Economics - 12 Sample Paper 1

sample Paper 1 [Easy Concept] Time Allowed: 3 hours] [Maximum Marks: 80 General Instructions: (i) This question paper contains two parts: Part A: Macroeconomics (40 marks) Part B: Indian Economic Development (40 marks) (ii) Marks for questions are indicated against each question. (iii) Question No. 1-10 and Question No. 18-27 (including two Case Based Questions) are 1 mark questions and are to be answered in one word/sentence. (iv) Case Based Questions (CBQ’s) are Question No. 7-10 and Question No. 25-27. (v) Question No. 11-12 and Question No. 28-29 are 3 marks questions and are to be answered in 60-80 words each. (vi) Question No. 13-15 and Question No. 30-32 are 4 marks questions and are to be answered in 80-100 words each. (vii) Question No. 16-17 and Question No. 33-34 are 6 marks questions and are to be answered in 100-150 words each. (viii) Answers should be brief and to the point and the above word limit be adhered to as far as possible. Part–A (Macroeconomics) 1. Demand deposits include: (Choose the correct alternative) (a) Saving account deposits and fixed deposits (b) Saving account deposits and current account deposits (c) Current account deposits and fixed deposits (d) All types of deposits 2. If the price of 1 US dollar falls from ` 56 to ` 52, the Indian currency has ___________ (depreciated/ appreciated). (Choose the correct alternative) 3. Goods purchased for the following purposes are final goods: (Choose the correct alternative) (a) For satisfaction of wants (b) For investment (c) Both (a) and (b) (d) None of the above Or Which of the following affects national income? (Choose the correct alternative) (a) Goods and Services Tax (b) Corporation tax (c) Subsidies (d) None of the above 4. Which of the following component(s) is/are not included in money supply? (Choose the correct alternative) (a) Currency with private individuals (b) Currency with business firms (c) Stock of gold with RBI (d) All of these Sample Papers 29

5. Identify the correct pair from the following Column I and Column II: (Choose the correct alternative) Column I Column II (A) Autonomous transactions (i) A situation when the value of imports of ( B) Current account of the BoP goods is greater than export of goods (C) Fixed Exchange Rate (D) Trade Surplus (ii) are dependent on other transactions (iii) is notified by the government (iv) records changes in foreign investments Alternatives: (b) (B) – (ii) (a) (A) – (i) (d) (D) – (iv) (c) (C) – (iii) 6. Charity to foreign countries is included in ___________ (current/capital) account as a debit item in BoP Account. (Fill up the blank with correct alternative) Read the following news report and answer questions 7–10 on the basis of the same: H eightened uncertainty in India caused by the coronavirus pandemic has led to a surge in currency in circulation as people hoard cash or park money in accessible deposits to safeguard themselves against salary cuts or job losses. According to RBI data, India’s money supply rose 6.7% in the first five months of this year compared with the same period last year, the highest growth in seven years. The currency in circulation, which measures money with the public and in banks has also surged. A rise in money supply usually is seen as a leading indicator of growth in consumption and business investments. However, growth in currency notes held by public was much higher than the deposits made in banks. Since the end of March, currency held by the public rose 8.2% compared with a 4.1% increase in term deposits, the data showed. Savings and current account deposits fell 8% due to higher withdrawals.  Business World; October 20th, 2020 7. ___________ (Commercial banks/Central bank) is/are the financial institution who accepts deposits from the public and advance loans to others. (Choose the correct alternative) 8. Money supply in India implies ___________ . (Choose the correct alternative) (a) Currency held by the public (b) Demand deposits with the banks (c) Both (a) and (b) (d) Neither (a) nor (b) 9. In India, ` 1 currency note is issued by ___________ (Reserve Bank of India/Ministry of Finance). (Choose the correct alternative) 10. Which bank in India is the controller of credit? (Choose the correct alternative) (a) Axis bank (b) Reserve Bank of India (c) State Bank of India (d) Punjab National Bank 11. “Indian Rupee (`) plunged to all time low of ` 74.48 against the US Dollar ($).” —The Economic Times In the light of the above report, discuss the impact of the situation on Indian imports. 12. Government is incurring expenditure on “Child immunisation programme”. Does the given statement mean that welfare of the people of India will increase along with increase in its GDP. Comment with reason. 30 Together with® EAD Economics—12

