STUDENT SUPPORT

MATERIAL

Session : 2019-20

Class-XII
ECONOMICS
STUDENT SUPPORT MATERIAL
Class XII
Economics

Session 2019-20

Kendriya Vidyalaya Sangathan

New Delhi
 A WORD TO MY DEAR STUDENTS
It gives me great pleasure in presenting the Students' Support Material to all
KV students of class XII.
The material has been prepared keeping in mind your needs when you are
preparing for final exams and wish to revise and practice questions or when
you want to test your ability to complete the question paper in the time allotted
or when you come across a question while studying that needs an immediate
answer but going through the text book will take time or when you want to
revise the complete concept or idea in just a minute or try your hand at a
question from a previous CBSE Board exam paper or the Competitive exam to
check your understanding of the chapter or unit you have just finished. This
material will support you in any way you want to use it.
A team of dedicated and experienced teachers with expertise in their subjects
has prepared this material after a lot of exercise. Care has been taken to include
only those items that are relevant and are in addition to or in support of the text
book. This material should not be taken as a substitute to the NCERT text book
but it is designed to supplement it.
The Students' Support Material has all the important aspects required by you; a
design of the question paper, syllabus, all the units/chapters or concepts in
points, mind maps and information in tables for easy reference, sample test
items from every chapter and question papers for practice along with previous
years Board exam question papers.
I am sure that the Support Material will be used by both students and teachers
and I am confident that the material will help you perform well in your exams.
Happy learning!

Santosh Kumar Mall

Commissioner, KVS
 FOREWORD

The Students' Support Material is a product of an in-house academic exercise

undertaken by our subject teachers under the supervision of subject expert at
different levels to provide the students a comprehensive, yet concise, learning
support tool for consolidation of your studies. It consists of lessons in capsule
form, mind maps, concepts with flow charts, pictorial representation of
chapters wherever possible, crossword puzzles, question bank of short and long
answer type questions with previous years' CBSE question papers.
The material has been developed keeping in mind latest CBSE curriculum and
question paper design. This material provides the students a valuable window
on precise information and it covers all essential components that are required
for effective revision of the subject.
In order to ensure uniformity in terms of content, design, standard and
presentation of the material, it has been fine tuned at KVS Hqrs level.
I hope this material will prove to be a good tool for quick revision and will
serve the purpose of enhancing students' confidence level to help them perform
better. Planned study blended with hard work, good time management and
sincerity will help the students reach the pinnacle of success.
Best of Luck.

U.N. Khaware
Additional Commissioner (Acad.)
Economics

STUDENT SUPPORT MATERIAL

ADVISORS

Shri Santosh Kumar Mall, IAS, Commissioner,

KVS (HQ), New Delhi
Sh. Saurabh Jain, IAS Sh. U.N Khaware,
Additional. Commissioner (Admn.) Additional. Commissioner (Acad)
KVS (HQ), New Delhi. KVS (HQ), New Delhi.

CO-ORDINATION TEAM KVS (HQ)

 Dr.E. Prabhakar, Joint Commissioner (Training/Finance) KVS (HQ), New Delhi.
 Smt. InduKaushik, Deputy Commissioner (Acad), KVS (HQ), New Delhi.
 Shri Ravindra Kumar Sharma, Assistant Education Officer, KVS (HQ), New Delhi.
CONTENT TEAM

· C. Neelap, Deputy Commissioner, Guwahati Region

Mr.
· D. Manivannan, Deputy Commissioner, Hyderabad Region Mr.
Mr.
·
Bikramjeet Paul Choudhury, PGT (Eco) KV IOC, Noonmati, Guwahati
·
Mrs.Hafizakarim, PGT (Econ), KV Maligaon, Guwahati
Mr. Ravi Shankersingh PGT (Econ),KV Borjhar, Guwahati
Dr. V Surender, PGT (Econ), KV No 1 Golconda Hyderabad
Dr. D.Madhusudan, PGT (Econ), K V No. 1, AFA Dundigal, Hyderabad
Mr. G.Janardhan, PGT (Econ) KV , Picket, Secunderabad,
Mr. B Jagan Mohan Rao, PGT (Econ), KV No 2 Golconda Hyderabad
Ms. Surya Kumari Barma, PGT (Econ), KV AFS Begumpet Hyderabad
Ms. K. Hima Bindu, PGT (Econ), KV NTPC, Ramagundam Hyderabad
Ms. Swapna Mansingh, PGT (Econ), KV Kanchanbagh Hyderabad
Ms. Hemlata Sharma, PGT (Econ), KV NPA Shivrampally Hyderabad
REVIEW TEAM

 ShriP.V.saiRangaRao, Deputy Commissioner, KVS Hyderabad Region. Shri

 K. Saseendran, Assistant Commissioner, KVS Hyderabad Region. Shri
 Ch.Sreenivasulu,Principal, KV Bolarum, Secunderabad.
 ShriN.HariPrasad ,Principal,KV No.2, AFA Dundigal, Hyderabad. Shri
 B.P.Hussain,PGT (Eco), KV Bolarum,Secunderabad.
 Shri G. Janardhan,PGT(Eco), KV No.1, AFA Dundigal Hyderabad ShriB.Jagan
 Mohan Rao,PGT(Eco),KV No.2 Golconda.
Typing, Type-setting & Designing
M/s Choudhary Printing Press
Near Mohanpur Devi Asthan, Punaichak, Patna
Mob.: 0943096087, 09835492012 T/F: 0612-2546751
E-mail: choudharyprintingpress@gmail.com
 INDEX
SL PAGE
No. TOPIC/PARTICULARS No.
CBSE CURRIULUM
1. 6-9
BLUE PRINT
2. 9-12
SAMPLE QUESTION PAPER - 1
3. 12-22
SAMPLE QUESTION PAPER - 2
4. 22-27
SAMPLE QUESTION PAPER - 3
5. 27-32
PART 1 -Introductory
Macroeconomics
(CHAPTER 1): NATIONAL INCOME AND RELATED
1 AGGREGATES 33-58

CHAPTER 2: MONEY AND BANKING

2 59-64
CHAPTER 3: DETERMINATION OF INCOME AND
3 EMPLOYEMENT 65-77

CHAPTER 4: GOVT. BUDGET AND THE ECONOMY

4 78-84
CHAPTER 5: BALANCE OF PAYMENTS
5 85-93
6 HOTS AND COMMON MISTAKES 94-96
PART II INDIAN ECONOMY DEVELOPMENT
1 CHAPTER 1:INDIAN ECONOMY ON THE EVE OF 97-100
INDEPEDENCE
CHAPTER 2: INDIA ECONOMY – 1950-1990
2 100-106
CHAPTER 3: LIBERALISATION, PRIVATISATION,
3 106-110
GLOBALISATION – AN APPRISAL
CHAPTER 4: POVERTY
4 110-114
CHAPTER 5: HUMAN CAPITAL FORMATION
5 114-118
CHAPTER 6: RURAL DEVELOPMENT
6 119-123
CHAPTER 7: EMPLOYMENT, GROWTH, INFORMALISATION
7 AND OTHER ISSUES 124-130

CHAPTER 8: INFRASTRUCTURE
8 131-137
CHAPTER 9: ENVIRONMENT AND SUSTAINABLE
9 DEVELOPMENT 138-145

CHAPTER 10: COMPERATIVE DEVELOPEMENT EXPERINCEIS

10 146-152
INDIA AND ITS NEIGHBOURS
 CBSE CURRIULUM
ECONOMICS
CLASS XII
(2019-20)

Theory: 80 Marks 3 Hours

Project: 20 Marks
Units Marks Periods
Part A Introductory Macroeconomics
National Income and Related Aggregates 10 28
Money and Banking 6 15
Determination of Income and Employment 12 27
Government Budget and the Economy 6 15
Balance of Payments 6 15
40 100
Part B Indian Economic Development
Development Experience (1947-90)
and Economic Reforms since 1991 12 28

Current Challenges facing Indian Economy 22 60

Development Experience of India – A Comparison with
Neighbours 06 12

Theory Paper (40+40 = 80 Marks) 40 100

Part C Project Work 20 20

Part A: Introductory Macroeconomics

Unit 1: National Income and Related Aggregates 28 Periods
What is Macroeconomics?
Basic concepts in macroeconomics: consumption goods, capital goods, final goods,
intermediate goods; stocks and flows; gross investment and depreciation.

Circular flow of income (two sector model); Methods of calculating National

Income - Value Added or Product method, Expenditure method, Income
method.
Aggregates related to National Income:
Gross National Product (GNP), Net National Product (NNP), Gross and Net
Domestic Product (GDP and NDP) - at market price, at factor cost; Real and
Nominal GDP.
GDP and Welfare
Unit 2: Money and Banking 15 Periods
Money - meaning and supply of money - Currency held by the public and net
demand deposits held by commercial banks.

Money creation by the commercial banking system.

Central bank and its functions (example of the Reserve Bank of India): Bank
of issue, Govt. Bank, Banker's Bank, Control of Credit through Bank Rate,
CRR, SLR, Repo Rate and Reverse Repo Rate, Open Market Operations,
Margin requirement.

Unit 3: Determination of Income and Employment 27 Periods

Aggregate demand and its components.
Propensity to consume and propensity to save (average and
marginal). Short-run equilibrium output; investment multiplier
and its mechanism. Meaning of full employment and
involuntary unemployment.

Problems of excess demand and deficient demand; measures to correct them

- changes in government spending, taxes and money supply.

Unit 4: Government Budget and the Economy 15 Periods

Government budget - meaning, objectives and components.

Classification of receipts - revenue receipts and capital receipts; classification

of expenditure – revenue expenditure and capital expenditure.

Measures of government deficit - revenue deficit, fiscal deficit, primary deficit

their meaning.

Unit 5: Balance of Payments 15 Periods

Balance of payments account - meaning and components; balance of payments
deficit- meaning.
Foreign exchange rate - meaning of fixed and flexible rates and
managed floating. Determination of exchange rate in a free market.
Part B: Indian Economic Development
Unit 6: Development Experience (1947-90) and Economic Reforms since 1991:
28
Periods A brief introduction of the state of Indian economy on the eve of
independence. Common goals of Five Year Plans.

Main features, problems and policies of agriculture (institutional aspects and

new agricultural strategy, etc.), industry (industrial licensing, etc.) and foreign
trade.
Economic Reforms since 1991:
Features and appraisals of liberalisation, globalisation and privatisation
(LPG policy); Concepts of demonetization and GST
Unit 7: Current challenges facing Indian Economy 60
Periods Poverty- absolute and relative; Main programmes for poverty alleviation: A
critical assessment;
Rural development: Key issues - credit and marketing - role of cooperatives;
agricultural diversification; alternative farming - organic farming
Human Capital Formation: How people become resource; Role of human
capital in economic development; Growth of Education Sector in India
Employment: Formal and informal growth; problems and policies.
Infrastructure: Meaning and Types: Case Studies: Energy and Health:
Problems and Policies- A critical assessment;
Sustainable Economic Development: Meaning, Effects of Economic Development
on Resources and Environment, including global warming.
Unit 8: Development Experience of India: 12 Periods
A comparison with
neighbours India and
Pakistan
India and China
Issues: growth, population, sectoral development and other Human
Development Indicators.
Part C: Project in Economics 20 Periods
Prescribed Books:
1. Macroeconomics, NCERT
 2. Indian Economic Development, NCERT
3. Supplementary Reading Material in Economics, CBSE

Suggested Question Paper

Design Economics (Code No.
030)
Class XII (2019-20)
March 2020 Examination
Marks: 80 Duration: 3
hrs.
Objective Short Short Long
Marks
SN Typology of Questions Type/ Answer I Answer II Answer
MCQ 3 Marks 4 Marks 6 Marks
1 Mark
Remembering: Exhibit memory
of previously learned material by
1 5 1 2 1 22
recalling facts, terms, basic
concepts, and answers.
Understanding: Demonstrate
understanding of facts and ideas
by organizing, comparing,
2 5 1 2 1 22
translating, interpreting, giving
descriptions, and stating main
ideas
Applying: Solve problems to
new situations by applying
3 acquired knowledge, facts, 5 1 1 1 18
techniques and
rules in a different way.
Analysing and Evaluating:
Examine and break information
into parts by identifying motives
or causes. Make inferences and
find evidence to support
generalizations.

Present and defend opinions by

making judgments about
4 information, validity of ideas, or 5 1 1 1 18
quality of work based on a set of
criteria.

Creating: Compile information

together in a different way by
combining elements in a new
pattern or proposing alternative
solutions.

Total 20x1=20 4x3=12 6x4=24 4x6=24 80 (34)

There will be Internal Choices in questions of 1 mark, 3 marks, 4 marks and 6 marks
in both sections (A & B). In all, total 8 internal choice
 Guidelines for Project Work in Economics (Class XII)

The objectives of the project work are to enable learners to:

 probe deeper into theoretical concepts learnt in classes XI and XII

 analyse and evaluate real world economic scenarios using theoretical constructs and
arguments
 demonstrate the learning of economic theory
 follow up aspects of economics in which learners have interest
 develop the communication skills to argue logically The
expectations of the project work are that:
 learners will complete only ONE project in each academic session
 project should be of 3,500-4,000 words (excluding diagrams & graphs), preferably hand-
written
 it will be an independent, self-directed piece of study
Roleof the teacher:
The teacher plays a critical role in developing thinking skills of the learners. A teacher should:

 help each learner select the topic based on recently published extracts from the news
media, government policies, RBI bulletin, NITI Aayog reports, IMF/World Bank reports
etc., after detailed discussions and deliberations of the topic
 play the role of a facilitator and supervisor to monitor the project work of the learner
through periodic discussions
 guide the research work in terms of sources for the relevant data
 educate learner about plagiarism and the importance of quoting the source of the
information to ensure authenticity of research work
 prepare the learner for the presentation of the project work

 arrange a presentation of the project file

Scope of the project:
Learners may work upon the following lines as a suggested flow chart:
Choose a title/topic

Collection of the research

material/data

Organization of
 material/data

Present

material/data

Analysing the material/data for

conclusion

Draw the relevant

conclusion Presentation of

the Project Work

Expected Checklist:
 Introduction of topic/title
 Identifying the causes, consequences and/or remedies
 Various stakeholders and effect on each of them
 Advantages and disadvantages of situations or issues identified
 Short-term and long-term implications of economic strategies
suggested in the course of research
 Validity, reliability, appropriateness and relevance of data
used for research work and for presentation in the project file
 Presentation and writing that is succinct and coherent in project file
 Citation of the materials referred to, in the file
in footnotes, resources section, bibliography etc.
Mode of presentation/submission of the Project:
At the end of the stipulated term, each learner will present the research work in the
Project File to the External and Internal examiner. The questions should be asked
from the Research Work/ Project File of the learner. The Internal Examiner
should ensure that the study submitted by the learner is his/her own original
work. In case of any doubt, authenticity should be checked and verified.
Marking Scheme :
Marks are suggested to be given as –

S. No. Heading Marks Allotted

1. Relevance of the topic 3

 2. Knowledge Content/Research 6
Work

3. Presentation Technique 3

4. Viva 8

Total 20 Marks

SAMPLE PAPER -1
ECONOMICS CLASS XII
SOLVED
PART-A
INTRODUCTORY MACRO ECONOMICS
Name of the chapter
1 mark 3 4 marks 6 marks Total Marks
marks
1.National income and
Related Aggregates 1(1) 1(3) ----- 1(6) 3(10)
2.Money and Banking 2(1) ----- 1(4) ---- 3(6)

3.Determination of income 3(1) 1(3) ---- 1(6) 5(12)

and employment
4. Govt. Budget 2(1) ---- 1(4) ------ 3 (6)

5.Balance of Payment 2(1) ---- 1(4) ---- 3(6)

Total 10(1) 2(3) 3(4) 2(6) 17

=10 =6 =12mar =12ma Questions
marks marks ks rks =40 marks
PART-B INDIAN ECONOMIC DEVELOPMENT

6.Developmental 2(1) ---- 1(4) 1(6) 4(12)

Experience (1947-1990)l
7.Current challenges facing 6(1) 2(3) 1(4) 1(6) 10(22)
by Indian Economy
8.Development experience 2(1) ----- 1(4) ----- 3(6)
of India-A comparison with
neighbours
Total 10(1) 2(3) 3(4) 2(6) 17
=10 =6 =12 =12 Questions
marks marks marks marks =40 marks
Grand Total 20x1=20 4x3=1 6x4=24 4x6=24 34
2 questions
=80 marks
 Note: There will be internal choices in questions of 1 mark, 3marks ,4marks and 6
marks in both sections(A and B).In all total 8 internal choices. The figure outside
the bracket indicates no. of questions and figure inside the bracket indicates marks.

***

SAMPLE QUESTION PAPER - 1

CLASS-XII
MAX.MARKS: 80
SUB: ECONOMICS TIME: 3 HRS
INSTRUCTIONS:
1. All questions in both sections are compulsory.
2. Marks for questions are indicated against each question.
3. Question no. 1-10 and 18-27 are very short answer question
Carrying 1 mark each . They are required to be answered in one sentence.
4. Question no. 1-12 and 28-29 are short answer question
Carrying 3 marks each . Answer to them should not normally exceed 60
words .
5. Question no. 13-15 and 30-32 are also short answer questions
Carrying 4 marks each . Answer to them should not normally exceed 80
words .
6. Question no. 16-17 and 33-34 are long answer questions carrying 6 marks
each Answer to them should not normally exceed 100 words each.

SECTION A
1. Which of the following is a stock variable ? 1
a) Interest on capital c) expenditure of money
b) Distance between Goa and Hyderabad d) All of the these.
2. What items are not included in M1 measure of money supply ? 1
a) Currency and coins with publicc)Other deposits with RBI
b) Inter-bank deposits d) Net demand deposits with banks.
3. What is Repo rate ? 1
(OR)
What is reverse repo rate ?
4. Break-even point is achieved when 1
a)National income = consumption b) consumption=investment
c)Consumption= saving d) national
income>consumption
5. Which of the following can have a negative value ? 1
a) APC b) MPC c) MPS d) APS
 6. When actual aggregate demand exceeds the aggregate demand required
for full employment what will you call that situation ? 1
7. Escheats is an example of : 1
a) Capital receipt c)revenue receipt
b) Capital expenditure d) revenue expenditure
8. In a government budget primary deficit is Rs. 10,000 cr and interest
payment is Rs. 8 000 cr . How much is fiscal deficit? 1
9. Export and import of goods is also known as: 1
a) Invisible trade c) one sided transaction
b) Visible trade d) unrequited remittances
10.Devaluation of currency means : 1
a) Reduction in the value of domestic currency by the market forces
b) Reduction in the value of domestic currency by the government
c) Both (a) and (b)
d) Neither (a) nor (b)
11.Distinguish between intermediate goods and final goods. 3
12.Define investment multiplier. Explain the relationship between Marginal
propensity to consume and multiplier .
(OR)
Bring out the concept of break-even point with the help of consumption
or Income curve.
13. Explain how the commercial bank creates credit money ? 4
14. Distinguish between; 4
a) Capital receipts and revenue receipts
b) Direct tax and indirect tax

(OR)
Explain any two objectives of government budget:
15. Explain the components of current account of Balance of Payments.
4
16. From the following data estimate (a) NNP at market
price by Expenditure
method and GNP at market price by Income
method.
 Sl Items Rs. In cr
No
i. Compensation of employees 800
ii. Undistributed profits 20
Iii Private final consumption 1000
expenditure
Iv Rent 300
V Dividend 200
Vi Govt. final consumption expenditure 300
Vii Royalty 40
Viii Gross Domestic Fixed capital 500
formation
Ix Corporation tax 50
X Inventory investment 200
Xi Interest 400
Xii Exports 100
Xiii Depreciation 70
Xiv Net imports (-) 40
Xv Net income received from abroad (-) 10
Xvi Net Indirect tax 60
17. How are following used to correct excess demand and deficient demand?
a) Bank rate (3x2)
b) Open market operations
c) Government expenditure

(OR)
Explain the equilibrium level of income and employment with the help
of savings and investment curves.
SECTION B
18. When was planning commission established? 1
a) 1947 b) 1948 c) 1950 d) 1951

19. Public sector enterprises are driven largely by consideration of : 1

a) Profit b) social welfare c) either (a) or (b) d) none of these

20.In India absolute poverty is measured with reference to: 1

a) Poverty line b) GDP c) per-capita income d) unemployment

b) The stock of skill and expertise of a nation at a point of time is known as:
1
a)Social infrastructure b) human capital c) physical capital d) None of
these.
21. NREGA stands for : 1
22. Which type of unemployment is found in agricultural sector ? 1
a) Disguised unemployment c) structural unemployment
b) Industrial unemployment d) educated unemployment

23. Under which infrastructure transport, banking and irrigation fall? 1

24.Which of the following is considered as non-conventional energy ? 1
a) Solar energy b) wind energy c) bio-mas d) all of these

25.The number of people who are able to work and willing to work at
The existing wage rate is known as : 1
a) Labour force b) work force c) labour supply d) participation rate.
26. Two major environmental issues facing world today are ----------
And 1
27. Distinguish between physical capital and human capital 3
28. Can energy crisis be overcome with the use of renewable sources 3
Of energy ?
(OR)
Give any four factors responsible for land degradation.
29. What measures have been taken under Liberalisation (any four)
4
(OR)
What is privatization and explain steps taken toward it ?
30. Explain any four sources of human capital formation . 4
31. Explain the Great Leap Forward campaign of China as initiated in 1958.

32. What is green revolution ? How is it benefitted to farmers ? 6

(OR)
Explain ‘growth, equity and self – reliance ‘ as long term economic Planning
.
33. Critically analyses any three anti-poverty programmes . 6
******
 ANSWER KEY - SAMPLE PAPER 1
Q NO VALUE POINTS MARK
S
1 (b) Distance between Gao and Hyderabad 1
2 (b) Inter=bank deposits 1
3 The rate at which the Central bank lends short 1
term loans to commercial banks (OR)
The rate at which the banks parks their surplus
funds with RBI

4 (C) National income = consumption 1

5 (c) APC 1
6 Excess demand or inflationary gap 1
7 ( c) Revenue receipt 1
8 Primary deficit = fiscal deficit – interest 1
payments
10 000 = Fiscal deficit – 8000
Fiscal deficit = primary deficit + interest
payment
= 10 000 + 8 000 = 18 000
cr
9 Visible trade 1
10 (b) Reduction in the value of domestic 1
currency by the Government
11 Intermediate good: meant for either resale or 1
further production
Final good: meant for either consumption or
capital formation
12 Multiplier refer to the change in National 1
income due to change in investment
13 Credit creation by the banks is determined by (i) the 4
amount of initial deposits and ii) the legal reserve ratio
(LRR). It is assumed that all the money that goes out of
banks is redeposit into the banks, and LRR consists of CRR
& SLR.
An Illustration to explain the process of credit creation:
Let the LRR be 20% and there is a
Fresh/Primary/Initial/Deposit Account of Rs 10000. The
banks keep 20% ie Rs 2000 as cash and lend the
remaining Rs 8000 to a borrower by opening a new
account, called as Loan/Secondary/Derived Account.
 Here we assume that all the banking transactions will be
through monetary instruments viz cheques etc.
Total credit creation = Initial deposit X 1/LRR
ROUNDS INITIAL DEPOSIT LRR SECONDARY DEPOSIT

1 10000 2000 8000

2 8000 1600 6400
- - - -
- - - -
- - - -
TOTAL 50000 10000 40000
Total credit creation = Initial deposit X 1/LRR
= 10000 X 1/20% = 10000 X 100/20 = Rs 50000
14 a) Capital receipts: Receipts which either
create liability or reduce asset
Revenue receipt: Receipts which neither
create liability nor reduce asset
b) Direct taxes are those taxes for which
incidence of burden cannot be shifted 4
Indirecttaxes are the taxes for which
incidence of burden can be shifted.
(OR)
a) Re-allocation of resource
b) Reduction of inequalities ( or any other
two points with explanation)
15 Components of Current account of Balance of
payments: 4
a) Net export of visible items
b) Net export of invisible items
c) Net income from property and
entrepreneurship abroad
d) Unrequited remittance (unilateral
transfers (net))
16 Sol EXPENDITURE Method:
1) GDP mp= Private Final consumption
expenditure + Govt. final consumption
exp.
+ Gross capital formation +
Net exports
= 1000 + 300 + (500+200)+
40
= Rs. 2
2) NNP mp = GDP mp – Dep + NFIA
3+3
= 2140 – 70 + (-10)
 = 2060
(Note: Net imports (-)40
means Net exports 40)
INCOMEMETHOD
1) NDP fc = compensation of employees
+ operating surplus + Mixed income
= 800 +
(300+40+400+200+20+50+0)
= 1810
2) GNP mp = NDPfc + dep + NIT+NFIA
= 1810 + 70 + 60 + (-)10
= Rs. 1 930 cr.
17 INSTRUMENT EXCESS DEMAND DEFICIENT DEMAND
Bank rate Should be raised Should be reduced by
by RBI RBI
Open market operations RBI sells to RBI buys from 2+2
member banks member banks
+2
Govt.expenditure To be controlled Govt. should increase
its expenditure
by the Govt.
(OR)
According to Keynes means equilibrium levels of income
and employment is it determined by the equality between
saving and investment (ex-ante).

18 (C) 1950 1
19 (b) social welfare 1
20 (c) per-capita income 1
21 (b) human capital 1
22 National Rural Employment Guarantee 1
Programme
23 (a) Disguised unemployment 1
24 Economic infrastructure 1
25 (d) all of these 1
26 (a) Labour force 1
27 a) Pollution 1
b) Excessive exploitation of resources
28 PHYSICAL CAPITAL HUMAN CAPITAL 3
It is a tangible good It is intangible good
Can be separated Cannot be separated 3
from the owner from owner
Can be moved from It is not perfectly
one place to another mobile
place
can be increased by Can be built with
imports proper planning and
skill development
29 a) Presently more consumption than
production
b) Renewable energy can be replenished
quickly 4
c) Cost effective
d) Unlimited in supply (or any other related point)
(OR)

a) Encroachment into forest lands

b) Due to deforestation , there will be loss of
vegetation
c) Shifting cultivation causes loss of fertility
d) Extensive use of fertilizers and pesticides
(Or any other
valid points)

30 a) Abolishing of industrial licensing system

b) Amendment to MRTP Act
c) Reducing the role of RBI
d) Rationalisation of taxes (or any other
measures) 4
(OR)
Privatisation: opening of the economy to
the private sector.
Measures: a) Reduction of major industries of
the Govt.
b) Disinvestment of public sector
(or any other related point)
31 Four sources of Human capital formation:
a) Expenditure on education 4
b) Expenditure on health
c) Expenditure on the job-training
d) Expenditure on migration
32 The Great Leap Forward (GLF) was a campaign
initiated by China in 1958.
 To initiate large scale industrialization in
both rural and urban areas
 Encouraged urban people to set up 4
industries in their backyards
 Under Commune system, people were
encouraged in collective farming
33 Green revolution refers the large scale production
of food grains, pulses etc., due to introduction of
fertilizers and agricultural. Technology.
Benefits: a) Achieved self-sufficiency in the
production of food grains b) farmers’ incomes
have increased 6
(c) extensive credit facilities are made
available to the farmers. (or any other point)
(OR)
GDP is indicator of growth. It means the increase
of country’s capacity to produce goods and
services

Equity: It means equal opportunities to all the

section of society.
The fruits of the economy should not be limited to
only rich people. Gender equation should be
achieved.
Self-reliance: It should be achieved by import
substitution. Reduction of imports of food
grains. Producing with in the domestic
economy the goods which are imported till now.

34 Anti-poverty program:
1. * Self-Employment Programmes
 Rural Employment Generation
Programme (REGP)
  PrimeMinister RozgarYojana
6
(PMRY)
 Swarna Jayanti Shahri Rozgar
Yojana
(SJSRY)

Swarnjayanti Gram
Swarozgar Yojana (SGSY)
2. Wage Employment Programme
Sampoorna Grameena
Rozgar Yojana (SGRY)
National Food for Work Programme
(NFFWP)

*********
MODEL PAPER-2 (2019-2020)
BLUE PRINT
SUBJECT: ECONOMICS
CLASS : XII

SECTION – A I 3 4 6 Total
mark mark mark mark Mark
s
1 1 1
Unit-1: National Income 10
Unit -2: Money & Banking 2 1 06
Unit -3 : Determination of 2 1 1 12
Income and
Employment
Unit -4 : Govt. Budget & the 3 1 06
Economy
Unit – 5: Balance of Payments 2 1 06
SUB-TOTAL
40
SECTION – B

Unit -6: Development 3 1 1 12

Experience (1947 –
90) and Economic
 Reforms
Unit - 7: Current challenges 7 1 1 1 20
facing Indian
Economy
Unit -8: Development 2 08
Experience of India
– A comparison with
Neighbours
SUB-TOTAL 40
TOTAL MARKS 10 X 4 X 3 6 X 4 4 X 6 80
1= 10 = 12 = 24 = 24
PART C: PROJECT WORK
20

ECONOMICS (2019-20)
TIME: 3 HRS CLASS : XII
M.MARKS: 80

Instructions:

(i) All questions in both the sections are compulsory,

(ii) Marks for questions are indicated against each.
(iii) Questions no 1-10and 18-27are very short answer questions carrying 1 mark
for each part are required to be answered in one sentence each.
(iv) Questions no 11-12 and 28-29 are short answers questions carrying 3 marks
are required to be answered not exceed 60 words each.
(v) Questions no 13-15 and 30-32 are also short answer questions carrying
4 marks are required to be answered not exceed 70 words each.
(vi Questions no 16-17 and 33-34 are long answers questions carrying 6 marks
each are required to be answered not exceed 100 words each.
(vii) Answer should be brief and to the point and the above word limits be adhered
to as for as possible.
SECTIONA: Macro Economics

Q. Question Mar
N ks
o
1. Borrowing in government budget is:
a) revenue deficit b) fiscal deficit c) primary 1
deficit
d) deficit in taxes

2 State the two components of M1 measure of money 1

supply
Define stocks. 1
4 The percentage of demand deposits which the
commercial banks are legally required to maintain
as their liquid assets is called: 1
a) CRR b) Repo Rate c) SLR d) Reverse
Repo Rate

5 Which of the following is not the instrument of

credit control? 1
a) CRR b) SLR c) Bank Rate d) Managed
floating

6 Give the meaning of balance of trade. ( OR) 1

Give the meaning of Balance of Payment
7 What is primary deficit? 1
8 The non-tax revenue in the following is (choose the
correct alternative): 1
a) export duty b) import duty c) dividends d)
excise
9 Which of the following does not come under
quantitative methods of monetary policy?
a)Open market operations b) Cash Reserve 1
Ratio
c) Mora suasion d) Repo Rate
10 Balance of trade is a part of: 1
a) current account BOP b) capital account BOP
c) Official reserves account d) none of these
11 Explain the concepts of intermediate goods and 3
final goods. Give example each one.
12 Giving reason, categories the following into
revenue expenditure and capital expenditure: 3
i) Subsidies ii) Grants given to state
 governments
iii) Repayment of loan (OR)
Is the following a revenue receipts or a capital
receipts in the context of government budget and
why?
i) Tax receipts ii) Disinvestment

13 Classify the following goods into intermediate

goods and final goods: 4
i) Milk purchased by a household
ii) purchase of rice by a grocery shop
iii) purchase of an air conditioner for use in shop
iv) Cloth used for making a sofa-set by the
carpenter

14 Explain how open market operations are helpful in

controlling credit creation. (OR) 4
Explain the process of credit creation by
commercial banks.

15 In an economy, an increase in investment by Rs.

100 crore led to ‘increase’ in national income by Rs 4
1000 crore. Find marginal propensity to consume.

16 In an economy planned investment exceeds

planned savings. How will the equality between
the two be achieved? Explain. 6
(OR)
Explain the theory of determination of equilibrium
level of output and income with the help of
aggregate demand and aggregate supply curves.

17 From the following information, calculate Gross

National Product at Factor Cost by (a) Income (3,3)
method and (b) Expenditure method:
Items:
Rs. Crore
i) Net factor income from Abroad 5
ii) Compensation of employees 150
iii) Net domestic capital formation 50
iv) Private final consumption expenditure 220
change in stock 15
Consumption of fixed capital 15
Interest 40
Net exports (-)5
Net Indirect taxes 20
Govt. final consumption expenditure 85
Profit 100

SECTION-B : INDIAN ECONOMIC DEVELOPMENT

18 Define plan? 1
19 What is subsistence? 1
20 Define devaluation? 1
21 Define poverty line? 1
22 The responsibility of direction and control of higher
education is with:
a) Govt. of India b)Department of Higher 1
Education
c) University Grants Commission d) none of these
23 What is jobless growth? (OR)
What it is called, Labour Force minus (-) Workforce 1
a) Unemployed b) supply of labour c)
Total population
d) Participation rate
24 Which of the following is considered as social 1
infrastructure?

25 What is the main difference between economic

developmentand sustainable development? 1

26 Which of the following is an essential indicator of 1

good health?
a) Low death rate b) High expectancy of life
c) Low infant mortality rate d) All of these
27 In India, absolute poverty is measured with 1
 reference to:
a) Poverty line b) GDP
c)Per capita income d)Unemployment
28 What is inward looking trade policy? How is it 3
relevant in the context of growth and
development?
(OR)
Why were reforms introduced in India?
29 What factors contribute to human capital 3
formation?
30 Differentiate between commercial and non 4
commercial sources of energy.
31 What similar developmental strategies have India 4
and Pakistan followed for their respective paths?

