CBSE Class 12 Economics Question Paper 2017 (Delhi) with Solutions

Students can use CBSE Previous Year Question Papers Class 12 Economics with Solutions and CBSE Class 12 Economics Question Paper 2017 (Delhi) to familiarize themselves with the exam format and marking scheme.

CBSE Class 12 Economics Question Paper 2017 (Delhi) with Solutions

Time Allowed: 3 hours
Maximum Marks: 80

General Instructions:

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

* Modified as per Latest CBSE Curriculum.

Section A: Introductory Macroeconomics

Question 1.
The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is called: (Choose the correct alternative) [1]
(a) Statutory liquidity ratio
(b) Deposit ratio
(c) Cash reserve ratio
(d) Legal reserve ratio
Answer:
(c) Cash reserve ratio

Question 2.
Aggregate demand can be increased by: (Choose the correct alternative) [1]
(a) increasing bank rate
(b) selling government securities by Reserve Bank of India
(c) increasing cash reserve ratio
(d) none of the above
Answer:
(d) none of the above

Question 3.
Give the meaning of involuntary unemployment. [1]
Answer:
Involuntary unemployment refers to an unemployment in which all those people who are willing and able to work at the existing wage rate, do not get work.

Question 4.
What is primary deficit? [1]
Answer:
Primary Deficit refers to the difference between fiscal deficit of the current year and interest payments on the previous borrowings.

Question 5.
Can the value of MPC and MPS be negative? Why? [1]
Or
In an economy, the autonomous investment is 60 and MPC is 0.8. If the equilibrium level of income is ₹400, then the autonomous consumption is 30. True or false. Justify your answer. Explain ‘banker to the government’ function of the Central Bank. [4]
Answer:
Both consumption and savings have positive or direct relationships with income and both are functions of income. Therefore, MPS and MPC can never be negative.

Question 6.
Value of output – _____ = value added. (Fill up the blank with a correct alternative). [1]
(a) Final consumption
(b) Indirect taxes
(c) Change in stock
(d) Intermediate consumption
Answer:
(d) Intermediate consumption

Question 7.
Money supply includes _____. (Choose the correct alternative) [1]
(a) all deposits in banks
(b) only demand deposits in banks
(c) only time deposits in banks
(d) currency with the banks
Answer:
(b) only demand deposits in banks

Question 8.
Define Appreciation of currency. [1]
Or
What do you understand by Revaluation of currency.
Answer:
Appreciation of currency means rise in the price of domestic currency in terms of foreign currency (Fall in exchange rate). For example, from 1$ = ₹70 to 1$ = ₹65.
Or
Revaluation refers to increase in the price of domestic currency by the government and it happens under fixed exchange rate system.

Question 9.
Foreign exchange transactions which are independent of other transactions in the balance of payments account are called: (Choose the correct alternative) [1]
(a) Current transactions
(b) Capital transactions
(c) Autonomous transactions
(d) Accommodating transactions
Answer:
(c) Autonomous transactions

Question 10.
Why are taxes received by the government not capital receipts? [1]
Answer:
Taxes are not considered capital receipts because these neither create a liability nor do they lead to a reduction in the assets of the government.

Question 11.
Distinguish between final goods and intermediate goods. Give an example of each. [3]
Answer:
Difference between Intermediate goods and Final goods

Basis	Intermediate goods	Final goods
Meaning	Intermediate goods refer to those goods which are used either for resale or for further production in the same year.	Final goods refer to those goods which are used either for consumption or for investment.
Nature	They are not included in both national and domestic income.	They are included in both national income and domestic income.
Demand	They have a derived demand as their demand depends on the demand for final goods.	They have a direct demand as they satisfy the wants directly.
Example	Milk purchased by households for consumption.	Milk used in dairy shops for resale.

Question 12.
Is equilibrium level of income and output always associated with full employment? Explain. [3]
Or
In an economy, the autonomous investment is 60 and MPC is 0.8. If the equilibrium level of income is ₹400, then the autonomous consumption is 30. True or false. Justify your answer.
Answer:
The economy will be in equilibrium when AD = AS. This equality can be achieved at the full employment level of income. However, the equilibrium level of income is not always associated with full employment.

• If aggregate demand is less than aggregate supply (AD < AS) at the full employment level of income, then the economy is in under-employment equilibrium situation, leading to a situation of deficient demand.
• On the other hand, if aggregate demand is greater than aggregate supply at (AD > AS) the full employment level, then situation of excess demand is created.

