Sample Question Paper - 1 (Expected Questions for CBSE Economics XII Examination 2020)

Section - A (Macroeconomics) Q.1 If Real GDP = `240 crore and Price Index = 120, Nominal GDP = ______? (1) Q.2 ______is the main source of money in an economy. (1) (a) Central bank (b) Commercial banks (c) Both (a) and (b) (d) Government Q.3 If the Reserve Ratio is 20% and the primary deposits are `100, the total lending by the banking system will be ______. (1) Q.4 Revenue deficit is calculated after deducting ______from revenue expenditure. (1) (a) Fiscal deficit (b) Tax revenue (c) Non-tax revenue (d) Both (b) and (c) Q.5 Which of the following excludes interest payments? (1) (a) Revenue deficit (b) Fiscal deficit (c) Primary deficit (d) All of above Q.6 Given the consumption function of an economy: (1) C = `100 crore + 0.8 Y The equilibrium level of income is ` 800 crore. The values of the two components of the consumption function when the economy is in equilibrium are ______. Q.7 If in an economy, the consumption and savings curves are parallel to each other, the value of investment multiplier will be______. (1) Q.8 If marginal propensity to save is 20% and is constant at all levels of income and the subsistence level of the consumption in the economy is `100 crore, the consumption function of this hypothetical economy will be: (1) (a) C = 0. 2Y (b) C = 0.8Y (c) C = `900 crore + 0.2Y (d) C = `100 crore + 0.8Y Q.9 The price of one currency in terms of the other is known as the ______. (1) (a) Purchasing Power Parity (b) Repo Rate (c) Reverse Repo Rate (d) Exchange Rate Q.10 In international trade if the domestic price of goods is more than the world price (1) (a) The country will become an exporter of the goods (b) The country will become an importer of the goods (c) The country will neither import nor export (d) Additional information is required Q.11 If in a locality, a new park is developed by the municipal corporation, it will have externalities, both positive and negative. State on example each of both types of externalities with reason. (3) Q.12 Saving function of an economy is given as: S = (–) 10 + 0.20Y If the ex-ante investments are `240 crores, calculate the following: (i) Equilibrium level of income in the economy. (ii) Additional investments which will be needed to double the present level of equilibrium income. (3) OR In an economy, autonomous consumption is `100 crore and autonomous investment is `60 crore. In this economy, with every increase in income, 80% of it is spent on consumption. The full employment level of income is `1000 crore. (a) Calculate the equilibrium level of income. (b) State whether the economy is facing a situation of excess demand or deficient demand. Give reasons in support of your answer. Calculate the required increase/decrease in investment to reach the full employment equilibrium. Q.13 Discuss any one of the following functions of a Central Bank: (4) (a) Lender of last resort (b) Bank Rate Policy Q.14 “Through its budgetary policy government allocates resources in accordance with the requirements of the country.” Do you agree with the given statement? Support your answer with valid reasons. (4) Q.15 “Government of India doubled the import duty on gold.” State and discuss the likely effects of the given statement on foreign exchange rate with reference to the Indian Economy. (4) OR Indian investors lend abroad. Answer the following questions: (a) In which sub-account and on which side of the Balance of Payments such lending is recorded? Give reasons. (b) Explain the impact of this lending on foreign exchange rate. (4) Q.16 (a) ‘Gross Domestic product (GDP) does not give us a clear indication of economic welfare of a country.’’ Define or refute the given statement with valid reasons. (3) (b) In an economy, following transactions took place: (i) Firm A sold to firm B goods of `80 crore; to firm C `50 crore; to households `30 crore and goods of value `10 crore remains unsold. (ii) Firm B sold to firm C goods of `70 crore; to firm D `40 crore; goods of value `30 crore were exported and goods of value `5 crore was sold to government. Calculate: (i) Value of output of Firm A and Firm B. (ii) Value added by Firm B (3) OR Suppose there are only two firms, A and B in an imaginary economy. Firm A uses no raw material and produces cotton worth `50 lakhs. Firm A gives `20 lakhs to the workers as wages and keeps the remaining `30 lakhs to be distributed as rent, interest and profits. Firm A sells its cotton to firm B, who uses it produce cloth. Firm B sells the cloth produced to consumers for `200 lakhs and gives `60 lakhs as wages