32 Give an outline of the strategy of development 4

adopted by China and India

33 What is meant by globalization of the economy? 6

State the measures adopted by the government to
promote globalization.
(OR)
Distinguish between the following:
i) Strategic and Minority sale.
ii) Bilateral and Multilateral trade.
iii) Tariff and Non-tariff barriers

34 What is sustainable development? Outline the (2 +4)

steps involved in attaining sustainable
development in India?

MODEL PAPER-3

ECONOMICS (2019-20)
TIME: 3HRS CLASS :XII
M.MARKS: 80
Instructions:
(ii) All questions in both the sections are compulsory,
(ii) Marks for questions are indicated against each.
(iii) Questions no 1-10and 18-27are very short answer questions carrying 1 mark
for each part are required to be answered in one sentence each.
(iv) Questions no 11-12 and 28-29 are short answers questions carrying 3 marks
are required to be answered not exceed 60 words each.
(v) Questions no 13-15 and 30-32 are also short answer questions carrying4
marks are required to be answered not exceed 70 words each.
(vi Questions no 16-17 and 33-34 are long answers questions carrying 6 marks
each are required to be answered not exceed 100 words each.
(vii) Answer should be brief and to the point and the above word limits be
adhered to as for as possible.

SAMPLE PAPER -3
1. National income is concept 1
a) Stock b) final c) intermediate d) flow

2. Which of the following agency is responsible for issuing Re.1 currency note
in India? 1
a)Reserve Bank of India b) Banking Association
c).Ministry of Finance d) Niti Aayog
3. Define Margin requirement.
(or)
What is Cash Reserve Ratio
4. Full employment implies absence of 1

a) Voluntary unemployment b) Involuntary

unemployment
c). unemployment d) None
of the above

5. When MPC is zero, then K is : 1

a) 1 b) 0 c) infinity d) none of these
6. When actual aggregate demand falls short of the
aggregate demand required for
Full employment level, what do you call situation?
(or)

Define money multiplier 1

7. What is reverse repo rate ? 1
8. Export and import of services is known as:
a) Invisible items b) unrequited remittances
c).Visible items d) Bilateral payments
9. Depreciation of currency means: 1
 a) Reduction in the value of domestic currency by the
market forces
b) Reduction in the value of domestic currency by the
Government
c) Both (a) and (b)
D) Neither (a) nor (b)
10. The central bank issues appeals to the commercial
banks through 1
a) Open Market operation b) Moral suasion c) Bank
rate d) CRR
11. Distinguish between consumer goods and capital goods.
3
12. Explain any three fiscal measures to control deflationary
gap. 3
(OR)
Distinguish between Average propensity to consume
and Average propensity to save . What is the relation
between two?

13. If the legal reserve ratio is 20% and deposit is Rs. 1000 .
Explain the process of credit creation by the commercial banks.
4

14. Distinguish between :

a) Capital expenditure Revenue expenditure
b) Fiscal deficit and Primary deficit
(OR)
Give any four items of Non-tax revenue 4
15.a) What is appreciation of currency and give its impact on
exports ?
b) What is depreciation of currency and give its impact on
imports ?

16. From the following data calculate (a) Gross Domestic Product at factor cost

(b) Factor income to abroad 6

Items (Rupees in cr)

i) Compensation of employee 1 000
ii) Profits 200
iii) Dividend 80
iv) Gross national product at market price 1 800
 v) Rent 250
vi) Interest 200
vii) Gross domestic capital formation 300
viii) Net fixed capital formation 200
ix) Change in stock 50
x) Factor income from abroad 80
xi) Net indirect taxes 120

17. Explain Keynesian theory of income and employment . 6

or

An increase of Rs. 250 crore in investment in an Economy, resulted in total

increase in income of rs.1,000 crore. Calculate the following:
a. Value of investment multiplier
b. Change in savings
c. change in consumption expenditure
d. Marginal propensity to consume.

SECTION B: INDIAN ECONOMIC DEVELOPMENT

18. TISCO is: 1
a) Tata Iron and Steel Company b) Titan Iron and
Steel Company
c).Tata Industry and steel company d) Telecom, iron
and steel company
19. In a socialist economy: 1
a) All economic decisions taken by the central authority
b) All the economic decisions taken by Private enterprises
c) Economic decisions taken by both private and public
sector
d) None of the above.

20. Under we remove tariff, subsidies on the flow

of goods and 1
Services between counties

a) Globalisation b) liberalization c) privatization d)

disinvestment

21) Which of the following is not the source of Human capital

formation ? 1
 a) Education b) saving c) Health d)
Information

22) Percentage of education cess levied on all Union taxes is :

1
a) 4% b) 3% c) 2% d) 1%

23) Define Worker Participation Rate.

1
(OR)
What is meant by job less growth ?

24) In 1997,the UN conference on climate change was held in:

a) Japan b) India c) Germany d) China

25) Which of the following is a programme for the launch for

elderly people ?
a) Public Distribution System b) Pradhan Mangri
Grameena SadakYojana
c) Social assistance Programme d) National
Food for Work Programme

26) Define rural development

27) National Bank for Agriculture and Rural

Development (NABARD) established in

28) Explain any three sources of human capital formation 3

(OR)
Write a short note on ‘Global Burden Deceases ‘
29) The central and State governments take many initiatives and
generate employment. What
Are the social and economic values associated with
employment generation ? 4

30) Explain main causes of poverty in India 4

(OR)
Explain any two long –term objectives of economic planning

31) Explain the steps that have been taken towards

Liberalisation. 4
32) What is Organic farming and how are the farmers
benefited from it?
4

33) How did Green revolution benefited the farmers? Also give
its advantages. 6
(OR
34) Why was public sector given a leading role in
Industrial development during the Planning period.
Compare and contrast the development of India, China
and Pakistan with respect
to the indicators of Human Development Index 6
 PART 1 -Introductory Macroeconomics

ECONOMICS

IMPORTANT FORMULAE
UNIT V: NATIONAL INCOME ACCOUNTING
GVO = IC+ CFC + NIT + CE + OS +
MISE
= Sales + Change in Stock
= (Domestic Sales + Exports) + (Closing Stock – Opening Stock)
= VO in Primary Sector + VO in Secondary Sector + VO in Tertiary Sector
= Sales + Change in Stock – IC
= NDP + CFC
MP
= NDP + NIT+ CFC
F
C
= NNP – NFIA + NIT + CFC
F
C
= NNP – NFIA + CFC
MP
= (VO in PS + VO in SS + VO in TS) – (IC in PS + IC in SS + IC in TS)
NDP =GVO–IC–CFC–NIT
FC
= GDP – CFC – NIT
M
P
= GDP – CFC
F
C
= NNP – NFIA
F
C
=CE+OS+MISE
= GNP – CFC – NFIA – NIT
M
P
NNP /NI=GVO–IC–CFC–NIT+NFIA
FC
= GDP – CFC – NIT + NFIA
MP

= GNP – CFC – NIT

MP
= NDP + NFIA
FC
= (CE + OS + MISE) + NFIA
ii) Value of Output & Value Added (Domestic Product) is the presence of IC in the former &
absence of IC in the latter. GVO = GDP + IC; GDP = GVO – IC
MP MP

ii) ross Domestic Product (GDP) & Net Domestic Product (NDP) is the presence of CFC in
the former & absence in the latter. GDP = NDP + CFC; NDP = GDP – CFC
iii) Market Price (MP) & Factor Cost (FC) is the existence of NIT in the former & absence in the
latter.
GDP = GDP + NIT; GDP = GDP – NIT
MP FC FC MP
 iv) National& Domestic Product is the existence of NFIA in the former & absence in the latter.
NDP = NNP – NFIA; NNP = NDP + NFIA
FC FC FC FC
GDCF=NDCF + CFC
Or GDCF = NDFCF + CFC + Change in stock.

METHODS TO MESSURE NATIONAL INCOME

VALUE ADDED METHOD INCOME METHOD EXPENDITURE METHOD

↓
GVO = VO ps + Voss + VO ts NVAfc / NDPfc / DI = GDP mp = C + I + G + (X-M)
= SALES + CHANGE IN STOCK
= IC + CFC + NIT+COE+OS+MISE COE + OS +MISE

↓ ↓

GVAmp =GVO mp – I C NDP mp = GDP mp - CFC

↓ ↓

NVA mp = GVA mp – C F C NDP fc = NDP mp – NIT

↓
↓
NNP fc = NVA mp – N I T

↓ NNP fc / NI = NDP fc + NFIA

NNP fc / NI = NVA fc + NFIA

RELATED AGGREGATES OF NATIONAL INCOME

NATIONAL INCOME / + NIT NNDI

NNP mp + NCT FROM + CFC GNDI
NNP fc ROW

-NFIA

NDP @ fc OR DOMESTIC INCOME

- (INCOME FROM GOVT ADMINISTRATIVE DEPARTMENTS

+ SAVINGS OF NON DEPARTMENTAL ENTERPRISES
Methods to measure National Income:
1. Value Added Method: NNPfc = Sales + Change in Stock – IC – Depreciation – Net
Indirect Tax + Net Factor Income from Abroad.
Sales = Price X Output; Change in Stock = Closing stock – Opening stock; NIT = Indirect
Tax – subsidies; NFIA = Factor Income from Abroad – Factor Income to Abroad
2. Income Method: NNPfc = Compensation of employees + Operating Surplus + Mixed
Income + NFIA
COE = Wages & salary + Employers contribution to social security scheme
Operating Surplus = Rent + Interest + Royalty + Profit
3. Expenditure Method: NNPfc = Private final consumption expenditure + Govt. final
consumption expenditure + Gross domestic capital formation + Net Exports – Depreciation
– Net Indirect Tax + NFIA
ECONOMICS
Basic Rules: 1. Gross – Net = Depreciation; 2. Market Price – Factor Cost = Net Indirect Tax;
3. National Product – Domestic Product = NFIA; 4. Value of Output – Intermediate cost =
Value added
UNIT VI: MONEY & BANKING
Money Supply (M) = Currency held with general public (C) + Demand deposits of general
public held by the Commercial Banks(DD)
M1= C + DD + OD(Other Deposits held by RBI; M2= M1 + Savings deposits of POSB. M3 =
M1 + Net time deposits of Banks; M4= M3+ Deposits of Post Office Saving Organization
Credit multiplier(K) = 1/Legal Reserve Ratio X 100; Total Initial Deposit = K X Initial
Deposit
UNIT VII: THEORY OF INCOME DETERMINATION
MPC + MPS = 1; MPC = 1 – MPS; MPS = 1 – MPC; MPC = ΔC/ΔY; MPS = ΔS/ΔY; APC = C/Y;
APS = S/Y; APC + APS = 1; APC = 1-APS; APS = 1 – APC
Investment Multiplier(K) = ΔY/ΔI; K = 1/1 – MPC; K = 1/MPS;
CONSUMPTION FUNCTION: C = Co + bY, where C is Consumption expenditure; CO =
Autonomous Consumption ie Consumption at zero level of income; ‘b’ is slope of consumption
curve that is constant which is equal to ΔC/ΔY ie MPC; Y is National Income
SAVING FUNCTION: S = - Co + (1-b)Y, where S is Savings, - Co is autonomous saving, (1-b)
is MPS ie slope of saving curve, Y is National Income
UNIT VIII: GOVERNMENT BUDGET & ECONOMY
Revenue deficit = Revenue expenditure > Revenue Receipts
Fiscal Deficit = Total Expenditure – Total Receipt (Net of Borrowings)
Primary Deficit = Fiscal Deficit – Interest Payments
UNIT IX: BALANCE OF PAYMENTS
Balance of Trade = Value of Exports – Value of Imports Surplus
BOP = International Receipts > International Payments Deficit BOP
= International Receipts < International Payments
MACRO ECONOMICS: UNIT VII: THEORY OF INCOME DETERMINATION
 MACRO ECONOMICS (PART – 1)

NATIONAL INCOME ACCOUNTING

KEY CONCEPT
Macro Economics: - It is that branch of economics which studies the aggregates of an
economy or the larger units of an economy. The main objective of Macroeconomic study is
'how the income & employment of an economy is determined?' This branch of economics
deals with the fuller utilization of resources.
National Income: - It can be defined as the net value of all final goods & services produced
by the normal residents in the 'domestic territory of a country in an accounting year (NVAFC),
and adding net factor income from abroad (NFIA).NI= NVAFC + NFIA
Depreciation or Consumption of Fixed Capital (CFC): - It refers to the loss of value of
fixed assets due to normal wear & tear.
Normal Residents: -This refers to those individuals & institutions who normally reside in a
country for more than one year, and whose centre of economic interest lies in that country.
Economic Territory: - Besides the landmass lying within the political frontier of a country,
includes 200 nautical miles of the sea from the front.
Net Indirect Tax: - It refers to the difference between Indirect Tax paid by the enterprises to
the Govt. & the Subsidies paid by the Govt. to some of the enterprises.
Operating Surplus (OS): Operating Surplus is defined as the sum of Income from property
& Income from entrepreneurship.
Mixed Income of Self Employed: - it refers to the profits & dividends earned by the
unincorporated & household enterprises, & the income earned by the self-employed viz.
Doctors, Architects, Engineers, Professors, Teachers & other professionals.
Private income: - private income refers to the income which accrues to private sector from
all sources within and outside the country.
Personal income: - personal income is the sum total of all the incomes that are actually
received by households from all the sources.
Personal disposal income: - it refers to that part of personal income which is actually available
at the disposal of households. It is that part of personal income which is left with the households
after making payments of taxes, fee and other miscellaneous receipts of the government.
National disposable income: - national disposal income refers to the income which is available
to the whole country for disposal. It includes both factors income and transfer income.
INCOME METHOD

EXPENDITURE METHOD :
 Personal Final Consumption Expenditure
+
Government Final Consumption Expenditure
_. Business Fixed Investment
+ -. Inventory Investment
Investment Expenditure
_. Residential Construction Investment
+
_. Public Investment

Net Exports
Exports - Imports

-Depreciation

NDPMP

-Net Indirect Taxes

NDPFc

+NFIFA

Value of Output
in Primary Sector Value-Added By Primary Sector
- Intermediate +
Consumption Value-Added by Secondary Sector
+
Value-Added by Tertiary Sector
GDPMP
Depreciation
NDPMP
- Net Indirect Taxes
NDPFc
+ NFIFA
 DETERMINATION OF INCOME
AND EMPLOYMENT

.\GGRECiATE DEMAND AGGREG.\TE SUPPLY

CONSUMPTION SAVll\G
CONSUMPTION IN\'ESTMFNT GOVERNI\1El\T
NET EXPORTS
EPENDITURE EPDIDITURE EPENDITURE
(X-M)
(C) (I) (G)

r>.!PC -t M PS -I
PROPEN SITY PROPENSITY TO
TO CONSUME
SAVE

APC -tAPS= I
APC APC

pa went for Goods and Services

Goods and Services

Saving Saving

Factor Services

Factor Payment
 VERY SHORT ANSWER QUESTIONS
Q. Define the term Macro Economics.
Ans : It is that branch of economics which studies the aggregates of an economy or the larger
units of an economy. The main objective of Macroeconomic study is 'how the income &
employment of an economy is determined?' This branch of economics deals with the
fuller utilization of resources.
Q. Define the term National Income.
Ans : It can be defined as the net value of all final goods & services produced by the normal
residents in the domestic territory of a country in an accounting year (NVA FC), and adding
net factor income from abroad (NFIA).NI= NVAFC + NFIA
 Q. Who are Normal Residents?
Ans : This refers to those individuals & institutions who normally reside in a country for more
than one year, and whose centre of economic interest lies in that country.
Q. Briefly explain the concept of Depreciation or Consumption of Fixed Capital (CFC).
Ans : It refers to the loss of value of fixed assets due to normal wear & tear.

SHORT ANSWER QUESTIONS

Q. Briefly explain the concept of Net Indirect Tax.
Ans : It refers to the difference between Indirect Tax paid by the enterprises to the Govt. & the
Subsidies paid by the Govt. to some of the enterprises. This concept is used to obtain the
national income at factor cost or factor prices. The NIT is deducted from market price
(MP) to get factor cost (FC).Indirect Tax is the amount of burden whose impact falls on
one person or a group and the incidence falls on other person or group . Subsidies refer to
the financial assistance or aid provided by the state to the weak & sick units.
Q. Define the term Net Factor Income from Abroad & explain its components.
Ans : It is defined as the difference between income earned by the resident households in abroad
& the same earned by the foreign residents in a resident country in an accounting year. In
other words, it is the income earned from work, property & entrepreneurship by the
resident household of a particular country in the ROW 'less' the same earned by the
residents of ROW in a resident country in an year.
Components of NFIA: It contains three elements viz:
i) Net Compensation of Employees: This refers to the income from work earned by
the resident workers in the ROW 'less' the same earned by the resident workers of
ROW in a resident country.
ii) Net Operating Surplus: This refers to the difference between the income from
property & entrepreneurship earned by the residents in ROW & the same earned by
the foreign residents in a resident country.
iii) Net Retained Earnings of Resident Companies in Abroad: It is the difference
between the retained earnings of the resident companies abroad & the same of the
foreign companies in a resident country.
Q. Define the following Concepts of Value of Output.
Ans : 1. Intermediate Cost / Consumption is defined as the expenditure incurred on raw
materials, fuel, semi-finished goods & other inputs by the firms to produce final products.
It is the sum of purchase of raw materials & fuel purchased in domestic market & abroad
(Import of raw materials). This amount has to be deducted from GVO to obtain GDPMP, as
the intermediate expenditure is not estimated in the estimation of NI to avoid the problem
of double counting.
2. Final sales are the sum of domestic sales & sales made in abroad (Exports) &
production for self-consumption.
3. Change in Stock is defined as the difference between Closing Stock & Opening
Stock.
 Closing stock is the stock of raw materials, semi-finished goods, unsold finished goods
been held by the enterprises; strategic materials &food grains held by the govt. agencies;
& the livestock held by the animal husbandry, been estimated in the end of an accounting
year i.e. 31st of March of a year.
Opening stock is the same estimated in the beginning on an accounting year i.e. 1 st of
April of a year.

LONG ANSWER QUESTIONS

Q. Explain the methods of measuring NI. Also state their precautions.
Ans : There are three methods to measure NI which is based on the principle of equality
between income, expenditure & production. These methods are i) Value Added or
Product or Output method; ii) Income method; iii) Expenditure or Commodity Flow
method.
1. Value Added Method: By value added we mean the money value of final products
produced by the normal residents in the domestic territory of a country. It is the
difference between Value of Output & Intermediate Cost. Thus, VA = VO - IC
This method is based on the production of the country in a year. The following steps can
be enumerated to explain this method:
i) Firstly we identify the production units & classify them into three economic sectors
viz. primary, secondary & tertiary sectors.
ii) Then we estimate the money value of total production in each & every units, we get
GVO.
iii) Thirdly, we calculate the IC in every unit & deduct IC from VO to obtain VA, &
after summing the VA of all the units, we get GVAMP / GDPMP.
iv) Next we deduct CFC & NIT from GVAMP, we get NVAFC.
v) Finally, we add NFIA to NVAFC to get NI/NNPFC.
Precautions: - The following precautions are required while using this method, viz.
i) The value of intermediate goods should not be included, rather the value of only the
final products to be included. Otherwise, the problem of double counting may arise.
ii) The value of second hand goods is not to be included since the value of this goods
have been already valuated in the NI of those years when these goods have been
manufactured & sold.
iii) The value of illegal goods to be excluded because these goods have no legal sanction
or authority to be produced or sold.
iv) The value of leisure items & non market goods not to be included because it
is difficult to keep accountability of these goods, & moreover, these goods are
produced with not the motive of earning income.
v) The value of transfer payments are to be excluded because these transactions do not
contribute in the flow of income & product, rather these are transfer of ownerships.
2. Income Method: According to this method, the factor incomes have to be estimated,
& then, after adding the total factor incomes generated in the domestic territory, we
get domestic income. The domestic income is then has to be added to NFIA, we
obtain NI. The following steps can be followed to measure NI by this method:
i) Firstly, the factor incomes have to be identified & then classify them into CE, OS &
MISE.
ii) Then we add the total factor incomes generated in the domestic territory i.e. CE + OS
+ MISE, we get domestic income (NVA FC).
iii) Finally we add the domestic income to the NFIA, we get NI.
Precautions: The following precautions have to be considered while measuring NI by
this method:
a) The transfer incomes are not to be included because these transactions do not
contribute to the flow of national production. For e.g., tax, gifts, donations,
scholarships etc.
b) The incomes derived from illegal sources are not to be included since the illegal
activities are not backed by the legal sanction. For e.g., gambling, smuggling, theft &
loot etc.
c) The incomes received after selling second hand goods are not to be included but
the commission earned by the broker is to be included because it is a factor income.
d) The income derived from leisure time activities is not to be included because it is
difficult to determine the actual price of leisure time goods.
e) The income earned by selling shares is also not to be included since this is
considered as the transfer income because these transactions are mere transfer of
ownership of assets.
3. Expenditure Method: According to this method, NI is evaluated by estimating the
final expenditure incurred by different economic units' viz. household, govt. & the
enterprises. The following steps are to be followed:
i) At first, the sources of final expenditure have to identified & classify them into
Private Final Consumption Expenditure (PFCE), Govt. Final Consumption
Expenditure (GFCE), Gross Domestic Capital Formation (GDCF),& Net Exports (X-
M).
ii) Then we estimate the above four components of final expenditure incurred in the
domestic territory in an year & add all the four components, we get GDPMP.
iii) Next, we deduct CFC & NIT from GDPMP, we get NDPFC.
iv) Finally, we add NFIA to NDPFC, we get NI.
Precautions: The following precautions are to be taken:
a). The expenditure on intermediate goods are not to be estimated, otherwise it may
lead to problem of double counting. We must make sure that we are not including the
intermediate expenditure.
 b). The expenditure on second hand goods & scraps is not to be included because it is
already been included in the year when these goods have been manufactured, but the
expenditure made on broker's service as commission is to be included.
c). The expenditure on transfer payments is not to be included because this
expenditure does not lead to production of goods & services in the economy.
d). The expenditure on illegal goods is also not to be included because these goods are
not been legally sanctioned.
e). The expenditure on products produced through leisure time activities & non
market activities is not to be included.
Q. Define the term Double counting with the help of an example.
Ans : It refers to the situation when the value of a good is estimated more than once. It is a
problem which leads to overestimation of NI. The problem of double counting arises
when the value of intermediate goods is included or the value of second hand goods is
estimated. The problem of double counting can be avoided by adopting any of the two
approaches viz. Final Goods & Value Added approach. In case of final goods approach it
is difficult to differentiate between intermediate good & final good. As there are some
goods which are final to some & intermediate to some. For example, pencil to a student is
final good but to an artist it is simply an intermediate good. Thus, it is commendable to
use value added approach to estimate the National income. This can help us to avoid
double counting in the estimation of NI.
We can understand the concept of double counting with the help of following illustration:

Stages of production Value of inputs Value of output Value Added

Farmer-Wheat --- 500 500
Flour Mill-Flour 500 700 200
Bakery-Bread 700 1000 300
Distributer 1000 1200 200
Total 2200 3400 1200
From the above table, we see that, suppose we need to estimate the value of production of
bread, we have to estimate the value added by different producers but not the value of
output which amounts to Rs.3400. If we include this value then the value of wheat is been
valuated more than once say 4 times which gives overestimated value of the wheat
produced. So to avoid this kind of situation, we have to calculate the value added of the
bread at every stage of its production which gives a precise and correct picture about the
production of bread in the economy.
Q. Explain the related aggregates of National Income.
Ans : There are six related aggregates of NI as mentioned above in the chart.
1. NDPfc accruing to private sector/Domestic product accruing to private
sector/Share of private sector in domestic income refers to that part of total
domestic income which accrues to general public viz. household & firms. It is
 obtained by deducting the share of Govt. in national income also referred to as
NDPfc accruing to public sector from the NDPfc.
NDPfc accruing to private sector= NDPfc – NDPfc accruing to Govt.
NDPfc accruing to Public sector = Profits & Dividend accrued to Departmental
enterprises + Savings of Non Departmental enterprises.
2. Private income refers to that part of domestic income which is accrued to all the
residents from all the sources in a year. Thus, Private income = NDPfc + NFIA + Net
Current Transfers From Abroad + National Debt Interest + Current transfers from
Govt.
Q. How private income is different from National Income?
Private Income is the income generated from all sources ie it includes both factor &
transfer incomes, while NI includes only factor incomes. Whereas, both includes NFIA.
3. Personal income refers to that part of private income which is accrued to only the
household, & it can be obtained by deducting the income of firms ie corporation tax
& retained earnings of private corporate sector.
Personal Income = Private Income – Corporation Tax – Undistributed profits
4. Personal disposable income refers to that part of personal income which is actually
received by the household for disposal in consumption & savings. It is also equal to
Household final consumption expenditure & household savings. Thus, Disposable
income= Personal Income – Personal Tax – Miscellaneous Receipts of the Govt.
administrative departments.
5. Net National Disposable Income (NNDI) refers to that part of National
Income which is available with the nation for disposal. Thus,
NNDI = NNPfc+Net Indirect Tax+Net current transfers from abroad
6. Gross National Disposable Income is the national disposable income including
depreciation. Thus,
GNDI = GNPmp + NCTFA or NNPfc – depreciation + NIT + NCTFA
Q. Differentiate between Real & Nominal GDP.
Ans : Nominal GDP is estimated at current price ie the market values of the prevailing year,
while Real GDP is estimated at constant(base)price. Nominal GDP is helpful to measure
the price fluctuations while Real GDP helps to measure & compare the economic growth
& performance. The nominal GDP is so called because it reflects the growth of output in
monetary terms as it includes price effect, whereas real GDP reflect the growth of output
in real/physical terms & does not include the price effect.
Q. Which one is a better indicator of economic growth & why?
Ans : Real GDP as it does not include the price effect on the growth of output.
Q. What is meant by economic welfare? What is its indicator?
Ans : The term welfare means the sense of wellbeing. The economic welfare means the sense of
wellbeing which are affected by the non-economic factors viz. NI, consumption
expenditure etc. which can be expressed in monetary terms. Wellbeing of the people is
 also affected by various non-economic factors viz. pollution, liberty etc. The economic
welfare is indicated by Per Capita Real GDP.
Q. Explain the limitations of Per Capita Real GDP as Indicator of Economic Welfare.
OR “The economic growth of a country is rising but most of the people are still poor
& there is a huge environmental pollution.” Explain.
It has been found in many economies that despite of a faster growth in GDP, there are
many such problems still exist in those countries like starvation, corruption,
environmental degradation & ecological imbalance etc. This reflects the fact that Real Per
Capita GDP has certain limitations as a good indicator of economic welfare. These are:
1. The growth in GDP does not reflect the fact about the distribution of income
among the people. It may so happen that few of the individuals are becoming richer
while the rest are remaining poorers. This leads to widening of gap between the rich
& poors. This finally hampers the economic growth & development.
2. The composition of goods & services is not reflected in the growth of GDP. There
may be rise in GDP but it is not certain that what kind of products have shown rise in
production, whether war time goods or peace time goods, harmful products like
liquor & tobacco or useful products like food grains etc. The economic welfare do
not depends upon only the volume of production but also its composition. But the
irony is that GDP reflects only the money value of volume but not the composition.
3. Non-monetary transactions: viz services of housewives & other members
rendered to the other members of the family etc. are not estimated in GDP due to
lack of adequate data & difficulty in their valuation. Whereas, these services contribute
to economic welfare in many ways, & thus it remains underestimated.
4. The Externalities are not taken into account while estimating GDP. The
economic activities leads to various kinds of benefits as well as harms to human
being. The benefits are referred to as positive externalities while the harms are
referred to as negative externalities. For example, construction of a highway or
flyover reduces transport costs & journey time to those who have not contributed
towards the cost of construction. This is not reflected in GDP, & thus welfare is
underestimated. Similarly, the negative externality is also associated viz. pollution &
global warming etc. The construction of flyover & highways do not pay anything for
this harm caused to the people of that vicinity. Here, welfare is less than what is
indicated by GDP.
Q. How Real GDP is derived?
Ans : Real GDP = Nominal GDP/Price Index X 100
Q. Explain the circular flow of Income & Product (two sector model).
Ans : Circular flow refers to the cyclical transactions of income & expenditure (money flow) &
goods & services (real flow) among the economic sectors viz. household, enterprises,
Govt. & foreign sector.
Q. How are the following treated while estimating private final consumption
expenditure Give reasons for your answer.
Ans : 1. Exports; 2. Direct purchases made abroad by resident household; 3. Final consumption
expenditure of non-profit institutions serving households; 4. Change in stocks.
Ans: 1. Exports will not be included in private final consumption expenditure as exports do not
reflect consumption expenditure by residents. 2. It will be included in private final
consumption expenditure as such purchases are meant for consumption. 3. It will be
included in private final consumption expenditure as non-profit institutions serving
households are a component of household sector. 4. It will not be included in private final
consumption expenditure as it is a component of capital formation.
Q. Differentiate between stock & flow.
Ans : Stock refers to those variables which are measurable at a given point of time while flow
refers to those variables which are measurable during a given a period of time. In this
way, stock is static while flow is dynamic. Stock has no time dimension while flow has. For
eg. Wealth is stock while income is flow, capital is stock while capital formation is flow.
Multiple Choice Questions
1. In the production of sugar, sugarcane is
(a) a final good (b) a capital good
(c) an intermediate good (d) none of these
Ans. (c)
2. Capital goods are those goods
(a) which are used in the production process for several years;
(b) which are used in the production process for few years;
(c) which involve depreciation losses;
(d) both (a) and (b)
Ans. (d)
3. Which of the following leads to depreciation?
(a) Normal wear and tear (b) Damages due to floods
(c) Damages due to market-crash (d) None of these
Ans. (a)
4. ‘Income of the family’ is the example of which variable?
(a) Stock (b) Flow
(c) Both stock and flow (d) Neither stock nor flow
Ans. (b)
5. A quantity measured per unit of time period is known as
(a) Stock variable (b) flow variable
(c) inventory (d) none of these
Ans. (b)
 6. Which one of the following is a flow variable?
(a) Consumption (b) Wealth
(c) Quantity of money (d) None of these
Ans. (a)
7. GNP at Market Price is measured as:
(a) GDP at Market Price – Depreciation;
(b) GDP at Market Price + Net Factor Income from Abroad
(c) GDP at Market Price + Subsidies;
(d) NDP at Factor Cost + Net Factor Income from Abroad
Ans. (b)

SHORT ANSWER QUESTIONS

1. Define intermediate goods.
Ans : Intermediate goods are those goods which are within the boundary line of production and
not ready for use by their final users. These goods are purchase for further sale or are to
be use as raw material by the producers.
2. What is meant by producer goods?
Ans. Producer goods are those goods which are used for further production. These may be used
either as raw material(like wood used in making chair) or as fixed assets (like a tractor in
farming).
3. What is meant by capital goods?
Ans. Capital goods are those goods which are used in the process of production for several
years and which are of high value. These goods are fixed assets of the producers.
4. What is fixed investment?
Ans. Fixed investment refers to increase in the stock of fixed assets or capital goods (like plant
and machinery) of the producers during an accounting year.
5. What do you mean by inventory investment?
Ans. Change in inventory stock during the year is called inventory investment of the producer.
6. What is meant by consumption of fixed capital?
Ans. Consumption of fixed capital or depreciation refers to loss of value of fixed assets in use
on account of: 1. Normal wear and tear; 2. Normal rate of accidental damage, and 3.
Expected or foreseen obsolescence.
7. Define depreciation reserve fund?
Ans. Depreciation reserve fund is a provision of funds to cope with depreciation losses. These
fund are used for the replacement of fixed assets when these are worm-out or when these
become obsolete/outdated.
 1. Define real flow.
Ans. Real flow refers to the flow of factor services from the household sector to the producing
and the corresponding flow of goods and services from the producing sector to the
household sector.
2. Define money flow.
Ans. Money flow refers to the flow of money (in term of receipts and payment) across different
sectors of the economy. It is called money flow because it involves the flow of money
value from one sector to the other. Thus, producers make sector payment to the
households and household make payment to the producers (for the purchase of goods and
services) in term of money.
3. Should purchase of wheat in the wholesale market be treated as the purchase of final
goods?
Ans. Purchase of wheat in the wholesale market is often done by the trader. Wheat is a
consumption goods and traders are not the final users of wheat. Therefore, purchase of
wheat in the wholesale market is to be treated as the purchase of intermediate goods.
However, sometimes the households buy wheat in bulk from wholesale market. In
such situation, purchase of wheat should be treated as purchase of final good.
4. What is national debt interest?
Ans. National debt interest refers to the interest payment accruing to residents of the country on
account of borrowings by the govt. The government borrows money from the people (by
issuing bond like National Saving Certificates in India).
5. What is meant by transfer payment?
Ans. Transfer payment (or transfer expenditure) are all those unilateral payment corresponding
to which there is no value addition in the economy.
6. What is meant by nominal GDP?
Ans. Nominal GDP refers to market value of the final goods and services produced
Q. How will you treat the following in the calculation of gross domestic product of
India? Give reasons for your answers.
(i) Profit earned by a branch of foreign Bank in India.
(ii) Salaries of Indian employees working in embassy of Japan in India
(iii) Salaries of residents of Japan working in Indian embassy of Japan
ANS. (i) Yes, it will be included in the gross domestic product of India as profits are earned
within the domestic territory of India.
(ii) No, it will be not included in the gross domestic product of the India as the embassy
of japan is not the part of domestic territory of India.
(iii) Yes, it will be included in the gross domestic product of India as the India embassy is
the part of domestic territory of India.
 Q. Classify the following expenditures as intermediates consumption expenditures
and finals consumption expenditures.
(i) Expenditure on research and development by TATA on Nano car.
(ii) Insurance premium paid by a firm to an insurance company.
(iii) Insurance premium paid by households to an insurance company.
(iv)Expenditure on repairs and maintenance of plant and machinery.
(v) Expenditure incurred by a firm on purchase of equipment.
(vi)Advertising expenditure incurred by Airtel on promotion of its product.
(vii) Business expenses of employees on tour and entertainment.
Ans: Intermediates consumption expenditure: (i), (ii), (iv), (vi), (vii); final consumption
expenditure: (iii), (v).
TRUE & FALSE
1. Nominal GDP can never be less than real GDP.
FALSE: nominal GDP can be less than the real GDP, if price in the current year are less
than the price in the base year.
2. Good produced for self-consumption will be included in national income.
TRUE: such goods contribute to the current output and their imputed value will be
included in national income.
3. Increase in stock of goods held by a consumer will contribute to capital formation.
FALSE: any increase in goods of stock held by consumers does not contribute to capital
formation as it is assumed that such goods are consumed, the moment are purchased.
4. Gross domestic capital formation is always greater than gross fixed capital
formation.
FALSE: gross domestic capital formation can be less than gross fixed capital formation if
change in stock is negative.
5. Productions of services for self-consumption are not included in national income.
TRUE: Such services are not included in national income as it is difficult to ascertain
their market value and they are not rendered for earning income.
Q. From the information given below, calculate:1.Value added by firm A and firm B; 2.
GDPmp;3. NVAfc
Particulars in crores
i. Sales by firm B to general government 100
ii. Sales by firm A 500
iii. Sales by firm B to households 350
iv. Change in stock of firm A 20
v. Closing stock of firm B 40
vi. Opening stock of firm B 30
vii. Purchases by firm A 320
viii. Indirect Taxes paid by both the firms 75
ix. Consumption of fixed capital 120
x. Sales by firm A to B 200
 Solution: Value added by firm A
= Sales by firm A + Change in stock of firm A – Purchases by firm A from firm C
= 500 + 20 – 320; = 200 crores Answer
Value added by firm B=Sales by firm B to general government + sales by firm B to
households + (Closing stock of firm B – Opening stock of firm B) – Purchases by firm B
from firm A
= 100 + 350 + (40-30) -200; = 260 crores Answer
Gross Domestic product at market price
= value added by firm A + Value added by firm B; = 200 + 260; = 460 crores Answer
Net value added at factor cost
= GDPmp – CFC – Indirect Taxes paid by both the firms; = 460 – 120 -75; = 265 crores
Answer
Q. Calculate 'Sales' from the following data:
Particulars Rs. lakhs
i. Net value added at factor cost 300
ii. Intermediate consumption 200
iii. Indirect tax 20
iv. Depreciation 30
v. Change in stocks (–) 50
Solution:
Sales= Net value added at factor cost – Change in stocks + Intermediate consumption +
depreciation + Indirect tax; =300 – (-) 50 + 200 + 30 + 20; =600 lakhs Answer
Q. Firm A buys from X inputs worth Rs.500 crores and sells to firm B goodsworth Rs.1000
crores and to firm C goods worth Rs.700 crores. Firm B buys from Y inputs worth Rs.200
crores and and sells to firm C goods worth Rs.1500 crores and finished goods worth
Rs.2000 crores to households. Firm C buys from Z inputs worth Rs.150 crores and sells
finished goods worth Rs.4,150 crores to households. Calculate value added by firms
A, B and C and GDPMP Soluation:

Firm Value of output (VO) Intermediate consumption Value Added

(IC) (VA = VO – IC)
A Sales to B: 1,000 Purchase from X: 500 1,200
+ Sales to 700
C:
B Sales to C: 1,500Purchase from A: 1,000
+ Sales to households: 2,000
+ Purchase from Y: 200 2,300
C Sales to households: 4,150
Purchase from A: 700
+ Purchase from B: 1,500
Value added by firm A = GVAMP of A + Purchase
= Rs.1,200
from crores
Z: 150 1,800
 Value added by firm B = GVAMP of B = Rs.2,300 crores
Value added by firm C = GVAMP of C = Rs.1,800 crores
GDPMP =∑GDAMP = 1,200 + 2,300 + 1,800 = Rs.5,300 crores

Q: Calculate National Income by Income and Expenditure method.

