EXPECTED ANSWER/VALUE POINTS

Q.
No. SECTION -A
(Macro Econonics)
Bank and Government of the country do
Central
Under exchange rate system, the exchange rate determination.
interfere inthe in the blank)
not have any authority
to (Choose the correct alternative to fill
(B) floating
(A)fixed (D)gold standard
1
(C) managed floating
Ans. (B) floating
volume of money held by the public, for the purpose of dísposing
is the total blank)
(Choose the correct alternative to fill in the
time.
oft, at a particular point of (B) Demand for money
(A) Term deposits (D)Credit creation
(C) Money supply 1
Ans. (C) Money supply
statements'carefully: Product
Read the following (GNP) can be greater than Gross Domestic
Statement 1: GroSs National Product
(GDP) in a two-sector economy.
is zero in a two-sector economy.
Statement 2: Net factor income from abroad from the following:
In the light of the given statements,
choose the correct alternative
is false.
J(A) Statement 1 is true and Statemnent 2
true.
(B) Statement 1is false and Statement 2 is
(C) Both Statements 1 and 2 are true.
(D) Both Statements 1 and 2 are false. 1
Ans. (B) Statement 1is false and Statement 2 is true.
of Payments of a
Keeping all other factors constant, trade surplus may arise in the Balance
nation because of (Choose the correct alternative to fill in the blank)
(A)rise in export of coffee to Japan
(B) fall in import of banking services
(C) fall in exports of cereals
(D) rise in remittances to abroad
1
Ans. (A)rise in export of coffee to Japan
Suppose in a hypothetical economy, the Central Bank increases the reserve ratiofrom 10% to
25%. Keeping the amount of initial deposits constant at 1,000 crore, the amount of total
money creation would be crore. (Choose the correct alternative to fill in the blank)
(A) 10,000 (B) 4,000
(C) 6,000 (D) 5,000
Ans. (B) 4,000 1

ldentify, which of the following options exhibits the proportional relation between
consumption and disposable income.
(A)Marginal Propensity toConsume (MPC) /Average Propensity to Consume (APC)
B)Marginal Propensity toConsume (MPC) < AveragePropensity to Consume (APC)
C) Marginal Propensity to Consume (MPC) = Average Propensity to Consume (APC)
D) Marginal Propensity to Consume = 1
XII 030 58/S/1 #
 |Ans.(C)Marginal Propensity to Consume(MPC)=Average Propensity to Consume (APC)
when
7 In an economy, break-even level of income can be determined,
)Marginal Propensity to Consume (MPC) = Marginal Propensity to Save (MPS)
|(i) Income (Y) = Consumption (C)
(iii) Savings (S) =0
liv)Average Propensity to Consume (APC)(Choose
=Average Propensity to Save (APS)
the correct alternative to ffll in the blank)
Alternatives:
|(A)Only ()
(B) () and (ii)
(C) (ii) and (iii)
(D) ()) and (iv)
Ans. (C) (i)and (ii) 1
8. The account of Balance of Payments reflects the net changes in financial claims
lon the Rest of the World (ROW). (Choose the correct alternative to fill in the blank)
(A)Trade (B)Capital
(C) Current (D)Visible
Ans. (B) Capital 1
9 For a hypothetical economy, it is known that:
|Average Propensity to Save (APS) = 0.4
Income ()=100 crore
Autonomous Consumption (C)=*10 crore
The value of investment multiplier would be
(Choose the correct alternative to fill in the blank)
(A) 5 (B) 2
(C) 4 (D) 10
Ans. (B) 2 1
10. Read the following statements carefully:
|Statement 1: Average Propensity to Consume (APC) represents the change in total income with
respect to a given change in total consumption.
Statement 2: When income changes, change in consumption (AC) can never exceed the change
in income (AY).
|In the light of the given statements, choose the correct alternative from the following:
(A)Statement I is true and Statement 2 is false.
(B)Statement I is false and Statement 2 is true.
(C) Both Statements 1and 2 are true.
(D) Both Statements I and 2 are false.
Ans. (B) Statement lis false and Statement 2 is true. 1
11. On the basis of the given data,estimate the valueof Net Value Added at Factor Cost (NVArc):
S. No. Items Amount (incrore)
() Sales 1,000
(i1) Change in stock 150
(i) Purchase of raw material 300
(iv) Gross Investment 100
() Net Investment 80
(vi) Net Indirect Taxes 20
Ans.

