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ECONOMICS OLD QUESTION PAPER SOLVED
1. Answer the following questions:
(i) Define involuntary unemployment.
Ans: Involuntary unemployment is a situation in which an individual is willing to work at the current wage rate, but is unable to find a job.
(ii) What is effective demand?
Ans: Effective demand is the amount of goods and services that consumers are willing and able to purchase at a given price level in an economy.
(iii) What do you understand by depreciation of capital?
Ans: Depreciation of capital refers to the decline in the value of an asset over time due to wear and tear, obsolescence, or other factors.
(iv) GNP = GDP_______. (Fill in the blank)
Ans: Net Factor income from abroad.
(v) What is foreign exchange market?
Ans: The foreign exchange market is a financial market where currencies are bought and sold. It is the largest and most liquid financial market in the world, with a daily trading volume of trillions of dollars.
(vi) Which of the following transactions are included in the current account of Balance of Payment?
(a) Import and Export of goods
(b) Import and Export of services
(c) Unilateral transfer
(d) All of the above (Choose the correct option)
Ans: (d) All of the above.
2. Write the differences between GDP at market price and GDP at factor cost.
Ans: Difference between GDP at market price and GDP at factor cost is the net indirect taxes:
Net indirect taxes = Indirect taxes – Subsidies
The parameters of tax and subsidies emerge only when we are considering a three sector economy including households, producers and the government.
Write one similarity and one difference between intermediate goods and capital goods.
Ans: Similarity: One similarity between intermediate goods and capital goods is that they are both used in the production of other goods and services.
Difference: Intermediate goods are typically produced and used within the same year, while capital goods have a longer lifespan and are used over a period of several years. Intermediate goods are used in the production of other goods, while capital goods are used to produce intermediate or final goods.
3. What do you understand by ‘Paradox of Thrift’?
Ans: The Paradox of Thrift, also known as the “Savings Paradox,” is an economic concept that suggests that individual attempts to save more money during times of economic downturn may actually lead to a worsening of the overall economic situation. This is because when individuals save more, they reduce their spending, which can lead to lower demand for goods and services.
This, in turn, can lead to a decrease in production and employment, leading to further economic decline. The Paradox of Thrift suggests that while saving may be beneficial for individuals in the short term, it can have negative consequences for the overall economy in the long run.
What is aggregate supply? Explain.
Ans: Aggregate supply refers to the total amount of goods and services that firms in an economy are willing and able to sell at a given price level in a given time period. It represents the ability of an economy to produce goods and services and is influenced by factors such as the availability of resources, the state of technology, and the efficiency of firms
4. Write two differences between direct tax and indirect tax.
Ans: The two differences between direct tax and indirect tax:
1. Direct taxes are taxes that are imposed directly on individuals or businesses, while indirect taxes are taxes that are imposed on the sale or consumption of goods and services.
2. Direct taxes are typically paid directly to the government by the taxpayer, while indirect taxes are collected by the seller of the goods or services and are passed on to the government.
5. What are the components of high-powered money?
Ans: High Powered Money. High powered money or monetary base refers to the money produced by R.B.I. and Government of India. Alternatively total liability of monetary authority of the country and R.B.I. is called monetary base or high powered money (H). It consists of (i) currency (notes and coins) in the hands of public (C), (ii) Cash reserve of commercial banks (R) and (iii) Other deposits with R.B.I. (OD). Symbolically:
H = C + R + OD
High powered money is different from ordinary money (M1) which consists of (i) currency held by public (C), (ii) Demand deposits in banks (DD), and (iii) Other deposits with R.B.I. (OD), i.e., M1 = C + DD + OD. The only difference between the two (H and M1) pertains to their one component. It is currency in circulation with the public (C) for high powered money but demand deposits in banks (DD) for ordinary money. In high powered money if any person produces a currency note to R.B.I., the latter must pay him value equal to the figure printed on the note.
Define Bank Rate and Cash Reserve Ratio.
Ans: Bank Rate: Bank rate is the interest rate at which the central bank lends funds to commercial banks. It is also known as the discount rate and is used by the central bank as a monetary policy tool to influence the supply of credit and demand for money in the economy.
