Students must start practicing the questions from CBSE Sample Papers for Class 12 Economics with Solutions Set 6 are designed as per the revised syllabus.
CBSE Sample Papers for Class 12 Economics Set 6 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.
Balance of payments of an economy records ……… for a fiscal year. (1)
(a) income an expenditure of the government
(b) inflow and outllow of funds of the government
(c) inflow and outflow of foreign exchange to/from the economy
(d) inflow and outflow of loans to/from the rest of the world
Answer:
(c) Balance of payments is the accounting record of all international transactions between home country and residents of the rest of the world.
Question 2.
‘A’ has a good that ‘B’ wants and ‘B’ has a good that ‘A’ wants. This is referred to as under barter system of exchange. (1)
(a) unit of account
(b) store of value
(c) double coincidence of want
(d) None of the above
Answer:
(c) Two individuals involved in the exchange under barter system must possess the good that each other wanted is known as double coincidence of wants.
Question 3.
Statement I Marginal Efficiency of Capital (MEK) has a positive relationship both with prospective yield as well as supply price.
Statement II With the rise in the level of income, Average Propensity to Consume (APC) tends to fall.
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) The relationship between supply price of investment, prospective yield and Marginal Efficiency of Capital (MEK) is given by the equation
MEK = \(\frac{\text { Prospective Yield }}{\text { Supply Price }}\) × 100
Where, MEK= Marginal efficiency of capital The above equation states that MEK and yield have a positive relation, while supply price and MEK are negatively related.
Question 4.
Balance of trade is the …….. . (1)
(a) difference between export and import of services
(b) total of export and import of services
(c) difference between export and import of goods
(d) total of export and import of goods
Answer:
(c) difference between export and import of goods
Question 5.
Choose the correct alternatives to be filled in given blanks A and B. (1)
(a) Low level of income and low level of investment
(b) Low level of investment and low level of income
(c) Low mobilisation of savings and low level of investment
(d) Low level of investment and low savings
Answer:
(a) Low level of income and low level of investment
Question 6.
Foreign embassies in India are a part of domestic territory of ………. .
(a) India
(b) Japan
(c) Both (a) and (b)
(d) International area
Answer:
(a) India
Question 7.
Which of the following is/are not an assumption(s) of credit creation process?
(i) Entire banking system is taken as a single unit.
(ii) All transactions are done through banks.
(iii) There is no saving in the economy. (1)
Codes
(a) Only (i)
(b) Only (ii)
(c) Only (iii)
(d) Both (i) and (ii)
Answer:
(c) There is no such assumption as of not having any savings in the economy in the process credit creation.
Question 8.
If the value of export of merchandise is ₹ 1,500 crore and imports of goods are 20 % more than exports, the value of imports and trade deficit will be ₹ …….. crores and ₹ crores respectively. (1)
(a) 1,800, 3,300
(b) 1,800, 300
(c) 1,200, 300
(d) 1,200, 3,300
Answer:
Imports = 1,500+0.20 × 1,500
= 1,500+300
= ₹ 1,800
Trade Deficit = Imports – Exports
= 1,800 – 1,500 = ₹ 300
Question 9.
What can be the maximum value of marginal propensity to save? (1)
(a) 0
(b) 1
(c) 2
(d) 3
Answer:
(b) 1
Question 10.
“The aggregate demand in an economy is rising”. What can be the possible reasons for this?
(a) Rise in exports
(b) Fall in imports
(c) Rise in investment expenditure
(d) All of the above
Answer:
(d) All of the above
Question 11.
Suppose the GDP at market price of a country in a particular year was ₹ 1,100 crore. Net Factor Income from Abroad was ₹ 100 crore. The value of Indirect Taxes – Subsidies was ₹ 150 crore and National Income was ₹ 850 crore. Calculate the aggregate value of depreciation. (3)
Or
Distinguish between real gross domestic product and nominal gross domestic product. Which of these is a better index of welfare of the people and why?
Answer:
NNPNP = NNPFC + NIT
= 850 + 150 = ₹ 1,000 crore
GNPMP = NFIA + GDPNP
= 1,100 + 100 = ₹ 1,200 crore
Depreciation = GNPMP – NNPUP
= 1,200 – 1,000
= ₹ 200 crore
Therefore, depreciation =₹ 200 crore
Or
Real GDP is the total value of goods and services calculated at ‘constant’ or base price level. Nominal GDP is the total value of goods and services calculated at ‘current’ price level. Real GDP is a better index of the welfare of the people. When Real GDP rises, flow of goods and services tends to rise, other factors remaining constant.
