Class XII – Economics Sample Paper – 1

Ans. c) 100

Ans. b) National Income

Ans. a) ₹100

Ans. b) Q and R

Ans. d) Government

Ans. a) rise in aggregate demand to match aggregate supply

Ans. a) Both the statements are true.

Ans. a) (a) and (b)

Ans. a) Both A and R are true and R is the correct explanation of A.

Ans. d) RBI

Ans. Government expenditure on popularising yoga raises GDP because it is governments final consumption expenditure. It also raises welfare of the people because yogic exercises improve health and thus, raise efficiency of the people.

Ans. Credit card is not money because there is a difference between money and credit. Money is what we pay for goods and services. Credit is the store of wealth lent to the borrowers. If you use your credit card to buy a shirt, you are not buying a shirt with your money. You are taking a loan from the bank that issued the credit card in order to buy the shirt, Moreover, money is a financial asset of its holder &nd financial liability of banks. Credit card is not a financial asset of individuals. It creates a financial liability for its holders.

Ans. Open Market Operations: Open market operations (OMO) refer to buying and selling of government securities by the Central Bank from/to the public and commercial banks. RBI is authorised to sell or purchase treasury bills and government securities. It does not matter whether the securities are bought or sold to the public or banks because ultimately the amounts will be deposited in or transferred from some bank.

Ans. The goods purchased by foreign tourists are manufactured in the country. As a result, it will be included in domestic income.

Ans. It would be included in his domestic income because he earned the commission by providing a productive service.

Ans. Net Domestic Product at Market Price is calculated as:

(NDP_mp)= Private Final Consumption Expenditure + Government Final Consumption Expenditure + Net Domestic Capital Formation – Net Imports

NDP_mp = 800 + 200 + 100 – (-20)

= Rs. 1,120 crores

Net Domestic Product at Factor Cost is calculated as:

(NDP_fc) = NDP_mp– Net Indirect Tax

NDP_fc = 1,120 – 120

= Rs. 1,000 crores.

Therefore Net Domestic Product at factor Cost is termed as the Domestic Income.

Ans. The equilibrium level of national income is determined where investment equals saving. At equilibrium, it is ex-ante savings which should be equal to ex-ante investment. If ex-ante savings are more than ex-ante investment, it implies a situation when a fall in expenditure through S is more than the rise in expenditure through I. Aggregate demand is more than aggregate supply and income level falls. Similarly, if ex-ante savings are less than the ex-ante investment, it implies a situation when a fall in expenditure through S is less than the rise in expenditure through I. Aggregate demand is less than aggregate supply and income level will go up. The adjoining figure shows the equilibrium level of national income.

In the adjoining diagram, the equilibrium level of income is determined at L where saving and investment are equal. If the equilibrium condition is not fulfilled there will be either deficient demand or excess demand. Deficient demand will lead to a deflationary gap which implies the build-up of inventories of unsold goods. Excess demand will lead to an inflationary gap which implies a rise in the price level.

Ans.

Total increase in income will be infinite.

Ans. The Central Bank acts as a banker to both central as well as state governments. The Central Bank maintains account, accepts receipts and makes payments for the government and carries out exchange, remittance and other banking operations. It advances credit/loan to the government to meet its requirements in case of crisis. As a financial advisor, the Central Bank advises the government on various financial and economic matters.

Ans. Voluntary unemployment refers to a situation when people who are able to work but are not willing to work although suitable work is available for them. In other words, they are voluntarily unemployed. Involuntary unemployment is a situation in the economy when even if people are able and willing to work at existing wage rates, they are not getting work. Hence, they are unemployed against their wishes.

Ans. When Aggregate Demand is greater than Aggregate Supply (AD>AS), buyers are planning to, buy more goods and services than what producers are planning to produce. It will lead to a fall in planned inventories below the desired level. The producers in turn will produce more, which will raise the income level i.e. AS, till AD becomes equal to AS. Thus equilibrium is achieved.

Ans. Differences between revenue expenditure and capital expenditure are given below:

Distribution of income in society: Reducing inequality is a major objective of government’s budget especially in developing country like India, where inequality of income and wealth is very high. Government uses its financial tools of taxation and subsidies to enhance equal distribution of income and wealth. In order to ensure equity of income, the progressive tax structure is followed in India, which imposes a higher burden of taxes on higher income group and a lesser burden on lower income group. Also, those who earn below a substantial limit are exempted from payment of taxes. The additional income generated from the higher income group is re-distributed by the government in the form of subsidies to the poor sections of the society, to ensure the objective of welfare. LPG subsidy is a good example of such redistribution of income.

Ans. b) Option (d)

Ans. c) 8.9, 23.1

Ans. d) 6-14

Ans. a) Both A and R are true and R is the correct explanation of A.

Ans. d) Yes

Ans. a) Self-Employed

Ans. c) All of these

Ans. b) (a) – (iv), (b) – (iii), (c) – (i), (d) – (ii)

Ans. d) (i) less than 2% per year (ii) about 0.5% per year

Ans. b) Statement 1 is false and statement 2 is true.

Ans. According to the data of India’s and China’s sectoral contribution towards GDP in 2003, the contribution of agriculture to GDP in China was 15% while in India it was 23%.On the other hand, manufacturing contributes the highest to GDP in China at 53% whereas it contributes the highest to GDP in India at around 51%. The process of economic growth has lead to tremendous shift in the sectoral share of output and employment. Thus, it indicates that both economies are developing. In the last two decades, the growth of agriculture sector has declined in both countries. In the industrial sector, China has maintained a double-digit growth rate whereas for India industrial growth rate has declined. In the case of the service sector, China has been able to raise its rate of growth n manufacturing sector while service sector growth in India has stagnated. China’s growth is mainly contributed by the manufacturing sector and India’s growth by the service sector.