Particulars in crores
i. Final Consumption Expenditure
Private Sector 350
Government Sector 100
ii. Mixed income of self-employed 35
iii. Gross domestic fixed capital formation 70
iv. Opening stock 15
v. Compensation of employees 250
vi. Closing stock 25
vii. Imports 20
viii. Rent 75
ix. Consumption of fixed capital 10
x. Net indirect taxes 25
xi. Interest 25
xii. Net factor income from abroad -5
xiii. Exports 10
xiv. Profit 100

Solution:
National Income by Income method
= Mixed income of self-employed + Compensation of employees + Rent + Interest
+ Profit + Net factor income from abroad
= 35 + 250 + 75 + 25 + 100 + (-5)= 480 crores
National income by Expenditure method
= Final consumption expenditure of Private sector + Final consumption expenditure
of government sector + Gross domestic fixed capital formation + (Closing stock –
Opening stock ) + Net Exports – Consumption of fixed capital + Net Factor Income
from abroad - Net Indirect Tax
=350 + 100 + 70 + (25 - 15) + (10 - 20) -10 + (-5) -25; = 480 crores
Q: From the following data, calculate (a) Gross Domestic Product at Factor Cost and (b) Factor
Income To Abroad:
Particulars in crores
i. Compensation of employees 800
ii. Profits 200
iii. Dividends 50
iv. Gross national product at market price 1,400
v. Rent 150
vi. Interest 100
vii. Gross domestic capital formation 300
viii. Net fixed capital formation 200
ix. Change in stock 50
x. Factor income from abroad 60
xi. Net indirect taxes 120

Solution:
(a) Gross Domestic Product at Factor Cost
= Compensation of employees + Profit + Rent + Interest + Depreciation*
= 800 + 200 + 150 + 100 + 50; =1,300 crores
(b) Factor Income To Abroad
= Factor income from abroad - { Gross national product at market price – (Gross
Domestic Product at Factor Cost + Net indirect taxes)}
= 60 – {1,400 – (1,300 + 120)}; = 80 crores
Q. The net domestic product at market price of an economy is Rs 4,500 CRORES. The
capital stock is worth Rs 4,000 CRORES and it depreciates at the rate of 10% per annum.
Indirect taxes amount to Rs 150 CRORES, subsidies amount to Rs 20 CRORES, factor
income from the rest of the world is Rs 400 CRORES and to rest of the world is Rs 600
CRORES. Find out the gross national product at factor cost.
Solution: Gross National product at Factor Cost (GNP FC )
= Net Domestic Product at Market price + Depreciation – Net Indirect
Net Factor income from abroad
= 4,500+ 10% of 4,000 - (150-20) + (400-600)
= 4,500 + 400 – 130 – 200; = Rs. 4,750 CRORES
Q2. Calculate Private Income.

PARTICULARS RS IN CRORES
(1) Net domestic product at factor cost
(a) Private sector 1,200
(b) Government sectors 400
(2) Net current transfers from the rest of the world 200
(3) Current transfer from Government 100
(4) Interest on national debt 500
(5) Net factor income from abroad 50
Solution: = Net domestic Product at Factor cost Private Sector + Net factors
income from Abroad+ Net current transfer from the rest of the world + Current
transfer from Government+ Interest on national debt
= 1,200+50+200+100+500 = RS 2,050 CRORES
Q. Calculate from the following data: (a) Net National Disposal Income ;( b)
Private Income; (c) Personal Disposal Income.

PARTICULARS RS IN CRORES
(1) National income 800
(2) Indirect taxes 70
(3) Subsidies 10
(4) Saving of non-departmental enterprises 30
(5) National debt interest 50
(6) Net factor income from abroad (-)20
(7) Consumption of fixed capital 40
(8) Current transfer from the rest of the world 45
(9) Income from property and entrepreneurship accruing to
government administrative departments 60
(10) Direct taxes paid by Households 40
(11) Profits 100
(12) Saving of private corporate sector net of retained earnings of
foreign companies 80
(13) Current transfer from government administrative departments 90
(14) Corporation tax 25
Solution:
(A) Net National Disposal Income = (1) + {(2) - (3)}+ (4); = 800 + {70-10}+ 45= RS
905 Cr
(B) Private income = (1) – (4) – (9) + (5) + (13) + (8); = 800 – 30 – 60 + 50 + 90 + 45;
= RS 895 CR
(C) Personal Disposal Income = Private income – (12) – (14) – (10)=895 – 80 – 25 – 40
= RS 750 CR
Q. Calculate the Gross Domestic Product at Market Price.

PARTICULARS RS IN CRORES
(1) Net Factors income from abroad 300
(2) Subsidies 350
(3) Saving of Private Corporate sector 940
(4) Income from entrepreneurship and property accruing to
government administrative department 2,100
(5) Current transfer from rest of the world 1,885
(6) Corporation tax 1,200
(7) Personal Savings 15,500
(8) Interest on national debt 1,600
(9) Net indirect taxes 12,065
(10) Net Private donation from abroad 150
(11) Personal final consumption expenditure 56,565
(12) Consumption of fixed capital 7,050
(13) Direct taxes paid by households 2,000
(14) Current transfers from government 2,500
Solution: Gross Domestic Product at Market Price
= (8) + (9) + (13) + (6) + (3) – (5) – (14) + (4) – (1) + (12) + (9)
= 15,500 + 56,565 +2,000 +1200+940 – 1,885 – 1,600 – 2,500+2,100 –300+7,050+12,065 = RS
91,135 CR
Q. Calculate NNP at MP and Personal Disposable Income.

PARTICULARS RS IN CRORES
(1) Net Domestic Product at factor cost 15,480
(2) Income from domestic product accruing to government 140
(3) National debt interest 170
(4) Transfers payments by government 240
(5) Net private donations from abroad 30
(6) Net earned income from abroad 80
(7) Indirect taxes 1,330
(8) Subsidies 100
(9) Direct taxes on Non-corporate sector 335
(10) Tax on corporate profits 222
(11) Undistributed profits of corporation 105
Solution: NNP at MP= (1) + {(7) – (8)}+ (6); = 15,480 – {1,330 – 100}+ 80; = RS 16,790
CRORES
Personal Disposable Income=NDPFC – (2) + (3) + (4) + (5) + (6) – (10) – (11) – (9)
=15,480 – 140 + 170 + 240 + 30 + 80 – 222 – 105 – 335; = RS 15,198 CRORES
 Q. Whether the following items will be included in National Income? Give reasons for
your answer.
1. Payment of electricity bill by a factory.
2. Dividend on shares.
3. Increase in stock of consumer goods with households.
4. Bus fare of a passenger.
5. Gains from sale of shares.
6. Rent earned by Reliance from its building in USA.
7. Gifts from Abroad.
8. Retained earnings of resident companies from abroad.
9. Expenses of foreign visitors in India.
10. Gifts to a trust from Japan.

1. No, it is a part of intermediate consumption expenditure.

2. Yes, it was, as it is a part of profits.
3. No, as it is assumed that such goods are consumed, the moment they are purchased.
4. Yes, it is a part of private final consumption expenditure.
5. No, as it is a capital gain
6. Yes, it is a factor income from abroad.
7. No it is a transfer income,
8. Yes, it is a factor income from abroad.
9. Yes, it is a part of Net exports.
10. No, it is a current transfer from rest of the world
Q. In the determination of social welfare what matter is the quantum of output rather
than the composition of output? Defend or refute.
Ans. The above statement is incorrect. Social welfare depends both on the quantum of output as
well as the composition of the output. If good are produce primarily for richer section of
the society (ignoring the interest of poorer section of the society) social welfare is bound to
remain low even when the quantum of output is rising.
Q. Why are exports included in the estimation of domestic income?
Ans. Export are included in the estimation of domestic income because exports are the parts of
domestically produced goods & services, or because exports are part of a goods &
services produced within the domestic territory of a country.
Q. Why are imports consider as a negative item in the estimation of domestics income?
Ans. Imports are consider as a negative item in the estimation of domestic income because
imports are not an expenditure on the domestic produced goods and services in an
accounting year. It is an expenditure on the goods produced aboard.
Q. Is brokerage paid to real estate agents only on the sale and purchase of new houses
include in the
Ans. No, brokerage paid to real estate agent only on the sale and purchase of new as well as
second – hand house should be included in the estimation of national income.
Q. In the estimation of GDP (using expenditure method), we focus only on expenditure
by the resident of a country. Is it true?
Ans. No, it is not true. In the estimation of GDP we include all expenditure on the domestically
produce goods both by the resident as well nonresidents of a country.
 UNIT - VI
MONEY & BANKING
(Marks: 8)
KEY CONCEPTS
Money: - Money is anything that has the general acceptability as a common medium of exchange
& as a common measure of the value of the commodities.
Barter system: - It refers to the exchange of goods for goods. In other words, it refers to the
direct exchange of goods & services with another.
Money Supply: - It refers to the total stock of money in an economy at any point of time, held
by the general public. M = C + DD
Commercial bank: - A Commercial bank is a financial institution which performs the function of
accepting deposits from the public & advancing loans.
Legal Reserve Ratio: It refers to the minimum portion of total net demand & time deposits of
Commercial Banks which have to be maintained with Central Bank & themselves as cash liquid
assets.
Cash Liquidity Ratio: It refers to that minimum portion of total net deposits of Commercial Banks
which have to be maintained with Central Bank.
Statutory Liquidity Ratio: It refers to that portion of total deposits which have to be maintained
by the Banks themselves in the form of liquid cash assets against the securities of Govt. & RBI.
Repo rate refers to the interest paid by the Commercial Banks to RBI against the loans &
advances taken by them from RBI to meet the short term needs
Reverse Repo Rate refers to the interest received by the Commercial Banks from the Central
banks against the parking of funds by the commercial banks.
Credit Multiplier refers to the amount by which the initial deposit multiplies into a larger amount
of final deposits. It is equal to 1/LRR. Thus, credit multiplier is inverse to LRR.
Q. What is Money?
Money is anything that has the general acceptability as a common medium of exchange & as
a common measure of the value of the commodities.
Q. What is Barter system?
It refers to the exchange of goods for goods. In other words, it refers to the direct exchange
of goods & services with another.
Q. Define the term Money Supply & state its constituents.
It refers to the total stock of money in an economy at any point of time, held by the general
public i.e. the private individuals and business firms (money is in disposable form). In other
words, it is the amount of money which is in circulation in an economy at a given point of
time. The two constituents of money supply are currency held by the general public &
demand deposits of general public held by the Commercial Banks. Thus, M1 = C + DD+O

Q. Define the term Commercial bank.

A Commercial bank is a financial institution which performs the function of accepting
deposits from the public & advancing loans. This banks act as the financial
intermediary between the idle resources & the productive sources of resources.
Q. What are the different types of deposits held by the Commercial Banks?
a) Current account deposits or Chequeable deposits which are payable on cheques & the
depositors can withdraw their deposits whenever they like. This account is generally
maintained by the traders for day to day transactions. The banks pay no interest on this
deposit.
b) Saving Account deposits are those deposits on which the bank pay interest which is less
than the interest paid on the fixed deposits. The bank imposes some restrictions on their
withdrawal. The purpose of this deposit is to encourage & mobilize the small savings.
c) Fixed or Time Deposits refers to the deposits which are accepted for the specified
period & which are not payable on demand before the expiry of the period. The bank
pay relatively high rate of interest on this deposit.
The variant of this deposit is Recurring Deposit whose purpose is to encourage regular
savings by the people. This deposit is based upon the installment payment for a fixed period
of time on which the interest is paid after maturity of the account.
Define the term Central Bank & explain its functions.
A Central Bank is an apex institution which directs, control, regulates & supervises the
monetary system of a country. Central bank is the monetary authority which leads all
banking & non – banking institutions. The name of the Central bank in India is Reserve
Bank of India (RBI) which is established in 1935.The RBI occupies the highest position in the
money & capital market.
Functions
1. It has the monopoly of issuing currency notes. It has the exclusive right to issue the
currency notes in the country which leads to the uniformity of the currency throughout
the nation. Moreover, this enables it to have a total control over the total money supply
of the country which leads to the strengthening of the monetary policy during the crisis
time.
 2. It act as a banker of the govt. as it accepts the deposits of the govt. & makes payment
on behalf of the it, gives financial advices, & advances the loans in the crisis times,
remit the surplus funds of Govt., purchase & sell Govt. securities on its behalf.
3. It acts as a banker's bank in the form of lender of last resort, facilitate clearing house
facilities & remit the surplus funds, supervise the banking activities & regulates credit-
deposits of the Banks. Since RBI is the guardian of all the banks, the banks can get the
benefit of easy & early credit during their financial requirements. As a facilitator of
clearing, the RBI makes early settlement of financial claims & debts of the banks. As a
result, the banks don't face any problem of cash liquidity, & thus they need not to
remain depended on the bank credit or capital funds of the banks. As a regulator &
supervisor, the banks are not in the position of any malpractice & the entire banking
system remains transparent & accountable to public.
4. It acts as a custodian of gold reserves & the nation's stock of foreign exchange reserve.
The purchase & sale of Gold & foreign exchange at the global level is done by RBI
only. As a custodian, RBI is responsible for maintaining the stock of gold & forex
reserves & the determination of their prices.
5. It acts as a controller of credit which is one of the most important functions. Since it is
an apex institution, therefore can play an effective role to combat or correct the
inflationary or deflationary pressures of an economy. The RBI controls credit by using
Quantitative(General) & Qualitative(Selective) credit control methods. The tools under
quantitative methods are Bank/Repo rate, Reserve repo rate, CRR & SLR, Open market
operations. Under selective methods, RBI use Margin, credit quota & rationing, moral
suasion & direct action etc.
6. It promote the economic growth & development of the country by erecting the financial
institutions in the rural areas, providing direct loans to the farmers, framing the policies
in favour of trade & industry, collect the economic information’s & publish through
its various journals which further helps the govt. & other institutions to adopt the
correct policies etc.
Q. Explain how does a Commercial Bank creates credit(money supply).
Credit creation by the banks is determined by (i) the amount of initial deposits and ii) the
legal reserve ratio (LRR). It is assumed that all the money that goes out of banks is redeposit
into the banks, and LRR consists of CRR & SLR.
A Commercial Bank accepts deposits from general public & create a primary account
deposit. This creates liability for the bank & asset for the depositor. It is also referred to as
active deposit. From the active deposits the banks deduct the legal reserves to be kept in
Central Bank (RBI), & the rest (excess reserves) are used in loans & investment. When a bank
give loans & advances, it creates another deposit known as derivative deposits or secondary
account deposits on the name of debtor. This leads to creation of new primary account, & thus
the new primary deposits keeps on increasing until the credit multiplier stops working.
Greater the LRR, smaller the amount of total final deposits, & vice versa.
An Illustration to explain the process of credit creation:
Let the LRR be 20% and there is a Fresh/Primary/Initial/Deposit Account of Rs 10000. The
banks keep 20% ie Rs 2000 as cash and lend the remaining Rs 8000 to a borrower
by opening a new account, called as Loan/Secondary/Derived Account.
 ROUNDS INITIAL DEPOSIT LRR SECONDARY DEPOSIT
1 10000 2000 8000
2 8000 1600 6400
- - - -
- - - -
- - - -
TOTAL 50000 10000 40000
Here we assume that all the banking transactions will be through monetary instruments
viz cheques etc.
As assumed, the amount of Rs 8000 will come back to the banks as fresh deposit from
which once again the bank will keep 20% ie Rs.1600 as LRR and rest Rs 6400 will be lend
to some other borrower. The bank now creates another secondary account which will once
again become a primary account. This process continues and the money goes on multiplying
till the sum of LRR and the fresh deposit amount is same or the new deposit becomes nil.
Finally, when we add the total money creation, we get Rs 50000 as the total deposit creation.
Total credit creation = Initial deposit X 1/LRR = 10000 X 1/20% = 10000 X 100/20 = Rs
50000
Q. Define the terms LRR, CRR, SLR, Repo & Reverse Repo rate, Credit Multiplier. Legal
Reserve Ratio: It refers to the minimum portion of total net demand & time deposits of
Commercial Banks which have to be maintained with Central Bank & themselves as cash
liquid assets. There are two legal reserves viz. CRR & SLR.
Cash Liquidity Ratio: It refers to that minimum portion of total net deposits of Commercial
Banks which have to be maintained with Central Bank. During inflation or deflation, the
CRR is regulated by RBI to control inflation or deflation. During inflation, CRR is increased
to restrict the credit by making it dearer, while it is reduced during deflation to expand the
money supply in the economy by making it cheaper.
Statutory Liquidity Ratio: It refers to that portion of total deposits which have to be
maintained by the Banks themselves in the form of liquid cash assets against the securities
of Govt. & RBI.
Repo rate ie Repurchase rate of interest refers to the interest paid by the Commercial
Banks to RBI against the loans & advances taken by them from RBI to meet the short term
needs. By changing Repo rate, RBI can regulate the money supply. It is different to Bank
Rate in a way that Bank rate is charged against the loans taken by commercial banks for
long term needs.
Reverse Repo Rate refers to the interest received by the Commercial Banks from the
Central banks against the parking of funds by the commercial banks. By increasing RRR, the
RBI can encourage the Commercial Banks to park more funds so as to restrict the money
supply in the economy. By reducing RRR, the RBI discourages the parking of funds which
helps to induce more credit in the economy to resolve the issue of deflation.
Credit Multiplier refers to the amount by which the initial deposit multiplies into a larger
amount of final deposits. It is equal to 1/LRR. Thus, credit multiplier is inverse to LRR.
Multiple Choice Questions
Select the correct answer of the following questions:
1. Which of the following is related to barter system of exchange?
a. Double coincidence of wants; b. Common unit of value;
c. Limited exchange; d. Both (a) and (c)
Ans: (d)
2. Out of the following, which is the primary function of money?
a. Store of value; b. Transfer of value;
c. Measure of value; d. Bases of credit
Ans: (c)
3. Which of the following systems governs note issuing in India?
a. Proportionate system; b. Minimum reserve system;
c. Fixed fiduciary issue system d. Simple deposit system
Ans: (b)
4. In India, suppliers of money are:
a. Government of the country; b. Banking system of the country;
c. Both (a) and (b); d. None of these
Ans: (c)
5. Which of the following is not concerned with banking organization?
(a) Bank rate; b. Fiscal deficit;
(c) Credit creation; d. Cash reserve ratio
Ans: (b)

HOTS QUESTIONS
Q. What do you mean by double coincidence of wants?
Ans. Double coincidence of wants means that goods in possession of two different individual
are needed by each other at the same time.
Q. Define credit multiplier.
Ans. Credit multiplier refers to the ratio between change in demand deposit and change in case
reserves of the commercial banks with the RBI.
Credit multiplier = Change in demand deposit of the Commercial banks/ change in cash
reserves of the commercial banks with the RBI
Q. Define margin requirement.
Ans. Margin requirements refer to the difference between market value of the security offered
for loans and the amount banks of loans offered by the commercial banks.
 Q. How is quantitative credit control different from qualitative credit control?
Ans. Quantitative credit control refers to overall credit control in the economy, affecting all
sectors of the economy equally and without discrimination. Qualitative credit control
refers to selective credit control that focuses on allocation of credit to different sector of
economy. Flow of credit is encouraged to the priority sectors, while it is discouraged to
the non-priority sectors.
Q. How improvement in banking habits of the people pushes up credit availability from
the commercial bank?
Ans. When banking habits of the people improve, they star holding less money as cash-in-hand.
Instead more and more money is deposited with the commercial bank. Accordingly, cash
reserves of the commercial bank start rising. Higher cash reserve of the bank enable them
to deposits more funds with the RBI as CRR – deposits. If CRR remains constant higher
CRR- deposits with the RBI gives the commercial bank the legal authority to create more
credit by way of loans/credit. Accordingly, availability of credit from the commercial
bank is increased.
Q. How can 'Jan-Dhan Yojana' used as an instrument to increase supply of money by
the commercial banks?
Ans. A large section of the population in India does not have their bank accounts. 'Jan- Dhan
Yojana' prompts people to open their bank accounts. When more and more accounts are
open then some of the cash balances with the people (or idle cash lying with the
people) are bound to reach the banking system as cash deposits or primary deposits. This
increase enables commercial banks to increase their cash reserves with the central banks.
If /\ CR (additional cash reserves with RBI)= Rs10,000 and if CRR=4% then the
additional demand deposit the bank can create = 1/4% * 10,000 = Rs 2,50,000. This is
how 'Jan-Dhan Yojana' may be used as an instrument to increase the supply of money by
the commercial banks.
Q. Why has the government in India failed to combat inflation even when a series of
monetary measures are available in the textbook of macroeconomics?
Ans. Monetary measures of combating/ controlling inflation focus largely on moderating/
lowering the demand for goods and services by making the availability of credit costlier
and difficult. It does not address supply side of the problem. While the fact of the matter
is that in India inflation has often been triggered by the low market supplies. Unless
supplies are boosted (particularly the supply of farm output) we shall continue to wrestle
with inflation without training it.
Q. How in your opinion, credit creation by the commercial banks accelerates the pace
of economic growth? Write two observations.
Ans. Following observations may be noted in this regard:
Observation 1: Credit creation accelerates the process of growth by expanding the
availability of credit for purpose of investment.
Observation 2: Credit creation contribute to the process of growth by expanding size of the
market (or aggregate demand), as the availability of credit for the purchase of consumer
durables increases.
 Macro Economics
Determination of income & Employment (Marks: 12)

KEY CONCEPTS:
Aggregate Demand (AD)/ Aggregate Expenditure: -It refers to the sum total of demand
made by all the economic units in the economy at a given point of time. It can be also defined
as the total expenditure incurred by the household, government, & enterprises of the economy
at a given point of time.
Marginal Propensity to Consume (MPC): It refers to the ratio of change in consumption by
change in disposable income. The value of MPC always lies between 0 and 1 i.e. 0<MPC<1. It
is obtained by ΔC/ΔY
Average Propensity to consume: It refers to the ratio of total consumption by total
disposable income. APC = C/Y
Aggregate Supply: -It refers to the total production of commodities in the economy at a given
point of time which is measured in terms of value added or the total income generated. AS = Y,
therefore, AS = C + S.
Excess demand/infation: -Excess of Money supply due to excess expenditure by the
Government & excess credit creation by the Commercial Banks.
Regulation of Margin Requirements: The margin requirements refers to the difference
between current value of the security offered for loans and the value of loans granted.
Rationing of Credit: The fixation of credit quota for different industries is called as rationing
of credit. In order to restrict the flow of credit for speculative activities in a sector, the
commercial bank will introduce rationing credit.
 • ALL ABL E AND WILLING TO DO THE WORK ARE
FULL ET\TPLOYTMENT EMPLOYED AT THE EXISTING WAGE RATE.

VOLUNTARY
•NOT WILLING TO DO THE WORK EVEN THOUGH
UNEl\lPLOY MENT
WORK ISAVAILABLEAT THE EXISTING WAGE RATE

INVOLUNTARY
• ABLE AND WILLING TO DO WORK AT THE EXISTING
UN.cl\lPLOY MENT
WAGE RATE DO NOT FIND WORK

EXCESS DEMAND AND DEFICIENT DEMAND

I I EMPl
OYME
EFFECT ON
OUTPU
I PRIC
NT I
T E

I I I
.. . ..
EXCESS
DEMAND
Actual AD >AD required to
full WILl
WilL N employment
establish OT
equilibrium

I I.
N OT
I
.. ..
DEFICIENT DEMAND
Actual AD< AD required to establish
full employment equilibrium ..
TOOLS EXESS DEMAND DEFICIENT DEMAND
(Inflationary Gap) (Deflationary Gap)
FISCAL TOOLS

I)
ii)
TAXES
PUUUC DEUT (INTERNAL) • •
iii) PBU C EXP.
IV) DEFI CIT FINANCIN G

MONEATARY POLI CY
•
Should be rcst.ictcd
•
Should not be rcstict.cd

•
I) BANK RATE

ii) CRR

iv)
iii)
REPORATE
SLR
• ••
v)
vi)
MARGIN REQUIREMENT
MORAL SUASION

vii) DIRECT ACTION Can be taken

••
Request Lo contract credit Request to exland credit

Can be taken
Q. What is meant by determination of income & output?
Determination of income, output & employment is one of the core issues of the Macro
Economics. The level of income, output and employment is determined by the Aggregate
demand & Aggregate supply.
Q. Define the term Aggregate Demand (AD)/ Aggregate Expenditure.
It refers to the sum total of demand made by all the economic units in the economy at a
given point of time. It can be also defined as the total expenditure incurred by the
household, government, & enterprises of the economy at a given point of time.
Q. Explain the components of AD.
There are four components of AD viz. Household Consumption demand, Private
Investment demand, Govt. demand, & Net Exports.
1. Household Consumption demand/Consumption expenditure refers to the amount
spent on durable & non-durable commodities by the consumer households at a given
point of time. The consumption expenditure is influenced by the level of income of the
households.
Q. Explain the concept of Consumption Function/ Propensity to consume.
It is an expression which establishes the functional relationship between consumption
expenditure(C) & the level of income(Y). It describes that how the change in the level of
income influence the consumption expenditure of the households. The rise in income
level leads to rise in the consumption expenditure, & vice versa. According to Keynes, the
rise in the level of income result into the rise in consumption expenditure but the rise is
not as much as the rise in income because the rise in income is also accompanied with the
rise in the savings of the households. This is also called as Keynes Psychological law of
Consumption.
The consumption function or propensity to consume is represented by C = f (Y) Or, C = a
+ bY, where, 'C' stands for Consumption expenditure, 'a' stands for autonomous
consumption i.e. the consumption expenditure when the level of income is zero, 'b' for
slope of the consumption curve, 'Y' stands for level of income. The consumption equation
C = a + bY shows the level of consumption for various levels of income. The
consumption curve slopes upward from left to right and it originate from the Y- axis.
Fig: Consumption Function
The above figure shows the consumption
0

function. Income curve is a 45 line originating

from the point of origin. The Consumption
curve is constantly rising from the point 'a' on
the Y- axis which indicates the rise in
consumption due to rise in income. The point
'a' refers to autonomous consumption i.e. the
consumption expenditure incurred when the
income is zero. The income curve intersects
consumption at the

Q. Define the term break - even point.

The break-even point is defined as the point at which consumption is equal to income, &
saving is zero.
Q. Define the term dissaving.
The saving curve SS intersect X-axis at OY level of income. Before this level the saving
is negative, called as dissavings. It is the situation when the consumption is greater than
income. The savings are positive when the consumption is less than income.
Q. Explain the two types of consumption function or propensity to consume.
i) Marginal Propensity to Consume (MPC): It refers to the ratio of change in
consumption by change in disposable income. The value of MPC always lies between 0
and 1 i.e. 0<MPC<1. It is obtained by ΔC/ ΔY
ii) Average Propensity to consume: It refers to the ratio of total consumption by total
disposable income. APC = C/Y
Q. Define the term Saving Function or propensity to save.
It refers to the functional relationship between saving & level of income, S = f (Y). In
other words, it is the tendency of the households to save at a given level of income.
Q. Briefly explain the two types of Saving function or propensity to consume.
I) Marginal propensity to save (MPS):
It refers to the ratio of change in savings by the change in level of income, i.e. MPS =
ΔS/ΔY. The MPS lies between 0 & 1 i.e. 0 ≤ MPS ≤ 1
AI) Average propensity to save (APS):
It refers to the ratio of total savings by total income, i.e. APS = S/Y.
Q. State the relationship between MPC & MPS.
MPC + MPS = 1; So, MPC = 1-MPS; &, MPS = 1-MPC
Similarly, the relationship between APC & APS is that, APC + APS = 1
Q. Define the term Private Investment Demand.
It refers to the expenditure incurred by the enterprises on the creation of new capital
assets viz plants, machineries, transport equipments, implements & tools, building etc.
Q. Differentiate between Investment is of two types.
1. Autonomous investment (I0); 2. Induced investment (I1)

Autonomous investment (10) Induced investment (11)

1. It refers to the investment expenditure It refers to the investment expenditure
which is incurred by the Government which is incurred by the enterprises with the
with the motive to promote the level of motive to make greater investments &
growth & development. It is not receive higher returns. It is positively
influenced by the level of profits or related to level of income.
income of an economy.
2. It is influenced by the change in It is influenced by the level of income of
population structure, natural calamities, an economy. Higher the income, greater is
change in technology & institution, war the induced investments, & vice versa.
etc.
 3. The I0 curve is straight line parallel toThe I1 curve is a positive slope which shows
income axis which shows that it remains samethe positive relation between induced
at all levels of income & output, & notinvestment & level of income.
influenced by change in income.

