Students can use CBSE Previous Year Question Papers Class 12 Economics with Solutions and CBSE Class 12 Physics Question Paper 2019 (Series: HFG1E/2) to familiarize themselves with the exam format and marking scheme.
CBSE Class 12 Economics Question Paper 2023 (Series: HFG1E/2) with Solutions
Time Allowed: 3 hours
Maximum Marks: 80
General Instructions:
- This question paper contains 34 questions. All questions are compulsory.
- These question Paper contains two sections:
- Section A – Macro Economics
- Section B – Indian Economics Development
- This question paper contains two sections:
- This paper contains 20 Multiple Choice Questions type questions of 1 mark each.
- This paper contains 4 Short Answer Questions type-I questions of 3 marks each to be answered in 60 to 80 words.
- This paper contains 6 Short Answer Questions type-II questions of 4 marks each to be answered in 80 to 100 words.
- This paper contains 4 Long Answer Questions type questions of 6 marks each to be answered in 100 to 150 words.
- Attempt all parts of a question together.
( Set-I; 58/2/1 )
Section-A: Macro Economics
Question 1.
“In the Annual Budget 2022-23, the Government of India set up disinvestment targets of 165,000 crores”.
Such proceeds from disinvestment can be classified as …………… receipts in the Government Budget as it leads to …………. of the Government. (Choose the correct alternative) [1]
(a) capital, decrease in assets
(b) revenue, increase in assets
(c) capital, increase in liabilities
(d) revenue, decrease in liabilities
Answer:
(a) capital, decrease in assets
Question 2.
Read the following statements – Assertion (A) and Reason (R). Choose one of the correct alternatives given below : [1]
Assertion (A) : The Balance of Payments is in surplus, if autonomous receipts are greater than autonomous payments.
Reason (R): Autonomous transactions are determined by the difference in the Balance of Payments.
Alternatives:
(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:
(c) Assertion (A) is true, but Reason (R) is false.
Question 3.
Read the following statements carefully: [1]
Statement 1: The induced consumption shows, the direct relation between consumption and income.
Statement 2: With a certain increase in income, induced consumption also increases.
(a) Statement 1 is true & Statement 2 is false,
(b) Statement 1 is false & Statement 2 is true.
(c) Both statements 1 & 2 are true.
(d) Both statements 1 & 2 are false.
Answer:
(c) Both statements 1 & 2 are true.
Question 4.
Ms. Iqra Ansari, a teacher, was explaining in her class about various types of deposits with the commercial banks. She quoted that-
“These deposits form a part of M1 measure of money supply and are payable on demand by the commercial banks.” [1]
Identify the type of deposits she was explaining about and choose the correct alternative:
(i) Demand Deposits
(ii) Time Deposits
(iii) Post Office Deposits Alternatives:
(a) Only (i)
(b) Only (ii)
(c) (i) and (ii)
(d) (i), (ii) and (iii)
Answer:
(a) Only (i)
Question 5.
As per the Reserve Bank of India (RBI) press report, dated 22nd June, 2022:
“Net Foreign Portfolio Investment (FPI) recorded an outflow of US $ 15.2 billion mainly from the equity market.”
The above transaction will be recorded in the account on side of Balance of Payments Account of India. (Choose the correct alternative) [1]
(a) current, credit
(b) current, debit
(c) capital, credit
(d) capital, debit
Answer:
(d) capital, debit
Question 6.
(A) Read the following statements carefully: [1]
Statement 1: Gross Domestic Product (GDP) is the sum total of the gross market value of all the final goods and services added by all the sectors in the economy during a fiscal year.
Statement 2: Gross Value Added at Market Price (GVAMP) is equal to the excess of value of output over intermediate consumption.
In the light of the given statements, choose the correct alternative from the following:
(a) Statement 1 is true & Statement 2 is false
(b) Statement 1 is false & Statement 2 is true.
(c) Both statements 1 & 2 are true.
(d) Both statements 1 & 2 are false.
Answer:
(c) Both statements 1 & 2 are true.
Or
(B) On the basis of the given figure identify the type of flow indicated by B and D: [1]
(Choose the correct alternative)
Alternatives:
(a) Real flow
(b) Money flow
(c) Nominal flow
(d) National flow
Answer:
(a) Real flow
Question 7.
Assuming that, the following data is given for an imaginary economy:
The Balance of Trade from 2020 to 2021 by ? crore.
(a) increased, 200
(b) decreased, 200
(c) increased, 50
(d) decreased, 50
Answer:
(c) increased, 50
Balance of Trade = Exports – Imports
For 2020; BOT = ₹1,000 – ₹800 = ₹200
For 2021; BOT = ₹100 – ₹850 = ₹250
Increase in Balance of Trade by = (250 – 200) = ₹50
Question 8.
In order to tackle the problem of rising general price level in an economy, government may come up with a surplus budget to achieve the budget objective of ……….. [1]
(i) reallocation of resources
(ii) price stability
(iii) redistribution of income
Alternatives:
(a) (i) only
(b) (ii) only
(c) only (iii)
(d) (i) and (iii)
Answer:
(b) (ii) only
Question 9.
(A) Read the following statements – Assertion (A) and Reason (R). Choose one of the correct alternatives given below: [1]
Assertion (A): At the break-even level of income, the value of Average Propensity to Consume (APC) is zero.
Reason (R) : Sum of Average Propensity to Consume (APC) and Average Propensity to Save (APS) is always equal to one.
Alternatives:
(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:
(d) Assertion (A) is false, but Reason (R) is true.
