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

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

CBSE Class 12 Economics Question Paper 2016 (Outside 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 flows. [1]
Answer:
Variables whose magnitude is measured over a period of time are called flow variables. For example, income, expenditure, etc.

Question 2.
National income is the sum of factor incomes accruing to: (choose the correct alternative) [1]
(a) Nationals
(b) Economic territory
(c) Residents
(d) Both residents and non-residents
Answer:
(c) Residents

Question 3.
Give the meaning of inflationary gap. [1]
Answer:
The excess of aggregate demand over aggregate supply at the full employment level, is inflationary gap.

Question 4.
Which of the following is not a problem of barter system of exchange? (Choose the correct alternative) [1]
(a) store of value
(b) double coincidence of wants
(c) unit of account
(d) unemployment
Answer:
(d) unemployment

Question 5.
Foreign exchange transactions which are independent of other transactions in the Balance of Payments Account are called: (Choose the correct alternative) [1]
(a) Current transactions
(b) Capital transactions
(c) Autonomous transactions
(d) Accommodating transactions
Answer:
(c) Autonomous transactions

Question 6.
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 7.
What is Reverse Repo rate? [1]
Answer:
It is the rate of interest at which the central banks accept deposits from the commercial banks.

Question 8.
Define final goods. [1]
Or
What are intermediate goods?
Answer:
Final goods are goods and services purchased or own-produced for the purpose of consumption and investment. For example, bread purchased by household, machine purchased by a firm.
Or, Intermediate goods refer to those goods and services which are purchased during the year by one production unit and completely used up or resold during the same year.
For example, tyres purchased by car manufacturers.

Question 9.
What would be the value of MPC (Marginal propensity to consume) in case of linear consumption function? Why? [1]
Answer:
The slope of a straight line is always constant and MPC represents the slope of consumption curve. Therefore, the value of MPC will be constant in case of linear consumption curve.

Question 10.
What is a fixed exchange rate? [1]
Answer:
The exchange rate which is fixed by the government/central bank is known as fixed exchange rate.

Question 11.
Assuming real income to be ₹200 crore and price index to be 135, calculate nominal income. [3]
Answer:

Question 12.
What is Aggregate Demand? State its components. [3]
Or
Explain how controlling money supply is helpful in reducing excess demand.
Answer:
Aggregate Demand refers to the total value of final goods and services that all sectors of the economy taken together are planning to buy at a given level of income during a period of time.
Aggregate demand consists of the following:

1. Private final consumption expenditure (C)
2. Private investment expenditure (I)
3. Government expenditure (G), including government consumption and investment < expenditure.
4. Net Exports (X – M), i.e., Exports – Imports 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.

The central bank controls the supply of money in the economy by regulating the creation of credit by commercial banks. Credit creation by commercial banks in times of excess demand can be controlled by —

• increasing the bank rate/ repo rate;
• by selling government securities in the open market to absorb liquidity from the system;
• by increasing CRR and SLR; and
• by raising the margin requirement:

Less money supply, i.e., stock of money with people leaves less purchasing power in their hands. Therefore, people demand less goods and services.

Question 13.
An economy is in equilibrium. Calculate Marginal Propensity to Consume: [4]
National income = 1,000
Autonomous consumption expenditure = 200
Investment expenditure = 100
Answer:
Given: Y = 1,000, \(\overline{\mathrm{C}}\) = 200, I = 100, MPC = ?
Consumption function equation, C = \(\overline{\mathrm{C}}\) + (MPC)Y ……. (i)
C = 200 + (MPC)1,000
At equilibrium level, Y = C + I
⇒ 1,000 = 200 + (MPC) 1,000 + 100 ……[From (i)
⇒ 1,000 – 200 – 100 = (MPC) 1,000 ⇒ 700 = (MPC) 1,000
∴ MPC = \(\frac{700}{1000}\) = 0.7

Question 14.
Sale of petrol and diesel cars is rising particularly in big cities. Analyse its impact on gross domestic product and welfare. [4]
Answer:
Final sale of cars raises GDP, because final sales are final products. Cars provide convenience in transportation and add to the welfare of people. At the same time, rise in sale of petrol and diesel cars particularly in big cities will lead to air pollution and noise pollution which will adversely affect the health of citizens (including children). This is a negative externality occurring because of the smoke and harmful gases being emitted by the vehicles. This leads to respiratory problems and other health issues which will impact the GDP of the nation adversely and reduce the welfare of the people.