Ans. The chemical pesticides contaminates food products and it also leads to pollution of water bodies. We can use better methods of pest control like neem based pesticides. These are environment friendly and does not cause any side effects. Animals and birds like snakes, lizards, owl and peacock are natural pest controllers. Farmers can also opt for mixed cropping and growing different crops in consecutive years to reduce the ill effects posed by chemical pesticides.

Ans. The following measures can help in reducing air pollution: –

a) Use of public transport like buses and metro so as to reduce vehicular pollution.

b) Use of CNG instead of petrol or diesel.

c) The government should take immediate steps to educate the farmers about the ill effects of stubble burning and also provide alternate methods to dispose off the farm stubble.

d) The inspection and maintenance system should be strengthened so that erring individuals/firms are fined.

Ans. Modernisation refers to the advancement of technology and institutional innovations in the process of development. The objective of modernisation is to transform the traditional and backward economy into a modern and forward economy. The following are the components of modernisation:

i. The shift in the composition of production.

ii. Development of a diversified economy that produces a large variety of goods as in developed economies.

iii. Provision of a progressive framework for the development of the economy by using new technology.

iv. Change in social outlook such as recognition that women should have the same rights as men.

Modernisation would result in the reduction of cost of production and ensuring large scale production of goods. Green revolution in Indian agriculture is a well-known example of how technology can transform a country from the net importer of food grains to net exporter of food grains. Global it revolution has redefined the concept of domestic production through the BOP.

Ans. Following were the changes made in the industrial policy under economic reforms:

i. Industrial Licensing- Industrial licensing was abolished for all industries except five industries viz., alcohol, cigarettes, hazardous chemicals, industrial explosives and defence equipment.

ii. Public sector- Almost the whole of the economy was left open to the private sector. The number of industries exclusively reserved for the public sector has been reduced to three e.g., defence equipment, atomic energy and rail transport.

iii. Small scale sector- The investment limit of small scale industries has been increased to one crore with a view to modernise them.

iv. Competition Act- MRTP Act was replaced by the competition Act which scrapped the threshold limit of assets in delicensed industries. Mergers and acquisitions were allowed.

Ans. In order to improve efficiency of PSUs and enable them to compete more effectively in the liberalised global environment, the government has given them greater operational, financial and managerial autonomy in taking various decisions to run the company efficiently and thus increase their profits. For instance, some PSUs have been granted a special status such as maharatnas, navratnas and miniratnas. Besides privatisation and disinvestment some attempts have been made by the government to improve the efficiency of PSUs.

A few examples of PSUs with their status are as follows:

i. Maharatnas: • Indian Oil Corporation Limited • Steel Authority of India Limited

ii. Navratnas: • Hindustan Aeronautics Limited • Mahanagar Telephone Nigam Limited

iii. Miniratnas: • Airport Authority of India • Bharat Sanchar Nigam Limited • Indian Railway Catering and Tourism Corporation Limited.

The granting of special status resulted in better performance of these companies.

Ans. No, I don’t think that the above practices of the British are justified. The factors which disturb me in above scenario are as follows:

i. The Britishers exploited Indian peasants by advancing them loans at a high rate of interest and by paying a low price for their produce.

ii. The Britishers forced Indian peasants to cultivate indigo on 25% of their land holding. Since indigo plant exhausted the soil fertility, therefore the peasants had less land to cultivate in subsequent years.

Ans. There is co-existence of malls and jhuggis because globalisation has given birth to dual economy. Globalisation has led to misallocation of resources. An economy like India which has 26% people living below poverty line need housing, education, health and not malls, chips, chocolates and cosmetics etc. But what we have seen is that investments are made on those items which increase the profits of the companies, and not on the things which increase the welfare of the people. Had I been a person with the authority, I would have made it compulsory to invest in one of the strategic fields if an MNC wants to invest in any other industry or sector. As a result of which people living below poverty line would be benefited.

Ans. Yes. In order to improve efficiency, infuse professionalism and enable Public Sector Undertakings (PSUs) to compete more effectively in the liberalised global environment, the government identified profit making PSUs. Government declared them as Maharatnas, Navratnas and Miniratnas. PSUs were given greater managerial and operational autonomy, in taking various decisions. As a result, over the years these Maharatnas, Navratnas and Miniratnas have performed exceedingly well and established themselves as market leaders.

Ans. The given statement is correct. British Government systematically destroyed Indian handicraft industries and their primary motive behind this de-industrialisation was two-fold:

i. To get raw materials from India at cheap rates to be used by upcoming modern industries in Britain.

ii. To sell finished products of British industries in Indian market at higher prices. As a result, India became an exporter of primary products such as raw silk, cotton, wool, etc. and an importer of finished consumer goods like cotton, silk, woollen clothes, etc. produced in the British Industries.

Ans. Suez Canal was opened in 1869. Suez Canal is an artificial waterway running from North to South across the Isthmus of Suez in North-Eastern Egypt. It connects Port Said on the Mediterranean sea with Gulf of Suez-an arm of the Red sea. Strategically and economically it is one of the most important waterways in the world. Its opening reduced the cost of transportation and made access to the Indian market easier and economical. A significant reduction in transport cost prompted monopoly control of India’s foreign trade by the British Government.

Ans. The need to promote education for women in India is imminent. It helps in improving economic independence and social status of women. Women education makes a favourable impact on fertility rate and health care of women and children.

Ans. Absorptive capacity means the ability of the environment to absorb degradation. For instance, high population and the affluent consumption in the developing countries and production standards of the developed nations have placed a huge stress on the environment. Many resources are becoming extinct and the wastes generated are beyond the absorptive capacity of the environment.