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ECONOMICS

2024

ECONOMICS OLD QUESTION PAPER SOLVED

PART-A

1. Answer any four of the following questions:

(i) What is intermediate good?

Ans: An intermediate good is a product that is used to make another product, either a finished good or another intermediate good. These goods are also known as consumer goods and are produced for the purpose of direct consumption by the end consumer. Intermediate goods are referred to as those goods that are used by businesses in producing goods or services.

(ii) If MPS-1, what is the value of MPC? 

Ans: If MPS=1, then MPC=0.

(iii) Primary Deficit = Fiscal Deficit-_______. (Fill in the blank)

Ans: Interest Payments.

(iv) Which one of the following is not a quantitative credit control measure of the central bank?

(a) Bank rate.

(b) Open market operation.

(c) Variable reserve ratio.

(d) Direct control.

Ans: (d) Direct control.

(v) Write one merit of flexible exchange rate.

Ans: Flexible exchange rate automatically corrects any disequilibrium in the Balance of Payments (BOP) through changes in the exchange rate.

(vi) What is GDP deflator?

Ans: The GDP deflator is a measure of price inflation that reflects the change in the prices of all goods and services included in GDP. 

2. Answer any five of the following questions:

(i) Differentiate between capital expenditure and revenue expenditure. 

Ans: Differentiate between capital expenditure and revenue expenditure are:

(ii)  What are the components of high-powered money?

Ans: The components of high-powered money are:

(a) Currency held by the public.

(b) Cash reserves with the banks.

(iii) What are the transactions that are included in the capital account of balance of payments ?

Ans: The capital account includes transactions such as foreign direct investment (FDI), foreign portfolio investment (FPI), loans and borrowings, and capital transfers.

(iv) Define personal income and personal disposable income.

Ans: Personal income refers to the total earnings of an individual from various sources such as wages, investment ventures, and other sources of income. It encompasses all the products and money received by an individual. It represents the income available to individuals for consumption or saving.

Disposable income is the amount of money that an individual or household has to spend or save after federal, state, and local taxes and other mandatory charges are deducted. Disposable income is a key indicator of an individual’s or household’s economic well-being and purchasing power.

(v) As a result of increase in investment by Rs. 125 crores, national income increases by 500 crores. Calculate the value of the multiplier.

Ans: The multiplier can be calculated using the formula:

Multiplier = Change in National Income​/ Change in Investment

Change in National Income = Rs. 500 crores

Change in Investment = Rs. 125 crores

Multiplier = 500/125 = 4

∴ The value of the multiplier is 4.

(vi) Distinguish between stock and flow. 

Ans: Distinguish between stock and flow are: 

(vii) Write any two implications of revenue deficit. 

Ans: (a) Increased Government Debt: A revenue deficit indicates that the government’s expenditure on non-capital items exceeds its revenue, leading to an increased reliance on borrowing to meet the gap.

(b) Inflationary Pressure: If the government uses borrowed funds to finance non-productive expenditure, it can lead to inflationary pressures in the economy.

3. Answer any two of the following questions:

(i) Write any three limitations of barter system.

Ans: There are  three limitations of barter system:

(a) Lack of double coincidence of wants: Lack of double coincidence exists in barter exchange. It refers to the situation where the mutual wants of the buyer and seller are less likely to be fulfilled simultaneously. both parties must have goods or services that the other desires, which makes transactions difficult and time-consuming.

(b) Lack of a common unit of value: In the barter system, all commodities are not of equal value and there is no common measure (unit) of value of goods and services, in which exchange ratios can be expressed.

(c) Difficulty in Storing Wealth: The barter system of exchange faced the problem of difficulty in storing wealth because in barter system the goods were exchanged for goods and the goods are perishable in nature so they can’t be stored as wealth for long. Perishable goods cannot be stored for long periods, and bulky goods are inconvenient to transport or stockpile as wealth.

(ii) What is balance of payments deficit? Write two causes of balance of payments deficit.

Ans: A balance of payments deficit occurs when a country’s total payments to foreign nations exceed its total receipts, indicating more money leaving the economy than entering over a specific period. It must take from other nations to pay for their imports. 

Two causes of a balance of payments deficit are:

(a) Two causes of a balance of payments deficit are: When a country imports more goods and services than it exports, it leads to a trade imbalance. High outflow of foreign exchange to meet import demands like technology, machines, and equipment can lead to BoP deficit.

(b) Excessive Foreign Borrowing: The money that a government, an organization, or a household borrows from the government or private lenders of another country.

(iii) Write a short note on: 

Autonomous and Induced Investment.

Ans: Autonomous: Autonomous investment refers to that investment which is independent of the level of income in the economy. It remains constant irrespective of the level of income in the economy. Induced investment refers to that investment which changes as the level of income changes in the economy. For example, government spending on public goods like roads or schools.

Induced Investment: Induced investment is a type of investment that fluctuates based on the level of income or economic activity. It increases when income increases and decreases when income decreases.  Induced investment depends on the level of income or economic activity. It increases with higher profits, demand, or economic growth. For example, businesses expanding production facilities due to rising consumer demand.

