Class XII – Economics Sample Paper – 4

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

Explanation: The formula for investment multiplier is K = 1 /(1 – MPC’). It means there is a positive relationship between investment multiplier and marginal propensity to consume. This means if marginal propensity to consume increases, K also increases.

Ans. (C) A family’s consumption of sugar

Explanation: A family’s consumption of sugar is a flow variable because consumption of sugar by a household can be measured during period of time.

Ans. (B) 1.25

Explanation: Given, MPC = 0.2

Ans. (C) current, debit

Explanation: Any kind of charity from domestic country to rest of the world will be recorded in current account on debit side of Balance of Payments Account of India

Ans. (A) Contingent Function

Explanation: Distribution of national income is a contingent function of money. Money helps in optimum distribution of national income among different factors of production for their contribution in production of goods and services.

Ans. (D) (i), (ii), (iii)

Explanation: According to central bank (RBI), every commercial bank in India is required to maintain Statutory Liquidity Ratio (SLR) through gold, cash and other securities. It is the fixed percentage of demand deposits which the commercial banks are legally required to maintain as their liquid assets.

Ans. (A) 120, 70, 0.77

Ans. (C) (i) and (iii)

Explanation: Foreign exchange means exchanging the currency of one country for another at prevailing exchange rates. It is demanded to make the payment for imports of goods and services and repayments of international loan in an economy.

Ans. (B) ₹ 11,000

Explanation: Given: C = 200 + 0.8Y, Investment = ₹ 2,000 crore

Y = C + I

Y = 200 + 0.8Y+₹ 2,000

Y – 0.8Y = ₹ 2,200

Y = ₹11,000

Ans. (B) Appreciation in domestic currency

Explanation: The given picture shows appreciation in domestic currency in which the value of domestic currency is appreciated; it is the rise in the domestic currency’s value compared to a foreign currency.

Ans. Accommodating items refers to those transactions which are undertaken by the Reserve Bank of India for the purpose of correcting BoP imbalance. It is also known as below the line items because it originates to accommodate the BOP scenario. It includes autonomous exports and imports of goods.

Ans. Given Nominal GDP = ₹8,000 crore and Price Index = 140

Thus, Real GDP = Nominal GDP/Price Index x 100

Real GDP = ₹8,000/140 x 100

= ₹5714.28 crore

Ans. (i) Externalities: It is consequence of economic activity like consumption, production, and investment on an economy.

(ii) Nominal GDP: The value of final goods and services produced in an economy at current prices during one accounting year.

(iii) Final Goods: The goods which have crossed the boundary line of production and ready for their final use by the consumer is known as final goods.

Ans.

Ans. Investment refers to such expenditure which is done for production in the economy. Those investments which are made directly for the purpose of profit are called induced investment. This type of investment has a direct effect on the level of income, hence it is known as induced investment. Induced investment income is elastic. This means that induced investment increases when income increases. This can be understood with the help of the following curve:

Ans. When aggregate demand is more than aggregate supply in the economy, then the problem of excess demand arises. Inflation is the result of excess demand in the economy. Inflation increases the general price level and reduces the purchasing power of the people. People have to spend more than before for goods and services. Excess demand has no effect on output and employment as the economy is already operating at full employment level.

Ans. Reserve Bank of India is the central bank of India. The central bank plays the role of an agent, advisor and representative for the government. As a representative of the Government of India, it conducts all the transactions of the Government. It suggests the government about the policies of various foreign monetary institutions such as the World Bank and the International Monetary Fund, as well as participate in the meetings of various institutions and organisations as representatives and represent the government. Central bank conducts all of the financial tasks assigned by the central/state government and provides useful economic and financial policy recommendations to the government.

Ans.

(i) Fiscal Deficit

= (Revenue Expenditure + Capital Expenditure) – (Tax Revenue + Non -Tax Revenue) – (Recovery of Loan) + Disinvestment)

= ₹ (90 + 25) – ₹(30 + 25) – ₹(3 + 13)

= ₹115 – ₹55 – ₹16

= ₹44 crore

(ii) Revenue Deficit

= Revenue Expenditure – Tax Revenue – Non-Tax Revenue

= 90 – 30 – 25

= ₹35

Ans. The budget expenditure which is not directly related with development programmes of the country is known as non-developmental budget.