and keeps the remaining income generated as profits. Assuming no depreciation and indirect taxes or subsidies, calculate GDP by three methods. (6) Q.17 “Excess of Aggregate Demand over Aggregate Supply corresponding to the full employment level causes rise in general price level.”Explain the given statement with diagram. Discuss one fiscal measure and one monetary measure to tackle the situation. (6) Section - B (Indian Economic Development) Q.18 India’s demographic condition on the eve of independence was characterised by: (Choose the correct alternative) (1) (a) High level of literacy, high mortality rates, high life expectancy and high level of poverty. (b) Low level of literacy, low mortality rates, low life expectancy and Low level of poverty. (c) Low level of literacy, low mortality rates, high life expectancy and high level of poverty. (d) Low level of literacy, high mortality rates, low life expectancy and high level of poverty. Q.19 Write the correct sequence of alternatives given in Column II by matching them with respective terms in Column I: (1) Column I Column II A. Growth (i) Adoption of new technology to increase the production of goods and services. B. Modernisation (ii) Avoiding imports of those goods which could be produced in India itself. C. Self-reliance (iii) Every Indian should be able to meet his/her basic needs such as food, a decent house, education and health, and inequility in the distribution of wealth should be reduced. D. Equity (iv) Increase in the country’s capacity to produce the output of goods and services within the country. Q.20 The Parliament passed a law, ______, to simplify and introduce a unified indirect tax system in India. (Fill up the blank with correct answer) (1) Q.21 The latest demonetisation of currency was undertaken by the Government of India on November 8, 2016 to tackle the problem of______. (Fill up the blank with correct answer) (1) Q.22 Identify the correct sequence of alternatives given in Column II by matching them with respective events of China in Column I: (1) Column I Column II (a) Regional and global economic grouping’s such as the SAARC, (i) Students and professionals were sent to work and learn G–8, G–20, ASEAN etc. from the country side.

(b) The Great Leap Forward (GLF) campaign initiated by (ii) Means to strength then their own domestics China in 1958. economies. (c) The Commune system in China. (iii) People collectively cultivated lands. (d) The Great Proletarian Cultural Revolution introduced by (iv) Industrialising the country on a massive scale. Mao in 1965. Q.23 First five year plan of ______commenced in the year 1956. (Pakistan/China) (Fill up the blank with correct option) (1) Q.24 The educated unemployed from low–income families in rural and urban areas can get financial help to set up any kind of enterprise that generates employment under ______. (Choose the correct alternative) (1) (a) Rural Employment Generation Programme (REGP) (b) Prime Minister’s Rozgar Yojana (PMRY) (c) Swarna Jayanti Shahari Rozgar Yojana (SJSRY) (d) Swarna Jayanti Gram Swarozgar Yojana (SGSY) Q.25 ______was set up in 1982 as an apex body to coordinate the activities of all institutions involved in the rural financing system. (Fill up the blank with correct answer) (1) OR Which of the following is working in the informal sector? (Choose the correct alternative) (1) (a) A private school teacher in a school which has 25 teachers. (b) The owner of a textile shop employing nine workers. (c) Driver of a bus company which has more than 10 buses with 20 drivers, conductors and others workers. (d) Civil engineer working in a construction company which has 10 workers. Q.26 ______is an indicator used by exports to gauge the number of people dying prematurely due to a particular disease, as well as, the number of years spent by them in a state of ‘disability’ owing to the disease. (Fill up the blank with correct answer) (1) Q.27 The concept of sustainable development was emphasised by ______. (Fill up the blank with correct answer) (1) Q.28 “The opportunity costs of negative environmental impacts are high”. Do you agree with the given statement? Gives valued reasons in support of your answer. (3) OR Explain the role of micro-credit programmes in meeting the credit requirements of the poor. (3) Q.29 From the following table calculate the missing figures: (3) Region Estimated Population Estimated No. of workers Workforce Participation (in crore) (in crore) Rate (%) Rural 70 35 (i)______Urban (ii)___ 20 40 Total – – (iii)______

