Class XII – Economics Sample Paper – 3

Ans. b) 1

Ans. c) Wheat used by a flour mill

Ans. b) ₹100

Ans. a) Both the Statements are true.

Ans. d) Factor Inputs

Ans. d) (b) – (ii)

Ans. b) Statement II is true, Statement I is false.

Ans. a) Saving account deposits and current account deposits

Ans. d) A is false but R is true.

Ans. c) Margin Requirements

Ans. Positive externalities refer to benefits caused by one entity to another, without being paid for it. Whereas, negative externalities refer to the harms caused by one entity to another, without being penalised for it. For example: A new park developed by the municipal corporation raises the welfare of the locality, is an example of positive externalities. In case, the same park is used by people for anti-social activities, which leads to insecurity among the residents, is an example of negative externalities.

Ans. The most important function of money is that it serves as a medium of exchange between two parties involved in a transaction. In the barter economy, great difficulty was experienced in the exchange of goods as the exchange in barter system required a double coincidence of wants. Money avoids the practical problems of wastage of time and resources, involved in the barter system of an exchange and it improves the transactional efficiency. It also promotes allocational efficiency in the trade and production of goods and services. Hence, it can be said that money has separated the acts of sales and purchases.

Ans. It is one of the most important activities of commercial banks. Through the process of money creation, commercial banks are able to create credit, which is in far excess of the initial or Primary Deposits. let us now understand the process of Money Creation through an example:

Suppose, initial or primary deposits in banks is ₹ 1,000 and LRR is 20 %. It means, banks are required to keep only ₹ 200 as cash reserve and are free to lend ₹ 800. Suppose they lend ₹ 800. Banks do not lend this money by giving amount in cash. Rather, they open the accounts in the names of borrowers, who are free to withdraw the amount whenever they like. Refer the following table:

As seen in the table, banks are able to create total deposits of ₹ 5,000 with the initial deposit of just ₹ 1,000. It means, total deposits become ‘five times’ of the initial deposit. Five times is nothing but the value of ‘Money Multiplier’.

Ans. Such remittance is not earned within domestic territory of India hence, it is not a part of domestic factor income of India.

Ans. It is a part of NFIA as the Japanese embassy is not within our domestic territory and hence, it is not a part of the domestic factor income of India as such income is not accrued from the domestic territory

Ans. It is a factor income paid abroad and therefore not a part of domestic factor income of India.

Ans. The rate of change of GDP of Nations X and Y, taking 2018-19 as base year is as follows:

Nation X has registered a GDP growth rate of 100% and has performed better on the front of GDP rise as compared to Nation Y that has registered a GDP growth rate of 66.67%.

Ans.

Ans.

Ans. As the banker to the banks, the central Bank is the custodian of the cash reserves of commercial banks. From these reserves it lends to commercial banks when they are in need of funds. Central bank also provides cheque clearing and remittance facilities to the commercial banks. Central bank is the lender of last resort.

Ans. Two alternative ways of determining equilibrium level of income are:

i. Aggregate Demand-Aggregate Supply Approach (AD-AS Approach)

ii. Saving-Investment Approach (S-I Approach).

Interrelation between the two approaches:

AD = AS (AD – AS approach)

C + I = C + S

I = S (S – I approach).

Ans. an initial increment in investment increases the final income by many times. Multiplier expresses the relationship between an initial increment in investment and the resulting increase in aggregate income. The minimum value of multiplier is one when the value of MPC is zero. MPC = 0 indicates that the economy decides to save the whole of its additional income and nothing is spent as consumption expenditure. So, there will be no further increase in income. As a result, the total increase in income (ΔY) will be equal to the increase in investment (ΔI), i.e., ΔY = ΔI. Here, the value of multiplier is equal to 1

Ans. Direct taxes are those taxes whose impact and incidence lies on the same entity. In other words, the liability of paying direct taxes can’t be shifted. For example: income tax.

Whereas; Indirect taxes are those taxes whose impact and incidence may lie on different entities. In other words, the liability of paying indirect taxes can be shifted. For example: GST

Ans. Reallocation of resources- Government through its budgetary policies tries to reallocate resources to ensure fulfillment of various socio-economic objectives.

The government may influence the allocation of resources through:-

• Taxation policy – Heavy taxes may be imposed on harmful products to discourage their production and subsidies may be provided on the production of socially useful products to encourage their production.
• Government may directly undertake production of certain goods and services in the areas where private sector may not be willing to participate in production activities.

Ans. b) Deficit

Ans. d) Both (i) and (iii)

Ans. d) ₹ 1.37 lakh crore

Ans. d) A is false but R is true.

Ans. b) Both III and V

Ans. b) Disguised Unemployment

Ans. a) within its carrying capacity

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

Ans. a) less than 2 per cent, close to half per cent

Ans. a) Both the statements are true.

Ans. The regional and economic grouping are formed to strengthen the relationship between the nations. To increase the trade through close cooperation so that it helps their economies to develop. The nations in these groups share their knowledge These groups are considered important especially for developing countries. Examples of regional and economic grouping are European union, ASEAN, SAARC etc.