Or

We have, MPC = 0.8, Y = ₹400, I = 60
At equilibrium level, Y = C + I ……….where [C = + bY; Here b = MPC
∴ Y = \(\overline{\mathrm{C}}\) + bY + I
⇒ 400 = \(\overline{\mathrm{C}}\) + 0.8(400) + 60
⇒ 400 = \(\overline{\mathrm{C}}\) + 320 + 60
∴ \(\overline{\mathrm{C}}\) = 20
Hence, Autonomous Consumption, \(\overline{\mathrm{C}}\) = 20
∴ The given statement is false as Autonomous Consumption, \(\overline{\mathrm{C}}\) is 20 not 30.

Question 13.
Explain ‘banker to the government’ function of the Central Bank’.
Or
Explain the role of reverse repo rate in controlling money supply.
Answer:
The Central Bank acts as a banker, agent and a financial advisor to the government.

As a banker, it carries out all banking business of the government.

1. It maintains a current account for keeping their cash balances.
2. It accepts receipts and makes payments for the government and carries out exchange, remittance and other banking operations.
3. It also gives loans and advances to the government for temporary periods.
   • As an agent, the Central Bank also has the responsibility of managing the public debt.
   • As a financial advisor, the Central Bank advises the government from time to time on economic, financial and monetary matters.

Or

Reverse repo rate is the rate at which RBI borrows money from other commercial banks. RBI makes use of this tool when it feels that there is excess money supply in the banking system. An increase in the reserve repo rate implies that the banks will get a higher rate of interest from the RBI on their lendings. This induces the banks to transfer more funds and lend more to the RBI due to attractive interest rates, thereby reducing money supply in the economy.

Question 14.
Explain how government budget can be used to influence distribution of income. [4]
Answer:
Government budget influences distribution of income in the following ways:

1. Government aims to reduce inequalities of income and wealth through its budgetary policies.
2. It aims to influence the distribution of income by imposing taxes on the rich and spending more on the welfare of the poor.
3. It proposes to reduce income of the rich and raise standard of living of the poor, thus reducing inequalities in the distribution of income.

Question 15.
Why does the demand for foreign currency fall and supply rise when its price rises? Explain. [4]
Answer:
Demand for foreign currency falls when its price rises due to the following reasons:

1. When price of foreign exchange rises, imports from that country become costly. As a result, imports fall leading to fall in demand for foreign currency.
2. When foreign currency becomes costlier in terms of domestic currency, it discourages tourism to foreign countries, thereby reducing demand for the foreign currency.

On the other hand, there is a direct relationship between the price of foreign currency and its supply. It happens due to the following reasons:

1. A rise in foreign exchange rate makes domestic goods cheaper to foreigners leading to an increase in our exports. This brings a greater supply of foreign exchange.
2. Again, a rise in foreign exchange rate renders home country’s currency cheaper which attracts foreigners and promotes tourism to home country, thereby raising supply of foreign exchange.

Question 16.
(a) Explain ‘non-monetary exchanges’ as a limitation of using gross domestic product as an index of welfare of a country. [3]
(b) Calculate gross fixed capital formation from the following data: [3]

Or

(a) How will you treat the following while estimating domestic product of a country? Give reasons for your answer:
(i) Profits earned by branches of country’s bank in other countries.
(ii) Gifts given by an employer to his employees on independence day.
(iii) Purchase of goods by foreign tourists.
(b) If real GDP is ₹200 and price index (with base = 100) is 110. Calculate Nominal GDP.
Answer:
(a) GDP does not take into account those transactions that are not expressed in monetary terms. This is a major limitation of GDP as an index of welfare of a country as there are many transactions which although are non-monetary but add to the growth and development of the nation. Many non-monetary activities in the economy done out of love and affection are not evaluated in monetary terms due to lack of authentic data. Thus, non-market transactions like services of housewives, services of social workers etc., which increase economic welfare are not included in measurement of GDP. Therefore, GDP underestimates welfare and may not reflect the well-being of the country.

(b) GDP _MP = (i) + (ii) + Gross Fixed Capital Formation + (vii) – (vi) + (iii)
2,500 = 1,000 + 500 + Gross Fixed Capital Formation + 200 – 300 – 50
∴ Gross Fixed Capital Formation = ₹1,150 crores

Or

(a)

1. Not included while estimating domestic product because profits are being earned by the bank outside our domestic territory.
2. Gifts given by employer to his employees are transfers or unilateral payments and thus will not be included while estimating domestic product of a country.
3. Goods purchased by foreign tourists have been produced within the domestic territory and thus will be considered as exports. They can be included while estimating domestic product through the Expenditure Method.