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 Net Value Added at Factor Cost (NVAFC) = (i) + (i)-(i)-|(iv)-()|-(vi) 1½
=1,000 + 150-300 -[100 - 80|-20 1
=810 crore
3
12. ("Devaluation of currency and depreciation of currency have the same implications, but they
(a) originate from divergent sources."
Do youagree with the given statement? Give valid reason in support of your answer.
|Ans. Yes, devaluation and depreciation of currency may lead to fall in the value of
domestic currency in relation to foreign currency. This may result in
Promotion/reduction of exports/imports, as the domestic/foreign goods become relatively 3
cheaper/costlier. Hence, both devaluation and depreciation of currency have the same
implications. However,devaluation of currency originates due to the actions taken by the
government while depreciation of currency is caused by the market forces of demand and
supply. (To be marked as a whole)
OR
(b)Outline the meaning and reasons behind narrowing down of Current Account Deficit. 1
Ans. Current Account Deficit (CAD) arises when receipts from exports of goods &
services and unilateral transfers are less than the payments for imports of goods &
services and unilateral transfers.
CAD may narrow down when either receipts from exports of goods and services and 2
unilateraltransfers inerease or payments for imports of goods and services and unilateral
|transfers decrease.
3

13. Assume the following for a hypothetical economy:

(a)() Autonomous Consumption Expenditure (C) =* 25 crore
(ii) Marginal Propensity to Save (MPS) = 0.1
(iii) Level of Income (Y) =2,000 crore
(iv) Autonomous Investment (I) =25 crore
Is the economy in equilibrium situation? Justify your answer with valid calculations.
|Ans.Given, Autonomous Consumption Expenditure (C) = 25 crore
Marginal Propensity to Save (MPS) = 0.1
|Level of Income (Y)=2,000 crore
Autonomous Investment (I) =25 crore
|Marginal Propensity toConsume (MPC)=1- MPS
1-0.1 =0.9 1
At equilibrium level of income, Y= C+ I
Substituting the value of Yin (C+) 1
C+I=+ (MPC)Y +I
= 25 +0.9 x 2000 + 25
=1,850 crore
Y>C+I at an income level of 2,000 crore.
2,000 crore.
Thus, the economy is not in equilibrium at an income level of?

Alternative answer: 1
Atequilibrium levelof income, S= I
Substituting the value of Y in S
1
S=-C+ (MPS)Y
=-25 + 0.1 x2000
=7175 crore
S>Iat an income level of 2,000 crore.
2,000crore.
Thus, the economy is not in equilibrium at an income level of
OR 4

XIl_030_58/S/1_Economics_2024 # Page-5
 (b) When ex-ante Aggregate Demand (AD) falls short ofex-ante Aggregate Supply (AS) it results
infall inunintended inventories."
Defend or refute the given statement, giving valid arguments.
|Ans. The given statement is refuted.
If ex-ante Aggregate Demand falls short of ex-ante Aggregate Supply, it implies that
households and firms are planning to buy less than what the firms expected them to, As
a result, inventories will be piled up with the producers, which may leadto 4
accumulation of inventories.
unintended
(To be marked as a
14."The Reserve Bank of India (RBI) performs the same function for the government whole)
as the
commercial banks perform for the general public."
Discuss briefly any two such functions performed by the Central Bank for the Government of
India.
Ans. The Reserve Bank of India (RBI) as the banker to the government
maintains
account, accepts receipts and makes payments, carries out exchange, remittance, and 4
other banking operations.
|The Reserve Bank of India advances loans to the government to meet its
requirements,
in case of financial crisis. Thus, the Reserve Bank of India facilitates the same
banking
|functions for the government just as the commercial banks do for the general public.
(Tobe marked as a whole)
15. Study the following image:

Reene Bank of
Inda

Sell govenment
Increase Reverse
Increase Repo Rate securities in the
Repo Rate
opcn naket

() Identify the indicated situation.