(iv) What is a government budget? What are the components of government budget?

Ans:  A budget is a spending plan based on income and expenses. It is a financial plan that outlines the estimated revenues and expenditures of a government for a specific period, typically a fiscal year. It reflects the government’s priorities, allocates resources for public services, and aims to achieve economic stability, growth, and welfare through planned fiscal policies.

The components of a government budget are:

(a) Capital budget: Capital budgeting is a method of estimating the financial viability of a capital investment over the life of the investment. Spending on asset creation like infrastructure, schools, and hospitals.

(b) Revenue budget: The revenue budget is the sum of the government’s revenue receipts and expenditures. Revenue receipts are divided into two categories. Spending on day-to-day operations like salaries, subsidies, and interest payments.

4. Answer any two of the following:

(i) Discuss the motives of demand for money? What is liquidity trap? 

Ans: The demand for money is influenced by various motives:

(a) Transaction Motive: The transaction motive to demand money is for the conduction of day-to-day transactions. Transaction motive can be seen from the perspective of households and business firms. Individuals and businesses demand money for this purpose, ensuring smooth exchange in an economy. The amount of money demanded under this motive depends on income levels and the volume of transactions. Therefore, the transaction motive for the demand for money is to meet the current transactions of business firms and individuals.

(b) Precautionary Motive: The precautionary motive to demand money is the desire of individuals to hold cash with them for unforeseen contingent situations. People keep a certain amount of liquid cash aside to cover these unforeseen needs. This demand is usually higher in uncertain economic environments or for individuals with fluctuating incomes. If an individual has a high income, he/she will store more cash for contingencies. However, if an individual has less income, he/she will store less cash for contingencies. 

(c) Speculative Motive: The speculative motive to demand money is the desire of individuals to hold cash as an alternative to different financial assets such as bonds, etc. It is presumed under speculative motive that individuals can hold money either in the form of cash balances or in the form of bonds. People demand money if they expect that investing in bonds, stocks, or real estate might not be favorable in the short term. This motive becomes significant when individuals predict fluctuations in financial markets, making liquid money more attractive.

A liquidity trap is a situation in which monetary policy becomes ineffective because interest rates are already very low, and people prefer holding cash or liquid assets rather than investing or spending it.

Liquidity trap is an extreme case of the latter situation. When the interest rates are very low, then everyone expect interest rates to go up in future. A liquidity trap is a contradictory situation in which interest rates are very low but savings are high. In other words, consumers and businesses are holding onto their cash even with the incentive of interest rates at or close to 0%. In a liquidity trap, even when the central bank increases the money supply, it does not stimulate economic activity as expected because individuals and businesses are unwilling to borrow or spend. This typically occurs during periods of economic stagnation or recession when confidence in the economy is low. The liquidity trap poses a challenge for policymakers as traditional monetary tools, like lowering interest rates, no longer work effectively. There is a liquidity trap at short term zero percent interest rate. When the interest rate is zero, the public would not want to hold any bond, since money, which also pays zero percent interest, has the advantage of being usable in transactions.

(ii) Briefly discuss the income method of calculating national income. From the following data calculate Gross National Product at market price (GNP_MP). 

Ans: Income method is that method which measures the income of the country as the sum total of factor incomes- compensation of employees, rent, interest, and profit-earned by normal residents of a country during an accounting year. The total income generated by these factors is then adjusted by adding indirect taxes and subtracting subsidies, along with accounting for depreciation (consumption of fixed capital). This method provides an estimate of the total income generated from the production of goods and services within a country’s economy during a specific period. National income can be calculated using three primary methods: the production method, the income method, and the expenditure method. The production method sums the value added at each stage of production. 

Calculation of NDPMP

NDPMP = Mixed income of self-employed + Compensation of employees + Profits + Rent + Interest − Consumption of Fixed Capital. 

NDPMP = 400 + 500 + 350 + 100 + 150 − 120 = 1380 crore.

Add Net Factor Income from Abroad (NFIA)

GNPMP = NDPMP + Net Factor Income from Abroad

GNPMP = 1380 + (−20) = 1360 crore.

(iii) Discuss the functions of commercial bank. 

Ans: The functions of commercial bank are:

(a) Accepting Deposits: The Commercial bank takes deposits in the form of saving, current, and fixed deposits. banks provide a safe place for individuals and businesses to deposit their money. These deposits can be in the form of savings, current, or fixed deposits, and banks offer interest on some of these accounts.

(b) Providing Loans and Advances: One of the primary functions of commercial banks is to lend money to individuals, businesses, and governments. They offer various types of loans, such as personal loans, business loans, mortgages, and overdrafts, helping stimulate economic growth and development. In other words, they create loans out of deposits and deposits out of loans. 

(c) Facilitating Payments and Transfers: Commercial banks provide payment services, such as cheque facilities, electronic transfers, and online banking. These services make it easier for customers to conduct transactions and transfer money between accounts, domestically or internationally.