Or
(B) …………. refers to that level of Aggregate Demand, which can be met by the corresponding supply in the economy. (Fill up the blank with correct Alternative) [1]
(a) Autonomous Consumption
(b) Effective Demand
(c) Excess Demand
(d) Deficient Demand
Answer:
(b) Effective Demand
Question 10.
(A) In the Indian economy, ………….. are issued by the Reserve Bank of India and acts as legal tender money. [1]
(i) Coins of all denomination
(ii) Currency notes of various denominations, except one rupee note
(iii) Demand deposits
Alternatives:
(a) Only (i)
(b) Only (ii)
(c) Only (iii)
(d) (i) and (ii)
Answer:
(b) Only (ii)
Or
(B) ……………. formulates the Monetary Policy in the economy. (Fill up the blank) [1]
(a) Commercial Banks
(b) International Monetary Fund
(c) Central Bank
(d) Central Government
Answer:
(c) Central Bank
Question 11.
On the basis of the data given below for an imaginary economy, estimate the value of Net Domestic Product at factor cost (NDPFC): [3]
Answer:
NDPFC = (i) + (ii) + (iii) + (iv) + (v) – (vi) – (Vii) – (viii)
= 2,000 + 1,500 + 1,000 + 300 + 700 – 350 – 200 – 250
= 5500 – 800
= ₹4700 crore
Question 12.
(a) “Under the flexible exchange rate system, the Central Bank does not intervene in the foreign exchange market”. [3]
Justify the statement, giving valid arguments.
Answer:
In a system of Flexible Exchange Rates (also known as Floating Exchange), the exchange rate is determined freely by the market forces of demand and supply. There is no intervention by the Central Bank. lienee, there are no official reserve transactions. In this exchange rate, the foreign exchange market like other competitive markets, leads to an equilibrium exchange rate at which quantity demanded equals quantity supplied of foreign exchange.
Or
(b) Explain the impact of home currency depreciation on the exports of a nation. [3]
Answer:
When the value of domestic currency depreciates, it results in increased exports and decreased imports. This is so because in such a case, with given amount of foreign currency, more goods can be bought in the domestic market.
For example, one American dollar will now get more goods in the domestic market. Thus it is clear that when depreciation of domestic currency of a country takes place its exports increase.
Question 13.
“The process of credit creation by commercial banks comes to an end when the total of required reserves become equal to the initial deposits.”
With the help of a numerical example, prove that the given statement is true. [4]
Answer:
The power of commercial banks which enables them to expand their deposits through loans is called credit creation. Through this process, commercial banks are able to create credit, which is in far excess of their cash reserves.
This process is based on the following assumptions:
- There is a single banking system in the economy.
- All transactions are routed through banks.
Numerical Example:
Suppose, a customer deposits ₹10,000 in bank and the Legal Reserve Ratio (LRR) is 20%. Bank has to pay interest on these deposits. Therefore, it further lends this money to people after retaining a part of this amount to meet its customers obligations. Since LRR is 20%, the bank will keep 20% of deposits as reserve i.e., ₹2,000 and will lend the remaining 80% i.e., ₹8,000. Those who borrow will Spend this money and these ₹8,000 will come back to the bank in the form of deposits. Bank again keeps 20% of ₹8,000 i.e., ₹1,600 as reserves and lends ₹6,400 to those who need it. In this way, deposit will go on increasing @80% of the last deposit.
This deposit creation comes to an end when the total reserves become equal to the initial deposit i.e., ₹10000 in this case.
Thus, the total deposit creation is 5 times the initial deposit.
Question 14.
(a) “In an economy ex-ante Aggregate Demand is more than ex-ante Aggregate Supply.”
Explain its impact on the level of output, income and employment. [4]
Answer:
If aggregate demand (AD) is greater than the aggregate supply (AS) at the full employment level of income, it is a situation of excess demand. Excess demand gives rise to an inflationary gap, which causes a rise in the price level, called demand-pull inflation. When AD is greater than AS at the full employment level of income, the gap between the two is called inflationary gap.
The situation of excess demand and inflationary gap becomes clear by looking at the given diagram. OQ is the full employment level of income. To establish full employment equilibrium, Aggregate Demand (AD) should be QF. However, actual AD is QG which is greater than QF. The resulting inflationary gap, created due to excess demand is represented by FG.
This situation of excess demand does not affect the level of output or employment because economy is already at full employment level. However, it will lead to rise in prices because demand is increasing but there can be no further corresponding increase in supply.
Or
(b) For a hypothetical economy, assuming there is an increase in the Marginal Propensity to Consume (MPC) from 75% to 90% and change in investment to be ?1,000 crore.
Using the concept of investment multiplier, calculate the increase in income due to change in Marginal Propensity to Consume (MPC). [4]
Answer:
Question 15.
With suitable examples, distinguish between Direct taxes and Indirect taxes. [4]
Answer:
Question 16.
(a) (i) “Many goods and services which may contribute to welfare, but are not included in estimating Gross Domestic Product (GDP).”
Do you agree with the given statement? Give valid reason in support of your answer. [3]
(ii) With suitable examples, distinguish between final goods and intermediate goods. [3]
Answer:
(i) Yes, I agree with the statement.
GDP does not take into account those transactions that are not expressed in monetary terms. This is a major limitation of GDP as an index of welfare of a country as there are many transactions which although are non-monetary but add to the growth and development of the nation. Many non-monetary activities in the economy done out of love and affection are not evaluated in monetary terms due to lack of authentic data. Thus, Non-market transactions like Services of housewives, Services of social workers etc., which increase economic welfare are not included in the measurement of GDP. Therefore, GDP underestimates welfare and may not reflect the well-being of the country.
