CBSE Class 12 Economics Question Paper 2017 (Outside Delhi) with Solutions

Students can use CBSE Previous Year Question Papers Class 12 Economics with Solutions and CBSE Class 12 Economics Question Paper 2017 (Outside Delhi) to familiarize themselves with the exam format and marking scheme.

CBSE Class 12 Economics Question Paper 2017 (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.
Demand deposits include: (Choose the correct alternative) [1]
(a) Saving account deposits and fixed deposits
(b) Saving account deposits and current account deposits
(c) Current account deposits and fixed deposits
(d) All types of deposits
Answer:
(b) Saving account deposits and current account deposits

Question 2.
Define Marginal Propensity to Consume. [1]
Answer:
Marginal propensity to consume can be defined as the ratio of change in consumption to change in income.

Question 3.
If the marginal propensity to consume is greater than marginal propensity to save, the value of the multiplier will be: (Choose the correct alternative) [1]
(a) greater than 2
(b) less than 2
(c) equal to 2
(d) equal to 5
Answer:
(a) greater than 2

Question 4.
Define Government Budget. [1]
Answer:
Government budget is an annual statement, showing item-wise estimates of receipts and expenditures during a fiscal year.

Question 5.
Name any one step the government can take through its budget to reduce the gap between the rich and the poor. [1]
Answer:
By taxing the rich and subsidising the goods and services meant for the poor, the government can reduce the gap between the rich and the poor.

Question 6.
Define transfer income. [1]
Or
What do you understand by factor income?
Answer:
Transfer income refers to any income received without providing any good or service in return. For example, scholarship, old age pension, etc.
Or
Factor income refers to income received in exchange for rendering productive services. It is included in national income, for example, rent, wages, interest and profit.

Question 7.
Which of the following is not a function of money? (Choose the correct alternative) [1]
(a) Medium of exchange
(b) Price stability
(c) Store of value
(d) Unit of account
Answer:
(b) Price stability

Question 8.
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 9.
Who regulates money supply? (Choose the correct alternative) [1]
(a) Government of India
(b) Reserve Bank of India
(c) Commercial Banks
(d) Planning Commission
Answer:
(b) Reserve Bank of India

Question 10.
If value of MPS is 0.2, the value of investment multiplier will be: (Choose the correct alternative) [1]
(a) 2
(b) 4
(c) 5
(d) 1
Answer:
(c) 5

Question 11.
Explain with the help of an example, the basis of classifying goods into final goods and intermediate goods. [3]
Answer:
Final goods. Goods which are used by their ultimate users are called final goods. They are not meant for resale but are used either for final consumption or for final investment, for example, car purchased by a household.
Intermediate goods. These are those goods which are used as raw material for production of other goods or are meant for resale in the same year, for example, car purchased by a dealer. The distinction between final goods and intermediate goods is made on the basis of the use of the product, for example, tea leaves purchased by the consumers is a final good. But tea leaves, if used in a restaurant where drinkable tea is sold to consumers, will be considered as an intermediate good.

Question 12.
In an economy aggregate demand is greater than aggregate supply. Explain the changes that will take place in this economy. [3]
Or
Explain the meaning and implications of deflationary gap.
Answer:
If aggregate demand is greater than aggregate supply at the full employment level of output, this creates a problem of inflationary gap shown as GF in the given diagram. In such a situation necessary steps should be .taken to reduce aggregate demand, for aggregate supply cannot be increased in the short-run, so that aggregate supply becomes equal to aggregate demand.

The situation can be rectified by reducing aggregate demand by an amount equal to inflationary gap.
The position of excess aggregate demand at full employment level is shown in the diagram at point G.
Now contractionary fiscal policy or contractionary monetary policy can be used to reduce AD and bring it down to point F to correct inflationary gap.

Or

When aggregate demand and aggregate supply are in equilibrium at less than the full employment level of output, this is a situation of deficient demand.

This happens when aggregate demand in the economy is not sufficient to ensure that level of output which can give employment to all those who are willing to work. Aggregate demand falls short of aggregate supply at full employment level of output by a certain amount, which is called deflationary gap. The extent of deficiency in demand (deflationary gap, i.e., EF) at the full employment level is shown in the given diagram.

Question 13.
Explain the “bankers’ bank” function of the Central Bank. [4]
Or
Explain the process of credit creation by commercial banks.
Answer:
As banker to the government (both Central as well as State Governments), Central Bank provides all those services and facilities to the Government which public gets from commercial banks. The Central Bank accepts Government’s deposits and undertakes interbank transfers. It also gives loans to the Government.