Question 15.
Explain the ‘medium of exchange’ function of money. How has it solved the related problem created by barter? [4]
Or
Explain the ‘standard of deferred payment’ function of money. How has it solved the related problem created by barter?
Answer:
Money acts as a medium of exchange for the sale and purchase of goods and services. In the absence of money under the barter system, goods were exchanged for goods. This required double coincidence of wants. Introduction of money has separated the acts of sale and purchase. It allows freedom of choice as every person can buy goods of his choice and also from people offering him the best bargain.

Or

Deferred payments refer to those payments which are to be made at some time in the future. In a modem economy, a large number of transactions involve future payments which can easily be stated in terms of money. This is possible because value of money remains more or less constant and it possesses the quality of general acceptability.

In the barter system, it was difficult to make such future payments in terms of goods and services. There was always the risk of the commodity to be repaid increasing or decreasing in value. There could also be a disagreement regarding the quality of goods or services to be repaid. This function of money has facilitated borrowing and lending activities and promoted trading. It has also led to the creation of financial institutions.

Question 16.
What is the difference between revenue expenditure and capital expenditure? Explain how taxes and government expenditure can be used to influence distribution of income in the society. [6]
Or
What is the difference between direct tax and indirect tax? Explain the role of government budget in influencing allocation of resources.
Answer:
Difference between Revenue Expenditure and Capital Expenditure

Basis	Revenue Expenditure	Capital Expenditure
Meaning	Revenue Expenditure neither creates any asset nor reduces any liability of the government.	Capital expenditure either creates an asset or reduces a liability of the government.
Nature	It is recurring in nature.	It is non-recurring in nature.
Example	Salary, Pension, etc.	Repayment of borrowings, Expenditure on acquisition of capital assets, etc.

Redistribution of income and wealth. Through its tax and expenditure policy, the government attempts to reduce inequalities of income. The government influences the personal disposable income of households by making transfer payments and collecting taxes. In this way, it influences the income distribution in the society.

Inequalities of income and wealth can also be reduced through progressive income taxation in which higher the income, higher is the tax rate. Government can impose higher taxes on incomes of the rich and on the luxury goods and services consumed by them. The money so collected can be spent on welfare projects for the poor such as providing free healthcare, free education, subsidies, minimum wages, etc. These expenditures by the government will raise the disposable income of the poor.

Or, Difference between Direct tax and Indirect tax

Basis	Direct tax	Indirect tax
Impact	Direct taxes are levied on individuals and companies.	Indirect taxes are levied on goods and services.
Shift of	The burden of a direct tax cannot be	The burden of an indirect tax can be
burden	shifted, i.e., impact and incidence is on the same person.	shifted, i.e., impact and incidence is on different persons.
Example	Wealth tax, Income tax, etc.	Sales tax, Excise duty etc.

Allocation of Resources. Government budget is a reflection of certain goals the government wants to achieve. There are many economic activities which are not undertaken by the private sector either due to lack of profits or due to huge investment expenditure involved. Government can undertake these activities on its own. There are many other activities like water supply, sanitation etc. which are necessarily undertaken by the government in public interest. In addition, government can encourage the private sector through tax concessions, subsidies etc. to undertake certain production in public interest. By doing so, government helps in influencing allocation of resources.

Question 17
Given saving curve, derive consumption curve and state the steps in doing so. Use diagram. [6]
Answer:
Consumption and Saving curves are complementary curves. This means that if one of the functions is known then the other can be easily obtained. Consumption function refers to the functional relationship between consumption and national income.
As shown in the diagram, a straight line Saving curve is plotted showing saving function at different levels of income.

1. First we draw a 45° income line from the origin.
2. At zero level of income, autonomous consumption expenditure will be shown equal to OC (same as dissaving equal to OS). This is the starting point C of the Consumption curve.
3. At income level OR saving is zero implying that consumption expenditure must be equal to income. Therefore, by drawing a perpendicular from point R which intersects the 45° line, we obtain point B.
4. By joining points C and B and extending it further, we derive the Consumption curve.

Section B: Indian Economic Development

Question 18.
Which of the following bodies is responsible for formation of five year plans in India? [1]
(a) Central statistical organisation
(b) Home ministry
(c) Planning commission
(d) Finance Ministry
Answer:
(c) Planning commission

Question 19.
In which year Suez canal was opened? [1]
(a) 1869
(b) 1857
(c) 1875
(d) 1864
Answer:
(a) 1869

Question 20.
Define economic planning. [1]
Answer:
Economic planning means utilisation of country’s resources in different development activities in accordance with national priorities.