Q. Explain the determinants of Investment. There are three important determinants of

Investment viz.
i) Revenue from Investment (ROI): Revenue from investment or expected returns implies
the prospective yield of the capital invested. The enterprises would undertake an
investment project to increase the production capacity only when that generates the
additional revenue.
ii) Cost of Investment: Cost of investment implies supply price of capital asset, and the rate
of interest on the loan money borrowed for the purchase of the asset. Higher the cost,
lower will be the investment.
iii) Business expectations: which implies the enterprises to speculate in the future
gains which are uncertain, and is prompted by bullish expectations i.e. the expectation of
prices to go up.
Q. Define the term investment/income multiplier & explain its working.
This concept has been developed by J. M. Keynes in 1936. This concept explains the
resultant change in the level of income in an economy due to change in the investment. In
other words, when an economy raises a certain amount of investment, the level of income
rises by a certain amount i.e. the investment generates greater amount of income in the
economy. The multiplier indicates by what times the level of income rises due to rise in
the investment at a given point of time.
For example, if the investment increases by Rs. 100 crores, & the income rises by Rs. 200
crores, the multiplier will be 200/100 =2.
According to Keynes, “Investment multiplier tells us that when there is an increment of
aggregate investment; income will increase by an amount which is K times the increment
of investment.”
ΔY = KΔI; thus, K = ΔY/ΔI, where K is the investment multiplier.
The multiplier can be defined as the ratio of change in income to the change in
investment.
Working of the Multiplier: Multiplier process can be explained as the change in
investment leads to change in income which further leads to change in consumption
 expenditure. This again results into further change in income. This process continues till
consumption expenditure becomes zero. The resultant increase in income depends upon
the existing MPC which determines the value of K. K = 1/1-MPC or K = 1/MPS
Q. Define the term Aggregate Supply.
It refers to the total production of commodities in the economy at a given point of time
which is measured in terms of value added or the total income generated. It also refers to
the disposable income which consist of two components viz, consumption & saving.
Since AS = Y, therefore, AS = C + S
Q. Define the term Ex-ante savings & investment, & explain how they are different to
ex-post savings & investment.
Ex-ante savings refers to the savings planned by the household for the given year, while
ex-ante investment refers to the amount of investment planned by the producers towards
the production of commodities in the given year. Ex-post savings refers to the realized or
actual savings made by the households in a year, while ex-post investment refers to the
actual amount of investment made by the producers towards the production of
commodities in a year.
Q. Define voluntary & involuntary unemployment.
Voluntary unemployment refers to the situation when people are willing to remain
unemployed in the production activities at the current factor prices. Involuntary
unemployment refers to the situation when the willing & able bodied people remain
unutilized in the economy due to lack of employment opportunities.
Q. Explain the concept of Excess Demand (Inflationary Gap) & Deficient Demand
(Deflationary Gap).
Excess demand refers to that situation in an economy when the AD exceeds the AS at full
employment level at a given point of time. In other words, the Excess demand refers to
that situation when the Current (Actual) AD exceeds the required AD to maintain full
employment equilibrium.
In the frst fg, we see that AD is the planned
1
or actual AD curve & AD is the required AD
to maintain full employment equilibrium. Y
1
is the full employment level where the AS
becomes constant & maximum, and therefore
it is a straight line prior to which AS is 450
line indicating proportionate rise in income
and employment. The current equilibrium
of the economy is at E which exceeds the
required one i.e. E to have full employment
1
equilibrium. EE refers to the in factionary
1
Gap which leads to inflation in the
economy.
 In the second fg, which shows the
conventional diagram of excess demand
situation, the AD=AS at point E which
corresponds to overfull employment level,
and at full employment level the AD (DY )
1
exceeds AS (SY), Thus ES is the in factionary
gap.

Deficient Demand refers to that situation in an economy when the AD falls short of AS at
full employment level at a given unit of time. In other words, it is the situation when the
planned or actual aggregate demand falls short of required aggregate demand to maintain
full employment equilibrium. This situation is also referred to as underemployment
equilibrium because the actual equilibrium in an economy takes place before the level of
full employment, and there exist some amount of involuntary unemployment. This
situation is more deteriorating in effect, as in this situation there is drastic fall in price
level which leads to decline in income, employment & output. In this situation, the
economy operates much below to its production capacity due to which many resources
remain unutilized or underutilized. This defers the rate of economic growth &
development.
In the first fig., we see that AD is the
planned or actual AD curve & AD is the
1
required AD to maintain full employment
equilibrium. Y is the full employment level
1
where the AS becomes constant & maximum,
and therefore it is a straight line prior to
which AS is 450 line indicating proportionate
rise in income and employment. The current
equilibrium of the economy is at E which
fall short of the required one i.e. E to have
1
full employment equilibrium.
EE refers to the inflationary gap
1
Which leads to infection in the
economy.
In the second fig, which shows the
conventional diagram of deficient demand
situation, the AD=AS at point E which
corresponds to under-employment level,
and at full employment level the AD (DY )
1
falls short of AS (SY), Thus ES is the
inflationary gap.
Q. State the causes of excess demand/inflation.
1. Excess of Money supply due to excess expenditure by the Government & excess
credit creation by the Commercial Banks. 2. Excess of Exports over Imports which
leads to scarcity in the domestic supply of essential goods. 3. Hoarding & Black
marketing of the essential goods by the traders.
2. Tax Evasion by the household & firms. 4. Due to low market rate of interest. 4. Due
to Cyclical fluctuations.
Q. State the causes of deficient demand/deflation.
1. Lack of Money supply due to curtailed expenditure by the Government & less credit
creation by the Commercial Banks.
2. Excess of imports over exports which leads to excess of availability of essential goods.
3. Excess of production by the enterprises due to improper planning and wrong estimation.
4. Due to high market rate of interest. 5. Due to depression prevailing in the economy.
Q. Explain the Measures to correct excess (inflationary gap) & deficient demand
(deflationary gap).
The measures can be classified into two measures viz.
1. Fiscal measures/policy; 2. Monetary measures/policy
1. Fiscal measures: These measures are formulated & implemented by the Government
to control inflationary or deflationary situation. The following tools are used to
control & combat the inflationary & deflationary situation.
b) Public Expenditure: The govt. expenditure has a large impact on the creation of
money supply & further on the rise/fall in AD. During the inflationary situation, the
Govt. may curtail the unproductive expenditure to check expansion of money supply
which may tend to reduce the AD. This will prevent in the inflow of excess money in
the economy. During the deflationary situation, the govt. should raise the expenditure
on the economy by funding various developmental projects. This will lead to induce
the money supply in the economy & the AD too will rise.
2. Monetary Measures: These measures are adopted by the Central Bank of a country
in order to control inflation or combat deflation. There are two methods or
instruments of monetary policy viz.
i) Quantitative Methods or General methods, which refer to the control of quantity of
money supply through credit control. The following instruments are used in
quantitative method:
A) Bank Rate Policy: It refers to the rate of interest charged by the Central Bank on
the loans & advances given to the Commercial Banks. The Bank Rate is determined by
the Central Bank itself. The rise in BR leads to rise in rate of interest which affects the
savings & demand for loans. During the excess demand situation, the CB raises the BR
which leads to rise in rate of interest. This leads to raise the savings & reduce the demand
for loans. Consequently, there is a fall in purchasing power & further fall in AD.
B) Open Market Operations: It refers to the process to sale & purchase of securities
by the CB in the economy. During the excess demand situation, the CB sells the bonds &
 securities in the market which is purchased by the banks, individuals and other
financial institutions of the economy. This helps in wiping out the excess of money
supply from the society & further there is a fall in purchasing power of the people.
Consequently, the AD falls, this helps in reducing the price level. During the deficient
demand situation, the CB purchases the securities of different institutions which
induce the inflow of money sully in the economy. This further leads to rise in money
supply & thus there is rise in AD.
C) Cash Reserve Ratio: The CRR is an important tool which is used to correct the
inflationary & deflationary situation, as the rise in CRR leads to fall in the lending
capacity of the banks. During the excess demand situation, the CB raises the CRR which
leads to fall in the lending capacity of the banks. This results in fall in money supply &
further fall in AD. The fall in AD leads to fall in price level. During the deflationary
situation, the CB reduces the CRR which raises the lending capacity of the banks. The
rise in lending capacity leads to rise in money supply & further rise in AD.
D) Repo & Reverse repo rate: During inflation, the RBI increases the repo rate to make
the credit dearer in order to restrict its supply. Similarly, RBI increases the RRR to
encourage the commercial banks to park more funds with RBI. This helps in
restricting money supply in the economy.
Qualitative Measures:
1. Regulation of Margin Requirements: The margin requirements refers to the
difference between current value of the security offered for loans and the value of
loans granted. In case of inflationary tendencies in an industry, the CB will raise the
margin requirement so as to restrict the flow of credit, & vice versa in case of
deflationary situation in an industry.
2. Rationing of Credit: The fixation of credit quota for different industries is called as
rationing of credit. In order to restrict the flow of credit for speculative activities in a
sector, the CB will introduce rationing credit. The quota limits fixed in granting loans
by the CB cannot be exceeded by the Commercial Banks.
3. Moral Suasion & Direct Action: In case of inflationary or deflationary situations,
the CB may issue directives with a view to control the flow of credit. The advices of
the CB are generally accepted by the Commercial Banks for expanding or contracting
credit. In case the commercial banks do not comply with the directives, the CB may
initiate direct action against the member banks.
Q. Make a schedule to explain that when National Income rises, APC falls & APS rises.
This schedule proves that when income level of an economy rises, the APC falls & APC
rises. When consumption falls short of income, savings are negative called as dissavings.
Let C = 50 + 0.5Y
Income Consumption Savings APC APS
0 50 -50 □ –□
100 100 0 1 0
200 150 50 0.75 0.25
300 200 100 0.67 0.33
400 250 150 0.62 0.38
500 300 200 0.6 0.4
Q. Make a schedule to explain the Keynesian Theory of Income & Output. Also show a
numerical example that how the economy can reach full employment level of income
& output.
Let C = 25 + 0.75Y, Io = Rs 50 crores; Full employment level of income is Rs 400 cr.
Here all values are representing Rs crores.

Output Consumption Savings Investment AD AS

0 25 -25 50 75 0 AD>AS
Economy expands
100 100 0 50 150 100
200 175 25 50 225 200
300 250 50 50 300 300 Equilibrium AD=AS
400 325 75 50 375 400 AD<AS
500 400 100 50 450 500 Economy
Contracts

From the above schedule we can say that presently the economy is in equilibrium at Rs
300 crores level of income & output. Now, if economy wants to achieve equilibrium at
full employment level ie Rs 400 crores, then it has to increase the autonomous investment
in such a manner that the AD also reaches to Rs 400 cr to get in equilibrium. So, if MPC
= 0.75, K = 1/1-o.75 = 4. So, change in investment (ΔI) should be = change in income
(ΔY) /K = 100/4 = Rs 25 cr. So, if the economy raise its investment level to 75 cr, the AD
will be Rs 400 cr & now it will be equal to AS. Thus, the economy attains full
employment equilibrium.
Q. Make a schedule to explain the working of the multiplier.
Let MPC = 0.5, investment is Rs 100
Round Change in Change in Change in Change in
investment income Consumption savings
Initial 100 100 50 50
1 50 25 25
2 25 12.5 12.5
3 12.5 6.25 6.25
- --- --- ---
- --- --- ---
Total 100 200 100 100
Here we see that initially the investment made in economy ie Rs 100, the immediately
income should be Rs 100. Further, half of it is spend by the people & other half is saved
since MPC=0.5. The amount of Rs 5o spend by one section of society will generate
income of Rs 50. This process continues till the leverage effect of multiplier exist. As
soon as the effect is over, the working of multiplier stops. Now, if we add the incomes
generated at all the rounds, we get Rs 200. This means the fresh investment of Rs 100
crores leads to amplify the income to Rs 200 crores, as MPC = 0.75, so K= 1/1-0.75 = 2.
So, change in income = K X fresh investment ie 2 X 100 crores = Rs 200 Crores.
 Multiple Choice Questions
Select the correct answer of the following questions:
1. Consumption function is a functional relationship between:
a. Income and saving; b. Price and consumption;
c. Income and consumption; d. Income, consumption and saving
Ans: (c)
2. Average propensity to consume (APC) is equal to:
(a) Y/C; b. ΔY/ ΔC;
c. C/Y; d. ΔC/ ΔY
Ans: (c)
3. MPC being equal to 0.5, what will be, if income increases by Rs 100?
a. Rs 60; b. Rs 50;
c. Rs 40; d. Rs 70
Ans: (b)
4. Average propensity to save (APS) is equal to:
b. Y/S; b. ΔY/ ΔS;
c. S/Y; d. ΔS/ ΔY
Ans: (c)
5. If MPC is 40 per cent, MPS will be:
a. 70 per cent; b. 60 per cent;
c. 50 per cent; d. 40 per cent
Ans: (b)

NUMERICALS
Q1: The of income ,in an economy,increase from Rs 20,000 crores to Rs 70,000 crores
,and as a result the level of consumption increase from Rs 15,000 crores to Rs 45,000
crores. Calculate the MPC.
SOLUTION:

INCOME (Y) CONSUMPTION CHANGE IN CHANGE IN MPC

(RS) (C) (RS) CONSUMPTION INCOME(ΔY) MPC=ΔC÷ΔY
(ΔC) (RS) (RS)
20,000 15,000 — — —
70,000 45,000 30,000 50,000 0.06
ANSWER:0.60
Q 2: Complete the following table:

INCOME SAVING MPC APS

0 -12 — —
20 -6 — —
40 0 — —
60 6 — —
SOLUTION:
INCOME (RS) SAVING(RS) CONSUMPTION(RS) MPC=ΔC÷ΔY APS=S÷Y
0 -12 12 — —
20 -6 26 0.70 -0.30
40 0 40 0.70 0.00
60 0 54 0.70 0.10
Q 3: From the following schedule, compute APC, APS, and MPC AND MPS:

INCOME (Y)(RS) 50 100 150 200

SAVINGS (RS) 10 40 75 120
SOLUTION:
(Y)(RS) (S)(RS) (C)(RS) APC APS MPC MPS
50 10 40 0.80 0.20 — —
100 40 60 0.60 0.40 0.40 0.60
150 75 75 0.50 0.50 0.30 0.70
200 120 80 0.40 0.60 0.10 0.90
Formula used: C=Y-S; APC=C÷Y; APS=S÷Y; MPC=ΔC÷ΔY; MPS=ΔS÷ΔY
–
Q 4: Using the equation of consumption function:C= c + b(Y), calculate consumption
expenditure at the income level of Rs 500 crores, if autonomous consumption is Rs
40 crores and 40% of additional income is saved.
SOLUTION:
Given: MPS =0.4 (as 40% of additional income is saved);
–
MPC OR b= 1-0.4= 0.6 [MPC= 1-MPS]; given autonomous consumption (c ) and y in
the consumption function, we get:
C=40+0.6×500 =RS 340crores
Q 5: In an economy, income generated is four times the increase in investment
expenditure. Calculate the value of MPC and MPS?
SOLUTION:
Multiplier = 4{as increase in income (ΔY) is 4 times the increase in investment (ΔI)}
1 1 1
Multiplier (K) = ; 4= ; 1-MPC = ;

(1-MPC) (1-MPC) 4;
MPC=0.75; MPS = 1-MPC = 1-0.75 MPS = 0.25; ANS. MPC=0.75; MPS = 0.25
HOTS
Q. Define investment.
Ans. Investment refers to the expenditure incurred on creation of capital assets.
Q. Define involuntary unemployment.
Ans. Involuntary unemployment refers to a situation in which all those people, who are willing
and able to work at the existing wage rate, do not get work.
Q. What is full employment?
Ans. Full employment refers to a situation in which all those people, who are willing and able
to work at the existing wage rate, get work.
Q. What are Ex-ante savings?
Ans. Ex-ante savings refers to the amount of savings which savers plan to save at different
levels of income in an economy.
Q. Define Ex-ante investments.
Ans. Ex-ante investments refers to the amount of investments which investors plan to invest at
different levels of income in an economy.
Q. “Marginal propensity to consume falls with successive increase in the level of
income.” It is always true?
Ans. This may be true if there is equitable distribution of income. A rational consumer always
attempts to save more as his income increases, but if bigger part of national income is
concentrated in a few hands, the marginal propensity to consume will be high for a poor
person as he needs to spends more to fulfill his basic requirements.
Q. Define under-employment equilibrium.
Ans. Under-employment equilibrium refers to a situation when aggregate demand is equal to
the aggregate supply at a level where the resources are not fully employed.
Q. What is meant by effective demand?
Ans. The level of aggregate demand required to achieve full employment equilibrium is called
effective demand.
Q. What is the impact of excess demand?
Ans. Excess demand leads to inflation without any increase in output and employment as
economy is already operating at the full employment level.
 GOVERNMENT BUDGET & THE ECONOMY
(Marks: 8)
KEY CONCEPTS:
Govt. Budget: - The term budget has been derived from the French word 'Bougett' which
refers to 'a small bag'. A govt. budget is an annual statement of estimated receipts &
expenditure of the govt. during a financial year.
Revenue receipts: -It refers to those money receipts which do not create any liability & do
not reduce assets. These are non – redeemable receipts of the govt.
Revenue deficit: - it refers to the excess of revenue expenditure over revenue receipts.
Fiscal deficit: - it refers to the excess of total expenditure over the sum of revenue receipts
and capital receipts excluding borrowings.
Primary deficit: - it is defined as fiscal deficit less interest payments.
Balanced budget: - it refers to the budget when the public receipts are equal to the public
expenditure.
Surplus budget: -Surplus budget is the one in which public receipts exceeds the public
expenditure.
Deficit budget: -Deficit budget is the one in which the govt. expenditure exceeds its receipts.

Q. What is Govt. Budget?

Ans : The term budget has been derived from the French word 'Bougett' which refers to 'a small
bag'. A govt. budget is an annual statement of estimated receipts & expenditure of
the govt. during a financial year.
Q. Explain the objectives of Govt. Budget.
Ans : The govt. prepares budget with the following objectives:
1. Proper Allocation/Reallocation of resources is one of the important objectives of
govt. budget. The govt. makes a proper allocation of resources through its budgetary
policy so as to make a balance between the goals of profit maximization & social
welfare. In other words, there is a justifiable allocation of resources which can
promote the welfare of the common mass.
2. Economic Stability is another objective of budgetary policy of the govt. During the
period of depression & inflation, govt. adopts the policy of deficit & surplus
budgeting respectively. The govt. adopts certain policies through budget to save the
economy from the clutches of business cycles. The economic stability is indispensable
for the stimulation of savings & investment which further raises the level of economic
growth & development.
3. Economic Growth is one of the important objectives of the govt. budget.
Government prepares such a favorable budget which can create conducive conditions
to raise the level of savings & investment on which the economic growth of a country
depends.
4. Economic Equality is another important objective of govt. budget as economic
disparity is inherent in any economic system which is politically & socially
 undesirable for a healthy nation. In order to curb the economic inequality to a socially
acceptable level, fiscal policy play as an effective instrument through which the govt.
exercise, with the help of taxation & expenditure, in redistribution of income & wealth
in the economy. This helps to bring social & economic justice which is an important
element of any welfare state.
5. Management of Public Enterprises has been also one of the objectives, so as to
increase the growth of these enterprises as these are established in social interest in the
form of natural monopolies where a single firm can produce at a lower average cost.

The govt. budget consists of two parts viz. Receipts & Expenditures.
Receipts refer to estimated revenue of the govt. from various sources in a fiscal year. The
receipts are classified as Revenue Receipts and Capital Receipts.
 Q. Explain the sources of Public Expenditure.
Ans : This refers to the expenditure to be incurred on various heads during the fiscal year.
Public Expenditure is been classified into Plan & Non-Plan expenditure since 1987-88
budget which are further classified into Revenue & Capital Expenditure. Further this Plan
revenue & capital, and Non- Plan revenue & capital expenditure are classified into
Developmental & Non-Developmental Expenditure. This can be understood by the help
of the above flow chart.
Plan expenditure refers to the amount to be spent on the heads which are prescribed
under the current five year plan. Thus it shows the central plan outlay for various projects,
programmes schemes & the central assistance for the state & union territories. Plan
Revenue expenditure includes the expenditure on central plans viz. agriculture, rural
development, irrigation & flood control, energy, industry & minerals, transport,
communication, science & technology, environment & others, and the central assistance
for state and union territories. Plan Capital Expenditure includes the expenditure on
economic development, social & communal development, defence & general services etc.,
and loans to states and union territories for financing plan projects.
Non-Plan expenditure includes the expenditure on the items which are not included in
the current five year plan but are included in the current fiscal year budget. Non-Plan
Revenue Expenditure includes interest payments; defence revenue expenditure; subsidies
in food, sugar, export promotion, market development, interest subsidy etc; grants to
states and UTs; pensions and economic services, social services, general services; postal
deficit; grants to foreign govt. & others. Non-Plan Capital Expenditure includes defence
capital; loans to states, UTs & foreign govts.
Revenue expenditure includes the expenditure on those heads which do not create
any assets or reduce the liabilities. These expenditures are incurred on the normal
functioning of the govt. and the maintenance of the law & order. For example,
compensation of employees, pensions, interest payments, subsidies, grants expenditure on
central plans etc. Capital expenditure refers to the amount to be spent on those heads
which leads to the creation of the assets or reduction in liabilities. For example,
expenditure on defence capital; purchase of assets viz. land, buildings & shares; loans to
state govt. & union territories etc.
Developmental expenditure refers to the expenditure on those items which are directly
related to economic and social development of the economy. For example, expenditure on
capital assets, infrastructure, railways, posts, telecommunication, education, health, social
welfare, scientific research etc. This expenditure directly contributes to the flow of goods
and services.
Non-Developmental expenditure includes the expenditure on those heads which are not
productive & give any returns to the economy viz. defence & administrations, natural
calamity, interest payments, tax collections, old age pensions & unemployed allowances
etc. Although, it does not contribute to the national income but it is not to be considered
as unimportant as it lubricates the wheels of economic development i.e. it creates the
conducive conditions in the functioning of the process of economic development.
 Q. Explain different types of Budget.
Ans : Govt. budget can be classified into Balanced, Surplus & Deficit Budget.
Balanced budget refers to the budget when the public receipts are equal to the public
expenditure.
Surplus budget is the one in which public receipts exceeds the public expenditure.
Deficit budget is the one in which the govt. expenditure exceeds its receipts.
Q. Explain different types of budgetary deficit.
Ans : The budgetary deficit is classified into Revenue, Fiscal & Primary deficit.
Revenue deficit refers to the excess of revenue expenditure over revenue receipts. It is the
difference between the (Plan revenue expenditure and Non-Plan revenue expenditure) and
(Tax revenue + Non-tax revenue). Fiscal deficit refers to the excess of total expenditure over
the sum of revenue receipts and capital receipts excluding borrowings. Thus, Fiscal Deficit =
total Expenditure – Total Receipts (net of Borrowings).Primary
deficit is defined as fiscal deficit less interest payments. Thus, Primary Deficit = Fiscal
Deficit – Interest Payments.
Q. Define the term Deficit Financing & state its sources.
Ans : It refers to the financing of the budgetary deficits. The sources are expansion in money
supply, i.e. the Central Bank may print money equal to the deficit against of treasury bills
of the govt., & secondly by borrowing from the public through market loans. It is a very
common instrument to finance the deficit if the govt. budget. Usually it is used by the
govt. in India, as every year the budgetary deficit is on rise. The deficit financing can be
also done by borrowing from the abroad, which may be burdensome in the future. It is
used as the best alternative in the less developed countries because in these countries the
people cannot be highly taxed.
Multiple Choice Questions
Select the correct answer of the following questions:
1. Which of the following are the objectives of government budget?
a. Redistribution of income and wealth; b. Economic stability;
c. Both (a) and (b); d. None of these
Ans: (c)
2. Which of the following is a non-tax receipt?
a. Gift tax; b. Sales tax;
c. Gifts and grants; d. Excise duty
Ans: (c)
3. Which one of the following is indirect tax?
a. Wealth tax; b. Excise duty;
c. Income tax; d. None of these
Ans: (b)
 4. Which of the following are capital receipts of the government?
a. Recovery of loans; b. Borrowings; c. Disinvestment;
d. All of these
Ans: (d)
5. Fiscal deficit =
(a) Total expenditure - total receipts other than borrowing
(b) Revenue expenditure- revenue receipts
(c) Capital expenditure- capital receipts
(d) Revenue expenditure+ capital expenditure- revenue receipts
Ans (a)

NUMERICALS:
Q. Calculation Revenue deficit, fiscal deficit, primary deficit from the following data.
ITEM RUPEES (Crores)
(1) Revenue expenditure 22,250
(2) Capital expenditure 28,000
(3) Revenue receipts 17,750
(4) Capital receipts 20,000
(5) Interest payments 5,000
(6) Borrowings 12,500
Ans. Revenue deficit = Revenue expenditure – Revenue receipts
= 22,500 crore – 17,750 crore;
= 4,500 crore
Fiscal deficit = Revenue expenditure + Capital expenditure – Revenue receipts – Capital
receipts = Borrowing = 12,500crore
Primary deficit = Fiscal deficit – Interest payments
= 12,500 crore – 5,000 crore;
= 7,500 crore
Q. Find borrowing by Government if payments of interest is estimated to be of 15,000
crores which is 25% of primary deficit.
Ans. Here, Interest payment = 25% of primary deficit; Primary deficit = 100/25 x 15,000 =
60,000
We know, Primary deficit – Interest payment;
Fiscal deficit = Primary deficit + Interest payment = 60,000 crore + 15,000
crore; = 75,000 crore
 TRUE OR FALSE
Q. Comment on the following statement true or false, with reason
(1) Construction of school building is revenue expenditure of the government.
(2) Gift tax is capital receipt.
(3) Dividends on investment made by government is a revenue receipt.
Ans. (1) False, it is a capital expenditure because it creates asset for the government.
(2) False, Gifts tax is revenue receipts, because it neither creates liability nor leads to
reduction in asset of government
(3) True, Dividends on investment made by government is a revenue receipts, as it does
not add to liability
Q. Categories the following government receipts into revenue and capital receipt. Give
reason for your answer.
(1) Receipt from sale of shares of public sector undertaking.
(2) Borrowing from public.
(3) Profit of public sector undertaking.
(4) Income tax received by government.
Ans. (1) Receipt from sale of shares of a public sectors undertaking is a capital receipt, as it
causes reduction in assets of government.
(2) Borrowing from public is a capital receipt, as it creates liability for the government.
(3) Profit of public sector undertaking is revenue receipts, because it neither creates
liability nor leads to reduction in asset of government.
(4) Income tax received by government is revenue receipt, because it neither creates
liability nor leads to reduction in asset of government.

SHORT ANSWER QUESTIONS

1. What is revenue budget?
Ans. Revenue budget contains the details of the current receipts (or called revenue receipts) and
current expenditure (also known as revenue expenditure) of the government.
2. What is capital budget?
Ans. Capital budget contains the details of the capital receipts and capital expenditure of the
government.
3. What is tax?
Ans. A tax is a compulsory payment imposed by the government on public or firms.
4. Define a direct tax. Give two example of direct tax?
Ans. When liability to pay a tax and the burden of that tax lies on the same person, it is called
direct tax. e.g., income tax and corporate tax.
 5. Define indirect tax. Give two examples of indirect taxes?
Ans. When liability to pay a tax is on one person and the burden of the tax falls on same other
person, it is called indirect tax e.g., sales tax and excise duties.
6. Give example of non-tax revenue receipts?
Ans. Fees, License and Permit, special assessment, escheat etc.
7. What does zero primary deficit mean?
Ans. Zero primary deficit means that the government has to resort to borrowings only to make
interest payments of previous years.
8. Are fiscal deficits necessarily inflationary?
Ans. Fiscal deficits are not necessarily inflationary. However, if output is less because of lack
of demand and high fiscal deficit is accompanied by higher demand and greater output
and therefore if would not be inflationary as it is covering the gap required for smooth
functioning of the economy by raising the level of aggregate demand.
9. There carefully planned, government budget reflects deficit because its expenditure
exceeds revenue. How can this deficit be reduced?
Ans. Government should increase its revenue by controlling tax evasion; ii. Government should
reduce unproductive expenditure like subsidies, financial assistance to all even when
some of them may not require it.
10. There has been constant rise in price of sugar overtime. What measure would you
support to bring down the prices?
Ans. Using measures of budgetary policy, government can try to fix prices at a lower level by
incurring expenditure through subsides which would reduce cost of production and hence
the prices. If the government does not want to add to its expenditure on subsidies, then it
should ensure availability of sugar at reasonable prices through its fair price shops. In the
situations of emergency, buffer stocks may also be used.
11. How can government budget be a useful instrument in reducing inequalities in the
distribution of income and wealth?
Ans. Government uses budgetary policies to reduce inequalities in the distribution of income
and wealth by: i). Imposing new taxes and increasing the rates of existence taxes; ii)
Spending more on education, health care and housing for the poor; iii) Strengthening
public distribution system(through fair price shops)
12. What is the relationship between the revenue deficit and the fiscal deficit?
Ans. Fiscal deficit is a wider concept than revenue deficit. Revenue deficit is defined as the
excess of government's revenue expenditure over revenue receipt. Thus, Revenue deficit=
Revenue expenditure (RE)-Revenue receipt(RR). Where as fiscal deficit is defined as the
excess of total expenditure over total receipts excluding borrowings. It does not take into
account borrowings. Fiscal deficit= (total budgetary expenditure)-(total budgetary receipt-
borrowings)
 BALANCE of PAYMENTS
( MARKS: 7)
KEY CONCEPTS
Balance of Payments: - It is a systematic record of all economic transactions between the
residents of a country & rest of the world during a financial year.
Balance of Trade: - It refers to the systematic record of visible items in a financial year. In
other words, it is the value of imports and exports of commodities.
Autonomous items refer to those items which are taken with the motive of profit
maximization. These transactions are not related to the country's BOP position. It is,
therefore, these items are called as autonomous items.
Accommodating items refer to those items which are undertaken by the govt. to keep the BOP
balanced. These items are transacted when a country faces disequilibrium in the BOP. Through
these transactions, the govt. or monetary authorities settle the deficit or surplus in the BOP.

Q. What is Balance of Payments?

Ans : It is a systematic record of all economic transactions between the residents of a country &
rest of the world during a financial year. In other words, it is a summary record of all
international economic transactions of a resident country with the rest of the world during
a given period of time.

Q. Define the term Balance of Trade.

Ans : It refers to the systematic record of visible items in a financial year. In other words, it is
the value of imports and exports of commodities i.e. merchandise. If the exports exceed
imports, the BOT is said to be favourable, and unfavourable in case of vice versa. Thus,
Favourable BOT = Exports receipts > Import payments.
Q. Differentiate between BOP & BOT.
Ans: The term 'Balance of Payments' refers to the account of both visible items & invisible
items while 'Balance of Trade' refers to the record of visible items only. BOT is only one
of the components of BOP while the BOP is a wider concept & therefore offers a more
comprehensive picture of economic transactions of a country with the rest of the world.
Moreover, the BOT may be balanced, deficit or surplus, while BOP as a whole always
remain balanced. BOT is a simple statements related to the foreign trade of the country
while BOP presents a classified record of all receipts on account of goods exported,
services rendered and capital received, and payments made on account of goods imported,
services rendered from, and capital transferred to abroad.

