CBSE Class 12 Economics Question Paper 2016 (Delhi) with Solutions

Students can use CBSE Previous Year Question Papers Class 12 Economics with Solutions and CBSE Class 12 Economics Question Paper 2016 (Delhi) to familiarize themselves with the exam format and marking scheme.

CBSE Class 12 Economics Question Paper 2016 (Delhi) with Solutions

Time Allowed: 3 hours
Maximum Marks: 80

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.
Define Stocks.
Answer:
Stocks are variables whose magnitude is measured at a particular point of time. For example, capital invested as on 31st March, 2015 by a firm.

Question 2.
Depreciation of fixed capital assets refers to: (choose the correct alternative)
(a) Normal wear and tear
(b) Foreseen obsolescence
(c) Normal wear and tear and foreseen obsolescence
(d) Unforeseen obsolescence
Answer:
(c) Normal wear and tear and foreseen obsolescence

Question 3.
What is Revenue expenditure?
Answer:
Revenue expenditure of the government is that expenditure which neither creates any asset nor does it lead to any reduction in liability.

Question 4.
Fiscal deficit equals: (Choose the correct alternative)
(a) Interest payments
(b) Borrowings
(c) Interest payments less borrowing
(d) Borrowings less interest payments
Answer:
(b) Borrowings

Question 5.
Foreign exchange transactions dependent on other foreign exchange transactions are called: (Choose the correct alternative) [1]
(a) Current account transactions
(b) Capital account transactions
(c) Autonomous transactions
(d) Accommodating transactions
Answer:
(d) Accommodating transactions

Question 6.
What is Money Supply? [1]
Answer:
Money supply is the stock of money in circulation at a particular point of time. It includes currency with the public and demand deposits.

Question 7.
Which of following is a direct tax? (Choose the correct alternative) [1]
(a) Corporation tax
(b) Entertainment tax
(c) Excise duty
(d) Service tax
Answer:
(a) Corporation tax

Question 8.
Goods purchased for the following purpose are final goods: (Choose the correct alternative). [1]
(a) For satisfaction of wants
(b) For investment in firm
(c) Both (a) and (b)
(d) None of the above
Answer:
(c) Both (a) and (b

Question 9.
Sales + ___ = Value of output (choose the correct alternative). [1]
(a) Net factor income from abroad
(b) Net indirect taxes
(c) Depreciation
(d) Change in stock
Answer:
(d) Change in stock

Question 10.
Define Balance of payments. [1]
Or
What is meant by balance of trade?
Answer:
Balance of payments is a systematic record of all economic transactions between residents of a country and the residents of foreign countries during a give period of time. It includes both visible and invisible items, unilateral and capital transfers.
Or
Balance of trade is the difference between exports and imports of goods of a country during the period of one year.

Question 11.
Find Net Value Added at Factor Cost: [3]

Answer:
Depreciation \(=\frac{\text { Value of durable use producer goods }}{\text { Life span }}\) \(=\frac{₹ 10 \text { lakhs }}{10 \text { years }}\) = ₹1 lakh
Value of Output = Sales + Unsold output produced during the year
= ₹20 + ₹2 = ₹22 lakhs
Gross Value Added at market price (GVA_MP)
= Value of Output – Single use producer goods
= ₹22 – ₹5 = ₹17 lakhs
∴ Net Value Added at Factor Cost (NVA_FC)
= GVA_MP – Depreciation – Taxes on production
= 17 – 1 – 1
= ₹15 lakhs

Question 12.
Distinguish between marginal propensity to consume and average propensity to consume.
Give a numerical example. [3]
Or
Explain the role of taxation in reducing excess demand.
Answer:
Difference between Marginal Propensity to Consume and Average Propensity to Consume:
(i) Average propensity to consume (APC) refers to the proportion of consumption expenditure to the level of total income, i.e., APC = \(\frac{C}{Y}\).
Whereas marginal propensity to consume (MPC) refers to the proportion of change in consumption expenditure to the change in disposable income i.e., MPC = \(\frac{\Delta \mathrm{C}}{\Delta \mathrm{Y}}\).

(ii) When income increases, both APC and MPC fall but MPC falls more rapidly.