Cash Reserve Ratio: Cash reserve ratio (CRR) is the percentage of deposits that commercial banks are required to hold in the form of cash or deposits with the central bank. It is used by the central bank as a tool to regulate the availability of credit in the economy and to manage inflation.
6. Write two differences between Balance of Payment and Balance of Trade.
Ans: differences between balance of payment and balance of trade:
|Balance of payment
|Balance of trade
|Balance of Trade is a statement that captures the country’s export and import of goods with the remaining world.
|Balance of Payment is a statement that keeps track of all economic transactions done by the country with the remaining world.
|Transactions related to goods only.
|Transactions related to both goods and services are recorded.
7. Write in brief the ideas of fixed exchange rate and flexible exchange rate.
Ans: Fixed exchange rate is a type of exchange rate regime where a currency’s value is fixed or pegged to the value of another currency, or to a basket of currencies. Under this system, the central bank of a country intervenes in the foreign exchange market to maintain the fixed exchange rate by buying or selling its own currency.
On the other hand, a flexible exchange rate is a type of exchange rate regime where the value of a currency is determined by the forces of supply and demand in the foreign exchange market. Under this system, the central bank does not intervene in the foreign exchange market to maintain the value of the currency, and the currency’s value is allowed to fluctuate freely based on market forces.
8. What is an investment multiplier? If a new investment of Rs. 300 crore increases National Income by Rs. 1200 crore, calculate the value of investment multiplier. In this case, what will be the value of MPC?
Ans: The investment multiplier is a measure of the magnitude of the impact that an increase in investment spending can have on the level of national income. It represents the amount by which an initial increase in investment spending will be multiplied as it creates a series of additional rounds of spending throughout the economy.
If a new investment of Rs. 300 crore increases national income by Rs. 1200 crore, the investment multiplier can be calculated as follows:
Investment multiplier = Change in national income / Change in investment spending
= Rs. 1200 crore / Rs. 300 crore
The value of the marginal propensity to consume (MPC) can be calculated as the change in consumption spending divided by the change in national income. In this case, if the increase in national income of Rs. 1200 crore resulted in an increase in consumption spending of Rs. 800 crore, the value of MPC would be:
MPC = Change in consumption spending / Change in national income
= Rs. 800 crore / Rs. 1200 crore
= 2/3 or approximately 0.67.
Briefly discuss the components of aggregate demand.
Ans: Aggregate demand refers to the total amount of goods and services that households, businesses, and the government sector are willing and able to buy at a given price level in an economy. It is the sum of all demand for goods and services in an economy, and is a key determinant of economic activity and overall economic performance.
The components of aggregate demand are:
Consumption: This refers to the spending on goods and services by households, and is the largest component of aggregate demand.
Investment: This refers to the spending on capital goods by businesses, as well as the spending on residential and non-residential construction.
Government spending: This refers to the spending on goods and services by the government sector.
Net exports: This refers to the difference between the value of exports and the value of imports. Net exports can either add to or subtract from aggregate demand.
9. Write differences between the following concepts: (any two)
(i) Autonomous investment and Induced investment.
Ans: Difference between Autonomous investment and Induced investment:
(ii) Ex-ante consumption and Ex-post consumption.
Ans: Consumption, savings, and investment can be classified into Ex-ante and Ex-post variables. Ex – ante means planned or desired. Ex-post means actual or realized. In national income accounting, the variables such as consumption, investment and savings are considered as ex-post variables. The rate at which consumption, savings, and investment are presented in the ex-post sense.
(iii) Marginal propensity to consume and Marginal propensity to save.
Ans: Marginal Propensity to Consume: The marginal propensity to consume (MPC) is the flip side of MPS. MPC helps to quantify the relationship between income and consumption. MPC is the portion of each extra dollar of a household’s income that is consumed or spent.
Economic theory tends to support that as income increases, so too does spending and consumption. MPC measures that relationship to determine how much spending increases for each dollar of additional income.
Marginal Propensity to Save: The marginal propensity to save (MPS) is the portion of each extra dollar of a household’s income that’s saved. The MPS indicates what the overall household sector does with extra income—specifically, the percent of extra income that is saved.
