Class XII – Economics Sample Paper – 3

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

Explanation: Even if total income is kept as saving, the value of APS will not be more than 1 because it is the ratio of income and saving.

Ans. (A) Normal wear and tear during usage of asset.

Explanation: Depreciation refers to the deteriorating of monetary value of an asset over time due to wear and tear or obsolescence during productive use.

Ans. (C) 20

Explanation: If MPS is 0.05 =

Ans. (C) Trade balance, invisible balance

Explanation: Balance of trade is a part of current account. Therefore, we can estimate Balance on current account through-Balance of current account = Trade balance + Invisible balance

Ans. (B) Lender of last resort

Explanation: Lender of last resort is an important function of central banks in which central bank acts as a lender of last resort by providing financial help to commercial banks in times of cash crunch.

Ans. (B) (ii), (iii)

Explanation: Credit creation is an important function of commercial bank. Credit creation is the expansion of deposits by the commercial bank as per reserve ratio with central bank. Central bank, government and commercial banks are the supplier of currency (money) in our economy.

Ans. (B) 100, 0.3, 0.5

Explanation:

Ans. (B) sale, purchase

Explanation: Spot market deals with current sale and purchase of foreign exchange which reflects the price of one currency in terms of another currency.

Ans. (B) 4,975

Explanation: If C = 20 + 0.8Y, and Consumption expenditure is ₹4,000 crore

Thus, ₹4,000 = 20 + 0.8Y

0.8Y = ₹3,980

Y =₹ 3,980/0.8 = ₹ 4,975 crore

Ans. (D) Bretton woods exchange system

Explanation: The given picture shows Bretton woods exchange system in which the value a currency is determined by the US dollar or countries fix their exchange rates relative to the US dollar.

Ans. Official reserve transactions always have an impact on Balance of Payment status of a country because it helps to bring a balance in the country’s overall balance of payments. Decrease in official reserve reflects positive sign in BoP because their sale is cause of injection in an economy and increase in official reserve reflects a negative sign in BoP because their purchase is a cause of leakage from domestic economy.

Ans. Net Value Added at Factor cost

= Value of output – Intermediate Consumption – Depreciation – Indirect tax + Subsidiary

Thus, Intermediate Consumption

= Value of output – Net value added at factor cost – Depreciation – Indirect tax + Subsidiary Intermediate Consumption

= ₹50,000 – ₹30,000 – ₹5,000 – ₹6,000 + ₹11,000

= ₹20,000 crore

Ans. (i) Net Export: Net export refers to the difference between the total value of exports of a country and its total value of imports. Net export is an important component of the calculation of the gross domestic product of an economy.

(ii) Royalty: Royalty is a factor payment which is received by a factor for granting leasing rights of sub-soil assets. It is a part of operating surplus by a factor of production.

(iii) Gross Domestic Product: It is the sum total monetary value of products (goods and services), produced within a country during one financial year.

Ans. Given,

C = 40+ 0.8Y, C = ₹6,000

₹6,000 = 40+ 0.8Y

0.8Y = ₹6,000 – 40

Y = ₹7,450

Thus, Income is ₹ 7,450

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. Following factors are responsible for excess demand in an economy:

(i) Increasing government demand due to increase in public expenditure

(ii) Increasing household demand due to fall in taxes.

(iii) Flow of money due to credit creation by commercial banks.

(iv) Increasing consumption due to increase in disposable income.

(v) Increase in demand for imported goods due rebate in tariff.

Ans. The difference between aggregate demand and aggregate supply is called inflationary gap. If full employment level of demand becomes below than underemployment level of demand, then after the situation of excess demand inflationary gap is created. The situation of excess demand occurs when planned aggregate expenditure is greater than the available output at full employment level. During this situation, production in the economy does not change while price of goods and services rise rapidly.

Ans. Reserve Bank is the central bank of India, whose main function is to control and regulate the country’s banking and monetary system. Maintaining foreign exchange reserves in the country is also its important function. To maintain the strength of the country’s foreign exchange rate, the central bank can buy and sell foreign currency from the international currency market as per the need of economy. To save the country from the situation of inflation and deflation, it observes the demand and supply of foreign exchange in the country and gives appropriate advice to the government.

Ans. (A) (i) Fiscal Deficit = (Revenue Expenditure + Capital Expenditure) – (Tax Revenue + Tax Revenue) – (Recovery of Loan + Disinvestment)

= (₹1,58,967 + ₹1,31,400) – (₹60,500 + ₹90,000) – (₹1,765 + ₹13,200)

= ₹2,90,367 – ₹1,50,500 – ₹14,965

= ₹1,24,902 crores

(ii) Revenue Deficit = Revenue Expenditure – Tax Revenue – Non-Tax Revenue

= ₹1,58,967 – ₹60,500 – ₹90,000

= ₹8,467 crores

Ans. It is system of taxation in which the amount of tax decreases with increase in income.