(iii) If income (Y) is ₹100 crore and consumption (C) is ₹80 crore, then
APC = \(\frac{C}{Y}\) = \(\frac{80}{100}\) = 0.8
If income increases to ₹150 crore and consumption increases to ₹90 crore, then
MPC = \(\frac{\Delta C}{\Delta Y}\) = \(\frac{10}{50}\) = 0.2

Or

Excess demand refers to the situation when aggregate demand is in excess of aggregate supply, i.e., (AD > AS) corresponding to full employment in the economy.
To reduce excess demand, the government under its fiscal policy measures can increase the tax burden on households and producers. This will reduce the purchasing power in the economy and hence reduce aggregate demand.

Question 13.
Government incurs expenditure to popularize yoga among the masses. Analyse its impact on gross domestic product and welfare of the people. [4]
Answer:
By trying to popularize yoga among the masses, the government is trying to create health awareness. It is also trying to get people to adopt a healthy lifestyle. This, in the long-run, will benefit both the society and economy. Adoption of healthy habits will raise the physical and emotional welfare of the people. A healthy and fit workforce will have a positive impact on the gross domestic product (GDP) of the country.

Improvement in health and increase in fitness levels will lead to improved productivity and efficiency of workforce along with greater stamina to work and reduced absenteeism. This in turn will increase the GDP of the country, i.e., higher availability of goods and services per person. This will further increase the welfare of people.

Question 14.
Explain the ‘Store of Value’ function of money. How has it solved the related problem created by barter? [4]
Or
Explain the ‘Unit of Account’ function of money. How has it solved the related problem created by barter?
Answer:
Store of Value. Store of value means storing of wealth for future use. Money as a store of value means that an individual can save his earnings until the time he wants to spend the same. Storing wealth has become considerably easy with the introduction of money. This is because money comes in convenient denominations, it is easily portable and can be easily exchanged for goods at all times. It is also a very economical and convenient way of storing wealth.

In the barter system, no goods served as convenient assets for use in future. For storing purpose the good must be non-perishable, easily portable and readily acceptable for exchange at any time with other goods. All these features were found in money which helped overcome this particular limitation of barter system.

Or, Unit of Account. Unit of account means that the value of each good or service is measured in monetary unit.

The main difficulty that arose in the barter system was that at what rate any exchange should be made? In the absence of a common unit of value, the price of each commodity had to be quoted in terms of all the other commodities available in the market. The price list, thus, became extremely complicated.

Introduction of money overcame this problem. Money became a powerful medium of comparing prices of goods and services. It became the standard unit of measurement in terms of which the value of all goods and services are being measured and expressed (known as price). It is treated as the standard unit for borrowing and lending activities. It has also made possible the keeping of business accounts and thus facilitated trade.

Question 15.
State the effect of the following on the balance of payments situation: [4]
(i) Increase in import duty of gold.
(ii) Rise in the price of foreign currency.
Answer:
(i) Increase in import duty of gold will reduce import of gold and thus will have a favourable effect on the BOP situation as demand for foreign exchange will fall.

(ii) Rise in the price of foreign currency implies depreciation in the value of domestic currency. This will make imports costlier leading to a fall in imports. This will result in a favourable BOP situation as demand for foreign exchange will fall.

Question 16.
(a) How should the following be treated in the calculation of national income? Give reasons for your answer. [3]
(i) Interest on public debt
(ii) Bonus given to railway employees
(b) What is investment multiplier? How is its value determined? What can be its minimum and maximum value? [3]
Answer:
(a)

(i) Interest on public debt. Not included, because interest on public debt is interest on loan taken by the government for consumption purpose and not for investment.
(ii) Bonus given to railway employees. Included, because bonus given to employees is a part of compensation of employees which is a component of income method of calculating National Income.

(b) When investment increases by a certain amount, aggregate income increases by a multiple of that investment. This multiple is called the multiplier. Thus, investment multiplier is the ratio of change in income to change in investment.
K = \(\frac{\Delta Y}{\Delta \mathrm{I}}\)
The size of the investment multiplier depends on the value of MPC.
∴ K = \(\frac{1}{1-\mathrm{MPC}}\) or \(\frac{1}{\mathrm{MPS}}\)
Minimum value. The minimum value of the multiplier is one (when, MPC is zero).
Maximum value. The maximum value of the multiplier is infinity (when, MPC is one).

