(j)	Consumption of Fixed Capital	80
(k)	Net Indirect taxes	20

Ans. Calculation of GDP_MP by Income Method

Net Domestic Product at Factor Cost (NDP_FC)

= Compensation of Employees + Operating Surplus + Mixed Income

= 800 + 600 + 1,300 = 2,700 crore

GDP_MP = NDP_FC + Net Indirect Tax + Depreciation

= 2,700 + 20 + 80 = ₹2,800 crore

(ii) How do you distinguish between old age pensions and retirement pensions in the context of estimation of national income?

Ans. Old age pensions are unilateral payments or transfer payments. These are not included in the estimation of national income. On the other hand, retirement pensions are like a deferred wage. These are related to factor services rendered by the recipients prior to their retirement. Accordingly, these are included in the estimation of national income.

(i) GNP is the estimated value of the total worth of production and services earned by the normal residents of a country. But to find out NNP, GNP deducts depreciation, why should we deduct depreciation from GNP?

Ans. the productive power of physical capital stock of a country diminishes gradually because of the wear and tear in the process of production. When the machine becomes totally unproductive, it has to be replaced by new machine. So, a sum of money is set aside every year into depreciation account and new machine can be purchased by utilising this accumulated sum.

So, depreciation is deducted from GNP in order to get more accurate measure of the sustainable production of goods and services in a country in a given year.

(ii) Find net value added at market price.

S.No	Items	₹ (in lakhs)
(a)	Fixed Capital Good with a Life Span of 5 years	60
(b)	Raw Materials	24
(c)	Sales	100
(d)	Net Change-in-stock	(-) 8
(e)	Taxes on Production	4

Ans. Net Value Added at Market Price (NVA_MP) = Sales + Net Change-in-stock – Raw Materials – Depreciation on Fixed Capital Good

= 100 + (-8) – 24 – 12

= ₹56 lakh

Depreciation on Fixed Capital Good = Value of Fixed Capital Good/Life Span

= 60/5 = ₹12 lakh

13. (i) “Out of the three countries namely India, China and Pakistan, China has outperformed rest of neighbours in almost all areas, through its variety of reforms. Though the structural reforms of China are not free from criticism.” In the light of the statement, enumerate the failures of the structural reforms in China

Ans. Following are the failure of structural reforms in China

(a) There was slow pace of growth and lack of modernisation in the Chinese economy under the Maoist rule.

(b) Maoist vision of economic development based on decentralisation, self-sufficiency and shunning of foreign technology had failed.

(c) Despite extensive land reforms, collectivisation, the great leap forward and other initiatives, the per capital gain in output in 1978 was the same as it was in the mid-1950s.

(ii) “Poverty is one of the major problems that every developing country faces. In case of Pakistan, its initial phases of reforms helped in reducing poverty, though it re-emerged later. In the light of the statement, state the reasons for the re-emergence of poverty in Pakistan.

Ans. The percentage of poor was 40% in Pakistan during 1960s that reduced to 25% in 1980s and stared going up in 1990s.

The causes for re-emergence of poverty are as given below

(a) The agricultural growth was not the result of technology improvement. Rather, it was based on good climatic conditions. When the conditions were good, the economic growth showed positive trends and vice versa.

(b) In Pakistan, a considerable part of foreign exchange came from remittances from Pakistani workers in the middle East.

Class XII – Economics – 2 – MS