Ans. Government budget or Union Budget refers to the statement of the expected income and expenditure of the government during one financial year. The government makes its budget in such a way that the growth is accelerated and eliminates the inflationary pressures in an economy. Budgetary policy focuses on the balance between aggregate demand and supply in an economy to eliminate the inflationary pressure and deflationary pressure. Government reduces its own expenditure and increases revenue to correct inflation.

Ans. Government budget is the statement of expected income and expenditure of the government during one financial year. Capital receipt of the government is that monetary receipt which creates a liability for the government or cause of reduction in the assets of the government. Important capital receipts are following:

(i) Recovery of loan: It reduces the financial assets of the government.

(ii) Loan and borrowing: Borrowing creates liabilities for the government

(iii) Disinvestment: Disinvestment of equity holding in public enterprises causes reduction in assets of the government.

Ans. (i) Yes

Purchase of car by a car driver will be included in national income because it is an investment in fixed capital assets.

(ii) Yes

Dipawali bonus received by employees will be included in national income because it is a factor income for rendering their services. It is a component of compensation of employees.

Ans. No

The food grain produced by the farmer for self consumption will be included in the national income because value addition in the economy occurs by this activity. Farmers contribute to the output of a financial year, while their products are never sold in the open market.

Ans. (A) 1956-61, 1961-66, 1966-71

Explanation: After the third plan, three annual plans were initiated in Indian economy. So the correct sequence is:

First Plan: 1951-56

Second Plan: 1956-61

Third Plan: 1961-66

Fourth Plan: 1969-74

Ans. (D) Dual Pricing Policy

Explanation: In 1985, China introduced dual pricing policy to reduce the disparity between lower class and upper class of the society. China fixed two sets of prices for the same commodity to control prices for lower and upper class people.

Ans. (D) Only I

Explanation: Horticulture is the branch of agriculture which deals with garden crops like fruits and vegetables.

Ans. (D) Yellow Revolution

Explanation: Yellow Revolution is depicted in the above picture which is related to increase in the production of edible oils like mustard, sunflower seeds and sesame seeds.

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

Explanation: Globalisation, liberalisation and privatisation were adopted in the economic reform program and their restrictions were removed realising the need for foreign investment. The result of this was that after 1991, through FDI and FII, foreign investment in the country entered the Indian economy.

Ans. (B) Adult

Explanation: One child policy put a check on China’s population explosion but reduced the percentage of China’s adult population. The population of elderly in China increased in comparison to youth, while the productive population of the country is youth. So, this policy was abolished in the later years.

Ans. (A) Only I

Explanation: One of the important objectives of food security is to make availability of food grain over the year. Buffer stock is a stock of food grains, which the government makes by purchasing the surplus production of farmers at the price of MSP, so that there is no scarcities create of food grains in the country at the time of calamities. This has become possible only because of the Green Revolution.

Ans. (B) Demographic profile

Explanation: A demographic profile is a demographic analysis of the population of concerned nation. It deals with sex, age, income, and occupational structure of the people. It is useful to better understand the people’s composition or behaviours of a country.

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

Explanation: Workforce refers to the amount of population who is actually working.

Labour force is number of person not working but are willing to work

Ans. (C) III – iii

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

Ans. British Government imposed tax on agriculture and

trade in a triangular way. The impact of taxation on trade and agriculture was as follows:

(i) Impact on Agriculture: The British introduced the zamindari system of tax collection through the land settlement system, under which the landlords used to exploit the farmers.

(ii) Impact on Trade: During the British rule, the British imposed harsh taxes on the handicrafts and domestic product in Indian market. As a result, the monopoly of the products of East India was established in the market.

Ans. In the country which was once called the golden bird, the British government crushed the level of trade, agriculture and employment with its repressive policy. During the British rule, the minerals, valuable resources and money were drained from India to England. The trade policy was also made in such a way that only the British government would benefit. On the eve of independence, the Indian economy had become stagnant.

Ans. The best credit source for Reema to open her small flower shop near the village temple would be Self Help Groups (SHGs). There are several reasons for this:

(i) SHGs are organizations specifically designed to support rural individuals, particularly women, in accessing financial assistance. They offer small loans at reasonable interest rates, making them suitable for Seema’s needs.

(ii) SHGs do not require collateral or extensive documentation, which is often a significant hurdle for individuals in rural areas to access formal credit from banks.

(iii) Apart from financial support, SHGs also provide a support network of other women members. Seema can benefit from the collective knowledge, experience, and guidance of other members, enhancing her chances of success in her business venture.