As saving is a complement of consumption, the MPS reflects key aspects of a household’s activity and its consumption habits.
In other words, each additional dollar is less likely to be spent as an individual becomes wealthier. Studying MPS helps economists determine how wage growth might influence savings.
(iv) Marginal propensity to consume and Average propensity to consume.
Ans: Marginal Propensity to consume refers to the percentage change in consumption for every one rupee of change in the income. It is the ratio between the change in income and corresponding change in consumption.
APC refers to the Average Propensity to Consume which defines the amount of consumption in every 1 rupee of income for all level of income. It is the between the income and it corresponding consumption.
10. Discuss four main functions of the Central Bank.
Ans: Four main functions of the Central Bank:
Monetary policy: The central bank is responsible for implementing and managing the country’s monetary policy, which includes setting interest rates and controlling the money supply in order to achieve economic goals such as low inflation and stable growth.
Financial stability: The central bank plays a critical role in maintaining financial stability by regulating and supervising the financial system, including banks and other financial institutions. This helps to reduce the risk of financial crises and ensure that the financial system is able to support economic growth.
Payment and settlement systems: The central bank is responsible for overseeing and maintaining the payment and settlement systems that enable the transfer of funds between banks and other financial institutions. This helps to ensure the smooth functioning of the financial system and the economy as a whole.
Currency issuance: The central bank is responsible for issuing and regulating the supply of the country’s currency. This includes the design and production of paper money and coins, as well as the maintenance of sufficient reserves to meet the demand for currency.
Explain how commercial banks create credit.
Ans: In India, commercial banks create credit through the process of fractional reserve banking. Under this system, commercial banks are required to hold a certain percentage of their deposits in reserve, while the rest can be loaned out to borrowers. When a bank makes a loan, it creates new money by crediting the borrower’s account with the loan amount. This new money enters circulation when the borrower spends it, and the recipient of the funds can deposit it in a bank, which can then lend it out again, creating even more credit.
For example, suppose a commercial bank has deposits of 1000 rupees and is required to hold a reserve ratio of 10%. This means it must hold 100 rupees in reserve and can lend out 900 rupees. If the bank makes a loan of 900 rupees to a borrower, it creates 900 rupees of new money, which is credited to the borrower’s account. If the borrower then spends the money, the recipient of the funds can deposit it in the bank, increasing the bank’s deposits to 1900 rupees. The bank can then lend out a portion of these deposits, creating even more credit and expanding the money supply.
11. Discuss the components of the Government Budget.
Ans: Revenue budget: The revenue budget includes all the revenue that the government expects to receive from various sources, such as taxes, fees, and other non-tax revenue. It also includes the expenditure that the government incurs on various schemes and programs, as well as on the day-to-day running of the government.
Capital budget: The capital budget includes all expenditure on capital assets, such as infrastructure, machinery, and equipment. It also includes any revenue that the government expects to receive from the sale of capital assets.
Deficit: The deficit is the difference between the government’s total expenditure and total revenue. If the expenditure exceeds the revenue, the government runs a deficit, which it finances by borrowing.
Debt: The debt is the total amount that the government owes to its creditors, including domestic and foreign lenders. The government’s debt is a critical component of the budget and is closely monitored to ensure that it remains sustainable.
13. (i) Define sustainable development.
Ans: Sustainable development is defined as the development that meets the present needs without compromising the ability of future generations to meet their own needs. The term sustainability is often referred to as “sustainable development”.
(ii) During British rule, decay of Indian handicrafts was caused by-
(a) Discriminatory tariff policy of the British Government
(b) Competition from machine-made products
(c) Change in patterns of demand
(d) All of the above. (Choose the correct option)
Ans: (d) All of the above.
(iii) In which year the NITI Aayog was formed?
Ans: 1 January 2015.
(iv) What is the difference between Labour Force’ and ‘Work Force’?
Ans: Difference between Labour force and Workforce:
|It refers to the number of persons actually working or willing to work. It is not related to wage rate.
|It refers to the number of persons actually working and does not account for those who are willing to work.
(v) Mention one similarity of the economic policies adopted by India and Pakistan.
Ans: India and Pakistan adopted similar strategies, such as creating a large public sector.
