Practice

GANDHIDHAM

12 ECONOMICS WORK SHEET

Class 12 - Economics

1. The process of adding to physical stock of capital is known as [1]

a) investment b) savings

c) capital formation d) Both investment and savings

2. Circular Flow of Income is correctly represented in the diagram: [1]

a) b)

c) d)

3. Net capital formation causes: [1]

a) increase in cost b) increase in profits

c) increase in depreciation d) increase in production capacity

4. Losses are classified as: [1]

a) Stock variable b) Flow variable

c) Either Stock variable or Flow variable d) variable

5. Money flows are opposite to real flows. How? [3]
6. How goods are classified into intermediate and final goods? Give suitable examples. [3]
7. All producer goods are not capital goods. Why? [4]
8. Giving reasons, classify following into intermediate products and final products. [4]
i. Furniture purchased by a school.
ii. Chalks, dusters etc purchased by school.
9. Assertion (A): Stock variable does not have a time dimension. [1]
Reason (R): Stock variable is measured over a period of time.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

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 c) A is true but R is false. d) A is false but R is true.
10. Identify the incorrect feature(s) of money supply (M1) from the following: [1]

i. It is measured at a point of time.

ii. It does not include stock of money held by the government.
iii. It is always the currency in the hands of the Central Bank of a nation.

a) (iii) only b) (ii) only

c) (ii) and (iii) d) (i) and (ii)

11. Bank money is that money which is: [1]

a) Printed by RBI b) Printed by Commercial bank

c) Printed by the government d) Generated in the form of credit creation

12. In the terminology of economics and money demand, the terms M1 and M2 are also known as : [1]

a) Broad money b) Short money

c) Narrow money d) Long money

13. Which function of money has overcome the problem of lack of double coincidence of wants? [1]

a) Standard of deferred payments b) Store of value

c) Medium of exchange d) Measure of value

14. Which function allows the payment to be delayed till a future date? [1]

a) Store of value b) Standard of deferred payments

c) Medium of exchange d) Measure of value

15. Explain the problem of common measure of value in relation to barter. How does money solve the problem of a [3]
common measure of value?
16. Explain how money has solved the problem of double coincidence of wants. [3]
17. What is Barter system? What are its drawbacks? [4]
18. Explain the credit creation role of Commercial Banks with the help of a numerical example. [4]
19. Scholarship is an example of [1]

a) capital formation b) grant

c) transfer payment d) subsidies

20. Out of the following aggregates, which combination represents National Income and Domestic Income? [1]

a) NNPFC and NDPMP b) NNPMP and NDPFC

c) NNPFC and NDPFC d) NDPFC and NNPMP

21. A household inventory is: [1]

a) included in national income b) Both a stock concept and not included in

national income

c) Not included in national income d) A stock concept

22. GNPFC is equal to NNPFC when: [1]

a) All the above are Zero. b) Net indirect Tax is Zero

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 c) Net Factor Income from abroad is Zero. d) Consumption of Fixed Capital is Zero.
23. Giving reasons, explain how the following are treated in estimating national income: [3]
i. Purchase of a truck to carry goods by a production unit.
ii. Payment of income tax by a producing unit.
iii. Services rendered by family members to each other.
24. Using a suitable example, distinguish between positive externalities and negative externalities. [3]
25. If the Nominal GDP is Rs. 600 and price index (base = 100) is 120, calculate the Real GDP. [4]
26. Explain how distribution of G.D.P. is its limitation as a measure of economic welfare. [4]
27. Assertion (A): Income from illegal activities like smuggling, theft, gambling, etc., should not be included. [1]
Reason (R): Including illegal activities will cause the problem of double counting.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

28. In an economy, if the Real Gross Domestic Product (GDP) is ₹ 300 crore and Price Index (with base = 100) is [3]
110, calculate the Nominal Gross Domestic Product.
29. If a farmer sells wheat to miller for ₹ 500 and miller sells flour to baker for ₹ 700 and baker sells bread to [1]
consumers for ₹ 1,000, then total value added by miller and baker is:

a) ₹ 1,200 b) ₹ 500

c) ₹ 300 d) ₹ 1,700
30. Which of the following will you exclude while estimating national income by expenditure method? [1]

a) Operating surplus b) Scholarships paid by the government

c) Mixed income of self employed d) Rent paid

31. Which of the following is not an economic activity and not included in national income? [1]

a) A lawyer doing his practice b) Medical services rendered by a dispensary

c) A maid working full time with a family d) A housewife doing household work
32. Factor income paid to non-residents within the domestic territory of a country leads to: [1]

a) Increase in Domestic Income b) Decrease in National Income

c) Both Increase in Domestic Income and d) Increase in National Income

Decrease in National Income
33. National Income can be calculated by 3 methods. By which method, we get the maximum value of National [1]
Income?

a) Value Added method b) All 3 methods give same value of national

income

c) Expenditure method d) Income method

34. State the meaning of: [6]
a. Problem of Double Counting
b. Operating Surplus
c. Compensation of Employees

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35. From the following data, calculate net value added at factor cost. [1]

Particulars ₹ in crores

(i) Total Sales 1,000

(ii) Decrease in Stock 70

(iii) Production for Self Consumption 120

(iv) Purchase of raw materials 300

(v) Exports 150

(vi) Electricity Charges 50

(vii) Income Tax 20

(viii) Goods and Services Tax (GST) 70

(ix) Subsidy 40

36. Calculate National Income from the following data. [3]

S.no. Contents (Rs. in Crores)