Question 17.
Given Consumption Curve, derive Saving Curve and state the steps taken in the process of derivation. Use diagram. [6]
Or
Define and represent ‘inflationary gap’ on a diagram. Explain the role of the ‘varying reserves requirement’ in removing the gap.
Answer:
Saving function refers to the functional relationship between saving and income. Consumption and Saving curves are complementary curves as they together make up Income. Therefore, the saving curve can easily be derived from the consumption curve.
Total Income = Consumption expenditure + Saving.
Consumption is the function of Income. However, some consumption is always there even if there is no income, i.e., at zero level of income. This is called autonomous consumption.

(i) In the diagram, CC is the consumption curve and the 45° line represents the income curve.

(ii) At zero level of income, autonomous consumption (\(\overline{\mathrm{C}}\)) is equal to OC which means that saving at this income level will be OS, which is negative saving or dissaving. Thus, point S in the negative region of Y-axis will be the starting point of the saving curve.

(iii) Point E represents the break-even point where Y = C. Since income is equal to consumption, therefore savings are zero at this point.

(iv) It means that saving curve will intersect X-axis at point Q. By joining points S and Q and extending the line upwards we get the saving curve ss.

Or

Inflationary gap relates to a situation of excess demand. In such a case, real aggregate demand at the full employment level is more than the aggregate demand which is required to maintain the full employment level. The excess of real aggregate demand over the full employment level aggregate demand is called inflationary gap. In other words, inflationary gap is the measure of excess demand. The concept of inflationary gap can be explained with the help of the given diagram. At full employment level OY*, real aggregate demand is GY*, whereas aggregate demand required to maintain the full employment is FY*.

Thus, real aggregate demand exceeds by FG and this is inflationary gap or measure of excess demand.

For removing excess demand, central bank should limit the credit creating capacity of commercial banks. For attaining this objective, reserve ratio should be increased so that the banks are required to maintain more cash reserves with the central bank and thus are able to create less credit. So decline in credit availability in the economy will tend to reduce AD and remove the inflationary gap.

Section B: Indian Economic Development

Question 18.
State growth as the goal of five year plans. [1]
Answer:
Growth as the goal of five year plans refers to increase in the country’s capacity to produce the output of goods and services within the country.

Question 19.
The ____ sector accounted for the largest share of workforce in India during colonial period. [1]
(a) Agriculture
(b) Service
(c) Manufacturing
(d) Banking
Answer:
(a) Agriculture

Question 20.
Which of the following financial bodies regulates the financial sector in India? [1]
(a) RBI
(b) SBI
(c) ICICI
(d) IDBI
Answer:
(a) RBI

Question 21.
Outsourcing is one of the most important outcomes of which economic reform? (Choose the correct alternative) [1]
(a) Globalisation
(b) Privatisation
(c) Liberalisation
(d) Disinvestment
Answer:
(a) Globalisation

Question 22.
State any two sources of Human Capital. [1]
Answer:
Education and Health.

Question 23.
State two aspects of agricultural diversification. [1]
Answer:
Two aspects of agricultural diversification:

1. Change in cropping pattern.
2. Shift of workforce from agriculture to other allied activities.

Question 24.
What is the literacy rate in rural India as per the 2011 census? (Choose the correct alternative) [1]
(a) 69%
(b) 59%
(c) 49%
(d) 39%
Answer:
(a) 69%

Question 25.
Name a modem industry which was in operation at the time of independence. [1]
Answer:
Cotton textiles

Question 26.
Why is it important to ensure access to cheap formal sector credit to the rural poor? [1]
(a) To create a culture of savings and investment.
(b) To increase the earnings of the regional rural banks.
(c) To protect them from predatory lending and debt traps.
(d) To promote collectivisation and organisation among them.
Or
Which of the following is a crucial area of improvement for rural banking?
(a) Risk protection for small businesses.
(b) Profitability of non-farm activities.
(c) A culture of deposit mobilisation.
(d) Sustainable development.
Answer:
(c) To protect them from predatory lending and debt trap.
Or
(c) A culture of deposit mobilisation.