Question 21.
Taxation and public expenditure policies of the government are collectively known as ____ [1]
(a) Economic policy
(b) Fiscal policy
(c) Monetary policy
(d) Price policy
Answer:
(b) Fiscal policy

Question 22.
In which year General Agreement on trade and tariff (GATT) was established? [1]
(a) 1947
(b) 1948
(c) 1956
(d) 1960
Answer:
(b) 1948

Question 23.
Why are regional and economic groups formed? [1]
Answer:
They are formed to strengthen the economies of member nations.

Question 24.
Which sector of the economy contributes the highest to India’s GDP? [1]
(a) Agriculture
(b) Services
(c) Manufacturing
(d) Mining
Answer:
(b) Services

Question 25.
Name the apex body in the field of medical research in India. [1]
Or
What is vocational education?
Answer:
Indian Council of Medical Research (ICMR).
Or, It refers to education which aims at providing skills for particular occupations.

Question 26.
Percentage of population taking part in the process of production is called: [1]
(a) Labour supply
(b) Labour force
(c) Participation rate
(d) Workforce
Answer:
(c) Participation rate

Question 27.
What does adult literacy rate indicate? [1]
Answer:
Adult literacy rate indicates the percentage of the literate adult population aged 15 years and above. The word literacy, in this case, refers to the ability to read and write.

Question 28.
How can accelerating the growth rate of GDP solve the problem of unemployment? [3]
Answer:
Unemployment problem can be solved through the process of accelerated growth as employment generation is considered to be a natural consequence of economic growth. To achieve higher growth rate, the development of agricultural sector is very important. Improved techniques of production, expansion of irrigation facilities, increase in public investment in agriculture would result in higher productivity of land and labour. Higher productivity results in higher production and higher growth rate leading to more employment opportunities. Growth rate can also be achieved by promoting the small scale sector through cheap and adequate availability of finance, facilities for marketing of products, technical training, etc.

Question 29.
Using data from the given table, compare and contrast India and China’s sectoral contribution towards GDP. What does it indicate? [3]
Sectoral Contribution towards GDP and
Sectoral Share of Employment in 2015-17 in India and China

Answer:
Sectoral Distribution of Output and Employment:

(i) Agriculture Sector. In China, with 17.5 per cent of its workforce engaged in agriculture, its contribution to GDP was 9 percent. India’s contribution of agriculture to GDP was only 17 percent despite the majority of its population being engaged in the agricultural sector.

(ii) Industry and Service Sectors. In both India and China, the industry and service sectors have less proportion of workforce but contribute more in terms of output. In China, manufacturing contributes the highest to GDP at 43 percent whereas in India it is the service sector which contributes the highest. Thus, China’s growth is mainly contributed by the Manufacturing sector and India’s growth by the Service sector.

Question 30.
What is biodiversity? Why is it considered an important resource? [4]
Answer:
Different types of plants, creatures and micro organisms constitute biodiversity.
Its importance can be judged from the following:

1. It provides us with natural beauty.
2. It is a source of various medicines as most medicines are made from materials obtained from plants, animals and microorganisms.
3. It is essential for increasing agricultural production.
4. It is important for creation of ecological system.

Question 31.
Discuss the key issues of rural development in India. [4]
Answer:
Following are the key issues associated with rural development in India:

1. The quality of human resource to be improved.
2. The process of rural development should also involve the development of infrastructure like electricity, irrigation, rural credit, roads etc.
3. Introduction and implementation of land reforms should form an important part of the process of rural development.
4. Productive resources of localities should be developed so as to increase employment opportunities.
5. Majority of the rural population still lives in poverty which is why alleviation of poverty should be an important aspect of rural development.

Question 32.
(a) What is the Great leap forward campaign of China? [2]
(b) What is the significance of the one child norm adopted by China in 1979. [2]
Answer:
(a) This campaign initiated by China in 1958 aimed at industrialisation on a massive scale.
Under this campaign, the citizens were encouraged to set up industries even in their backyards. This campaign provided equal opportunity to everyone to participate in the growth process which ultimately led to their economic development.

(b) The one child norm adopted by China has successfully reduced the growth rate of population. However, this also implies that after a few decades there will be proportionately more elderly people in China’s population as compared to young people. In other words, a limited number of young people will have to look after the welfare of a large number of elderly population. This will not only hamper their growth but also reduce the working population.