(ii) Difference between Intermediate goods and Final goods
Or
(b) (i) Using a suitable numerical example, distinguish between Real Gross Domestic Product (GDP) and Nominal Gross Domestic Product (GDP). [4]
(ii) State the meaning of ‘normal resident’ of a country.
Answer:
(i) The aggregate market value of the economic output produced in a year within the boundaries of the country is known as Nominal GDP. It is expressed in current year prices and is considered as GDP without the effect of inflation.
Real GDP, on the other hand, refers to the value of economic output produced in a given period adjusted according to the changes in the general price level. It is inflation adjusted GDP and is expressed in base year prices or constant prices.
Real GDP is always considered as a better indicator of economic growth.
For example, an economy produces only one commodity say rice and it produced 20 kg of rice in year 2018 (base year). Suppose price of rice is ₹20/kg in 2018. So GDP of 2018 is ₹400 (i.e., 20 kg x ₹20). Thus nominal as well as Real GDP of 2018 at current and constant prices is the same in 2018. Now, due to inflation the price of rice goes upto ₹25 kg in 2019 and the economy produces same amount of rice, i.e., 20 kg. Now, Nominal GDP has increased from ₹400 to ₹500 in 2019 but since the economy is producing the same amount of rice, i.e., 20 kg, it does not reflect growth.
In order to ascertain growth, real GDP of 2019 needs to be estimated. For this value of race produced in 2019 at base year price, i.e., price of rice in 2018 should be calculated.
Production of rice in 2019 = 20 kg
Price of rice in base year, i.e., 2018 = ₹20/kg
Hence there is no growth.
Now, suppose rice production in 2019 increases to 30 kg, then
Nominal GDP = ₹25 x 30 = ₹750
and Real GDP = 30 × ₹20 = 600
Growth Rate = \(\frac{600-400}{400}\) × 100 = \(\frac{200}{400}\) × 100 = 50%
(ii) Normal residents of a country. A resident, whether a person or an institution, is one whose centre of economic interest lies in the domestic territory of the country in which he lives.
Centre of economic interest implies:
- The resident lives or is located within the economic territory.
- The resident carries out the basic economic activities of earning, spending and accumulation from that location.
Question 17.
Read the following text carefully. Answer the given questions on the basis of the same and common understanding:
On 30th September 2022, the Reserve Bank of India (RBI) raised Repo Rate for the fourth time in a row. The Monetary Policy Committee (MPC) decided to raise the policy rate by 50 basis points [1 basis point = \(\frac{1}{100}\)th a percent]. After this announcement, the new Repo rate stands at 5.9%, while the Reverse repo rate continues to stand at 3.35%.
Commercial banks borrow money from the Central Bank, when there is a shortage of funds. With the surge in the Repo rate, borrowings by general public will become costlier. This is because, as RBI hikes its Repo rate, it becomes costly for the banks to borrow short term funds from the Central Bank. As a result, the banks hike the rate at which customers borrow money from them to compensate for the hike in the Repo rate. This happens because banks offer loans to retail consumers at an interest rate which is generally, directly proportional to the Repo rate.
The increase of 0.50 percent in Repo rate will lead to higher interest rates on loans for borrowers, implying that the Equated Monthly Instalments (EMIs) for repaying the existing loans will also increase.
Source: https://www.businessstandard.com/article/economicpolicy/rbi-monetaru-policu-repo-rate-up-by-50bps -here-s-how-it-will-impact-uou-122093000267 (Edited)
(a) Define ‘Repo Rate’. [1]
(b) Outline the recent change made by the Monetary Policy Committee of Reserve Bank of India in the Repo rate. [1]
(c) “Increase in Repo rate is an important tool used by Monetary Policy Committee to combat the situation of inflation in the Economy.” Justify the given statement. [4]
Answer:
(a) Repo Rate. It may be defined as the rate at which the Central Bank lends money to the commercial banks in the event of any shortfall of funds in the short-run.
(b) The Monetary Policy Committee decided to raise the policy rate by 50 basis points
(1 basis point = \(\frac{1}{100^th}\) of a %).
The new Repo rate is now 5.9%.
(c) Repo rate is the rate of interest charged by Central Bank on loans given to commercial banks. During a situation of excess demand leading to inflation, the Central Bank raises the Repo rate which discourages commercial banks in borrowing from the Central Bank. Increase in Repo rate forces commercial banks to increase their own lending rates making credit costlier. As a result, the demand for loans falls discouraging investment. Also reduction in availability of credit helps in correcting the situation of excess demand and reducing inflationary gap.
Section-B : Indian Economic Development
Question 18.
Which of the following is NOT true about foreign trade during the colonial rule? (Choose the correct alternative) [1]
(a) India suffered from large trade deficit.
(b) Restrictive policies of commodity production, were followed.
(c) Britain maintained a monopoly control over India’s exports and imports.
(d) India became an exporter of primary products and an importer of finished consumer goods.
Answer:
(a) India suffered from large trade deficit.
Question 19.
(A) ……………… is a process, which includes all the activities from sowing till sale of the final produce in the market. (Fill up the blank with correct alternative) [1]
(a) Rural Development
(b) Agricultural Diversification
(c) Organic Farming
(d) Agricultural Marketing
Answer:
(d) Agricultural Marketing
Or
(B) …………… have emerged as an important micro finance system and led to women empowerment. (Fill up the blank with correct alternative) [1]
(a) NABARD
(b) Self-Help Groups
(c) Commercial Banks
(d) Land Development Banks
Answer:
(b) Self-Help Groups
Question 20.
(A) Read the following statements – Assertion (A) and Reason (R). Choose one of the correct alternatives given below: [1]
Assertion (A): Human capital is not traded in the market; however its services are traded.