Q. State the Items included in BOP account.

Ans : 1. Visible Items include all merchandise imports and exports i.e. the items which are
recorded at the port & made of some material.
2. Invisible Items include receipts & payments for the services viz. shipping, banking,
insurance, travel etc.; receipts and payments of income on foreign investments;
interest on foreign loans & remittances of NRI's etc; govt's current expenditure in
abroad viz. expenditure on embassies etc.; transfer payments & receipts.
3. Capital transfers include the capital receipts & capital expenditure of a resident
country.
Q. Explain the Structure of BOP: BOP account is categorized into Current Account &
Capital Account.
Ans: BOP on Current Account refers to transactions related to goods, services, income on
investments & unilateral transfers. BOP on current account reveals the net income of the
country generated in abroad. Both visible & invisible items include constitute the current
account of BOP. It need not always be in balance. It may show a surplus or deficit. It
represents the difference between payments & receipts of currently produced & consumed
goods & services. A deficit in current account indicates lowering down the level of
income, creating problem of the payments to the foreigners & have adverse impact on
country's exchange reserves, & may increase external borrowings.
The components of BOP on current account are:
1) Visible trade includes the export and import of the physical goods
2) Invisible items include cost of non-factor services; investment income, & unilateral
transfers.
(i) The non-factor services include transportation, finance, tour & travel etc. The
services rendered by the resident country to the ROW are recorded on the credit side,
while the services rendered by the foreigners for the resident country are recorded on
the debit side.
 (ii) Income on investment includes interest payments on foreign loans & credits, transfer
of profits & miscellaneous for patents, royalties etc. The interest & dividend payments
made by the foreigners are recorded on the credit side, and vice versa.
(iii) Unilateral Payments includes foreign gifts & grants, donations, military aid,
technical assistance etc. These are also referred to as unrequired transfers. These refer
to those receipts or payments which take place without getting anything in return.
These transfers are further classified into Official & Private transfer payments.
Official unilateral transfers are the foreign donations & aids, while Private transfers
refer to the gifts & donations from foreign residents to the domestic residents & vice
versa. Payments of these transfers are recorded as debit & receipts are recorded as
credit.
Thus, the balance of visible trade, invisible trade & unilateral transfers is recorded as BOP
on current account.
BOP on Capital Account: It refers to the international transactions in financial assets viz.
bonds, equities, loans, bank account etc.; fixed plants & equipment’s, and direct
investments. It is a record of those transactions which leads to change in assets or liability
of the resident country. In other words, it is record of capital transactions i.e. the private &
the official capital transfers as well as the banking capital flows. BOP on capital account
deals with payments of debts and claims. The components of BOP on capital account are:
(i) Private Capital Transactions which refer to those transactions which affect assets or
liabilities of the resident country.
(ii) Official Capital Transactions refer to the transactions which affect assets &
liabilities of the govt. It includes loans, repurchase & resale of securities sold to
foreign residents, debt service, gold & foreign exchange reserves, & miscellaneous
receipts & payments.
(iii) Banking Capital Transactions includes movement in the external financial assets
and liabilities of those banks which are authorized to deal in the foreign exchange.
Q. Differentiate between BOP on current account & capital account.
Ans: The current account deals with the receipts & payments for those goods which are
currently produced, while the capital account deals with debts & claims. Secondly, the
BOP on current account has a direct influence on the level of income of a country, while
the capital account influences the volume of assets of the country.
Q. Briefly explain the other items in the BOP.
Ans: There are certain items which do not form the part of current & capital account. These
items are kept for balancing the BOP. These items are as follows:
I. Errors & Omissions are the balancing items in the BOP accounts which are used for
correcting the BOP as it is difficult to keep an accurate record of all the transactions
which may be due to sample of transactions, dishonesty of traders, smuggling etc.
AI. Official Reserve Transactions refer to those transactions which are carried out by the
govt. and the Central bank on behalf of govt. with regard to certain economic policy
& their effect on BOP, & the exchange rates. It includes the Country's Official
Reserve Assets & Foreign official Assets in the country.
 The Official Reserves are held in the form of foreign currency or foreign securities, gold
& Special Drawing Rights (SDR) with the IMF. Reduction in these reserves implies
purchase of foreign exchange which is taken as credit items in the BOP since it causes
inflow of foreign exchange. On the contrary, an increase in these reserve assets is taken as
a debit in the BOP as it causes outflow of foreign exchange.
The Foreign Official assets in the country are in the form of rupee reserves of foreign
central banks. Increase in these rupee reserves of foreign banks is taken as a credit item as
it causes inflow of foreign exchange in the resident country (India), while decrease in
these reserves is taken as debit as it causes outflow of foreign exchange.
Q. Differentiate between Autonomous & Accommodating Items.
Ans: Items in the BOP account can be also classified into two categories viz. Autonomous or
above the line items and Accommodating or below the line items.
Autonomous items refer to those items which are taken with the motive of profit
maximization. These transactions are not related to the country's BOP position. It is,
therefore, these items are called as autonomous items. These items are taken as first items
before calculating deficit or surplus in BOP account, therefore these items are called as
above the line items. If the receipts from autonomous items exceed the payments for
autonomous items; the BOP is called to be as surplus, and vice versa. It implies that the
resident country has net claims against the ROW. On the other hand, if the payments for
these items exceed the receipts from these items, it implies that the ROW has some net
claims against the resident country.
Accommodating items refer to those items which are undertaken by the govt. to keep the
BOP balanced. These items are transacted when a country faces disequilibrium in the
BOP. Through these transactions, the govt. or monetary authorities settle the deficit or
surplus in the BOP.
Q. What is meant by Disequilibrium in the BOP?
Ans: It refers to such a situation when the BOP of the country is deficit or surplus. In other
words, it is a situation when the net balance of all receipts & payments is not zero. If the
net balance is in (+), it is surplus; while the negative (-) balance is deficit. In both of the
situation, the BOP is in disequilibrium.
Q. State the causes for disequilibrium in BOP.
Ans: Disequilibrium in BOP may be due to the following reasons:
Economic Factors viz. Cyclical fluctuations, huge public expenditure on development
projects, hike in inflation which induces large imports of essential goods, development of
import substitutes, change in cost structure of the trading partner countries etc;
Demonstration effect which implies the effect of developed countries on the lifestyle &
consumption pattern of the less developed countries which leads to rise in imports;
Political instability which may lead to large scale capital outflow; Social factors viz.
changes in the social structure & norms which may affect the propensity to consume,
comforts & exports; etc.
Q. State the measures to correct adverse BOP:
Ans: Dear money policy, depreciation of the external value of domestic currency, devaluation
of the currency, exchange control restrictions, tariff & import duties, fixing of import
quotas, export promotion measures, import substitution etc.
 FOREIGN EXCHANGE RATE

KEY CONCEPTS:
Foreign Exchange Rate: - It refers to the rate at which one unit of currency of a country is
exchanged for the currency of other country. In other words, it is the price of one currency in
terms of another currency.
Foreign Exchange Market: - It refers to the rate at which one unit of currency of a country is
exchanged for the currency of other country. In other words, it is the price of one currency in
terms of another currency.
Fixed exchange rate: - Fixed Exchange Rate System refers to the system in which the rate of
exchange is determined by govt. or monetary authorities. It can be classified into Gold
Standard System or Mint Parity of Exchange & Adjustable Peg System.
Flexible Exchange Rate System: - Flexible Exchange Rate System refers to such a rate of
exchange which is determined by the demand for & supply of the foreign exchange in the
foreign exchange market. Under this system, the govt. or central bank does not intervene in
the determination of exchange rates.
Depreciation: - Depreciation means decline in external value of a domestic currency in
relation to a foreign currency.

Q. Define the term Foreign Exchange Rate.

Ans : It refers to the rate at which one unit of currency of a country is exchanged for the
currency of other country. In other words, it is the price of one currency in terms of
another currency.
Q. Define the term Foreign Exchange Market.
Ans : It refers to the place where foreign currencies are bought & sold. It acts to transfer the
purchasing power between the countries (transfer function); provides credit for
international trade (credit function); make provision for hedging facilities i.e. protection
against the risk related to variations in forex rate (hedging function).
Q. Explain the determination of foreign Exchange Rate.
Ans : The exchange rate is the price of a currency in terms of another currency. It depends upon
the different foreign exchange regimes which are Fixed Exchange Rate System & Flexible
Exchange Rate System.
Fixed Exchange Rate System refers to the system in which the rate of exchange is
determined by govt. or monetary authorities. It can be classified into Gold Standard
System or Mint Parity of Exchange & Adjustable Peg System.
The fixed exchange rate system had certain merits viz. it ensured stability & fluctuations
had been avoided; encouraged international trade due to low risk & lesser uncertainty &
coordinated the macroeconomic policies across the different countries. But it had certain
shortcomings viz. need of huge international reserves of gold; restriction in movement of
capital due to the need of huge reserves of gold; discouraged venture capital; & rigid in
resource allocation.
 Flexible Exchange Rate System refers to such a rate of exchange which is determined by
the demand for & supply of the foreign exchange in the foreign exchange market. Under
this system, the govt. or central bank does not intervene in the determination of exchange
rates. The exchange rate is determined by the free play of two forces viz. demand &
supply of concerned foreign currencies. The rate of exchange is determined when both
demand & supply of foreign exchange are equal to each other.
Q. State the sources of demand for foreign exchange.
Ans : These are import of goods & services; investment in other countries; gifts & grants to
abroad; direct purchase made in abroad; other payments involved in international
transactions etc. The demand for foreign exchange is made for the purpose of payments of
foreign loans, import of products, making investments & giving loans to other countries,
tour & travel in abroad etc. The demand for foreign exchange is inversely related to the
exchange rate.
Q. What are the Sources of Supply of foreign exchange?
Ans : These are the export of goods & services; investments by ROW in the resident country;
receiving gifts, donations & grants from the ROW; remittances by the non-residents from
the ROW; direct purchase made by the non-residents in the domestic country; other
receipts involved in international transactions etc. The supply of foreign exchange is
directly related to the exchange rate.
Q. Explain how the Equilibrium rate of exchange is determined?
Ans : It refers to the rate at which demand for & supply of foreign exchange is equal to each
other. It can be explained with the help of following example:

Price of US Demand for Supply for Price DS

$(in Rs.) US $ US $
40 500 100
50 400 200 60 E
60 300 300
70 200 400 D&
80 100 500 O 300 S

Here, the equilibrium exchange rate is 1 US dollar = Rupees 60, because at this price the
demand for dollars is equal to its supply.
Q. Explain the role of Central Bank during depreciation.
Ans : Due to depreciation, the price of imports rises due to which the price of essential products
viz crude oil rises which leads to increase in petroleum prices & further which leads to
inflation in the economy. The central Bank can resolve this under the managed floating
system. The Central Bank will release more of dollars in the market & reduce the supply
of INR. Consequently, the supply of dollars rises which leads to reduce its price, & on the
other hand, the value of INR rises due to decline in availability. This process leads the
 exchange rate back to its original one later. Due to this act, the managed floating is also
known as dirty floating.
Q. Differentiate between Depreciation and Devaluation.
Ans : Depreciation means decline in external value of a domestic currency in relation to a
foreign currency, while the term devaluation also mean the same. But the difference is
that depreciation takes place due to the outcome of changes in the market forces i.e
increase in demand or decrease in supply of foreign exchange, while devaluation means a
deliberate action taken by the Govt. in order to correct its deficit BOP by discouraging
imports & encouraging exports which will increase the inflow & reduce the outflow of
foreign exchange. Thus, depreciation is the part of flexible exchange rate system while
devaluation is the part of fixed exchange rate system.
Q. Differentiate between depreciation of currency & appreciation currency.

Here, due to increase in demand, the thus Here, due to increase in supply the demand
the price of dollars rises & the value of curve shifts right, & the supply curve shifts
INR declines. This is depreciation of right & thus the price of dollars falls, &
INR. In this situation, the imports become the value of INR increases. This is
dearer & exports cheaper. Thus, the Appreciation of INR. In this situation, the
exports rise & imports fall. As a result, exports become dearer & imports cheaper.
the inflow of foreign exchange increases Thus, the imports rises & exports fall. As a
result, the outflow of foreign exchange falls.

Multiple Choice Questions

Select the correct answer of the following questions:
1. The exchange rate at which demand for foreign currency becomes equal to its supply,
is called:
a. Equal rate of exchange; b. Unequal rate of exchange;
c. Equilibrium rate; d. All of these
Ans: (c)
2. What is the relationship between demand for foreign exchange and exchange rate?
a. Inverse; b. Direct;
c. One to one; d. No relationship
Ans: (a)
 3. What is the relationship between supply of foreign exchange and exchange rate?
a. Inverse; b. Direct;
c. One to one; d. No relationship
Ans: (b)
4. If Rs 150 are required to buy $ 2, instead of Rs100 earlier, then:
a. Domestic currency has depreciated; b. Domestic currency has appreciated; c. Rupee
value of import bill will increase; d. Both (a) and (c) (d)
Ans:
5. In which of the following categories are economic transactions of balance
of trade recorded?
a. Visible items; b. Invisible items;
c. Capital items; d. All of the above
Ans: (a)

Q. Estimate the following related to Current Account BoP from the data given below:
1. Trade Balance; 2. Goods & Services Balance; 3.Balance of Invisibles; 4. Current
Account Balance
Item US million $
Export 1,66,974
Import 2,40,188
Invisibles(net) 55,272
(a) Non-factor 36,069
(b) Income -13,554
(c) Transfers 32,757
1. Trade Balance
= X-M
= 1,66,974 – 2,40,188
= (-)73,214 Trade deficit
2. Goods and Service Balance
= Trade balance + Balance on account of non- factor service
= (-)73,214 + 36,069
= (-)37,145
3. Invisible balance
= Balance of non-factor service + Balance on income +Balance of transfers
= 36,069 – 13,554 + 32,757 , => 55,272
4. Current Account Balance
= Trade balance + Invisible balance
= (-) 73,214 + 55,272
= (-) 17,942
 Q. Calculate the value of imports when the balance of trade is (-) Rs 800 crore and the
value of exports is Rs 500 crore .
Ans. Balance of trade = Value of exports – Value of import; (-)800crore = 500 crore – value
of import
Value of imports = 500 crore + 800 crore; = Rs 1,300crore
 HOTS QUESTIONS
1. How do we finance the deficit on current account BOP in case officially reserves with
the RBI are not moved?
Ans. We are left with on two alternatives only:1. We borrow from rest of the world; 2. We sell
our assets (financial assets like stock and bonds, and physical assets (like plant and
machinery) to rest of the world.
2. What is depreciation of rupee? What is its likely impact on Indian imports and how?
Ans. Depreciation of rupee is the fall in the value of Indian currency in relation with foreign
currency. More rupees are now required to buy a unit of foreign currency. This will make
foreign goods expensive to the buyers in India. As a result, import are likely to fall.
3. How is depreciation of Indian rupee likely to affect Indian export? Explain.
Ans. Depreciation of the domestic currency implies that the domestic currency (rupee) loses its
value in relation to foreign currency (say US Dollar). Now, more rupee are required to
buy a dollar, or a dollar can now buy more goods in domestic in the domestic economy.
Accordingly, exports are expected to rise.
4. Will you always appreciate a rise in exchange rate as a means to boost our exports?
Ans. No. Because a rise in exchange rate may not always lead to a rise in our export earnings. A
rise in exchange rate is beneficial only elasticity of demand for our exports is greater than
unity. Because, it is only then that the total expenditure on our exports will rise in
response to a fall in prices of domestic goods (in terms of the foreign currency) yields
greater revenue only when the elasticity of demand for our exports is greater than unity.
5. How does decrease in FDI in India act as a supply stock for foreign exchange?
Ans. Decrease in FDI leads to a decrease in a supply of foreign exchange, for reasons other
than change in exchange rate. It is a supply shock that cause a backward shift of supply
curve of foreign exchange for the Indian economy. Consequently, equilibrium exchange
will rise. More rupee are to be paid for buying a unit of foreign currency.
6. How do the deficit BoP and surplus BoP impact the exchange rate?
Ans. (i) Deficit Balance of Payment: If the balance of payment of a country show deficit,
demand for foreign currency will increase. Accordingly, exchange rate is expected to rise.
Domestic currency will depreciate in relation to foreign currency. (ii) Surplus Balance of
Payment: If the balance of payment of a country shows surplus, availability of foreign
currency will increase. Accordingly, exchange rate is expected to fall. Domestic currency
will appreciate in relation to foreign currency.
********
COMMON ERRORS COMMITTED BY CHILDREN AND REMEDIAL MEASURES

S.NO Errors committed by children Remedial measures

1 Not going through the questions Apart from 15 minutes browsing time, the students
properly. must go through the questions at least twice very
carefully and with calm mind before attempting it.

2 Reaching the examination late Must reach the examination hall well in time meditate
which adds fuel to the already built for 2-3 minutes before browsing the question paper.
up tension.
3 Not writing the question numbers Must be very careful in writing the question numbers.
correctly.
4 All parts of an answer to a question Should write all parts of a question at one place. In case
are not written at one place. if it is felt that some points couldn’t be recollected,
leave some space and proceed to the next question and
whenever recollected come back to it.
5 Presentation of answer not up to Adequate practice of different types of questions and
the mark and in a confused revision of the topic to be done to avoid it.
manner.
6 Drawing incomplete and incorrect Sufficient practice in drawing diagrams is required to
diagrams. present it correctly and quickly on the paper.
7 Solution to numerical questions Sufficient practice of numerical questions required to
done in a haphazard manner. present the solution in a systematic manner.
8 Inability to present the answer as Should daily practice at home learning and writing the
requested due to language problem answers without seeing the book.
9 Not revising the answer sheet Proper distribution of time to solve the question paper
before submitting it to the and keeping 5-10 minutes for revision of the answer
invigilator sheet.
10 Taking the subject very lightly Devote time for studying Economics so as to present
the answer as required by the CBSE board.
11 Not attempting all the questions Must attempt all the questions even if answer is not
due to lack of time or not knowing known correctly/perfectly. Solving previous years
the answer correctly. papers and writing mock tests will help in proper time-
management.
12 Feeling giddiness or losing 1. Should have healthy breakfast in the morning before
confidence on seeing the question proceeding to the exam centre.
paper resulting in leaving the exam 2. If tensed up on seeing the question paper, go for
hall before the ending of time. deep breathing technique and positive thinking
which help in relieving tension and gaining
confidence.
HELPFUL TIPS FOR EXAMINATION
1. Go through the syllabus well and allocate time for important chapters which carry more
weightage. Also specify the content that will be covered during these study hours.
2. Prepare effective notes of terms, definitions and important points chapter wise which will
suffice for final revision.
3. Comprehend the relationships between different economic variables with the help of a
schedule and a diagram. Evaluate your understanding by doing exercises. It will strengthen
your learning process.
4. Practice diagrams and illustrations after reading each topic to avoid wasting time, prepare
new illustrations at the time of examination. Diagrams should be supported by appropriate
headings and arrow marks. For example, illustration and diagrams showing relationship
between AC and MC, AP and MP, AR and MR should be learnt by heart.
5. Numerical problems of 15-20 marks are an important component of the economics exam.
Prepare a list of formulas for quick reference before the examination. Practice national
income accounting numerical of the three methods of measuring national income ie value
added, income and expenditure method. Also practice numerical on cost, product, revenue,
producer’s equilibrium and theory of income, output and employment.
6. High-order-thinking-skills questions are tough if you don’t understand them. So, practice
questions from various books. Revise from past papers as it is best to familiarize yourself
with the format of the exam so that you can complete your paper in three hours.
7. Avoid common errors made by students while attempting the economics paper such as not
writing the formulae while attempting numerical and writing incomplete definitions. For eg,
while stating law of demand students usually forget to write ‘keeping other factors constant’.
8. Do not get stressed and get enough sleep: Avoid negative interactions with your peers. Stay
motivated and aim for excellent results.
9. Revise all the notes, descriptions and short formula’s learned by you all through the year.
Memorize only the crisp definitions along with its explanation.
10. A flow chart preparation for every chapter will help shorten your toll of time and would
inversely help in the detailed understanding of the subject Give special attention to diagrams
and graphs, along with its labeling as they hold the key to full marking.
11. Care is needed while preparing for the numerical, as a small mistake of figures can lead to
loss of marks.
12. Find for new questions on the similar context from Previous Year Question paper, Sample
paper and other Model test paper.
13. Always time yourself while answering the sample papers as it will help you manage time
during the exam.
14. Try and finish chapters which you find easy to understand as it will boost your confidence.
15. Practice the syllabus as prescribed by the CBSE. CBSE board exam question papers are
completely based on the syllabus provided.
16. Extra Questions are available through refresher books. Refer them only after when you are
through with your syllabus.
17. Do not start a new topic at the last minute. Revise the topics which you have already completed.
 INDIAN ECONOMIC DEVELOPMENT
Chapter 1: DEVELOPMENT POLICIES AND EXPERIENCES (1947-1990)
INDIANECONOMY ONTHEEVE OFINDEPENDENCE.
KEY CONCEPTS:
1. Agrarian economy: An economy in which about 85% of the country’s
population lived mostly in villages and earned their livelihood from
agriculture(Either directly or indirectly).
2. National income: It is the total value of the final goods and services
produced within a country plus net factor income from abroad.
3. Economic drain : During the British rule , the government incurred:
(a) Huge administrative expenses to manage their colonial rule in
India.
(b) Huge expenses to fight wars in pursuit of their policy of
imperialism.
5. Agricultural stagnation: Slow rate of economic growth in the agricultural sector.
6. Export surplus : During the British regime, India exports exceeded its
imports, which lead to a situation of “: Export Surplus”.
7. Commercialization of agriculture: The production for sale rather than for self –
consumption.
8. Demographic transition: It is a concept developed in 1945 to describe
the typical pattern of
falling death rate and birth rates in response to better living conditions associated
with economic
development. It consists of the following phases.
a. Pre-industrial societies.
b. Developing societies.
c. Modern industrialized societies/Developed societies.
9. Infrastructure: It includes banking, means of transport and
communication, Educational, health,housing facilities etc.
10. Life expectancy: It refers to the number of years that a person can expect
to live.
11. Occupational structure: IT is the distribution of working persons as per
their occupation a cross
Different industries and sectors of the economy.
12. Infant Mortality Rate(IMR) : It refers to the number of deaths of
infants before reaching the age
Of one, in a particular year (per 1,000 live births during that year).
I ONEMARKQUESTIONSANDANSWERS:
1. Whose estimate of national income was considered very significant?
Answer: (D)VKRVRAO
a. Dadabhai Naoroji (b) William Digby (c). RC Desai (d) VKRV Rao.
2. Major contribution to the GDP of the country on the eve
of independence was from: Answer(B)
(a) Tertiary sector (b) Primary Sector (c) Secondary sector (d) both Primary
and secondary sector.
3. The main interest of the Zamindar was: Answer: (A)
(a) To collect rent (b) To improve the condition of agriculture
(c) To produce food crops (d) To produce cash crops.
4. Details about the population of British India were first collected
in: ANSWER: (B)
(a) 1871 (B) 1881 (C)1891 (D) 1901.
5. Initially, the industrial development was confined to the setting up
of: ANSWER: (C)
(a) Cotton textile mills (b) Jute textile mills (c) Cotton and jute textile mills (d)
Capital goods industry.
6. In the history of demographic transition, which year is regarded as the
year of great divide?
(a) 1901 (b) 1902 (C) 1921 (d) 1923.
7. What are capital goods industries?
A. Capital goods industry refer to those industries which can produce machine tools
which are, in turn, used for producing articles for current consumption.
8. Mention the most important infrastructure developed during British
period.
A. It was the “Railways”, which were introduced by them.
9. Give the meaning of life expectancy at birth.
A. Life expectancy at birth indicates the number of years a new born infant is
expected to live.
10. Which airlines inaugurated the aviation sector in India?
A. It was Tata Airlines, Which inaugurated the aviation sector in India.
11. When did British introduce Railways in India?
A. Railways were introduced in India by the British in 1850.
12. Give the meaning of Gross Domestic product(GDP).
A.GDP is the market value of all officially recognized final goods and services
produced within a country during a given period of time.
IISHORT ANSWERTYPE QUESTIONS OF3/4 MARKS
1. What was the effect of the systematic de-industrialization policy
followed by the British?
A.)The effects of the policy of de-industrialization followed by the British were:
(a) De-industrialization
(b) ecline of the traditional handicraft
(c)The fall in supply of locally made goods.
(Explanation required.)
2. How did the construction of railways affect the structure of the Indian
economy?
A.) The British introduced the railways in India in 1850. Though the motive behind
the setting up of railways by British in India was selfish, it is considered as one of
their most important contribution. It affected the structure of the Indian railways in
many ways:
(1) It enabled people to undertake long distance travel and thereby
break geographical and cultural barriers.
(2) It fostered commercialization of Indian agriculture which adversely
affected the self-sufficiency of the village economies in India.
(3) The volume of India’s export trade undoubtedly expanded.
2. Explain the objectives of British government for promoting the
railways in India.
(1) The railways were developed in India by the British to promote
commercialization of Indian agriculture. This adversely affected the self-
sufficiency of the village economy in India.
(2) Railways were introduced to protect and promote the British economic
interests of transforming India into supplier of raw materials and consumer of
finished industrial products from Britain.
3. Explain any three positive contributions made by the British in India.
A. Some of the positive contributions made by the British in India were:
(1) Introduction of railways enabled the people to undertake long-distance
travel. This facilitated
The breaking of the geographical and cultural barriers.
(2) British rulers also developed water transport and introduced the air transport in
1932 by way of
establishing Tata airlines in 1932 and thereby inaugurated the aviation sector in
India.
(3) In 1837, the British introduced the modern postal system. The Expensive electric
telegraph
System was introduced in India, Which was useful for the purpose of maintaining
law and order.
Thus, the postal services served a useful public purpose.
4. What is vicious circle of poverty?
A. Vicious circle of poverty is the occurrence of low incomes leading to low savings,
Which results in low productivity and further lower levels of income. This further
perpetuates poverty in the economy.
5. How can India be described as a depleted economy on the
eve of independence?
A. India was left with a large debt, mostly owed to the British Empire. This debt had
increased over time because of the large expenditure that the British incurred in
ruling over India. They maintained the army and the administrative staff to rule over
India. India had also paid high taxes for import of raw material and other goods used
in the making of roads, railways and coaches. All this drained the Indian treasury.
III LONG ANSWER TYPE QUESTIONS AND ANSWERS:
1. Explain the challenges for the Indian economy on the eve of
Independence.
Ans. 1. Vicious cycle of poverty
2. Backward technology
3. Negligible industrial growth
4.conditions of living
5. Partition of India.
6. Unemployment and
underemployment
7. Rural economy
8. Limited size of market
9. High growth rate of population
(Explanation required).

2. State the features of Indian Economy at the time of Independence.

Ans. 1.Stagnant Economy

2. Lopsoded economy
3. Depleted economy
4. Backward economy
5.Dependent economy
6.Colonial economy
7.Semi feudal economy
(Explanation required).
3. Explain four main causes of India’s agricultural stagnation during
colonial period.
1. Land revenue system
2.Low level of productivity
3. Commercialisation of agriculture
4.Starvation in the field of agriculture sector.
5.Lack of technology and resources.
(Explanation required).
4. Was there any economic drain during the colonial period? Explain.
Ans. 1. Large export surplus
2. Introduction of railways
3. Competition from machine-made goods
4. Commercialisation of agriculture (Explanation required).
5. What was the state of primary sector in the time of Independence.
Ans. 1. Forced Commercialization of agriculture
2. Land Revenue system under the British Raj
3. High Degree of Vulnerability
4. A wedge between owners of the soil and Tiller soft h soil
5. Low Level of Productivity

(Explanation required).

6. Briefly explain about industrial sector at the time of independence.

Ans. 1. Very few Modern Industries
2. Dominance of Trading and money lending class.
3. Agriculture-based industries
4. Lack of capital goods industries
(Explanation required).
7. What was the state of foreign trade at the time of independence.
Ans. 1. Composition
2. Terms of trade
3. Direction
4. Volume of trade.

(Explanation required).

8. What is occupational structure ? Briefly explain about it during

British period ?
Ans. Occupational structure is the distribution of labour force in three main sectors of
the economy –agriculture, industry and service.
1.Primary sector 2. Secondary sector 3. Territory sector
(Explanation required).
9.What was the state of infrastructure at the time of independence.
Ans. 1. Roads
2.Railways 3.Water
transport
4. Banking and Financial services
5. Communication
6.Education and Health.
(Explanation required).
10.Briefly explain about Demographic Conditions on the eve of
independence.
Ans. 1.Water and airborne diseases
2. Birth rate
3. Poverty
4. Illiteracy
5.Mortality rate
6.Life expectancy
7.Bengal famine
(Explanation required).
Chapter2
INDIAN ECONOMY 1950-1990
KEY CONCEPTS
 1. A Plan sells out how the resources of a nation should be put to use.
2. Purchasing power refers to the value of money.
3. Market economy: In a market economy, also known as “Capitalism”,
only those goods will be produced that can be sold profitably either is the
domestic or in the foreign market.
4. Tariff: A tax on imports, which can be imposed wither on physical units,
e.g., pertone or on value.
5. Land reforms primarily refer to change in the ownership of
landholdings, so as to bring about equity in agriculture.
6. Marketed surplus: The portion of the agricultural produce which is sold in
the market by the farmers.
7. Equity refers to every Indian be able to meet his or her basic needs
and the inequality in the distribution of wealth should be reduced.
8. Structural composition refers to the contribution made by each of the
sector, i.e the agricultural sector, the industrial sector and the service sector
of the economy.
9. World Trade Organization(WTO) was founded in 1995 to establish a rule
based trade regime, to ensure optimum utilization of world resources.
10. Quotas specify the quantity of goods which can be imported.
11. Land ceiling refers to sixing the maximum size of land which could be
owned by an individual.
12. Policy of protection: is the policy based on the nation that industries
of developing countries are not in a position to compete against the good
produced by more developed countries. So, it is assumed that if the
domestic industries are protected they will learn to compete in the course of
time.

13. Green Revolution: A Rapid and sudden increase in agriculture

output in a short period of time with the use of new technology.
Subsidy: A grant or benefit given by the government to a producer as an
encouragement to produce more. Subsidy is given to consumers as well, for
eg.,Subsidy on LPG. In New Delhi subsidy was provided to domestic
consumers with monthly consumption upto 200 units.

I ONE MARK QUESTIONS AND ANSWERS:

1. Self –reliance means avoiding: ANSWER( B)

(a) Exports (b) imports (c) Both (a) and (b) (d)None of the above.
2. A good indicator of growth is steady increase in the : ANSWER:(A)
(a) Gross Domestic Product (b) Net Domestic Product (c) Population
(d) National income.
3. Which factor led to the breaking up of the stagnation of agriculture?
(a) Land reforms (b) Green Revolution (c)
Buffer stocks (d) Land ceiling.
4. The planning commission was set up in : Answer (b)
(a) 1948 (b) 1950 (c) 1951 (d) 1956
5. Who is known as the architect of “Indian Planning”? Answer:
(c) (a)Jawaharlal Nehru (b) Dr. BR Ambedkar (c)
PC Mahalanobis (d) Sardar Vallabhbhai Patel
6. When was first five-year plan introduced? Answer (b)
(a) 1st April ,1950 (b) 1st April, 1951 (c) 1st April,1952 (d) 31st March,
1950
7. The common goals of the five year plans are : Answer: (d )
(a) Modernisation (b) Growth (C) Self –reliance (d) All of the above.
 8. Long- term objectives to be achieved over a long period of
time formulated with reference to
common goals of plans are called: Answer (d)
(a) Objectives of plans (b) Objectives of planning (c) Perspective plans (d) Both
(b) and (c)

9. Under which system the goods are distributed among people not
on the basis of what people need
but on the basis of what people need but on the basis of purchasing
power? Answer : (a)
(a) Capitalistic system
(b) Socialistic
system (c ) Mixed
system (d) Dual
system
10. Green Revolution introduced during the planning
process was restricted mainly to :Answer: (a)
Wheat and rice (b) Cereals and pulses (c) Cotton and jute (d) Jowar
and bajra.
11. What is a planned democracy?
Ans. A Planned democracy is the one in which people elect their representatives
who take decisions tas to how to use the nation’s resources with the help of
planning.
12. Why should plans have goals?
Ans. While a plan specifies the ways and means to allocate scarce resources
to achieve proposed targets, goals are the ultimate targets, the achievement of
which ensures the success of plans.
13. In which year NitiAayog initiated ?

II SHORT QUESTIONS AND ANSWERS (3 marks and 4 marks )

1. Explain “growth with equity” as planning objective.

Ans. Growth refers to the increase in GDP over a long period of time Equity refers
to an equitable distribution of GDP so that the benefits due to higher economic
growth are shared by all sections of population. Growth in itself does not guarantee
the welfare of people. Hence, growth with equity is a rational and desirable objective
of planning. This is not only leads to reduction of inequality of income but also
enables everyone to be self-reliant.

2. Are self –Reliance and self-sufficiency the same? Explain.

Ans. No. Self-reliance is the ability to meet one’s own –development needs.
An economy must have enough resources or foreign exchange to purchase
all inputs required for production. If they are not available within the country.
This is so because n economy can be self-sufficient, i.e. produce everything
within the country, as costs may be high. It may be cheaper and better to
purchase certain inputs from others countries, For this , an economy needs to
have enough foreign exchange. This is self-Reliance. So, while it is good to
be self- sufficient, it is not the best way to develop. It is more desirable to be
self- reliant.

3. What has been the impact of Self-reliance on Indian economy?

Ans. Impact of self-reliance on the Indian economy:
 Self –sufficiency in food grains.
Decline in foreign aid and reduced dependence on imports owing to growth
in domestic production .
Progress in exports.
Rise in contribution of industries to GDP.

3. Explain the policy of “land to the tiller” and its benefits

Ans. The ownership of land provides incentives to the tiller of the land t invest in
making improvements, provided sufficient capital is made available to them.
They take more interest since they make profit from the increased output which
is not shared by anyone.
The importance of ownership in providing incentives to farmers is illustrated by the
carelessness with which farmers in the former Soviet Union used to pack fruits for
sale. Rotten fruits were packed along with fresh fruits in the same box since it did
not affect them if the goods were not sold

4. Why was thee a need for reform of economic policy in 1990? Explain.
ANS. The need for reform of economic policy in 1990 was widely and strongly felt in
the context of the changing global economic scenario. The new economic policy was
initiated in 1991, in order to enhance the efficiency of the country’s economy.

5. “Subsidies provide an incentive for wasteful use of resources”. Do you

accept/reject? Justify your answer.
Ans. Yes, Subsidies provide an incentive for wasteful use of resources, if they are
provided free or at a subsidized rate, then they will be used wastefully i.e. without
any concern for the scarcity of say water/ Electricity. Fertiliser and pesticide
subsidies lead to overuse of resources like land. This inturn can be harmful to the
environment. So in this way provision of subsidies may cause more than benefit, if
not properly used.

6. Why are HYV seeds called ”miracle seeds”?

Ans. High Yielding Variety of seeds were developed by the Nobel Laureate Dr.
Narman Barlauf in Mexico. These seeds are more productive and need regular and
adequate irrigation facilities along with greater use of fertilizers and pesticides. HYV
seeds grow faster than the normal seeds and crops can be harvested in a much
shorter time-period.

7. What is import substitution policy? Why it was introduced in India? Ans.

Import substitution policy aimed at replacing or substituting imports with
domestic production. For example, instead if importing vehicles from abroad, the
industries were encouraged to produce them in India itself.
It was introduced in India because the government wanted to protect the domestic
industries from foreign competition. It was assumed that if domestic industries are
protected, they will learn to compete in the course of time.

8. Explain how tariffs and quotas protect the domestic industry? Ans.
Tariffs are tax imposed on imported good. They make imported goods more
expensive, thus, discouraging their use. Quotas specify the quantity of goods which
can be imported, thus restricting the import of foreign goods.
 IIILONG QUESTIONS AND ANSWERS (6 MARKS)

1. Mention the period covered under different plants.

Ans
First Plan 1951-1956

Second plan 1956-1961

Third plan 1961-1966

Annual plans 1966-1969

Fourth plan 1969-1974

Fifth plan 1974-1978

Annual plans 1978-1980

Sixth plan 1980-1985

Seventh plan 1985-1990

Annual plans 1990-1992

Eighth plan 1992-1997

Ninth plan 1997-2002

Tenth plan 2002-2007

Eleventh plan 2007-2012

Twelfth 2012-2017
Nityi Aayog/Thirteenth Plan 2017 onwards

2. What is achievements of plans and failures of Economic planning?

Ans.(I) Increase in national income (ii) increase in per capita income, (iii) increase
in the rate of capital formation (iv)institutional and technological reforms in
agriculture (v) Growth and diversification of industry (vi) Economic infrastructure ,
(vii) Social infrastructure.
(II) Failures of Economic Planning: (i) Abject Poverty (ii) Mounting inflation, (iii)
Unemployment crises, (iv) Deficient infrastructure , (v) Skewed distribution.

