CLASS XII ECONOMICS

SESSION 2024-25

MIND MAP ,FIVE YEARS BOARD QUESTIONSAND ANSWER,

LATE BLOOMERS AND BRIGHT ACHIVERS MATERIAL

12 DAYS FIRST SPELL INSERVICE COURSE FOR ECONOMICS

07/06/2024 TO 18/06/2024

केन्द्रीय विद्यालय संगठन

आं चवलक विक्षा एि प्रविक्षण संस्थान चंड़ीगढ़

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 ECONOMICS
CLASS - XII (2024-25)
Theory: 80 Marks 3 Hours Project: 20 Marks

Part A: Introductory Macroeconomics Marks Periods

 National Income and Related Aggregates 10 30

 Money and Banking 6 15
 Determination of Income and Employment 12 30
 Government Budget and the Economy 6 17
 Balance of Payments 6 18
40
Part B: Indian Economic Development
 Development Experience (1947-90) and Economic Reforms 12 28
since1991:
● Indian Economy on the eve of Independence
● Main features, problems and policies of agriculture (institutional
aspects and new agricultural strategy), industry (IPR 1956; SSI – role
& importance) and foreign trade.
● Economic Reforms since 1991
 Current challenges facing Indian Economy 20 50
● Human Capital Formation
● Rural development
● Employment
● Sustainable Economic Development

 Development Experience of India 8 12

Theory Paper (40+40 = 80 Marks) 40

200
Part C : Project Work

 Project Work 20 20

100

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 NATIONAL INCOME AND RELATED AGGREGATES
SUME BASIC CONCEPTS OF MACROECONOMICS CLASSIFICATION OF GOODS

FINAL GOODS:- Those goods which have crossed the boundary line of
production and ready for use by their final users.
INTERMEDIATE GOODS: Those goods which are used either for resale or for further production

Stock: It refers to that variable which is measured at a point of time.

CONSUMPTION GOODS: T h e s e goods satisfy human wants directly

CAPITAL GOODS: Such goods satisfy human wants indirectly.

Flow: It refers to that variable which is measured over a period of time.

INVESTMENT: - Investment refers to increase in the stock of capital.

DEPRECITAN:- depreciation refers to fall in the value of fixed assets due to normal wear
and tear, accidental damages and expected obsolescence.

FACTOR INCOME: It refers to the income received by factors of production

for rendering their services in the production process.
TRANSFER INCOME: It refers to the income received without rendering any
productive services in return.
NET FACTOR INCOME FROM ABROAD (NFIA)

Net factor income from abroad is the difference between

(1) Factor income earned by our residents from rest of world, and
(2) Factor income earned by nonresidents in our domestic territory
(3) NFIA =( Factor income earned by our residents from rest of world - Factor income
earned by nonresidents in our domestic territory)

NOMINAL GDP:-Nominal GDP is the market value of the final goods and services (Q)
produced within the domestic territory of a country during an accounting year, as estimated
using the current year price (P).

REAL GDP:- Real GDP is the market value of the final goods and services (Q) produced
within the domestic territory of a country during an accounting year, as estimated using the
Base year price (*P).
LIMITATION
 Distribution of income ,Composition of GDP, Non- monetary exchanges ,Externalities

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 AGGREGATES OF
NATIONAL INCOME
Aggregates based on Aggregates based on
income generated income generated by
within the country its residents within or
only outside the country

GDPMP NDPMP GDPFC NDPFC GNPMP NNPMP GNPFC NNPFC

BASIC CONVERSIONS OF NATIONAL INCOME

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 MEASUREMENT OF NATIONAL INCOME

NATIONAL INCOME

VALUE ADDED INCOME EXPENDITURE

Value addition= valu of

COE+OS+MIXED PFCE+GFCE+GDCF+NET
output- Intermediate
INCOME EXPORTS
consumption

GDPMP NDPFC=NDPMP-NIT GDPMP

NDPMP=GDPMP-DEP NNPFC=NDPFC+NFIA NNPMP=GDPMP-DEP-

CIRCULAR FLOW OF INCOME

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 Unit 2: Money and Banking
KEY TERM

 High powered money:- the currency issued by central bank (RBI) can be held by the public
or by the commercial banks.
 Demand deposits:-Demand deposits are the deposits which can be withdrawn on demand by
the depositors from banks, e.g. current account and saving account.

Types / Forms of money

 Fiat money : It is the money issued by order of the government (Notes and coins in
circulations)
 Fiduciary money :- It is the money backed with mutual trust between the payer and payee
(cheque and drafts)
 Full bodied money: - It refers to money in terms of coins whose commodity value is equal to
the money value as and when these are issued.
 Credit money:- It is the money of which money value is more than commodity value.

MONEY / CREDIT CREATION BY COMMERCIAL BANKS

Money / Credit creation is an import function of the commercial banks.

MONEY CREATION OR CREDIT CREATION - Money creation (or deposit creation or credit
creation) by the commercial banks is determined by (1) The amount of the initial fresh
deposit and (2) The Legal Reserve Ratio (LRR) – It is the minimum ratio of deposit legally
required to be kept as cash by the banks. LRR includes Cash Reserve Ratio

Money Creation = Initial Deposit x 1/LRR

Supply of
Money
Narrow Broad
Money Money

M2 M3 M4
M1
M1+savi M3+total
Currency
ngs M1 + net
held by deposits
public+ deposits time with post
demand with deposits office
deposits
with post with savings
commercial office commerc organisatio
banks savings ial banks ns
banks

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 FUNCTIONS OF THE CENTRAL BANK

1. Bank of Note Issue

2. Bankers to the Government
3. Bankers’ Bank:
4. Lender of the last Resort
5. Custodian of Foreign Exchange Reserves
6. Controller of Credit: Quantitative Control : Bank Rate, Repo Rate, Reverse Repo Rate,
Open Market Operation, Cash Reserve Ratio, Statutory Liquidity Ratio.
Qualitative Control: -
• Margin Requirement.
• Rationing of Credit.
• Direct Action.
• Moral Suasion.

FUNCTIONS OF RBI

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•
UNIT-3 DETERMINATION OF INCOME AND EMPLOYMENT

Aggregate demand : Aggregated demand means the total demand for final goods in an
economy. It also means the aggregate expenditure on final goods in an economy.