Reason (R): Human capital is intangible in nature.
Alternatives: .
(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).
Or
(B) Benefits of physical capital accrue only to private entities, whereas human capital provides private as well as benefits. (Fill up the blank with correct alternative) [1]
(a) profitable
(b) social
(c) fiscal
(d) monetary
Answer:
(b) social
Question 21.
Read the following statements carefully: [1]
Statement 1: China introduced structural economic reforms on its own, without any pressure.
Statement 2: Scholars argue that in India, the economic reforms process led to the worsening of all the economic indicators.
In the light of the given statements, choose the correct alternatives from the following:
(a) Statement 1 is true & Statement 2 is false
(b) Statement 1 is false & Statement 2 is true.
(c) Both statements 1 & 2 are true.
(d) Both statements 1 & 2 are false.
Answer:
(a) Statement 1 is true & Statement 2 is false
Question 22.
Which of the following was NOT the benefit accruing from ‘Golden Revolution’? 1
(a) Increase in the income of the farmers.
(b) Increase in production of milk and related products.
(c) Increase in production and exports of fruits and vegetables.
(d) Employment for women in rural areas.
Answer:
(b) Increase in production of milk and related products.
Question 23.
From the set of the events given in Column-I and the corresponding year in Column-II, Choose the incorrect pair:
Column – I | Column – II |
(A) Introduction of railways in India | (i) 1850 |
(B) Incorporation of TISCO | (ii) 1807 |
(C) First Official Census of India | (iii) 1881 |
(D) Opening of Suez Canal | (iv) 1869 |
Alternatives:
(a) A – (i)
(b) B – (ii)
(c) C – (iii)
(d) D – (iv)
Answer:
(b) B – (ii)
Question 24.
(A) China initiated in 1958, that aimed at industrializing the country on a massive scale. (Fill up the blank with correct alternative) [1]
(a) The Great Proletarian Cultural Revolution
(b) Setting up of Special Economic Zones
(c) Introduction of Economic Reforms
(d) The Great Leap Forward Campaign
Answer:
(d) The Great Leap Forward Campaign
Or
(B) ………… acts as a measure of ‘the extent of democratic participation in social and political decision-making.’ (Fill up the blank with correct alternative) [1]
(a) Human Development Index
(b) Liberty Indicator
(c) Economic Growth
(d) Poverty Index
Answer:
(b) Liberty Indicator
Question 25.
In an economy, when the rate of resource extraction is lower than the rate of regeneration of the resource, the environment may operate …………. (Fill up the blank with correct alternative) [1]
(a) within its carrying capacity.
(b) beyond its absorptive capacity.
(c) beyond its carrying capacity.
(d) beyond its aesthetic capacity.
Answer:
(a) within its carrying capacity.
Question 26.
Read the following statements carefully: [1]
Statement 1: Amongst India, China and Pakistan, China is the largest nation and has the highest population density.
Statement 2: One-child policy introduced in the late 1970s in China led to a considerable decline in the population growth rate.
In the light of the given statements, choose the correct alternative from the following:
(a) Statement 1 is true & Statement 2 is false
(b) Statement 1 is false & Statement 2 is true.
(c) Both statements 1 & 2 are true.
(d) Both statements 1 & 2 are false.
Answer:
(b) Statement 1 is false & Statement 2 is true.
Question 27.
On the basis of the date given below, identify the incorrect statement in terms of annual growth of GDP (%): (Choose the correct alternative) [1]
Annual Growth of Gross Domestic Product (%). 1980-2017
Country | 1980 – 90 | 2015 -2017 |
India | 5.7 | 7.3 |
China | 10.3 | 6.8 |
Pakistan | 6.3 | 5.3 |
Source: Key Indicators for Asia and Pacific 2016. Asian Development Bank. Philippines : World Development Indicators 2018.
Alternatives:
(a) China was ‘able to maintain near double-digit growth during the 1980s.
(b) Pakistan was ahead of India during 1980 – 2017.
(c) India experienced a rapid rise in Gross Domestic Product during 2015-17.
(d) Both China and Pakistan experienced a decline in growth rate during 2015-17.
Answer:
(b) Pakistan was ahead of India during 1980 – 2017.
Question 28.
“Serious concerns over the climate change is taking over the attention of the world.” [3]
In the light of the above statement and given image, discuss any two strategies to tackle this global concern of Environmental degradation.
Answer:
Degradation of environment has serious consequences. It leads to loss of natural capital as well as human capital. Increase in greenhouse gases since the industrial revolution has led to the serious problem of global warming. In view of these serious effects, measures need to be taken to tackle this problem on priority basis.
The following strategies can be adopted to achieve sustainable development
(i) Use of non conventional sources of energy. India heavily depends upon thermal and hydro power plants to meet its power needs. Both of these pollute the environment extensively. Wind and solar energy, of which India has a vast potential, can be effectively tapped to replace thermal and hydro power. These sources can provide electricity without any adverse impact on environment.
(ii) Use of gases. Rural households in India generally use wood, dung cakes and other biomass as fuel. This practice has led to several problems like deforestation, reduction in green cover and air pollution. To meet this situation, subsidised LPG is being provided by the government. Besides it, Gobar gas plants are being encouraged through easy loans and subsidies. In cities, the use of Compressed Natural Gas (CNG) as fuel in public transport system has substantially reduced the level of air pollution.
Question 29.
(a) “Recently the Government of India has taken numerous steps towards increasing the farmer’s income through agricultural diversification.”