Ans. The rate of economic growth of China is more than that of India and Pakistan. China was having 10.3% growth rate during 1980 to 1990 while India’s growth rate was just 5.7%. Special economic zone, dual pricing policy and economic reform are responsible for China’s economic growth. Communism has been adopted in China, so the industrial units funded by the government are working under the direction of the government. Economic reform boosted output and increased resources for additional investment in the China’s economy.

Ans. (i) False: Self-help groups are doing remarkable work in the field of rural development through micro credit. There are about 12 million SHGs in India, of which 88% are women members. SHGs are successful in making its own identity in terms of rural employment, micro credit and community work.

(ii) True: Pradhan Mantri Ujjwala Yojana was launched in India on 1st May, 2016. In rural areas, the health of women was deteriorating due to cooking fumes and the use of wood for cooking fuel was also causing environmental problems. Under this scheme, government distributes 50 million LPG connections to women of Below Poverty Line families. So, this is playing an important role in rural development.

Ans. Some of the problems of rural credit are following:

(i) Institutional banking structure is not perfect in rural areas. Even today, a large number

of farmers are forced to take loans from moneylenders.

(ii) In the absence of government monitoring incooperative institutions, the functioning of the employees is slow.

(iii) Farmers need loans at the time of sowing and irrigation of crops, but due to long paper work and process of banks, there is delay in getting loans. That’s why farmers find it convenient to take loans from moneylenders.

(iv) Banks have fewer branches in rural areas as compared to cities.

Ans. The process of moving from salaried employment to daily worker is known as casualisation. It is shown in the above picture that in unavoidable circumstances, the salaried worker is working as a daily wage worker. Due to the global recession in the economy, when the economic activities slow down a lot, then big companies lay off a large number of employees to save their existence. Due to retrenchment process, unemployed workers seek their employment in the unorganised sector. But these situations also get cured on their own.

Ans. (A) Before globalisation, there were very few options for consumer goods available in the Indian market. The products that were available were produced by the public sector and private sector enterprises using traditional/old technologies. But after privatisation, series of products became available in the markets. The private sector focused on quality, cost, and utility to attract customers. The customers could now freely purchase the goods as per their wish from the market.

Ans. Prasanta Chandra Mahalanobis was born on 29th June, 1893 in Calcutta. Economic development in India in a planned manner was the vision of Mahalanobis. In the second five-year plan, Mahalanobis prepared the outline of industrial development in the country. He invited economist from several countries to advice on India’s economic development. He used statistics for the correct outline of development on the basis of data in the planning method.

Ans. Under the land reform program, by introducing a Land Ceiling Act, the government fixed the maximum limit of land to reduce the difference between landless farmers and big land owners. But there were many provisions of exemption in the law. Taking advantage of this, to a large extent, the big farmers retained their land ownership. Some landlords transferred their land in the name of their relatives and friends. Temple, mosque, school and trust had the rights to keep the land, so some landlords saved the land by forming their own trust. In this way, taking advantage of the weakness of the rules, these landlords escaped from the Ceiling Act.

Ans. After independence, there was complete lack of capital in the country. Private producers were not able to build infrastructure. The private sector was only interested in producing profitable goods and services. The problem of poverty in the country was at its peak. In such a situation, the responsibility of development of the country was entrusted to the public sector. Till 1991, the public sector enterprises in the Indian economy have met the needs of the total population of the country. Essential services like roads, electricity, energy, transport and education and health have been provided by public sectors only. The goals of the private sector were income generation while the public sector has done infrastructural development with the goal of public welfare and development of the country.

Ans. (i) New industrial centers are established for industrialisation in the country. The smoke coming out from these industrial creates harms environment. More number of factories increases create more level of pollution. Noise pollution occurs due to noise of machines and waste of factories increase water and land pollution. That’s why in today’s era there is a need of sustainable development to save the environment.

(ii) Global warming is one of the biggest challenges for the world today. It is responsible for rising of sea levels as it melts the glaciers gradually. This problem has become more serious after industrialisation. In order to deal with this serious problem, a UN Conference on Climate Change, was held in Kyoto, Japan, in 1997 in which the following agreement was made:

(i) All countries, especially industrialised countries, will reduce greenhouse gas emissions as much as possible.

(ii) All countries will be aware of environmental protection and will try to minimise deforestation and methane gas emissions.