(d) Cash Credit: Cash credit is a type of short-term loan facility offered by banks to businesses to meet their working capital needs. It allows you to withdraw funds from a pre-approved limit as and when required, and you only pay interest on the amount utilized.

(e) Foreign Exchange Services: Foreign exchange is the mechanism by which the currency of one country gets converted into the currency of another country. Commercial banks also deal with foreign exchange and facilitate the conversion of currencies. This is essential for international trade and investments, enabling businesses to engage in global markets.

(iv) Define aggregate demand and aggregate supply: Complete the following table and determine the equilibrium level of income:

Ans: Aggregate demand: Aggregate demand refers to the total demand for all the final goods and services produced in an economy at a given time. Aggregate demand is a macroeconomic term that describes all the products and services purchased at a certain price level during a specific time. It is the sum of consumption (C), investment (I), government spending (G), and net exports (NX). AD shows the relationship between the overall price level and the total output demanded. 

Aggregate supply: Aggregate supply is the total amount of goods and services that producers are willing to sell to consumers. The higher the price level, the greater the incentive of businesses to produce more of their goods for the market.  It represents the economy’s production capacity and reflects the relationship between the price level and the total output supplied.

The formula for Aggregate Demand (AD) is: AD = C + I

5. Answer any one of the following:

(i) What is fiscal policy? Discuss the impact of changes in government expenditure and changes in taxes on equilibrium income. 

Ans: Fiscal policy is the use of government spending and taxation to influence the economy. It aims to achieve economic objectives like growth, employment, and price stability by adjusting revenue and expenditure levels, thus managing aggregate demand and promoting overall economic stability. 

Changes in Government Expenditure: An increase in government expenditure, such as on infrastructure or public services, directly raises aggregate demand, leading to higher production, employment, and income levels. This generates a multiplier effect, as the initial spending creates additional rounds of consumption and income. Conversely, a decrease in government expenditure reduces aggregate demand, lowering equilibrium income and potentially causing a slowdown in the economy. When the government acquires goods and services for future use, it is classified as government investment. This includes public consumption and public investment, and transfer payments consisting of income transfers. To achieve improvements in the supply-side of the macro-economy, such as spending on education and training to improve labor productivity.  A rise in government spending directly boosts aggregate demand. This leads to higher production, employment, and income levels. The multiplier effect amplifies the initial impact, as increased income leads to more consumption and further economic activity.

Changes in Taxes: A reduction in taxes increases disposable income for households and profits for businesses, encouraging higher consumption and investment, which raises aggregate demand and equilibrium income. On the other hand, higher taxes decrease disposable income and business profitability, reducing consumption, investment, and ultimately equilibrium income. In Budget 2023, under the new tax regime, a tax rebate was introduced on an income less than or equal to Rs. 7 lakhs. It implies that taxpayers who choose the new tax regime don’t have to pay tax if their income doesn’t exceed Rs. 7 lakhs. Hence, it is said that no income tax applies to income up to Rs. 7 lakhs.

(ii) Explain the determination of exchange rate under flexible exchange rate system.

Ans: Flexible rate of exchange is the rate which is determined by the supply-demand forces in the foreign exchange market. Exchange rates are determined by demand and supply in a managed float system, but governments intervene as buyers or sellers of currencies in an effort to influence exchange rates. The demand for foreign exchange arises when individuals, businesses, or governments need to make payments for imports, invest abroad, or pay for foreign services. On the other hand, the supply of foreign exchange comes from foreign entities purchasing domestic goods, investing in the domestic economy, or engaging in tourism. The exchange rate is established at the point where the demand for and supply of a currency are equal, known as the equilibrium exchange rate. This rate fluctuates based on changes in factors like trade balances, capital flows, and economic policies. For instance, a higher demand for a foreign currency due to increased imports or foreign investments causes the domestic currency to depreciate, while an increase in supply through exports or foreign investment inflows leads to appreciation. In this system, currency values are dynamic and adjust automatically to reflect market conditions, making the flexible exchange rate system responsive to economic fundamentals but also prone to volatility. 

(iii) Write short notes on:

(a) Demonetisation.

Ans: Demonetization reduces this liability by removing certain notes from circulation. Therefore, the old currency becomes useless for those who don’t disclose their income. Demonetization will lead to fewer instances of tax avoidance. This certainly is a massive advantage of demonetization. It is implemented to curb black money, reduce corruption, and encourage digital transactions. This usually happens when there is change of any national currency, which involves withdrawal of the existing form or forms of money that is currently being circulated and replacement of those forms with new notes or coins. Rarely, it may happen that a country will entirely replace its old currency with new currency. While demonetisation can bring short-term benefits, such as disrupting the black economy and promoting digital payments, it can also have adverse effects. The immediate impact is often a liquidity shortage, causing economic disruption, especially in sectors reliant on cash. Small businesses and rural populations may face challenges in accessing cash, leading to reduced consumption and economic slowdown. For example, in 2016, India demonetized ₹500 and ₹1,000 notes to tackle unaccounted wealth and promote cashless transactions. 