AD= C+ I + G + (X-M)
AGGREGATE SUPPLY (AS) : AS (Y) refers to flow of goods and services as planned by
the producers during an accounting year.
Consumption Function/ Propensity to consume: It is an expression which establishes the
functional relationship between consumption Expenditure(C) & the level of income(Y).
Average Propensity to Consume (APC):- APC is the ratio between total consumption and
total disposable income. APC = C/Y
Value of APC : value of APC is (i) It is never Zero (0) (ii) It is greater than Zero (0) (iii) It
can be greater than 1 if C > Y (iv) It can be 1 if Y=C .
Marginal Propensity to Consume (MPC) - It refers to the ratio of change (additional) in
Consumption and change (additional) in income. MPC = ΔC/ ΔY
Saving Function or propensity to save:- It refers to the functional relationship between S and
Y (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.
Average Propensity to Save (APS) :- APC is the ratio between Aggregate Saving and
Aggregate income. APS = S/Y
Marginal Propensity to Save (MPS) :- It refers to the ratio of change (additional) in
Saving and change (additional) in income. MPS = ΔS/ ΔY
Consumption plus Investment Approach (AS=AD ) of Equilibrium level of Income
‘Equilibrium level of income and output is that level of income or output at which ex- ante
Aggregate demand becomes equal to ex- ante Aggregate supply’ AS=AD
Effective demand:- Refers to that level of AD where AS = AD . Thus, effective demand
always corresponds to the equilibrium level of income in the economy.
INVESTMENT MULTIPLIER AND ITS MECHANISM
Investment multiplier is the ratio of a change in income (∆Y) to a given change in investment
(∆I). K = (∆Y) / (∆I)
RELATIONSHIP BETWEEN MULTIPLIER AND MPC
K= 1 / 1-MPC (K= 1/MPS)

Deficient Demand and Deflationary gap :- ‘Deficient demand (Deflationary gap) refers to
situation when Aggregate Demand is less than Aggregate Supply (AD < AS) corresponding
to full employment level in the economy’
Excess demand (Inflationary gap) : Excess demand (Inflationary gap) refers to situation when
Aggregate Demand is more than Aggregate Supply (AD > AS) corresponding to full
employment level in the economy’.

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 MINDMAP
DETERMINATION OF INCOME AND EMPLOYMENT

Equilibrium
Aggregate
Aggregate SupplyAggregate Supply
(AS) refers to the production of
Demand goods and services in the
Aggregate Demand (AD) is economy as planned by the
the sum total of demand for producersduring an accounting
all goods and services in the year.
economy during j the period
of an accounting yea r AS=C+S
Saving function is the functional
Components:function
Consumption AD = C +I+ G+
is the
relationship between saving and
(X - M) relationship between
functional
income.
consumption and income.
S = --‾c +(1-b) Y
C = ‾c + b Y

Slope of S function =MPS=

Slope of C function =MPC=
∆𝐶 ∆𝑆
𝑀𝑃𝐶 = 𝑀𝑃𝑆 =
∆𝑌 ∆𝑌

𝐶 𝑆
𝐴𝑃𝐶 = 𝐴𝑃𝑆 =
𝑌 𝑌

Always equals to one

Investment
∆Y/∆I 1/ 1-MPC 1/MPS
multiplier (K)

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 UNIT-4 GOVERNMENT BUDGET
Government Budget :- A government budget is an annual statement of estimated
receipts expenditure of the government during a financial year.

OBJECTIVES OF GOVERNMENT BUDGET

(1) Allocation/Reallocation of resources
(2) Redistribution of Income or Reduction in Income inequalities
(3) Economic Growth (GDP Growth)
(4) Economic Stability
(5) Under Deflationary Situations
(6) Balanced Regional Growth :- Employment Opportunities
Revenue Receipts: - ‘Revenue receipts are receipts that neither create any liability nor reduce
any asset’ (neither, nor) For the government. Tax revenue or non-tax revenue are revenue
receipts as they neither create any liability nor reduce any asset.
Capital Receipts: - ‘Capital receipts are those receipts of the government which either create a
liability for the government (for example - borrowings) or cause reduction in its asset (for
example disinvestment of PSU)
Capital Receipts: - ‘Capital receipts are those receipts of the government which either create
a liability for the government (for example - borrowings) or cause reduction in its asset (for
example disinvestment of PSU).
Balanced Budget: It is a budget in which estimated receipts equal estimated expenditure.
Balance budget: Government Receipts = Government.
UNBALANCED BUDGET:- (i) Surplus Budget : It is a budget in which estimated receipts
exceed estimated expenditure. Estimated government receipts > estimated government
expenditure.
(ii)Deficit Budget: It is a budget in which estimated receipts fall short of estimated
expenditure. Estimated government expenditure > estimated government receipts.
Budget Deficit
Budget deficit refers to a situation when budget expenditure of the government are greater
than the budget receipts.
Revenue Deficit:- ‘Revenue deficit refers to the excess of revenue expenditure over
revenue receipts’.
Fiscal deficit:-Fiscal deficit refers to the excess of total expenditure over
Total Receipts excluding borrowings.
Primary deficit: Primary deficit is the deference between fiscal deficit and interest.

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 MIND MAP ON GOVERNMENT BUDGET (MACRO ECONOMICS)

Revenue Account: Capital Account:

Revenue Receipts(Neither create liability nor reduce assets) Capital Receipts(Either create liability or
reduce assets)
1. Tax Revenues (Direct Taxes and Indirect taxes) 1-Borrowings
2. Non Tax Revenues 2-Recovery of loans
Revenue Expenditure(Neither create assets nor reduce liability)Capital Expenditure (Either create assets or
reduce liability)
1-Administrative Expenses 1-Expenditure on purchase
of shares
2-Social welfare expenses 2-Expenditure on buildings

Components

Government Budget

Meaning:Government Budget is a government document presenting the Government’s proposed

revenues and spending for a financial year.

Interim Union Budget: 2024-25

Objectives: Estimated Spending: Rs 47,65,768 crore
1-) Reallocation of resources, Estimated Receipts: Rs. 30,80,274 crore
2-) Reducing inequalities in income and wealth Estimated nominal GDP Growth Rate of 10.5% in
3-)Economic stability 2024-25 (RD:2% of GDP, FD:5.1% of GDP) Target
4-) Management of public enterprises
Government Budget and the Economy

Revenue Deficit:The revenue deficit refers Primary Deficit: Primary Deficit is the
to the excess of Government revenue difference between fiscal deficit and interest
expenditure over revenue receipts. payment.
Calculations: Revenue Deficit = Revenue Calculations: Primary Deficit = Fiscal Deficit –
Expenditure – Revenue Receipts interest payment

Fiscal Deficit: fiscal deficit is the difference Government’s total expenditure and its
total receipt excluding borrowings.

Calculations: Gross Fiscal Deficit = Total expenditure – (Revenue Receipts + non debt
creating capital receipts)

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 UNIT-5 BALANCE OF PAYMENT
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’.
Economic Transaction (Monetary Transactions):- (i) Export and Import of goods
(Visible trade or Merchandise)
(ii) ) Export and Import of services (Invisible trade)
(iii) Unilateral transfers (transfers payments)
(iv)Capital account
COMPONENTS OF BOP ACCOUNT
(i) Current Account
(ii) Capital Account
(iii) Official Reserves Account
Current Account: Current Account records receipt and payment of foreign exchange on
account of such transactions which do not impact asset-liability status of a country in relation
to rest of the world. Liabilities or assets of a country are neither raised nor reduced.
The components of BOP on current account are:
1) Visible items 2) Invisible items (3) Unilateral Payments
Capital Account
‘Capital account records receipts and payments of such transactions which cause an impact
on asset-liabilities status of a country in relation to rest of the world’. Liabilities or assets of
the country are either raised or reduced.

Components:- Two principal components of capital accounts:

(1) Foreign investment (2) Borrowing

Other Components of Capital account:- (3) Banking Capital (4) NRI Deposits

(5) Short- term Trade Credit.

