Sample Papers for Class 12 Economics
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Sample Paper Class 10 Economics Term 2 Set A
1. Distinguish between capital goods and consumer goods.
Distinguish between gross investment and net investment.
Answer: Consumer goods are products made for consumption by the average consumer. It is the end result of production and manufacturing. Consumer goods are purchased to fulfil personal consumption needs.
Examples are clothing, food, furniture, jewellery etc whereas Capital goods are the goods that can be used to increase production. These goods are fixed, durable or tangible assets that are purchased by a business in order to produce finished products or consumer goods. Examples are equipment, machinery,
buildings, computers, vehicles, and more.
Gross Investment: Total addition made to physical stock of capital during a period of time. It includes depreciation.
Gross Investment = Net Investment + Depreciation
Net Investment: Net addition made to the real stock of capital during a period of time. It excludes depreciation.
Net Investment = Gross investment – Depreciation.
2. If MPC is 0.9, what is the value of multiplier? Calculate how much investment is needed to increase National Income by `5,000 crores.
In an economy 75 percent of the increase in income is spent on consumption. Investment is increased by `1,000 crore. Calculate:
(a) Total increase in income.
(b) Total increase in consumption expenditure.
Answer: Here DY = 5,000 crore, MPC = 0.9, K = ?,ΔI = ?
By formula K = 1/1 −MPC
K = 1/1− 0.9=1/0 .1
But K =ΔY/ΔI
ΔI = 5,000/10 =500 crore
So, K = 10 and DI = 500 crore
(a) 75 per cent of the increase in income is spent on consumption.
∴ MPC =ΔC/ΔY=75/100=0.75
Multiplier (K) = 1/1 −MPC=1/1− 0.75=1/0.25= 4
We know, M = ΔY/ ΔI
⇒ ΔY = K ×ΔI
ΔY = 4 × 1,000 = 4,000
(b) Increase in consumption expenditure (ΔC) = MPC × DY
= 0.75 × 4,000 [∴ MPC= ΔC/ΔY], so that ΔC = MPC × ΔY
= 75/100× 4,000 = 3,000
(i) Total increase in income = `4,000 crore.
(ii) Total increase in consumption expenditure = `3,000 crore.
3. The value of average propensity to save can be negative. Justify the statement.
Answer: Yes, the value of average propensity to save can be negative. Income can be consumed or saved, thus the sum of average propensity to consume and average propensity to save is always equal to one.
APC + APS = 1 or APC = 1 – APS
APS = 1 – APC
Hence, APS can be negative when APC is more than one i.e., when consumption expenditure is more than the income.
4. State and discuss any two points regarding the condition of health infrastructure in India.
Study the following information and analyse the ‘Distribution of Workforce by Industry’.
Distribution of Workforce by Industry, 2017-2018
Answer: State of health infrastructure in India:
(a) There has been significant expansion in physical provision of health services and improvements in health indicators since independence, but it is insufficient for rapidly increasing population in India.
(b) Public health system and facilities are not sufficient for this large population.
(c) There is a wide gap between rural urban areas and between poor and rich in utilising health care facilities.
(d) Woman’s health across the country has become a matter of great concern with reports of increasing cases of female foeticide and mortality.
The above table shows the distribution of workforce in different industries during the year 2017-18.
Primary sector is the main source of employment for majority of workers in India. Secondary sector provides employment to only about 24 per cent of workforce. About 31 per cent of workers are in the service sector. It also shows that about 60 per cent of the workforce in rural India depends on agriculture, forestry and fishing. About 20 per cent of rural workers are working in manufacturing industries, construction and other industrial activities. Service sector provides employment to about 20 per cent of rural workers. Agriculture is not a major source of employment in urban areas where people are mainly engaged in the service sector. About 60 per cent of urban workers are in the service sector. The secondary sector gives employment to about one-third of urban workforce. Though both men and women workers are concentrated in the primary sector, women workers’ concentration is very high there. About 57 per cent of the female workforce is employed in the primary sector whereas less than half of males work in that sector. Men get more opportunities in both secondary and service sectors.
5. Sustainable development is an approach to economic growth and development, without causing a lot of environmental damage. Justify the given statement with a valid argument.