(b) Fiscal Responsibility and Budget Management Act, 2003

Ans: The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 aims to ensure fiscal discipline in India by reducing the fiscal deficit, eliminating revenue deficit, and promoting transparency in government finances. It is an act of the parliament that sets targets for the Government of India to establish financial discipline, improve the management of public funds, strengthen fiscal prudence, and reduce its fiscal deficits. It mandates limits on government borrowing and debt while ensuring efficient management of public funds to achieve long-term economic stability. The FRBM Act aims to introduce transparency in India’s fiscal management systems. The Act’s long-term objective is for India to achieve fiscal stability and to give the Reserve Bank of India (RBI) flexibility to deal with inflation in India. Under the FRBM Act, the government is required to present a medium-term fiscal policy statement and a rolling target for deficit reduction. The Act also emphasizes improving transparency in government accounting and requires the government to publish fiscal data regularly. Over the years, the Act has been revised to allow for deviations from set targets during extraordinary situations, such as economic crises or natural disasters. In addition to fiscal discipline, the Act also aims at fostering long-term economic growth by maintaining low inflation and avoiding excessive government borrowing,

PART – B

6. Answer any four of the following questions 

(i) What is underdeveloped economy?

Ans: An underdeveloped economy is characterized by low levels of income, widespread poverty, and limited industrial and technological development. Such economies often rely heavily on agriculture and primary sector activities, with inadequate infrastructure, low productivity, and minimal capital investment. They experience high population growth, unemployment, and underemployment, leading to unequal income distribution. 

(ii) In which year World Trade Organisation (WTO) was formed?

Ans: The World Trade Organization (WTO) was established on January 1, 1995. but its trading system is half a century older. Since 1948, the General Agreement on Tariffs and Trade (GATT) had provided the rules for the system. It replaced the General Agreement on Tariffs and Trade (GATT), which had been in existence since 1948. The WTO was formed to promote global trade by establishing rules for international commerce, resolving trade disputes, and ensuring that trade flows as smoothly, predictably, and freely as possible. subsidies, and trade barriers. It plays a crucial role in the global economic system.

(iii) Write the full form of SHG. 

Ans: Self-help Groups (SHGs) are informal associations of people who come together to find ways to improve their living conditions. SHGs are often formed to empower individuals, especially women, in rural and underdeveloped areas by promoting financial inclusion and economic self-sufficiency.

(iv) Write one objective of NITI Aayog. 

Ans: To foster cooperative federalism by providing a common platform to all states to work together towards serving the nation and the people. By formulating strategies and guiding policy decisions, NITI Aayog works to enhance the country’s socio-economic development, reduce poverty, and improve living standards for all sections of society.

(v) Golden revolution was related to–

(a) fish production.

(b) horticulture production.

(c) milk production.

(d) agriculture production.

Ans: (b) horticulture production.

(vi) Define privatisation.

Ans: In economics, privatization is the process of transferring the ownership of a public asset or service to the private sector. The government ceases to be the owner of the entity or business. The process in which a publicly-traded company is taken over by a few people is also called privatization.

7. Answer any five of the following questions:

(i) Mention two non-institutional sources of rural credit. 

Ans: Two non-institutional sources of rural credit are: 

(a) Moneylenders: Individuals who provide loans to rural borrowers at high interest rates, often without formal documentation. Money lending involves advancing small amounts of money at a higher rate of interest.

(b) Landlords: Wealthy landowners who lend money to farmers or agricultural laborers in exchange for high-interest rates or repayment in kind. The word originated in the Middle Ages because a person who owned land then was also its lord who was in charge of the local government.

(ii) Write two long-term goals of Five Year Plans of India. 

Ans: Long-term objectives of Five Year Plans in India are:

(a) A High Growth rate: A high growth rate boosts income levels, generates employment, and enhances access to resources and services, ultimately improving the living standards and quality of life for India’s residents to improve the living standard of the residents of India.

(b) Economic stability for prosperity: Economic prosperity refers to a country’s economic growth, security, and competitiveness. It creates a favorable environment for sustained prosperity and improved living standards for all.

(iii) Mention two types of unemployment prevalent in the agriculture sector of India.

Ans: Two types of unemployment prevalent in the agriculture sector of India are:

(a) Seasonal Unemployment: Seasonal unemployment is temporary unemployment that occurs according to the rise and fall in demand for labor in particular sectors of the economy. Occurs when agricultural workers are jobless during the off-season when farming activities are minimal.

(b) Disguised Unemployment: Disguised unemployment exists when part of the labor force is either left without work or is working in a redundant manner such that worker productivity is essentially zero. Happens when more people are employed in agricultural activities than required, leading to low productivity and surplus labor.

(iv) What is the importance of green revolution in the Indian agriculture? 