Balance of Payments Deficit:- Deficit in the BOP occurs when payment of a country on
account of economic transactions with rest of the world exceed its receipts and consequently,
there is a decrease in official reserves.

Balance of Payments Surplus:- Surplus in the BOP occurs when receipt of a country
on account of economic transactions with rest of the world exceed its payment and
consequently, there is a increase in official reserves.

Trade Deficit: - Refers to excess of value of import of visible (goods) over value of export of
visible (goods) in the BOP of a country.

Trade Deficit = Exports of goods < Imports of goods

Trade Surplus:- Refers to excess of value of export of visible (goods) over value of
import of visible (goods) in the BOP of a country.

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 Balance of Payments
Records of transactions of country with r.o.w.
in a year

Current Account:- Capital Account:- Change in official

reserve / change in
Not affects foreign Affects foreign assets foreign exchange
assets and liabilities and liabilities reserve of RBI

Balance of
Trade=Exports of Foreign investment=
goods -Imports of FDI & FII
goods

Invisible Items
:Exports & Imports of
services like banking, External borrowigs
insurance etc. and lendings

Unilateral transfers
like gifts, grants and
donations

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 FOREIGN EXCHANGE RATE
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.
Flexible Exchange Rate:-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.

Appreciation of Domestic currency (Depreciation of Foreign currency) : Refers to the

situation when domestic currency (Rupee) appreciates in relation to a foreign currency (say
US $)
Depreciation of Domestic currency (Appreciation of Foreign currency) : Refers to the
situation when domestic currency (Rupee) depreciates in relation to a foreign currency (say
US Dollar) :
Fixed exchange rate: - Fixed Exchange Rate System refers to the system in which the rate of
exchange is determined by Government.

Revaluation of the currency: When the value of domestic currency (Rupee) has been
deliberately raised by the government.

Devaluation of the currency: When the value of domestic currency (Rupee) has been
deliberately reduced by the government.

‘Managed floating exchange rate: Managed floating exchange rate is the floating (flexible)
exchange rate which can be influenced by the intervention of central bank in the foreign
exchange market’.

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 FOREIGN EXCHANGE RATE

FIXED FLEXIBLE
MANAGED
EXCHANGE EXCHANGE
FLOATING
RATE RATE

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 INDIAN ECONOMY (1947- 1990) & NEW ECONOMIC POLICY 1991

INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

FEATURES OF INDIAN ECONOMY ON THE EVE OF INDEPENDENCE
(i) Backward economy: - In 1947-48, Per capita income in India was just Rs.230.
(ii) Agricultural backwardness: - Nearly 72% of the working population was engaged in
agriculture, but its contribution to GDP was only 50%.
(iii) Industrial backwardness: - Production of machines was almost negligible.
(iv) Stagnant economy: - Between 1860-1945, growth rate of per capita income was as a low as
0.5% per annum.
(v) Limited Urbanization:- In 1948 only 14% of population lived in urban areas .
(vi) Poor infrastructure
(vii) Colonial economy.

INDUSTRIAL SECTOR ON THE EVE OF INDEPENDENCE (Observations)

Decay (decline) of Handicrafts: - 1. Discriminatory tariff policy
2. Low priced machine made goods 3. New patterns of Demand
4. Introduction of Railways in India

Slow progress of modern industry in the domestic economy: -

1. Lack of capital goods industries
2. Some industries were established by the private entrepreneur’s
3. Lower contribution of GDP 4.Modern industrialization was very limited
5. Limited area of operation of the public sector

DEMOGRAPHIC PROFILE DURING BRITISH RULE

1. High birth rate and high death rate (48 and 40 per thousand)
2. Infant mortality rate (218 Per thousand)
3. Literacy rate (16 Per cent)
4. Life expectancy (32 Year)
5. Poor state of health facilities.

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 MIND MAP ON INDIAN ECONOMY ON THE EVE OF
INDEPENDENCE

Low level of economic More dependency

development on primary sector
occupation
structure

Backward
agriculture INDIAN ECONOMY ON THE
sector EVE OF INDEPENDENCE

State of Industry

Low Foreign trade Adverse demographic Underdeveloped

condition Infrastructure

INDIAN ECONOMY (1950- 1990)

FIVE YEAR PLANS IN INDIA: GOALS AND ACHIVEMENTS
THE GOALS OF FIVE YEAR PLANS (Long period objectives/ goals) :-
1 Growth:- It refers to increase in the country’s capacity to produce the output of goods and
services within the country.
2. Modernisation: To increase the production of goods and services the producers have to
adopt new technology.
3. Self-reliance: A nation can promote economic growth and modernization by using its
own resources or by using resources imported from other nations.
4. Equity: Now growth, modernization and self-reliance, by themselves, may not improve the
kind of life which people are living.
REFORMS IN INDIAN AGRICULTURE (AGRARIAN REFORMS) :-

1.TECHNICAL REFORMS ( GREEN REVOLUTION) [NEW AGRICULTURAL

STRATEGY] :- The Green Revolution: his refers to the large increase in production of food

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 grains resulting from the use of high yielding variety (HYV) seeds especially for wheat and
rice. As a result, in the first phase of the green revolution (approximately mid 1960s upto mid
1970s),

 Use of HVY seeds:

 Use of chemical fertilizers :-
 Use of insecticides and patricides
 Marketed surplus
 Scientific farm management practices.:

INSTITUTIONAL REFORMS (LAND REFORMS ) :- 1. Land Reforms:

2.Land ceiling (3) Regulation of rent (4) Cooperative farming

INDUSTRIAL POLICY RESOLUTION -1956(IPR 1956) :- In accordance with the goal of
the state controlling the commanding heights of the economy, the Industrial Policy
Resolution of 1956 was adopted. This resolution formed the basis of the Second Five Year
Plan, the plan which tried to build the basis for a socialist pattern of society. This resolution
classified industries into three categories.
Principal elements of IPR- 1956:-1.Three- fold classification of industries
2. Industrial license
3. Industrial concessions

INWARD LOOKING TRADE STRATEGY (STRATEGY OF IMPORT

SUBSTITUTION) :- The industrial policy that we adopted was closely related to the trade
policy. In the first seven plans, trade as characterised by what is commonly called an inward
looking trade strategy. Technically, this strategy is called import substitution. It is policy of
reliance on “ Import substitution” and protection to the domestic industry through import
restriction and import duties in the area of international trade.
Protection from imports took two forms: (i) Tariffs :- Tariffs are a tax on imported goods;
they make imported goods more expensive and discourage their use. (ii) Quotas:- Quotas
specify the quantity of goods which can be imported. The effect of tariffs and quotas is that
they restrict imports and, therefore, protect the domestic firms from foreign competition.