Question 33.
Read the paragraph given below and answer the questions that follow:

Indian poverty persists not only due to insufficient economic activity but also due to the presence of a large unorganised sector. In 2018, only 50% of the Indian population participated in the labour force, 81 % of which was employed in the informal sector, also known as the unorganised sector. Although the informal sector is accredited with the absorption of large masses of workers that would otherwise remain unemployed due to the absence of formal-sector opportunities, the reprieve provided by it is detrimental to the country’s developmental progress.

The informal segment of the economy is responsible for maintaining India’s unequal status quo. The informal sector consists of enterprises which are labour-intensive. Low- skilled labourers who are desperate enough to work for miserly wages in order to meet their subsistence requirements largely constitute the labour force of unorganised economic activities. Since unorganised firms operate outside of the jurisdiction of corporate law, workers in their employment are assured of neither job-security nor social protection. Owing to the nation’s mammoth population, an oversupply of menial labour is paving the way for easy exploitation on the part of unconscionable entrepreneurs.

The expendable nature of the unorganised labour force causes wages to remain at minimal levels, sometimes lower than the legal, minimum. Also, the prices of products and services produced by these workers usually do not rise in sync with the rate of inflation, further adding to their despair. Workers are unable to improve their work-expertise in such a paradigm, and are deprived of career growth opportunities and finally are bereft of the capacity to accumulate significant savings. In this manner, they are further excluded from the main economy due to their inability to save and invest.

(i) Identify the reasons responsible for the slow growth of the workers of the unorganised sector. [3]
Answer:
The expendable nature of the unorganised labour force causes wages to remain at minimal level, sometimes lower than the legal minimum. Also, the prices of products and services produced by these workers usually do not rise in sync with the rate of inflation, further adding to their despair. Workers are unable to improve their work- expertise in such a paradigm, and are deprived of career growth opportunities and finally are bereft of the capacity to accumulate significant savings. In this manner, they are further excluded from the main economy due to their inability to save and invest.

(ii) Distinguish between regular salaried employees and casual wage workers. [2]
Answer:
Difference between Regular Salaried Employees and Casual Wage Workers

Regular Salaried Employees	Casual Wage Workers
1. When a worker is engaged by someone or by an enterprise and is paid wages on a regular basis, then such a worker is known as a regular salaried employee.	Workers who are casually engaged and in return get remuneration for the work done are termed as casual wage workers.
2. They are hired on a permanent basis.	They are hired on temporary basis.
3. They enjoy social security benefits like pension, provident fund, etc.	They do not enjoy social security benefits and job security.
4. Regular workers account for just 18% of India’s workforce.	Casual workers account for 30% of India’s workforce.

(iii) Which type of unemployment is not found in rural India? [1]
(a) Disguised Unemployment
(b) Frictional Unemployment
(c) Seasonal Unemployment
(d) Structural Unemployment
Answer:
(b) Frictional Unemployment

Question 34.
(a) The period of British rule has been called as an economic drain despite a favourable balance of trade. Why? [3]
(b) What were the main causes of India’s agricultural stagnation and backwardness during the British rule? [3]
Answer:
(a) During the British rule, we had a trade balance which was in our favour. This was because India as always remained an export leader, the difference being that India now exported raw materials instead of the finished or manufactured goods it was earlier famous for. The export of these essential raw materials like clothes, food- grains, kerosene etc. created a shortage in the domestic market. Imports, which constituted mainly of finished goods such as cotton cloth, machinery etc., were also rising continuously but not in the same proportion as exports. India’s foreign trade resulted in an export surplus which was used for purposes which did not benefit us and therefore led to the drain of Indian wealth.

(b) The main causes of India’s agricultural stagnation and backwardness during the British rule:

1. Land settlement system. Under this system, profits accruing out of agriculture went to the zamindars, in the form of Lagaan, who in turn did nothing to improve the condition and productivity of the agricultural sector.
2. Commercialisation of agriculture. Production of cash crops led to a fall in production of food crops.
3. Low level of productivity. Low level of technology, lack of irrigation facilities and negligible use of fertilisers resulted in low level of productivity.
4. Adverse effects of partition. India’s highly irrigated and fertile land went to Pakistan. Also, the jute and cotton growing areas became the part of Pakistan, which adversely affected the cotton and jute industries.