(1) Explain any two steps which may be taken by RBI to correct the situation.
Ans.
) The above image indicates the situation of inflation. 1
(i) To com bat the situation of inflation, the two steps taken by the Reserve Bank ofIndia
(RBI) may be:
" The Government Securities are sold by the RBI in the open market. It will reduce 1½
the availability of funds with commercial banks, which in turn curtails their lending
capacity. Consequently, the money supply inthe economy falls. Thereby, decreasing
Aggregate Demand and thus reducing inflation in the economy.
The increase in the Bank Rate by the RBI, leads to an increase in the lending rates 1%
by the commercial banks. This makes borrowing costlier for the general public.
Thereby,discouraging them from borrowing more. Asa result, Aggregate Demand
inthe economy falls, consequently reducing inflation.
(Any other valid step to be awarded marks) 4
16. Differentiate between stock variables and flow variableswith suitable example.
(a) Ans. Stock variables are the variables which are measured at a particular point of time. 1+½
For example: National Wealth
Whereas;
Flow variables are the variables which are measured over aperiod of time. For instance: 1+½
National Income
 (b)"Externalities can be classificd into negative or positive, however it is not necessary that they
will be directly correlated with the Gross
Do you agrec with the given statement? GiveDomestic Product."
valid reasons in support of your answer.
Ans. Yes, externalities may not directly correlate with the
(GDP) as externalities do not have any market in which they Gross can he
Domestic Product
does not take into account any such negative/positive impact on the bought/sold. GDP 3
are not penalised/paid for such third-party as they
harms/benefits.
Overestimation/underestimation of the actual welfare ofConsequently,
the economy.
it may lead to
(To be marked as a whole) 6
17.|*The Union Budget 2023 - 24 had proposed an
(a) Smalland Medium allocation of 22,138 crore to the Micro,
() ldentify and Enterprise (MSME) Ministry."
explain the objective that the government is trying to achieve with the
expenditure. proposed
Ans. The highlighted government budget objective is the
The government with the proposed allocation of 22,138 'allocation function'. 1
Medium Enterprise (MSME) Ministry may seek to crore to the Micro, Small and
employment opportunities. In a country like India, such enhance steps are
national output and
fruitful for achieving
3

socio-economic goals and overall growvth of the nation.

(ii) State the formulae for
calculating fiscal
Ans. Fiscal Deficit = Total Expendituredeficit and revenue deficit.
Revenue Deficit = Revenue ExpenditureTotal Receipts (excluding borrowings)
- Revenue Receipts
1
1
OR
*Tax revenues, an important component 6
() categories." ofrevenue receipts, can be further classified into two
Imagine yourself as a member of Department of
your friend to identify and Revenue of the Government of India. Help
differentiate
Ans. The two categories of taxes are between the two categories of taxes.
Direct taxes are those taxes whose direct taxes and indirect taxes.
impact and incidence lie on the same
entity.
Indirect taxes are those taxes whoseWhereas;
impact and incidence may lie on
(i) A budget can be deficit, surplus or
different entities. 1

Do you agree with the given balanced."

statement? Give valid reasons in support of your
Ans. Yes, a budget can be deficit,
and expenditure. surplus or balanced, it depends on theanswer. total receipts
Balance Budget: When the total receipts of
Surplus Budget: When the total the government equal its total
Deficit Budget: When the totalreceipts of the government exceed its totalexpenditure.
expenditure. receipts of the government fall short expenditure.
of its total
3

(To be