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 INDIAN
ECONOMY 1950-1990

ECONOMIC REFORMS SINCE 1991

LIBERALISATION
“Freedom of the economy from the direct controls imposed by the Government”
Reform under liberalization 1. INDUSTRIAL SECTOR REFORMS
2. FINANCIAL SECTOR REFORMS
3. FISCAL REFORM (Tax Reforms ‘
4. FOREIGN EXCHANGE REFORMS
PRIVATISATION: “Privatisation means partial or full ownership and management of public
sector enterprises by the private sector “It implies shedding of the ownership or management
of a government owned enterprise.
GLOBALISATION: “Globalisation is generally understood to mean integration of the
economy of the country with the world Economy” It is an outcome of the set of various
policies that are aimed at transforming the world towards greater interdependence and
integration.
Outsourcing: In outsourcing, a company hires regular service from external sources, mostly
from other countries, which was previously provided internally or from within the country
(like legal advice, computer service, advertisement, security — each provided by respective
departments of the company.
World Trade Organisation (WTO):- The WTO was founded in 1995 as the successor
organisation to the General Agreement on Trade and Tariff (GATT). GATT was established
in 1948 with 23 countries as the global trade organization to administer all multilateral trade
agreements by providing equal opportunities to all countries in the international market for
trading purposes.

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 Current challenges facing Indian Economy
HUMAN CAPITAL FORMATION IN INDIA
HUMAN CAPITAL FORMATION:- Human capital formation is the process of acquiring
and increasing the number of persons who have the skill, education and experience which are
essential for the economic ,social and political development of the country
DETERMATION/ SOURCES OF HUMAN CAPITAL FORMATION:- 1.Expenditure on
education 2.Expenditure on Health
3.On-the- job training 4. Migration 5. Expenditure on information
EDUCATION STILLS A CHALLENGING PROPOSITION (THE CHALLENGE OF
EDUCATION):- 1. Education for All Still a Distant Dream
2. Gender Equity — Better than Before
3.Higher Education — a Few Takers 4.Inadequate vocational education
5.Privatisation of education 6.Low access level of rural areas
7.Low standard of education 8.Insufficient government expenditure

Mind Map
- Expenditure on education
- Expenditure on wealth - Optimum utilization of resources
- On-the job training - Higher productivity of physical capital
- Study programmes for adults - Innovative skills
- Migration
- Changes in the outlook of the labour
- Expenditure on information
force

Role
Determinants

Human Capital Formation

Growth of Education Sector in India

Problems
*observations
- Expansion of general education
- Primary education
- Secondary education
- Higher education - Rising population
- Vocationalisation of secondary education - Brain Drain
- Technical, medical and agricultural education - Deficient manpower planning
- Rural education - Insufficient on-the-job training in
- Adult and female education primary sector
- Low academic standards
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 RURAL DEVELOPMENT
CREDIT IN RURAL AREAS: - As the time gestation between crop sowing and realisation of
income after production is quite long, farmers borrow from various sources to meet their
initial investment on seeds, fertilisers, implements and other family expenses of marriage,
death, religious ceremonies etc.
Credit needs of the farmers can be classified in to two categories: 1. According to time: -
1.Short-term credit 2.Medium-term credit 3. Long-term credit
2. According to Purpose: - 1.Productive purpose2.Unproductive purpose.
SOURCES OF RURAL CREDIT:- Institutional sources (Formal sector) 1. Cooperative credit
societies 2.Regional rural bank and Land development bank 3.Commercial bank credit
4.National bank for agricultural and rural development (NABARD 5.Self-Help Groups.
AGRICULTURAL MARKET SYSTEM:- Agricultural marketing is a process that involves
the:- (i)assembling,(ii) storage, (iii) processing, (iv)transportation, (v)packaging, (vi)grading
and (vii) distribution of different agricultural commodities across the country.
DIVERSIFICATION INTO PRODUCTIVE ACTIVITIES:- Diversification includes two
aspects – (I) Change (Diversification) in cropping pattern:- Shift from single cropping system
to multi-cropping system. and (II) Diversification of production activity :- Relates to a
shift of workforce from agriculture to other allied activities (livestock, poultry, fisheries etc.)
and non-agriculture sector.
Importance of agricultural diversification:- (i) Increase in income (ii) Stability Farm income
(iii) Beneficial to small and marginal farmer
ORGANIC FARMING AND SUSTAINABLE DEVELOPMENT
‘Organic farming is a system of farming that relies upon the use of organic inputs for
cultivation’. In recent years, awareness of the harmful effect of chemical-based fertilisers and
pesticides on our health is on a rise. Conventional agriculture relies heavily on chemical
fertilizers and toxic pesticides etc.

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 EMPLOYMENT AND UNEMPLOYMENT
UNEMPLOYMENT:-Situation when people are willing to work at the existing wage rate,
and are able to work, but are not getting work.
WORKER: - All those who are engaged in economic activities, in whatever capacity — high
or low, are workers (Those activities which contribute to the gross national product are called
economic activities).
SELF-EMPLOYED WORKERS: - Those workers who are engaged in their own business or
own profession.
HIRED WORKER: - Those workers who work for others and get wages and salaries as a
reward for their services.
CASUAL WORKERS:- Casual workers are like daily wagers, not on permanent rolls of the
employer, and not entitled to social security benefits.
REGULAR WORKERS:- Workers are hired on regular basis and are on permanent pay-roll
of their employees and are entitled to social security benefits.
LABOR SUPPLY: - amount of labor that the workers are willing to offer corresponding to
different wage rates.
LABOR FORCE:-Number of persons actually working, or willing to work at the existing
wage rate.
WORK FORCE: - Number of persons actually working, and does not account for those who
are willing to work.
JOBLESS GROWTH:- Jobless growth is a situation when the level of output in the economy
tends to rise owing to innovative technology without any perceptible rise in the level of
employment.
CASUALISATION OF WORKFORCE:-“It is refers to a situation when the percentage of
casually- hired workers in the total workforce tends to rise over time”
INFOALISATION OF WORKFORCE:- “Situation where percentage of workforce in the
formal sector tends to decline and that in the informal sector tends to rise”.
FORMAL WORKERS: - 1.Work in organized sector of the economy 2. Are entitled to social
security benefits 3.Can form trade unions 4.Are protected by various labor laws.

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Employment

ENVIRONMENTAND SUSTAINABLE ECONOMIC DEVELOPMENT

ENVIRONMENT — DEFINITION:-
‘ It includes all the biotic and abiotic factors that influence each Other’. While all living
elements — the birds, animals and plants, forests, fisheries etc.— are biotic elements, biotic
elements include air, water, land etc. Rocks and sunlight are all examples of abiotic elements
of the environment.

Problems related to Environment: -

1.Problem of pollution
2.Problem of excessive exploitation of natural resources.

Degradation of land: - “Degradation of land means loss of fertility of land”. Degradation of

land is caused by the following factors. (i)Soil erosion (ii) Water logging (iii) Deforestation
(iv) Excessive use of fertilizers.

25 | P a g e
 HOW TO SAVE ENVIRONMENT? :- 1.Social awareness 2.Population control
3.Afforestation campaign 4.Enforcement of environment conservation Act 5.Water
management 6.Management of solid waste 7.Control over industrial and agricultural
pollution 8.Improvement in housing .

SUSTAINABLE DEVELOPMENT:- “Sustainable development is that process of economic

development which aims at raising the quality of life of both present and future generations,
without harming natural resources and environment”.