In light of the above statement, explain any two advantages of diversification in agriculture. [3]
Answer:
Agricultural diversification refers to the reallocation of some of farm’s productive resources into new activities or crops to reduce market risk. It has two aspects:
1. One relates to change in cropping pattern i.e., diversification and crop production.
2. The other relates to a shift of workforce from agriculture to other allied activities (livestock, poultry, fisheries etc.) and nonagricultural sector.
Agricultural diversification is considered necessary for sustainable livelihood because of the following reasons:
1. The need for diversification arises from the fact that there is greater risk in depending exclusively on farming for livelihood.
2. Diversification towards new areas is necessary not only to reduce the risk from agriculture sector but also to provide productive sustainable livelihood options to rural people.
3. Much of the agricultural employment activities are concentrated in the kharif season. But during the rabi season, in areas where there are inadequate irrigation facilities, it becomes difficult to find gainful employment. Therefore, expansion into other sectors is essential to provide supplementary gainful employment and in realising higher levels of income for rural people to overcome poverty.
4. To ease the pressure of population on land, there is an urgent need to shift the workforce from agriculture to allied activities and non-agriculture sectors.
5. Crop diversification ensures higher growth and higher income levels for rural people.
6. Diversification helps in stabilising farm income during the phase of fluctuations in production levels and market prices.
7. It also helps in meeting the growing demand for products like fruits, fish, eggs, milk and milk products etc.
Or
(b) “Active Government intervention is essential in education and health sectors in India.”
Do you agree with the given statement? Give reasons in support of your answer. [3]
Answer:
Yes, I agree with the given statement.
The expenditure on education and health assumes great importance in the formation of human capital.
To ensure favourable benefits, government intervention is important because of the following reasons:
- Expenditure on education and health have a long term impact on human resource and it cannot be reversed.
- Individual consumers of the services do not have complete information about the quality of services and their costs.
- In the absence of above information, the private sector providers of education and health services can acquire monopoly power and exploit people.
- These sectors need huge investment with a very high fixed expenditure which private investors would not be willing to make unless they are allowed to recover their cost by charging a high price for these services.
The role of government becomes important to ensure that the private providers of the services adhere to the standards stipulated by the government and charge the correct price so that these services remain accessible to the general population.
Question 30.
Discuss any two merits and demerits of the Green Revolution in the agricultural sector in the Indian economy. [4]
Answer:
The New Agricultural Strategy or Green Revolution refers to the large increase in production of foodgrains due to use of High Yielding Variety (HYV) seeds in the mid sixties.
Following are the benefits of Green Revolution:
- Increase in marketed surplus. A good proportion of the rice and wheat produced during the Green Revolution period (available and marketed surplus) was sold by the farmers in the market. As a result, income of the farmers increased.
- Decrease in price of food-grains. The price of food-grains declined relative to other items of consumption. The low income groups, who spend a large percentage of their income on food, benefited from this decline in relative prices.
- Buffer stock. The spread of Green Revolution technology enabled the government to procure sufficient amount of food-grains to build buffer stock which could be used in times of food shortage.
- Self-reliance. Indian agricultural productivity increased sufficiently to enable the country to be self-sufficient in food-grains. (any two)
However, Green Revolution in India suffers from serious limitations which were as follows:
- Limited crops. Green revolution was confined largely to wheat and rice crops. There has been no similar rise in the production of pulses and commercial crops like jute, cotton, etc.
- Confined to limited area. Green Revolution was restricted only to few states like Punjab, Haryana, Maharashtra and Tamil Nadu.
- Economic divide. The new agricultural technology relied heavily upon the use of costly inputs
like fertilizers, HYV seeds and intensive irrigation. Though these inputs were subsidised by the government, the poor farmers were still unable to use them. Consequently, only the rich farmers benefited from the HYV technology. (any two)
Question 31.
On the basis of the given data:
Note: * for the year 2011; for the years 2015.
Sources: Human Development Report 2019 and 2020.
(i) Identify one income indicator and one health indicator, each. [2]
(ii) Compare India and China on the basis of any one of the indicators identified above in part (ii). [2]
Answer:
(i) Income indicator. Gross National Income per capital
Health Indicator:
- % of people living below poverty line
- Infant Mortality Rate
- Maternal Mortality Rate
Maternal Mortality Rate refers to the number of maternal deaths for every one lakh live births.
(ii) In China, for one lakh births, only 29 women die whereas in India and Pakistan, about 133 and 140 women die respectively.
Question 32.
(a) “Expenditure on On-the-job training is an important means of human capital formation in an economy.”
Give valid reasons to justify the given statement. [4]
Answer:
(a) The productivity of physical capital is substantially enhanced with the improvement in human capital. Due to this reason, many firms provide On-the-job training to the workers. Such training can be provided fast and without much cost.
It increases the skill and efficiency of the workers and leads to an increase in production and productivity.
On-the-job training may take different forms:
- Workers may be trained in the firm itself under the supervision of a skilled worker.
- They may be sent for Off-Campus training.
Usually, after On-the-job training of employees, firms insist that the workers should work for a specified period of time so that the firm can recover the benefits of the enhanced productivity owing to the training provided by it. On-the-job training is considered as a source of human capital formation as the return of expenditure on such training, in the form of enhanced labour productivity, is more than its cost.
Or
(b) “Organic Farming is the need of the hour to promote sustainable development but, has its own limitations.”
Answer:
Organic farming is a system of farming that will rely upon the use of organic inputs for cultivation which largely include animal manures and composts. It has done away with the use of chemical inputs like chemical fertilizers, insecticides and pesticides.