Q.30 “During the British colonial rule, despite being the occupation of about 85% of India’s population, the agriculture sector continued to experience stagnation and, not infrequently, unusual deterioration. Agricultural productivity became low.” Do you agree with the above statement? Give valid reasons in support of your answer. (4) OR How far the land reforms in the agriculture sector in India were successful in their implementation? Explain. (4) Q.31 Since 1991 every year, the government fixes a target for disinvestment of PSEs. Do you think selling a part of the properties of government companies is the best way to improve their efficiency? (4) Q.32 “The present day fast industrial growth in China can be traced back to the reforms introduced in 1978.” Defend or refute the above statement. (4) Q.33 Critically appraise the growth of education sector in India during 1952-2014. (6) OR “The three dimensional attack on poverty adopted by the government has not succeeded in poverty alleviation in India.” Comment. (6) Q.34 What are the major problems/challenges in the power sector in India? Explain. (6) Answers/Hints 1. `288 crore 2. (c) Both (a) and (b) 3. `400 4. (d) Both (b) and (c) 5. (c) Primary deficit 6. Autonomous Consumption C = `100 crore Induced consumption, bY= 0.8 ×` 800 crore = ` 640 crore 7. Value of multiplier, k = 2 8. (d) C = ` 100 crore + 0. 8Y 9. (d) Exchange Rate 10. (b) The country will become an importer of the goods 12. I Part: (i) We know that the equilibrium level of income in an economy is determined when: S = I Substituting S = (–) 10 + 0.20Y and I = 240, we have –10 + 0.20Y = 240 0.20Y = 250 Y = 250/0.20 = 1,250 Equilibrium level of income in the economy = `1,250 crore (ii) From the savings function S = (–) 10 + 0.20Y, MPS = 0.20 Value of investment multiplier, k = 1/MPS = 1/0.20 = 5 To double of the existing income level (DY = 1,250 crore), suppose additional investments needed = DI k = DY/DI 5 = 1250/DI DI = 1,250/5 = 250 Additional investments needed = `250 crore II Part: (a) Autonomous consumption C = 100, MPC = b = 80% = 0.8, Autonomous investment I = 60 Consumption function equation C = C + bY = 100 + 0.8Y At equilibrium level of income, Y = C + I Y = 100 + 0.8Y + 60 ⇒ Y – 0.8Y =160 ⇒ 0.2Y = 160 ⇒ Y = 160/0.2 = 800 Therefore, equilibrium level of income = `800 crore (b) Full employment level of income = `1000 crore Since equilibrium level of income is less than full employment level of income, it is a situation of deficient demand, which gives rise to a deflationary gap. The economy is operating at under-employment equilibrium. Required increase in income to combat deflationary gap or to reach the full employment equilibrium, DY = 1000 – 800 = `200 crore Value of multiplier, k= 1/(1–MPC) = 1/(1–0.8) = 1/0.2 = 5 k = DY/DI ⇒ 5 = 200/DI ⇒ DI = 40 Hence, increase in investment required to reach the full employment of level of income = `40 crore

16. I Part: (b) (i) Value of output of Firm A = Total sales + Value of unsold stock = (Sales to Firm B + Sales to Firm C + Sales to Households) + Value of unsold stock = (80 + 50 + 30) + 10 = `170 crore Value of output of Firm B = Sales to Firm C + Sales to Firm D + Exports + Sales to Government = 70 + 40 + 30 + 5 = `145 crore (ii) Value added by Firm B = Value of output of Firm B – Purchases by Firm B from Firm A = 145 – 80 = `65 crore II. Part: (i) GDP by Value Added Method (Production phase) Value added (VA) = Value of output – Intermediate consumption VA by Firm A = 50 – 0 = `50 lakh VA by Firm B = 200 – 50 (purchases of cotton by Firm B from Firm A) = `150 lakh Hence, GDP = VA by Firm A + VA by Firm B = 50 + 150 = `200 lakh (ii) GDP by Income Method (Distribution phase) Firm A Firm B Total Wages 20 60 80 Profits 30 90 120

Thus, GDP = Sum total of factor incomes paid by Firms A and B = Total wages received by workers of Firms A and B + Total profits of Firms A and B = 80 + 120 = `200 lakh (iii) GDP by Expenditure Method (Disposition phase) GDP = Sum of final expenditures, i.e. expenditures on goods and services for end use In the given question, the final expenditure is expenditure by consumers on cloth. Therefore, GDP = `200 lakh Thus, all the three methods of estimating GDP give us the same answer. 18. (d) Low level of literacy, high mortality rates, low life expectancy and high level of poverty. 19. (iv), (i), (ii), (iii) 20. Goods and Services Tax Act, 2016 21. corruption, black money, terrorism and circulation of fake currency in the economy. 22. (ii), (iv), (iii), (i) 23. Pakistan 24. (b) Prime Minister’s Rozgar Yojana (PMRY) 25. The National Bank for Agriculture and Rural Development (NABARD) OR (b) The owner of a textile shop employing nine workers. 