STRATEGIES FOR SUSTAINABLE DEVELOPMENT:-

I. Use of Non-conventional Sources of Energy,

II. LPG, Gobar Gas in Rural Areas
III. CNG in Urban Areas
IV. Solar Power through Photovoltaic Cells
V. Mini-hydel Plants
VI. Input efficient technology
VII. Integrated rural development
VIII. Use of environment friendly sources of energy
IX. Manage the wastes
X. Shift to organic farming.
XI. Public means of transport
XII. Awareness to conserve natural assets for inter-generational equity.

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(UNIT-8) DEVELOPMENT EXPERIENCE OF INDIA
Great Leap Forward (GLF 1958) campaign of China:- 1.GLF was started in 1958 with a
view to propelling the pace of economic and industrial development 2. Which aimed at
Country’s industrialization and agriculture on a large scale 3.Chaina resorted to “Commune
System of Production” Under which people cultivated land collectively 4.Mao (Chinese
communist revolutionary) believed that both had to grow to allow to allow the other to grow
Mao introduced the Great Proletarian Cultural Revolution (1966–76) under which students
and professionals were sent to work and learn from the countryside. 5. It focused on
widespread industrialization of the economy 6.People to set-up household industry in their
backyard.
One Child policy in China:- OCP adopted by China in 1979 has been very successfully
pursued . Consequently,1. Growth rate of population has reduced to nearly half, from 1.33

27 | P a g e
 per cent in 1979 to 0.47 per cent in recent past 2. With a check on population growth, China
focus on raising the quality of life .
DEMOGRAPHIC INDICATORS:- If we look at the global population, out of every six
persons living in this world, one is an Indian and another a Chinese. We shall compare some
demographic indicators of India, China and Pakistan.
Size of population
Growth rate of population, Density of population. Sex Ratio (v) Urbanisation

Mind Map on Indian Economy on the Comparative

Development Experience of India and its Neighbors.
GROWTH STRATEGIES

Similarities
 Core Public Sector-Public Sector
 Inward looking strategy of Growth.

CHINA
 Complete ownership of resources by the State.
 Great Leap Forward Campaign
 Great Proletarian culture Revolution
 Economic Reforms were enforced in 1978

PAKISTAN
 Mixed Economy
 Nationalization of capital goods industries.
 Green Revolution
 Primary role assigned to public sector
 Secondary role assigned to private sector
 Economic reforms were enforced in 1988

INDIA
 Mixed Economy
 Sound trade system
 Green Revolution
 Focus on employment generation
 Primary role of “ Kick- Starting” assigned to Public sector
 Secondary role pushing the process of growth assigned private sector
 Economic Reforms were enforced in 1991

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 Last 5 Years
CBSE Board
Questions
with Hint
Answers

29 | P a g e
 INDIAN ECONOMIC DEVELOPMENT
Development Experience (1947-1990)
CBSE Year-2022
Q1.During India’s first seven five-year plans, the Government of India adopted policy to
protect domestic industries. (fill up the blanks with correct answer)
Ans: Import Substitution

Q) 2. First Industrial policy resolution of Independent India was announced in the year ___.
a) 1947
b) 1948
c) 1951
d) 1956
Ans: 1956

Q)3. a) State anyone positive contribution made by the British in India.

b) Indicate the solution and direction of foreign goods of India of India at the time of
Independence.
Ans: 1) Railways
2) India since in times had been a crucial centre of World trade.However, the commodity
production policies, trade and tariff pursued by the colonial government has badly affected
the structure, composition and the volume of India’s trade. In this period India became the
exporter of only primary products like raw silk, cotton, wool, sugar, jute etc. Along with this,
it became the importer of finished consumer goods like cotton, silk, woolen clothes, and
capital goods like machinery from Britain. The most important feature of the Indian foreign
trade throughout the colonial period was the generation of a large export surplus. However,
several essential commodities were in scarcity in India.

CBSE Year-2023
Q1. Which of the following is not the feature of economic policies pursued under economic
planning of India till 1991?
A) Import substitution.
b) Self Reliance
c) Unrestricted flow of foreign capital.
d) Land reforms
Ans: unrestricted flow of foreign capital.

Q2. “Despite being the main occupation of about 85% of the country’s population during
British rule, agricultural sector continued to experience stagnation”.
Briefly explain any two reasons responsible for the backwardness of Indian agriculture and
the eve of independence.
Ans:Two reasons responsible for the backwardness of Indian agriculture on the eve of
independence were:
1) Land Settlement System: The colonial government introduced the zamindari system.
Zamindars used to explain cultivators by extracting a major portion of the produce in the
form of rent leading to misery among the farmers
2) Lack of infrastructure facilities: Lack of irrigation facilities and low level of technology
contributed to the dismal level of agricultural productivity, which added up to aggravate the
plight of the farmers.

Q3. Distinguish between ‘Green revolution and Golden revolution’.

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 Ans: A significant increase in the production of agriculture products in India is termed as
golden revolution whereas green revolution refers to large scale increase in production of
food grains(like wheat, rice etc,) resulting from the use of high yielding variety seeds,
chemical fertilizers, modern sophisticated agriculture equipment etc.

CBSE Year-2024
Read the following statements:
Assertion (A) and reason (R) choose the correct alternatives given below:
Assertion (A): The excessive regulation of permit Raj prevented certain private firms from
becoming fairly competitive.
Reason (R): Private sector wasted huge amount in obtaining licences rather than on
improving the product quality and international competitiveness.
Alternatives:
(A) Both Assertion (A) and Reason (R) are true and Reason is the correct explanation of
Assertion (A)
(B) Both Assertion (A) and Reason(R) are true but Reason is not the correct explanation of
Assertion (A)
(C) Assertion (A) is true but Reason(R) is false
(D) Assertion (A) is false but Reason(R) is true
Ans: (A) Both Assertion (A) and Reason (R) are true and Reason is the correct explanation of
Assertion (A)

Q2. Elaborate the reasons owing to which the private sector was regulated under the
Industrial Policy Resolution 1956.
Ans. The Industrial Policy Resolution, 1956 regulated the private sector through a system of
licenses. This policy aimed at achieving regional equality. The Government made it relatively
easier to obtain an industrial license for industrial units to be established in economically
backward areas. Moreover, to ensure judicious use of resources wound by the private sector,
licenses were needed for expanding or diversifying output by existing industrial units

Q3.Despite the implementation of green revolution, 65% of India’s population continued to

be engaged in the agricultural sector till the 1990. Justify the given statement with valid
explanation.
Ans: Some economists are argued that green revolution did not make much impact on the
occupational structure of the country, as 65% of India’s population continued to find its
livelihood in agriculture. A major reason for this fairy large proportion of population in
agriculture sector as the industrial and service sector were not able to absorb the people
working in the agriculture sector.

Q4. State the importance of growth with equity as object of Indian economic planning.
Answer: for a nation both growth of Gross Domestic Product (GDP) and equity in
distribution of income are equally important. Growth refers to an increase in a countries
capacity to produce goods and services. Equity refers to reduction in equality of income and
wealth. Growth with the equity ensures that the fruits of economic development are enjoyed
by all sections of society equitably. Hence, achieving equitable growth is an important
objective that was taken into consideration in the Indian economic planning.

