CBSE Class 12 Economics Question Paper 2018 (Delhi) with Solutions

Students can use CBSE Previous Year Question Papers Class 12 Economics with Solutions and CBSE Class 12 Economics Question Paper 2018 (Delhi) to familiarize themselves with the exam format and marking scheme.

CBSE Class 12 Economics Question Paper 2018 (Delhi) with Solutions

Time Allowed: 3 hours
Maximum Marks : 80

General Instructions:

1. All questions in both the sections are compulsory.
2. Marks for questions are indicated against each question.
3. Question Nos. 1-10 and 18-27 are very short/objective type questions carrying 1 mark each. They are required to be answered either in one word or one sentence each.
4. Question Nos. 11-12 and 28-29 are short-questions carrying 3 marks each. Answers to them should normally not exceed 60 words each.
5. Question Nos. 13-15 and 30-32 are also short-answer questions carrying 4 marks each. Answers to them should normally not exceed 70 words each.
6. Question Nos. 16-17 and 33-34 are long-answer questions carrying 6 marks each. Answers to them should normally not exceed 100 words each.
7. Answer should be brief and to the point and the above word limits should be adhered to as far as possible.
   * Modified as per Latest CBSE Curriculum.

Section A: Introductory Macroeconomics

Question 1.
If NDP_FC = ₹1,000, and Net factor income paid to abroad = ₹800, then NNP_FC will be: (Choose the correct alternative) [1]
(a) ₹1,800
(b) ₹200
(c) ₹2,000
(d) ₹1,000
Answer:
(b) ₹200

Question 2.
Credit creation by commercial banks is determined by: (Choose the correct alternative) [1]
(a) Cash Reserve Ratio (CRR)
(b) Statutory Liquidity Ratio (SLR)
(c) Initial Deposits
(d) All the above
Answer:
(d) All the above

Question 3.
State the two components of M₁ measure of Money Supply. [1]
Answer:
Components of M₁ measure of money supply = CU + DD + OD

1. CU — Currency with the Public. This includes currency notes in circulation issued by the Reserve Bank of India and small coins in circulation.
2. DD—Demand Deposits at Bank. It refers to demand deposits of the public in the banks.
3. OD—Other Deposits. These are the demand deposits held by the RBI belonging to public financial institutions, foreign central banks and foreign governments, international financial institutions like IMF, etc.

Question 4.
Define aggregate supply. [1]
Answer:
Aggregate supply means the value of final goods and services planned to be produced by all the production units in the economy taken together during a period.

Question 5.
Which of the following is not a part of operating surplus? [1]
(a) Rent
(b) Mixed income of self employed
(c) Interest
(d) Profits
Answer:
(b) Mixed income of self employed

Question 6.
Define foreign exchange rate. [1]
Answer:
Foreign exchange is the price of a foreign currency in terms of domestic currency.
For example, 1$ = ₹82.88.

Question 7.
If national income increases by ₹1000 crores due to an additional investment of ₹400 crores, What will be the value of multiplier ? (Choose the correct alternative) [1]
(a) 1.5
(b) 2.5
(c) 4
(d) 5
Answer:
(b) 2.5

Question 8.
Primary deficit is borrowing requirements of government for making _____.
(Choose the correct alternative) -[1]
(a) Interest payments
(b) Other than interest payments
(c) All types of payments
(d) Some specific payments
Answer:
(b) Other than interest payments

Question 9.
A company located in India receives a loan from a company located abroad. How is this transaction recorded in India’s balance of payments account? (Choose the correct alternative) [1]
(a) Credit side of current account
(b) Debit side of current account
(c) Credit side of capital account
(d) Debit side of capital account

Or, The balance of trade shows a deficit of ₹600 crores, the value of exports is ₹1,000 crores. What is the value of imports?
Answer:
(c) Credit side of capital account.
Or
Balance of Trade = Exports – Imports
– ₹600 = ₹1,000 – Imports
∴ Imports = ₹1,000 + ₹600 = ₹1600 crores

Question 10.
Other things remaining the same, when in a country the-market price of foreign currency falls, national income is likely: (Choose the correct alternative) [1]
(a) to rise
(b) to fall
(c) to rise or to fall
(d) to remain unaffected
Answer:
(b) to fall

Question 11.
Distinguish between autonomous and accommodating transactions in the balance of payments. [3]
Or, Explain why is there a fall in demand for foreign exchange when its price rises?
Answer:
Difference between Autonomous transactions and Accommodating transactions

Or

When the price of foreign exchange increases, more foreign exchange is required for importing the same volume of goods. This means imported goods become costlier. Therefore the demand of foreign goods will fall. Consequently, less foreign exchange will be required or the demand’for foreign exchange will fall. For example, when American dollar becomes costlier in terms of Indian rupee, the demand for American dollar falls. This increases the supply of foreign exchange in the market.

Question 12.
Define Investment Multiplier. How is it related to marginal propensity to consume? [3]
Answer:
Investment multiplier is defined as the ratio of change in income (∆Y) to change in investment (∆I). It explains how many times income increases as a result of an increase in investment. Algebraically, it is expressed as: K = \(\frac{1}{1-\mathrm{MPC}}\)
The relationship between multiplier and marginal propensity to consume (MPC) can be expressed as:
Multiplier, K = \(\frac{1}{1-\mathrm{MPC}}\)
…where [MPC is the proportion of additional income that an individual consumes, i.e., \(\frac{\Delta C}{\Delta \mathrm{Y}}\)
The value of the multiplier can be determined by the size of MPC as MPC and investment multiplier are directly related. This implies that higher the value of MPC, greater would be the value of the multiplier and vice-versa.

Question 13.
What is monetary policy? State any three instruments of monetary policy. [4]
Answer:
Monetary policy is the policy of the central bank of a country which helps to regulate the money supply and credit creation in the economy.

Following are three instruments of the monetary policy:

(i) Bank Rate. It is the rate at which the central bank lends money to the commercial banks. When there is excess money supply in the country, bank rate is increased and vice-versa.

(ii) Open Market Operations. It refers to the buying and selling of government securities (like national saving certificates) by the Central Bank from/to the public and banks. By selling securities, the central bank withdraws cash balance from the economy’s banking system and by buying securities it increases cash reserves of the banks and their ability to give credit.

(iii) Reverse Repo Rate. When the commercial banks have surplus funds they can deposit the same with the central bank and earn interest. The rate of interest paid by the central bank on such deposits is called reverse repo rate. Central bank changes the reverse repo rate in order to have control on money supply in economy.

Question 14.
Define full employment in an economy. Discuss the situation when aggregate demand is more than aggregate supply at full employment income level. [4]
Or, What are two alternative ways of determining equilibrium level of income? How are these
related?
Answer:
Full employment in an economy means that situation when all those who are able and willing to work at the ‘ prevailing wage rates get employment.

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 w an inflationary gap, which causes a rise in the price level, 0 called demand-pull inflation. When AD is greater than AS at t,he 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

The two alternative ways of determining equilibrium level of income are:

1. Planned AD = Planned AS
2. Planned Investment = Planned Savings

Equilibrium level of income and output is that level at which planned expenditure is equal to planned output, i.e., AD = AS.
In other words, C + I = Y. We also know that planned output (or income) is either consumed or saved, i.e.,
Y = C + S.
Therefore, equality of planned AD (expenditure) and planned AS (output) at equilibrium implies that
C + I = C + S
⇒ I = S
which means that equilibrium level of income and output is that level at which planned savings and planned investment are equal.
Thus, the two alternative approaches of national income determination are:

1. AD = AS, which is at E in the upper part of diagram when AD curve intersects the 45° line (AS) with equilibrium income being OM.
2. S = I which is on E₁ in the lower part of the diagram when saving curve intersects the investment curve with OM₁ as the equilibrium level of income.

Question 15.
What is ex-Ante consumption? Distinguish between autonomous consumption and induced consumption. [4]
Answer:
Ex-ante consumption means planned consumption expenditure on final goods in the economy. Ex-ante consumption is divided into two parts:

1. Autonomous consumption and
2. Induced consumption.

Autonomous Consumption \((\overline{\mathrm{C}})\). Even when income (Y) is zero, there is some minimum consumption for survival, known as autonomous consumption which is always positive. Thus, \(\overline{\mathbf{C}}\) > 0. It is denoted as.

Induced Consumption (bY). This is influenced by change in income. When income increases, consumption also increases. But the rate of increase in consumption is less than the rate of increase in income (according to Keynesian Psychological Law of Consumption). Thus, portion of increased consumption is termed as induced consumption.
Consumption function is represented as: C = \(\overline{\mathbf{C}}\) + b(Y)
…where [C = Consumption; \(\overline{\mathbf{C}}\) = Autonomous consumption; b = MPC; Y = Income

Difference between Autonomous Consumption and Induced Consumption

Question 16.
What is government budget? Explain its major components. [6]
Or, Explain:
(a) allocation of resources and
(b) economic stability as objective of government budget.
Answer:
Government budget is a statement of the estimates of the government receipts and government expenditure for the coming fiscal year.
Its two major components are:

A. Budget Receipts. These are of two types—

(i) Capital Receipts. Capital Receipts are defined as any receipts of the government which either create a liability or lead to reduction in assets. These include borrowings, recovery of loans, disinvestment and small savings.

(ii) Revenue Receipts. These refer to those receipts of the government which neither create a liability nor lead to reduction in assets. For example, tax revenue and nontax revenue like interest, profits and dividends, fees and fines etc.

B. Budget Expenditure. These are of two types —

(i) Capital Expenditure. Any expenditure which either creates an asset or reduces – liability is called capital expenditure. It includes expenditure on acquisition of assets like land and buildings, investment in shares etc.

(ii) Revenue Expenditure. It refers to all those expenditures of the government which do not result in creation of physical or financial assets, or which do not cause any reduction in the liability of the government. For example, all those expenses ( which are incurred for the normal functioning of the government department and provision of various services like payment of salaries.

Or

(a) Allocation of resources. In market economies allocation of resources is determined by the forces of demand and supply. Resources are allocated to the production of those goods which earn high profits ignoring social welfare. The government corrects or reallocates the resources through its taxation policy to maintain a balance between social welfare and economic welfare.

1. Government discourages the production of harmful consumption goods (like liquor, cigarettes etc.) by imposing high taxes.
2. Tax concession and subsidies are given to encourage the production of essential goods such as food grains, kerosene etc.
3. The concessions and subsidies are also given to encourage productive activities in backward areas.

(b) Economic stability. Economic stability means absence of fluctuations in prices. Government budget is used to save the economy from the situations of inflation or deflation.

To control inflation, government imposes heavy taxes to discourage private consumption and brings cut in expenditure. To check the situation of deflation, government reduces tax rates to encourage private consumption and increases its expenditure.

Policies of surplus budget during inflation and deficit budget during deflation, help to maintain stability of prices in the economy.

Question 17.
Calculate (a) Operating Surplus, and (b) Domestic Income: [6]

Answer:
(a) Operating Surplus
= Rent and Interest + Corporation Tax + Dividend + Undistributed Profits
= 800 + 460 + 940 + 300 = ₹2,500 crores
(b) Domestic Income (NDP_FC)
= Compensation of employees + Rent and Interest + Corporation tax + Dividend + Undistributed Profits + Mixed Income
= 2,000 + 800 + 460 + 940 + 300 + 200 = ₹4,700 crores

Section B: Indian Economic Development

Question 18.
Which of the following is not the goal of five year planning in India? [1]
(a) Modernisation
(b) Self reliance
(c) Equity
(d) Price stability
Answer:
(d) Price stability

Question 19.
What percentage of country’s total population was engaged in agriculture during the time of independence? [1]
(a) 55%
(b) 65%
(c) 75%
(d) 85%
Answer:
(c) 75%

Question 20.
Name any two industries which are still reserved for the public sector. [1]
Answer:
Atomic energy generation and Railways.

Question 21.
Which one of the following is not a land reform measure? [1]
(a) Tenancy reforms
(b) Abolition of zamindari system
(c) Ceiling on land holdings
(d) Fixation of minimum support prices for crops
Answer:
(d) Fixation of minimum support prices for crops

Question 22.
Define marketable surplus. [1]
Answer:
It is that portion of the agricultural produce which is sold by the farmers in the market after meeting their own requirements.

Question 23.
In which of the following ways did the British Raj impact the Indian economy the most?
(a) The British made India an exporter of cotton from an exporter of cloth that led to large- scale unemployment.
(b) The establishment of railways by the British provided short-term employment for many Indians.
(c) The British expanded their army with Indian sepoys and fought in wars overseas.
(d) The British provided tax concessions to rural farmers and landless labourers. [1]
Answer:
(a) The British made India an exporter of cotton from an exporter of cloth that led to large-
scale unemployment.

Question 24.
Which of the following countries has lowest density of population? [1]
(a) India
(b) China
(c) Pakistan
(d) None of these
Answer:
(b) China

Question 25.
Which of the following countries initiated the Great Leap Forward campaign? [1]
(a) India
(b) Pakistan
(c) China
(d) Bangladesh

Or,
In which year reforms were initiated in Pakistan?
(a) 1970
(b) 1980
(c) 1988
(d) 1991
Answer:
(c) China

Or

(c) 1988

Question 26.
What is the current and the desired level of public expenditure on education? [1]
Answer:
The current level of expenditure on education is 4% and the desired level is 6%.

Question 27.
What is meant by structural unemployment? [1]
Answer:
Unemployment associated with the structure of the economy is called structural unemployment.
For example, when demand for labour falls short of the supply of labour due to rapidly growing population and their immobility.

Question 28.
‘Though the livestock population is quite impressive, it’s productivity remains low.’ Suggest ways to improve the livestock productivity in our country. [3]
Answer:
The livestock productivity in our country is quite low as compared to other countries. Following are some ways by which it can be improved upon:

1. Improved technology and promotion of good breeds of animals can enhance livestock (‘productivity.
2. Improved veterinary care and credit facilities to small and marginal farmers can enhance productivity and sustainable livelihood options.
3. Investment in infrastructure, marketing linkages and dissemination are other ways in which the productivity of livestock in our country can be increased.

Question 29.
Explain how the use of non-conventional sources of energy promotes sustainable development? [3]
Or, Explain the supply-demand reversal of environmental resources.
Answer:
India, as we know, is hugely dependent on thermal and hydro power plants to meet its power needs. Both of these have adverse environmental impacts. Energy generated by using wind power, solar power, tidal power, geothermal heat and biomass including farm and animal wastes as well as human excreta is known as non-conventional energy.
All these sources promote sustainable development because:

1. they are renewable,
2. they are inexhaustible,
3. do not cause environmental pollution,
4. do not require heavy expenditure.

Or

In the past, the demand for environmental resources was much less as compared to its supply. This was mainly because of comparatively lower standard of living, less use of technology and a slower process of industrialisation. As a-result, pollution was well within the absorptive capacity of the environment and the rate of resource extraction was far less than the rate of regeneration of these resources. But now, the situation has reversed. Due to fast industrial growth, the demand for environmental resources is much more than their supply which has created the situation of environmental degradation.

Question 30.
State certain similarities in the development path of India, Pakistan and China. [4]
Answer:
Similarities in the developmental Path of India, Pakistan and China:

1. All the three nations started the developmental path at the same time.
2. India and Pakistan got independence in 1947 and People’s Republic of China was established in 1949.
3. All the three countries had started planning their development strategies in similar ways. India commenced its Five Year Plan in 1951, Pakistan in 1956 and China in 1953.
4. India and Pakistan adopted similar strategies such as creating a large public sector and raising public expenditure on social development.
5. Since 2013, Pakistan is working on the basis of 11th Five Year Development Plan (2013-18), China is now working on 13th Five Year Plan (2016-20). Until March 2017, India had been the following Five Year Plan-based development model.
6. Till the 1980’s, all the three countries had similar growth rates and per capita incomes.

Question 31.
What is globalisation? What steps have been taken by the Indian government for its implementation? [4]
Answer:
Globalisation means integrating an economy with the world economy. It indicates the opening of the economy to the world market. It includes not only movement of capital but of workforce from one country to another as well. Therefore, the policy of globalisation – encourages foreign trade and the movement of labour and capital between nations.

The following policy measures have been taken towards globalisation of the Indian economy:

1. Raising of equity limit of foreign investment. Equity limit of foreign investment has been raised from 40% to 51%. In 47 high priority industries, foreign direct investment up to 100% has now been allowed.
2. Withdrawal of quantitative restrictions. Since 2001, the quantitative restrictions ‘A on all import items have been totally withdrawn. This is in conformity with India’s commitment to the WTO.
3. Modification of tariffs. Custom duties and tariffs imposed on imports and exports have been gradually reduced. The ones which are still prevailing have been modified to encourage competitiveness and promote international trade.
4. Modification in technology agreements. All foreign collaborations concerning higher technology have been made easy by the government.
5. Convertibility of the rupee. Rupee was made convertible for trade account and later on for all transactions of current account. It means that now foreign exchange can be freely purchased and stored in exchange for rupee. This helped in globalising the Indian economy to a large extent.

Question 32.
The policy of protection encouraged the growth of domestic industries but at the same time proved to be an impediment. How? [4]
Or, India’s foreign trade, limited by the inward looking trade policies, faced a number of hurdles. Discuss the principal problems faced by India during 1950-1990 in foreign trade.
Answer:
The policy of protection implies protection from global competition which encouraged the growth of domestic industries. It made possible for indigenous industries to prosper specially in the field of electronics and automobile sector. It also had a favourable impact on employment generation as protection to small scale industries helped achieve the objectives of employment and equity. Economic growth got a big push and industrial output recorded a significant rise. However, there were some negative effects to the strategy of industrial growth adopted during 1947-1950:

1. The development of large number of public sector enterprises became a huge economic burden as these enterprises were running into losses and were termed sick enterprises. By incurring huge losses, public sector enterprises led to inefficient use of scarce national resources.
2. Growth of domestic industry under protection led to its failure in achieving international standards in quality of products being produced. Growth through competition and diversification was conveniently neglected.
3. The inward looking policy of import substitution proved to be a failure in saving foreign exchange. Our foreign exchange reserves started shrinking and were at an all time low by the end of 1990.
4. The policy of unwanted control over the entry of foreign capital led to slow transfer of foreign technology to the domestic industries and they continued to produce old and outdated goods.

Or

India’s foreign trade was limited by the inward looking trade policies. The domestic producers were also not interested in participating in international trade. Indian goods, being of poor quality were not internationally competitive.

The main problems faced by India’s foreign trade have been explained below:

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

Question 33.
What is meant by Agricultural marketing? Discuss certain defects of Agricultural marketing in India. [6]
Answer:
Agricultural marketing refers to the entire system which helps the farmers in disposing their surplus produce. It includes operations like procurement, grading, storing, transporting and distribution of agricultural commodities across the country.

Defects of Agricultural Marketing:

1. Due to lack of proper storage facilities, the farmers find it difficult to wait for better prices for their produce and are forced to sell early even at low prices.
2. In the absence of proper road transportation in rural areas, farmers cannot reach the nearby mandis to sell their produce-at a fair price.
3. The large number of intermediaries existing between the cultivator and the consumer claim a good amount of margin and, thus reduce the returns of the cultivators.
4. The farmers do not ordinarily get information about the market prices prevailing in the markets.
5. Indian farmers do not separate the qualitatively good crop from the bad crop and therefore fail to get a good price for their produce.
6. In the absence of adequate institutional finance, Indian farmers have to approach the traders and money lenders for loans and in the process get exploited.
7. The farmers are not organised and hence cannot bargain for better prices for their products.

Question 34.
“India, China and Pakistan have travelled more than seven decades of developmental paths with varied results.” Explain the given statement with valid arguments. [6]
Or, Identify the common failures of India and Pakistan.
Answer:

1. Till the late 1970s, all the three countries were maintaining the same level of low development.
2. Over the last three decades, the three countries have taken different levels of development. India has performed moderately over the years.
3. Majority of Indians still depend on agriculture. Infrastructure is lacking and more than one fourth of our population lives below the poverty line.
4. Pakistan performed low because of political instability, overdependence on remittances and foreign aid along with volatile performance of agriculture.
5. China has used the market system to succeed in raising the rate of growth in economy with stress on alleviation of poverty.

Or

Common failures of India and Pakistan:

1. The relatively inward-looking economic policies.
2. The mind-set of the politicians and bureaucrats has not shown a progressive change.
3. Fiscal management is grossly disappointing.
4. Large proportion of tax revenue is spent to meet defense expenditure.
5. Deficient urban service (water, electricity and transport).
6. A wide lag between the formulation of policies on the one hand and their implementation.