Question 27.
DIRECTION: Read the following statement— Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A) : In a capitalist economy, private entities own resources, whereas in a socialist economy resources are owned by the state.
Reason (R) : In a socialist economy, it is assumed that the government knows the exact needs of the people. [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:
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A)

Question 28.
Study the table and answer the questions given below: [3]
Growth of GDP and Major Sector (in %)

(i) Which sector has faced declined growth during the reform period?
(a) Service
(b) Industrial
(c) Agriculture
(d) Agriculture & Service
Answer:
(c) Agriculture

(ii) ……….. sector became the major driver of growth after reforms.
(a) Service
(b) Industrial
(c) Agriculture
(d) Both (a) & (c)
Answer:
(a) Service

(iii) The ………. sector witnessed a steep decline in 2012-13.
(a) Service
(b) Industrial
(c) Agriculture
(d) All of the above
Answer:
(b) Industrial

Question 29.
State any three features of organic farming. [3]
Or
What is agricultural marketing? State the various operations included in agricultural marketing.
Answer:
The main features of organic farming are as follows:

1. Organic farming is a sustainable farming system which maintains long-term fertility of soil through the use of locally produced organic inputs.
2. Animal dung, crop residues, green manure and bio-fertilizers are the major sources of nutrients for it.
3. It focuses on maintaining soil health rather than plant health.
4. It focuses on ecological principles as the basis for crop production.

Or

Agricultural marketing refers to the entire system which helps the farmer in disposing of his surplus produce. It includes operations like —

• Procurement, i.e., collection of farm produce after harvesting,
• Processing the produce,
• Grading of the produce according to quality,
• Packaging of the produce according to different qualities and quantities,
• Storing of the produce for sale in future, and
• Transportation of the produce to the market for sale.

Question 30.
Why did India have to agree to the terms of World Bank and IMF and introduced the New Economic Policy? [4]
Answer:
India approached the International Bank for Reconstruction and Development (IBRD), popularly known as World Bank and the International Monetary Fund (IMF), and received $7 billion as loan to manage the crisis. For availing the loan, these international agencies expected India to liberalise and open up the economy by removing restrictions on the private sector, reduce the role of the government in many areas and remove trade restrictions between India and other countries.

India agreed to the conditionalities of World Bank and IMF and announced the New Economic Policy (NEP). The NEP consisted of a wide range of economic reforms. The thrust of these policies was towards creating a more competitive environment in the economy and removing the barriers to entry and growth of firms.

Question 31.
Evaluate the import substitution policy adopted by the policy makers to protect the domestic industries. [4]
Answer:
In order to be self reliant, India has followed the strategy of replacing many imports by domestic production. This inward looking trade strategy was called ‘Import Substitution’. Import Substitution refers to a policy of replacement or substitution of imports by domestic production. The main aim of this policy was to protect domestic industries from foreign competition to achieve the underlying objectives of self reliance and saving foreign exchange. Reasons for Import Substitution.

The policy of protection was based on the notion that industries of developing countries like India, were not in a position to compete against the goods produced by more developed economies. With protection, they would be able to compete in due course of time.
Restriction on import was necessary as there was a risk of drain of Foreign Exchange Reserves due to increasing imports.

Protection from imports took two forms:

1. Tariffs refer to taxes levied on imported goods. The main aim for imposing heavy duty on imported goods was to make them more expensive and discourage their use.
2. Quotas refer to fixing the maximum limit on the imports of a commodity by a domestic producer.
   Using the protection provided by the policy of tariffs and quotas, the domestic firms could expand without fear of competition from the foreign market.

Question 32.
Discuss certain measures taken by the government for environment protection. [4]
Or
What is meant by Sustainable development? Explain its two features.
Answer:
Government of India has undertaken several legal and administrative measures to protect the environment from further degradation.

These measures are:

1. Environment (Protection) Act, 1986. This act empowered the government to take all measures necessary for protecting and improving the quality of environment.
2. 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 effluents and emissions.
3. The Forest (Conservation) Act, 1980. This act has strict provisions to check the diversion of forest land for any other purpose.