Ans: The Green Revolution within India led to an increase in agricultural production, especially in Haryana, Punjab, and Uttar Pradesh. Major milestones in this undertaking were the development of a high-yielding variety of seeds of wheat and rust-resistant strains of wheat. The Green Revolution also boosted rural incomes, stimulated the rural economy, and modernized traditional farming practices with the adoption of scientific methods and mechanization. Furthermore, the surplus agricultural output contributed to economic growth by enabling exports and improving India’s global economic standing. 

(v) Write two positive Economic Growth and Development

Ans: Two positive effects of the LPG (Liberalization, Privatization, and Globalization) policies in the Indian economy are:

(a) Increased Foreign Investment: The LPG reforms attracted significant foreign direct investment (FDI), leading to an inflow of capital, technology, and expertise. This boosted the growth of various sectors, including manufacturing, infrastructure, and services. On one hand, developing countries have encouraged FDI as a means of financing the construction of new infrastructure and the creation of jobs for their local workers.

(b) Economic Growth and Development: The policies stimulated competition, improved productivity, and enhanced efficiency across industries. This led to faster economic growth, a more dynamic market, and greater integration of India into the global economy. On the other hand, economic development means long term economic growth, such as a country having an increased rate of income.

(vi) Write two merits of globalisation.

Ans: Two merits of globalisation are:

(a) Increased Economic Growth: Economic growth is an increase in the production of goods and services in an economy. Globalization promotes international trade, investment, and access to global markets, boosting economic growth, creating job opportunities, and improving standards of living.

(b) Higher quality goods: Higher quality goods refer to products that exhibit superior standards in terms of durability, performance, design, and reliability. Globalization facilitates the availability of such goods by encouraging international trade and competition. High-quality goods are products that possess superior features, durability, and overall performance compared to standard items in the market.

(vii) Mention two objectives of disinvestment. 

Ans: Two objectives of disinvestment are: 

(a) Reduce financial burden: Disinvestment helps the government reduce its financial burden by selling off its stakes in public sector enterprises. Its theories and principles guide policymakers in making decisions related to taxation, public expenditure, debt management, and fiscal policies to achieve the economic and social goals of a nation.

(b) Improve public finances: Public finance is a multidisciplinary field that combines economics, political science, and public administration. By selling shares or assets of state-owned enterprises, the government can raise revenue, improving its fiscal position. This also enhances efficiency by reducing the government’s direct involvement in business activities and allowing the private sector to take over management, leading to better performance and profitability.

8. Answer any two of the following questions:

(i) Write a note on Industrial Policy Resolution, 1956.

Ans: Industrial Policy Resolution of 1956 (IPR 1956) is a resolution adopted by the Indian parliament in April 1956. It was the second comprehensive statement on industrial development of India after the Industrial Policy of 1948. The 1956 policy continued to constitute the basic economic policy for a long time. The policy classified industries into three categories: those reserved for the public sector, those open for private investment, and those subject to state regulation. It emphasized the development of heavy industries, like steel, machinery, and defense, to build a self-sufficient economy. The policy also focused on regional balance, ensuring industrialization in underdeveloped areas. It was central to shaping India’s post-independence industrialization strategy and fostering economic growth.

(ii) Briefly discuss any one serious environmental problem India is facing at present time. 

Ans: Air pollution in India is a serious issue, with the major sources being biomass burning, fuel adulteration, vehicle emission, and traffic congestion. Major cities like Delhi, Mumbai, and Kolkata experience hazardous levels of air pollution, primarily due to vehicle emissions, industrial activities, construction dust, and crop burning in neighboring states. This pollution causes severe health issues such as respiratory diseases, cardiovascular problems, and premature deaths. It also affects the overall quality of life, with schools and offices frequently closing due to hazardous air quality. The government has initiated measures like stricter emissions standards, promoting electric vehicles, and controlling stubble burning, but air pollution remains a major challenge for sustainable development and public health in India. Air pollution is also the main cause of the Asian brown cloud, which has been causing the monsoon season to be delayed.

(iii) Discuss the composition of India’s foreign trade on the eve of independence. 

Ans: On the eve of Independence, India’s economy and planning was in dire straits in foreign commerce. Due to the British-imposed laws, none of India’s products or skills were recognized. As a result, the structure, composition, and amount of the country’s foreign commerce and income are negatively impacted. Key exports included agricultural products like cotton, jute, tea, and spices, as well as minerals like iron ore. India was heavily dependent on imports of manufactured goods, machinery, and capital goods from Britain and other industrialized nations. The colonial trade policy was designed to serve British economic interests, leading to an imbalance in trade, with India’s exports primarily serving as raw materials for British industries. This dependence on foreign goods hindered India’s industrial growth and economic self-sufficiency. 75% of India’s population was dependent on agriculture for their livelihood. The Indian infrastructure before independence was developed by the British with the introduction of railways, water transport ,post and telegraph but the real motive behind them was the development of their colonial interest. More than half of India’s foreign trade was restricted to Britain while the rest was targeted to countries like China, Ceylon (Sri Lanka) and Persia (Iran).

(iv) Explain the role and importance of education in human capital formation.

Ans: Education plays a crucial role in human capital formation by enhancing the skills, knowledge, and abilities of individuals, making them more productive and efficient. It equips people with the tools necessary for innovation, problem-solving, and contributing to economic growth. Well-educated individuals can adapt to new technologies, increase their earning potential, and drive societal progress. An educated society facilitate better development program than an illiterate one. Education improves productivity and prosperity, and also improve standard of living. It provides new aspirations and develops values of life. Education contributes towards the growth of not only of a single person but also towards the growth of society as a whole. We get an opportunity to study in a school which helps us to become a good citizen and enables to earn a good salary in the future which in turn increases the national income and hence helps the economy to develop. Thus education plays a vital role in human capital formation. Education also fosters critical thinking, creativity, and social responsibility, which are essential for the development of a nation’s workforce. In turn, a skilled labor force attracts investments, promotes higher productivity, and accelerates economic development, making education a key driver of human capital formation.

9. Answer any two of the following questions:

(i) Write a comparative note for India, China and Pakistan on the basis of–

(a) Demographic indicators.

Ans: Demographic Indicators: India, China, and Pakistan have large populations, with India and China being the two most populous countries globally. India’s population is approximately 1.4 billion, China’s is around 1.43 billion, and Pakistan’s is over 240 million. India and Pakistan have younger populations, with higher fertility rates compared to China, which has seen a decline due to its one-child policy (recently relaxed). Life expectancy is highest in China (around 77 years), followed by India (around 70 years), and Pakistan (around 67 years).

(b) Human Development Indicators:

Ans: Human development indicators: China leads in Human Development Index (HDI) with better access to healthcare, education, and infrastructure. India ranks lower due to challenges in poverty, healthcare, and education, while Pakistan lags further. China’s economic progress has significantly improved its human development, while India’s rapid growth has not yet equally improved all social sectors. Pakistan faces similar challenges to India, with significant regional disparities.

(ii) Briefly discuss the challenges India is facing in the context of employment. 

Ans: India faces several employment challenges, including a high rate of unemployment, underemployment, and job insecurity. The growth of the labor force outpaces job creation, leading to a mismatch between the skills of workers and available opportunities. Many workers are engaged in the informal sector, lacking job security, benefits, and social protection. Rural areas struggle with limited access to quality employment opportunities, while urban areas face a rising demand for skilled labor. Population density, poverty problems, unemployment, payment deterioration, poor education, and private debt are some of the main challenges. These challenges need to be addressed in order to make the Indian economy stronger. The economy in the sector is dependent on the natural ingredients which are used to create the services and products offered and which at the end are used for consumption. In terms of value added to the products and services, this sector is the best sector. Rural areas struggle with limited access to quality employment, while urban areas face a rising demand for skilled labor. Additionally, women and youth face higher unemployment rates and social barriers to entering the workforce. The need for skill development, job creation, and labor market reforms remains critical for India’s employment challenges.

(iii) What is economic reform? Explain the need for economic reforms in India. 

Ans: Economic reforms refer to deliberate changes in a country’s economic policies and structures with the aim of improving efficiency, fostering growth, and enhancing overall economic well-being. These reforms often focus on liberalizing markets, improving efficiency, reducing government intervention, encouraging private sector participation, and ensuring better resource allocation.

The need for economic reforms in India are:

(a) Fiscal Deficit and Debt: India faced a rising fiscal deficit and external debt, which led to inflation and a weak currency. Fiscal Deficit is the excess of total expenditure over total receipts of the country, which often means that fiscal deficit is equal to borrowings of the state.

(b) Inefficient Public Sector: State-owned enterprises were often inefficient and a drain on government resources, stalling economic growth.

(c) Slow Growth: An economic slowdown is a period of slower economic growth, typically characterised by a decrease in the rate of growth of real gross domestic product (GDP). The economy was growing slowly, and there was a need for higher growth rates to improve living standards and reduce poverty.

(d) Globalization: Economic globalization refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies. As global markets integrated, India needed to open up to foreign trade, investment, and technology to remain competitive. 

(e) Private Sector Growth: The private sector plays a vital role in the economy by creating jobs, providing goods and services, and stimulating economic growth. Economic reforms were needed to encourage private sector participation and entrepreneurship, as public sector-led growth was not sustainable.

(iv) Outline the common developmental successes and failures of India and Pakistan. 

Ans: Common Developmental Successes of India and Pakistan are: 

(a) Agricultural Growth: Both countries achieved significant progress in agriculture through the Green Revolution, increasing food production and reducing dependence on imports. Agriculture is a fundamental part of Pakistan’s economy. Pakistan’s agricultural contribution to Gross Domestic Product GDP is 21% with an annual growth of 2.7%. In India, agriculture plays a vital role in the economy, contributing approximately 18-20% to the country’s Gross Domestic Product (GDP) (as of recent estimates). 

(b) Industrial Development: They have developed diverse industrial bases, contributing to their GDP and creating employment opportunities. It generates employment, promotes specialization and technological progress. Industrialization also improves balance of payments through import substitution and export of manufactured goods.