Organic farming is beneficial because of the following reasons:
- Cheaper system of cultivation. Organic farming offers a means to substitute costlier agricultural inputs such as HYV seeds, chemical fertilizers, pesticides etc. with locally produced organic inputs which are cheaper.
- Labour intensive. Since organic farming requires more labour and less of capital, it is better suited for Indian conditions.
- Sustainable agriculture. The path of conventional agriculture is unsustainable. Organic farming is a natural way of farming which is environment friendly and maintains long term fertility of the soil and is, thus, sustainable.
- Increase in farmer’s income. Demand for organic food is on the rise in domestic and international markets. Hence, organic farming has resulted in increase in farmer’s income and inflow of foreign exchange due to rise in exports.
- Provides healthy food. Organically grown food is considered healthy as it has more nutritional value than food grown through chemical farming.
However, organic farming suffers from the following limitations:
- Less popular. Organic farming has to be popularised among the farmers by creating awareness so that they can willingly adopt the new technology.
- Lack of infrastructure and marketing facilities. Inadequate infrastructure and the problem of marketing the products are major concerns which need to be addressed to promote organic farming.
- Shorter food life. Organic produce has a shorter shelf-life as compared to food produced through chemical farming.
- Low yield. Yields from organic farming are less as compared to modern agricultural farming in the initial years which is why small and marginal farmers are reluctant to adopt it.
- Limited choice of crops. The choice in production of off-season crops is quite limited in organic farming.
Question 33.
Elaborate any two advantages and limitations each of organic farming in the light of the above Statement. [4]
(a) (i) Define Worker Population Ratio. Discuss its usefulness. [3]
(ii) ‘Mr. Rishi, after completing his education, has joined his family business but his marginal productivity is zero.
Comment upon the employment status of Mr. Rishi. Give valid reasons in support of your answer. [3]
Answer:
(i) Worker Population Ratio is defined as the proportion of population that is actively contributing to the production of goods and services of a country.
Worker Population Ratio = \(\frac{\text { Total number of workers }}{\text { Total Population }} \times 100\)
This is an indicator which is used for analysing the employment situation in the country. A higher ratio indicates that more people are actively engaged in the productive activities of the economy. Whereas a medium or low ratio means that a very high proportion of its population is not involved directly in economic activities.
Trends in Employment Pattern (Sector-wise), 1972-2012 (in %)
(ii) This is a case of Disguised Unemployment.
Disguised unemployment. Disguised or hidden unemployment is associated with the work area where surplus manpower is employed out of which some individuals have zero or almost zero marginal productivity. It implies that if such people are removed from the employment, the level of total output remains the same. Thus it is a kind of unemployment where some people seem to be employed but are actually not. It is very commonly found in the agricultural sector operating in the rural areas of the country. For example, when 8 members of a farmer’s family are employed on a small farm plot where 4 members are enough. Thus those extra 4 members are actually unemployed rather than being employed.
Or
(b) (i) ‘Kavya works on her family farm and is neither paid in cash nor in the form of grains.
Can she be categorised as a worker? Give valid reasons in support of your answer. [3]
(ii) “In the late 1990’s India experienced a widening gap between the growth of GDP and employment generation.” Discuss. [3]
Answer:
(i) A worker is an individual who is involved in some economic activity to earn a living.
In this case, Kavya, though not getting paid for the work that she is doing, is contributing to the flow of goods and services by rendering her productive services. Since she is working on her family farm. Therefore, she may be called as self-employed.
(ii) This is a situation of Jobless growth.
Jobless growth. It is also known as jobless recovery is an economic phenomenon in which a macroeconomy experiences growth while maintaining or decreasing its level of employment. In simple words, jobless growth means that while the economy is growing at a decent rate but it is generating very few job opportunities. Due to this many qualified personnel remain unemployed. India despite being one of the fastest growing economies still faces job crunch. Though the economy is on the rise but it is not able to create the required number of job opportunities. Thus jobless growth is a situation when there is an overall acceleration on the growth rate of Gross Domestic Product (GDP) in the economy in the absence of corresponding expansion in employment opportunities.
Question 34.
Read the following text carefully and answer the given questions on the basis of the same and common understanding:
The stabilisation and structural adjustment measures, initiated under the 1991 “Economic Reforms”mark a watershed moment in India’s economic policies. For almost three decades since independence, India’s development strategy and economic policies were guided by the objectives of accelerating the growth of output and employment with social justice and equity.
Ever since the 1970’s, it was realised that many of the regulations on economic activities have outlived their usefulness and were in fact hampering economic growth and development. In response to this, the government initiated some milder liberalisation reforms for almost a decade since the early 1980’s.
However, the Indian economy soon had to face the Gulf crisis and consequently:
(i) The uncertainties about the oil prices;
(ii) The external payment problems;
(iii) The serious inflationary pressures;
(iv) The scarcities of essential commodities;
(v) The deterioration of fiscal discipline, etc.
These led to the Indian economy on the verge of Economic crisis.
In response to this emerging crisis, the Government initiated a set of stabilisation and structural reforms like:
(i) Reduction in fiscal deficit;
(ii) Containment of growth in money supply;
(iii) An exchange rate adjustment system etc.
The key objective of stabilisation policy was to bring the growth of aggregate demand in line with long term growth path of the economy.
In conjunction, the structural adjustment measures like;
(i) industrial delicensing;
(ii) liberalisation of policy regime governing international trade;
(iii) deregulation of financial sector;
were taken to improve the supply side of the economy. This shifted the long-term growth path of the economy itself completely.
