Class XII – Economics Sample Paper – 2

Ans. (C) Both Statements 1 and 2 are true.

Explanation: Consumption function states the positive relationship between consumption expenditure and level of income. Thus, Investment multiplier depends on marginal propensity to consume. If MPC is zero

Ans. (A) Households & Producer

Explanation: Closed economy involve only household and producer sector. Producer sector provides goods and services to household sector and in return household sector make available factors of production to producer sector.

Ans. (C) 8

Explanation: If MPS is 0.125

Ans. (D) Import of visible items, Export of visible items

Explanation: Only the value of import and export of goods are included in the balance of trade. Import of visible items is subtracted from export of visible items to find out the country’s balance of trade.

Ans. (A) Commercial Bank

Explanation: The given statement is related with commercial bank. Credit creation is an important function of commercial bank, under which they affect the flow of money in the market.

Ans. (A) (i), (ii)

Explanation: For the purpose of credit control, the central bank uses two methods – Quantitative and qualitative method. Bank rate policy, open market operation, CRR and SLR are the tools of the central bank which are used by the central bank under the quantitative method.

Ans. (A) C, I

Explanation: Consumption expenditure (C) and Investment expenditure (I) are two important components of aggregate demand. The amount of total spending on consumption of goods and services in an economy and expenditure in fixed capital formation during one financial year is aggregate demand.

Ans. (C)  ₹ = $0.0136, = $0.0133, = $0.0123

Ans. (B) ₹39,600

Explanation: If C = 40 + 0.1Y, and Consumption expenditure is ₹4,000 crore

Thus, ₹4,000 = 40 + 0.1Y

0.1Y = ₹3,960

Y = ₹3,960/0.1 = ₹39.600 crore

Ans. (B) Flexible exchange rate system

Explanation: The given picture shows flexible exchange rate system in which the value of a currency is determined by the free play of demand and supply forces of foreign currency.

Ans. Balance of payments is a systematic record of economic transactions of any country with the rest of the world. There are two different accounts in BoP – Current Account and Capital Account. Current account comprises the import and export of goods and services and unilateral transactions from one country to rest of the world. Really, current account tells whether a country is in a surplus or deficit because it includes the real behaviours of economic transaction of BoP.

Ans. National Income (NNPFC) = Salary and Wage + Net Factor Income From Abroad + Operating Surplus + Mixed Income + Contribution of Social Security by Employee

=₹8,000 + ₹2,000 + ₹2,000 + ₹300 + ₹50

= ₹12,350

Ans. (i) Mixed Income: Mixed income refers to the earning of a self-employed using their own means of factors of production like house rent of self-occupied house of an individual.

(ii) Windfall Gain: Windfall gain is a type of transfer payment which could be due to winning a lottery or unforeseen inheritance. It is not included in national income because it arises without any effort.

(iii) Corporate Tax: The part of the income that entrepreneurs have to pay to the government in the form of tax is known as corporation tax. It is a direct tax imposed on the profit of producer.

Ans. Given, C = 40 + 0.8Y, and APC = 1

As we know that APC = C/Y

1= C/Y therefore, C=Y

Thus,

Y = 40 + 0.8Y

Y – 0.8Y = 40

0.2Y = 40

Y =40/0.2

= 200

Thus, Income is ₹200

Ans. Excess demand refers to the situation when aggregate demand (AD) becomes greater than aggregate supply (AS) corresponding to full employment level in the economy. In this situation, the demand for goods and services by the people increases compared to the quantity of supply. In this situation output, employment and prices of goods are adversely affected and inflationary pressure starts increasing in the economy. The tax policy of the government plays an important role in dealing with this situation. The government increases the tax rates on goods and services. The increased tax reduces the income of the people and naturally the demand of the people decreases.

Ans. Deflationary Gap refers to the shortfall of aggregate supply over aggregate demand at full employment level. It occurs during the situation of deficient demand. Diagrammatically this situation can be shown as following:

The above diagram shows the difference between full employment level of output and actual output. Full employment level of demand is above than underemployment level of demand, which creates the deflationary gap.