Ans. The primary objective of the government’s budget is to encourage the economy to grow rapidly in the direction of development. To fulfill this objective, the government makes fiscal policy through the budget. Under the fiscal policy, the government imposes taxes according to the taxable capacity of the people, following the principle of minimum taxation. Through the budget, the government spends on roads, bridges, canals, power generation, schools, colleges, etc. to build the country’s infrastructure. It benefits the weaker sections through subsidies and provides protection to small businessmen and industries by giving tax concessions. In this way, the government makes many provisions in its budget to accelerate the pace of economic development.

Ans. Government budget is 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 receipts are estimated money receipts of the government from all sources during the fiscal year. Budget receipt can be classified in two categories:

Revenue Receipt: Revenue receipts are those sources of governmental income which neither create any liability nor cause any reduction in the assets of the government. Like income from tax and non-tax sources.

Capital Receipt: Capital receipt is that source of income which either creates liabilities or reduce assets of the government. Like funds received from issue of shares or debentures, cash from sale of fixed assets, borrowings such as loans are examples of capital receipt of the government.

Ans. (i) No

Services of self-consumption are not included in national income because it does not create any income generation and these services are not rendered for earning income.

(ii) No

Income gain through sale and purchase of shares and bonds are not included in national income because it is a type of transfer payment.

Transfer payment is not a productive income.

Ans. Yes, I agree. The counting of same item twice is called the problem of double counting. Double counting unnecessarily increases the size of national income. Therefore, it is necessary to carefully classify the total goods and services produced in the economy into final and intermediate goods. Only the value of final goods and services should be included in the national census. In this way the problem of double counting can be avoided. Otherwise the national income will exceed the real value.

Ans. (A) Tariff & Quotas

Explanation: Tariff and quota system was implemented in the Indian economy from 1950 to 1990 under the import substitution policy so that import of goods and services could be discouraged and domestic industrial centers should be protected.

Ans. (B) The Great Leap Forward Campaign

Explanation: The Great Leap Forward Campaign was introduced in China on 1958 under the leadership of Mao for large scale industrialisation in the country. After that China’s agrarian economy transformed into industrial economy.

Ans. (D) Only I

Explanation: After independence, the first five-year plan in the country was started in 1951, the first and main objective of this plan was to achieve self- sufficiency in food production. To fulfill this objective, all the attention was focused on agricultural reforms.

Ans. (B) Non-Institutional

Explanation: Non-institutional source of credit is depicted in the above picture. Moneylenders, traders and landlords are the non-institutional source of rural credit.

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

Explanation: Due to the licensing system in India till 1990, the development of private sector was limited. Under the import substitution policy, exports were encouraged and imports were discouraged. The main reasons for adopting the new economic policy in India were low level of industrial growth. The purpose of liberalisation was to unlock the economic potential of the country.

Ans. (A) to remove the evils of private ownership and bring them under socialistic society

Explanation: Nationalisation is a process of transforming private assets into public assets by bringing them under the ownership of government either central or state. This was done to reduce the private ownership and bring about a socialist equality among the people.

Ans. (D) All of these

Explanation: Rural indebtedness in India is exacerbated by multiple factors. Indian farmers often borrow year after year, finding it challenging to clear their loans, resulting in a perpetual cycle of debt. Additionally, the loans they take are sometimes too large relative to their agricultural output, making it difficult for them to repay. Moreover, à significant number of farmers still rely on informal sources of credit that charge high-interest rates, further contributing to the burden of indebtedness. These combined issues create a complex problem of rural indebtedness in the country.

Ans. (B) high interest rate

Explanation: Indigenous source of credit refers to non-institutional source of credit like moneylenders and traders. When farmers take loan from indigenous source of credit, they have to pay high interest rate.

Ans. (B) Statement 1 is false and Statement 2 is true

Explanation: The size of the unorganised sector is very large as compared to the organised sector in India. The organised sector of employment provides workers with facilities such as regular work, suitable wages and fixed working hours.

Ans. (D) IV – iv

Explanation: A dual-price system was introduced in China in 1979 to facilitate the economic reforms in which state can set price, for centrally rationed supplies, and a higher free-market price.

Ans. British Government built Railways and Roads infrastructure to serve their own colonial interest.

(i) Transportation of Goods: During the colonial period, rail routes and roadways were developed here with the aim of transporting raw materials from different parts of India to the port and to transport their manufactured goods from the port to the markets across the country.

(ii) Mobilization of army: Trains and roads were developed for the purpose of rapidly sending army to different parts of the country to maintain law and order and suppress revolution.

Ans. Feudalism refers to Zamindari or Ryotwari system. During the colonial period, the British established a triangular system of land revenue. Under this system, the zamindars were given the right to collect rent from the specified area. These zamindars used to take their profit in the form of rent and give the rest to the British. In the occurrence of non-payment of rent, they used to occupy the land of the farmers. In this way, due to the tax system of the British, feudalism came into existence in India.

Ans. The necessary condition for the formation of human capital is development in the field of education, health and technical knowledge in the country. Since independence, government has been making progress through public expenditure in the field of education, health and training with the aim of human capital formation in the country. It can be easily understood from the following figures that how much we have expanded in terms of health facilities in the country:

Ans. Human Development Index is a good indicator of a country’s development and prosperity. The United Nations Development Programme (UNDP) estimates country’s overall achievement in its social and economic dimensions on basis of the standard of living, average age, life expectancy, health and education of the people in the country. A total of 191 countries are ranked by the UNDP by the comparative analysis as per their criteria. Compared to India and Pakistan, China’s ranking is good. It means that the pace of development is relatively high in China.