Answer: Yes, sustainable development is an approach to economic growth and development without compromising with the quality of the environment for future generations. For economic development,lots of environmental damage has happened in the form of land degradation, soil erosion, air and water pollution, deforestation, etc. This damage may surpass the advantages of having more quality output of goods.
6. In a single day Raju, the barber, collects `500 from haircuts; over this day, his equipment depreciates in value by `50. Of the remaining `450. Raju pays sales tax worth `30. takes home `200 and retains `220 for improvement and buying of new equipment. He further pays `20 as income tax from his income. Based on this information, complete Raju’s contribution to the following measures of income:
(a) Gross domestic product
(b) NNP at market price
(c) NNP at factor cost
Giving reason stating how the following are treated in estimation of National Income:
(a) Payment of interest by banks to its depositors.
(b) Expenditure on engine oil by car service station.
(c) Expenditure on old age pensions by the government.
Answer: (a) GDP = Rs.500 (Raju’s collects from haircut)
(b) NNPMP = GDP – Depreciation = 500 – 50
= 450 (Raju’s contribution to NNPMP)
(c) NNPFC = NNPMP – Sales tax = 450 – 30
= 420 (Raju’s contribution to NNPFC)
(a) Payment of interest by the bank to its depositors should be included in the estimation of National Income as it will be treated as factor income.
(b) Expenditure on engine oil by car service stations is not a part of National Income as it is an intermediate cost.
(c) Expenditure on old age pensions by the government is not a part of the National Income as it is a transfer payment.
7. Compare and analyse the ‘Distribution of Workforce by Industry’ based on following information:
Annual Growth of Gross Domestic Product (%), 1980–2017 7 imahe///
Source: Key Indicators for Asia and Pacific 2016. Asian Development Bank. Philippines: World Development Indicators 2018.
Read the following text carefully and answer the question number 8 and 9 given below:
India-Pakistan Trade Despite continuing tensions, trade between the two countries grew marginally in subsequent years;Indian exports rose nearly 6 per cent to $1.92 billion in 2017-18, and then by around 7 per cent to $2.07 billion in 2018-19. Imports from Pakistan, though much less in volume, also increased by 7.5 per cent to $488.56 million in 2017-18 from $454.49 million in 2016-17.
Growth of imports from Pakistan slowed to around $494.87 million in 2018-19 — an increase of around 1 per cent – before political relations entered a deep freeze in 2019.
Over the years, India has had a trade surplus with Pakistan, with much less imports than exports.
Pakistan was among India’s top 50 trade partners in 2018-19, but was pushed out of the list in 2019-20. It had been anticipated that a trade ban between the countries would affect Pakistan more, since it relied heavily on India for key raw materials for its textiles and pharmaceuticals industries.
In 2018-19, cotton ($550.33 million) and organic chemicals ($457.75 million) accounted for around half of Pakistan’s imports from India. Other major Pakistani imports from India that year included plastic ($131.19 million), tanning/dyeing extracts ($114.48 million), and nuclear reactors, boilers, machinery, and
mechanical appliances ($94.88 million).
After the ban, imports of these five products fell drastically to $1 million from $2 million between April 2020 and January 2021, while cotton imports stopped altogether. The only increase has been in pharmaceutical products – Pakistan has so far imported around $67.26 million worth of drug products,and over $115 million worth of organic chemicals to ensure sufficient supplies of medicines during the Covid-19 pandemic.
India’s major imports from Pakistan in 2018-19 were mineral fuels and oils ($131.29 million), edible fruits and nuts ($103.27 million), salt, sulphur, stone and plastering materials ($92.84 million), ores, slag and ash ($17.18 million) and raw hides and leather ($16.27 million).
The country imported these products in substantially higher volumes from other countries – $25.51 billion worth of mineral fuels and oils from Saudi Arabia; $840.80 million in edible fruits and nuts from the US; $566.52 million in salt, sulphur and plastering materials from the UAE; $862.00 million in ores,
slag and ash from Chile; and $83.36 million in raw hides, skin and leather from Italy.
Pakistan’s decision to suspend bilateral trade with India in August 2019 was a fallout of the constitutional changes in Jammu and Kashmir, which Pakistan said were “illegal”. However, an underlying reason for suspending trade was the 200 per cent tariff imposed by New Delhi on Pakistani imports earlier that year after India revoked Pakistan’s Most Favoured Nation (MFN) status in the aftermath of the Pulwama terrorist attack.