Ans. In modern times, various means have to contribute for the production of goods and services. It means, production is the result of the collective effort of land, labour, capital and entrepreneur. Money plays an important role in the fair distribution of the returns of each factors of production in exchange for its contribution and with the help of money; payments of each factors of production can be evaluated and can be paid in money. Apart from this, the distribution of wealth among every section of society can be estimated through money.

Ans. (i) Fiscal Deficit

= (Revenue Expenditure + Capital Expenditure) – (Tax Revenue + Non-Tax Revenue)

– (Recovery of Loan + Disinvestment)

= (₹58,967 +₹31,400) (₹18,500+ ₹20,000) – (₹765 + ₹3,200)

=₹90,367 – ₹38,500 – ₹3,965

= ₹ 47,902

(ii) Revenue deficit

= Revenue Expenditure – Tax Revenue – Non-Tax Revenue

=₹58,967 -₹18,500 – ₹ 20,000

=₹20,467 crores

Ans. The government budget in which the estimated income and expenditure during an accounting year are not in equal amount is known as unbalanced budget. It may be deficit or surplus budget.

Ans. Government can promote social justice and equality through its budgetary policy. The government uses fiscal instrument through budget to improve the gap of unequal distributions of income and wealth among people. The government imposes taxes on the rich section of the society and provides necessary facilities to the weaker section of the society for their development. Through subsidy, the purchasing power of the weaker section of the society is increased so that the poor people can also buy the necessary material for themselves.

Ans. Government budget or Union Budget refers to the statement of the expected income and expenditure of the government during one financial year. Government budget has two components – budget receipts and budget expenditure.

Budget Receipt: Budget receipt refers to the estimated income of the government during one financial year. There are two major sources of income Revenue Receipt and Capital Receipt. Revenue receipt includes income of the government from tax and non-tax sources of income. Capital Receipt may create a liability or reduce assets of the government. Budget Expenditure: Budget expenditure refers to the expected expenditure of government on its development and non-development programmes during one accounting year. It should be classified into revenue and capital expenditure.

Ans. (i) No

After the Tsunami, the amount received from America as relief will not be included in India’s national income because it is a kind of transfer income to India which has given or exchanged no goods or services for it. This is an unproductive transaction so it is not a part of our national income.

(ii) Yes

Salary of Indian citizen working in Indian Embassy in Iran is included in Indian national income because it is a flow of income towards Indian economy.

Ans. Yes, I agree. Old age pension given by the government is a transfer payment. Transfer payment is provided by the government without providing any kind of services. That’s why it an unearned income. It is not included in national income. Transfer payment is not a productive activity. Employee pension after retirement is a kind of deferred payment and it is a part of compensation of employees. That’s why employee pension is included in national income.

Ans. (A) Low productivity, Subsistence farming, Outdated technology

Explanation: In the period from 1950 to 1991, there was improvement in Indian agriculture, yet it was backward and subsistence in nature. Farming was being done in most of the places by old and traditional methods.

Ans. (D) All of these

Explanation: One child policy was adopted in 1980 in China. As a result of this policy population control took place but the problem of gender imbalance arose. The number of young people is less than the elderly.

Ans. (B) I, III

Explanation: During the planning period, inward looking strategy was adopted in the first to seventh five-year plans in India, under which import substitution and import restrictions were imposed to discourage imports.

Ans. (A) Horticulture

Explanation: Bee keeping is depicted in the above picture. Horticulture is a branch of agriculture in which many things including flowers, fruits and beekeeping are included, along with agricultural work in rural areas, it is done by farmers.

Ans. (A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A)

Explanation: The main reasons for adopting the new economic policy in India were debt trap. The stock of foreign exchange reserves was inefficient and the high fiscal deficit created the problem of repayment of interest on international loans.