Or Calculate net value added at factor cost from the following: (` in lakhs) (i) Net factor income from abroad 30 (ii) Sales 3,500 (iii) Purchase of intermediate goods 2,000 (iv) Consumption of fixed capital 500 (v) Exports 400 (vi) Indirect taxes 350 (vii) Change in stock 50 13. State whether the following statements are true or false. Give reason for your answer. (a) When MPC is greater than MPS, the value of investment multiplier will be greater than 5. (b) The value of MPS can never be negative. 14. Define full employment. Can an equilibrium situation be reached in an economy at less than full employment level? Explain. 15. Explain the role of bank rate in dealing with the problem of deficient demand. Or Explain the role of margin requirements in dealing with the problem of excess demand. 16. (a) Calculate GNPFC from the given data: (` in crores) (i) Indirect tax 50 (ii) Consumption of fixed capital 60 (iii) Net factor income received from abroad (–) 10 (iv) NDPFC 120 (v) Net current transfers paid to rest of the world 30 (vi) Subsidies 25 (b) “Non-monetary exchanges are not included in the estimation of National Income.” Do you agree with the above statement? Give reasons. Or (a) Explain the ‘mixed income of self-employeds’ with the help of a suitable example. (b) Find net value added at factor cost: (` in lakhs) (i) Durable use producer goods with a life span of 10 years 10 (ii) Single use producer goods 5 (iii) Sales 20 (iv) Unsold output produced during the year 2 (v) Taxes on production 1 17. The government under “UJJWALA Yojana” is providing free LPG connections to the families ‘below the poverty line’. What objective the government is trying to fulfil through the government budget and how? Explain. Sample Papers 31

Part–B (Indian Economic Development) 18. Demonetisation is the ___________ policy wherein the legal status of a currency unit is cancelled and new one comes into circulation. (Choose the correct alternative) (a) Social (b) Legal (c) Economic (d) Political 19. Arrange the following events of Pakistan in chronological order and choose the correct alternative: (i) Nationalisation of Capital goods (ii) First Five Year Plan (iii) Fertility Rate in Pakistan was 3.7 (iv) Agriculture grew at the rate of 4% Choose the correct alternative: (b) (iv), (ii), (i), (iii) (a) (ii), (i), (iv), (iii) (d) (iv), (i), (ii), (iii) (c) (ii), (iv), (i), (iii) 20. From the set of events/systems given in Column I and corresponding relevant fact given in Column II, choose the correct pair of statement: Column I Column II (A) Capital goods industry (i) industry which can produce machine tools (B) Zamindari System (ii) the interest of the ‘zamindars’ was not only (C) Demographic transition to collect rent. (iii) after 1935, the second stage of transition (D) Life expectancy began (iv) was very low — 52 years Alternatives: (a) (A) – (i) (b) (B) – (ii) (c) (C) – (iii) (d) (D) – (iv) 21. ___________ campaign aimed at industrialising the China on a large scale. (Choose the correct alternative). (a) Great Proletarian Cultural Revolution (b) Great Leap Forward (c) Commune System (d) None of these 22. ___________ are the institutional sources of agricultural credit. (Choose the correct alternative) (a) Cooperative Credit Societies (b) Commercial Banks (c) Both (a) and (b) (d) Neither (a) nor (b) 23. ___________ is an example of rural poor. (Choose the correct alternative) (a) Cultivators (b) Rag pickers (c) Beggars (d) None of these Or ___________ poor are the ones who regularly move in and out of poverty. (Choose the correct alternative) (a) Chronic (b) Occasionally (c) Transient (d) Churning Read the following case study carefully and answer the questions 24–27 on the basis of the same: In India, most of the people who are suffering from poverty cannot afford to pay for a single meal a day. In addition, they do not get proper healthy and nutritious food, neither medicine nor any other necessary thing. The rate of poverty in India is increasing because of the increase in the urban population. The rural people are migrating to cities to find better employment. Most of these people find an underpaid job or an activity that pays only for their food. Most importantly, around crores of urban people are 32 Together with® EAD Economics—12

below the poverty line and many of the people are on the borderline of poverty. Besides, a huge number of people live in low-lying areas or slums. These people are mostly illiterate and in spite of efforts their condition remains the same and there is no satisfactory result. 24. The official data on poverty is made available to the public by the ___________ (Planning Commission/ Ministry of Education). 25. Economists identify the poor on the basis of their ___________ (occupation/academic qualifications). 26. In 2011-12, for rural areas, the poverty line was defined as consumption worth ___________ (` 1,000/` 816) per person a month. 27. The rate of poverty in India is increasing because of the increase in the ___________ (rural/urban) population. 28. “Green Revolution enabled the government to procure sufficient food grains to build its stocks that could be used during times of shortage.” Do you agree with the above statement? Give reason. 29. “Industrial Policy Resolution of 1956 (IPR 1956) formed the basis of the Second Five Year Plan.” Elaborate. Or Explain the two forms of protection from imports. 30. Explain the focus of the economic policies pursued by the colonial government in India. Analyse the impact of these policies. Or How did the government ensure that the small farmers also benefit from the Green Revolution as the rich farmers? 31. ‘Development of infrastructure and economic development go hand in hand.’ Do you agree? Elaborate. 32. Answer the following questions on the basis of the following data: (a) Give two reasons behind the drastic decline of GDP at 4% in Pakistan during 2011-2015. (b) Why was India at the bottom during 1980-90? Annual Growth of GDP(%) 1980–2015 Country 1980–90 2011–15 India 5.7 6.7 China 10.3 7.9 Pakistan 6.3 4.0 33. “Micro-credit programmes are playing vital role in meeting credit requirements of the poor.” Elaborate. 34. Explain the principal role of human capital formation in accelerating the rate of economic growth. Or Study the following table showing distribution by workforce by Industry, 2011-12 and analyse the trend of the workforce on the basis of industry and residence. Distribution of Workforce by Industry, 2011-12 Industrial Place of Residence Category Primary Sector Rural Urban Secondary Sector Tertiary Sector 64.1 6.7 Total 20.4 35.0 15.5 58.3 100.0 100.0 Sample Papers 33

Answers 1. (b) 2. appreciated 3. (c) Or (c) 4. (c) 5. (c) 6. current 7. Commercial banks 8. (c) 9. Ministry of Finance 10. (b) 11. The plunging of the Indian rupee to an all time low at ` 74.48 against US Dollar is called “depreciation” in the value of Indian rupee. It may lead to a fall in Indian imports as the foreign goods will become expensive/costlier for the domestic consumers. So they will now demand them less, i.e., imports will fall. 12. (a) Government’s spending on child immunization programme is government’s final consumption expenditure. Hence, it will raise the Gross Domestic Product (GDP). (b) Such a programme like child immunization improves the health of the children It will raise the efficiency level in the long-run, as these children will grow up into healthy adults with a higher efficiency level. This will thereby increase the welfare of the people. Or NVAFC = (ii) + (vii) – (iii) – (iv) – (vi) = 3,500 + 50 – 2000 – 500 – 350 = ` 700 crores 13. (a) False, because when MPC > MPS, say MPC = 0.6 and MPS = 0.4, the value of investment multiplier will be less than 5 and not greater than 5, as mentioned. This is because k = 1 = 1 = 2.5 MPS 0.4 Value of k as 2.5 is less than 5 and not greater than 5 as stated. (b) True, as we know that the sum of MPC and MPS is always 1, i.e., MPC + MPS = 1. For example, if   MPC = 0.9, then MPS = 1 – 0.9 = 0.1 if   MPC = 0, then MPS = 1 – 0 = 1 \\ Value of MPS can never be negative. 34 Together with® EAD Economics—12

14. Full employment refers to a situation when the entire labour force Aggregate demand Y }A AD (C+I) in an economy is employed. O 45° Yes, the economy can be in equilibrium, at less than full employment XB level. It is a situation of deficient demand (deflationary gap). MF X In the given diagram, we observe that the economy is in equilibrium Income at point X and OM is the equilibrium income or output which is less than the full employment income or output denoted by OF, i.e., OM < OF. At full employment level, AS is greater than AD, as shown by AF > BF, by the distance ‘AB’ which denotes a situation of “deflationary gap” or deficient demand. 15. Bank rate is the rate at which the Central Bank of a country gives credit to the commercial banks. For controlling deficient demand, Central Bank should decrease the Bank rate. Decrease in Bank rate reduces the market rate of interest and credit becomes cheaper. Accordingly, demand for credit expands and consequently aggregate demand increases and deficient demand is thereby checked. Or The margin requirement of a loan refers to the difference between the value of the security offered for loan and the value of the loan granted. During excess demand situation (when AD > AS at the level of full employment), the central bank raises the margin requirements so that the borrowers are now given less money in the form of loan against the mortgaged goods. Thus, credit gets reduced and aggregate demand falls. This helps in reducing the problem of excess demand, which thereby gets checked. 16. (a) GNPFC = NDPFC + (ii) + (iii) = 120 + 60 + (–10) = 120 + 50 = ` 170 crores (b) ‘Non-monetary exchanges’ refer to activities like services of family members provided. These activities are not evaluated in monetary terms, i.e., are not paid for, so they may be left out from the estimation of national income due to the non-availability of data. But the fact is that these activities do contribute to the welfare of the people. Since Gross Domestic Product (GDP) may not account for such activities, it may be underestimated. This, thus, is a limitation of the Gross Domestic Product (GDP), as an index of welfare. Or (a) “Mixed Income is related to the income of the self-employed persons, who use their own factors of production like own labour, land, capital and entrepreneurship to produce goods and services. The income generated by these self owned factors are thus a mixture of wages, rent, interest and profit. Thus they are known as ‘mixed income of self-employeds’. For example, a person X opens his coaching centre in his own premises. He himself teaches the students and his wife and other family members help in administrative work of the institute. Person X used his own savings in buying furniture and other essentials for the centre. Now, the coaching centre starts functioning smoothly and he is able to earn an amount of ` 80,000 per month. This income of ` 80,000 is the “mixed income” generated by the self-employed person X. Self-owned factors of production are usually used in household enterprises where the production is usually on a small scale. Sample Papers 35

(b) NVAFC = (iii) + (iv) – (ii) – (v) – *Depreciation = 20 + 2 – 5 – 1 – 1 = 22 – 5 – 1 – 1 = ` 15 Lakh *Depreciation = Cost of the Fixed Capital good = 10 = 1 Life Span 10 17. The government under Ujjwala Yojana is providing free LPG kitchen gas connection to families ‘below the poverty line’. This is to help the poor people with a clean fuel for cooking purposes. This will improve their eyesight and health. Through this yojana, the government is trying to boost up ‘social welfare’. This step will also boost up the morale of the poor. Their productive efficiency will get enhanced, which will have a favourable impact on the national income. The government is trying to fulfil the objective of reducing inequalities in the income distribution. 18. (c) 19. (a) 20. (a) 21. (b) 22. (c) 23. (a) Or (d) 24. Planning Commission 25. occupation 26. ` 816 27. urban 28. It is a correct and well accepted statement. This is because a good proportion of the rice and wheat produced during the Green Revolution was sold in the market by the farmers (marketed surplus). As an outcome, the price of foodgrains fell and the low income groups benefited from this, because as they spent a large percentage of their income on food. Not only that the green revolution enabled the government to procure sufficient foodgrains in order to build its ‘buffer stocks’, which could be used during times of food shortages, in order to ease the situation. 29. Indeed IPR 1956 formed the basis of the Second Five Year Plan, which was known as the “Industrial Plan”. IPR 1956 classified the industries into three categories: • Category I included industries which would be owned exclusively by the state. • Category II included industries in which the private sector could supplement the efforts of the state sector, but the sole responsibility for starting new units rested in the hands of the state. • Category III included the remaining industries which were to be in the private sector, but they were kept under state control through a licensing system. 36 Together with® EAD Economics—12

Or Protection from imports took two forms: (a) Tariffs (b) Quotas (a) Tariffs were a tax on imported goods, which made these goods relatively expensive. As a result, discouraged their consumption. (b) Quotas referred to the quantity of goods which could be imported. Both these forms aimed to restrict imports and thereby protect the domestic firms from foreign competition. As per the protection policy, it was assumed that if the domestic industries were protected they would learn to compete, against the goods produced by the developed economies, with the passage of time. 30. • D uring the British rule, the economic policies pursued by the colonial government in India were mainly concerned with the protection and promotion of the economic interests of their home country, at the cost of the development of the Indian economy. • I ndian economy was transformed into a supplier of raw materials and at the same time a consumer of finished industrial products from Britain. It remained an ‘agrarian’ economy under the British rule burdened with surplus labour. • Agricultural productivity was low leading to the “stagnation” in the agricultural sector. • C ommercialisation of agriculture compelled the farmers to produce cash crops in place of food crops. • I n the field of ‘industry’ too, India could not develop a sound industrial base. Impact • The colonial government systematically de-industrialised India with a two-fold motive. First to reduce India to a mere exporter of raw materials for the development of modern industries in Britain. Secondly to convert India into a huge market for the finished products of these industries. • Ultimately this led to the decline of the indigenous handicraft industries without replacing them by a modern industrial base. • There were hardly any capital goods industry to promote industrialisation in India. • Foreign trade was mainly oriented to feed the Industrial Revolution in Britain. • Infrastructural facilities called for an upgradation, lack of adequate health facilities, frequent occurence of natural calamities and famines further tortured the helpless Indian masses. Or The new agricultural strategy implied use of better and improved inputs of agriculture which required more capital. Green Revolution would have benefited only the rich farmers if the government had not played an important role in ensuring that the small farmer also gains from the new technology. The government provided loans at low rate of interest. The fertilisers and high yielding varieties of seeds were also subsidised for the small farmers. 31. Yes, I certainly agree with the statement that ‘development of infrastructure and economic development go hand and hand’. Infrastructure is considered to be the support system on which depends the smooth and efficient working of the economy. Infrastructure contributes by increasing the productivity level of the factors of production and alongwith also helps in improving the quality of life of the people. Sample Papers 37

Undoubtedly any kind of inadequacy in the infrastructure can lead to multiple ill-effects on health. Improvements undertaken in water supply and sanitation facilities go a long way to reduce morbidity— which is an outcome of waterbone disease. The quality of transport and communication infrastructure also affects the access to healthcare by way of air pollution and safety hazards, especially in areas which are densely populated. In fact the development of health infrastructure contributes to healthy manpower—an asset to the production of goods and services. 32. (a) (i) Reform processes introduced in 1988 in Pakistan. (ii) Political instability in Pakistan contributed to the drastic decline of GDP at 4%. (b) India being at the bottom in its growth of GDP during 1980-90 can be attributed to the • Unsatisfactory performance of Public Sector Enterprises • Excessive government regulation prevented growth. • In the name of self reliance Indian producers were protected against foreign competition. This was in accordance with our inward oriented policies. 33. The habit inculcation of thrift and efficient utilization of financial resources requires to be enhanced among the farmers. Self-Help Groups (SHGs) have emerged to promote thrift in small proportions by a minimum contribution from each member. From the money thus pooled credit is given to needy. This to be repaid in small installments at reasonable rates of interest. Such kind of credit provision is termed as a ‘micro-credit programme’. SHGs have also contributed in the women empowerment. They have, as a matter of fact, emerged to fill up the gap in the formal credit system. An example of ‘Kudumbashree’ stands testimony to the success of such programme. 34. Human capital formation, by way of education, health along with its other indicators like on-the job training, job market information and migration, definitely enhance an individual’s income-generating capacity. This in turn contributes to increased labour productivity, which stimulates the innovative and creative ability of the human beings so as to easily take to the new and recent technologies. It is proven empirically, that increase in human capital causes economic growth, is rather a vague statement. This is so because the human capital growth in developing countries has turned out to be faster than the growth of per capita real income. In a developing country with large population like India, there is a strong belief that trained and educated people become an asset in accelerating the economic growth and facilitating the social change in the direction so desired. Or On the basis of the table on “Distribution of workforce” by industry provided, we infer: • Primary sector in the main source of employment in rural India, where 64% of the population depends on it for their livelihood. • About 20% of the rural workers are employed in the secondary/industrial sector. • Service sector/tertiary sector provides employment to about 16% of rural workers. On the other hand, in the Urban areas people are mainly engaged in the service sector (58%). • Secondary sector employs 35% of urban workforce. • Agriculture is not a major source of employment in urban areas. Very few urban workforce are employed in the primary sector (7%). 38 Together with® EAD Economics—12