26. Global Burden of Diseases 27. The United Nations Conference on Environment and Development (UNCED) 28. The given statement is quite appropriate. (i) Due to intensive and extensive extraction of both renewable and non-renewable resources, many vital resources have become extinct. As a result, we are compelled to spend huge amounts on technology and research to explore new resources. (ii) Health costs of degraded environmental quality – decline in air and water quality have resulted in increased incidence of respiratory and water-borne diseases. Hence, the expenditure on health is also rising. (iii) Global environmental issues, such as global warming and ozone depletion also contribute to increased financial commitments for the government. OR (i) Importance of credit in rural development: Rural economic development depends primarily on infusion of capital/credit, from time to time, to realise higher productivity in agriculture and non-agriculture sectors. • As the time gestation between crop sowing and realisation of income after production is quite long, farmers need credit to meet their initial investment on seeds, fertilizers, implements and other family expenses. (ii) Micro-credit programmes: Formal credit delivery mechanism has proven inadequate for rural development. Since some kind of collateral is required, vast proportion of poor households were automatically out of the credit network. Recently, self-help groups (SHGs) have emerged to fill the gap in the formal credit system. • The SHGs promote thrift in small proportions by a minimum contribution from each members. From the pooled money, credit is given to the needy members to be repayable in small installments at reasonable interest rates. • Such credit provisions are generally referred to as ‘micro-credit programmes’. • SHGs have helped in the empowerment of women. • However, it is alleged that borrowings are mainly confined to consumption purposes, rather than productive purposes. 29. (i) Workforce Participation Rate (in Rural areas) Estimated No. of workers =×100 Estimated Population

35 =×100 = 50% 70 (ii) Estimated Population (in urban areas) Estimated No. of workers =×1000 Workforce Participation Ration

20 =×100 = 50 crores 40 (iii) Estimated Population (Total) = 70 + 50 = 120 crore Estimated No. of workers (Total) = 35 + 20 = 55 crore 55 Workforce Participation Rate (Total) =×100 = 45.%83 120 30. The given statement is correct. During the British colonial rule, India’s agricultural sector continued to experience stagnation. Agricultural productivity became low though, in absolute terms, the agricultural sector experienced some growth due to the expansion of the aggregate area under cultivation. The main causes of India’s agricultural stagnation and low productivity are: (i) Various systems of land settlement introduced by the colonial government, particularly the zamindari system • The profit accruing out of the agriculture sector went to the zamindars instead of the cultivators. However, neither the colonial government nor the zamindars did anything to improve the condition of agriculture. • The main interest of the zamindars was only to collect rent regardless of the economic condition of the cultivators. This caused immense misery and social tension among the cultivators. • Zamindars adopted such an attitude mainly because of the terms of the revenue settlement. Dates for depositing specified sums of revenue were fixed, failing which the zamindars were to lose their rights. (ii) Low levels of technology, lack of irrigation facilities and negligible use of fertilizers — all contributed to the dismal level of agricultural productivity. (iii) Absence of adequate infrastructure — Despite some progress made in irrigation, India’s agricultural was strarved of investment in terracing, flood-control, drainage and desalinisation of soil. A large section of tenants, small farmers and sharecroppers neither had resources and technology nor had incentive to invest in agriculture. (iv) Even commercialisation of agriculture couldn’t help farmers in improving their economic condition. Instead of producing food crops, now they were producing cash crops which were to be ultimately used by British industries back home. OR The various land reforms implemented in the agricultural sector in India were: (a) Abolition of intermediaries; (b) Change in ownership of landholdings (land to tillers); and (c) Land ceiling. (i) The abolition of intermediaries meant that some 200 lakh tenants came into direct contact with the government – they were thus freed from being exploited by the zamindars. However, in