Trade between the two countries suffered greatly – India’s exports to Pakistan dropped nearly 60.5 per cent to $816.62 million, and its imports plummeting 97 per cent to $13.97 million in 2019-20.
The Pakistani decision to lift the ban on cotton imports comes in the backdrop of a shortage in raw material for Pakistan’s textile sector, which has reportedly suffered due to low domestic yields of cotton.
Also, imports from countries like the US and Brazil are costlier and take longer to arrive.
The decision on sugar was dictated by high domestic prices. Pakistani sugar imports in the period July 2020-February 2021 zoomed to 278,733 metric tonnes from 4,358 metric tonnes in the same period in 2019-20. The increase in imports of the commodity was a measure “to stabilise the market prices”,
Dawood said in a tweet on March 2.
Following the meeting of the country’s Economic Coordination Committee (ECC) on Wednesday, Pakistan’s Finance Minister Hammad Azhar said sugar imports would be allowed from India, as the price of the commodity was lower in India than in Pakistan.
“There has been sugar dependence between the two countries forever. Typically, what happens is, (because) they (Pakistan) produce sugar and we (India) also produce sugar, whenever they have a shortage, we have supplied their requirement and vice versa,” said Prof Nisha Taneja of the Indian
Council for Research on International Economic Relations (ICRIER), an expert on India’s regional trade.
“Even when we had a very small positive list (of goods for trade with Pakistan), agricultural commodities were always there in the list,” she said.
Several experts expect Wednesday’s decisions to re-open the door for trade between India and Pakistan.
This might be a good time for India to explore a reduction in its 200 per cent import duties on products that its industries can benefit from, Prof Taneja said.
“We have not reduced duties on anything…at 200 per cent duty, everything becomes unviable,” she said.
Answer: When many developed countries were finding it difficult to maintain a growth rate of even 5 per cent,China was able to maintain near double-digit growth during 1980s as shown in table. Also, notice that in the 1980s, Pakistan was ahead of India; China was having double-digit growth and India was at the bottom. In 2015–17, there has been a decline in Pakistan and China’s growth rates, whereas, India met with moderate increase in growth rates.
8. Explain three observations point to find out the fields where India has an edge over Pakistan.
Answer: India has edged over Pakistan in several fields which are:
(a) Skilled manpower and research and development institution in India are far superior to those in Pakistan.
(b) India has shown a remarkable breakthrough in the export of software after the economic reforms of 1991.
(c) Indian Scientists excel in the area of defence technology, space research and electronic.
(d) Issue of health facilities in general and infant mortality in particular are better addressed in India.
9. How both countries develop their development strategies for improving trade and to overcome terrorism?
Answer: Both countries develop their strategies in various ways:
(a) Government-to-Government diplomatic talks to build confidence.
(b) Political stability in both the countries with stable government .
(c) Maintaing sporting ties between both countries.
(d) Proper sharing of intelligences to counter terrorism.
10. ‘The situation of deficient demand builds deflationary pressures leading to a fall in the general price level in the economy’. Do you agree with this statement? State any two causes of deficient demand in the light of above statement.
Answer: Yes, when aggregate demand is less than aggregate supply (at full employment condition), the demand is known as deficient demand. The producers are forced to reduce their output as prices and profits are hit adversely. This may result in unemployment of resources and reduced income in the economy which further reduces the demand for goods and services. This situation leads to deflationary gap.
Causes of deficient demand are:
(a) Fall in Consumption: Any decrease in the consumption demand of the households may lead to a fall in AD.
(b) Fall in Investments: Any decrease in the investment expenditure incurred by the households and firms may lead to a fall in AD and result in deficient demand-like situation.
(c) Fall in Government Expenditure: Government decreases its consumption or investment expenditure; it may result in a fall in money supply in the economy.
(d) Decrease in Net Exports: When the export of goods and services from an economy is less and import is more, this may result in lesser money at the disposal of the people in the economy leading to deficient demand.
(e) Budget Surplus: If an economy is facing budgetary surplus, it may result in deflationary gap.
(f) Higher Taxes: When the tax structure in the economy is stringent and doesn’t leave money at the disposal of the general public in the economy, this could prove to be deflationary in nature.
11. ‘Monetary measures offer a valid solution to the problem of deflationary gap in an economy’. State and discuss any two non-monetary measures to justify the given statement.
Answer: Non-monetary measures are:
(a) Marginal requirement: Commercial banks extend loans to businesses and dealers in exchange for the security of their commodities. The bank will never grant credit equivalent to the entire amount of the security. It is never worth for the banks to give credit more than the security. In situations of deficient demand, the margin requirements are reduced so as to encourage the borrowers to take more loans, as low margin requirement means more amount of loan provided to them.
(b) Credit rationing: The Central Bank can use this approach to direct commercial banks to lend more for specific objectives or priority sectors.
(c) Moral suasion: Moral suasion refers to the Central Bank’s persuasion, request, informal suggestion,advice, and appeal to commercial banks to cooperate with the Central Bank’s overall monetary policy. In cases of deficient demand, the Central Bank requests for extension of credit.
12. (a) Calculate gross value added at market price (GVAMP) from the following data:
(b) Differentiate between ‘Real GDP’ and ‘Nominal GDP’.
(a) Calculate net value added at factor cost from the following data
(b) State three methods of calculating National Income.
Answer: (a) Gross value added at market price (GVAMP) = Value of Output – Intermediate Consumption.
Value of Output = Total Sales (Sales + Export) + Change in Stock
Value of Output = (200 + 10) + (–)10
= 210 – 10 = 200
GVAMP = Sales + Change in Stock – Single use produces goods
= (200 + 10) + (–10) – 120
GVAMP = 200 – 120
GVAMP = 80 crore
(a) GVAMP = Value of Output – Intermediate Consumption
= 800 – 200 = 600 crores
NVAFC = GVAMP – Depreciation – Indirect Tax + Subsidies
NVAFC = 600 – 20 – 30 + 50 = Rs.600 crores
(b) The three methods of calculating National Income are:
(i) Value Added Method: The value added method is also known as the product method. Its main objective is to calculate National Income by taking the value added to a product during the various stages of production into account.
National Income (NI) = (NDPFC) + Net factor income from abroad
(ii) Expenditure Method: The expenditure method of National Income calculation is based on the expenditures taking place in the economy. This expenditure is done by individuals, households, business enterprises, and the government.
National Income (NI) = C + G + I + (X – M) Or, National Income (NI) = C + G + I + NX
(iii) Income Method: This method is based on the income generated by the individuals by providing services to the other people in the country either individually or by using the assets at disposal.
The income generated from land, capital in the form of rent, interest, wages and profit is taken into consideration.
NNPFC = (NDPFC) + Net factor income from abroad
13. (a) Very few doctors are willing to live in rural areas. In the light of above statement, suggests any three measures for developing health infrastructure in the rural areas.
(b) Health care in India is suffering from urban-rural and rich-poor divide. Do you agree with the given statement? Give the reason by stating some statistical facts in the light of above statement.
Answer: (a) It is very true that very few doctors are willing to live in rural areas. For this, we can take following measures:
(i) It must be a compulsory clause at the time of admission in MBBS that the person will have to work at least for 2 years in a rural area after completing his course.
(ii) Power should be made available for doctors at rural areas and road connectivity to rural areas should be ensured.
(iii) Another alternative can be Indian System of Medicine-AYUSH. It stands for Ayurveda, Yoga,Unani, Sidhdha, Naturopathy and Homeopathy.
(iv) There are 3004 ISM hospitals, 23,028 dispensaries and 6,111,431 registered practitioners in India.
We need to increase the number of hospitals, dispensaries and practitioners but precaution is that those practicing ISM must have proper degree.
(b) It is rightly said that health care in India suffers from urban-rural and rich-poor divide. 70% population is living in rural areas while 20% of the hospitals are located in rural areas. It means 80% hospitals are serving 30% population and out of 7 lakh beds only 11 % are in rural areas.
There are only 0.36 hospitals for one lakh people in rural areas whereas it is 3.6 hospital per one lakh population in urban areas, i.e., number of hospitals in urban areas is 10 times the number of hospitals in rural areas. In villages, specialised medical care is completely missing like paediatrics, gynaecology, anaesthesia and obstetrics. PHCs located in rural areas do not have even X-ray or blood test facility. 20% of doctors passing leave the country for better prospects. Many others are interested in urban areas, rare are the ones interested in rural areas. The poorest one fifth spends 12% of their income on health while rich spend only 2% of their income on health.