This means greater availability of goods per person, implying higher level of welfare. Also real GDP facilitates periodic comparison of physical output.
Question 12.
“Recently Indian rupee (₹) has depreciated significantly. This has led to distress for Indian importers”.
Defend or refute the given statement with valid reasons.
Answer:
I defend the given statement. The depreciation of the Indian rupee can be distressing for Indian importers. As the rupee weakens, the cost of importing goods increases leading to higher import bills and reduced margins for importers. Additionally, if importers import inputs for production, the depreciated rupee can raise their production costs, affecting their ability to offer competitive prices. Therefore, the depreciation of the Indian rupee can indeed lead to distress for Indian importers.
Question 13.
If the ratio of marginal propensity to consume and marginal propensity to save is 3 : 1, the value of investment multiplier will be 5. True or false? Justify your answer. (4)
Answer:
False. Because, if the ratio of marginal propensity to consume and marginal propensity to save is 3: 1, then MPC will be 0.75 and investment multiplier (K) will be
K = \(\frac{1}{1-\mathrm{MPC}}\) = \(\frac{1}{1-0.75}\) = \(\frac{1}{0.25}\) = 4
Assume that MPS = x, So that MPC = 3x
We know MPC + MPS = 1
⇒ 3x + x = 1 ⇒ 4 x = 1
⇒ x = \(\frac{1}{4}\) = 0.25 ⇒ MPS = 0.25
Now, MPC = 3 × 0.25 = 0.74
or MPC = 1 – MPS
1 – 0.25 = 0.75
Question 14.
What is meant by inflationary gap? State three measures to reduce this gap. (4)
Answer:
The extent to which current aggregate demand becomes higher than the aggregate demand required for full employment, is termed as inflationary gap.
Three measures to reduce inflationary gap are
(i) Reduction in government expenditure on public works, public welfare and defence, etc.
(ii) Reduction in public expenditure on transfer payments and subsidies.
(iii) Increase in taxes to lower the disposable income with the people.’
Question 15.
‘Managing the government’s banking transactions is a key RBI role. Like individuals, businesses and banks, governments need a banker to carry out their financial transactions in an efficient and effective manner, including the raising of resources from the public.”
In the light of the above statement, explain the function performed by the central bank. (4)
Or
Currency is issued by the Central Bank, yet we say that commercial banks create money. Explain. How is this money creation by commercial banks likely to affect the national income? Explain.
Answer:
The central bank acts as a bank ‘ to both central and state governments. It c ries out banking business of the government and the government keeps its cash balances on current account with the central bank. It issues loans and advances to the government and does buying and selling of securities on behalf of government.
It also advises the government to frame monetary policy of the country to control the credit creation and money market.
Or
Yes, it is true to say that only central bank has the authority to issue currency, however commercial banks can create credit out of the deposits they have. The amount of money that commercial banks can create, depends upon two important factors
(i) Initial level of deposits with the commercial banks.
(ii) Legal Reserve Ratio (LRR) which is the sum of i CRR and SLR.
Also the process of credit creation depends upon the following assumptions
(i) All the financial units are considered as a single unit and named as ‘bank’.
(ii) All the transactions are channelled through the ‘banks’.
The fraction by which commercial banks can multiply currency depends upon money multiplier, i.e.
K = \(\frac{1}{\text { LRR }}\)
and the amount of money created will be equal to Money Created = Initial Deposits × \(\frac{1}{\text { LRR }}\)
Let’s take a numerical example to understarid Suppose, banks has a initial deposit of ₹ 10,000 and LRR is 20%, hence banks has to keep ₹ 2,000 and can lend rest ₹ 8,000, this ₹ 8,000 will come to the banks by the way of transactions causing increase in deposit by ₹ 8,000, again bank will lend 80%, i.e. ₹ 6,400 and this process will continue and in the end, commercial banks will be able to create credit equal to
Money Created = 10,000 × \(\frac{1}{0.20}\) = ₹ 50,000
i.e. 5 times more than the initial deposits.
Question 16.
(i) Social welfare may not increase even when real GDP increases. Explain. (3)
(ii) How will you treat the following while estimating national income? (3)
Give reasons for your answer.
(a) Capital gain on sale of a house
(b) Interest on public debt.
Answer:
(i) Increase in GDP may not cause increase in welfare in a situation when distribution of income becomes skewed (unequal). If, along with an increase in GDP, the percentage of population below poverty line happens to increase, it implies a situation of deprivation on one hand, and concentration of economic power on the other. It is a situation when a rising percentage of GDP is being pocketed by a smaller percentage of population.