3. What is Economic planning ?

Ans. Economic planning is the determination of a suitable way to utilize the
resources of the country to achieve the goals or objectives. It is the assessment,
allocation, mobilisation and utilization of available resources to benefit the people.
4.State the common goals of Five –Year plans.
Ans. 1. High rate of growth
2.Social justice
3. Self –reliance
4. Modernisation
(Explanation required).
5. Explain the various land reforms introduced post-independence in India
in the agricultural sector.
Ans.(1) Abolishing the intermediaries
(2) Consolidation of Holdings
(3) Redistribution of land
(4) Co-operative farming
(5) Tenancy reforms
(6) Ceiling on land holdings
(Explanation
required).
6. Why was the Green Revolution implemented?
Ans. (1)Low irrigation facility
(2) Conventional and Traditional approach
(3) Lack of Finance
(4) Lack of Self-sufficiency
(5) Marketing agriculture produce
(6) Frequent occurrence of famines
(Explanationrequired).
7. While subsidies encourage farmers to use new technology, they are a
huge burden on government finances. Discuss the usefulness of subsidies
in the light of this fact.
Ans. The following arguments are given in favour of subsidy:
a. Subsidy is generally provided to the poor farmers with the motive of reducing
inequality of income between rich and poor farmers.
b. Subsidy was basically an incentive for the farmers to adopt modern
techniques and vital inputs like fertilizers, HYV seeds etc. The subsidy was
provided so that the farmers might not hesitate to use modern techniques.
c. Subsidy is very important for marginal land holders and poor farmers who
cannot avail the essential farm inputs at the ongoing market rate.
The following arguments are given against subsidy:
a. Subsidies are also given to the farmers who do not need them. This
often leads to the misallocation of the scarce resources.
b. It is generally argued that subsidy favours and benefits fertilizer industries
more than the farmers.
c. Subsidies may lead to the wastage of precious resources.
Hence, we can conclude that although subsidies are useful and necessary for
poor farmers they put an excessive burden on the scarce finances of the
government. Allocation of subsidies to the farmers who need it most is
required.
8. How were the industries classified according to the industrial policy
Resolution,1956?
Ans. (1) Category A
(2) Category B
 (3 ) Category C
(Explanation
required).

9. How did Green Revolution benefit the farmers?

Ans. (1) Increasing income of the farmers.
(2) increase in productivity of land.
(3) Self sufficiency
(4) Promotion of Science and technology
(5) Promotion of infrastructural development
(6) Increase in National income.
(7) Increase in Rural employment.
(Explanation required).

10. What were the disadvantages of the Green Revolution?

Ans.(1) Confined to food crops
(2) Limited coverage
(3) Undesirable social effects
(4) Inequality among farmers
(5) Social unrest.
(6) Regional disverities.
(Explanation required).

11. Explain the importance of industrial sector in economic growth and

development of the Indian economy.
Ans. (1) Source of Employment
(2) Industrialization is a sine-qua-non of growth.
(3) Source of mechanized means of farming
(4) Imparts Dynamism to Growth process
(5) Growth of civilization
(6) Infrastructural Growth
(7) Structural Transformation
(Explanation required).

CHAPTER :III

ECONOMIC REFORMS SINCE 1991

KEY CONCEPTS

1. Economic crisis: A situation wherein the expenditures are much more than
the revenues and there is no source (such as world Bank) to lend (as the
borrower already has a large outstanding loan to repay with interest)
2. Public sector undertakings (PSU’s): Government-owned enterprises that
produce and sell various goods in the market, to earn profit.
 3. Remittances: These are foreign currencies transferred by those working
outside the country to their families and friends in their own countries.
4. Delicensing: Removal of controls, especially on industries.
5. Dereservation: Taking off certain industries from the sole domain of public
sector by allowing
Private capital investment, such as in coal, medicine etc.
6. Devaluation: It is the fall in the value of domestic currency with respect to
foreign currency under the fixed exchange system (Presently, the
synonymous term is depreciation-under flexible exchange system).
7. Outsourcing: Contracting another agency to conduct a process during
production of services Foreg. Contract for maintaining software, customer
services etc.
8. Quantitative restrictions: Restrictions in the form of total quantities or
quotas imposed on
imports to reduce Balance of Payments (BoP)deficit and protect domestic
industry.
9. Import Licensing: Permission required from the government to import
goods into a country.
10. Foreign Direct investment(FDI) : refers to the investment of foreign assets
into domestic
structures, equipment and organizations. It does not include investment into
the stock
markets.
IONEMARK QUESTIONANDANSWER

1. International Bank for Reconstruction and Development(IBRD) is

popularly known as :Answer(A)
(a) World Bank (b) Bank of Tokyo (c) American Express (d ) HSBC Bank
2. IMF stands for : Answer (c)
(a) International Monetary Foundation (b) Internal Monetary Fund

(c ) International Monetary Fund (d) International money foundation

3. What was the one major proposal of new industrial policy(1991)?
Answer (d)
(a) NRI’s will not be allowed for capital investment in India.
(b) Facility of FDI upto 51 percent in high priority industries
(c) Import restrictions on technical know how for one year
(d) Abolition of industrial licencing except for six industries.
4. Objectives of privatization policy are : Answer(a)
(a)To improve the government’s financial position
(b) To improve the performance of an enterprise
(c) To reduce the burden on public administration.
(d) All the above.
5. Rate of which tax was reduced as per the tax reforms:
Answer(b)
(a) Income tax (b) corporation tax (c) value –added tax (d) property tax

6. Which is the latest tax introduced by the government of India?

Answer (a)
(a) Goods and services tax (b) Value –added tax (c) service tax (d)
corporation tax
 7. Privatization of the public sector undertakings by selling off part of the equity
of PSU’s to the private sector is known as answer:(disinvestment)
8. SGST stands for answer ( State Goods and Services Tax)
9. What is privatization?
Ans. It implies shedding of the ownership or management of a government –
owned enterprise.
10. Define disinvestment.
Ans. Disinvestment refers to a deliberate sale of a part of the capital stock of
a company to raise resources and change the equity and /or management
structure of a company.
11. What is meant by globalization?
Ans. Globalization is an outcome of the set of various policies aiming at
transforming the world towards greater interdependence and integration.
12. What is meant by demonetization?
Ans. De monetization is the economic policy wherein the legal status of a
currency unit is cancelled and new one comes into circulation.
13. When was de monetization implemented in India?
Ans. On November 8,2016 , demonetization was implemented in India with
its announcement by the Prime Minster Narendra Modi’s address to the
nation at 20:15 IST.
II SHORT QUESTIONS AND ANSWERS(3 OR 4 MARKS)
1. State the features of new economy policy.
Ans. 1. Liberalization
2. Privatization
3. Globalization

(Brief Explanation required)

2. What are Fiscal policy reforms? Explain.

Ans. Fiscal policy reforms were undertaken to improve the expenditure and
revenue policies of the government. The following steps were undertaken:
(a)Tax Reforms: Tax rates were reduced, tax evasion was plugged and
procedures were simplified.
(b) Government expenditure was curtailed by cutting down on unnecessary
expenses. Borrowings were reduced and all loss-making PSU’s were
shut down.
(c) Disinvestment in PSU’s was undertaken to plug the budgetary deficit.
3. Explore the industrial policy Reforms under NEP 1991.
Ans. Industrial Policy Reforms were aimed at reducing government control and
opening up the industrial sector to private participation. The reforms were:
(i) Delicensing of industries
(ii) Deregulation of industries
(iii) Dereservation of industries by withdrawal of reservation in public
sector.
(iv) Foreign capital was also encouraged by increasing the share of foreign
investment.
4. Write a short note on Niti Aayog.
Ans. Its constitution comprises the following:
1. Chair person (The Prime Minister)
2. Vice-Chairperson
3. Full Time members(four)
4. Chief Executive officer(one)
 Formed via a resolution of the union Cabinet on January 1,2015. NITI Aayog is
the premier policy “Think-Tank” of the government of India (GOI), providing
both directional and policy inputs. While designing strategic and long-term
policies and programmes for the GOI, it also provides relevant technical advice
to the centre and states.
5. Give any three aims of demonetization.
Ans. The three aims of demonetization are:
(a) To Curb corruption
(b) To curb counterfeiting
(c) To curb the use of high denomination notes for terrorist activities.
5. What do you understand by GST? How good is a system of
GST as compared to the old tax system? State its categories.

Ans. GST is the “single comprehensive indirect tax” on supply of goods And
services right from manufacturer or service provider to the consumer.
The system of GST as compared to the old tax system.
1. Has simplified the multiplicity of taxes on goods and services.
2. The laws, procedures and rates of taxes across the country are also
now standardized.
3. It has also facilitated the freedom of movement of goods and
services.
4. It has created a common market in the country.
The two categories of GST and CGST and
SGST.
7. Give the list of navaratna companies
Ans. (a) Bharat Electronics Ltd.
(b) Bharat petroleum Corporation Ltd.
(c) Hindustan Aeronautics Ltd.
(d) Hindustan Petroleum Corporation Ltd.
(e) Mahanagar Telephone Nigam Ltd.
(f) National Alluminium Company Ltd.
(g) National mineral Development Corporation Ltd.
(h) Neyvelil Lignite Corporation Ltd.
(i) Oil India Ltd.
(j) Power Finance Corporation Ltd.
(k) Power Grid Corporation of India Ltd.
(l) Rashtriya Ispat Nigam Ltd.
(m) Rural Electrification Corporation Ltd.
(n) Shipping Corporation of India Ltd.
8. What are the objectives of WTO?
Ans. Objectives of World Trade Organization(WTO) are:
(a)Reduction of trade barriers to liberalize world trade.
(b) Serves as a platform for countries to raise their concerns regarding the
trade policies of their
trading partners.
(c) To enlarge production and trade of services.
(d) To ensure optimum utilization of world resources.
(e) To protect the environment.
(f) To provide greater market access to all member countries.
LONG QUESTIONS AND ANSWERS: (6 MARKS)
1. Explain the reasons for introduction of New Economic policy.
Ans. (1) Poor performance by the public sector undertakings
(2) Inflationary pressures
 (3) Increasing debt burden
(4)Fragile balance of payments position.
(Briefly explanation required)
2. Explain financial sectors reforms under Liberalisation.

Ans. 1. Freedom to determine own interest

2.Private banks granted permission
3.Permission for foreign investment
3. Do you think outsourcing is good for India. Why are developed
countries opposing it ?
Ans.(1) Employment
(2) Higher standard of living
(3) Contributes to human capital formation
(4) Encourages other sectors
(5) Greater infrastructural investment
(6) International worthiness
(7) Foreign Exchange
(Briefly explanation is required)
4. What are the major factors responsible for the high growth of the
service sector?
Ans. (1) Cheaplabour and reasonable degree of skill in India.
(2) Advanced technology and growth of IT
(3) Structural transformation
(4) High demand for services as final product
(Briefly explanation is required)

5. Explain the main objectives of Globalization.

Ans. Following are the main objectives of globalization are as follows:
1. Reduction of trade barriers to liberalize world trade.
2. Serves as a platform for countries to raise their concern regarding the
trade policies of their trading partners.
3. To enlarge production and trade of services.
4. To protect the environment
5. To provide greater market access to all member countries.
6. To ensure optimum utilization of world resources .

CHAPTER 4
POVERTY
KEY CONCEPTS:
  Meaning of Poverty
 Poor in Urban Areas
 Poor in Rural Areas
 Common characteristics of the poor people
 Measures of Poverty
 Relative Poverty
 Absolute Poverty
 Causes of Poverty
 Poverty Alleviation Programmes
 Government’s approach to Poverty reduction

I MARKQUESTIONANDANSWERS
1) Poverty data collected officially by…
(a) National Sample Survey Organization (b) National Rural Development
Programme
(c) National Statistical Department (d) National Census Survey

2) In which year “National Food for Work” programme was launched?

(a) 2008 (b) 2004 (c) 1999 (d) 2010

3) Minimum calorie requirement in rural areas for per day is

(a) 1400 calorie (b) 2100 calorie (c) 2400 calorie (d) 2800 calorie

4) Self Employment programmes include…

(a) Prime Minister Rojgar Yojana (PMRY)
(b) Sampoorna Grameen Rojgar Yojana (SGRJ)
(c) National Social Assistance Programme (NSAP)
(d) National Food for Work Programme (NFWP)

5) The earlier “Food for Work Programme” has now been converted into
(a) Intensive Area Development Programme
(b) Integrated Rural Development Programme
(c) Mahatma Gandhi National Rural Employment Programme
(d) Minimum Needs Programme
6) Who introduced the concept of “Jail Cost of Living”?
(a) Mahatma Gandhi (b) Dadabhainaroji (c) Jawaharlal Nehru (d) Sardar Vallabhai
Patel
7) Which standard is used by the concept of absolute poverty to measure
number of poor people?
A) Poverty Line
8) What is meant by H.C.R (Head Count Ratio) ?
A) When the number of poor is estimated as the proportion of people below the
poverty line, it is known as Head Count Ratio.
9) Mention two wage employment programmes initiated by the
government?
A) 1. Sampoorna Grameen a Rojgar Yojana
2. National Food for Work Programme
10) Name the programme initiated by the Government to help the elderly
people, poor and destitute woman. (HOTS)
A) National Social Assistance Programme (NSAP)
 11) Under MNERGA, What is the minimum number of days of employment
in a year guaranteed? (HOTS)
A) 100 days in a year

12) Name the two measures of poverty

A) 1. Absolute Poverty 2. Relative Poverty

Answers
1. a 2. b 3. c 4. a 5. c 6. b

II. Short Answer Questions 3/4Marks

1) What is the difference between Relative and Absolute Poverty?
A) 1. RelativePoverty:
(a) It refers to poverty of people in comparison to other people, regions or
nations.
(b) Relative poverty helps in understanding the relative position of different
segments of the population.
2.Absolute Poverty:
(a) It refers to the total number of people living below poverty line.
(b) Absolute poverty helps to measure the number of poor people.
2) Name some of the Poverty Alleviation Programmes initiated by the
government of India
A) There are two types of Poverty Elevation Programmes in India.
3. Self-Employment Programmes
 Rural Employment Generation Programme (REGP)
 Prime Minister Rozgar Yojana (PMRY)
 Swarna Jayanti Shahri Rozgar Yojana (SJSRY)
 Swarn jayanti Gram Swarozgar Yojana (SGSY)

4. Wage Employment Programme

 Sampoorna Grameena Rozgar Yojana (SGRY)
 National Food for Work Programme (NFFWP)
3) Write a short note on “Minimum Needs Programme”
 It has been initiated from the fifth five year plan
 It aims to provide minimum basic amenities to the people
 To create employment opportunities and bring improvements in
health and education
 Three major Programmes that aim at improving the food and
nutrition status of the poor
 Public Distribution System (PDS)
 Integrated Child Development Scheme (ICDS)
 Mid-Day meals Scheme
4) Explain “Mahatma Gandhi National Rural Employment Guarantee
Act 2005”
  It aims at enhancing the livelihood security of people in rural areas
by guaranteeing hundred days of wage employment in a financial
year to a rural household whose adult members volunteer to do
unskilled manual work.
 The poor who are ready to work at the minimum age can report for
work in areas, where this programme is implemented.

 Nearly 5 Crore household got employment opportunities under this

Act
5) Briefly discuss the “Swarnjayanti Gram Swarojgar Yojana”
 It aims at promoting micro enterprises and to bring the assisted
poor families above the poverty line, by organizing them into Self
Help Groups (SHGs)
 People who wish to benefit from this scheme are encouraged to
form Self Help Groups (SHGs)
 They are encouraged to save some money and lend among
themselves as small loans.
 The government provides partial finance assistance to SHGs
 This has now been restructured as National Rural Livelihood
Machine (NRLM)
III LONG ANSWER QUESTIONS 6 MARKS
1) What are the causes of poverty in India?
A) These below 8 are the causes of poverty in India:
 Population Explosion
 Low level of economic development
 Agriculture backwardness
 High Illiteracy rate
 High Un-Employment
 High level of Indebtedness
 Income inequalities
 High Inflation

With Brief Explanation

2) What are the steps taken by the government to remove poverty in
India?
A) The government’s approach to poverty reduction has three dimensions:
 Growth Oriented Approach
 Poverty Alleviation Programmes
 Minimum Needs Programme
With Brief Explanation
3) Write a short notes on (i) National Food for Work Programme (ii)
National Social Assistance Programme
A) (i) National Food for Work Programme (NFFWP):
 It was launched in 2004
 The objective of Intensifying the generation of supplementary wage
employment
  It was initially implemented in 150 most backward districts of the
country
 The Programme was implemented as a 100 percent Centrally sponsored
scheme
 This programme was incorporated in Mahatma Gandhi National Rural
Employment Guarantee Act(MGNREGA) in 2005

(ii) National Social Assistance Programme (NSAP):

 It was initiated by the central government on 15th August 1995 to help
a few specific groups
 Under this Programme, elderly people who do not have anyone to take
care of them are given pension to sustain themselves
 Poor woman who are destitute and widows are also covered under this
scheme

4) What is the criticism against the Poverty Alleviation Programmes (PAPs)

A) The Poverty Alleviation Programmes have been found unsatisfactory
because of the following reasons
 Lack of Resources
 Un-equal distribution of income and wealth
 Improper implementation
 Lack of active Participation of poor people

CHAPTER 5
HUMAN CAPITAL FORMATION
KEY CONCEPTS:

□ Physical Capital: It includes all those inputs which are required for further
production.
Examples: Plant and Machinery, Factory, Buildings, Raw
Materials etc.

□ Human Capital: It refers to the stock of skill, ability, expertise, education

and
knowledge embodied in the people.

□ Human Capital Formation: It refers to development of abilities and skills

among the
 population of the country.
IMARK QUESTIONANDANSWERS
1) five year plan recognized the importance of Human Capital
(a) Seventh (b) Third (c) Eight (d) Sixth

Ans: a
2) In India, which of the following organizations regulate the health sector?
(a) ICMR (b) UGC (c) AICTE (d) None of these

Ans: a
3) In the year Indian Government made free and compulsory
education for age group of 16 to 14 years?
(a) 2001 (b) 2009 (c) 2003 (d) 2007

Ans: b
4) Which one of the following is a reason for poor human capital formation in
India? (HOTS)
(a) Brain drain (b) Insufficient resources (c) High Growth of Population
(d) All of these
Ans: d

5) Which of the following is not a source of Human Capital Formation?

(a) Expenditure on Infrastructure (b) Expenditure on Education

(c) Expenditure on On-the-job training (d) Expenditure on Migration

Ans: a
6) refers to the stock of skill, ability, expertise, education and
knowledge embodied in the people
(a) Human Resource (b) Physical Capital (c) Human Capital (d) None of
these
Ans: c
7) What is the full form of ICMR?
(a) International Council of Medical Research
(b) India Council of Medical Resources
(c) International Council of Medical Resources
(d) Indian Council for Medical Research
Ans: d
8) Give the meaning of Human Capital?
A) It refers to the stock of skilled, ability, expertise, education and knowledge
embodies in the people.
9) Name the various forms of health expenditure.
A) Preventive medicine, curative medicine, social medicine, provision of clean
drinking water and good sanitation are the various forms of health
expenditure.
10) How is on-the-job-training a source of human capital formation?
A) On-the-job-training is a source of human capital formation as it increases the
skill and efficiency of the workers and leads to an increase in production and
productivity.
11) Why has India not been able to achieve 100 percent literacy
even till today? (HOTS)
A) India has not been able to achieve 100 percent literacy because of its failure to
provide free and compulsory education for all children up to the age of 14
years.

12) Which five year plan recognized the importance of human capital?
A) The Seventh Five year Plan
13) What do the differences in male and female literacy rates
indicate?
A) The differences in male and female literacy rates indicate that education in
India is gender biased.
14) How much educational cess was imposed by the government to all
union taxes?
A) 2 per cent
II. Short Answer Questions 3/4 Marks
1) What are the sources of Human Capital Formation?
A) These below 5 are the sources of Human Capital Formation:
 Expenditure on Education
 Expenditure on Health
 On-the-job training
 Expenditure on Migration
 Expenditure on Information
With Brief Explanation
2) Name the two government organizations that regulate the Health
and Education sector.
A) Health Sector:
 Ministries of Health at the Central and at State level
 Indian Council for Medical Research (ICMR)

Education Sector:
 Ministries of Education at the Union and State level
 National Council of Educational Research and Training (NCERT)
3) What is the difference between Human Capital and Human
Development?
A) Human Capital Vs Human Development:
 It considers education and health as a means to increase the labour
productivity, while according to human development, education and
health are integral to human well-being.
 Human Capital treats human beings as a means to increase in
productivity, while according to human development, human beings
ends in themselves.
4) What are the various forms of Health Expenditure?
A) These five are the forms of Health Expenditure:
 Preventive medicine □ Vaccination
 Curative medicine □ medical intervention during illness
 Social Medicine □ spread of health literacy
  Provision of clean drinking water
 Good Sanitation facilities
5) How Education contributes to economic growth of a country? (HOTS)
 Education confers higher earning capacity on people
 It gives better social standing and pride
 It enables one to make better choices in life
 It provides knowledge to understand the changes taking place in
society
 It also stimulates innovations
 It facilitates adaptation of new technologies
6) What is the difference between Physical Capital and Human Capital?
A) Physical Capital:

 It can be easily sold in the market

 It depreciates with the passage of time.
 It is more mobile between countries
 It can be separated from its owner
 It can be built through imports

Human Capital:
 It cannot be sold in market
 Depreciation in Human Capital can be reduced by making
continuous investments in education and health
 It is less mobile between countries
 It cannot be separated from the owner
 Human Capital formation is to be done through conscious policy
formulations.

III LONG ANSWER QUESTIONS 6 MARKS
1) What is the importance/role of Human Capital Formation in India?
A) There are 7 importance of Human Capital Formation:
 Effective use of Physical Capital
 Higher Productivity and Production
 Inventions, Innovations and Technological improvement
 Modernization of attitudes
 Increases life expectancy
 Improves quality of life
 Control of population
With Brief Explanation
2) What are the various forms of Human Capital Formation?
A) These below 7 are the forms of Human Capital Formation:
 Insufficient resources
 Serious inefficiencies
 Brain-drain
 High Growth of Population
 Several Imbalances
 Lack of proper Man-power planning
 Weak Science and Technology
With Brief Explanation
3) Why the need for on-job-training for a person?
 Such training has the advantage that it can be provided fast and
without much cost.
 It increases the skill and efficiency of the workers.
 It increases the Production and Productivity of the workers.
 Workers may be trained in the firm itself under supervision of a skilled
worker.
 Workers may be sent for off-campus training.
With Brief Explanation
 CHAPTER 6
RURAL DEVELOPMENT
KEY CONCEPTS:

 Rural Development: It refers to continuous and comprehensive socio-

economic
process, attempting to improve all aspects of rural life.
 Rural Credit: Growth of Rural economy depends on timely inclusion of Rural
Capital
 Agricultural Marketing: It is a process that Ans: a
involves assembling, storage, processing,
transportation, packaging, grading and distribution
of different agricultural commodities across the
country.
 Organic farming: It is the form of agriculture that lies
on techniques such as
crop rotation, green manure, compost and biological
pest control.
IMARK
QUESTION
AND
ANSWERS
1) Why is minimum support price fixed by the
government?
(a) For government own benefit
(b) To safeguard the interest of farmers
(c) To safeguard the interest of consumers
(d) None of these
Ans: b
2) is the apex body which coordinates the
functioning of different financial institutions
working for expansion of rural credit
(a) NABARD (b) Self-Help Groups (c)
Regional Rural Banks
(d) Commercial Banks
3) Organic Farming is beneficial because:
(a) It generates income through international exports
(b) It is produced in an environmentally sustainable way
(c) It provides healthy food
(d) All of these

4) The scheme of “Micro Finance” is extended through:

(a) Self-Help Groups (b) Land Development Banks
(c) NABARD (d) Regional Rural Banks

Ans: a
 5) Which one of the following is not a non-institutional
source of credit?
(a) Money lenders (b) Relatives (c) Traders and commission
agents (d)Land development bank Ans: d

6) Name the state which is held as a success story in the

efficient implementation of milk cooperatives
(a) Maharashtra (b) Jammu and Kashmir (c) Gujarat (d) Andhra
Pradesh
Ans: c
7) Which states are major producers of Marine products (HOTS)
A) Kerala, Gujarat, Maharashtra and Tamil Nadu
8) What is Cooperative Marketing?
A) It refers to a system in which marketing societies are formed by farmers to
sell the output collectively and to take advantage of collective bargaining.
9) What is the main aim of Cooperative marketing societies?
A) The main aim of Cooperative marketing is to realize fair price for farmers
products.
10) Name the three institutional sources of agricultural credit
 Co-Operative credit societies
 Commercial Banks
 Regional Rural Banks

11) Why is Minimum Support Price (MSP) fixed by the

government?
A) To safe guard the interest of farmers.
12) What do you mean by “Operation Flood”?
A) Operation Flood is a system, whereby all the farmers can pool their milk
produce according to different grading and the same is processed and
marketed to Urban centers through co operatives.
13) What is Micro Finance?
A) It is credit scheme extended to the poor through Self-Help Groups (SHGs)
14) Why have Self-Help Groups been set up?
A) It have been set up to promote the thrift in small proportions by a
minimum contribution from each member. From the pooled money, credit
is given to the needy members to be re payable in small installments at
reasonable interest
rates.
II. Short Answer Questions 3/4Marks
1) Explain the process of Rural development.
 Development of Human resources
 Development of Infrastructure
 Land reforms
 Alleviation of Poverty
 Development of productive resources of each locality
With Brief Explanation
2) Name the important institutional sources of agricultural credit
in India.
A) There are 6 important institutional sources of agricultural credit in India
 Co-Operative credit
 Land development banks
 Commercial banks
 Regional Rural banks
 The Government
 National Bank for Agricultural and Rural Development (NABARD)
With Brief Explanation
3) Name the alternate marketing channels.
A) The concept of “Farmers Market” was started, to give boost to the
small farmers by providing them direct access to the consumers and
eliminating the
middlemen.
Some Examples of these Channels:
 Apni Mandi in Punjab, Haryana and Rajasthan
 Hadaspar Mandi in Pune
 Rythu bazars in Andhra Pradesh and
 Uzhavar Sandies (in Tamil Nadu)
A) What are the policy instruments initiated by the
government to protect the farmer sinterests?
These below 3 instruments initiated by the government:
 Minimum Support Price (MSP)
 Maintenance of buffer stocks
 Public Distribution System (PDS)
With Brief Explanation
4) Define Agricultural Marketing and what are the problems
faced by
the farmers?
A) Agricultural Marketing: It is a process that involves assembling,
storage, processing, transportation, packaging, grading and
distribution of different
agricultural commodities across the country.
Problems faced by the farmers:
 Manipulation by big traders
 Lack of market information
 Lack of storage facilities
With Brief Explanation
5) What measures to be taken to improve agricultural marketing?
 Regulated markets
 Infrastructural facilities
 Co-Operative marketing
 Minimum Support Price (MSP)
 Maintenance of buffer stocks
 Public Distribution System (PDS)
With Brief Explanation
 III LONG ANSWER QUESTIONS 6 MARKS
1) What are the sources of Rural credit?
A) There are two main sources of Rural credit:
 Institutional sources
 Non Institutional sources
Institutional
Sources:
 Co-Operative credit
 Land development banks
 Commercial banks
 Regional Rural banks
 The Government
 National Bank for Agricultural and Rural Development (NABARD)
 Self Help Group bank linkages programme for micro finance.

Non Institutional
sources:
 Money lenders
 Relatives
 Traders and commission agents
 Rich land lords

With Brief Explanation

2) What is the criticism against Rural banking system in India?

A) Some of the problems faced in Rural banking system are
 In sufficiency
 In adequate coverage of institutional sources
 In adequate amount of sanction
 Less attention to poor/ marginal farmers
 Growing over dues

With Brief Explanation

3) Explain the Non farm areas of employment in India.

 Information Technology
 Animal Husbandry
 Dairying
 Horticulture
 Fisheries

With Brief Explanation

4) What are the benefits and challenges before Organic Farming?

A) Benefits:
 Economical farming
 Provides healthy food
 Generates income to exports
 Safety of environment
 Source of employment
Challenges:
 Less popular
 Lack of Infrastructure
 Lack of marketing facilities
 Low yield
 Shorter food life
 Limited choice of crops
With Brief Explanation
 CHAPTER – 7

EMPLOYMENT: GROWTH, INFORMALISATION AND OTHER ISSUE

I LEARNING OBJECTIVES:-
1 Introduction

a Distribution of employment by gender

b Distributions of employment by region
c Distributions of employment in different sectors
d Distributions of rural-urban employment in different sectors
2 Growth of employment and Gross Domestic Product(GDP)
3 Changing structure of employment
Casualization Concepts:- Meaning of worker - Labour force and work force
Meaning of employment
Wage employment -Regular workers (Regular Salaried employees) - Casual
Workers
4 Participation of people in employment
5 Participation of people in employment
e Worker-population ration on the basis of region
a Di of work force.
6 Informalization of Indian workforce
a Formal or Organized sector. B. Informal or unorganized sector.
Worker: A worker is an individual who is involved in some productive
activities to earn a
living.
7 Participation of people in employment
Formal or Organized sector.
8 Informalisation of Indian workers

KEY CONCEPT:

1. A worker: a person who is working in a productive activity and causes flow

of goods and services in the economy.
2. Casual Workers: workers who are not regular and will not get the benefits
like pension, gratuity etc.
3. Regular Workers: Employees who are employed on regular basis and get
social security benefits including pension provident fund etc.
4. Formal Sector: It includes all government departments, public enterprises
and private establishments which hire 10 or more workers.
5. Informal Sector: it refers to unorganized sector of the economy. It includes
all those private enterprises who hire less than 10 workers.
6. Labour Force: The labour force of an economy consists of the following :
i) People who are engaged in some economic activity and contribute to the
generation of national product and income.
ii) People who are able and willing to work but do not find any job that
generates income.
 7. Workforce: Iworkers who participate in economic activity to produce goods
and services.
8. Unemployed: An able bodies person who is ready to work but could not find
the job at current wage rate.
9. Casualization of Workforce: It refers to a situation when the percentage of
casually hired workers in the total work force tends to rise over the time period.
10. Informalization of Workforce: the percentage of work force in the formal
sector decline and increase their percentage in informal sector.
11. Public Sector Establishments: These Enterprises owned and controlled by
the government .
12. Private Sector Establishments: These enterprises owned and controlled
by the private individual .
13. Trade Union: In order protect the interest of worker they form an organization
for the common cause.
14. Labour Laws: in order to protect labour from exploitation, laws are framed
by the Government.
15. Disguised Unemployment: Engaging more number of workers than
required for a job. It means even if some of the labour force is withdrawn, the
marginal product remains the same.
MCQ/ OTQ OF 1 MARK QUESTIONS
1. Most of the disguised unemployed persons in India are found in
A) Agriculture B) Industry C) Trade D) Transport (Ans: A)
1. Unemployment refers to people:
A) Who are not willing to work
B) Who are willing but not get work (Ans: B)
C) Who leave their jobs in search of better ones
D) Who have been dismissed because of incorrect practice
2. The major cause of unemployment in India can be classified as
A) Under development C) Defective planning (Ans:D)
B) Rapid population growth D) All of these
3. Supply of labour corresponding to different wage rates is referred as:
A) Labour supply B) Labour force C) participation rate D) Work force
(Ans: A)
4. Those who do not get any pension or gratuity benefits are known as:
A) Self-employed workers C) regular workers
B) Casual workers D) unemployment (Ans: B)
5. In which type of unemployment do the marginal productivity of the workers is
zero?
A) Disguised unemployment C) seasonal unemployment (Ans: A)
B) Involuntary unemployment D) structural unemployment
6. Jobless growth leads to unemployment because:
A) Labour refuses to migrate b) labour is very expensive
c) GDP growth is slow d) Growth is due to technology
(Ans:D)
7. Krishna has his own -land on which he grows only one crop in a year. He
works only for 5 to 7 months in a year. The kind of unemployment he faces in
the remaining pars of years is called.
A) Disguised unemployment C) Frictional unemployment
B) Seasonal unemployment D) Cyclic unemployment (Ans: B)
 8. Unemployment is defined
as
A) The section of the population that is not capable of being employed.
B) The section of population willing to work but unable to find employment.
C) The section of population that is waiting to be employed. (Ans:B)
D) The section of population that are without the skills needed by employers

9. The formula to calculate workforce participation ratio is

A) (workforce / total population) x 100
B) (Number of unemployed persons / Labour force ) x 100
C) Workforce + Numbers of people who are willing to work but are unemployed
D) (workforce / Labour force ) x 100 (Ans: A)

10. What is dependency ratio?

Ans: Ratio of working population to total
population.
11. Is India experiencing jobless growth ? why ?
Ans: Yes. More and more goods and services are being produced and there
by achieving growth of GDP rate but it is not leading to generation of
employment opportunities.
12. Can these be called as workers – a begger, a thief, a smuggler, a
gambler ? why?
Ans: No. none of them involved in legal production
activities.
13. Who all are included in labour
force?
A: All persons, who are working (have job) and though not working,
are seeking
and re available for work, are deemed to be in the labour force.
14. Give the meaning of work
force.
A: The number of persons, who are actually employed at a particular time
are known as work force.
15. Define worker – population
ratio.
A : Worker- population ratio is the percentage of total population engaged
in work.
16. what is meant by labour force participation
rate?
A : The ratio of labour force to total participation is called labour rate
17. What is meant by Casualization of work
force?
A : The process of moving from Self- Employment and regular
salaried
employment
to casual wage work is known as Casualization of Workforce.
18. Name the two kinds of urban unemployment.
A: 1. Industrial unemployment
2. Educated unemployment.
19. What do you mean by industrial unemployment?
A : It refers to the unemployment among the illiterates. Who wish to
work in industrial establishment.
 20. Give the meaning of educated unemployment.
A: Educated unemployment refers to the unemployment among
the Educated people.