Ans. (B) 1947, 1949

Explanation: India and Pakistan gained independence from British rule in 1947. India became a secular state with a Hindu majority, while Pakistan was established as an Islamic state with Muslim-majority regions. The People’s Republic of China was officially established on October 1, 1949, following the victory of the Communist Party of China in the Chinese Civil War.

Ans. (C) I, II and III

Explanation: Organic farming is that method of agriculture in which instead of chemical fertilisers and dangerous pesticides, farming is done with the help of natural fertilizer and organic manures. It is very significant for an agrarian economy but it is less popular because of law yield and limited choice of crops.

Ans. (A) micro credit

Explanation: Self Help Group is a group of rural women in which the member women of the group collect some money by saving from their domestic expenses and provide micro credit to the members as needed.

Ans. (C) Both statements 1 and 2 are true

Explanation: Both the given statements are true regarding Indian economy. The meaning of disguised unemployment is the involvement of workers in productive work more than required. They seem to be employed but actually their productivity is almost zero. That’s why it is also called hidden unemployment.

Ans. (B) II – ii

Ans. During the colonial period, the direction of Indian trade was turned to an element of profit for the East India Company only. This can be understood through following:

(i) Exporter of raw material and importer of finished goods: The British government made a unidirectional trade policy under the erosive policy in India. They made the export of raw materials duty free so that their factories could get cheap raw materials and then sell the goods manufactured in their factories in the Indian markets. Higher taxes were imposed on Indian handloom products.

(ii) Decline of handicraft industry: The British levied high taxes on handicraft industries and the products of East India were tax-free. Due to this repressive tax policy, Indian products became costlier and gradually disappeared from the markets.

Ans. Some positive works were also done during the British rule, but its purpose was also to strengthen the British administration. Some of the positive works are as follows:

(i) During the colonial period, the British government used to take raw materials from India to its factories and sell the produced goods in the Indian markets. For this purpose, means of transport such as rail, road, sea route etc. were developed which proved to be important in the form of infrastructure of the country after independence.

(ii) In 1864, the British government established the postal telegraph system, due to which the message can be easily transmitted from one place to another. Apart from this, the internal administration, along with the form of commercial agriculture, the scientific methods of flood management were established by the British, which are the identity of our economy even today.

Ans. Human capital formation is a process of adding skill and ability to the stock of human capital over time. Health, technical knowledge and on job training are the tools through which the process of human capital formation can be accelerated. There are two ways for a developing country to speed up the pace of economic development, first to increase the amount of investment in its country or to increase the efficiency of its population. It is clear from the above statement that India wants to speed up the rate of human capital formation in the country with the help of more and more educational institutions, teachers and experts. Through public expenditure government can provide vocational education and technical knowledge to the people so that the development of the country can be done at a faster pace.

Ans. China made several strategies for its economic development. Under this strategy, special economic zones were established in different parts of China and facilities were provided to invite foreign investment in these places in various ways. The country’s first SEZ was established in the southern coastal part of China in 1980 and these areas were developed due to the implementation of special economic policies and incentives. The contribution of SEZ in China’s development can be understood from the fact that SEZ is contributing 22% to its GDP and 45% of total national foreign direct investment, and 60% of exports.

Ans. (i) True: Nationalization of banks was a necessary step to abolish the dependence on moneylenders for credit in rural areas. On 28th July, 1969, total 14 private commercial banks were nationalised in the country so that a uniform and fair interest rate could be established for credit circulation in the country.

(ii) True: After independence, land reform programs were implemented with the aim of correcting the defective land distribution system. Under this program, the limit of ownership of land was fixed by implementing the ceiling act so that the ownership of land could be given to the tiller of soil.

Ans. Pradhan Mantri Rozgar Yojana (PMRY) is a rural development scheme of the Government of India which was launched in 1993 to provide sustainable self-employment opportunities in the country. Under this scheme, every year 10 lakh educated and unemployed youth and women in India are given financial benefits so that they can establish self-employment. If an unemployed youth wants to start his own enterprise, then under this scheme the government provides financial assistance, technical knowledge, marketing facilities, etc.