The bulk of population suffers poverty, while only a small segment of the society enjoys prosperity owing to a rise in GDP. The rise in GDP is achieved at the cost of social welfare.
(ii) (a) Capital gain on sale of a house is not included in the national income estimation because it does not add to the flow of goods and services in the economy. (1.5)
(b) Interest on public debt is deemed as transfer payment. Hence, it is not included in the estimation of national income. (1.5)
Question 17.
(i) On the basis of the given information, calculate the value of
(a) Fiscal deficit (3)
(b) Primary deficit (2)
(ii) State two sources through which budget deficit can be financed. (1)
Or
(i) State any three objectives of a government budget. (3)
(ii) “Taxation is an effective tool to reduce the inequalities of income”. Justify the given statement with valid reasons.
Answer:
(i) (a) Fiscal Deficit = Total Expenditure – Total Receipts (Excluding Borrowings)
= 57,000-1200
= ₹ 55,800 crore
(b) Primary Deficit $=$ Fiscal Deficit – Interest
Payments
= 55,800-6,000
= ₹ 49,800 crore
(ii) Deficits, occuring in the government budget, can be financed in the following ways
(a) Increase in taxation
(b) Disinvestment
Or
(i) Following are the objectives that the government pursues through the budget.
(a) Reallocation of Resources The government, through its budgetary policy reallocate resources, so that social and economic objectives can be met.
(b) Redistribution of Income and Wealth Government through fiscal tools of taxation and transfer payment brings fair distribution of income. Equitable distribution of income and wealth is a way to bring social justice.
(c) Economic Stability The government tries to prevent business fluctuations and maintain price and employment stability.
(ii) A budget can be used as an instrument to reduce the inequalities in the distribution of income and wealth in the following ways
(a) Tax rates should be made progressive. i.e rate of tax should increase with increase in income.
(b) Strict measures should be adopted to check tax evasion by the rich people
(c) Subsidies and free services like education and health should be provided wherever needed.
Section B
(Indian Economic Development)
Question 18.
“The goal of equitable or rational distribution of land was not fully served by abolition of intermediaries”. Why? (1)
(a) Owning to policy loopholes, former zamindars continued to owe large lands
(b) In some areas, zamindars claimed to be self-cultivators
(c) Lack of political will
(d) All of the above
Answer:
(d) Although the intentions of the government to implement land reform were good but due to same loopholes in the policy, land re-distribution was not as successful.
Question 19.
Marketed surplus refers to ………. . (1)
(a) sale of consumer goods in the domestic market
(b) portion of agricultural produce sold in the market by farmers
(c) portion of industrial produce sold in the market
(d) a certain proportion of both industrial and domestic produce sold in the market
Answer:
(b) portion of agricultural produce sold in the market by farmers
Question 20.
The correct sequence explaining the commencement of five year plans in chronological order is
(a) India, China and Pakistan
(b) Pakistan, China and India
(c) China, India and Pakistan
(d) India, Pakistan and China
Answer:
(a) India commenced its five year plans in 1951 while China in 1953 and Pakistan in 1956.
Question 21.
Out of the following, what are the correct reasons of high opportunity cost of negative environmental impact? (1)
(i) Spending huge amounts on technology and research to explore alternative resource
(ii) Health costs of degraded environmantal quality
(iii) Global warming
(iv) Ozone depletion
(v) Industrial revolution
Codes
(a) (i), (ii), (iii) and (iv)
(b) Both (i) and (ii)
(c) (iii), (iv) and (v)
(d) All of the above
Answer:
(a) (i), (ii), (iii) and (iv)
Question 22.
Match the following
Column I | Column II |
A. Economic Development in China | (i) Mao |
B. India’s New Development Policy | (ii) China |
C. The Great Leap Forward | (iii) 1978 |
D. Commune | (iv) 1991 |
Codes
A B C D
(a) (iii) (iv) (i) (ii)
(b) (iv) (ii) (i) (iii)
(c) (i) (ii) (iii) (iv)
(d) (ii) (i) (iv) (iii)
Answer:
(a) (iii) (iv) (i) (ii)
Question 23.
Observe the image given below and choose the most appropriate option.
(a) Higher population is a bane for the country
(b) Development is sustainable when there is inter-generational consideration
(c) Growth always stimulates personal development
(d) All of the above
Answer:
(b) Development is sustainable when there is inter-generational consideration
Question 24.