21. What is meant by wage employment?

A: An arrangement in which a worker sells his labour and earns wages in
Return

22. What is meant by seasonal unemployment?

A: Unemployment that occurs at certain seasons of the year is known as
Seasonal unemployment.

23. Give the meaning of disguised unemployment.

A : Disguised unemployment refers to a state in which more people are
engaged in work than
are really needed.

24. What do you mean by full

employment?
A: Full employment refers to a situation in which all the workers who are
capable of working and willing to work get an Employment in prevailing
wage rates.
3/4 MARKS QUESTIONS

1) Why do we differentiate between Economic activity and production

activity?

A: We differentiate between Economic activity and production activity to

calculate the number of workers. People engaged only in production activities are
to be included in the category of workers.

2) What do you mean by formal sector establishment?

A: 1. All the public enterprises and private establishments, which Employ 10 or

more hired
workers are called formal sector establishments.
2. They get all types social benefits.

3) What do you mean by Informal sector Establishment?

A: All those private enterprises which hire less than 10 workers are called
Informal sectors.
Eg: Workers who work in farms, owners of Small Enterprises, Agriculture
labourers. Here they do not get regular income. No protection or regulation by
government can be dismissed at any time. Live in slums, use outdated
technology, do not maintain accounts.
4) Why are regular salaried employees more in urban areas than in rural
areas?
A:i) Because of availability of educational institutions regular salaried employees
are more in urban areas than rural areas. As such they get better opportunities for
their skill.
 ii) Whereas ,in rural areas, majority of the people are illiterate and lack skills,
which are needed for regular employment.
5) What is meant by frictional unemployment?
A ) Temporary unemployment, which exists during the period, wherein workers
leave
one role and join some other, are called frictional unemployment.
6) How can we calculate number of unemployed people and employed
people ?

Unemployed people = labour force – Work force.

Meaning of Employment:-Employment is an activity which enables a person
to earn his living.
Total number of workers in India
WPR = x 100
No. of work population In India
It helps in knowing the proportion of population that is actively
contributing to the production of goods and services of a country.

7) Why is worker population ratio is higher in males than in

females in India ?
A: According to 1981 census, a worker is defined as one who
worked in an economic activity over a period of six months or more.
Consequently the worker
Population ratio among females reduced considerably.
 In India, women are discouraged to work out of homes.
 Males are having more skills than females.
It helps in knowing the proportion of population that is actively
contributing to the production of goods and services of a country.

8) Why is worker population ratio is higher in males than in

females in India ?
A: According to 1981 census, a worker is defined as one who
worked in an economic activity over a period of six months or more.
Consequently the worker
Population ratio among females reduced considerably.
 In India, women are discouraged to work out of homes.
 Males are having more skills than females.
It helps in knowing the proportion of population that is actively contributing
to the production of goods and services of a country.
9) Why is worker population ratio is higher in males than in females in
India ?
A: According to 1981 census, a worker is defined as one who worked in an
economic activity over a period of six months or more. Consequently the
worker
Population ratio among females reduced considerably.
 In India, women are discouraged to work out of homes.
 Males are having more skills than females.
10) How are the economic activities into different industrial divisions ?
Ans: The economic activities are distributed into eight different industrial
divisions:
a) Agriculture b) Mining and quarrying c) Manufacturing d) electricity, gas and
water supply e) construction f) Trade g) Transport and Storage h) Services

LONG ANSWER QUESTIONS OF 6 MARKS:

1) Give the causes of increasing unemployment in India ?

Ans: 1. Low employment creation capacity
2 Low productivity in Agriculture sector
3 Inappropriate education system
4 Inadequate growth of infrastructure
(with brief explanation)
2) What are the major factors responsible for the high growth of service
sector in
India ?
Ans: 1. India has become a leading country among other economies because of
having growing service sector especially in financial services, software services.
2 Imparting education, training, coaching has become a viable business
proposition for professionals.
3 Availability of skilled professionals
4 India has become of a hub for Outsourcing business.

3) Analyse the recent trends in sectoral distribution of workforce in

India.

Ans: 1 . Occupational structure refers distribution of workforce among different

Sectors of thre economy.
2. Primary sector is the main source of employment and as such it absorbs
majori work force.
3 Percentage of work force still low in Industrial sector
4) The tertiary sector is taking a lead over the secondary se tor as a source Of
employment.
5) You are residing in a village. If you are asked to advise the
village panchayat,
What kinds of activities would you suggest for the improvement of your
village
which would also generate employment.

Ans: The following are the suggestions.

. 1.Non-agricultural employment opportunities are to be created.
2..creating awareness about the programmes initiated by the Govt among the
rural people.
3 Development of small – scale and cottage industries.
4 Imparting technical knowledge to the rural people. (with brief
explanation)

6) Explain various types of unemployment

Three main types of unemployment prevailing in our economy are;

(i) Open unemployment: L : It refers that an able bodied persons
, who
Is willing to work but could not find the job at current wage rate .

ii) Disguised Unemployment: It is common in rural areas in India

especially
In agriculture sector. It refers that even if a certain amount of labour
is withdrawn, the marginal product remains the same. It also means
engaging that more number of people than required.
iii) seasonal unemployment: it is found mostly in rural areas because
the work in
Agriculture is seasonal. When there is no job to do on farms during off-
season, rural
People migrate to urban areas in search of jobs.

6). Do you think that the last 50 years , employment generated in

the country is commensurate with the growth of GDP in India?

No. In the last 50 years employment generation in the country is not

commensurate with the growth of GDP.
i) During the period 1950-2010, GDP of India grew positively and
was Higher than the employment growth.
ii) Employment growth started declining and the gap between growth of GDP
and employment widened. It means India has been able to produce
more number of goods and services without corresponding increase in
the generation employment opportunities
7) What activities would you suggest to generate employment in
rural areas ?
i) employment can be generated by developing the non-farm activities like
reclamation of work, machine repairs, rural transport services, creation
of public assets, construction etc.
ii).. Diversification of activities.
iii) Development of village handicrafts and cottage industries as these
have a larger potential for obsorbinglabour force.

iv) Encouraging the informal sector.

 Chapter 8
Infrastructure
LEARNING OBJECTIVES
Introduction
Meaning of Environment
Functions of the Environment
Reasons for Environmental
Crisis Pollution
Air Pollution
Water Pollution
Noise Pollution
Global Warming and Ozone depletion
Global warming
Ozone depletion
Environmental Degradation
Degradation of forest or Deforestation
Land Degradation
Causes of Environment Degradation
Measures to Control Environmental Degradation
Sustainable development
Strategies for Sustainable Development

(I) Key Terms:

1. Meaning of Infrastructure: Infrastructure covers all those supporting services

that help the growth of directly productive activates like agriculture and
industry. It includes power, transport, health services, education facilities, etc.
2. Economic Infrastructure: It refers to all such elements of economic change which
serves as a foundation for the process of economic growth. It includes power,
transport, communication, etc.
3. Social Infrastructure: It refers to the core elements of social change which
serves as a foundation for the process of social development of a county. It
focuses on human resources development. It comprises of education and
training, health, services, housing facilities, etc.
4. State of Infrastructure in India: Traditionally, infrastructure was under the
government or public sector because after independence in order to boost
industrial development, it was thought to develop it in the public sector only.
Private sector was not in a position to make huge investment in the
development of infrastructure as there was no immediate return.
Now private sector is strongly contributing in the development of
infrastructure in joint partnership of public sector.
India has vest scope to boost its infrastructure which is still very low as
compared to other countries of the world
5. Energy: It is a basic input required to sustain economic growth and to provide
basic amenities of life to the entire population of the county. It is a dividing line
between a subsistence economy and a highly developed economy. It helps in
promoting industrial production.
6. Morbidity: Refers to the proneness of the people to fall illness in various major
deceases.

(II) MCQ/OTQ of 1 mark

1. Which of the following serve as a driving force of production activity in the

economy?
(a) Population (b) Economic Infrastructure (c) Literacy (d) None of these
2. Which of the following is not a component of social infrastructure?
(a) Road (b) Communication (c) Electricity (d) All of these
3. Which of the following is not a component of economic infrastructure?
(a) Health (b) Power (c) Communication (d) Transport
4. Which of the following is an example of non-commercial energy?
(a) Firewood ()b) Agricultural waste (c) Cow-dung (d) all of these
5. Which of the following is a conventional source of energy?
(a) Solar Energy (b) Wind Energy (c) Petroleum (d) Biomass

6. Which of the following is not a non-conventional source of energy?

(a) Solar Energy (b) Wind Energy (c) Petroleum (d) Biomass

7. The Principal Consumers of coal are?

(a) Thermal power station (b) Steel plants (c) Cement factories (d) All of these
 8. Which of the following is a component of social infrastructure?
(a) Health (b) Sanitation (c) Both (a) and (b). (d) None of these.

9. Which of the following is a challenge in Power Generation sector?

(a) Inadequate generation (b) Losses of electricity boards (c) Less
capacity utilization (d) All of these

10. Plant Load Factor =

(a) Electricity generated x Production capacity
(b) Electricity generated ÷Production capacity
(c) Electricity generated + Production capacity
(d) Electricity generated - Production capacity
(f) 3 / 4 SHORT ANSWER QUESTIONS

1. Explain the importance of energy .

A. Power is the most convenient and versatile form of energy. Commonly called
electricity power plays a very important role in the industrial, agriculture and
commercial sectors of the economy electricity in generated from three sources:
(i) Thermal power that is power produced by coal and natural gas.
(ii) Hydel power: produced from rivers or canals
(iii) Atomic Power: power produced at nuclear plants.
2. What is economic infrastructure?
Ans. It refers to all such elements of economic change like- power, transport,
communication etc. which serve as a support system to the process of economic
growth.
It fosters economic growth which results in increase in the standards of living of the
people.
Q3. What is social infrastructure?
Ans. It refers to core elements of social change like- schools, colleges, hospitals,
banking etc. which serve as a support system to the process of social development
of a country.
social infrastructure focuses on human resource development, implying the
development of skilled personal as well as healthy & efficient human beings.
It accelerate the process of human development.
Q4. Mention the importance of infrastructure in economic development.
i Infrastructure enhances productivity
ii Infrastructure induces investment.
iii Infrastructure generates linkages in production.
iv Infrastructure enhances size of the market
v Infrastructure enhances ability to work.
vi Infrastructure facilitates out sourcing.
vii Infrastructure induces FDI.
Q5. What is energy? Mention the sources of energy.
Ans. Energy is the life line of entire production activity. Infact any type of production
activity cannot take place without energy.
There are mainly two sources of energy:-
i Conventional sources of energy:- these are those energy which are known
to us & which are popularly in use since a very long time.
For eg. Coal, petroleum, natural gas & electricity.
ii Non-convential sources of energy:- these are those energy which have been
discovered or exploredin the recent past & which are yet to gain popularity for
their use.
For eg. Solar energy, wind energy, bio-mass etc.
Q6. Mention the emerging challenges of power generation in India.

Ans. i. Inadequate generation of electricity

iii Less capacity utilization iv . Losses of electricity boards.
Q7. undertaken to meet the challenges Mention the measures of power
generation in India.

Ans. i. Increase in production capacity.

ii. improvement in plant load factor.
iii. minimisation of transmission & distribution
losses. iv Improve the supply of inputs to power plants
v Participation of private sector & encouragement to FDI in power generation.

Q8. What is health? Mention the development of health services in India

after independence.

Ans. It is a state of complete physical, mental & social well-being. A persons ability
to work depends largely on his good health. It enhances the quality of life.
Development of Health services in India after Independence:-
i Decline in death rate from 27.4 per thousand in 1951to 7.4 per thousand in
2006-07.
ii Reduction in Infant mortality rate from 146 per thousand in1951 to 55 per
thousand in 2007.
iii Rise in expectancy of life from 50 years in 1951 to 63.5 years in 2006-07.
iv Deadly diseases like malaria, TB, cholera & small pox have been brought
under control.
v Reduction in child mortality rate from 57 per thousand in 1951 to 17 per
thousand in 2006.

Q9. Mention the emerging challenges of health services in India.

Ans. i. Unequal distribution of health services.

ii. Control of communicable diseases.
iii. Poor management of health care.
i Privatization of health care services.
ii Poor upkeep & maintenance.
iii Poor sanitation level.

III) 3/4 MARKS QUESTIONS

1) What is social infrastructure and give its importance?

Ans. It refers to core elements of social change like- schools, colleges, hospitals,
banking etc. which serve as a support system to the process of social
development of a country. social infrastructure focuses on human resource
development, implying the development of skilled personal as well as healthy &
efficient human beings. It accelerate the process of human development.
2) Mention the importance of infrastructure in economic development.
A:a Infrastructure enhances productivity
b) Infrastructure induces investment.
 c) Infrastructure generates linkages in production.
d) Infrastructure enhances size of the market
e) Infrastructure enhances ability to work.
f) Infrastructure facilitates out sourcing.
g) Infrastructure induces FDI.

3) What is energy? Mention the sources of energy.

A: Energy is the life line of entire production activity. Infact any type of
production activity cannot take place without energy.
are mainly two sources of energy:-
Conventional sources of energy:- these are those energy which are known to
us & which are popularly in use since a very long time.
eg.Coal, petroleum, natural gas & electricity.
Non-convential sources of energy:- these are those energy which have
been discovered or exploredin the recent past & which are yet to gain
popularity for their use.
For eg.Solar energy, wind energy, bio-mass etc.

4) Mention the emerging challenges of power generation in India.

Ans. i. Inadequate generation of electricity
ii. Less capacity utilization iii .Losses of electricity boards.
5) Mention the measures undertaken to meet the challenges of power
generation in India.
A: i. Increase in production capacity.
ii. improvement in plant load factor.
iii. minimisation of transmission & distribution losses.
iv. Improve the supply of inputs to power plants
v. Participation of private sector & encouragement to FDI in power
generation.

6) What is health? Mention the development of health services in india

after independence.
Ans. It is a state of complete physical, mental & social well-being. A persons
ability to work depends largely on his good health. It enhances the quality of life.
Development of Health services in Independence:
-i) Decline in death rate from 27.4 per thousand in 1951to 7.4 per thousand in
2006-07.

ii) Reduction in Infant mortality rate from 146 per thousand in1951 to
55 per thousand in
2007.
iii) Rise in expectancy of life from 50 years in 1951 to 63.5 years in 2006-07.
iv)Deadly diseases like malaria, TB, cholera & small pox have been
brought
under control.
7) Mention the emerging challenges of health services in India.
Ans. i. Unequal distribution of health services.
ii. Control of communicable diseases.
iii. Poor management of health care.
iv. Privatization of health care services.
v. Poor upkeep & maintenance.
vi. Poor sanitation level. (With brief explanation)
8) What is Global Burden of Deceases ? Explain.
 Ans: i) Global Burden of Deceases (GBD) is an indicator used by the experts to
measure the number of people ding prematurely due to a particular decease.
ii This also includes the number of years spent by them in a state of disability
due to various deceases. India bears a frightening 20% of the GBD
i) More than half of the GBD accounted by communicable deceases such as
diarrhea, malaria and Tuberculosis.

9) What do you mean by transmission and distribution losses ? How

can they be reduced ?

Ans: Power transmission and distribution losses refer that occur in transmission
between sources of supply and points of distribution.
The following measures should be taken to reduce losses on this account.
i) Improved technology of transmission and distribution should be used
ii) Electricity distribution network should be privatised to increase efficiency.
iii) Theft cases of electricity should be handled strictly by imposing penalities.
LONG ANSWER QUESTIONS OF 6 MARKS

1.. Explain the three-tier system of health infrastructure in India.

A PRIMARY HEALLTH CARE:

a) Primary health care includes education concerning prevailing health problems and
methods of
Identifying , preventing and controlling them.
b). promotion of food supply and proper nutrition and adequate supply of water and
sanitation.
c). SECONDAY HEALTH CARE: includes hospitals which have better health care
facilities such as
Surgery and diagnostics .
d). TERTIARY HEALTH CARE: Includes medical centres and hospitals which give
advanced medical
Care and solve critical medical problems.
2. Discuss energy crisis in India .
A. i) Initially industrial development was based on coal and gradually switched over
to petroleum
Products which was controlled by OPEC countries. This leads cost escalation.
ii) The coal industry is not able to supply quality and quantity of coal supplies
iii) Due to industrial and agriculture development , the gap between demand and
supply for
is widening.
iv) Energy needs are mostly dependent on Balance of Payments.

3. Discuss the reforms recently initiated to meet energy crisis in India .

In India, power generation and distribution has been monopoly of the
government.
i) Since 1991’ India has been inviting private investment in power sector.
ii) Non-conventional source of energy are being exploited especially solar and
wind.
iii) It was decided to reduce imports gradually
iv) National Energy Efficiency Programme is made to conserve energy
v) Investing more by the Government and Private sector in Ultra Mega
Projects.
vi) Privatization of private sector in distribution of the power to various
utilities
4) Is infrastructure a supporting structure ? How does it contribute to
Economic
development ?(HOTS)

i) It ensures easy movement of goods and raw materials and leads efficient
use of resources.
ii) It makes Agriculture and industry complimentary for each other.
iii) It provides an environment conducive to investment.
iv) It widens size of the market (With brief explanation)

5) Discuss main drawbacks of our healthcare system ?

Ans: the following are some of the deficiencies in our health care system.
Ans: i) Unequal distribution of Health care services
ii) communicable deceases
iii) Lack of skilled personnel in rural areas
iv).. Lack of modern techniques and methods. (with brief
explanation)

************
 CHAPTER : 9
ENVIRONMENT AND SUSTAINABL DEVELOPMENT

CONCEPT:

1. Environment: It comprises all the resources and the space available to

human, animal and plant life.
2. Renewable resources: Resources that can be renewed or replaced. They do
not get exhausted with use. For e.g. sun, wind, tidal energy. etc.
3. Biotic resources: The living resources in the environment. For e.g. man, i
animals, insects, birds and plants.
4. Abiotic resources: The non-living resources in the environment such as the
sun, water, air, space and mineral wealth.
5. Carrying Capacity: It is the rate of assimilation at which the environment
can maintain itself.
6. Absorptivc capacity: absorbing degradation by the environment without
getting adversely affected.
7. Water pollution: Deterioration in quality of water due to presence of waste,
toxic chemicals. etc.
8. Air pollution: Contamination of air leading to a fall in its quality and purity
because of unwanted gases and suspended particles are present in air.
9. Hazardous waste: Waste which can release poisonous chemicals, gases or
radiation in the environment.
10. Soil degradation: Fall in quality of soil caused by mixing of chemicals and
cutting of trees.
11. Deforestation: Cutting down of forests to make land available for farming or
industrial activitiesor for dwellings.
12. Ozone depletion: It refers to the destruction of the stratospheric ozone layer
which shields the earth from ultra-violet radiations that are harmful to life.
13. Bio-diversity loss: It refers to the extinction of plants,
animals and microorganisms due to deforestation and pollution.
14. Global warming: It is an increase of the Earth‘s temperature resulting in an
increase in the
volume of water which leads to a rise in the sea level.
15. Sustainable Development: Sustainable development seeks to meet the
needs and aspirations of the present generations without compromising the
ability of the future generations to meet their own needs.
16.. Clean technology: It is that technology which uses environmentally
friendly resources and heats
any Waste or efluents before releasing it into the environment.
17. Green capital: It refers to assets. created by using environmentally friendly
resources. It is also that capital which is concerned with or is relating to the co
nservation of the world's resources .' and improvement of environment. It can
also be the total natural wealth of a nation or any entity.

18. Urbanisation: It 1S the expansion of a meh‘opolltlon area over time. It is

the e rate at which the urban proportion of the 130131113t“ increases.

19. Poaching: Killing of animals for their valuable body parts and organs..
 I. MCQ/OTQ 1 MARK

1. When was the Environment (Protection) Act passed?

a) 1984
b) 1986
c) 1988
d) 1990 Ans. b)
2. Which of the following is a biotic component of environment?
a) Bacteria
b) Animal
c) Humans
d) Minerals Ans. d)
3. Economic development includes:
a) Economic growth
b) Economic welfare
c) Both (a) and (b)
d) None of these. Ans. c)
4. Environment includes:
a) Biotic elements only
b) Abiotic elements only
c) Both biotic and abiotic elements
d) None of these. Ans.
c)
5. Which of the following is a biotic component of environment?
a) Plant
b) Soil
c) Water
d) Light Ans. a)
6. Absorptive capacity is defines as:
a) Ability of the environment to absorb degradation.
b) Resource generation within the assimilating capacity of the
environment.
c) Average number of organisms living in a given environment
d) The minimum population surviving in the world as a whole.
Ans. a)
7. Which of the following statement is correct?
a) Global warming is entirely a natural phenomenon.
b) Global warming is simply an another term used for greenhouse effect.
c) Global warming is the rise in average temperature at earth’s surface.
d) Global warming is caused by ozone
depletion. Ans. C)
8. In 1997, a UN conference on climate change was held in:
a) Japan
b) India
c) Germany
d) China Ans. a)
9. is defined as the total planetary inheritance and the totality of all
resources.
Ans. Environment
10. are those resources which get exhausted with extraction use.
 Ans. Non-renewable resources
11. observed and projected increase in the average temperature of earth’s
atmosphere and oceans. Ans. Global warming
12. refers to the destruction of ozone in the ozone layer, due to presence of
chlorine from man-made chlorofluorocarbons and other factors. Ans. Ozone
depletion
13.Hepatitis disease occurs due to pollution. Ans. Water
14..Define 'Environment'.
Ans. Environment is defined as the total planetary inheritance and the totality of all
elements-biotic and abiotic.
15...Give two examples of biotic elements.
Ans.Birds and forests.
16.. Give two examples of abiotic elements of environment.
Ans.Rocks and sunlight
17. State one function of environment.
Ans.Environment assimilates waste.
18...What are renewable resources?
Ans.Renewable resources are those resources that can bereplenished or renewed
naturally over time. Air, water, wind, solar energy etc. are all renewable resources.
19..What are non-renewable resources?
Ans.Non-renewable resources are those natural resources that are available in
limited quantity. These resources cannot be renewed or replenished in short
duration. Therefore they are also known as exhaustible resources.
20.. .What is' carrying capacity'?
Ans.“Carrying capacity' implies that the resource extraction is not above the rate of
regeneration of resources and the waste generated are within the assimilating
capacity of the environment.
SHORT ANSWER QUESTIONS OF 3 / 4 MARKS
1. What does the environment constitute?
Ans i) .Environment includes all resources-biotic and abiotic factors that influence
each other. While biotic resources include all living element such as birds
animals, plant
Forests, fisheries etc.,.
ii) the abiotic elements include air, water, land, etc. Rocks and sunlight are all
examples of abiotic elements of the environment.
2. .Give the four vital functions of environment.
Ans.The four vital functions of environment are:
(a) It supplies resources both renewable and non-renewable
resources. (b)It assimilates waste.
(c)It sustains life by providing genetic and bio- diversity.
(d)It provides aesthetic services like scenery etc.
3. Why is it that the environmental problems did not arise before?
Ans. In earlier times, the demand for environmental resources and services
was much less than their supply. Due to rapid urbanisation, increased
demand for goods and services has led to advanced industrialisation. This has
caused pollution, which is more than the absorptive capacity of the environment.
The rate at which the
resources are extracted by man has been more than the rate of regeneration of
the resources, there by causing serious environmental problems.
4. Give some of the long-term results of global warming.
Ans. The long-term results of global warming are:
(a) elting of polar ice caps leading to a rise in the sea level and coastal flooding.
(b)Disruption of drinking water supplies dependent on snow melts.
 (c) extinction of species.
(d) Frequent tropical storms and tropical diseases.

5. What has been the result of Ozone depletion?

Ans. Due to the depletion of ozone layer, the ultra violet radiation is coming to
earth directly and causing damage to the living organisms, e.g.,
(a) It causes skin cancer in humans.
(b) It lowers the production of phytoplankton and affects other aquatic
organisms.
(c) It influences the growth of terrestrial plants.

6. Why has environment depletion led to high opportunity costs?

Ans. The nation has to pay heavily on damages to human health(fatal and non-
fatal effects),effects on crops and materials, damages caused by global warming
provoked by greenhouse gases, cost for correcting global warming impacts.
Health of people which is affected due to increased levels of pollution also
requires more
investment on health facilities.
7. Classify the following into renewable and non-renewable resources
(i)trees (ii) fish (iii) petroleum (iv) coal (v) iron-ore (vi) water.
Item Resources
(i) Trees Renewable
(ii) Fish Renewable
(iii) Petroleum Non-renewable
(iv) Coal Non-renewable
(v) Iron-ore Non-renewable
(vi) Water Renewable
8) How can wind power and Biopest control – help to achieve sustainable
development?
Ans: Wind Power: i) wind is a clean fuel. Wind power produces no air and water
pollution
because no fuel is burned to generate electricity.
ii) Wind power generation produces zero carbondioxide emissions.
iii) Wind power also renewable source of energy.
Bio-pest control:
i) Biopest control is natural way of controlling that harms plants and crops.
ii) Natural enemies are used to check population of pests by using various
Animals and birds.
9) How do thermal and hydro electric cause pollution ?
Ans: Both thermal and hydro electric sources of energy have adverse
environmental impacts.
i) Thermal plants emit large quantities of carbon dioxide which is a green house
gas.
ii) It also produces fly ash which causes pollution of land, water etc.,
iii) Hydro electric power projects inundate forests and restrict the natural flow of
Water in catchment areas.
10) Explain the relevance of inter-generational equity to the definition
of sustainable
development .
Ans: Sustainable development implies that all future generations should have
average quality
of life that atleast as high as that being enjoyed by present generation
 .It is known as inter-generational equity. We have moral responsibility to hand
over
The planet earth in good order to future generation.
11) What kind of development strategy must the present generation adopt
to promote sustainable development?
Ans. The present generation must promote development in such a way that
it enhances the
natural and built-in environment with:
(a) conservation of resources.
(b) preservation of the regenerative capacity of the world's natural ecological
system.
(c) avoiding the added costs or risks on future generation.

12) Give some of the long-term results of global warming.

Ans. The long-term results of global warming are:
(a) elting of polar ice caps leading to a rise in the sea level and coastal
flooding.
(b) isruption of drinking water supplies dependent on snow melts.
(c) Extinction of species.
it leads to the situations of environmental crises.

13. Give the Reasons for Environmental Crises.

i) Population explosion and Industrial revolution has increased the
demand for environmental resources, but their supply is limited due to
misuse and overuse. Ii) The intensive and extensive extraction of both
renewable and non-renewable resources has exhausted some of the vital
resources.
ii) Extinction of many resources and continuous rising population has
also resulted in environmental crisis.
14) What is Carrying Capacity ?explain

i) Resources extraction should remain below the rate of resource

generations.
ii) Generation of wastes should remain within the absorption capacity of the If
these two conditions are not fulfilled, then environment fails to perform its
vital functions of life sustenance and standard of developed world, the waste
generated is beyond the absorptive capacity of the environment.
15) What has been the result of Ozone depletion?
Ans.Due to the depletion of ozone layer, the ultra violetradiation is coming
to earth directly and causing damage to the living organisms,e.g.,
(a) It causes skin cancer in humans.
(b) It lowers the production of phytoplankton and affects other aquatic
organisms. (c)It influences the growth of terrestrial plants.
16) Why has environment depletion led to high opportunity costs?
Ans.The nation has to pay heavily on damages to human health(fatal and non-
fataleffects),effects on crops and materials, damages caused by global
warming provoked by greenhouse gases, cost for correcting global
warming impacts. Health of people which is affected due to increased levels of
pollution also requires more investment on health facilities.
17).Why does the present world stand at the threshold of an
environmental crisis?
 Ans. I)The world today stands at a threshold of serious environmental crisis.

i) The rising population of the developing countries and the affluent

consumption and production standards of the developed nations have put a huge
stress on the environment in terms of its functions of supplying resources
and assimilating wastes

ii) ii) Many resources are becoming extinct since their use is beyond the carrying
capacity of the environment, leading to an environmental crisis. In earlier times,
the demand for environmental resources and services was much less than their
supply

Iii) increased demand for goods and services has led to advanced
industrialisation. This has caused pollution which is more than the absorptive
capacity of the environment.

18) Which are the important mineral reserves in India?

Ans. Iron-ore, coal and natural gas are found in large quantities in India. India
alone accounts for nearly 20 per cent the world's total iron-ore reserves.
Other mineral
Reservesbauxite,copper,chromate,diamond,gold,lead,lignite,manganese,zinc,ura
uranium ,etc.

LONG ANWER QUESTIONS OF 6 MARKS

01) .What are the factors responsible for land degradation?

Ans. The factors contributing to land degradation are:

(a) Loss of vegetation due to deforestation
(b) Unsustainable fuel wood and fodder extraction
(c)Shifting agriculture
(d) encroachment into forest lands
(e) Forest fires and overgrazing
(f) Non-adoption of adequate soil conservation measures
(g) Improper crop rotation
(h) Indiscriminate use of agro-chemicals such as fertilizers and pesticides
(i) Improper planning and management of irrigation systems
(j) extraction of ground water in excess of the recharge capacity
(k)Poverty of the agriculture-dependent people.
(any six points with brief explanation)
3) What is sustainable development? Suggest any four strategies for
sustainable development.
Ans.'Sustainable development'is development that meets the need of the present
generation without compromising the ability of the future generations to meet their
own needs.
The four strategies for sustainable development are:
(a) se of non-conventional sources of energy. In India the use of LPG and gobar
gas in rural areas
and the use of CNG as fuel in urban area, wind power, solar power along with the
mini hydel power
plants which are environment-friendly can generate enough power to meet local
demand.
(b) Traditional knowledge and practices have been more a component of the
environment and not its
controller. With the sudden onslaught of the western system of treatment, the
traditional treatment systems like Ayurveda, Unani, Tibetan and folk systems were
ignored. But now these are in gr demand again for treatment of chronic health
problems.
(c) Biocomposting.Farmers had over a period of last five decades totally neglected
the use of compost and completely switched over to chemical fertilisers, which
adversely affected the productive land and water bodies. But now in large
numbers, the farmers have again
started using compost made from organic wastes of various kinds. Earthworms can
convert organic matter into compost faster.
(d) Biopest Control Due to the green revolution more and more use of chemical
pesticides for higher yield led to the contamination of food products like milk, meat
and fish, soil, water bodies and even ground water were polluted with pesticides.
But now efforts are being made to bring in better
methods of pest control like the ones based on plant products like neem trees are
proving quite useful.

3) Give benefits and limitations of solar and wind power.

Ans.Solar Power:
Benefits:
(a) Virtually maintenance free.
(b) Relatively easy to install.
c) Solar panels can provide plentiful power during the long hours of summer
sun.
Limitations: (a)In areas that experience a lot of overcast or low light days,
the output is not that good, though still considerable.
b) It is not available at night or when there is a dense cloud cover. This makes
it unreliable.
c) solar power is currently significantly more expensive and requires action
by consumers
e.g., installing solar panels.
Wind Power:
Benefits:
(a) In high wind areas(at least 12 mph),wind generators produce power, more cost
effectively than solar. Wind's long-term technical potential is believed to be 5 times
current global energy consumption or 40 times the current electricity demand.
(b) A moderate proportion of wind generation can be connected without the need for
a storage. The cost of maintenance and storage is comparatively lower compared to
any other source of energy-renewable or non-renewable.
(c) Power output from wind varies though it can be predicted with a fair degree of
confidence many hours ahead.
Limitations:
(a) Repair(even under warranty)can be quite costly, especially on freestanding
towers because of crane costs, labour for taking a wind generator down and putting
it back up, shipping costs to the retailer or manufacturer etc.
 (b) Wind generators require foundation work such as concrete anchors,
good wires etc. Depending on the chosen tower design.
(c) The trees might have to be cleared, a practice against the
conservation of resources. The birds killed by wind turbines could also cause
concern.

4) What is pollution? Explain how water pollution and noise pollution

are harmful.
Ans i).Pollution refers to the degraded environmental quality on account of
rising population of the developing countries
ii) As a result the extinction of many resources and the wastes generated
being beyond the absorptive capacity of the environment.
iii) Rising population rapidly growing industrial sector and pollution from
affluence have led to degraded environmental quality by way of water
contamination(70% of water in India is polluted),
air pollution and noise pollution have led to an increase in the incidence of
water- borne diseases and respiratory problems along with hearing loss.
 CHAPTER 10
DEVELOPMENT EXPERIENCE OF INDIA, PAKISTAN AND CHINA
- A COMPARATIVE STUDY
IMARK QUESTIONANDANSWERS
1) One child policy was adopted by China in the year
(a) 1972 (b) 1975 (c) 1979 (d)1982
Ans: c
2) Which of the following countries has shown the brighter
signs of Urbanization
(a) India (b) China (c) Pakistan (d) Both b and c
Ans: d
3) In China, commune system is related to
(a) Agriculture (b) Industry (c) Services (d) None of these
Ans: a
4) Great Leap Forward (GLF) was the campaign launched in China in
(a) 1956 (b) 1958 (c) 1962 (d) 1968
Ans: b
5) In comparison to China, Indian economy has been relying more
on
sector for GDP
growth Ans: Tertiary
6) China has density of population than
India Ans: Lower
7) has achieved better results as regards access to improved
water resources.
Ans: Pakistan
8) HDI rating of India is higher compared with China
Ans: False
9) India adopted a mixed economy model of growth
Ans: True
10) As a basic element of the strategy of growth in china, all the
national resources were put under the control and command of the
government.
Ans: True
11) What do you mean by Demographic profile?
A) It means study of population on the basis of its some parameters such as its
growth rate and density.
12) What is meant by human development?
A) It includes such elements of change as per capita GDP, life expectancy,
literacy rate, access to safe drinking water etc.
13) What do you mean by GDP growth rate?
A) It refers to increase in the flow of goods and services produced in the
economy during an accounting year.
14) What is meant by infant mortality rate?
A) It refers to the death rate of children (per thousand) after giving birth to a
new born
15) What do you mean by Maternal mortality rate?
A) It refers to the death rate of a woman (per thousand) after giving birth to a
newborn.
16) What is commune system of farming?
A) It means collective cultivation of land by the farmers.

II. Short Answer Questions 3/4Marks

1) Compare the structure of growth in India, Pakistan and China
 India and Pakistan adopted a mixed economy model of growth while
China adopted statism as a model of growth.
 India and Pakistan have relied more on tertiary sector while China on
the secondary sector for the GDP growth rate.
 In China contribution of secondary sector to GDP is much more than
in India and Pakistan.
2) Write three observations related to growth story of India, Pakistan
and China.
 China has outpaced both India and Pakistan with regard to GDP
 India has performed better than Pakistan but compared with China,
India is way behind.
 The relative success of China is credited to political stability in China.
GDP growth is not the availability of resources but good governance by
the state and good compliance by the citizens.
3) Why Poverty reemergence in Pakistan?
 Lack of institutional reforms in agriculture.
 Lack of political stability.
 Huge public expenditure on the maintenance of law and order
• Allocation of huge funds to build a strong defend system at the cost
of developmental expenditure.
4) What are the basic components of New Economic Policies (NEP) of
India?
 A massive shift towards privatization
 A transformation towards liberalization
 Greater reliance on export promotion rather than import substitution
 Greater reliance on FDI rather than the domestic investment
5) Explain the demographic profile of India, Pakistan and China
 Density of population is much lower than in China as compared with
India and Pakistan.
 Growth rate of population in China has shown a much deeper decline
than the growth rate of population in India and Pakistan.
 Both China and Pakistan are showing brighter signs of
urbanization than in India.
 Sex ratio is found to be biased against females in all the three
countries.
6) What are the features of strategy of growth adopted by India and
Pakistan?
 It was a mixed economy model of growth
 The strategy of growth underlined the significance of both primary and
public sectors.
 Public sector was assigned the key role of kick starting the process of
growth.
 Private sector was assigned the secondary role of pushing the
process of growth.
7) Write four observations on the common success story of India and
Pakistan?
 India and Pakistan both have succeeded in more than doubling their
per capita income.
 The incidence of poverty has also been reduced.
 Self sufficiency in food grains has been achieved
 A well developed modern sector has emerged in both the countries

III LONG ANSWER QUESTIONS 6 MARKS

1) What are the important parameters of Human development?
 Life expectancy
 Adult literacy rate
 Percentage of population below the poverty line
 Infant mortality rate
 Maternal mortality rate
 Percentage of population having access to improved water sources.
 Percentage of under nourished population
With Brief
Explanation

2) Name the areas where India has edge over Pakistan

 Skilled man power and research and development institutions in India
are far more superior than in Pakistan.
 Indian software exports are more than Pakistan
 Human capital formation in India has emerged as a significant
determinant of growth than in Pakistan
 India also has better record of investment in education
  Growth of population in India has been managed
 Health care facilities and infant mortality are better in India than
Pakistan
With
brief explanation

3) Name the areas where China has edge over India

 China has focused on pro-poor reforms
 Rural poverty has declined much faster in China than India
 In India, agricultural reforms have been far less effective than in China
 Export manufacturing has been more significantly grown in China than
in India
 Global exposure of the economy has been more wider in China than
India
 China is far ahead of India in terms of HDI (Human Development Index)
With brief
explanation

4) Compare the development of India, China and Pakistan with respect

to some salient human development indicators.
 China has performed better than India and Pakistan
 China HDI rank in the world is 86, India 130 and Pakistan 150
 China has performed better in the area of nourishment
 China has also performed better with regard to infant mortality rate
and maternal mortality rate
 China shows better performance in improved sanitation than India and
Pakistan.
With brief
explanation

LONG ANSWER QUESTIONS OF 6 MARKS

Q1. Compare between India, China, & Pakistan in terms of GDP growth rate.
Ans: After the Independence in 1947, India & Pakistan adopted planned
development programmes which relied on public sector to spearhead the process of
growth and development.
 China adopted more rigorous model of growth in 1949 and it decided to bring
all critical areas of production activity under government control.
 The great leap forward (GLF) campaign was launched in 1958, focusing on
widespread Industrialization of the Economy. People were encouraged to
launch household Industry in the country yards.
 China adopted Commune system of agricultural production which was a
system of collective cultivation.
  Great Proletarian Cultural revolution launched in 1065 and making it
mandatory for the students and professionals to go to the country side to work
and learn from the countryside.
 Chinas Export driven manufacturing is the key parameter of its success story
in economic growth.
 Till about 1980, the economies of India, china, & Pakistan did not show much
divergence in the GDP growth rate and it was around 4% annually.
 It was around early 1980s in China, mid 80’s in Pakistan, 90’s in India that the
breakthrough in GDP Growth rate was recorded.
 In 2005, India & Pakistan both recorded GDP growth of 6 to 8 percent, where
as china recorded GDP growth of about 10% per annum.
2. Compare the structure of growth between India, China, and Pakistan.

Sector % Share in GDP % share in employment

India Pakista China India Pakistan China
n
Primary 23 23 15 60 49 54
Secondary 26 23 53 16 18 27
Tertiary 51 54 32 24 33 19
China has succeeded in placing greater reliance on Industrial sector compared to
India & Pakistan. It is due to (i) GLF , a campaign launched in China in 1958 focusing
on widespread Industrialization of the Country .
(ii) Policy of reforms and opening up launched in 1978 which gave big push to
china’s manufacturing exports.

Q4. What is the important implication of the one child norm in China?
Ans : One child norm in China has successfully reduced the growth rate of
population .
 After few decades in china there will be more elderly people in proportion to
young people.
 This will force China to take steps to provide social security measures with
fewer workers.

Q5. Compare the Demographic profile of India, China, and Pakistan.

Ans: One child policy in china adopted since 1979 has reduced the growth rate of
population from 1.33 percent in 1979 to0.64% in 2005.
i Growthrate ofPopulation
Country Growth rate of
Population
China 0.64
India 1.33
Pakistan 2.5
 Fertility rate is also very low in china as Compared to India & Pakistan. ii)
LowDensity ofPopulation
Country Person per
square kilometer
China 138
India 358
Pakistan 193
iii) Urbanization
Country % of Population
China 36%
India 28%
Pakistan 34%
iv) Sex ratio
Country Female per 1000
male
China 937
India 933
Pakistan 922
Q6. Compare between the parameter of Human development.
Ans. Human development
i)HDI Ranking
Country Ranking in the world
China 81
India 128
Pakistan 136
ii) INFANTMORTALITY RATE
Country Per thousand
China 30
India 63
Pakistan 81
iii) Maternal Mortality Rate
Country Per Lack
China 56
India 540
Pakistan 500
iv) Improved Sanitation
Country Of Population
China 44%
India 30%
Pakistan 54%
iv) Safe DrinkingWater facility
Country Of Population
China 77%
India 86%
China 77%
v) BelowPovertyLine
Country Of Population
China 16.6%
India 21.8%
Pakistan 13.4%
Q8. Mention the common failures of India and Pakistan.

Ans. I) Relatively slow pace of GDP growth rate as Compared to China.

2) Poor performance in HDI ranking.
3) Poor fiscal management.
4) Lack of political interest for social prosperity.

Q 9. Mention the areas where India has an edge over Pakistan.

Ans. i) Skilled manpower

ii) Investment in Education.
iii)Health facilities.

Q10. Mention the areas where Pakistan has an edge over India.

Ans: 1) Urbanization
2) Less percentage of population below poverty line.
3) More percentage of population having access to improved water sources.

****************
SET-1
Series BVM/2 H moS
Z§. 58/2/1
Code No.
amob Z§.
Roll No. narjmWu H moS H mo CÎma-nwpVH m Ho _wI-
n¥ð na Adí` {bIo§ &
Candidates must write the Code on the
title page of the answer-book.

 H¥ n`m Om±M H a b| {H Bg àíZ-nÌ _o§ _w{ÐV n¥ð 15 h¢ &

 àíZ-nÌ _| Xm{hZo hmW H s Amoa {XE JE H moS Zå~a H mo mÌ CÎma-nwp VH m Ho _wI-n¥ð na
{bI| &
 H¥ n`m Om±M H a b| {H Bg àíZ-nÌ _| 24 àíZ h¢ &
 H¥ n`m àíZ H m CÎma {bIZm ewê H aZo go nhbo, àíZ H m H« _m§H Adí` {bI| &
 Bg àíZ-nÌ H mo n‹TZo Ho {bE 15 {_ZQ H m g_` {X`m J`m h¡ & àíZ-nÌ H m {dVaU nydm©•
_| 10.15 ~Oo {H `m OmEJm & 10.15 ~Oo go 10.30 ~Oo VH mÌ Ho db àíZ-nÌ H mo n‹T|
JoAm¡a Bg Ad{Y Ho Xm¡amZ do CÎma-nwp VH m na H moB© CÎma Zht {bI|Jo &
 Please check that this question paper contains 15 printed pages.
 Code number given on the right hand side of the question paper should be written on
the title page of the answer-book by the candidate.
 Please check that this question paper contains 24 questions.
 Please write down the Serial Number of the question before attempting it.
 15 minute time has been allotted to read this question paper. The question paper will be
distributed at 10.15 a.m. From 10.15 a.m. to 10.30 a.m., the students will read the
question paper only and will not write any answer on the answer-book during this
period.

AW©em Ì
ECONOMICS

{ZYm©[aV g_` : 3 K Qo A{YH V_ A§H : 80

Time allowed : 3 hours Maximum Marks : 80

58/2/1 1 P.T.O.
gm_mÝ` {ZX}e :
(i) XmoZm| I Sm| Ho g^r àíZ A{Zdm`© h¢ &
(ii) àË`oH àíZ Ho {ZYm©[aV A§H CgHo gm_Zo {XE JE h¢ &
(iii) àíZ g§»`m 1 – 4 VWm 13 – 16 A{V bKyÎmamË_H àíZ h¢, {OZ_| àË`oH H m 1 A§H h¡ &
BZH m àË`oH H m CÎma EH dmŠ` _| hr Ano{jV h¡ &
(iv) àíZ g§»`m 5 – 6 Am¡a 17 – 18 bKyÎmamË_H àíZ h¢, {OZ_| àË`oH Ho 3 A§H h¢
& àË`oH H m CÎma gm_mÝ`V… 60 eãXm| go A{YH Zht hmoZm Mm{hE &
(v) àíZ g§»`m 7 – 9 Am¡a 19 – 21 ^r bKyÎmamË_H àíZ h¢, {OZ_| àË`oH Ho 4 A§H h¢ &
àË`oH H m CÎma gm_mÝ`V… 70 eãXm| go A{YH Zht hmoZm Mm{hE &
(vi) àíZ g§»`m 10 – 12 Am¡a 22 – 24 XrK© CÎmamË_H àíZ h¢, {OZ_| àË`oH Ho 6 A§H
h¢ & àË`oH H m CÎma gm_mÝ`V… 100 eãXm| go A{YH Zht hmoZm Mm{hE &
(vii) CÎma g§{jßV VWm VÏ`mË_H hmoZo Mm{hE VWm `Wmg§^d D na Xr JB© eãX gr_m Ho
A§VJ©V hr {XE OmZo Mm{hE &

General Instructions :
(i) All questions in both the sections are compulsory.
(ii) Marks for questions are indicated against each question.
(iii) Question Nos. 1 – 4 and 13 – 16 are very short-answer questions carrying
1 mark each. They are required to be answered in one sentence each.
(iv) Question Nos. 5 – 6 and 17 – 18 are short-answer questions carrying 3 marks
each. Answers to them should normally not exceed 60 words each.
(v) Question Nos. 7 – 9 and 19 – 21 are also short-answer questions carrying 4 marks
each. Answers to them should normally not exceed 70 words each.
(vi) Question Nos. 10 – 12 and 22 – 24 are long-answer questions carrying 6 marks
each. Answers to them should normally not exceed 100 words each.
(vii) Answers should be brief and to the point and the above word limits should be
adhered to as far as possible.

58/2/1 2
 I SA
(ì`{îQ AW©em Ì)
SECTION A
(MICROECONOMICS)
1. 20 BH mB¶m± {dH« ¶ H aZo na Hw b g§àm{ßV < 700 A{O©V hmoVr h¡ & 21dt BH mB© H mo {dH«
¶ H aZo go < 70 H s gr‘m§V g§àm{ßV A{O©V hmoVr h¡ & Hw b 21 BH mB¶m± {dH« ¶ H aZo
na
A{O©V Hw b g§àm{ßV H m ‘yë¶ hmoJm & (ghr {dH ën H m M`Z H s{OE) 1
(H ) < 721 (I) < 630
(J) < 770 (K) < 720
The Total Revenue earned by selling 20 units is < 700. Marginal Revenue earned
by selling 21st unit is < 70 . The value of Total Revenue earned by selling total 21
units will be..............................................................................(Choose the correct
alternative)
(a) < 721 (b) < 630
(c) < 770 (d) < 720
2. {XE JE {MÌ ‘| d Vw X VWm d Vw Y Ho {bE, X1Y1 VWm X2Y2 H« ‘e:, Xmo
{d{^Þ g‘¶md{Y T1 VWm T2 ‘|, CËnmXZ g§^mdZm dH« h¢ & XmoZm| g_` Ad{Y`m| _| A1
Am¡a A2 dm V{dH CËnmXZ VWm P1 Am¡a P2 g§^m{dV CËnmXZ H mo H« _e: àX{e©V H aVo h¢ &

d VwAm| X Am¡a Y Ho dm V{dH CËnmXZ ‘|, XmoZm| g‘¶ Ad{Y¶m| ‘|, n[adV©Z _
{IgH md Ûmam àX{e©V hmoJm & ([aº WmZ H s ny{V© H s{OE) 1
(H ) A2 go P2 (I) A1 go P2
(J) P1 go A2 (K) A1 go A2
AWdm
58/2/1 3 P.T.O.
 n[adV©Z H s gr‘m§V Xa (MRT) p Wa h¡ & Eogr p W{V ‘| ~ZZo dmbm CËnmXZ g§^mdZm dH«
‘yb-q~Xþ hmoJm & ([aº WmZ H s ny{V© H s{OE) 1

In the given figure X1Y1 and X2Y2 are Production Possibility Curves in two
different periods T1 and T2 respectively for Good X and Good Y. A 1 and A2
represent actual outputs and P1 and P2 represent potential outputs respectively in the
two time periods.

The change in actual output of Goods X and Y over the two periods would be
represented by movement from . (Fill up the blank)

(a) A2 to P2 (b) A1 to P2

(c) P1 to A2 (d) A1 to A2

OR

The Marginal Rate of Transformation (MRT) is constant. The Production

Possibility Curve, so formed, would be to the origin.
(Fill up the blank)
58/2/1 4
3. AnyU© à{V¶mo{JVm Ho A§VJ©V, Am¡gV g§àm{ßV (AR), gr‘m§V g§àm{ßV (MR)
hmoVr h¡ & ([aº WmZ H s ny{V© H s{OE) 1

AWdm

‘‘g§VwbZ _| EH \ _© Ho {bE gr_m§V g§àm{ßV (MR) VWm gr_m§V bmJV (MC)

hmoZr Mm{hE VWm Cg CËnmXZ Va Ho ~mX gr_m§V bmJV hmoZr
Mm{hE &’’ ([aº WmZ H s ny{V© H s{OE)
1

Under imperfect competition, Average Revenue (AR) remains

Marginal Revenue (MR). (Fill up the blank)

OR

‘‘For a firm to be in equilibrium, Marginal Revenue (MR) and Marginal Cost (MC)
must be _ ........................... and beyond that level of output Marginal Cost
must be...............................’’ (Fill up the blank)

4. ¶{X ny{V© dH« D Üdm©Ya Aj (Y-Aj) Ho g‘m§Va EH grYr aoIm h¡, Vmo d Vw H s ny{V©
H hbmVr h¡ & ([aº WmZ H s ny{V© H s{OE) 1

(H ) BH mB© Ho ~am~a bmoMXma ny{V©

(I) nyU©V: bmoMXma ny{V©
(J) nyU©V: ~obmoMXma ny{V©
(K) nyU©V: bmoMXma ‘m±J
If the supply curve is a straight line parallel to the vertical axis (Y-axis), supply of
the good is called as...........................................(Fill up the blank)
(a) Unitary Elastic Supply

(b) Perfectly Elastic Supply

(c) Perfectly Inelastic Supply

(d) Perfectly Elastic Demand

58/2/1 5 P.T.O.
5. gH mamË‘H AW©em Ì VWm AmXe©H AW©em Ì ‘|, Cn¶w³V CXmhaUm| g{hV, A§Va nîQ
H s{OE & 3
Distinguish between positive economics and normative economics, with suitable
examples.

6. EH H mën{ZH AZwgyMr H s ghm`Vm go gr‘m§V Cn¶mo{JVm õmg {Z¶‘ H s ì`m»`m

H s{OE & 3
AWdm
EH H mën{ZH AZwgyMr H s ghm`Vm go _m±J Ho {Z`_ H s ì`m»`m H s{OE & 3
Explain the law of diminishing marginal utility, with the help of a hypothetical
schedule.
OR
Elaborate the law of demand, with the help of a hypothetical schedule.

7. EH d Vw H m ~mµOma g§VwbZ ‘| h¡ & Aݶ ~mV| (H maH ) g‘mZ ahZo na, EH AmJV H
s H s‘V ‘| d¥{Õ {H g àH ma g§VwbZ H s‘V VWm g§VwbZ ‘mÌm H mo à^m{dV H aoJr ? {MÌ
Ho
à¶moJ go g‘PmBE & 4
The market for a good is in equilibrium. How would an increase in an input price
affect the equilibrium price and equilibrium quantity, keeping other factors constant
? Explain using a diagram.

ZmoQ : {ZåZ{b{IV àíZ Ho db Ñ{ï~m{YV narjm{W©`m| Ho {bE, àíZ g§»`m 7 Ho WmZ

na h¡ :
Note : The following question is for the Visually Impaired Candidates
only, in lieu of Q. No. 7 :

EH d Vw H m ~mµOma g§VwbZ _| h¡ & Aݶ ~mV| (H maH ) g‘mZ ahZo na, EH AmJV H
s H s‘V ‘| d¥{Õ {H g àH ma g§VwbZ H s‘V VWm g§VwbZ ‘mÌm H mo à^m{dV H
aoJr ?
g‘PmBE & 4
The market for a good is in equilibrium. How would an increase in an input price
affect the equilibrium price and equilibrium quantity, keeping other factors constant
? Explain.
58/2/1 6
8. (H ) d Vw X H s ‘m±J H s H s‘V bmoM H m JwUm§H (–) 0.2 h¡ & ¶{X d Vw H s H s‘V ‘|
5% H s d¥{Õ hmoVr h¡, Vmo d Vw H s ‘m±Jr JB© ‘mÌm {H VZo à{VeV go H ‘ hmoJr ?

(I) {ZåZ{b{IV ‘m±J H s H s‘V bmoM Ho JwUm§H m| H mo ~‹TVo hþE (Amamohr) H« ‘ ‘|

bJmBE : 4
(–) 3·1, (–) 0·2, (–) 1·1

AWdm
Cn^mo³VmAm| Ho ‘‘ dmX d àmW{‘H VmE±’’ d Vw Ho nj ‘| hmoZo na, d Vw H s ‘m±J {H g
àH ma à^m{dV hmoJr ? {MÌ H s ghm¶Vm go g‘PmBE & 4

(a) The coefficient of price elasticity of demand for Good X is (–) 0·2. If there
is a 5% increase in the price of the good, by what percentage will the
quantity demanded for the good fall ?

(b) Arrange the following coefficients of price elasticity of demand in

ascending order :
(–) 3·1, (–) 0·2, (–) 1·1

OR
How would the demand for a commodity be affected by a change in ‘‘tastes and
preferences’’ of the consumers in favour of the commodity ? Explain using a
diagram.

ZmoQ : {ZåZ{b{IV àíZ Ho db Ñ{ï~m{YV narjm{W©`m| Ho {bE, àíZ g§»`m 8 ({dH

ën) Ho WmZ na h¡ :
Note : The following question is for the Visually Impaired Candidates
only, in lieu of Q. No. 8 (Alternative) :

Cn^mo³VmAm| Ho ‘‘ dmX d àmW{‘H VmE±’’ d Vw Ho nj ‘| hmoZo na, d Vw H s ‘m±J {H g

àH ma à^m{dV hmoJr ? g‘PmBE & 4
How would the demand for a commodity be affected by a change in ‘‘tastes and
preferences’’ of the consumers in favour of the commodity ? Explain.

58/2/1 7 P.T.O.
 9. {ZåZ{b{IV ‘| go H m¡Z-go H WZ ghr ¶m µJbV h¢ ? AnZo CÎma Ho g‘W©Z ‘| Cn¶w³V
H maU Xr{OE & 4
(H ) Am¡gV bmJV dH« , Am¡gV n[adVu bmJV dH« H mo CgHo ݶyZV‘ Va na H
mQVm h¡ &
(I) Am¡gV CËnmX dH« VWm gr‘m§V CËnmX dH« ‘U-AmH ma’ Ho dH« hmoVo h¢ &
(J) g^r ~mµOma n[ap W{V¶m| ‘|, Am¡gV g§àm{ßV VWm gr‘m§V g§àm{ßV ~am~a hmoVo h¢ &
(K) Hw b bmJV dH« VWm Hw b n[adVu bmJV dH« EH -Xÿgao Ho g‘m§Va hmoVo h¢ &
AWdm
EH H mën{ZH AZwgyMr H m à`moJ H aVo hþE, EH nyU© à{V`moJr \ _© Ho g§VwbZ H s ì`m»`m
H s{OE & 4
Which of the following statements are true or false ? Give valid reasons in support
of your answer.
(a) Average cost curve cuts Average variable cost curve, at its minimum level.
(b) Average product curve and Marginal product curve are
‘U-shaped’ curves.
(c) Under all market conditions, Average revenue and Marginal revenue are
equal to each other.
(d) Total cost curve and Total variable cost curve are parallel to each other.
OR
Explain a firm’s equilibrium under perfect competition, using a
hypothetical schedule.

10. Aënm{YH mar ~mµOma H s {ZåZ{b{IV {deofVmAm| Ho AW© H s ì`m»`m H s{OE : 6

(H ) µJ¡a-‘yë¶ à{V nYm©

(I) H ‘ {dH«o Vm
Explain the meaning of the following features of the Oligopoly Market :
(a) Non-Price Competition
(b) Few Sellers
58/2/1 8
11. (H ) EH n[adVu H maH Ho ~‹TVo hþE à{V’ b go ³¶m VmËn¶© h¡ ?
(I) EH n[adVu H maH Ho KQVo hþE à{V’ b Ho {H Ýht Xmo H maUm| H s g§jon ‘| MMm©
H s{OE & 2+4
(a) What is meant by increasing returns to a variable factor ?
(b) Discuss briefly, any two reasons for the decreasing returns to a variable
factor.

12. {ZåZ{b{IV n[ap W{V¶m| H s ì`m»`m H s{OE : 3+3

(H ) EH hr AZ{Y‘mZ dH« na g§MbZ &
(I) {ZåZ AZ{Y‘mZ dH« go Cƒ AZ{Y‘mZ dH« na {IgH md &
AWdm
g‘-gr‘m§V Cn¶mo{JVm {Z¶‘ H s ì¶m»¶m H s{OE & 6
Explain the following conditions :
(a) Movement along the same indifference curve.
(b) Shift from a lower to a higher indifference curve.
OR

Explain the Law of Equi-Marginal Utility.

I S~
(g_{îQ AW©em Ì)
SECTION B
(MACROECONOMICS)

13. gaH mar ~OQ ‘|, àmW{‘H KmQm eyݶ hmoJm, O~ & (ghr {dH ën H m M`Z
H s{OE) 1

(H ) amO d KmQm eyݶ hmo

(I) ewÕ ã¶mO ^wJVmZ eyݶ hmo
(J) amOH mofr¶ KmQm eyݶ hmo
(K) amOH mofr¶ KmQm ã¶mO ^wJVmZ Ho ~am~a hmo
58/2/1 9 P.T.O.
 Primary deficit in a government budget will be zero, when .
(Choose the correct alternative)

(a) Revenue deficit is zero

(b) Net interest payments are zero

(c) Fiscal deficit is zero

(d) Fiscal deficit is equal to interest payment

14. EH AW©ì¶d Wm ‘| {Zdoe H mo àmoËgm{hV H aZo Ho {bE, Ho ÝÐr¶ ~¢H Ha

gH Vm h¡ & (ghr {dH ën H m M`Z H s{OE) 1

(H ) ZH X Ama{jV AZwnmV ‘| H ‘r
(I) ZH X Ama{jV AZwnmV _| d¥{Õ
(J) Iwbo ~mµOma ‘| gaH mar à{V^y{V¶m| H m {dH« ¶
(K) ~¢H Xa ‘| d¥{Õ
In order to encourage investment in the economy, the Central Bank may
. (Choose the correct alternative)
(a) Reduce Cash Reserve Ratio
(b) Increase Cash Reserve Ratio
(c) Sell Government securities in open market
(d) Increase Bank Rate

15. à˶j H a go Amn ³¶m g‘PVo h¢ ? 1

AWdm
Aà˶j H a go Amn ³¶m g‘PVo h¢ ? 1
What do you mean by a direct tax ?
OR
What do you mean by an indirect tax ?
58/2/1 10
16. ‘‘wÐm JwUH ’ H mo n[a^m{fV H s{OE & 1
Define ‘money multiplier’.

17. ¶{X gr‘m§V Cn^moJ àd¥{Îm (MPC) 0·8 h¡ VWm àma§{^H {Zdoe ‘| n[adV©Z < 1,000 H amo‹S
h¡, Vmo A§{V‘ Am¶ ‘| n[adV©Z H s JUZm H s{OE & 3
Calculate change in final income, if Marginal Propensity to Consume (MPC) is 0·8
and change in inital investment is < 1,000 crores.

18. H sÝg Ho {gÕm§V Ho A§VJ©V ‘‘A{Y‘m±J’’ H m AW©ì¶d Wm ‘| amoµOJma na n‹SZo dmbo à^md
H m C„oI H s{OE & 3
AWdm
{ZåZ{b{IV H m AW© ~VmBE : 3
(H ) àË`m{eV ~MV
(I) nyU© amoµOJma
(J) dm¶Îm Cn^moJ
State the impact of ‘‘Excess Demand’’ under the Keynesian theory on employment, in an
economy.
OR
State the meaning of the following :
(a) Ex-Ante Savings
(b) Full Employment
(c) Autonomous Consumption

19. {ZåZ{b{IV H WZm| H mo amO d àm{ßV¶m| ¶m ny±OrJV àm{ßV¶m| ‘| dJuH¥ V H s{OE & AnZo
CÎma Ho g‘W©Z ‘| Cn¶w³V H maU Xr{OE & 4
(H ) EH ~m‹T à^m{dV BbmHo Ho nr{‹SVm| Ho {bE {H gr ~hþamîQ´r¶ {ZJ‘ Ûmam {dÎmr¶
‘XX &
(I) gmd©O{ZH joÌ H s EH BH mB© Ho A§em| (eo¶am|) H s EH {ZOr H ånZr,
Y {b{‘QoS H mo {~H« s &
(J) ^maVr¶ QoQ ~¢H Ûmam gaH ma H mo bm^m§e ^wJVmZ &
(K) A§Vam©îQ´r¶ ‘wÐm H mof (IMF) go {b¶m J¶m G U &
58/2/1 11 P.T.O.
 Classify the following statements as revenue receipts or capital receipts. Give valid
reasons in support of your answer.

(a) Financial help from a multinational corporation for victims in a flood

affected area.

(b) Sale of shares of a Public Sector Undertaking (PSU) to a private company,

Y Ltd.

(c) Dividends paid to the Government by the State Bank of India.

(d) Borrowings from International Monetary Fund (IMF).

20. ‘‘A{YH gH b Kaoby CËnmX (GDP) H m VmËn¶© AW©ì¶d Wm ‘| d VwAm| H s A{YH

à{V ì¶{³V CnbãYVm hmoVm h¡ &’’ ³¶m Amn {XE JE H WZ go gh‘V h¢ ? AnZo CÎma Ho
g‘W©Z
‘| Cn¶w³V H maU Xr{OE & 4

AWdm
EH g§»`mË_H CXmhaU Ho à`moJ go, dm V{dH gH b Kaoby CËnmX VWm _m¡{ÐH gH b
Kaoby CËnmX H m AW© g_PmBE & 4
‘‘Higher Gross Domestic Product (GDP) means greater per capita availability of
goods in the economy.’’ Do you agree with the given statement ? Give valid reason
in support of your answer.
OR
Explain the meaning of Real Gross Domestic Product and Nominal Gross
Domestic Product, using a numerical example.

21. Ho ÝÐr¶ ~¢H Ûmam gmI {Z¶§ÌU Ho {bE à¶moJ {H E OmZo dmbo ‘JwUmË‘H VWm
_mÌmË‘H CnH aUm|’ ‘| A§Va nîQ H s{OE & 4

Distinguish between ‘Qualitative and Quantitative tools’ of credit control

as may be used by a Central Bank.

58/2/1 12
22. (H ) ‘‘ì¶mnma A{Yeof’’ VWm ‘‘ì¶mnma KmQm’’ H mo n[a^m{fV H s{OE &

(I) {dXoer ‘wÐm Xa {ZYm©aU H s à~§{YV {VaVr àUmbr H s AdYmaUm H s g§jon ‘| MMm©
H s{OE & 3+3

(a) Define ‘‘Trade Surplus’’ and ‘‘Trade Deficit’’.

(b) Discuss briefly the concept of managed floating system of foreign exchange
rate determination.

23. {ZåZ{b{IV n[ap W{V¶m| ‘| g‘m¶moOZ V§Ì H s MMm© H s{OE : 6

(H ) g‘J« ‘m±J, g‘J« ny{V© go H ‘ hmo &

(I) àË`m{eV {Zdoe, àË`m{eV ~MV go A{YH hm| &
Discuss the adjustment mechanism in the following situations :

(a) Aggregate demand is lesser than Aggregate Supply.

(b) Ex-Ante Investments are greater than Ex-Ante Savings.

24. {ZåZ{b{IV H mo n[a^m{fV H s{OE : 6

(H ) ‘yë¶ d¥{Õ

(I) gH b Kaoby CËnmX

(J) àdmh Ma
(K) gån{Îm VWm CÚ‘erbVm go àmßV Am¶

AWdm

58/2/1 13 P.T.O.
 {XE JE Am§H ‹S m| Ho AmYma na, ‘‘gH b Kaoby ny±Or {Z‘m©U’’ VWm ‘‘àMmbZ A{Yeof’’ Ho
‘yë` kmV H s{OE & 6

am{e
H« .g§. {ddaU
(< H amo‹Sm|
_|)
(i) amîQ´r` Am¶ 22,100

(ii) ‘µOXÿar d doVZ 12,000

(iii) {ZOr A§{V‘ Cn^moJ 춶 7,200

(iv) ewÕ Aà˶j H a 700

(v) gH b Kaoby ny±Or {Z‘m©U ?

(vi) ‘yë¶õmg 500

(vii) 6,100
gaH mar A§{V‘ Cn^moJ 춶
(viii) 4,800
d-{Z`mo{OV H s {‘{lV Am¶
(ix) ?
àMmbZ A{Yeof
(x) 3,400
{Zdb {Z¶m©V
(xi) 1,200
{H am¶m
(xii) () 150
{dXoem| go àmßV {Zdb gmYZ Am¶

Define the following :

(a) Value Addition

(b) Gross Domestic Product

(c) Flow Variables

(d) Income from property and entrepreneurship

OR

58/2/1 14
 Given the following data, find the values of ‘‘Gross Domestic Capital
Formation’’ and ‘‘Operating Surplus’’.

Amount
S. No. Particulars
(< in crores)

(i) National Income 22,100

(ii) Wages and Salaries 12,000

(iii) Private Final Consumption Expenditure 7,200

(iv) Net Indirect Taxes 700

(v) Gross Domestic Capital Formation ?

(vi) Depreciation 500

(vii) Government Final Consumption Expenditure 6,100

(viii) Mixed Income of Self-Employed 4,800

(ix) Operating Surplus ?

(x) Net Exports 3,400

(xi) Rent 1,200

(xii) Net Factor Income from Abroad () 150

58/2/1 15 P.T.O.
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