(i) Private Final Consumption Expenditure 900

(ii) Net domestic fixed capital formation 180

(iii) Government Final Consumption Expenditure 400

(iv) Net Indirect Taxes 100

(v) Gross Domestic Capital Formation 250

(vi) Change in Stock 50

(vii) Net Factor Income from Abroad (-) 40

(viii) Consumption of Fixed Capital 20

(ix) Net Imports 30

37. Raising margin requirements by the central bank in India during excess demand will be [1]

a) Stabilisation b) Destabilisation

c) Deflationary d) Inflationary
38. Bank Rate is a tool of: [1]

a) Both Monetary Policy and Quantitative b) Quantitative Method

Method

c) Qualitative Method d) Monetary Policy

39. The rate at which commercial banks borrow from the Reserve Bank of India to meet their long term [1]
requirements is known as ________.
(Choose the correct alternative to fill up the blank)

a) Repo rate b) Margin requirement

c) Reverse repo rate d) Bank rate

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40. The central bank controls credit through: [1]

a) CRR b) All these

c) Bank rate d) Open market

41. Which of the following will increase the supply of money? [1]

a) Increase in the cash reserve ratio b) Fall in bank rate

c) Sale of securities in open market d) Increase in Repo rate

42. Distinguish between Qualitative and Quantitative tools of credit control as may be used by a Central Bank. [3]
43. Explain the banker to the government function of the Central Bank. [3]
44. Explain any two methods of credit control used by Central Bank. [4]
45. Explain how ‘margin requirements’ are helpful in controlling credit creation? [4]
46. How does the Central Bank control credit creation in the economy through open market operation and bank rate? [6]
Explain.
47. Read the text carefully and answer the questions: [6]
In modern times, the sources of supply of money are government, the central bank of the country, and
commercial banks. In India, it is the Ministry of Finance that issues Rs.1 notes and all the coins. Money is
mainly supplied by the Central bank of the country.RBI issues currency on the basis of the minimum reserve
system. Under this system, the reserve bank has to maintain a minimum reserve of Rs.200 crores in the forms of
gold and foreign securities. Commercial banks create credit on the basis of demand deposits, and on the basis of
their cash reserves. When the commercial banks provide credit to the people, they add to the supply of money.
On the other hand, when they reduce the provision of credit, the supply of money is reduced. Expansion or
contraction of the money supply by the commercial banks is governed by the monetary policy of the Reserve
Bank of India.
(a) When commercial banks create credit on the basis of deposit and reserves, it will ________.

a) reduce money b) create money

c) both create and reduce money d) agency function

(b) The supply of currency in India is governed by ________.

a) commercial bank b) all of these

c) Reserve bank of India d) private bank

(c) RBI maintains gold and foreign securities at a minimum level. Under ________ system such level is
maintained.

a) cash reserve b) minimum reserve

c) maximum reserve d) money supply

(d) All types of currency are not issued by a single authority. ________ issues all coins and ₹ 1 paper notes.

a) Private banks b) All of these

c) Ministry of Finance d) RBI

(e) Which among the following is not a source of supply of money?

a) Government b) Finance Ministry

c) Commercial Banks d) Central Bank

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 (f) Who governs the expansion or contraction of the money supply by the commercial banks?

a) It is governed by the economic policies b) It is governed by the monetary policy of

of the country. the Reserve Bank of India.

c) It is governed by the Conferedation of d) It is governed by the monetary policy of

the Commercial Banks. the Government of India.
48. Read the text carefully and answer the questions: [6]
The central bank adopts various measures to control the supply of money in the economy. Largely, these
measures relate to credit supply by commercial banks. The increase (or decrease) in bank rate is often followed
by an increase (or decrease) in the market rate of interest (the interest rate charged by the commercial banks
from the general public). Accordingly, the cost of credit (also called the cost of capital) changes in the market.
Inflation is corrected by selling the securities and soaking liquidity, while deflation is corrected by buying the
securities and releasing liquidity. During inflation, the cost of capital is increased by increasing the repo rate.
This lowers the demand for credit and accordingly, the supply of money in the economy, as desired. When the
reverse repo rate is lowered banks are discouraged to park their surplus funds with the RBI. Instead, the banks
may use these funds as (RR-funds with the RBI. This leads to a rise in credit supply (money supply) by
commercial banks. When the supply of money is to be increased, CRR is lowered, and when the supply of
money is to be reduced, CRR is raised. To decrease the supply of money (as during inflation), the central bank
increases SLR.
(a) Assertion (A): Inflation is corrected by selling the securities and soaking liquidity, while deflation is
corrected by buying the securities and releasing liquidity.
Reason (R): Such purchase and sale of securities to control credit is known as open market operations.

a) Both A and R are true and R is the b) Both A and R are true but R is not the
correct explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

(b) The Central Bank issues the currency of the country. It can be held by the public or by commercial banks.
This money is given various names. Pick the odd one out.

a) Monetary base b) Bank deposit money

c) High-powered money d) Reserve money

(c) Credit control means:

a) extension of credit only b) all of these

c) contraction of credit only d) extension and contraction of money

supply
(d) Reverse repo rate:

a) is not a policy rate b) generates interest income

c) Both generates interest income and is d) is increased to curb inflation

increased to curb inflation
(e) The central bank has several important functions. Which among the following does not help it control the
money supply?

a) bank rate b) credit creation

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 c) reserve ratios d) open market operations
(f) Given below are the functions of commercial banks. Choose the incorrect option:

a) Funds can be kept in the form of b) People prefer to keep money in banks
deposits in banks and borrowed as because banks offer to pay some
loans. interest on any deposits made.

c) It takes away the excess funds from d) Acts as a mediator between individuals
individuals or firms and supplies them or firms with excess funds
to the poor people.

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