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 NEW ECONOMIC POLICY OR ECONOMIC REFORMS-1991
1. ………. And………currency notes of old Mahatma Gandhi series were band as legal tender
money on 8th November, 2016. CBSE 2020(58/3/1)
(a) Rs. 50 and Rs. 100 (b) Rs. 500 and Rs. 1000
(c) Rs. 500 and Rs. 2000 (d) Rs. 500 and Rs. 200
Ans. (b) Rs. 500 and Rs. 1000
2. India has become a preferred outsourcing destination because of ………….. .
CBSE 2021(58/1/4), Term-1)
(i) Availability of unskilled labour
(ii) Quality of IT services
(iii) Availability of skilled labour alternatives:
(a) only (i). (b) (i) and (ii).
(c) only (ii) (d). (ii) and (iii)
Ans.(d).(ii) and (iii)
3. …………Was the predecessor organisation to World Trade organisation (WTO).
CBSE 2020(58/1/1)
(a)International Bank for reconstruction and development (IBRD)
(b) International monetary fund ( IMF)
(c) Reserve Bank of India (RBI)
(d) General agreement on tariff and trade (GATT)
Ans. (d) General agreement on tariff and trade (GATT)
4. Read the following statements: Assertion (A) and Reason (R), Choose the correct alternative
given below: CBSE 2024(58/3/3)
Assertion (A): Goods and Services Tax (GST) was implemented by the Government of India
on 8th November, 2016.
Reason (R): GST was introduced to implement a unified indirect tax system in India.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
the Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation
of the Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Ans. (d) Assertion (A) is false, but Reason (R) is true.
5. Identify which of the following is not a member nation of G20.CBSE 2024(58/3/3)
(a) Argentina. (b) Australia
(c) Brazil. (d) Bangladesh
Ans. (d) Bangladesh
(II) Fill in the Blanks
Choose appropriate word and fill in the blank:
1. ..............is one of the taxes eliminated after implementation of Goods and Services Tax
(GST).CBSE 2020 (58/3/1)
Ans. Value added tax
2. World Trade Organisation (WTO) was established in 1995, as a successor organisation
to........... [CBSE 2020 (58/4/1)

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 Ans. General Agreement on Tariffs and Trade (GATT)
(III). Identify and match the correct sequence of alternatives of organisations given in
Column I with the respective functions in Column II:[CBSE 2020 (58/2/1)]
Column I Column II

A. WTO i) provides short-term loans to Balance

of Payments problem
B. RBI (ii) is a multilateral trade negotiating
C. IMF body
(iii) facilitates lending for reconstruction
D. IBRD and development
(iv) is the Central Bank of India

(Alternatives:
(a) A-(ii), B-(i), C-(iii), D-(iv).
(b) A-(ii), B-(iv), C-(iii), D-(i)
(c) A-(ii). B-(iii), C-(iv), D-(i)
(d) A-(ii), B-(iv), C-(i), D-(iii)
Ans. (d)
(IV) Answer with Reason
Read the following statements carefully. Write True or False with a reason .
1. World Bank is also known as International Bank for Registration and Delimitation (IBRD).
CBSE 2020(58/4/1)
Ans. False World Bank is also known as International Bank for Reconstruction and
Development (IBRD).
2. GATT was established in 1923 with 48 member countries. CBSE 2020(58/5/1)
Ans. False. GATT was established in 1948 with 23 member countries.
(V) Case -Study based Questions
(I) Read the following text carefully and answer the given questions on the basis of the same
and common understanding: (CBSE 2023 (58/2/1)
The stabilisation and structural adjustment measures, initiated under the 1991 “Economic
Reforms” mark a watershed moment in India’s economic policies. For almost three decades
since independence, India’s development strategy and economic policies were guided by the
objectives of accelerating the growth of output and employment with social justice and
equity.
Ever since the 1970's, it was realised that many of the regulations on economic activities have
outlived their usefulness and were in fact hampering economic growth and development. In
response to this, the government initiated some milder liberalisation reforms for almost a
decade since the early 1980's.
However, the Indian economy soon had to face the Gulf crisis and consequently:
(i) The uncertainties about the oil prices;
(ii) The external payment problems;
(iii) The serious inflationary pressures;

33 | P a g e
(iv) The scarcities of essential commodities; (v) The deterioration of fiscal discipline, etc.
These led to the Indian economy on the verge of economic crisis. In response to this
emerging crisis, the government initiated a set of stabilisation and structural reforms like:
(i) Reduction in fiscal deficit; (ii) Containment of growth in money supply; (iii) An exchange
rate adjustment system, etc.
The key objective of stabilisation policy was to bring the growth of aggregate demand in line
with long-term growth path of the economy.
In conjunction, the structural adjustment measures like; (i) industrial delicensing (ii)
liberalisation of policy regime measuring international trade (iii) deregulation of financial
sector
Were taken to improve the supply side of the economy. This shifted the long-term growth
path of the economy itself completely. (Adapted and modified)
1. Briefly outline any two reasons for the initiation of economic reforms in 1991.
Ans. Two reasons for the initiation of economic reforms were: (i) High inflationary pressure.
(ii) Mounting fiscal deficit.
2. Government introduced a set of stabilisations and structural reforms to solve the economic
crisis. State the key initiatives and objectives of these policies adopted by the Government of
India.
Ans. In response to the economic crisis, Government of India initiated a set of:
(i) Stabilisation measures like reduction in fiscal deficit, containment of growth in
money supply, etc.
ii) Structural reforms such as industrial delicensing, deregulation of financial sector,
etc. The key objective of such policies was to bring the growth of aggregate demand in
line with long-term growth path of the economy.
Il. Read the following text carefully and answer the given questions on the basis of the
same and common understanding: [CBSE 2023 (58/5/1)
India urged the World Trade Organization (WTO) to relax rules to allow the country to
export food grains from its public stocks to the nations facing food crises. India can help,
reduce food insecurity but there is hesitation on the part of the WTO, in relaxing its rules.
India’s Finance Minister said food, fuel and fertilisers are global public goods and ensuring
access of these for developing and emerging economies is critical.
She also shared India’s experiences, including robust gains in agriculture production, citizen
centric food security programmes and innovative delivery mechanisms such as the ‘One
Nation One Ration Card’ Scheme.
Source: The Economic Times; July 16, 2022
1. State and discuss any two objectives of World Trade Organisation.
Ans. Two objectives of World Trade Organisation (WTO) are:
(i) It helps in providing greater market access to all member countries as it provides equal
opportunities to all countries in the international market.
(ii) It facilitates bilateral and multilateral trade by removing tariff and non-tariff barriers.
2. Name any two steps taken by India to strengthen the food security.
Ans. Two steps taken by India to strengthen food security are:
(i) Robust gains in agriculture production.
(ii) Citizen-centric food security programme.
(VI) Very Short Answer Type Questions