Ans. The above picture shows the situation of formal/ organised source of employment. On the basis of nature of employment, ít can be classified into two sectors – formal and informal sector. Formal sector refers to the institutional source of employment. Workers working in the formal sector get social security benefits as well as the following benefits which the workers in the informal sector do not get:

(i) Fixed working hours

(ii) Fixed wage rate

(iii) Health facilities

(iv) Implementation of the laws made by the government

(v) Favorable working environment

(vi) Job security

(vii) Social security benefits such as provident fund, gratuity, pension.

Ans. Regulated market is the result of the agricultural marketing channel in India, which has been established by the government to protect the farmers from middlemen/broker. It is beneficial for the farmers as well as the consumers. Here farmers can sell their produce directly in the market after negotiation. Through the regulated market, state government tries to eliminate the unhealthy and unscrupulous practices and providing facilities to farmer and consumer in the market. But there is a need of improvement and to develop about 27,000 rural periodic markets as relegated market place in order to realise the full potential of rural market.

Ans. After independence, India could not recover from industrial backwardness till 1990 but agricultural sector was improved through the Green Revolution. The secondary and service sectors of the country were not strong enough to absorb the large workforce of the country. That’s why approximately 65% of our workforce was looking for employment opportunities in the agricultural sector. The situation changed when the new economic policy was announced in 1991 and industrialization took place rapidly in the country. The surplus amount of agriculture workers migrated towards industrial and service sectors.

Ans. IPR 1956 classify the industry among three categories:

(i) Schedule A Industries: Schedule A industries were

exclusively reserved for the public sector. These industries were considered of strategic importance for the nation. The government aimed to maintain complete control over these sectors to ensure national security, promote self-reliance in essential goods production, and prevent the concentration of economic power in private hands. By reserving these industries for the public sector, the government sought to safeguard key sectors of the economy critical for the country’s development and security.

(ii) Schedule B Industries: Schedule B industries were open to both the public and private sectors. The government aimed to strike a balance between public and private ownership in these industries. While the public sector participation was encouraged, private entrepreneurship was also welcomed. The goal was to promote competition and efficiency in these industries by allowing both sectors to invest and participate. By providing opportunities for both public and private enterprises, the government sought to ensure a healthy and competitive business environment.

(iii) Schedule C Industries: Schedule C industries were predominantly in the private sector, with limited government involvement. The government’s role in these industries was primarily regulatory, ensuring fair competition and consumer protection. In this category, the private sector played a dominant role, and the government’s intervention was minimal. These industries were considered suitable for private entrepreneurship, and the government relied on market forces to govern their development. The policy aimed to encourage private enterprise and innovation while ensuring a regulatory framework for consumer welfare.

Ans. Small scale industry means a minor industrial center whose investment does not exceed ₹ 1 crore and most of the production work is done with the help of labour instead of machine. Labour intensive techniques are used in these firms which are good from the point of view of employment generation. These small scale industries are helpful in reducing the problem of unemployment in the country. These industrial centers can be established with relatively less investment, so the government encourages people for this. In 1955, the Karve Committee had kept the firm with investment up to ₹ 5 lakhs in the category of small scale industry, but now this limit is ₹1 crore.

Ans. (i) When Neil Armstrong stepped out of the earth on another planet, it was found that the solar system and atmosphere are not available on any other planet like the earth, so the earth is better than other planets and protection of its environment is necessary for human life.(ii) Sustainable development satisfies the need of present generation without compromising the ability to fulfill the demand of future generation. That’s why it is necessary for the entire world to protect the environment. The “switch off the light movement” was a symbolic movement that was started in 2007 to make people aware of sustainable development globally. Under this movement, people were called upon to switch off the electricity of their homes for 1 hour. “Switch off the light movement” is a part of the earth our environmental campaign which organized annually to bring attention to the effects of climate change by asking people to switch off lights at homes for an hour.