Statement I Pakistan is ahead of India in providing improved sanitation facilities.
Statement II China ranks ahead in terms of development experience with respect to India and Pakistan.
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) According to the latest data on Human Development Indicators for 2017-19, in India and Pakistan, around 60% of the population are using basic sanitation facilities.
Question 25.
Environment has many resources for us. A resource that can be totally replaced or is always available naturally, or that is practically inexhaustible is known as …… (1)
(a) conventional resource
(b) renewable resource
(c) non-renewable resource
(d) non-conventional resource
Answer:
(b) renewable resource
Question 26.
Which of the following policies were taken under ‘structural reform measures? (1)
(i) Correcting BoP
(ii) Controlling inflation
(iii) Improving economic efficiency
(iv) Increasing international competitiveness
Codes
(a) (i) and (ii)
(b) (ii) and (iii)
(c) (iii) and (iv)
(d) (ii), (iii) and (iv)
Answer:
(c) (iii) and (iv)
Question 27.
Assertion (A) China has done better than India and Pakistan, as it is a socialist economy.
Reason (R) In socialism, government can implement policies which are in interest of the people.
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 ( A}) are true and Reason (R) is the correct explanation of Assertion (A)
Question 28.
“Today’s development has become a burden on nature/environment”.
Comment.
Answer:
The present thinking with regard to relationship between nature and development is that there should be maximum exploitation of natural resources for development. As a result, people are using nature beyond its carrying capacity and consequently development has become a burden on nature/environment.
The negative effect of development on nature are pollution and degradation of resources.
Question 29.
Compared to women, more men are found working in India. It has been observed that for every 100 urban females, only about 15 work.
In rural areas, for every 100 rural women, only about 25 work. Why are women not working? Give any three reasons. (3)
Or
“Acquiring information on health and education expenditure is crucial for the effective utilisation of human resources.” Justify the above statement with valid explanation.
Answer:
The participation rate of women in the employment market, for both, rural and urban areas, is quite low. Some of the reasons for such a low rate are given below
(i) India is typically a male dominated country. Because of this, females are accorded secondary status and parents do not take steps to educate them.
(ii) Even if they are educated, the social beliefs and set-up discourages them to work.
(iii) The women are themselves not inclined to work as they consider house-keeping as their primary work.
Or
The need for acquiring information relating to health and education expenditure can be highlighted as follows
(i) The information about availability of jobs, salaries and admissions is important for growth of human capital.
(ii) Information enables the people to make better choice between various options available to them and leads to the effective utilisation of human skill and knowledge.
(iii) Investment made on health information improves health, efficiency, quality of living and life expectancy of people.
The use of medical information and family welfare programmes ensures the supply of healthy workforce.
Question 30.
“Special Economic Zone (SEZ) increases foreign investment”. Explain.
Answer:
A Special Economic Zone (SEZ) is a geographical region that has economic laws different from a country’s typical economic laws. Usually, the goal is to increase foreign investment. Special economic zones attract investors since they offer high quality infrastructure facilities and support services.
Besides allowing duty free import of capital goods and raw materials, attractive fiscal incentives and simpler customs, banking and other procedures are offered in such zones.
Question 31.
Based upon the image; explain the advantages of green revolution in India. (4)
Answer:
Advantages of green revolution are as follows
(i) The number of greenhouse emissions can be reduced.
(ii) It allows to create more food than conventional methods of growing.
(iii) It offers good yields in challenging conditions.
(iv) It allows a decline in food costs across the globe, making food economically sustainable.
(v) It increases the per capita income of farmers by increasing the agricultural outputs.
Question 32.
State whether the following statements are true or false, with valid argument
(i) Private moneylenders are being replaced by institutional source of credit.
(ii) ‘Economic growth’ and ‘Economic Development’ means on end the same. (2)
Or
“Low employment among women is a reflection of economic backwardness of a country”. Given this statement, suggest few measures to increase employment opportunities for women.
Answer:
(i) The given statement is true. It has been considered necessary to replace the private moneylenders by institutional sources of credit because
(a) The supply of credit was irregular and depended largely on personal relations between the borrower and the lender.
(b) The moneylenders often took advantage of the ignorance and helplessness of the cultivator to exploit him.
(c) Since the borrower was generally illiterate, the moneylender often resorted to downright cheating such as failure to record the repayments in full.
(ii) The given statement is false. 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.
Or
Following are few measures to increase the employment opportunities for women
(i) Education and training opportunities for women should be further expanded, diversified and made more easily accessible.