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 1. Define privatisation.
Or
State the meaning of ‘Privatisation’. [CBSE 2023 (58 5/1)}
Ans. Privatisation is the process of involving the private sector in the ownership or operation
of state-owned enterprises.
2. Name any one Maharatna company. [CBSE 2020(58/2/1)]
Ans. Indian Oil Corporation Limited.
3. Name any one Navratna company.[CBSE 2020(58/2/2)
Ans. Maha Nagar Telephone Nigam Limited.
4. Define multilateral trade.[CBSE 2023 (58 1/1)]
Ans. Multilateral trade refers to exchange of goods and services between more than two
nations.
5. State any one outcome of implementation of Economic Reforms in India in 1991.
[CBSE 2020 (58/1/1)]
Ans. Private foreign investment has taken a quantum jump after the adoption of economic
reforms in 1991. Consequently, production activity has risen in the domestic economy,
leading to a spike in GDP growth rate.
(VII) Long Answer Type Questions .
1. Discuss briefly any two major steps taken by the Government of India on ‘Financial Sector’
front under the economic reforms of 1991.
[CBSE 2020 (58/5/1)]
Or
Discuss any two liberalisation measures pertaining to the financial sector, introduced by the
Government of India during the economic reform process of 1991.
[CBSE 2023 (58/4/1)]
Ans. Financial sector includes: (i) banking and non-banking financial institutions, (ii) stock
exchange market, and (iii) foreign exchange market.
In India, financial sector is regulated and controlled by the Reserve Bank of India (RBI).
Liberalisation implied a substantial shift in the role of the RBI from ‘a regulator’ to ‘a
facilitator’ of the financial sector.
As aregulator (prior to liberalisation), the RBI would itself fix interest rate structure for the
commercial banks. But as a facilitator (after liberalisation), | the RBI would only facilitate the
free play of the market forces and leave it to the commercial to decide their interest rate
structure,Now competition (rather than control) rules the decision-making Process.
2. “India is often called as outsourcing destination of the world.” Discuss the prime reasons for
this name given to India.
[CBSE 2020 (58/1/1), (58/3/1), (58/4/1)]
Ans. Ans. India has the following advantages which makes it a favourite outsourcing
destination: (i) India offers an abundant supply of labour at a low wage rate, and
(ii) India has achieved a revolutionary breakthrough in the IT industry, which is the basic
ingredient of outsourcing.
3. Distinguish between:
(a) Tariff and non-tariff barriers. [CBSE 2020 (58/4 2)]
(b) Bilateral and multilateral trade. [CBSE 2020 (58/4/2), 2023 (58/4/1)]

35 | P a g e
Ans. (i) Bilateral and Multilateral Trade: Bilateral trade agreements refer to trade agreements
between the two trading countries. Multilateral trade agreements, on the other hand, refer to
trade agreements among many countries of the world.
(ii) Tariff and Non-tariff Barriers: Tariff barriers refer to barriers on imports through high
import duty. Whereas, non-tariff barriers generally refer to quota-barriers, implying
quantitative restrictions on imports (or restrictions on the quantum of imports).
4. ‘Agriculture sector has been adversely affected by the economic reform process.'
Comment. [CBSE 2020 (58/3/1), 2023 (58/5/1)
Or
“Some economists believe that the economic reforms have adversely affected the agriculture
sector in India.”
Do you agree with the given statement? Justify your answer with valid reason.
[CBSE 2020 (58/4/3)
Or
“Many economists believe that the economic reforms process of 1991 had adversely affected
the agricultural sector." Do you agree with the given statement? Quote valid arguments in
favour of your answer. [CBSE 2023 (58/3/1)]
Ans. Investment in agriculture sector, particularly in infrastructure (including irrigation,
power, roads, etc.), has fallen in the reform period. The withdrawal of fertilizer subsidy has
led to increase in the cost of production, which has severely affected the small and marginal
farmers . The agriculture sector has been experiencing a number of policy changes such as
reduction in import duties on agricultural products, removal of minimum support price, lifting
of quantitative restrictions on agricultural products, etc. These have adversely affected Indian
farmers as they now have to face increased international competition.
5. Explain the reasons why the industrial sector has performed poorly in the reform period.
[CBSE 2023 (58/4/1)
Ans. Following are the principal reasons for the poor performance of the industrial sector
during the reform period:
(i) Lack of domestic demand owing to low level of income.
(ii) Lack of external demand owing to low competitiveness of the Indian products in the
international market.
(iii) Reform period witnessed a free flow of the international goods, particularly Chinese
goods Being relatively cheaper these goods swallowed the bulk of domestic market.
(iv) FDI has not expanded to the extent desired, owing to: (a) lack of infrastructural facilities,
(b) red-tapism, and (c) stiff labour laws.

6. Describe any two purposes for the founding of World Trade Organisation (WTO) in 1995.
CBSE 2024 (58/3/3)
Ans. World Trade Organisation (WTO) was founded in 1995 to:
(i) Administer all multilateral trade agreements by providing equal opportunities to all
countries in the international market for trading purposes.
(ii) Establish a rule-based trading regime in which nations cannot place arbitrary restrictions
on trade. (Any other valid purpose to be awarded marks)
7.“Navratna policy has facilitated the maintenance, promotion and disinvestment of Public
Sector Undertakings (PSUs).” Justify the given statement with valid explanation.

36 | P a g e
 CBSE 2024 (58/3/3)
Ans. In the post-reform period, Government of India devised Navratna Policy for Public
Sector Undertakings (PSUs) with an objective to improve efficiency, infuse professionalism
and enable them to compete more effectively in the liberalised global environment. Under
this policy, the government partly disinvested some PSUs. However, some PSUs were
granted greater managerial and operational autonomy and allowed PSUs to raise resources by
themselves from financial markets.

HUMANCAPITALFORMATION
OBJECTIVE TYPE QUESTIONS (1 MARKS)
Q1. The stock of skill and expertise of a nation at a point of time is called:
(a) Human development (b) Human capital (c) Financial Capital (d) Human resource
Ans. (b) Human capital[CBSE 2020]
Q2. The Right to Education Act makes education accessible to which of the following age
groups?
(a) 6-10 years (b) 0-14 years (c) 6-14 years (d) 10-14 years
Ans (c) 6-14 years [ CBSE 2020]
Q3. Identify the correct statement in context of human capital.
(a)A human capital is intangible in nature (b)human capital is perfectly mobile
(c)human capital is inseparable from its owner(d )human capital cannot be sold like a
commodity in the market
Ans. (b) Human capital is perfectly mobile [ CBSE Term-12021]
Q4.MS. Raman Preet has started a new business venture. See intends to spend huge amount
towards on-the-job training of her workers before putting them to work. It exhibits the right
step in the direction of human capital formation. Spot which of the following does not
directly contribute to the process of human capital formation by MS Raman Preet?
(a) Ads skill and expertise (b) improves efficiency (c) ensure gender equality (d)increases
output productivity
Ans. (C) ensure gender equality [ CBSE Term-12021]
Q5. In India which of the following institutions regulate the health sector?
(a) NCERT (UGC ) (c) ICMR (d) AIIMS
Ans. (c) ICMR [CBSE-2022]
Q6.Benefits of physical capital accrues only to private entities where as human capital
provides private as well as........benefits.
(a) Profitable (b)Social (c) fiscal (d)Monitory
Ans. (b) Social [CBSE-2023]
Q7.Investment on skill, expertise and knowledge of people in a nation is referred to
as…………
(a) Physical capital (b) Financial capital (c) Human capital Formation
(d) Working capital
Ans: (c)Human capital formation
Q8.The government expenditure on education can be expressed in which of the following
terms?
a) percentage of GDP
b) percentage of national income

37 | P a g e
 c) percentage of total government expenditure
d) both a and c
Ans: d) both a and c[CBSE SQP 2023]

Q9. Read the following statements carefully:

Statement 1: On-the-job training helps to bridge a gap between theoretical concepts and
practical experiences.
Statement 2: On-the-job training updates the employees, with the latest changes in their work
field.
In the light of the given statements, choose the correct alternative:
(a) Statement 1 is true and statement 2 is false
(b) Statement 1 is false and statement 2 is true
(c) Both statements 1 and 2 are true
(d) Both statements 1 and 2 are false
Ans: (b) Statement 1 is false and statement 2 is true [CBSE SQP 2022]

Q10. Given below are two statements.