(Adapted and modified)
Source: https://niti.gov.in/planningcommission.gov.in/docs/rqjorts/genrep/arep9099/at94-85.htm
(a) Briefly outline any two reasons for the initiation of Economic Reforms in 1991. [2]
(b) Government introduced a set of stabilisation and structural reforms to solve the economic crisis. State the key initiative and objectives of these policies adopted by the Government of India. [4]
Answer:
(a) Reasons for the initiation of economic reforms in 1991:
- The uncertainties about the oil prices;
- The external payment problems;
- The serious inflationary pressures;
- The scarcities of essential commodities;
- The deterioration of fiscal discipline, etc.
(b) The stabilization and structural adjustment measures that the government initiated under the 1991 economic reforms had the key objective of bringing the growth of aggregate demand in line with long-term growth path of the economy. The government wanted to make the
- economy more competitive
- accelerate the growth rate
- improve fiscal discipline and
- make the production units more efficient and highly competitive.
The stabilisation measure aimed at maintaining sufficient foreign exchange reserves and to correct the balance of payments position along with bringing inflation under control. Whereas the structural adjustments measures included measures like:
- industrial delicensing
- liberalisation
- privatisation
- globalisation
- deregulation of financial sector
(Set-II: 58/2/2 )
Except for the following questions, all the remaining questions have been asked in Set I.
Question 11.
On the basis of the data given below for an imaginary economy, estimate the value of Net Domestic Product at Factor Cost (NDPFC): [3]
Answer:
NDPFC = (i) + (ii) + (iii) + (iv) + (v) – (vi) – (vii) + (viii)
= 3,000 + 1,000 + 1,000 + 200 + 500 – 350 – 300 + 50
= ₹5,1D0 crores
Question 13.
(a) “In an economy ex-ante Aggregate”Demand is less than ex-ante Aggregate Supply.”
Explain its impact on the level of output, income and employment. [4]
Answer:
(a) If equilibrium is established before the full employment level of output, it is a situation where aggregate demand is less than aggregate supply. The gap between the two is deflationary gap as shown by EF in the adjacent diagram.
This gap can be rectified by increasing the level of aggregate demand. In this case autonomous investment needs to be increased.
This situation can be exhibited with the help of a diagram;
Or,
(b) For a hypothetical economy, assuming there is an increase in the Marginal Propensity to Consume (MPC) from 80% to 90% and change in investment to be ?1,000 crore. [4]
Using the concept of investment multiplier, calculate the increase in income due to change in ‘ Marginal!Propensity to Consume. [4]
Answer:
Question 17.
On 30th September 2022, the Reserve Bank of India (RBI) raised Repo Rate for the fourth time in a row. The Monetary Policy Committee (MPC) decided to raise the policy rate by 50 basis points [1 basis point = \(\frac{1}{100}\)th a percent]. After this announcement, the new Repo rate stands at 5.9%, while the Reverse repo rate continues to stand at 3.35%.
Commercial banks borrow money from the Central Bank, when there is a shortage of funds. With the surge in the Repo rate, borrowings by general public will become costlier. This is because, as RBI hikes its Repo rate, it becomes costly for the banks to borrow short term funds from the Central Bank. As a result, the banks hike the rate at which customers borrow money from them to compensate for the hike in the Repo rate. This happens because banks offer loans to retail consumers at an interest rate which is generally, directly proportional to the Repo rate.
The increase of 0.50 percent in Repo rate will lead to higher interest rates on loans for borrowers, implying that the Equated Monthly Instalments (EMIs) for repaying the existing loans will also increase.
Source: https://www.businessstandard.com/article/economicpolicy/rbi-monetaru-policu-repo-rate-up-by-50bps -here-s-how-it-will-impact-uou-122093000267 (Edited)
(a) State the meaning of Repo rate and reverse repo rate. [4]
(b) In order to bring down the rate of inflation outline and discuss the step taken by the Monetary Policy Committee of Reserve Bank of India.
Answer:
(a) Repo Rate. It may be defined as the rate at which the Central bank lends money to the commercial banks in the event of any shortfall of funds in the short-run.
Reverse Repo Rate. It is the rate at which the Central bank of a country borrows money from the commercial banks.
Increase in repo rate encourages commercial banks to deposit funds with the Central bank reducing availability of funds with it. This, thus helps in curtailing money supply in the economy and vice-versa.
(b) Steps taken in order to bring down the Rate of Inflation. During a situation of excess demand leading to inflation, the Central Bank raises the repo rate which discourages Commercial Banks in borrowing from the Central Bank.
Increase in repo rate forces Commercial Banks to increase their own lending rates making credit costlier. As a result, the demand for loans falls discouraging investment.
Also reduction in availability of credit helps in correcting the situation of excess demand and reducing inflationary gap.
Question 28.
“In order to protect the future of our planet, it is important to tackle carbon emission.”
In the light of the above statement and image discuss any two strategies to tackle this global concern. [3]
Answer:
Degradation of environment has serious consequences. It leads to loss of natural capital as well as human capital. Increase in greenhouse gases since the industrial revolution has led to the serious problem of global warming. In view of these serious effects, measures need to be taken to tackle this problem on priority basis.
The following strategies can be adopted to achieve sustainable development
(i) Use of non conventional sources of energy. India heavily depends upon thermal and hydro power plants to meet its power needs. Both of these pollute the environment extensively. Wind and solar energy, of which India has a vast potential, can be effectively tapped to replace thermal and hydro power. These sources can provide electricity without any adverse impact on environment.
(ii) Use of gases. Rural households in India generally use wood, dung cakes and other biomass as fuel. This practice has led to several problems like deforestation, reduction in green cover and air pollution. To meet this situation, subsidised LPG is being provided by the government. Besides it, Gobar gas plants are being encouraged through easy loans and subsidies. In cities, the use of Compressed Natural Gas (CNG) as fuel in public transport system has substantially reduced the level of air pollution.