(vi) The ‘Great Leap Forward’ campaign in China focused on (Great Leap Forward)
(b) Widespread industrialisation
(c) Development of services sector:
(d) Economic reform (Choose the correct option)
Ans: (b) Widespread industrialisation.
14. Mention two major industrial sector reforms in the Indian economy under the policy of liberalisation.
Ans: Two major industrial sector reforms in the Indian economy under the policy of liberalisation.
1. The manufacturing industry.
2. Exchange rate for international trade.
Write about two positive effects of LPG policies in the Indian economy.
Ans: The impact of LPG policies on the government are:
1. It increases the per capita income due to increased job creation.
2. The government can spend the revenues earned in a more productive way.
15. Write two merits of GST.
Ans: 1. Eliminates multiple layers of taxation: The primary benefit of GST Registration is that it integrates different tax structures like Sales Tax, Central Excise, Special Additional Duty of Customs, Service Tax, Luxury Tax, etc.
2. Removes cascading effects: Under the current GST regime, the final tax is to be paid by the consumer over purchase of goods and services.
What is demonetisation? Mention one positive effect of demonetisation in the Indian economy.
Ans: Demonetisation is a process of removing the rights of certain currencies to be used as legal tender.
Positive effect of demonetisation:
One had various positive impacts, such as digitalizing transactions, decreased terror activities, etc.
16. What is structural composition of an economy? As an 2021, which sector contributed highest to the GDP of India?
Ans: The contributions made by the agriculture sector, industrial sector, and service sector make up the structural composition of the economy.
It is necessary that the service sector should contribute maximum to the GDP of an economy.
In 2021, almost half of India’s GDP was generated by the services sector.
Write two characteristics of small-scale industries.
Ans: 1. Small scale industries are very much labor intensive, hence there is limited use of technology.
2. Small scale industries are flexible and adaptable to a changing business environment, unlike the large industries.
17. Write two differences between economic infrastructure and social infrastructure.
|Economic infrastructure is a subset of infrastructure that facilitates the production and distribution of goods and services.
|Social infrastructure is a subset of infrastructure that facilitates the quality of life of a community.
|It directly increases productivity and the impact is immediate.
|It indirectly increases productivity and the impact is slow.
Write about two problems faced by the power sector in India.
Ans: Two problems faced by India’s power sector are:
(i) At present, India is able to add only 20000 MW a year. India’s installed capacity to generate electricity is not sufficient to Iead an annual economic growth of 7-8% and even this capacity remains under-utilised due to inefficient operation of plants.
(ii) State Electricity Boards (SEBs), which distribute electricity, incur losses exceeding 2500 billion. due to transmission and distribution losses, wrong pricing of electricity and other inefficiencies.
18. Write any two measures undertaken by the Government of India improve agricultural marketing.
Ans: 1. Co-operative marketing which helps the farmers realise a fair price for their products. It received a major setback due to lack of coverage from farmers.
2. Improving and developing infrastructure facilities like roads, railways, transport, warehousing, cold storages and processing units. This prevented the farmers from selling their produce at low costs because of lack of storage facilities. It will still take longer for infrastructure to develop completely.
What do you understand by diversification of agriculture?
Ans: Agricultural diversification is one of the essential components of economic growth. It is the stage where traditional agriculture is transformed into a dynamic and commercial sector by shifting the traditional agricultural product mix to high standard products, which has a high potential in stimulating production rate.
Here, agricultural diversification is supported by a change in technology or consumer demand, trade or government policy, and by transportation, irrigation, and other developments of infrastructure.
19. What are the Three main approaches undertaken by Government of India to alleviate poverty?
Ans: 1. Growth-oriented approach: This approach is based on an expectation that the effects of economic growth (rapid increase in GDP and per capita income) would spread to all sections of the society and will trickle down to the poorest sections too.
2. Poverty alleviation programmes: This is the second approach that has been initiated from the third five year plan and progressively implemented since then.
3. Minimum Needs programmes : The third approach is to provide minimum basic amenties to the people. India recognised that proviidng basic needs is the way to go to reduce poverty levels in the country.
Write a short note on MGNREGA.
Ans: The National Rural Employment Act (NREGA), later renamed as Mahatma Gandhi Rural Employment Act (MGNREGA), is regarded as the Indian labour law and social security measure that targets to guarantee people of India the ‘right to work.’ MGNREGA was enacted in September 2005.
History and Significance of MGNREGA:
In 1991, the Act was proposed by the then Prime Minister of India P.V. Narasimha Rao. After several sessions, the act was finally accepted in the Parliament and implementation started in 625 districts of India.
Objectives of NREGA:
1. To flourish durable assets like roads, canals, ponds and wells.
2. It is required to provide employment within 5 km of an applicant’s home and to pay minimum wage.
20. Discuss the goals of planning in India.
Ans: 1. Economic Development: This is the main objective of planning in India. Economic Development of India is measured by the increase in Gross Domestic Product (GDP) and Per Capita Income.
2. Increased Levels of Employment: An important aim of economic planning in India is to better utilise the available human resources of the country by increasing the employment levels.
3. Self Sufficiency: India aims to be self-sufficient in major commodities and also increase exports through economic planning. The Indian economy had reached the take-off stage of development during the third five-year plan in 1961-66.
4. Comprehensive and Sustainable Development: Development of all economic sectors such as agriculture, industry, and services is one of the major objectives of economic planning.
5. Reduction in Economic Inequality: Measures to reduce inequality through progressive taxation, employment generation and reservation of jobs has been a central objective of Indian economic planning since independence.
Briefly discuss to positive and two negative impacts of Green Revolution.
Ans: Green revolution is the period of agriculture system over the world in order to get maximum benefits of multiple cropping and advancement in agriculture method.
Positives impacts of Green revolution:
- Increasing production of multiple crops at a time.
- It increased significantly the production, to almost 2.5 times in wheat between 1960 and 2010. GR has been able to save the lives of millions of people and exponentially increase the yield of food crops. It improved the economic lot of farmers, and their standard of living greatly improved. It reduced the import of food grains.
Negatives impacts of green revolution:
- Gradually reduces quality of the crops.
- The revolution increased the use of fertilizers. Generally speaking a fertilizer has the chance to soak into the soil and spread to other areas if it rains. It diminishes soil quality due to increased reliance on synthetic fertilizers rather than natural fertilizer, which allow replenishing of nutrients. The increase in mono cropping has decreased soil quality.
21. Write a comparative note on the demographic indicators for India, China and Pakistan.
Ans: (1) Population size: China is the most populous country in the world with 134 crore population which is 19.4% of the total world population. India is the second most populated country with 121 crore which is about 17% of the total world population. population. The population of Pakistan is very small/ less i.e. about 17 crore which is 2.5% of the total world population and it accounts for roughly one-tenth of China or India.
Out of every six persons living in the world, one is an Indian and another Chinese.
(2) Growth rate of population: In Spite of being the most populous country in the world, China’s population growth rate (0.47%) is lower than India (1.7%) and Pakistan (2.5%). The reason behind the lowest growth rate of population is the “One Child Policy” introduced by China in 1979. It has successfully reduced the rate of population growth from 1.33 % in 1979 to 0.64% in 2005 and further 0.47% in the recent past.
(3) Density of population: Density refers to the number of persons living per square kilometre of land area. Density of population in China is lowest (146) as compared to India (441) and Pakistan (245)
Reasons behind lowest population density:-
(a) China is the third-largest country and also largest among three with 95, 61,000 square kilometres area, followed by India with land area 32, 68,090 square kilometres and Pakistan is the smallest country with land area 8, 03,944 sq km.
(b) Lowest growth rate of population.
(4) Sex ratio: Due to the preference of son, the sex ratio is low and biased against females in all three countries. The sex ratio is the lowest in China with 926 females per 1000 males and corresponding figures in India and Pakistan, are 940 and 943 females per male. It points to social backwardness and female foeticide is the principal cause of the low sex ratio.
(5) Fertility rate: It is defined as several children borne by a woman in the reproductive age of 15-45 years on average. The fertility rate in Pakistan is highest with 5.1 in comparison to 3 in India and 1.8 in China. Due to introduction.
(i) Write the reasons for rapid economic development in China.
Ans: 1. Education: In terms of education, the Chinese people have had a myopic viewpoint. China boasts the world’s largest educational system. Education is state-run, with limited private sector involvement in the educational system, and it is becoming increasingly decentralized.
2. Health services: Despite a number of setbacks, China has achieved significant progress in the development of its public health system during the last seven decades.
3. Supply of labor: With a constant stream of rural-urban migrants in pursuit of jobs, China has a sufficient supply of employees. This is owing to agricultural mechanization, which has resulted in rural unemployment and underemployment, as well as an increase in industrial labor in metropolitan regions.
4. Workplace participation by women: Female engagement in the manufacturing industry is greater than average in China’s workforce. Gender divides in the workplace are mostly irrelevant in Chinese economic progress, according to Western cultural studies.
(ii) Write two reasons for slow economic growth in Pakistan.
Ans: (i) Agricultural growth and food supply situation were based not on institutionlised process of technical change but on good harvest.
When there was a good harvest, the economy was in good condition. When it was not, the economic indicators showed stagnation on negative trends.
(ii) In Pakistan most foreign exchanges earnings come from remittances from Pakistan workers working in the middle east and the exports of highly valatile agricultural products : there was also growing dependence on foreign loans on the one hand and increasing difficulty in paying back the loans on the other.
22. Write about different types of unemployment.
Ans: Different types of unemployment are:
1. Disguised unemployment: In this type people are employed, but not adding to the productivity.
2. Seasonal unemployment: People are not able to find jobs during some months of the year.
3. Educated unemployment: Youths with matriculation, graduation, and post-graduation degrees are not able to find suitable jobs
23. Is economic growth, a cause of environmental degradation? Justify your answer.
Ans: The environmental impact of economic growth includes the increased consumption of non-renewable resources, higher levels of pollution, global warming and the potential loss of environmental habitats.
However, not all forms of economic growth cause damage to the environment. With rising real incomes, individuals have a greater ability to devote resources to protecting the environment and mitigate the harmful effects of pollution. Also, economic growth caused by improved technology can enable higher output with less pollution.
(i) Write two causes of global warming.
Ans: Two causes of global warming are:
1. Usage of vehicles: Cars and trucks emit gases like Carbon dioxide and nitrogen oxides.
2. Deforestation: When trees are cut, the stored carbon is released into the atmosphere as Carbon dioxide which leads to global warming
(ii) Suggest two measures for attaining sustainable development in India.
Ans: (i) Controlling overuses and creating an awareness to provide sustainable development.
(ii) Increased use of renewable resources.
24. What is organic farming? Discuss its merits and demerits.
Ans: Organic farming uses agricultural production systems reliant on biological pest control, green manure or compost and crop rotation to produce crops, poultry and livestock. Organic farming forbids the use of chemical like fertilizers,pesticides, antibiotics and growth hormonesin crops, meat and other food production.
1. Organic farming avoids use of expensive agrochemicals to produce plants with better resistance to diseases and pests.
2. Organically grown food attributes to more durability, drought tolerance, higher resistance to pest and diseases.
1. Organic Food is more expensive due to higher production costs, lesser availability of land and lack of workforce in comparison to conventional farming.
2. Labour intensive process of organic farming products cannot support the survival needs of the existing population.
What is Human Capital? Discuss the sources of human capital formation.
Ans: Human capital refers to an individual’s qualities deemed valuable to the manufacturing process. It includes employee knowledge, skills, expertise, health, and education. Social scientists use this term while referring to the monetary worth of a worker’s knowledge and abilities.
Sources of human capital formation are briefly explained below:
(a) Expenditure on education: Labour skill of an educated person is far more than that of an unskilled person. Individuals invest in education to increase their future income and raise the standard of living.
(b) Expenditure on Health: It is important to build and maintain a productive labour force and to improve the quality of life of people in society.
(c) Expenditure on Information: It is necessary to make decisions regarding investments in human capital as well as for efficient utilisation of the acquired human capital stock.
(d) On-the-job training: It increases the skill and efficiency of the workers and leads to an increase in production and productivity.
(e) Migration: It is a source of human capital formation as enhanced earnings in the migrated place is more than the increase in costs of migration.