Statement 1-Government of India adopted 'Trickle down Approach' to alleviate poverty to
benefit the last man at the bottom of the pyramid. Empirical data
Statement 2: over the years have shown that trickle-down theory did not yield desired results
in India.
Choose the correct option:
(a) Statement 1 is true and statement 2 is false
(b) Statement 1 is false and statement 2 is true
(c) Both statements 1 and 2 are true
(d) Both statements 1 and 2 are false
Ans: (c) Both statements 1 and 2 are true[CBSE SQP 2023]

Q11. The Education Commission (1964-66) had recommended that at least ......percent of
GDP should be spent on education.
(α) 5
(b) 6
(c) 4
(d) 10
Ans. (b) 6% [CBSE 2020]

Q12. Which of the following in not associated with the human capital formation?
(a) Human capital formation increases the productivity of physical capital
(b) Education is an important factor in human capital formation
(c) Human capital formation is same as human development
(d) Information will lead to better utilization of human resources. [CBSE Term-1 2021]
Ans: (c) Human capital formation is same as human development

Q13. Assertion (A):Human capital treats human beings as a means to an end (increase in
productivity).
Reason(R)Human capital formation decreases by way of investments in education and health.
Ans: Assertion A is true but Reason R is false. [CBSE SQP Term-1 2021]

Q14. When was National Knowledge Commission constituted in India?

a) 2006 b)2004 c) 2001 d) 2005
Ans: d) 2005 [CBSE 2020]

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Q15. Identify, which of the following are associated with the problem of human capital
formation in India?
(i) Brain drain
(ii) Low academic standards
(iii) Rising population
(iv) Changes in social outlook
Alternatives:
(a) (i) and (ii)(b) (ii) and (ii)(c) (i), (ii) and (iii)(d) (i) and (iv)
Ans:(c) (i), (ii) and (iii) [CBSE 2023]

Q16. Read the following statements carefully:

Statement 1: Economic growth means the increase in real national income of a country.
Statement 2: Human capital formation and Human development are one and the same
concepts.
In light of the given statements, choose the correct alternative from the following:
(a) Statement 1 is true and Statement 2 is false
(b) Statement 1 is false and Statement 2 is true
(c) Both statements 1 and 2 are true
(d) Both statements 1 and 2 are false
Ans: (a) Statement 1 is true and Statement 2 is false [CBSE 2023]

Q17.Read the following statements carefully:

Statement 1: 'Liberty indicators' measure the extent of constitutional protection given to the
citizens.
Statement 2: India provides fair constitutional protection to its citizens.
In light of the given statements, choose the correct alternative from the following:
(a) Statement 1 is true and Statement 2 is false
(b) Statement 1 is false and Statement 2 is true
(c) Both statements 1 and 2 are true
(d) Both statements 1 and 2 are false
Ans: (c) Both statements 1 and 2 are true [CBSE 2023]

Q18. Identify which of the following does not reflect a direct relationship between human cap
formation and economic growth.
(Choose the correct alternative)
(a) Employability of an educated person is higher than that of an uneducated person
(b) On-the-job training will reduce the skills of labour
(c) Healthy workforce is a boon to the economy
(d) Digital information helps in taking real time decisions
Ans: (b) On-the-job training will reduce the skills of labour [CBSE 2023]

Q19. 22. Skill India' programme launched by the Government is not an attempt to increase
………….in India.
(a) human capital formation
(b) efficient utilization of inputs
(c) increase in GDP
(d) inadequate spread of vocational education
Ans: (d) inadequate spread of vocational education[CBSE 2023]

SHORT AND LONG ANSWER TYPE QUESTION (3,4 & 6 Marks)

Q1.Explain how does ‘Investment in human capital’ contributes to growth of an

39 | P a g e
economy. [CBSE2020]
(OR) Examine the role of education in the economic development of a nation.
(OR) "Education plays a significant role in economic development'. Discuss.
Ans: Education is an important source of human capital formation. Investment in education
stimulates economic development in the following ways:
a)Raises production- Knowledgeable and skilled workers can make better use of resources at
their disposal. It will increase production in the economy. An educatedand trained person can
apply his knowledge and skill at farm, factory and office to increase production.
b) Raises efficiency and productivity- Investment in education increases efficiency and
productivity, and hence yields higher income to the people.
c)Brings positive changes in outlook and attitudes. - Knowledgeable and skilled people have
modem outlook and attitudes, that they make rational choice in respect of places and jobs.
d)Improves quality of life. Education improves quality of life as it provides better job, high
income and improves health. It results in better standard of living.

Q2. ‘Economists believe that India should spend at least 6% of its GDP on Education for
achieving desired results. ‘Justify the statement with valid reason. [CBSE 2020]
Ans: Education Commission (1964–66) had recommended that at least 6 per cent of GDP be
spent on education so as to make a noticeable rate of growth in educational achievements.
Compared to this desired level of education expenditure of around 6 per cent of GDP, the
current level of a little over 4 per cent has been quite inadequate. In principle, a goal of 6
percent needs to be reached—this has been accepted as a must for the coming years. In 2009,
the Government of India enacted the Right of Children to Free and Compulsory Education
Act to make free education a fundamental right of all children in the age group of 6-14 years.
Government of India has also started levying a 2 per cent ‘education cess’ on all Union
taxes. The revenues from education cess have been earmarked for spending on elementary
education. In addition to this, the government sanctions a large outlay for the promotion of
higher education and new loan schemes for students to pursue higher education. Thus, our
performance in the area of education has been far from satisfactory.

Q3. Bring out the need for on-the-job-training for an Employee.(CBSE 2020)
Ans: Technical training adds to the capacity of the people to produce more. Firms given on-
the-job- training to enhance the productive skills of the workers so as to enable them to
absorb new technologies and modem ideas. It can be given in two forms:
a) The workers may be trained in the firm itself under the assistance of a senior and
experienced worker.
b) The workers may be sent off the firm campus for the training.

Q4. What do you mean by human capital formation? What are the sources of human capital
formation?[CBSE2022]
Answer: Meaning of Human Capital formation: Human capital formation means the
development of abilities and skills among the population of the country.
Sources of Human Capital Formation:
1) Expenditure on education: It is one of the most important sources of human capital
Formation. