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

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

CBSE Class 12 Economics Question Paper 2018 (Outside 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 ‘legal reserve ratio’ is 20%, what will be the value of money multiplier? [1]
Answer:
Money Multiplier = \(\frac{1}{\text { LRR }}\) = \(\frac{1}{0.2}\) = 5 …[Given: LRR = 20% = \(\frac{20}{100}\) = 0.20

Question 2.
Can the value of MPC and MPS be negative? Why? [1]
Answer:
Both consumption and savings have positive or direct relationships with income and both are functions of income. Therefore, MPS and MPC can never be negative.

Question 3.
If the value of average propensity to consume is given as 0.75, the value of average propensity to save would be [1]
Answer:
As we know, APS = 1 – APC ∴ APS = 1 – 0.75 = 0.25

Question 4.
State two sources of demand for foreign exchange. [1]
Answer:
The two sources of demand for foreign exchange are:

• For making payments for the imported goods.
• For making payments for unilateral transfers such as sending gifts.

Question 5.
What is ex-ante aggregate demand? [1]
Answer:
Ex-ante aggregate demand is the planned or ex-ante expenditure which people are willing to incur on consumer and investment demand.

Question 6.
What are open market operations? [1]
Or
Which of the following is not the function of the central bank? (Choose the correct alternative)
(a) Banking facilities to government
(b) Banking facilities to public
(c) Lendings to government
(d) Lendings to commercial banks
Answer:
Open market operations refers to the buying and selling of government securities and bonds by the Central Bank to the public and commercial banks in order to control money supply in the economy.

Or

(b) Banking facilities to public

Question 7.
The difference between Gross domestic product and Net domestic product is due to: (Choose the correct alternative) [1]
(a) Depreciation
(b) Net indirect taxes
(c) Net factor income from abroad
(d) Change in stock
Answer:
(a) Depreciation

Question 8.
An Indian company located in India invests in a company located abroad. This transaction is entered in India’s balance of payments account on: (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
Answer:
(d) debit side of capital account

Question 9.
What is meant by managed floating exchange rate? [1]
Answer:
Managed floating exchange rate is that system where the government may intervene in the process of fixation of exchange rate through the central bank.

Question 10.
If value of investment multiplier is 4, what will be the value of marginal propensity to save? [1]
(a) 0.75
(b) 0.25
(c) 0.50
(d) 0
Answer:
(b) 0.25

Question 11.
Define intermediate consumption and explain it with an example. How is it different from final consumption? [3]
Or
Which among the following are capital goods and which are consumer goods and why?
(a) A car used as a taxi
(b) Refrigerator in a hotel
(c) Air-conditioner in a house
Answer:
Intermediate consumption consists of value of goods and services purchased by a production unit for using up completely during the same year or for reselling purposes. It is not included while estimating domestic income of a country. Stocks of raw materials and semi-finished goods fall under the category of intermediate goods. For example, milk purchased by a restaurant or cotton purchased by a factory.

Final consumption refers to goods and services purchased for the purpose of final consumption or final investment. For example, milk purchased by a consumer or machine purchased by a producer is a final good. These are included while estimating the value of domestic income of a country.

Or

(a) A car used as a taxi will be treated as a capital good as it is used by the buyer for long-term investment.
(b) Refrigerator in a hotel is a capital good as it is a long-term investment for the hotel owner.
(c) Air conditioner in a house is a consumer good as it is used by the consumer for consumption purposes.

Question 12.
Differentiate between ‘devaluation’ and ‘depreciation’ of domestic currency. [3]
Answer:
Difference between Depreciation of Currency and Devaluation of Currency

Question 13.
Explain the national income determination in an economy using saving and investment approach. Use diagram. [4]
Answer:
According to the Saving and Investment approach, the national income in an economy is in equilibrium when planned savings are equal to planned investment. Savings are the excess of income over consumption expenditure whereas investment refers to the expenditure incurred on creation of new capital assets.
We can understand this with the help of a schedule and diagram:
Equilibrium by Saving and Investment Approach

As per the diagram, Investment curve (I) being autonomous in nature, is parallel to the X-axis. The Saving curve (S) slopes upwards showing a positive relationship between savings and income. The income is in equilibrium at point E where ex-ante saving is equal to ex-ante investment.

If there is any deviation from the equilibrium level of income, then a process of readjustments will start which will bring the economy back to the equilibrium level.

(i) When Saving is more than Investment. If planned saving is more than planned investment, i.e., after point E (in the diagram), it means that households are not consuming as much as the firms expect them to. Hence, inventory rises above the desired level. As a result, firms would plan to reduce production till saving and investment become equal again.

(ii) When Saving is less than Investment. This means that households are consuming more and saving less than what the firms expect them to. As a result, inventory falls below the desired level. Therefore, the firms increase production till saving again becomes equal to investment.

Question 14.
What is investment multiplier? Explain its working using a suitable numerical example. [4]
Answer:
Investment multiplier is the ratio of change in income to change in investment. It is the number by which times income would increase as a result of an increase in investment. The value of multiplier is given by:
K = \(\frac{\Delta \mathrm{Y}}{\Delta \mathrm{I}}\) …where[K = Multiplier; ∆Y = Change in Income; AI = Change in Investment
Value of multiplier can also be expressed in terms of Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS).
K = \(\frac{1}{1-\mathrm{MPC}}\) or K = \(\frac{1}{\mathrm{MPS}}\)

Working of Multiplier. The working of multiplier is based on the fact that one man’s expenditure is another man’s income. The multiplier process has been shown and explained with the help of a schedule. In this example, we are assuming the MPC to be 0.75 or 75% which means consumer will spend 75% of his additional income.
The Multiplier Process (MPC = 0.75)

1. Suppose, there is an initial increase in investment of ₹100 crore in the economy.
2. This increase in investment of ₹100 crore results in an increase in income of ₹100 crore of people involved in the production of these goods. They will together spend ₹75 crore (75% of ₹100) on consumption goods.
3. This increase in consumption will further increase income by ₹75 crore in the second round.
4. This additional income of ₹75 crore will again lead to increase in consumption by ₹56.25 crore (75% of ₹75) which will further increase income by the same amount in the next round.
5. This process will continue with increase in income in each round being 75% of the previous level.

Question 15.
Discuss the meaning of any two methods of controlling credit which may be adopted by the central bank. [4]
Answer:
The two methods which central bank can use for controlling the volume of credit are:

1. Bank rate is the rate of interest which central bank charges from commercial banks for giving them loans.
   Thus, when volume of credit is to be reduced in the economy, bank rate is increased. On the other hand, when volume of credit is to be increased, bank rate is reduced.
2. Open market operations refer to the purchase and sale of government securities in the open market (i.e., to the banks and public) by the central bank.

When the central bank of the country wants to increase the volume of credit, it starts purchasing securities from the market. These securities are generally bought at a higher price than the market price. As such, banks start selling them, as a result of which their cash reserves increase, i.e., their liquid assets increase.

As a result of this, banks now can create more credit. On the contrary, when central bank wants to control the volume of credit, it starts selling securities in the market which are bought by the commercial banks. With the result, their cash reserves are reduced and this adversely affects their power of creating credit.

Or, Central Bank has the sole authority for issue of currency in the country. In India, RBI has the sole right of issuing paper currency notes (except one rupee notes and coins, which are issued by the Ministry of Finance). The reason for this is that it brings about uniformity in note circulation and gives the Central Bank direct control over the money supply. It promotes efficiency in the financial system.

Question 16.
Calculate
(a) Gross Domestic product at market price, and
(b) National Income: [6]

Answer:
(a) GPD_MP
= Government final consumption expenditure + Private final consumption expenditure + Gross domestic capital formation + Net exports
= 4,000 + 3,500 + 1,100 + 500 = ₹9,100 crores

(b) National Income (NNPFC)
= GDP_MP + Net factor income from abroad – Net indirect taxes – Consumption of fixed capital
= 9,100 + 100 – 300 – 120 = ₹8,780 crores

Question 17.
Explain the distinction between the following: [6]
(a) Revenue Expenditure and Capital Expenditure in a government budget
(b) Primary deficit and Fiscal deficit
Or
Explain the distinction between Revenue receipts and Capital receipts in a government budget. Give their components.
Answer:
(a) Difference between Revenue Expenditure and Capital Expenditure

(b) Difference between Primary deficit and Fiscal deficit

Or
Difference between Revenue receipts and Capital receipts

Components of Revenue Receipts:

1. Tax Revenue. Tax revenue consists of proceeds of taxes and other duties levied by the union government such as income tax, corporate tax, excise duty, customs duty, service tax etc.
2. Non-tax revenue. Income from other sources other than taxes is called non-tax revenue. These are incomes which the government gets in the form of interest, dividend, fees, fines, gifts and grants, etc.

Components of Capital Receipts:

1. Borrowings. Funds raised by government from open market, central banks, foreign governments and international institutions like World Bank, IMF etc. are capital receipts.
2. Recovery of loans. Recovery of loans offered by government to state governments, union territories etc.
3. Other receipts. These include—

(a) Disinvestment of selected public sector undertakings held by the government.
(b) Small savings like post office deposits, Sale of National saving certificates etc.

Section B: Indian Economic Development

Question 18.
What share of Indian workforce was engaged in services, during the colonial period. [1]
(a) 10%
(b) 20%
(c) 25%
(d) 30%
Or
What was the infant mortality rate ill India dining the colonial period?
(a) 218 per thousand
(b) 118 per thousand
(c) 150 per thousand
(d) 250 per thousand
Answer:
(a) 10%
Or, (a) 218 per thousand

Question 19.
Avoiding imports of those goods which could be produced in India itself, is linked with which of the following goals of economic planning? [1]
(a) Growth
(b) Equity
(c) Self reliance
(d) Modernisation
Answer:
(d) Modernisation

Question 20.
What is GST (Goods and Services Tax)? [1]
Answer:
Goods and Services Tax (GST) is an indirect tax or consumption tax imposed in India on the supply of goods and services. It is a comprehensive, multi-stage, destination based tax.

Question 21.
In which year was the Pradhan Mantri Jan-Dhan Yojna introduced? (Choose the correct alternative) [1]
(a) 2016
(b) 2015
(c) 2014
(d) 2017
Answer:
(c) 2014

Question 22.
State one major function performed by National Council’ Education Research and Training (NCERT).
Answer:
NCERT functions as an apex organisation to provide academic and technical support for qualitative improvement of school education (from Class 1 to 12).

Question 23.
Which of the following states is the leading fish producer in India?
(a) Uttar Pradesh
(b) Kerala
(c) Rajasthan
(d) Andhra Pradesh
Answer:
(b) Kerala

Question 24.
Define subsistence farming.
Answer:
Subsistence farming is farming done for production of those crops which are meant for self consumption by farming families.

Question 25.
Which of the following countries has the highest gross domestic product (GDP)?
(a) India
(b) China
(c) Pakistan
(d) Bangladesh
Answer:
(b) China

Question 26.
In which year China announced its first year plan? [1]
(a) 1950
(b) 1953
(c) 1960
(d) 1965
Answer:
(b) 1953

Question 27.
In which period nationalisation of capital goods industries took place in Pakistan?
(Choose the correct alternative) [1]
(a) 1950s
(b) 1960s
(c) 1970s
(d) 1980s
Answer:
(b) 1960s

Question 28.
“The causality between human capital and economic growth flows in either direction.” Explain the statement. [3]
Answer:
It is very difficult to establish a cause and effect relationship between the growth of human capital and economic growth as growth in one has probably reinforced growth in the other. Human capital formation stimulates the process of economic growth by increasing the efficiency and productivity of human resource.

On the other hand, economic growth also impacts human capital formation. Growth implies increase in real per capita income (or increase in per capita availability of goods and services). Higher income facilitates higher investment on education and skills implying human capital formation. Therefore, we can say that increase in human capital leads to economic growth and economic growth leads to human capital formation.

Question 29.
“IT plays a significant role in achieving sustainable development and food security.” Comment. [3]
Answer:
Information Technology (IT) has revolutionised many sectors in the Indian economy. It is strongly believe that IT can play a crucial role in achieving sustainable development and food security—

1. Governments can predict areas of food insecurity and vulnerability using appropriate information on software tools so that action can be taken to prevent or reduce the likelihood of an emergency.
2. It has also had a positive impact on the agricultural sector as it can disseminate information regarding emerging technologies and their applications, prices, weather and soil conditions for growing different crops etc. Accordingly, decisions can be taken about the quality and quantity of crops to be produced.
3. IT also has potential for employment generation in rural areas.

Question 30.
Should the government privatise all public sector undertakings irrespective of whether they are earning profits or incurring losses? [4]
Answer:
The government should privatise only those public sector undertakings which are running into losses and increasing the fiscal deficit of the government. It is believed that privatisation would improve their managerial efficiency as the management would be free from unwanted political pressure and interference and may lead to increase in investment and employment opportunities.

However, if a public sector undertaking has been established for any important purpose like providing some basic infrastructural facility, then it should not be privatised even if it is incurring losses, as it may then decrease welfare of people. The profit making public sector undertakings are an important source of revenue for the Government and hence, should not be privatised. The government needs this money for investment in the economy and for meeting its various expenditures.

Therefore, the core public sector undertakings should continue to be owned by the public sector and only the less important ones should be privatised.

Question 31.
The traditional handicrafts industry was ruined under the British rule. Do you agree? Justify
your answer.
“The British Rule brought a few advantages to the Indian economy” Explain.
Answer:
Yes, the Indian handicrafts were systematically destroyed owing to the discriminatory policies of the British government besides other factors which have been explained below:

1. Discriminatory tariff policy. This policy allowed tariff free export of raw material from India and import of British industrial product into India but placed a heavy duty on the export of Indian handicraft products.
2. Decline in state patronage. The disappearance of princely courts implied the end of state patronage to handicraft industry thereby leading to their decay.
3. Change in demand pattern. The spread of British culture led to the emergence of a new class in India which was keen to adopt the western lifestyle leading to a decline in the demand for traditional handicrafts.
4. Competition from machine made goods. The low cost machine made products from Britain gave stiff competition to Indian handicrafts.

Or,

1. Better means of transportation. Development of roads and railways opened new opportunities for economic and social growth.
2. Shift to a monetary economy. The British rule helped in the transition from barter system of exchange to monetary system of exchange.
3. Check on famines. Roads and railways help in keeping a check on the occurrence of famines as food supplies could now be easily transported to the affected areas.
4. Effective administrative set-up. The British rule in India left a legacy of an efficient system of administration which served as a ready reckoner for our politicians and planners.
5. Improvement in agricultural productivity. Commercialisation of agriculture resulted in improvement in agricultural productivity. Agriculture gradually came to be accepted as a profitable venture rather than merely a means of subsistence.

Question 32.
Discuss the contribution of various sectors in the economy of India, China and Pakistan.
Answer:
Sectoral contribution: In all the three economies, the industry and service sectors have less proportion of workforce, but they contribute more in terms of output.
Sectoral contribution to GDP (in %) 2014-15

1. In the last two decades, the contribution of agricultural sector to GDP, which employs the largest proportion of workforce in all the three countries, has declined.
2. In the industrial sector, China has maintained a double-digit growth rate, whereas for India and Pakistan, the growth rate has declined.
3. In the service sector, India and Pakistan have stagnated but China has managed to increase the rate of growth of its service sector.
4. China has emerged as the manufacturing hub of the world. About one half of its GDP originates from the industrial sector. The service sector comes second and then the agriculture sector.
5. In India and Pakistan, there has been a direct shift from primary to the tertiary sector.

Question 33.
Write a short note on agro-processing industries.
Answer:
Agro-processing industry involves transforming products originating from agriculture, forestry and fisheries. It could be defined as a set of techno-economic activities carried out for conservation and handling of agricultural produce and to make it usable as food, feed, fibre, fuel or industrial raw material.

Agro-processing is now regarded as the sunrise sector of the Indian economy in view of its large potential for growth and socio-economic impact specifically on employment and income generation.

The Indian food processing industry is an example of such type of industries which covers fruits, vegetables, milk and milk products, fisheries, plantation, grain processing, consumer products like confectionery, chocolates and cocoa products, soya based products etc. Other examples are rice and flour milling, leather tanning, oil pressing etc.

Question 34.
(a) What does casualisation of workforce imply?
(b) Distinguish between formal sector workers and informal sector workers.
Or
In India, due to increase in labour force at a fast pace as compared to employment growth rate, the number of people remaining unemployed has increased over time. How can this problem be solved?
Answer:
(a) The process of moving from self employment and regular salaried employment to casual wage work is known as casualisation of workforce. It has adverse implications on the level of wages, stability of employment and social security of employees like provident fund etc. due to the temporary nature of employment, It also indicates preference by employers for témporary employment as against regular or formal employment.

(b)

Or, The following measures can be adopted to solve the problem of unemployment in India:

1. Accelerating growth rate of GDP. The unemployment problem can be solved with the process of accelerated growth rate of GDP. For this it is essential to increase production in agricultural and industrial sector. Development of small and cottage industries should also be encouraged.
2. High rate of capital formation. The rate of capital formation in the country should be increased with investment being directed towards areas with high employment potential.
3. Improvements in infrastructure. Infrastructural facilities like irrigation, electricity, roads, health, etc. are critical for overall development of the economy. Better infrastructural facilities are also important for optimally utilising the potential of agricultural and industrial sectors.
4. Technique of production. To solve the unemployment problem, it is essential that labour intensive technology should be encouraged in place of capital intensive technology.
5. Focus on employment programmes in plans. Such programs, which can raise the level of employment like irrigation projects, road construction projects, etc. should be given greater importance in plans. Special employment programmes aiming at providing wage employment or self employment opportunities should also be implemented.
6. Control of population growth. The rapid growth rate of population should be controlled so that the additional jobs created do not fall short of new entrants to the labour market.
7. Encouragement to small-scale enterprises. The small-scale sector should be encouraged through initiatives like concessional loan facilities, easy availability of raw materials, infrastructural facilities, etc. as they have the potential to generate employment opportunities.
8. Reforms in the education system. The present system of education should be made more vocational and job oriented. Focus of education must shift towards providing skills among the educated unemployed by providing
9. special training courses.