Or

Sustainable development refers to the development strategy which manages resources for increasing long-term well-being of people. It means fulfilling the needs of the present generation without harming the ability of the future generations to meet their own needs. The main features of sustainable development are as follows:

1. Sustained rise in income. Sustainable development emphasizes that there should be a sustained rise in real per capita income and economic welfare of the people of both present and future generations.
2. Rational use of natural resources. It aims at making use of natural resources and environment for raising the present standard of living in such a way so as not to reduce the ability of future generations to raise their standard of living. In other words, present development should not be at the cost of future development.
3. Protection of environment. It emphasizes that the cost of development in terms of environment should be taken into account. Thus, sustainable development does not prohibit the use of natural resources, but restricts it in such a way so that as much is left for the future generations as we got from our past generations. (any two)

Question 33.
In India, due to increase in labour force at a fast pace as compared to employment growth rate, the number of people remaining unemployed has increased over time. How can this problem be solved? [6]
Or
Discuss the various economic and social consequences of the existing unemployment problem in India.
Answer:
The following measures can be adopted to solve the problem of unemployment in India:

1. Accelerating growth rate of GDP. The unemployment problem can be solved with the process of accelerated growth rate of GDP. For this it is essential to increase production in agricultural and industrial sectors. Development of small and cottage industries should also be encouraged.
2. High rate of capital formation. The rate of capital formation in the country should be increased with investment being directed towards areas with high employment potential.
3. Improvements in infrastructure. Infrastructural facilities like irrigation, electricity, roads, health, etc. are critical for overall development of the economy. Better infrastructural facilities are also important for optimally utilising the potential of agricultural and industrial sectors.
4.  Technique of production. To solve the unemployment problem, it is essential that labour intensive technology should be encouraged in place of capital intensive technology.
5. Focus on employment programmes in plans. Such programs, which can raise the level of employment like irrigation projects, road construction projects, etc. should be given greater importance in plans. Special employment programmes aiming at providing wage employment or self employment opportunities should also be implemented.
6. Control of population growth. The rapid growth rate of population should be controlled so that the additional jobs created do not fall short of new entrants to the labour market.
7. Encouragement to small-scale enterprises. The small-scale sector should be encouraged through initiatives like concessional loan facilities, easy availability of raw materials, infrastructural facilities, etc. as they have the potential to generate employment opportunities.
8. Reforms in the education system. The present system of education should be made more vocational and job oriented. Focus of education must shift towards providing skills among the educated unemployed by providing special training courses. (any six)

Or

High unemployment leads to serious economic and social consequences which have been discussed below:

1. Economic Effects:

• Fall in production and income. As human resources are not utilised to the optimum, there is fall in the level of output and income to the extent of unemployment.
• Poverty. An unemployed person becomes a liability for the nation as he is not contributing towards the national income of the economy. This adds to the situation of poverty in the country as he is unable to fulfill his basic requirements.
• Low capital formation. Due to low level of income, people are not able to save and invest sufficiently causing a decline in capital formation in the economy.
• Low productivity. Disguised unemployment (occurring mainly in agricultural sector) results in low level of productivity which in turn decreases the rate of growth of the economy.

2. Social Effects:

• Low standard of living. Unemployment means a lower quality of life as the person is unemployed and unable to maintain a dignified standard of living.
• Inequality in the distribution of income. Higher the degree of unemployment, greater would be the inequality in distribution of income and wealth.
• Social unrest. Living in a state of poverty makes people desperate and propels them to resort to theft, dacoity, fraud, etc.

Thus, we can say that unemployment is a social menace which creates social unrest by creating inequality amongst the various sections of society.

Question 34.
(a) Discuss the main reasons responsible for the emergence of poverty in Pakistan. [3]
(b) Discuss the dual pricing policy in the reform process of China. [3]
Answer:
(a) Reasons responsible for the emergence of poverty in’Pakistan:

1. Pakistan has failed to bring about stable institutional reforms in agriculture. Accordingly, performance of agricultural sector has remained volatile and highly vulnerable to climatic conditions as good harvest depends largely on good monsoon.
2. Pakistan has relied largely on remittances from abroad, financial help from Western countries and (volatile) agricultural exports for its foreign exchange requirements. A setback to these sources of foreign exchange has then caused a corresponding setback to the process of growth.
3. Lack of political stability in Pakistan has caused huge public expenditure on law and order.
4. Pakistan has been allocating huge funds to build a strong defence system which implies less expenditure on development.

(b) China’s reform process involved dual pricing which meant fixing the price in two ways:

1. Farmers and industrial units are required to buy and sell fixed quantities of inputs and outputs on the basis of prices fixed by the government.
2. For other transactions, the inputs and outputs were purchased and sold at market prices.