(b)

Question 17.
Assuming that increase in investment is ₹1000 crore and marginal propensity to consume is 0.9, explain the working of multiplier. [6]
Answer:
The working of the multiplier is based on the fact that one person’s expenditure is another person’s income. Let us understand this with the help of an example.

1. Suppose an additional investment of ₹1,000 crores is made to construct a flyover. This extra investment will generate an extra income of ₹1,000 crores in the first round.
2. Assuming MPC to be 0.9, the recipients of this additional income will spend 90% of ₹1,000 crores, i.e., ₹900 crores as consumption expenditure and the remaining amount will be saved. It will increase the income by ₹900 crores in the same round.
3. In the second round, 90% of the additional income of f900 crores, i.e., ₹810 crores will be spent on consumption and the remaining amount will be saved.
4. This multiplier process will go on, with the consumption expenditure in every round being 0.9 times of the additional income received from the previous round.

Thus an initial investment of ₹1,000 crores leads to a total increase of in income of ₹10,000 crores (approx.). As a result, Multiplier = \(\frac{\Delta \mathrm{Y}}{\Delta \mathrm{I}}\) = \(\frac{10,000}{1,000}\) = 10.
Also, Multiplier = \(\frac{1}{1-\mathrm{MPC}}\) = \(\frac{1}{1-0.9}\) = \(\frac{1}{0.1}\) = 10

Section B: Indian Economic Development

Question 18.
In which of the following time period did the second stage of demographic transition in India begin? [1]
(a) After 1921
(b) Before 1921
(c) From 1921
(d) None of the above
Answer:
The working of the multiplier is based on the fact that one person’s expenditure is another person’s income. Let us understand this with the help of an example.

1. Suppose an additional investment of ₹1,000 crores is made to construct a flyover. This extra investment will generate an extra income of ₹1,000 crores in the first round.
2. Assuming MPC to be 0.9, the recipients of this additional income will spend 90% of ₹1,000 crores, i.e., ₹900 crores as consumption expenditure and the remaining amount will be saved. It will increase the income by ₹900 crores in the same round.
3. In the second round, 90% of the additional income of ₹900 crores, i.e., ₹810 crores will be spent on consumption and the remaining amount will be saved.
4. This multiplier process will go on, with the consumption expenditure in every round being 0.9 times of the additional income received from the previous round.

Thus an initial investment of ₹1,000 crores leads to a total increase of in income of ₹10,000 crores (approx.). As a result, Multiplier = \(\frac{\Delta Y}{\Delta \mathrm{I}}\) = \(\frac{10,000}{1000}\) = 10.
Also, Multiplier = \(\frac{1}{1-\mathrm{MPC}}\) = \(\frac{10,000}{1,000}\) = 10

Section B : Indian Economic Development

Question 18.
In which of the following time period did the second stage of demographic trasition in India begin?
(a) After 1921
(b) Before 1921
(c) From 1921
(d) None of the above
Answer:
(a) After 1921

Question 19.
The Industrial Policy Resolution, 1956 classified industries into [1]
(a) 2
(b) 5
(c) 3
(d) 4
Answer:
(b) 5

Question 20.
Name any two navratna companies in India. [1]
Answer:
Bharat Petroleum Corporation Limited (BPCL) and Oil and Natural Gas Corporation Limited (ONGC).

Question 21.
State the major function performed by NABARD. [1]
Answer:
NABARD’s major function is to coordinate the activities of all institutions providing rural credit.

Question 22.
What are agrarian reforms? [1]
Answer:
Various policies and programmes initiated by the government in agriculture are called agrarian reforms.

Question 23.
In which year China discontinued its one child policy? [1]
(a) 2013
(b) 2016
(c) 1980
(d) 1990
Answer:
(b) 2016

Question 24.
Define environment. [1]
Or
What is global warming?
Answer:
Environment refers to all the surroundings that have an impact on human beings. It is the sum total of the surroundings and resources that influence human existence and its quality

Or

Global warming refers to the gradual increase in the temperature of the earth’s atmosphere, caused by the increase of certain gases. In simple words, global warming occurs when carbon dioxide (CO ₂ ) and other air pollutants and greenhouse gases collect in the atmosphere and absorb sunlight and solar radiation that have bounded off the earth’s surface.

Question 25.
Which of the following countries is not part of BRICS? [1]
(a) Brazil
(b) Russia
(c) China
(d) Switzerland
Answer:
(d) Switzerland

Question 26.
What do you mean by quantitative restrictions? [1]
Answer:
Quantitative restrictions refer to quotas that specify the quantity of goods which can be imported.