As an agent, it manages public debt and undertakes payment of interest on this debt. As an advisor, it gives advice to the Government regarding money market, capital market and on economic policy matters.

Or

Money or credit creation by commercial banks is one of the most important function of commercial banks. It is determined by:

1. the amount of initial deposits; and
2. the Legal Reserve Ratio (LRR). It is the minimum ratio of deposits legally required by the commercial bank to be kept as cash.

Process of credit creation. The process of credit creation by banks is made on the assumption that all receipts and payments in the economy are made through banks. This can be illustrated with the help of an example. Suppose that all banks receive initial cash deposits of ₹1,000 and CR is 10%. It means that banks are required to keep only 10% of deposits (i.e., ₹100) and lend the remaining amount of ₹900. Banks do not give loans in cash rather they open an account in the borrower’s name and deposit the loan amount in his account. The borrower is free to withdraw the amount as and when they wish. These are called secondary deposits.

Suppose borrowers withdraw the entire amount of loan and spend it for making payments of goods and services received. The sellers of these goods and services receive ₹900 as revenue and deposit the same in their respective banks. It will increase the demand deposits of banks by ₹900.

Now, Banks keep 10% of these new deposits, i.e., ₹90 as cash reserve and lend the remaining amount of ₹810. The borrowers will again use their loans for making payments which again come back into the accounts of those who have received these payments.

Banks again will keep 10% of ₹810 and lend the remaining amount of ₹729 (810—81).
Like this in each successive round creation of deposits will be 90% of the previous round.
This working has been shown in the following table:
Process of Credit Creation

Total Demand = Money Multiplier × Cash Reserve Deposits = 10 × ₹1,000 = ₹10,000
This shows that the supply of money has increased by ‘10,000 in the form of demand deposits.

Question 14.
An economy is in equilibrium. From the following data, calculate the marginal propensity to save: [4]
(i) Income = ₹10,000
(ii) Autonomous consumption = ₹500
(iii) Consumption expenditure = ₹8,000
Answer:
Given: Y = 10,000; \(\overline{\mathrm{C}}\) = 500;; C = 8,000; MPS ?
As we know, C = \(\overline{\mathrm{C}}\) + (MPC)Y
8,000 = 500 + (MPC) 10,000 ⇒ MPC = \(\frac{8,000-500}{10,000}\)
MPC = 0.75
and, MPS = 1 – MPC ∴ MPS = 1 -0.75 = 0.25

Question 15.
Explain how government budget can be helpful in bringing economic stabilization in the economy. [4]
Answer:
Economic stability means absence of fluctuations in prices. Government budget is used to save the economy from the situations of inflation or deflation.
To control inflation, government imposes heavy taxes to discourage private consumption and brings cut in expenditure. To check the situation of deflation, government reduces tax rates to encourage private consumption and increases its expenditure.
Policies of surplus budget during inflation and deficit budget during deflation, help to maintain stability of prices in the economy.

Question 16.
Distinguish:
(a) between Current Account and Capital Account, and
(b) between Autonomous transactions and Accommodating transactions of balance of payments account. [6]
Answer:
(a) Difference between Current Account and Capital Account

Basis	Current Account	Capital Account
Meaning	An account which records the export and import of goods and services and unilateral transfers done during the year.	Capital account of BOP records all those transactions, between the residents of a country and the rest of the world such as trading of foreign assets and liabilities.
Influence on the economy	Current account transactions bring a change in the current level of a country’s income.	Capital transactions bring about a change in the capital stock of a country.
Components	Current account = Visible trade + Invisible trade + Unilateral transfers + Income receipts and payments.	Capital Account = Borrowings and lendings to and from abroad + Investments to and from abroad + Change in foreign exchange reserves.

(b) Autonomous transactions and Accommodating transactions

Basis	Autonomous transactions	Accommodating transactions
Meaning	These are those international economic transactions which take place due to some economic motives such as profit maximisation.	These refer to those transactions that are undertaken to cover the deficit or surplus in autonomous transactions. Such transactions are essentially monetary in nature.
Effect on BOP A/c	Autonomous transactions are independent of the state of BOP Account. They are not influenced by foreign exchange position of the country.	Accommodating transactions are undertaken to maintain the balance in BOP Account.
Alternate Name	These are known as “above the line” items of BOP.	These are known as “below the line” items of BOP.
Item	Items motivated by profit consideration such as import and export of goods and services and inflow and outflow of capital items are autonomous items.	These transactions pertain to funding of/or withdrawal from the official reserve system using gold, special drawing rights and foreign exchange reserves.

Question 17.
(a) Explain any three precautions that should be taken while estimating national income by expenditure method. [3]
(b) From the following data calculate Gross National Product at Factor Cost by Income Method. [3]

Answer:
(a) The following precautions are required to be taken while estimating national income
through expenditure method:
(i) Expenditure on intermediate goods will not be included as it has already been included in the value of final product. If it is included, it will lead to the problem of double counting.
(ii) Transfer payments are not related to any productive activity and are, thus, not included while estimating national income.
(iii) Expenditures on second hand goods are not included as they have already been included when these goods were originally purchased.
(iv) Expenditure on shares and bonds is excluded because it implies paper claims only. It does not add to the flow of goods and services.
(v) Expenditure on own account production will be included i.e., imputed rent of owner occupied house will be included.

(b) GNP_FC (Income method)
= Compensation of employees + Rent + Interest + Profits + Consumption of fixed capital – Net factor income to abroad
= 300 + 70 + 50 + 160 + 10 – 50 = ₹540 crores

Or

(a) Will the following be included in the domestic product of India? Give reasons for your answer. [3]
(i) Profits earned by foreign companies in India.
(ii) Salaries of Indians working in the Russian Embassy in India.
(iii) Profits earñed by a branch of State Bank of India in Japan.

(b) Calculate National Income by Expenditure Method from the following data: [3]

Answer:
(a) (i) Profits earned by foreign companies in India. This will be included in the domestic product of India as this profit is being generated within our domestic territory.
(ii) Salaries of Indians working in the Russian Embassy in India. This will not be Included as this income is being earned in the Russian embassy which is not a part of our domestic territory.
(iii) Profits earned by a branch of State Bank of India in Japan. These profits are being earned in Japan which is not a part of our domestic territory. Hence, it will not be included in our domestic product.

(b) National Income (Expenditure method)
= ‘Private final consumption expenditure + Government final consumption expenditure + Net domestic capital formation + Net exports – Net factor income to abroad – Net indirect taxes
= 4,000 + 2,000 + 600 + 60 – 60 – 20.0 = ₹6,400 crores

Section B: Indian Economic Development

Question 18.
Identify the economist who did not provide any estimate about the national and per capita income during the colonial period. [1]
(a) Dadabhai Naoroji
(b) V.K.R.V. Rao
(c) Horace Sircist
(d) Findlay Shirras
Answer:
(c) Horace Sircist

Question 19.
Why is work participation of rural women more than urban women? [1]
Answer:
More rural Women are found working because of their poor economic condition as compared to urban women.

Question 20.
What was the two-fold motive behind the systematic de-industrialisation affected by British in the pre-independence India? [1]
Answer:

1. To reduce India to the status of a mere exporter of raw material to the British industries.
2. To turn India into a market for the finished goods of the same industries.

Question 21.
Indian green revolution is most successful in: (Choose the correct alternative) [1]
(a) Wheat and potato
(b) Tea and wheat
(c) Rice and wheat
(d) Tea and coffee
Or
Which of the following countries first adopted goods and services tax (GST)?
(a) France
(b) USA
(c) England
(d) Germany
Answer:
(c) Rice and wheat
Or
(a) France

Question 22.
In the 20^th century, under British rule, India had an export surplus. Where was this surplus used? [1]
(a) To invest in capital goods industries in India.
(b) To invest in capital goods industries in Britain.
(c) To meet the official and war expenses of the British.
(d) To pay the salaries of Indian government employees.
Answer:
(c) To meet the official and war expenses of the British.

Question 23.
Define buffer stock. [1]
Answer:
Buffer stock refers to the stock of grains held by the government to stabilise their prices and to be used in emergencies. It is also used for distribution through fair price shops under the public distribution system.

Question 24.
Who is the Chairman of National Institution for Transforming India Ayog? [1]
(a) Home Minister
(b) President
(c) Finance Minister
(d) Prime Minister
Answer:
(d) Prime Minister

Question 25.
Give two examples of alternate marketing channels. [1]
Answer:
(i) Apni Mandi in Punjab, Haryana and Rajasthan and
(ii) Hadaspur Mandi in Pune

Question 26.
In which of the following cities, national rural development institute is situated? [1]
(a) Lucknow
(b) Delhi
(c) Kanpur
(d) Hyderabad
Answer:
(d) Hyderabad

Question 27.
What is Education cess? [1]
Answer:
Education cess is the tax which has been levied to help cover the cost of government sponsored programmes. The revenues from education cess have been earmarked for spending on the elementary education.

Question 28.
Differentiate between the concepts of human capital and human development. [3]
Answer:
Difference between Human Development and Human Capital

Human Capital	Human Development
(i) Human capital considers education and health as a means to increase labour productivity.	(i) Human development considers education and health as being integral to human well being because only when people are educated and healthy, they will be able to make better choices.
(ii) Human capital treats human beings as a means to achieve the end result. i.e., increase in productivity.	(ii) Human Development considers human beings as ends in themselves and aims at increasing human welfare through investments in education and health.
(iii) According to the concept of human capital, any investment in education and health is unproductive if it does not enhance output of goods and services.	(iii) According to the concept of Human Development, investment in education and health is worthwhile if it increases human welfare even though it may not result in higher labour productivity.

Question 29.
Briefly explain the Right to Education Act and ‘Sarv Shiksha Abhiyan’. [3]
Or
Write short notes on NCERT and AICTE.
Answer:
Right to Education (RTE). The right of children to free and compulsory education Act or Right to Education Act (RTE), was passed by the Parliament on August 4,2009. According to it, every child of the age 6 to 14 years shall have the right to free and compulsory education in neighbourhood school till completion of elementary education.
Sarv Shiksha Abhiyan. Sarv Shiksha Abhiyan (SSA) was launched in 2001. It is one of India’s major flagship programmes for universalisation of elementary education.

Or

NCERT. It was established in September 1991 as an apex national body to lead qualitative changes in school education. It provides academic and technical support for qualitative improvement in school education. It has been playing an advisory role by guiding Central and State governments in formulating policies, various Acts and government programmes.

AICTE. The All India Council for Technical Education is one of the two important agencies in the field of higher and technical education. AICTE is responsible for proper planning and coordinated development of the technical education and management education system in India.

Question 30.
“As agriculture is already overcrowded, the ever increasing labour force needs to find alternate employment opportunities in other non-farm sectors.” Explain the statement. [4]
Answer:
The need for diversification arises from the fact that there is greater risk in depending exclusively on farming for livelihood. Therefore, expansion into other sectors is essential to provide supplementary gainful employment. Non-farm economy has several segments in it—

• Some that permit healthy growth like agro- processing industries, food processing industries, leather industry, tourism etc.
• Some which have the potential but currently have low productivity due to lack of infrastructure and other support like pottery, crafts, handlooms etc.

Branching out into these activities would help in achieving higher levels of income for rural people which would help them to overcome poverty and other hardships. Hence, there is a need to focus on allied activities, non-farm employment and other emerging alternatives of livelihood as sustainable livelihood options.

Question 31.
How is strategic sale different from minority sale? [4]
Answer:
Strategic sale:

• It refers to the sale of 51% or more stake of a public sector undertaking to the private sector.
• In this case, the ownership of the public sector undertaking gets transferred to the private sector.
  Minority sale:
• If refers to sale of 49% or less stake of a public sector undertaking to the private sector.
• In this case, the ownership of the public sector undertaking remains with the government as it still holds minimum 51% stake in it.

Question 32.
India’s foreign trade, limited by the inward looking trade policies, faced a number of hurdles. Discuss the principal problems faced by India during 1950-1990 in foreign trade. [4]
Or
How does a country gain from its foreign trade during its growth process?
Answer:
India’s foreign trade was limited by the inward looking trade policies. The domestic producers were also not interested in participating in international trade. Indian goods, being of poor quality were not internationally competitive.
Theitnain problems faced by India’s foreign trade have been explained below:

1. Imports were needed to fuel the growth process during 1950-1990. But exports were growing at a much slower rate which led to the widening of trade deficit.
2. The rising trade deficit led to the shortage of foreign exchange which prevented us from importing essential goods like wheat and edible oil. This adversely affected economic growth.
3. A large part of the trade deficit was financed through borrowings from abroad which increased our indebtedness to foreign countries.
4. Due to our inward oriented trade policies, we failed to develop a strong export sector.
5. Restrictions on imports forced the Indian consumer to purchase whatever was available to them in the local market. The domestic producer, therefore, had no incentive to improve the quality of their goods because they were able to sell low quality goods at high prices.

Or

Every country gains from its foreign trade in the following ways:

• International trade facilitates international specialisation.
• It helps to find market for surplus domestic output.
• It is an important means of earning foreign exchange, so it is very essential for the less developed countries to make developmental imports.
• It enhances opportunities of investment through expansion of the market. As the size of market expands, large scale production results in economies of scale.
• It accelerates the base of GDP growth.
• It facilitates import of essential goods and services which cannot be competitively produced in the domestic economy, i.e., import enables a country to overcome its domestic resource limitations.

Question 33.
What are the different sources of rural credit in India? [6]
Or
Bring out the importance of horticulture, animal husbandry and fisheries as a source of agricultural diversification.
Answer:
Sources of rural or agricultural credit can broadly be classified:

1. Non-institutional sources:

(i) Rural money lenders. They are popular because of the ease of getting money though they charge a very high rate of interest.

(ii) Traders and landlords. Traditionally, most credit needs of the farmers are met through these sources. These sources are popular among the farmers because they advance money for both productive and unproductive reasons and the process of getting money is small and easy. However, they charge a high rate of interest and manipulate the accounts. These sources are also unable to meet the medium and long-term credit requirements of the farmers due to limited resources.

2. Institutional sources. Institutional sources refer to the various institutions such as cooperative societies, cooperative banks, commercial banks and regional rural banks.

(i) Cooperative credit societies. The Cooperative credit societies provide adequate credit to the farmers at reasonable rates of interest. These societies also provide guidance in diverse agricultural operations with a view to raising crop productivity. These societies have been formed to ensure—

• timely and rapid flow of credit to the farmers,
• elimination of money lenders as credit agencies,
• trade credit facilities across all regions of the country, and
• provision of adequate credit in areas covered by special programs of development.

There are two separate cooperative institutions which provide agricultural finance—
(a) Cooperative banks which provide short term and medium term loans and
(b) Land Development Banks which provide long term loans to the farmers.

(ii) Commercial banks. Realising the importance of commercial banks in rural credit, the government nationalised certain banks in 1969. The nationalized commercial banks provide credit both directly to the farmers as well as indirectly through cooperative societies.

(iii) Regional Rural Banks (RRBs) and Land Development Banks. These were set up to promote credit supplies particularly in the remote rural areas and backward districts. These banks operate at the district level and their main objective is to meet the credit needs of the weaker sections of the rural population. However, the loans are given only for productive purposes.

(iv) National Bank for Agricultural and Rural Development (NABARD). NABARD is an apex institution handling policy, planning and operations in the field of rural credit and related economic activity. It provides refinance facility to state cooperative banks, commercial banks and regional rural banks which in turn provide credit to the farmers. It also directs, inspects and supervises credit flows for agriculture and rural development. Its main functions are:

• To serve as an apex funding agency for the institutions providing credit in rural areas.
• To take appropriate measures to improve the credit delivery system.
• To coordinate the rural financing activities of all credit institutions.
• To undertake monitoring and evaluation of projects being financed by it.
• To help the non-farm sectors, i.e., artisans, weavers, village industries and so on.

Or

One aspect of agricultural diversification relates to shift of workforce from agriculture to allied activities that includes animal husbandry and poultry, fisheries and horticulture.

(i) 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.

(ii) Animal husbandry. Animal husbandry is an important area of employment in India different from crop farming. It is also called livestock farming. Poultry, cattle and goats/sheep are important components of livestock in India. Livestock production provides increased stability in income, food security, transport fuel and nutrition for the family. Presently, animal husbandry is a source of alternative employment to nearly 7 lakh small and marginal farmers in the countryside.
In the livestock sector, dairying has been an important source of livelihood to a large proportion of landless labourers and small and marginal farmers. This has happened because of the successful implementation of “Operation Flood” from 1966 onwards. Meat, wool and other by-products are also becoming important productive sectors for rural people.

(iii) 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 the 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.
Give a comparative overview among India, Pakistan and China on the following bases: [6]
(i) Life Expectancy at birth
(ii) Infant Mortality Rate
(iii) Human Development Index
Answer:
(i) Life expectancy at birth. It refers to the average number of years for which people are expected to live. High life expectancy indicates longer and a more active average lifespan. China has the highest life expectancy followed by India and Pakistan.

(ii) Infant Mortality Rate (IMR). It refers to the number of infant deaths before reaching one year of age per thousand live births in a year. A low infant mortality rate shows better health and sanitation facilities as most of the infants die due to unhygienic conditions poor healthcare. It is the lowest in China indicating better health and sanitation facilities and highest in Pakistan.

(iii) Human Development Index (HDI). It is an important indicator to study the Human Development. A higher value of HDI shows a higher level of growth and development of a country. According to the Human Development Index, global ranks are accorded to countries in which India, China and Pakistan rank 131, 91 and 148 respectively.