(ii) Residential accommodation for working mothers should be increased.
(iii) There should be much more facilities of creches and child care during the working hours of mothers.
(iv) There should be large scale publicity and building of public opinion in favour of employment of women.
Question 33.
(i) “Kudumbashree is a women-oriented community based poverty reduction programme being implemented in Kerala”.
It is an example of which form of institutional credit? Also explain briefly this form of rural credit.
(ii) “So many children dropout from different levels of education in India”. Comment and explain two reasons for student dropout. (3)
Or
(i) The Education Commission in 1966, had recommended that at least 6 % of GDP should be spent on education in India. However, even after 50 years of such a recommendation, the government continues to spend 3-4 % of GDP on education.
How has this affected the education sector in India? What value stands violated by the central government?
(ii) “Unemployment is related to poverty.” Comment.
Answer:
(i) It is an example of Self heip Groups (SHGs). Due to the demand of some kind of collateral or security, vast proportion of poor rural households were out of the institutional credit networks. Self help groups emerged to fill this gap, created by formal credit system. These groups promote thrift in small proportions by a minimum contribution from each member.
From the pooled money, credit is given to needy members on nominal rate of interest, which is repayable in easy instalments. However, borrowing from SHGs are mainly i contined to consumption purposes.
(ii) The rate of dropouts from school is one of the major problems in achieving the objective of 100 % literacy leveis. The rate is higher at higher levels of education and among females.
The reasons for dropout are
(a) A large section of the population lives below poverty line and do not have the means to afford basic educational facilities.
(b) The education at tertiary level is also not Job-oriented and does not suit the needs of the poor who dropout from school in search of casual or low wage employment to earn a living.
Or
(i) Government’s unwillingness to spend 6 % of GDP on education has affected this sector adversely, as is enumerated with the help of given statistics.
(a) In India, about 30.3 crore people are still illiterate.
(b) The female literacy rate is 65.46 %, which is quite low as compared to male literacy rate of 82.14 %.
(c) There is disparity in education levels of urban and rural areas.
The value which stands violated by the central government is complete disregard towards expert opinion.
(ii) Poverty and unemployment usually go together. Those who fail to get employment become a burden on the limited family income and thus, depress already low levels of consumption.
Therefore, many programmes which aim at removing poverty provide employment opportunities to the poor like Prime Minister’s Rozgar Yojana, Swarna Jayanti Shahri Rozgar Yojana, etc.
Mot of the urban poors are either unemployed or intermittently employed as casual labourers.
Casual labourers are among the most vulnerable in society as they have no job security, no assets, limited skills, sparse opportunities and no surplus to sustain them. Poverty is therefore, closely related to unemployment.
Question 34.
Read the following text carefully and answer the given questions on the basis of the same and common understanding
In the late 1980 s, government expenditure began to exceed its revenue by such large margins that meeting the expenditure through borrowings became unsustainable. Prices of many essential goods rose sharply. Imports grew at a very high rate without matching growth of exports. Foreign exchange reserves declined to a level that was not adequate to finance imports for more than two weeks. There was also not sufficient foreign exchange to pay the interest that needs to be paid to international lenders. Also, no country or international funder was willing to lend to India.
India approached to World Bank and the International Monetary Fund (IMF), and received 7 billion a loan to manage the crisis. India agreed to the conditionalities of World Bank and IMF and announced to New Economic Policy (NEP).
This new set of policy measures changed the direction of our development strategies.
(i) What does the New Economic Policy of 1991 means in context of the Indian economy? Enlist some reasons for its introduction? (4)
(ii) “IMF and World Bank granted 7 billion loan to India with a major restriction to follow a closed economy model.” Do you agree with the given statement? Justify.
Answer:
(i) The New Economic Policy, 1991 is based on three major principles i.e. Liberalisation, Privatisation and Globalisation.
The chief casual factors that led to the introduction of economic reforms in India were
(a) Mounting fiscal and BoP deficit
(b) Inflationary pressures
(c) Underperformance of the public sector undertakings (PSUs)
(d) Depletion of the foreign exchange reserves
(ii) I do not agree with the given statement. IMF and World Bank wanted India to follow an open economy model.
The major conditionalities put forward by IMF and World Bank before granting 7 billion loan to India were (any two)
(a) Liberating trade and industry from wanted government controls and restrictions.
(b) Greater role of private sector in the functioning of an economy.
(c) Shifting from closed economy to an open economy model or removal of trade barriers between India and abroad.