This is particularly considered essential by developing countries as they are all facing competition not only from developed nations but also amongst themselves in the relatively limited economic space enjoyed by the developing world. Besides, cooperation with other economies in our neighbourhood is also required, as all major common economic activities in the region have an impact on overall human development in a shared environment.

Ans. Thermal and hydro power plants on which India depends for its power needs have and adverse impact on the environment. Non-conventional sources like wind power and solar rays are greener energy resources and are also cleaner. Latest technological devices like wind mills should be provided in areas where the wind speed is high so that these sources can be used to generate electricity with putting the environment at risk.

Ans. Global warming is a gradual increase in the average temperature of the earth’s lower atmosphere. It is caused by increases in carbon dioxide and other greenhouse gases. Burning of fossil fuels and deforestation are the major causes of Global Warming. Global warming is responsible for the melting of polar ice, leading to rising sea levels and coastal flooding, etc.

Ans. The rationale behind choosing Self-reliance as a planning objective for the Indian economy are as follows:-

i. To reduce foreign dependence: Planning objective of Self-reliance targeted to promote economic growth and modernization, the Indian five-year plans in the early years of the post-independence era stressed the use of domestic resources in order to reduce our dependence on foreign countries.

ii. To avoid foreign interference: In the post-independence era, it was feared that the dependence on imported food supplies, foreign technology, and foreign capital may increase foreign interference in the policies of our country.

Ans. The statement suggests that the process of economic reform has had a negative impact on the agriculture sector. This could be due to various reasons. Economic reforms, such as liberalization and globalization, often prioritize industrial and service sectors, leading to reduced government support and investment in agriculture. This can result in limited access to credit, inadequate infrastructure, and a lack of modern technology and resources for farmers. As a result, the agriculture sector may face challenges in terms of productivity, competitiveness, and income generation, thus adversely affecting its overall performance.

Ans. The barriers which are imposed on imports of goods and services to make them relatively costlier and to protect the domestic producers from the stiff international competition are known as tariff barriers e.g. Import Duties, custom duties etc. Where as; Non-tariff barriers are those barriers which are imposed on quantity of import and export of goods and services e.g. quota and import licensing. to reduces the quantity of imported or exported goods.

Ans. The trade (export and import) between two countries is known as bilateral trade. Whereas, The trade (export and import) among more than two countries is known as multi-lateral trade.

Ans. V.K.R.V. Rao

Ans. Two causes of India’s agricultural stagnation during the Colonial period were:

i. The system of land settlement that was introduced by the colonial government particularly the zamindari system.

ii. Lack of irrigation facilities is causes of stagnation of agriculture sector.

Ans. Advantages of privatisation are as under:

i. It will introduce efficiency and profitability in Public Sector Undertakings (PSUs).

ii. It promotes consumer’s sovereignty. High degree of consumer’s sovereignty implies wider choice and better quality of goods and services.

iii. It will reduce budgetary deficits which result from expenditure on loss making PSUs.

iv. It promotes diversification of production. Also, unlike PSUs, private enterprises invariably generate high profits.

v. Often privatisation of state owned monopolies occurs alongside deregulation – i.e. policies to allow more firms to enter the industry and increase the competitiveness of the market.

Ans. The main objectives of liberalisation policy are as under:

i. To increase competition among domestic industries by giving them freedom regarding the decisions pertaining to production.

ii. To increase foreign capital formation and improve technology.

iii. To decrease the debt of the country.

iv. To encourage cross border trade.

v. To expand the size of the market by reducing the limit on the quantity of output produced.

Since the NEP aims to achieve all the above stated objectives, therefore it is said that NEP is liberal.

Ans. A stagnant economy means an economy where the growth rate of income does not change or changes very little. Such an economy has a prolonged period of slow economic growth. The stagnation of the Indian economy can be seen from the slow annual compound rate of growth which was not more than 0.5% during 1860-1945. The trends in agricultural output are also evidence of stagnation. Total agricultural output increased by only 10% while the per capita output of foodgrains declined by 32%. The main cause of the stagnation was that economic policies of Britishers were for the benefit of their industries and not for the Indian economy. Our economy had been a victim of enormous exploitation. Our natural resources, iron ores, gold mines, wealth and manpower was subject to intense exploitation. Due to these atrocities, the Indian economy on the eve of independence showed low economic growth.

Ans. False. India’s Economy was independent, self-reliant and prosperous before the Colonial Rule.

Ans. True. Indian handicraft industries enjoyed worldwide reputation.

Ans. False. Their primary motive was:

a. To get raw materials from India at cheap rates; and

b. To sell finished products of British industries in Indian market at higher prices.

Ans. This statement is true, to promote the education of Indian system of medicines and Ayurveda globally, ministry has signed 13 MoUs for setting up AYUSH academic chairs with foreign universities under which AYUSH experts are deputed in reputed universities to undertake teaching activities.

Ans. The term “casualization of the workforce” means the transition of a workforce that is engaged in permanent jobs to one that is engaged on a temporary or casual basis. Due to the increase in the number of workers engaged on a temporary basis, this has become a concern for the Indian economy. This might occur as a result of migration to metropolitan regions where people only work as daily-wage or casual workers and disguised unemployment in rural areas. With India’s informal workforce, a rise in GDP is accompanied by a decline in job security. Daily wage workers are not get the same privileges or status as permanent employees in India.