some areas the former zamindars continued to own large areas of land by making use of some loopholes in the legislation. Thus, the goal of equity was not fully served by abolition of intermediaries. (ii) The ownership conferred on tenants gave them the incentive to increase output; and this contributed to growth in agriculture. However, there were cases where tenants were evicted and the landowners claimed to be the actual tillers, claiming ownership of the land. And even when the tillers got ownership of the land, the poorest of the agricultural labourers (such as sharecroppers and landless labourers) did not benefit from land reforms. (iii) The land ceiling legislation also faced hurdles. The big landlords challenged the legislation in the courts, delaying its implementation. They used this delay to register their lands in the name of close relatives, thereby escaping from the legislation. The legislation also had a lot of loopholes which were exploited by the big landholders to retain their land. (iv) Land reforms were successful in Kerala and West Bangal because these states had governments committed to the policy of ‘land to the tiller’. Unfortunately, other states did not have the same level of commitment and vast inequality in landholding continues to this day. 31. The government envisaged that proceeds from disinvestment could be effectively utilised to improve the performance of the PSEs. Every year, the government fixes a target for disinvestment of PSEs. For instance, in 1991-92 it was targeted to mobilise `2,500 crore through disinvestment. The government was able to mobilise `3,040 crore more than the target. In 2017-18, the target was about `1,00,000 crore, whereas, the achievement was about `1,00,057 crore. Critics point put that the assets of PSEs have been undervalued and sold to the private sector. This means that there has been a substantial loss to the government. Moreover, the proceeds from disinvestments were used to offset the shortage of government revenues rather than using it for the development of PSEs and building social infrastructure in the country. 32. The given statement is correct. (i) In the initial phase, reforms were initiated in agriculture, foreign trade and investment sectors. For instance, in agriculture commune lands were divided into small plots which were allocated (for use not ownership) to individual households. They were allowed to keep all income from the land after paying taxes. (ii) In the later phase, reforms were initiated in the industrial sector. Private sector firms and township & village enterprises were allowed to produce goods. At this stage, State Owned Enterprises (SOEs) were made to face competition. (iii) The reform process also involved ‘dual pricing’. This means fixing the prices in two ways – farmers and industrial units were required to buy and sell fixed quantities of inputs and output on the basis of prices fixed by the government and the rest were purchased and sold at market prices. Over the years, as production increased, proportion of goods and inputs transacted in the market also increased. (iv) In order to attract foreign investors, special economic zones were set up. 33. Critical Appraisal of the growth of education sector in India during 1952-2014: (i) Inadequate government expenditure on education: The Education Commission, 1964 had recommended that at least 6 per cent of GDP be spent on education so as to make a noticeable rate of growth in the educational achievements. The Tapas Majumdar Committee, 1998 estimated an expenditure of around `1.37 lakh crore over 10 years (1998-99 to 2006- 07) to bring all Indian children in the age group of 6-14 years under the purview of school education. Investment in education system in India has been a woeful failure. In 1952, we were spending a meager of 0.64% of our GDP on education that rose to only 4.13% in 2014. This has fallen well short of 6% target as proposed by the Education Commission (1964-66). Education expenditure as percentage of total government expenditure increased from 7.92 to 15.7 during 1952-2014. Moreover, throughout this period the increase in education expenditure has not been uniform and there has been irregular rise and fall. (ii) Higher education – a few takers: Elementary education takes a major share of total education expenditure and the share of higher education (colleges, polytechnics and universities) is the least. The Indian education pyramid is steep, indicating lesser and lesser number of people reaching the higher education level. Moreover, the level of unemployment among educated youths is the highest. As