(c) Human Capital: Both nations have made strides in education and healthcare, improving literacy rates and life expectancy over the decades.It determines the rate of development, economic, technological, and scientific progress. Human capital leads to more innovations in the areas of production and other related activities

Common Developmental Failures of India and Pakistan:

(a) Inequality: Despite growth, both nations face significant income disparities and uneven development across regions and social groups. High levels of inequality of opportunity discourage skills accumulation, choke economic and social mobility, and human development and, consequently, depress economic growth.

(b) Unemployment: Both countries struggle with high unemployment rates, especially among the youth. It negatively impacts the both economies by reducing productivity, hindering economic growth, increasing the fiscal burden on the government, limiting investment and consumption, and exacerbating poverty and income inequality.

(c) Political Instability: Governance issues, corruption, and political challenges have hindered consistent policy implementation.

10. Answer any one of the following: 

(i) What do you understand by agriculture marketing system? Discuss government measures to improve agriculture marketing system in India. 

Ans: Agricultural marketing is a mechanism through which these goods reach different places depending on marketplaces. Agricultural marketing is a process that involves assembling, storage, processing, transportation, packaging, grading and distribution of different agricultural commodities across the country. In India, the agricultural marketing system includes regulated markets, cooperative marketing, contract farming, and direct marketing initiatives.

The India Government has taken various steps to improve agricultural marketing by regulating markets infrastructure development such as building cold storage facilities warehouses roads railways and Co-operative agricultural marketing societies and Minimum support price policy etc. The government of India has implemented several measures to improve the agricultural marketing system. These include the establishment of regulated markets (APMCs) to ensure fair pricing and reduce exploitation by middlemen. Initiatives like e-NAM (National Agriculture Market) promote digital trading, enabling farmers to access wider markets and better prices. Infrastructure schemes such as the Gramin Agricultural Markets (GrAMs) and Rural Godowns Scheme enhance storage and reduce wastage. The PM Kisan Samridhi Kendra aids in providing timely information and inputs. Reforms in contract farming laws and promotion of Farmer Producer Organizations (FPOs) further strengthen farmers’ marketing capabilities and income stability. The policy may include measures such as export subsidies, tariff reductions, quality standards, market access agreements, financial incentives, and trade promotion initiatives to help agricultural producers and exporters access international markets, increase their competitiveness, and expand their export opportunities.

(ii) Analyse the concept of sustainable development. Also discuss the strategies for sustainable development. 

Ans: Sustainable development can be defined as an approach to the economic development of a country without compromising with the quality of the environment for future generations. It integrates economic growth, environmental protection, and social equity. This damage may surpass the advantages of having more quality output of goods and services. It integrates economic growth, environmental protection, and social equity. The concept emphasizes balancing resource use, reducing environmental degradation, and promoting social well-being. Sustainable development encourages practices that foster long-term ecological health, such as renewable energy, sustainable agriculture, and responsible consumption. It also advocates for poverty reduction, social inclusion, and ensuring that the benefits of development are shared equitably. The goal is to create a just, resilient, and sustainable future for all.

Strategies for Sustainable Development:

(a) Renewable Energy Adoption: Renewable energy is energy derived from natural sources that are replenished at a higher rate than they are consumed. Sunlight and wind. Transitioning from fossil fuels to renewable energy sources like solar, wind, and hydropower is crucial to reduce carbon emissions, combat climate change, and ensure energy security for future generations. 

(b) Sustainable Agriculture: Sustainable agriculture, also known as sustainable farming, is defined as producing food and livestock over the long term with minimal negative effects on the environment.Implementing eco-friendly farming practices, such as organic farming, crop rotation, and water conservation, helps maintain soil fertility, reduce pesticide use, and conserve water resources.

(c) Circular Economy: The circular economy is a model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible. Encouraging a circular economy, where resources are reused, recycled, and repurposed, minimizes waste and reduces the demand for raw materials. This approach fosters sustainability by reducing the ecological footprint.

(d) Green Infrastructure: Green infrastructure has been defined as “A strategically planned network of natural and semi-natural areas with other environmental features, designed and managed to deliver a wide range of ecosystem services, while also enhancing biodiversity. Investing in green infrastructure, such as sustainable urban planning, eco-friendly buildings, and efficient waste management, helps reduce environmental impact and improve the quality of life in urban areas.

11. Answer any four of the following questions:

(i) Write a critical note on public debt. 

Ans: Public debt is the total amount borrowed by the Government to finance its development activities. Internal loans comprise more than 90% of the loans taken by the Central Government. Public debt management is a core part of fiscal policy for any government, and these critical decisions involve large-scale borrowing, risk management, and transparency. Of the core principles guiding effective debt management, some revolve around it to sustain fiscal sustainability and guarantee prudent financial stewardship.A Public Debt Management Authority is a special government authority, entity, or organization designated to handle the issue, servicing, and repayment of public debt. Among other things, its core business is to ensure that the government borrowing is transparent, cost-effective, and sustainable and in line with fiscal policies at the national level in the light of economic goals. 

A key reason why the management of public debt is so important is related to fiscal sustainability. Borrowing by governments is a requirement for financing infrastructure, social programs, and other vital expenditures. On the other hand, high levels of debt or mismanagement may be followed by fiscal imbalance and a rise in borrowing costs, pushing the economy further toward instability. Efficient management of public debt will enable the government to borrow at the least possible cost by facilitating easier access to financial markets on the most favorable terms and conditions. Public debt management is one of the major mitigating factors related to financial risks arising from government borrowing. These include interest rate risk, exchange rate risk for foreign-denominated debt, and refinancing risk.

(ii) Discuss the sources of demand for foreign currency. 

Ans: The demand for foreign currency arises primarily due to the various transactions and requirements in international trade, investment, and other financial activities. Here are the key sources of demand for foreign currency:

(a) Import of Goods and Services: In the case of the Import of goods and services from a foreign country the payment is made by the importer (the person who imports goods and services) in foreign currency; thus, creating a demand for foreign exchange in India’s Foreign Exchange Market.

(b) Tourism: Tourism creates demand for foreign currency when individuals traveling abroad or foreign tourists visiting India require currency to pay for expenses such as accommodation, transportation, and other services.”

(c) Foreign Travel: Foreign currency is demanded by individuals traveling abroad or foreign tourists visiting the country to pay for expenses like accommodation, transportation, and other services.

(d) Investment Abroad: Foreign investment, both direct and portfolio, requires the conversion of domestic currency into foreign currency to purchase assets abroad.

(e) Foreign Debt Repayments: Foreign debt repayment is the process of settling a country’s debt to foreign lenders, such as commercial banks, governments, or international financial institutions. 

(iii) Can GDP be used as an index of a country’s welfare? Justify your answer. 

Ans: If the GDP of a country increases welfare of the people of that country also increase since increase in GDP implies increase in per capita real income i.e. increase in per capita availability of goods and services. While GDP growth may correlate with economic welfare in some cases, it is not a comprehensive measure of overall well-being. GDP is important because it gives information about the size of the economy and how an economy is performing. The growth rate of real GDP is often used as an indicator of the general health of the economy. In broad terms, an increase in real GDP is interpreted as a sign that the economy is doing well. GDP ignores the welfare component as the goods and services produced may or may not add to the welfare to a society. For example, the production of goods, like guns, narcotic drugs, high-end luxurious goods increase the monetary value of production, but they do not add to the welfare of the majority of population. Welfare includes non-economic factors like health, education, environmental quality, and equality, which GDP does not account for. 

(iv) What is human capital? Discuss the sources of human capital. 

Ans: The term human capital refers to the economic value of a worker’s experience and skills. Human capital consists of the knowledge, skills, and health that people invest in and accumulate throughout their lives, enabling them to realize their potential as productive members of society.

(a) Expenditure on Education: The most effective way of enhancing and enlarging the productive workforce in the country is the expenditure done on strengthening the education system. It is considered as the best source of human capital formation. 

(b) Expenditure on Health: Complete physical, mental, and social well-being is a condition of being in good health. The quality of the manpower is negatively impacted by poor health and underemployment because sick workers who lack access to medical facilities are compelled to take time off of work, which reduces productivity. The quality of human capital improves when individuals have access to enough food and good nutrition, as well as adequate health and sanitation services.

(c) Migration: Many individuals migrate from their hometowns to other regions or countries in search of better job opportunities and higher salaries. In India, rural-to-urban migration is often driven by unemployment. Similarly, skilled professionals like doctors and engineers often migrate to other countries for better opportunities. However, migration involves costs such as transportation and higher living expenses in the new location. Despite these costs, the increased income in the new location often justifies the investment in migration as a source of human capital formation.

(v) Briefly write about India as a knowledge economy.

Ans: The country produces a massive number of graduates in science, technology, engineering, and mathematics (STEM) fields each year, fuelling the workforce with a diverse range of skills and expertise. India’s foray into the knowledge economy is epitomized by its prowess in the Information Technology (IT) sector.

Beyond IT, India is also advancing in sectors like biotechnology, pharmaceuticals, and research-driven industries, which play a vital role in the knowledge economy. The government’s push for digital transformation through initiatives like Digital India, as well as the growing use of e-governance, showcases the country’s efforts to modernize its infrastructure and make information more accessible to citizens. India’s increasing emphasis on innovation, research and development, and digital literacy further positions it as a key player in the global knowledge economy.

(vi) Discuss the circular flow of national income in a simple economy. 

Ans: The circular flow means the unending flow of production of goods and services, income, and expenditure in an economy. The circular flow model is an economic model that presents how money, goods, and services move between sectors in an economic system. The business sector produce goods and services and sells them to the household sector. The household sector receives income by selling the services of these factors to the business sector. The business sector consists of producers who produce goods and services and sell them to the household sector of consumers.