Ans. (i) True: Horticulture is that branch of agriculture, under which flowers, fruits, medicinal plants and gardening are done along with food items, which increases the income of the farmers. As a result of Green Revolution in India, special attention was focused on various aspects of rural development and farmers were encouraged for commercial agriculture instead of consumption agriculture. Farmers were taught methods of horticulture by experts and proper efforts were made for marketing their products. As a result, farmers were motivated to produce in this direction.

(ii) False: Agricultural marketing refers to the process of gathering, storage, preparation, shipping, and delivery of different farming materials across the country. It starts with a decision to produce a saleable farm commodity by farmer.

Ans. National Bank for Agriculture and Rural Develop- ment (NABARD) was established on 12th July, 1982 on the recommendation of the Indian Parliament with the objective of strengthening the financial structure of rural areas. Indian farmers were completely de- pendent on moneylenders and moneylenders for their financial needs. These moneylenders used to keep a major part of the farmers’ income in the form of interest. NABARD acts as a coordinator between various banking institutions and farmers and helps farmers to get credit from institutional sources. NAB- ARD has a big contribution in the changed picture of rural India in today’s era. In other words, rural and agricultural development depends on the effective- ness of NABARD.

Ans. The given picture is showing the migration of workers from formal sector to informal sector for employment. This process is called informalisation. During the Corona epidemic, a large number of companies were closed and their employees became unemployed. In such a situation, in a large population country like India, a large number of formal sector employees migrated to the unorganized sector for their livelihood. There are many fruitful features in the organized sector which are not there in the unorganized sector of employment, but the Corona epidemic forced people to move towards the unorganized sector.

Ans. Green Revolution was started in India during the third five year plan. This scheme was started under the efforts and guidance of M.S Swaminathan. Under this, per hectare net production in agriculture was increased with the help of high quality processed seeds and chemical fertilizers. Chemical fertilizers, pesticides and scientific methods were the main features of the Green Revolution. Due to this effort India’s agricultural productivity increased rapidly but its long term effects were ignored. Due to the use of excessive pesticides and chemical fertilizers, the fertility of the soil kept decreasing and today there are many areas of Punjab, Haryana where the soil has become barren. Apart from this, many other problems have arisen due to Green Revolution.

Ans. The 1956 Industrial Policy Resolution gave priority to the role of the State owned enterprises and imposed licensing act on private sector. According to IPR, 1956:

(i) No firm could produce without obtaining a license from the government.

(ii) Every manufacturing unit had to give complete information about the quantity of its produced goods and raw material used in it to the government.

(iii) The government had divided the industrial units into three schedules. The private sector could only produce goods and services listed in the Third Schedule. The first and second schedules were reserved for the public sector.

Ans. Five Year Plan was chosen as the strategy of economic development in India. The first five-year plan was announced in 1951. Since then a total of 12 five-year plans have been completed. Self-reliance economy was fixed as an important long run goal from the first plan itself. In order to achieve self-sufficiency, instead of importing goods from other countries, we should produce in our own country and the economic growth should be increased from every point of view. Till 1990, exports were encouraged by imposing many restrictions on imports so that the country could achieve the status of self-sufficiency. Achieving self-reliance was an important goal for a developing country like India. This goal was achieved to a great extent during the plan period and today we are self-sufficient in food production and many more commodities.

Ans. The first five-year plan started in India from 1951 and during the first seven plans, the Indian economy developed very impressively. At the time of independence, our industry, agriculture and service sectors were in a very backward state. The Green Revolution made India self-sufficient in food production. As a result of land reforms, Zamindari system ended from our society. Many public sector enterprises have performed satisfactorily. The import substitution policy protected our producers from foreign competition and encouraged them to improve the quality of the goods they produced. National income and per capita income of the country increased even in the midst of flood, drought and other natural calamities. Employment opportunities also increased and the quality of production improved. All this has become possible only because of the five year plans.

Ans. (i) The main impacts of rapid economic growth on the environment, as highlighted in the United Nations report, include increased demand for natural resources leading to deforestation and loss of wildlife habitats. Additionally, economic expansion results in higher energy consumption, leading to a rise in greenhouse gas emissions and contributing to global warming. To mitigate these effects, investing in renewable energy sources like solar, wind, and hydro power can significantly reduce carbon emissions. Renewable energy is sustainable and does not deplete natural resources, making it an effective solution to combat climate change.

Ans. (ii) The trade-off between economic development and environmental preservation is a significant challenge faced by governments and businesses worldwide. On one hand, economic growth is essential for improving living standards and reducing poverty. However, unchecked development often leads to the depletion of natural resources and environmental degradation, posing long-term risks to the planet and future generations. Prioritising sustainability is crucial to ensure a viable future. Governments must develop policies that promote sustainable practices, such as resource efficiency, recycling, and waste management. Businesses can contribute by adopting circular economy models, which reduce resource consumption and waste generation.