per NSSO data, in 2011-12, the rate of unemployment among youth males who studied graduation and above in rural areas was 19 per cent; and in urban areas, it was 16 per cent. The most severely affected were young rural female graduates as nearly 30 per cent of them are unemployed. In contrast to this, only about 3-6 per cent of primary level educated youth in rural and urban areas were unemployed. Therefore, the government should increase allocation for higher education and also improve the standard of higher education institutions, so that students are imparted employable skills in such institutions. (iii) Regional differences in educational attainment: In 2014‑15, the per capita public expenditure on elementary education differs considerably across states from as high as `34,651 in Himachal Pradesh to as low as `4,088 in Bihar. This leads to differences in educational opportunities and attainments across states. (iv) Educational for all – still a distant dream: Though literacy rates for both – adults as well as youth – have increased, still the absolute number of illiterates in India is as much as India’s population was at the time of independence. In 1950, when the Constitution of India was passed, it was noted in the Directive Principles of the Constitution that the government should provide free and compulsory education for all children up to the age of 14 years within 10 years from the commencement of the Constitution. Had we achieved this, we would have 100% literacy by now. OR The government’s approach to poverty reduction was of three dimensions: (i) Growth oriented approach – based on the expectation that benefits of economic growth will trickle down to the poor sections also.(ii) Poverty alleviation programmes – based on the thinking that incomes and employment of the poor could be raised through creation of additional assets and by means of work generation. (iii) Providing minimum basic amenities to the poor through public expenditure. The absolute number of poor in the country has gone down and some states have less proportion of poor than even the national average. The proportion of poor in India has come down from 55% in 1973-74 to 22% in 2011-12. Yet, critics point out that even though vast resources have been allocated and spent we are still far from reaching the goal. Hunger, malnourishment illiteracy and lack of basic amenities continue to be a common feature in many parts of India. Scholars, while assessing the poverty alleviation programmes, state three major areas of concern which prevent their successful implementation. (i) Due to unequal distribution of land and other assets, the benefits from direct poverty alleviation programmes have been appropriated by the non-poor. (ii) Insufficient allocation and inefficient utilisation of resources –Compared to the magnitude of poverty, the amount of resources allocated for these programmes is not sufficient. Moreover, these programmes depend mainly on government and bank officials for their implementation. Since such officials are ill motivated, inadequately trained and corruption prone, the resources are inefficiently used and wasted. (iii) There is also non-participation of local level institutions in programme implementation. 34. Problems of the power sector in India: (i) Electricity generated by various power stations is not consumed entirely by ultimately consumers; a part is consumed by power station auxiliaries. Also, while transmitting power, a portion is lost in transmission. (ii) Insufficient installed capacity to generate electricity – India is able to add only 20,000 MW a year. Even the installed capacity is underutilised because plants are not run properly. If the Indian economy wants to touch the GDP growth rate of 7–8%, it must target to produce electricity at a growth of 7%, which is not possible with the present production capacity. (iii) SEBs (State Electricity Boards) which distribute electricity, incur losses which exceed `500 billion. This is due to transmission and distribution losses, wrong pricing of electricity and other inefficiencies. Some scholars also say that distribution of electricity to farmers is the main reason for the losses; electricity is also stolen in different areas which also adds to the woes of SEBs. (iv) Private sector power generators are yet to play their role in a major way; same is the case with foreign investors. (v) There is general public unrest due to high power tariffs and prolonged power cuts in different parts of the country. (vi) Shortage of raw material and coal supplies in thermal power plants, which produce 67% electricity.