Question 27.
What is marketable surplus? [1]
Answer:
Marketable surplus is that portion of the agricultural produce which is sold by the farmers in the market after meeting their own requirements.

Question 28.
How is low level of capital formation responsible for the existing problem of unemployment in the country? [3]
Answer:
Investment in the economy is very essential for increasing output and generating more employment opportunities. Low level of income in the economy results in low level of savings which adversely affects the level of investment and capital formation. This vicious circle of low income, low savings, low investment, low capital formation, low output and again low income results in lack of job opportunities which, very obviously results in unemployment in the economy.

Question 29.
How do thermal and hydro power plants adversely impact the environment? [3]
Or
How can Mini-Hydel plants sustain the environment?
Answer:
Thermal power plants emit large amounts of carbon dioxide in the environment and cause air and water pollution and land and environmental degradation. Hydroelectric projects inundate forests and interfere with the natural flow of water in the catchment areas and river basins.
Or
Mini Hydel plants can be set up to use the energy of streams which perennially flow from hilly areas. The energy of such streams can be used to move small turbines. Electricity so generated can be used locally. Mini Hydel plants are environment friendly as they do not change the land use pattern. Moreover, it does not require the use of large scale transmission towers and cables and so transmission losses are avoided.

Question 30.
Explain the Mahatma Gandhi National Rural Employment Guarantee Scheme. How successful has this scheme been so far? [4]
Answer:
MGNREGS was launched on February 2 ^nd , 2006 as a flagship programme of the government which promoted inclusive growth. Initially, this program was implemented in 200 districts but it has now been launched throughout the country with effect from 1 ^st April, 2008. Under this scheme, 100 days, which has now been raised to 150 days, of guaranteed wage employment is provided in every financial year to every poor household living in rural areas.
However, this scheme suffers from the following drawbacks:

1. MGNREGS is only a temporary measure and not a permanent solution to rural unemployment.
2. In rural areas, unemployment is a long term problem which cannot be removed by providing 100 days of employment.
3. Under this scheme, work is guaranteed for only one member of the household which is not sufficient to tackle the problem of poverty.
4. There are widespread complaints of corruption while utilising the funds.

Question 31.
(a) Discuss the dual pricing policy in the reform process of China. [2]
(b) Why has China forged ahead in the growth process even when India, China and Pakistan started with the strategy of economic development around the same time? [2]
Answer:
(a) China’s reform process involved dual pricing which meant fixing price in two ways:

1. Farmers and industrial units are required to buy and sell fixed quantities of inputs and outputs on the basis of prices fixed by the government.
2. For other transactions, the inputs and outputs were purchased and sold at market prices.

(b) The are various factors which can be held responsible for the success story of China. Some of which are:

1. Availability of cheap labour which gave China a comparative cost advantage.
2. The Great Leap Forward Campaign launched in 1958.
3. Focus on export oriented production.
4. Shift from a centrally planned economy to a market economy.

Question 32.
Why is casualisation of workforce increasing in India? State any four reasons. [4]
Or
What type of unemployment exists in rural areas? What are the main reasons responsible for it?
Answer:
Casualisation of workforce is increasing due to:

1. Slow growth of employment in the organised sector.
2. Retrenchment by existing industrial units who want to reduce their cost of production.
3. Privatization and disinvestment in public sector.
4. Small and marginal farmers shifting to casual work as an alternate means of earning their livelihood.

Or

Disguised and seasonal unemployment are the two types of unemployment which exist in rural areas. Disguised unemployment occurs when more people are engaged in a job than required. Whereas seasonal unemployment occurs when people engaged in seasonal activities like agriculture become unemployed during off season.
The main factors responsible for rural unemployment of this type are:

1. Lack of alternate employment opportunities compels people to continue working on family farms.
2. Workers engaged in other seasonal activities like sugarcane crushing etc. are engaged in work only for a few months in a year.
3. Lack of irrigation facilities have prevented multiple cropping because of which a farmer who grows one crop in a year usually remains unemployed for a few months.

Question 33.
Critically evaluate the policy of privatisation as part of the New Economic Policy. [6]
Answer:
The purpose of privatisation is to improve financial discipline and facilitate modernisation by encouraging private sector to invest and participate in economic development with their administrative efficiency.
Privatisation helped our economy in the following ways:

1. Improvement in the efficiency of management. It enabled the entrepreneurs to make % quick decisions without interference by the government and unnecessary formalities.
2. Financial discipline. After privatisation, financial discipline was maintained by regular supply of funds. There were undue delays in sanctioning of funds prior to 1991 due to complexities in the administrative set-up.
3. Reduction in deficit. Privatisation reduced the financial burden of the government by reducing its non-development expenditure. In fact, it supported the government by earning sufficient profits and paying taxes on that.
4. Competitiveness. Privatisation encouraged competitiveness in domestic as well as international markets.
5. Increase in foreign direct investment. Privatisation provided strong impetus to the inflow of FDI as financial discipline improved in the country due to the capital invested by the private sector.
6. Diversification of production. Private sector has functioned efficiently to satisfy the unlimited wants of consumers in order to create a market for its products. This has resulted in diversification and expansion of production and has also promoted consumer sovereignty.

However, there have been certain drawbacks related to this policy of privatisation:

1. Neglect of social interest. Private sector functions mainly with the objective of profit maximisation which may be done at the cost of social welfare of people.
2. Monopolistic control. Privatisation may lead to private monopolies and thus lead to concentration of power in a few hands.
3. Hindrance in achieving the objective of full employment. Private sector is guided by profit motive and in order to cut down cost, it may opt for retrenchment and consequent unemployment.
4. Less scope for development of infrastructure. Private sector does not take interest in the development of economic and social infrastructure of the economy as the rate of return on such investments is quite low.

Question 34.
What is horticulture? How has it become a means of improving livelihood for the unprivileged classes? What are the challenges being faced in this sector? [6]
Or
What measures have been initiated by the government to improve the market system?
Answer:
The study or practice of growing flowers, fruits and vegetables is called horticulture. It is the cultivation, processing and sale of fruits, nuts, vegetables, ornamental, medicinal and aromatic plants, herbs as well as many additional services. Presently, India is the second largest producer of fruits and vegetables in the world. We are emerging as a leading producer of mangoes, bananas, coconut, cashew nuts and a variety of spices.

The importance of horticulture in improving the livelihood for farmers and many unprivileged classes can be seen from the following facts —

• Overtime, there has been a substantial increase in area under horticulture.
• High crop productivity has led to the “Golden Revolution” in horticulture farming during the years 1991-2012. This happened because the planned investment in horticulture, during this period, became highly productive and the sector emerged as a sustainable livelihood option.
• Economic condition of many farmers engaged in horticulture has improved and it has become a means of improving livelihood for many unprivileged classes.
• Shifting to horticulture farming has reduced economic vulnerability of the small and marginal farmers.
• This has opened up new avenues of employment for the women folk in the rural area particularly in flower harvesting, nursery maintenance, hybrid seed production and tissue culture, propagation of fruits and flowers and food processing.
• A significant fact is that nearly 20% of the total rural employment is generated by horticulture and related production activity.

Despite the positive results in the horticulture sector, the following challenges are being faced by it—

1. The bulk of acreage under horticulture has expanded at the cost of acreage under pulses causing a severe shortfall in the supply of pulses and a consequent cut in their consumption due to high prices.
2. More investment is also required in infrastructure like electricity, cold storage systems, marketing linkages, small scale processing units and technology improvement and dissemination. .

Or

In order to improve the system of agricultural marketing, the government has initiated a series of measures which are explained below:

(i) Regulated markets. Regulated markets have been established where the sale and purchase of products is monitored by the market committee which includes representatives of government, farmers and traders. The market system is made transparent with a strict vigil on the use of proper scales and weights. The market committees ensure that the farmers get appropriate price for their produce.

(ii) Cooperative agricultural marketing societies. The government is encouraging the formation of cooperative agricultural marketing societies. As members of these societies, the farmer benefits in the following ways:

• It improves the bargaining power of the farmers.
• Marketing cooperative societies provide credit to the farmers to meet their immediate cash requirements.
• These societies have storage facilities because of which a farmer can wait for a better price for his product.
• Cooperative societies can control the supply of products and can, thus, influence the prices to the advantage of their members.

(iii) Provision of warehousing facilities. With a view to avoiding distress sale, the government is offering warehousing facilities to the farmers. Central and state warehousing corporations are the principal government agencies offering storage space to the farmers. It helps the farmers to sell their produce at a time when the market price is lucrative.

(iv) Subsidised transport. Railways is offering subsidised transport facility to the farmers to bring their produce to the urban markets where they get a better deal.

(v) Dissemination of information. Electronic media and print media are actively engaged in offering market related information to the farmers.

(vi) Minimum support price (MSP) policy. Another measure is the policy of minimum support price and maintenance of buffer stock. Government announces minimum support prices for 24 agricultural commodities before each season to ensure the farmers that their produce would be purchased by the government at the pre announced MSP.

• The Food Corporation of India makes the purchase of food grains at these minimum support prices though the farmers are free to sell their produce at prices higher than the MSP.