CBSE Class 12 Economics Question Paper 2015 (Outside Delhi) with Solutions

Students can use CBSE Previous Year Question Papers Class 12 Economics with Solutions and CBSE Class 12 Economics Question Paper 2015 (Outside Delhi) to familiarize themselves with the exam format and marking scheme.

CBSE Class 12 Economics Question Paper 2015 (Outside Delhi) with Solutions

General Instructions:

1. All questions in both the sections are compulsory.
2. Marks for questions are indicated against each question.
3. Question Nos. 1-10 and 18-27 are very short/objective type questions carrying 1 mark each. They are required to be answered either in one word or one sentence each.
4. Question Nos. 11-12 and 28-29 are short-questions carrying 3 marks each. Answers to them should normally not exceed 60 words each.
5. Question Nos. 13-15 and 30-32 are also short-answer questions carrying 4 marks each. Answers to them should normally not exceed 70 words each.
6. Question Nos. 16-17 and 33-34 are long-answer questions carrying 6 marks each. Answers to them should normally not exceed 100 words each.
7. Answer should be brief and to the point and the above word limits should be adhered to as far as possible.
   * Modified as per Latest CBSE Curriculum.

Section A: Introductory Macroeconomics

Question 1.
What is ‘aggregate demand’ in macroeconomics? [1]
Answer:
Aggregate demand refers to the total value of final goods and services which all the sectors of an economy are planning to buy at a given level of income during a period of one accounting year.

Question 2.
If MPC = 1, the value of multiplier is: (choose the correct alternative) [1]
(a) 0
(b) 1
(c) Between 0 & 1
(d) Infinity
Answer:
(d) Infinity

Question 3.
What are time deposits? [1]
Answer:
Time deposits are those deposits in banks from which money can be withdrawn only after a specified period of time.

Question 4.
What is transfer payment? [1]
Answer:
Transfer payments are unilateral payments which recipients get without adding anything to the current flow of goods and services.

Question 5.
Other things remaining the same, when in a country the market price of foreign currency falls, national income is likely: (choose the correct alternative) [1]
(a) to rise
(b) to fall
(c) to rise or to fall
(d) to remain unaffected
Answer:
(b) to fall

Question 6.
Give the meaning of marginal propensity to save. [1]
Or
Define marginal propensity to consume.
Answer:
Marginal Propensity to Save (MPS) is the ratio of change in saving due to change in income.
In short, MPS = \(\frac{\Delta S}{\Delta Y}\) …where[∆S = Change in Savings; ∆Y = Change in Income

Or

MPC is the proportion of change in consumption expenditure to ‘change in income’:
In short, MPC = \(\frac{\Delta C}{\Delta \mathrm{Y}}\) … whére[∆C = Change in Consumption; ∆Y = Change in Income

Question 7.
What are consumption goods? [1]
Answer:
Consumption goods are those goods which are used by the consumers for satisfaction and are not used in the process of further production.

Question 8.
Calculate money multiplier, if initial deposit of ₹400 crores lead to creation of total deposits of ₹1600 crores. [1]
(a) 4
(b) 2
(c) 8
(d) 6
Answer:
(b) 2

Question 9.
What can be the minimum value of investment multiplier? [1]
Answer:
The minimum value of investment multiplier is 1.

Question 10.
An Indian company located in India invests in a company located abroad. This transaction is entered in India’s balance of payments account on: (Choose the correct alternative) [1]
(a) Credit side of current account
(b) Debit side of current account
(c) Credit side of capital account
(d) Debit side of capital account
Answer:
(d) Debit side of capital account

Question 11.
If the Real GDP is ₹400 and Nominal GDP is ₹450, calculate the Price Index (base = 100). [3]
Answer:
Real GDP = ₹400; Price Index ?; Nominal GDP = ₹450
Real GDP \(=\frac{\text { Nominal GDP }}{\text { Price Index }}\) × 100 ⇒ 400 \(=\frac{450}{\text { Price Index }}\) × 100
∴ Price Index \(=\frac{450}{400}\) × 100 = 112.5

Question 12.
What are fixed and flexible exchange rates? [3]
Or, Explain the meaning of Managed Floating Exchange Rate.
Answer:
Fixed exchange rate refers to a system in which exchange rate for a currency is fixed by the government/central bank and is not influenced by the demand and supply of foreign exchange. The basic purpose of adopting this system is to ensure stability in foreign trade and capital movements.

Flexible exchange rate refers to a system in which exchange rate is determined by forces of demand and supply of different currencies in the foreign exchange market. There is no official (government) intervention in the foreign exchange market. it is also known as floating exchange rate.

Or

Managed Floating Exchange Rate refers to a system in which foreign exchange rate is determined by market forces and central bank influences the exchange rate system through intervention in the foreign exchange market. It is a hybrid of fixed exchange rate and flexible exchange rate system. In this system, central bank intervenes in the foreign exchange market to restrict the fluctuations in the exchange rate within certain limits.

When foreign exchange rate is too high, the central bank starts selling foreign currency from its reserves. When it is too low central bank starts buying foreign currency. The aim is to keep the exchange rate close to the desired target values. It is also known as ‘dirty floating’.

Question 13.
An economy is in equilibrium. Calculate the Investment Expenditure from the following. [4]
National Income = 800
Marginal Propensity to Save = 0.3
Autonomous Consumption = 100
Answer:
Y = 800; MPS = 0.3
Autonomous consumption, \(\overline{\mathrm{C}}\) = 100; Investment Expenditure = ?
MPC = 1 – MPS = 1 – 0.3 = 0.7
Y = C + I ……….. [AD = AS = Y and AD = C + I]
and C = \(\overline{\mathrm{C}}\) + MPC (Y) ∴ Y = \(\overline{\mathrm{C}}\) + MPC(Y) + I
Substituting values in the equation, we get
800 = 100 + 0.7 × 800 + I ⇒ 800 – 100 – 560 = I
⇒ I = 140 ∴ Investment expenditure = 140

Question 14.
What is ‘deficient demand’? Explain the role of ‘Bank Rate’ in removing it. [4]
Answer:
Deficient demand. If equilibrium level of income is determined before the stage of full employment, it is a situation of deficient demand. This situation arises when aggregate demand falls short of aggregate supply at the full employment level. It gives rise to deflationary gap. It causes fall in price level.

In such a situation due to inadequacy of demand, production will be less and therefore involuntary unemployment will be created. This means that all the resources will not be fully employed. Therefore the deficiency in aggregate demand at full employment level is the measure of deficient demand. It also means that during deficient demand, equilibrium is determined at a level less than full employment equilibrium.

Role of Bank Rate. Bank Rate is one of the methods which can be used for correcting the situation of deficient demand. Bank rate is the rate of interest which a Central Bank charges from the commercial banks for giving them credit. During deficient demand, the central bank reduces the bank rate in order to expand credit. When Central Bank lowers bank rate, commercial banks also lower their lending rates. Since borrowing becomes cheaper, it induces people to borrow more funds. It ultimately leads to increase in the aggregate demand and thus helps in reducing deficient demand.

Question 15.
Explain the “Bankers’ Bank function” of the central bank. [4]
Or, Explain the “Bank of Issue function” of the central bank.
Answer:
Being the apex bank, the Central Bank acts as the banker to other banks, i.e., it has the same relationship with commercial banks as the latter maintain with the general public.
As the banker to banks, the Central Bank functions in three capacities:

1. Custodian of Cash reserves. Commercial banks are required to keep a certain percentage of their cash reserves (known as cash reserve ratio or CRR) with the Central Bank.
2. Lender of the last resort. When commercial banks fail to meet their financial requirements from other sources, they approach the Central Bank to give loans and advances as lender of the last resort.
3. Clearing House. As Central Bank holds the cash reserves of all the commercial banks, it becomes easier and more convenient for it to act as their clearing house. It provides cheque clearing and remittance facilities to commercial banks.

Or

Central Bank has the sole authority for issue of currency in the country. In India, RBI has the sole right of issuing paper currency notes (except one rupee notes and coins, which are issued by the Ministry of Finance). The reason for this is that it brings about uniformity in note circulation and gives the Central Bank direct control over the money supply. It promotes efficiency in the financial system.

Question 16.
(a) Calculate the ‘National Income’. [3]

(b) Giving reason explain how the following should be treated in estimation of national income: [3]
(i) Payment of interest by a firm to a bank
(ii) Payment of interest by a bank to an individual
Answer:
(a) National Income (NNPFC) .
= Rent + Wages and salaries + Undistributed profits + Corporation tax + Interest + Social security contributions by employers + Dividends – Net factor income to abroad
= (i) + (iv) + (vi) + (vii) + (viii) + (ix) + (xii) – (ii)
= 200 + 700 +20 + 30 + 150 + 100 + 50 – 10 = ₹1,240 crores

(b)

1. Payment of interest by a firm to a bank will be included in national income as such interest is paid on loan taken by a firm for productive purpose and is a factor payment by a producer.
2. Payment of interest by a bank to an individual is considered as a factor payment because bank borrows for carrying out banking services and therefore it will be included in national income.

Question 17.
Explain how the government can use the budgetary policy in reducing inequalities in incomes.
Or
Discuss briefly the role of government budget in the influencing “allocation of resources” in the economy.
Answer:
Government budget is a reflection of certain goals the government wants to achieve. These goals are directly related to the government’s economic, social and political policies. Reducing inequalities in income and wealth is one such objective which the government strives to achieve through fiscal policy measures such as tax and expenditure policy. First, government can impose higher taxes on the income of the rich and on the goods and services consumed by the rich. It will reduce the disposable income of the rich.

The money so collected can be spent on the poor in the form of free education, free medical facilities, cheaper housing etc. in order to raise their disposable income. The government must spend more on the welfare of the poor as it will raise their standard of living thus reducing inequalities in the distribution of income.

Or

An important objective of government budget is to allocate resources for accomplishing socio-economic objectives of the government. There are a number of projects and activities for which resources are allocated.
Through budgetary policy, government aims to influence allocation of resources in the following ways:

(i) Tax concessions or subsidies. To encourage investment, government can give tax concessions, subsidies etc. to the producers. The government discourages the production of harmful consumption goods (like liquor, cigarettes, etc.) through heavy taxes and encourages the production of ‘khadi products’ and other products useful for the masses by providing subsidies and concessions.

(ii) Directly producing goods and services. If private sector does not take interest due to lack of profits, government can directly undertake the production of certain goods and services.

(iii) Resources may be allocated for increasing investment, reducing income inequalities (by imposing taxes on the rich) and providing better healthcare and education facilities.

Section B: Indian Economic Development

Question 18.
In which year NITI Ayog was established? [1]
(a) 2015
(b) 1999
(c) 2005
(d) 2011
Answer:
(a) 2015

Question 19.
Define land ceiling. [1]
Answer:
Land ceiling means fixing maximum size of the land holding that an individual or family can own. Land over and above the ceiling limit is called surplus land. If an individual or family owns more land than the ceiling limit, the surplus land is taken away with or without paying compensation to the original owner.

Question 20.
Which of the following is not an element of the New Economic Policy 1991. [1]
(a) Liberalisation
(b) Privatisation
(c) Globalisation
(d) Inflation
Answer:
(d) Inflation

Question 21.
Name any two multinational economic institutions. [1]
Answer:
World Trade Organisation (WTO) and International Monetary Fund (IMF).

Question 22.
DIRECTION: Read the following statement—Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Economic reforms lead to the problem of fiscal management.
Reason (R) : During reform, public expenditure declined and revenues also declined as reduction in taxes did not increase tax revenues and reduced tariff also curtailed the scope for raising revenues. [1]
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Answer:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Question 23.
State the percentage of higher education cess in India. [1]
(a) 2%
(b) 1%
(c) 3%
(d) 4%
Answer:
(b) 1%

Question 24.
In which year 14 major commercial banks were nationalised in India. 1
(a) 1971
(b) 1979
(c) 1969
(d) 1956
Answer:
(c) 1969

Question 25.
Which of the following financial institutions is the apex body to provide credit facility to agriculture and rural development? [1]
(a) NABARD
(b) RBI
(c) SBI
(d) ICICI
Answer:
(a) NABARD

Question 26.
What do you understand by Brain drain? [1]
Or, What is right to education?
Answer:
Brain drain refers to the movement of highly skilled and educated people from a country to another country where they can work in better conditions and earn more money.

Or

In the year, 2009, the Indian government passed an act called Right to Education Act (RTE). It makes education a matter of right to all children in the age group of 6-14 years.

Question 27.
It is the label which is put on standardised products of agriculture under the supervision of government officials. [1]
(a) AGMARK
(b) FSSAI
(c) FPO
(d) ISI
Answer:
(a) AGMARK

Question 28.
Distinguish between economic development and sustainable development. [3]
Answer:
Difference between Economic development and Sustainable development

Economic Development	Sustainable development
1. It refers to long-term increase in real percapita income and economic welfare.	1. It refers to increase in real per capita income and economic welfare of both the present and future generations.
2. It does not specifically take into account environmental protection.	2. It lays special emphasis on environmental protection.
3. It overlooks the exploitation of natural capital.	3. It takes into account the rational utilisation of natural capital to protect the interests of future generations.
4. This concept is mainly used in reference to underdeveloped economies.	4. This concept is important for both developed and underdeveloped economies.
5. It lays special stress on the structural, technical and institutional changes in the economy.	5. It lays stress on social awareness and responsibilities over a period of time for economic development.

Question 29.
State three points highlighting the significance of agricultural diversification. [3]
Or, State three measures taken by the government for improving agricultural marketing. Strategic sale of a public sector undertaking and minority sale of their shares are methods of disinvestment. Explain. [4]
Answer:
Following points highlight the significance of agricultural diversification:

1. It leads to increase in income of farmers as resources are shifted from production of low value products to high value products.
2. The growing demand for products other than foodgrains like fruits, milk and milk products, fish, eggs, etc. can be met through agricultural diversification.
3. Due to agricultural diversification, small and marginal farmers have found an alternative source of employment.

Or,

In order to improve the system of agricultural marketing, the government has initiated a series of measures:

(i)Regulated markets. Regulated markets have been established where the sale and purchase of products is monitored by the market committee which includes, representatives of government, farmers and traders. The market system is made transparent with a strict vigil on the use of proper scales and weights. The market committees ensure that the farmers get appropriate price for their produce.

(ii) Cooperative agricultural marketing societies. The government is encouraging the formation of cooperative agricultural marketing societies
As members of these societies, the farmer benefits in the following ways:

• It improves the bargaining power of the farmers.
• Marketing cooperative societies provide credit to the farmers to meet their immediate cash requirements.
• These societies have storage facilities because of which a farmer can wait for a better price for his product.
• Cooperative societies can control the supply of products and can, thus, influence the prices to the advantage of their members.

(iii) Provision of warehousing facilities. With a view to avoiding distress sale, the government is offering warehousing facilities to the farmers. Central and state warehousing corporations are the principal government agencies offering storage space to the farmers. It helps the farmers to sell their produce at a time when the market price is lucrative.

(iv) Subsidised transport. Railways is offering subsidised transport facility to the farmers to bring their produce to the urban markets where they get a better deal.

(v) Dissemination of information. Electronic media and print media are actively engaged in offering market related information to the farmers.’

(vi) Minimum support price (MSP) policy. Another measure is the policy of minimum support price and maintenance of buffer stock. Government announces minimum support prices for 24 agricultural commodities before each season to ensure the farmers that their produce would be purchased by the government at the pre announced MSP. The Food Corporation of India makes the purchase of food grains at these minimum support prices though the farmers are free to sell their produce at prices higher than the MSP elsewhere. (any three)

Question 30.
Strategic sale of a public sector undertaking and minority sale of their shares are methods of disinvestment. Explain.
Answer:
The government has adopted two methods of disinvestment:

• Sale of minority shares in small lots. In this, a part of the government equity was sold to the general public, financial institutions etc.
• Strategic sale of a PSU. In this, the government transfers the ownership by selling a major part of its stake to a private sector company. It has resorted to strategic sale of a number of companies like Modern Foods India, Videsh Sanchar Nigam Limited (VSNL), Maruti Udyog Limited etc.

Question 31.
State any four major features of Indian agriculture during the period of economic planning. [4]
Answer:
The main features of Indian agriculture during the period of economic planning were as follows:

(i) Unemployment and Disguised Un-employment. The problem of unemployment and disguised unemployment was found in Indian agriculture due to growing population and its excessive dependence on land. It has been estimated that even if 20% of people ‘ engaged in agriculture are withdrawn, there will not be any fall in agricultural output.

(ii) Low productivity of Indian agriculture. Agricultural productivity in India was very low as compared to other countries due to use of traditional methods of farming, lack of capital, low level of technology etc. Since agricultural sector generates demand for industrial sector, backwardness of agriculture also implied slow growth of industries.

(iii) Dependence on rainfall. Agriculture in India was heavily dependent on rainfall. About 55 percent of agriculture in India is rainfall dependent. Consequently, the growth process also was not very stable.

(iv) Diversities in agriculture. India, being a vast country, has different regions which vary considerably in their natural conditions such as nature of soil, magnitude of rainfall, water availability etc. Moreover, the land tenure systems and labour relations of the various states of the country were also different. Therefore, it was not possible to adopt a common agricultural policy for the nation as a whole.

(v) Fluctuations in agricultural output. Due to dependence of our agriculture on monsoons, the agricultural output was also subjected to wide fluctuations. Therefore, agricultural operations in India are still considered as the ‘Gamble of monsoons’, as nature plays a major role in determining the level of agricultural production.

These features of Indian agriculture re-affirm the fact that Indian agriculture was extremely backward, and because a significant sector of the economy was extremely backward, the economy as a whole continued to battle backwardness. (any four)

Question 32.
Discuss the problems being faced by the informal or unorganised sector. [4]
Answer:
Informal sector includes all those private enterprises which hire less than 10 workers. Workers who work in such enterprises are known as informal sector workers. For example, farmers, agricultural labourers, owners of small enterprises, etc. In India, over 90% employment is found in the unorganised sector.

The problems being faced by this sector are as follows:

1. Workers and enterprises in the informal sector do not get regular income.
2. They do not have any protection or regulation from the government.
3. There is no job security for people working in the informal sector as they can be dismissed without any compensation.
4. Workers of this sector live in slums and are squatters.
5. Informal sector uses outdated technology.
6. They also do not maintain any accounts.

Question 33.
Discuss the measures taken by the government for environment protection. [6]
Or, Write short notes on the following:
(a) Horticulture;
(b) Fisheries
Answer:
Measures taken by the Government for Environment Protection: Government of India has undertaken several legal and administrative measures to protect the environment from further degradation.
These measures are as follows:

• Environment (Protection) Act, 1986. This act empowered the government to take all measures necessary for protecting and improving the quality of environment.
• Pollution Control Boards. In order to address the problem of water and air pollution in India, the government set up the Central Pollution Control Board (CPCB) in 1974. Its main function is to investigate, collect and disseminate information related to water, air and land pollution and to lay down standards for sewage/trade effluent and emissions.
• The Forest (Conservation) Act, 1980. This act has strict provisions to check the diversion of forest land for any other purpose.

Or,

(a) Horticulture. The study or practice of growing flowers, fruits and vegetables is called horticulture. It is the cultivation, processing and sale of fruits, nuts, vegetables, ornamental, medicinal and aromatic plants, herbs as well as many additional services. Presently, India is the second largest producer of fruits and vegetables in the world. We are emerging as a leading producer of mangoes, bananas, coconut, cashew nuts and a variety of spices.
The importance of horticulture in improving the livelihood for farmers and many unprivileged classes can be seen from the following facts:

• Overtime, there has been a substantial increase in area under horticulture.
• High crop productivity has led to the “Golden Revolution” in horticulture farming during the years 1991-2012. This happened because the planned investment in horticulture, during this period, became highly productive and the sector emerged as a sustainable livelihood option.
• Economic condition of many farmers engaged in horticulture has improved and it has become a means of improving livelihood for many unprivileged classes.
• Shifting to horticulture farming has reduced economic vulnerability of the small and marginal farmers.
• This has opened up new avenues of employment for the women folk in the rural area particularly in flower harvesting, nursery maintenance, hybrid seed production and tissue culture, propagation of fruits and flowers and food processing.
• A significant fact is that nearly 20% of the total rural employment is generated by horticulture and related production activity.

(b) Fisheries. West Bengal, Andhra Pradesh, Kerala, Maharashtra, Gujarat and Tamil Nadu are the principle states in India where fisheries is an important source of livelihood in the rural areas. The fishing community in India depends almost equally on inland sources (rivers, lakes, ponds etc. and marine sources (seas and oceans) of fishing.
But the fishing community continues to be one of thfe most backward communities in the country. There exists widespread indebtedness which makes fishing a vulnerable occupation.
To improve the situation, following steps need to be adopted:

• Adequate credit facilities to be provided to the fishing community that breaks the vicious circle of indebtedness.
• Micro financing through Self-Help Groups and Cooperatives.
• Upgraded technology should be made available to the fishing community.

Question 34.
State giving six reasons why is China considered to be ahead of India in majority of economic and social aspects. [6]
Answer:
Though both the countries have been on the growth and development path for nearly six decades, but the results they have achieved are varied and diverse:

1. China is considered to be more developed than India.
2. China has a strong export oriented manufacturing sector while India is lagging behind.
3. The economic reforms introduced in China have managed to reduce poverty whereas in India, despite economic reforms, poverty remains a big problem.
4. China has a better infrastructure in terms of transportation, communication, energy and banking facilities as compared to India.
5. Due to focus on investment in education and health, China’s Human Development indicators are better as compared to India.
6. China adopted economic reforms in 1978 whereas economic reforms were introduced . . in India in 1991.
7. China has been more successful in attracting foreign direct investment than India which has also been one of the reasons for its fast economic growth. By establishing SEZs, it has offered lucrative infrastructural facilities to the foreign investors. It has also been liberal in allowing FDI in retail. (any six)