Question 30.
“The debate over farm subsidies in India is enraged at different platforms.” [4]
Discuss any two arguments in favour of continuing farm subsidies.
Answer:
An agricultural subsidy is a government subsidy paid to farmers to supplement their income, manage the supply and availability of agricultural commodities and inputs and also influence the cost and supply of such commodities and inputs.
1. The subsidies given in the form of reduced prices of inputs such as seeds, fertilizers, power for irrigation, credit at lower interest rates etc. help the farmers to reduce their cost of production.
2. Another from of subsidy is fixing of minimum procurrent price of the farmer’s produce. By fixing these minimum prices, Government makes it sure that the farmers must get their cost plus some profit.
These subsidies are given so that 55% of our population, dependent on agriculture can also live atleast a normal life and there are no more suicides in the agriculture dominated Indian economy.
Question 34.
Read the following text carefully and answer the given questions on the basis of the same and common understanding:
The stabilisation and structural adjustment measures, initiated under the 1991 “Economic Reforms”mark a watershed moment in India’s economic policies. For almost three decades since independence, India’s development strategy and economic policies were guided by the objectives of accelerating the growth of output and employment with social justice and equity.
Ever since the 1970’s, it was realised that many of the regulations on economic activities have outlived their usefulness and were in fact hampering economic growth and development. In response to this, the government initiated some milder liberalisation reforms for almost a decade since the early 1980’s.
However, the Indian economy soon had to face the Gulf crisis and consequently:
(i) The uncertainties about the oil prices;
(ii) The external payment problems;
(iii) The serious inflationary pressures;
(iv) The scarcities of essential commodities;
(v) The deterioration of fiscal discipline, etc.
These led to the Indian economy on the verge of Economic crisis.
In response to this emerging crisis, the Government initiated a set of stabilisation and structural reforms like:
(i) Reduction in fiscal deficit;
(ii) Containment of growth in money supply;
(iii) An exchange rate adjustment system etc.
The key objective of stabilisation policy was to bring the growth of aggregate demand in line with long term growth path of the economy.
In conjunction, the structural adjustment measures like;
(i) industrial delicensing;
(ii) liberalisation of policy regime governing international trade;
(iii) deregulation of financial sector;
were taken to improve the supply side of the economy. This shifted the long-term growth path of the economy itself completely.
(Adapted and modified)
Source: https://niti.gov.in/planningcommission.gov.in/docs/rqjorts/genrep/arep9099/at94-85.htm
(b) “In response to the circumstances emerging in 1991, the Government initiated a set of stabilisation and structural reforms”.
Briefly discuss any three of such measures.
Answer:
(i) Industrial sector reforms or deregulation of industrial sector in 1991. This included reduction in industrial licensing, decrease in the role of public sector, de-reservation under small scale industries.
- Industrial licensing was abolished for almost all products except for some industries which are of strategic importance for a nation like alcohol, cigarettes, hazardous chemicals etc.
- Decrease in the role of public sector. The only industries which are reserved for the public sector are defence equipments, atomic energy generation and railway transport.
- De-reservation of production by small scale industries.
- Price determination by market forces of demand and supply.
- Import of Capital goods—Freedom to import capital goods and technology in order to develop strong infrastructure base of the country.
(ii) Financial sector reforms. Financial sector includes financial institutions such as commercial banks, investment banks, stock exchange operations and foreign exchange market.
- To reduce the role of RBI from regulator to facilitator of financial sector.
- Establishment of private sector banks which increased competition.
- Foreign investment limit in banks was raised to around 51%.
(iii) Fiscal/taxation reforms. These refer to reforms in government’s taxation and public expenditure policies, which are collectively known as its ‘fiscal policy’.
- Reduction in direct taxes like Income tax and Corporation tax.
- Reforms in indirect taxes to facilitate the establishment of a common national market for goods and services.
- Simplification of tax paying procedure to encourage better compliance on the part of tax payers.
(Set-III: 58/2/3 )
Except for the following questions, all the remaining questions have been asked in Set I & II.
Question 12.
On the basis of the data given below for an imaginary economy, estimate the value of Gross National Product at Market price (GNPmp):
Answer:
GNPMP = (i) + (ii) + (iii) + (iv) + (v) + (vi) – (vii)
= 2,000 + 1,000 + 1,100 + 200 + 600 + 150 – 400
= ₹4,650 crores
Question 15.
(a.) “In an economy Planned spending is more than planned output” Explain its impact on the level of output, income and employment. [4]
Answer:
Planned spending refers to people planning to purchase final goods and services during the year. Planned output means the production units planning to produce final goods and services during the year. An economy is in equilibrium when planned expenditure or spendings is equal to planned output, i.e.,
AD = AS or C + I = Y
Consumption Expenditure + Investment Expenditure = Income
Equilibrium condition implies that whatever is produced by firms is either consumed by households or invested by the firms. There is neither surplus nor shortage in the economy. But if in an economy, planned spending is greater than planned output, i.e., AD > AS, the producers find the stock falling below the desired level then this means that consumer and firms together would be buying more goods than firms were producing. This would lead to an unplanned decrease in inventories. Firms would then expand production and increase employment. As a result, output and income would increase. This process of increase in income will continue until the economy is in equilibrium where AD = AS.
Or
(b) For a hypothetical economy, assuming there is an increase in the Marginal Propensity to Consume from 80% to 90% and change in investment to be ?2,000 crore.
Using the concept of investment multiplier, calculate the increase in income due to change in Marginal Propensity to Consume. [4]
Answer: