Students must start practicing the questions from CBSE Sample Papers for Class 12 Economics with Solutions Set 4 are designed as per the revised syllabus.
CBSE Sample Papers for Class 12 Economics Set 4 with Solutions
Time Allowed: 3 Hours
Maximum Marks: 80
General Instructions:
- This question paper contains two sections
Section A- Macroeconomics
Section B- Indian Economic Development - This paper contains 20 Multiple Choice Questions of 1 Mark each.
- This paper contains 4 Short Answer Questions of 3 Marks each to be answered in 60 to 80 words.
- This paper contains 6 Short Answer Questions of 4 Marks each to be answered in 80 to 100 words.
- This paper contains 4 Long Answer Questions of 6 Marks each to be answered in 100 to 150 words.
Section A
(Macroeconomics)
Question 1.
Read the given news taken from the article “Currency caution: On the Indian rupee’s depreciation” published in The Hindu on 23rd July, 2022.
“The Indian rupee is experiencing its worst slump in four years. Since the start of 2022 , the currency has depreciated by more than 7 % against the US dollar, weakening past a historic low of 80 to a dollar mark earlier this week.”
In layman terms, which of the following is the reason for depreciation of Indian rupee? (1)
(a) Increase in demand of US dollar and decrease in supply of US dollar
(b) Increase in both demand and supply of US dollar
(c) Increase in supply of US dollar and decrease in demand of US dollar
(d) Decrease in both demand and supply of US dollar
Answer:
(a) Increase in demand of US dollar and decrease in supply of US dollar
Question 2.
The image given below shows the offering of approved securities by the central bank. This action is taken to deal with which of the following situation? (1)
(a) Inflationary gap
(b) Deflationary gap
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer:
(b) Deflationary gap
Question 3.
Central bank as ………. manages public debt of the government. (1)
(a) custodian of foreign exchange
(b) agent
(c) financial advisor
(d) supervisor
Answer:
(b) agent
Question 4.
Which objective of government budget increases equality in the society? (1)
(a) Re-distribution of income and wealth
(b) Economic stability
(c) Allocation of resources
(d) Economic growth
Answer:
(a) Re-distribution of income and wealth
Question 5.
Statement I Money received from the sale of second hand car will be considered while estimating national income.
Statement II Their value is already included and it does not contribute to the current flow of goods and services. (1)
Alternatives
(a) Statement I is true and Statement II is false
(b) Statement I is false and Statement II is true
(c) Both the statements are true
(d) Both the statements are false
Answer:
(b) Value of second hand goods has already been accounted during the year of their production (when these were initially produced and purchased by the final users).
Question 6.
Suppose in a hypothetical economy, the income rises from ₹ 500 crore to ₹ 600 crore. As a result, the consumption expenditure rises from ₹ 400 crore to ₹ 500 crore. Marginal propensity to consume in such a case would be (1)
(a) 0.8
(b) 0.4
(c) 1.0
(d) 0.6
Answer:
MPC = \(\frac{\Delta C}{\Delta Y}=\frac{500-400}{600-500}=\frac{100}{100}=1\)
Question 7.
Demand deposits include and (1)
(i) saving account deposits
(ii) fixed deposits
(iii) current account deposits
(iv) post office savings
Codes
(a) (i) and (ii)
(b) (ii) and (iii)
(c) (i) and (iii)
(d) (i) and (iv)
Answer:
(c) (i) and (iii)
Question 8.
Find the missing figures and choose the correct alternatives (1)
Alternatives
(a) 60,120,8,4
(b) 70,110,7,3
(c) 80,120,8,4
(d) 60,110,7,3
Answer:
Question 9.
refers to selling of government approved securities by RBI to general public and commercial banks. (1)
(a) Bank rate
(b) CRR
(c) SLR
(d) Open market operation
Answer:
(d) Open market operation
Question 10.
Price of one currency in relation to another currency, determined by the free market forces, is known as ……… .
(a) equilibrium price
(b) fixed exchange rate
(c) foreign exchange rate
(d) flexible exchange rate
Answer:
(c) foreign exchange rate
Question 11.
From the information given below, find net value added at factor cost. (3)
Items | ₹ (in crores) |
Durable use capital goods with a life span of 10 years | 100 |
Single use producer goods | 50 |
Sales | 200 |
Unşold output produced during the year | 20 |
Taxes on production | 10 |
Or
State the three components of income from property and entrepreneurship.
Answer:
Net Value Added at Factor Cost (NVAFC) = Sales + Unsold output produced during the year – Single use producer goods – Depreciation on durable use capital goods – Taxes on production
= 200 + 20 – 50 – 10 – 10 = ₹ 150 crore
Or
The three components of income from property and entrepreneurship are as follows
(i) Rent It is the income earned by providing fixed natural resources (land).
(ii) Interest It is the income earned by providing capital.
(iii) Profit It is the income earned by an entrepreneur.
Question 12.
“The balance of payments is an important indicator of a country’s economic health and international financial position”.
In the light of the statement, explain the causes of surplus in balance of payments. (3)
Answer:
Surplus in the BoP can arise due to the following reasons.
(i) Economic Growth In case the country is experiencing high economic growth, leading to increase in GDP, this situation leads to increase in inflow of foreign exchange, resulting in surplus.
(ii) Low Level of Inflation When the inflation in the domestic economy is low, this leads to increase in demand for domestically produced goods in the international market leading to increase in exports from the domestic economy and thus surpius in BoP.
(ii) Political Stability Stable government policies develop a faith in the minds of foreign investors leading to increase in foreign investment. This further leads to surplus in BoP.
Question 13.
Consider the information given below
(i) Autonomous consumption = ₹ 5,000
(ii) Marginal Propensity to Save (MPS) = 0.2
(iii) Investment =₹ 20,000
On the basis of the above informations, calculate
(a) Equilibrium level of national income
(b) Investment multiplier (4)
Answer:
Given.
Autonomous Consumption (C) = ₹ 5000
Marginal Propensity to Save (MPS) = 0.2
Investment (l) = ₹ 20,000
We know that, MPC = 1 – MPS = 1 – 0.2 = 0.8
Also, Consumption Expenditure
(C) = C + (MPC) Y
and at equilibrium level, Y = C + 1
∴ Y = C + (MPC) Y + 1
Y = 5,000 + 0.8 Y + 20,000
Y = 0.8 Y = 25,000
0.2 Y = 25,000
∴ Y = ₹ 1,25,000
Also, Investment Multiplier = \(\frac{1}{\mathrm{MPS}}\)=\(\frac{1}{0.2}=5\)
Question 14.
“Investment multiplier and Marginal Propensity to Consume (MPC) are directly related to each other”.
Explain with the help of numerical example.
Or
“The government has raised the exemption limit for the payment of income tax from ₹ 2 lakh to ₹ 2.5 lakh”.
If the situation of deficient demand is prevailing in the economy, what will be the impact of this action taken by government?
Answer:
Investment multiplier is measured as the ratio between change in income and change in investment.
K = \(\frac{\Delta \gamma}{\Delta l}\)
Relation between marginal propensity to consume and multiplier There is a direct and positive relationship between MPC (Marginal Propensity to Consume) and multiplier.
Higher the MPC, higher will be the value of multiplier and vice-versa.
e.g. K = \(\frac{1}{1-\mathrm{MPC}}\)
If multiplier is 4 , then
K = \(\frac{1}{M P S} \Rightarrow 4=\frac{1}{M P S} \Rightarrow M P S=\frac{1}{4}\) = 0.25
Also, MPS + MPC = 1
0.25 + MPC = 1
So, M P C = 0.75
Or
Deficient demand refers to the situation when Aggregate Demand (AD) is less than the Aggregate Supply (AS) in an economy, corresponding to full employment in the economy.
Here, government has raised exemption limit for the payment of income tax. This will increase the purchasing power of the people and will increase both consumption and investment expenditure.
The rise in consumption and investment expenditure will increase the level of Aggregate Demand (AD) and will help to check the problem of deficient demand.
Question 15.
‘Lack of store of value’ was a major problem under barter system, but goods like diamond, gold can be easily stored for future use. Then why this was not a popular mean under barter system? (4)
Answer:
It is true that value can be stored in the form of gold or diamond for future use, however it again has certain drawbacks such as
(i) Being limited in supply these were not available in abundance.
(ii) These involved certain transactions cost in exchange of goods for such metals.
(iii) These were not liquid form of exchange, because not everyone was able to accept it.
(iv) Divisibility was also a problem while dealing in these goods.
Question 16.
(i) There are only two producing sectors A and B in an economy. Calculate
(a) Gross value added at market price by A and B. (3)
(b) National income. (2)
S.No | Items | ₹ (in crores) |
(i) | Net factor income from abroad | 20 |
(ii) | Sales by A | 500 |
(iii) | Sales by B | 600 |
(iv) | Indirect tax by A and B | 80 |
(v) | Depreciation by A and B | 30 |
(vi) | Exports by A | 45 |
(vii) | Net change in stock of A | 10 |
(viii) | Intermediate consumption of A | 200 |
(ix) | Net change in stock of B | (-) 10 |
(x) | Intermediate consumption of B | 300 |
(ii) What is transfer payment? (1)
Or
(i) Define externalities. Give an example of negative externality. What is its impact on welfare? (3)
(ii) “Export receipts are not a part of net factor income from abroad”. Why? (3)
Answer:
(i) (a) GVAMP by A = Sales by A+ Net Changes in
Stock of A – Intermediate
Consumption of A
= ₹ 310crore
GVAMP by B= Sales by B + Net Change in
Stock of B – Intermediate
Consumption of B
= 600 + (-10) – 300 = ₹ 290crore
GVAMP by A and B=310+290=₹ 600 crore
(b) National Income (NNPFC)
= GVAMP by A and B – Indirect Taxes by
A and B – Depreciation by A and B + Net Factor Income from Abroad
= 600 – 80 – 30 + 20
= 620 – 110
= ₹ 510 crore
(ii) Transfer payments are all those unilateral payments corresponding to which there is no value addition in the economy, e.g. gifts, donation, etc.
Or
(i) Externalities refer to the benefits or harms that a firm or an individual causes to another for which they are not paid or compensated. River pollution by an oil refinery has disastrous effects on aquatic life.
It is an example of negative externality. It reduces the overall welfare of the society.
(ii) Export refers to the purchase of domestically produced goods by the rest of the world. Export receipts refer to revenue of the firms from the sale of its output.
These are not the receipts of factor incomes from abroad which are to be in the form of rent, interest, profit and wages.
Hence, they are not a part of net factor income from abroad.
Question 17.
(i) In the context of government budget, giving reasons, explain whether the following are a revenue receipt or a capital receipt.
(a) Interest received on the loans given to Sri-Lankan government during Covid-19.
(b) Sale of public sector undertaking. (3)
(ii) Public expenditure is necessary for the development of the country. In the light of the statement, explain any two significance of public expenditure. (3)
Answer:
(i) (a) Interest received on loans is a revenue receipt as loans given neither create liability nor any reduction in assets of the government.
(b) It is a capital receipt because it leads to reduction in assets. e.g. Sale of Maruti Udyog Limited to private sector.
(ii) The two significance of public expenditure are
(a) Increases Economic Growth Public expenditure accelerates the process of economic growth. This is of unique importance particularly, in the context of developing countries like India. Public expenditure helps in establishing new industries. It ensures development of public overhead cost like the construction of roads, dams, bridges, etc.
(b) Increases Economic Welfare Public expenditure increases economic welfare. This happens particularly when public expenditure is directed towards poverty eradication, as well as, health and education for the poorer sections of the society. Such expenditures reduce economic divide between ‘have’ and ‘have-nots’ and thereby promote social welfare.
Section B
(Indian Economic Development)
Question 18.
Which of the following were key features of economic reforms in India? (1)
(i) Deregulation of industries
(ii) Expansion of public sector enterprises
(iii) Reduction of trade barriers
(iv) Nationalisation of backs. Codes
(a) (i) and (ii)
(b) (i) and (iii)
(c) (ii) and (iii)
(d) (iii) and (iv)
Answer:
(b) (0) and (iii)
Question 19.
The economic reforms under the New Economic Policy of 1991 were made so that (1)
(a) market forces would drive the economy towards growth and development
(b) the government would drive the economy towards growth and development
(c) the public would drive the economy towards growth and development
(d) None of the above
Answer:
(a) market forces would drive the econorny towards growth and development
Question 20.
……… are voluntary organisations of workers formed to promote and protect the interests of workers through collective action.
(a) Labour unions
(b) Trade unions
(c) Cooperative organisation
(d) None of the above
Answer:
(b) Trade unions
Question 21.
Above image indicates which of the following to help generation of sustainable livelihood?
(a) Diversification in production technic
(b) Diversification in the production activities
(c) Agricultural marketing
(d) None of the above
Answer:
(b) Diversification in the production activities
Question 22.
Select the correct combination between the following columns (1)
Column I | Column II |
A. Trade barriers | (i) Reduction in the value of domestic currency in comparison to foreign currencies as a result of market forces |
B. Devaluation | (ii) Tariff and quota |
C. Depreciation | (iii) Selling part of equity of PSEs to the public |
D. Disinvestment | (iv) Deliberate downward adjustment of domestic currency with respect to foreign currencies |
Codes
ABCD
(a) (iii) (i) (iv) (ii)
(b) (ii) (i) (iv) (iii)
(c) (ii) (iv) (i) (iii)
(d) (ii) (iii) (i) (iv)
Answer:
(c) (ii) (iv) (i) (iii)
Question 23.
Which of the following sectors witnessed significant liberalisation during economic reforms in India? (1)
(i) Agriculture
(ii) Manufacturing
(iii) Services
(iv) Public sector
Codes
(a) (i) and (ii)
(b) (i) and (iii)
(c) (ii) and (iii)
(d) (iii) and (iv)
Answer:
(c) (ii) and (iii)
Question 24.
Statement I There is a need to bridge the skill-gap in India in order to enhance human capital and bring about more productive labour force.
Statement II Skills are tangible in nature and can be separated from its owner.
Alternatives
(a) Statement I is true and Statement II is false
(b) Statement I is false and Statement II is true
(c) Both the statements are true
(d) Both the statements are false
Answer:
(a) Skills are intangible in nature and cannot be separated from its owner.
Question 25.
is the population density, the is the pressure of population on land and the more the economic problems. (1)
(a) Lower, higher
(b) Lower, lower
(c) Higher, lower
(d) Higher, higher
Answer:
(d) The population density of an area can greatly affect that area’s economy and social conditions.
Question 26.
“China has the lowest population density among the three nations”. What is/are the possible reasons for this?
(a) Low growth rate of population
(b) One child policy
(c) Large geographical area
(d) All of the above
Answer:
(d) All of the above
Question 27.
Assertion (A) Sustainable development is about changes that transform impoverished people, communities and countries into informed, educated, healthy and productive societies.
Reason (R) Sustainable development advocates about wealth creation that generates socio-economic equality and opportunity. (1)
Alternatives
(a) Both Assertion (A) and Reason (R) are true
(b) Both Assertion (A) and Reason (R) are false
(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
Question 28.
“It is not easy to maintain an employment growth rate of 2 % for a country like India”. Justify the above statement with valid explanation. (3)
Answer:
The rate of investment and choice of technology determine the growth rate of employment, The emphasis on growth of the economy through modernisation of production techniques has resulted in jobless growth in India.
The modern techniques use capital intensive method of production, which is cost effective and gives more output by employing less labour. Therefore, it has been difficult to maintain an employment growth rate of 2 % for our country.
Question 29.
Defend or refute the statement with valid explanation. “Population explosion and the advent of industrial revolution have resulted in environmental crisis.” (3)
Or
How does finance sector be regularised so that the objective of rural development can be achieved?
Answer:
I defend the given statement.
With population explosion and with the advent of industrial revolution, to meet the growing needs of the expanding population, the demand for resources for both production and consumption went beyond the rate of regeneration of the resources and the pressure on the absorptive capacity of the environment increased tremendously. We are now faced with increased demand for environmental resources and services but their supply is limited due to overuse and misuse. Hence, the environmental issues of waste generation and pollution have become critical today.
Or
To achieve the objective of rural development, following measures related to finance can be taken (any three)
(i) The supply of finance should be fully institutionalised and dependence on private sources for credit should be eliminated.
(ii) The general interest rate should be low. The banks should charge different rates for different uses.
(iii) The basis of credit should not be mortgage of any security. Production or productivity of land should be the basis for the approval of loans.
(iv) The conditions of repayment of loans should be different so as to suit different circumstances.
(v) It should be ensured that finance is used for production. Loans can also be given in the form of goods like seeds, fertilisers, etc.
Question 30.
Based upon the image given below, briefly explain the problems of agricultural marketing. (4)
Answer:
Following are the problems related to agricultural marketing
(i) Inadequate Transport Facilities Transport facilities are highly inadequate in India. Only a small number of villages are joined by railways and metalled (pucca) roads to mandies. Produce has to be carried on slow moving transport vehicles like bullock carts.
Such means of transport cannot be used to carry produce too far-off places and the farmer has to dump his produce in nearby markets even if the price obtained in these markets is considerably low.
(ii) Malpractices in Unregulated Markets Even now the number of unregulated markets in the country is substantially large.
Middleman and brokers taking advantage of the ignorance and illiteracy of the farmers, use unfair means to cheat them.
(iii) Lack of Grading and Standardisation Different varieties of agricultural produce are not graded properly. Goods are generally measured in local units that are not standardised.
Question 31.
‘Economic growth’ and ‘Economic development’ means one and the same. Defend or refute the given statement. Do you think that India is economically developed? Why or why not? (4)
Answer:
The given statement is refuted. Economic growth means that there is a continuous and sustained rise in the GDP of the country. Economic development means that in addition to a continuous and sustained rise in the GDP there is equitable distribution of income and changes in sectoral composition in favour of secondary and tertiary sectors.
The above interpretation of the two terms leads us to the conclusion that these terms do not convey the same meaning. Economic development is a wide term which includes economic growth within its purview.
No, I do not think that India is economically developed because income inequalities are continuously rising in our country. The rich are getting richer and the poor are getting poorer, thus defeating the value of social justice.
Question 32.
State whether the following statements are true or false, with valid arguments
(i) It was quintessential for a developing country like India to pursue the goal of self-reliance on the eve of independence. (2)
(ii) Indian government followed inward looking trade policy before initiation of economic reforms in 1991. (2)
Or “Industrial licensing was used to promote regional equity”. Discuss.
Answer:
(i) The given statement is true. Self-reliance as an objective of economic planning is necessary for a developing country in order to reduce its dependence on foreign countries especially for food. Promoting self-reliance increases employment generation in an econorry. Also, it is understandable that people who were recently freed from foreign dominion should give importance to self-reliance.
(ii) The given statement is true. Upto 1991, Indian Government followed an inward looking trade strategy to protect and promote domestic industry. This strategy aimed at
(a) Export Promotion It is a strategy to promote exports by making domestic industry competitive in the international market. It helps a country to earn foreign exchange.
(b) Import Substitution It is a strategy to promote domestic production of those goods which a country has been importing to save foreign exchange.
Or The licensing policy was introduced in the IPR of 1956 to promote regional equality. As per this policy, private entrepreneurs were allowed to establish a new industry or to expand the productive capacity of the existing units only after obtaining license from the government. Strict rules and regulations were required to be foliowed before a license was provided. However, if the new unit was proposed to be established in a backward region, then the license was provided on simpler term.
This promoted industrialists to establish new units in backward regions, thereby ensuring all-round development of the country.
Question 33.
(i) “Multinational companies have not only contributed towards the IT sector but also have a tremendous role to play towards rural development”. Justify the given statement with valid arguments. (3)
(ii) “The opportunity costs of negative environmental impacts are high”. Defend or refute the given statement with valid reasons. (3)
Or
(i) “Globalisation of the economy has helped the farmers marketing their produce and has helped in raising their standard of living”. Do you agree? Why?
(ii) “Unemployment in India is considered a cronic problem”. Comment.
Answer:
(i) Economic reforms offered the opportunities to multinational companies to expand their functions all around the country.
Many multinational companies are entering in the rural marketing.
They are doing well for the sake of farmers as stated below
(a) They are making contracts with farmers.
(b) They are motivating farmers to grow desirable food, fruits and vegetables of the desired quality.
(c) They are providing them seeds and other inputs.
(d) They are offering them pre-decided prices.
(i) I defend the given statement. The negative environmental impact has high opportunity costs as explained below
(a) The industrial development in past has polluted and dried up rivers and other aquiters making water an economic good. Also, cleaning up of polluted rivers and replenishing water resources require huge investments.
(b) The intensive and extensive extraction of both renewable and non-renewable resources has exhausted some of these resources. Huge amount of funds need to be spent on technology and research to explore new resources.
(c) The health costs of degraded environmental quality are also rising as decline in air and water quality has resulted in increased incidence of respiratory and water-borne diseases.
Thus, it is clear that the opportunity costs of negative environmental impacts are high.
Or (i) Yes, I agree that globalisation has expanded the market of the national companies and has allowed various MNCs to operate in India.
So, several national and international fast food chains and hotels have been opened in India.
These organisations enter into contracts with farmers to supply them farm products of the desired quality at reasonable prices, this helping the farmers to market their produce.
(ii) Unemployment in India is considered to be a chronic problem because it has been a long-term phenomenon, India is facing this problem ever since independence and has not yet been able to solve this problem. The absolute number of unemployed is increasing year by year. India has not been able to generate enough jobs due to capital and low rate of growth in the industrial sector.
Question 34.
Read the following text carefully and answer the given questions on the basis of the same and common understanding.
Comparative development of India and its neighbours is an important knowledge to possess as an Indian citizen.
As a rational citizen of a country, it is crucial to have a deep understanding of the developments in your country. In fact, it is also very important to learn about the developmental processes of your neighbouring countries.
Not only citizens but countries are also eager to understand the developmental system of their neighbours. This understanding enables comprehension of strengths and weaknesses of yours as well as the neighbouring countries. Due to the process of globalisation, it is essential for every nation to compete with developed countries.
Hence, it is important to study the comparative development of India and its neighbours. The Chinese reform process began more strongly and comprehensively during the 1980 s. At this time, India was in the mid-stream of a rather slow growth process. Although the two countries (Pakistan and India) started together, Pakistan has seen a better result in certain areas.
However, India is better placed than Pakistan in the area of skilled manpower and research and development institutions. It is common to find developmental strategies of a country as a model to others for lessons and guidance for their own development.
It is particularly evident after the introduction of the reform process in different parts of the world.
In order to learn from economic performance of our neighbouring countries, it is necessary to have an understanding of the roots of their successes and failures. It is also necessary to distinguish between and contrast, the different phases of their strategies.
(i) “India, China and Pakistan have many similarities in their development strategies”.
Elaborate any four points. (4)
(ii) Mention the areas where Pakistan have performed better than India. (2)
Answer:
(i) India, China and Pakistan have many similarities in development strategies which are as follows (any four)
(a) All the three countries had started planning their development strategies in similar ways. India announced its Five Year Plan in 1951-56, while Pakistan announced its First Five Year Plan in 1956, which is called Medium Term Plan. China announced its First Five Year Plan in 1953.
(b) India and Pakistan adopted similar strategies such as creating a large public sector and raising public expenditure on social development.
(c) Till the 1980s, all the three countries had similar growth rates and per capita incomes.
(d) Economic reforms took place in all the three countries. Reforms started in India in 1991, in China in 1978 and in Pakistan in 1988.
(e) In the initial phase of reforms, all the three countries gave more importance to public sector though India and Pakistan allowed private sector to function as well.
(ii) Following are the areas/aspects where Pakistan has an edge over India (any two)
(a) Rate of urbanisation is higher in Pakistan than India.
(b) The sex-ratio is higher in Pakistan with 943 females per thousand males, than in case of India with 924 females per thousand males.
(c) Pakistan has lower percentage of undernourished children than India.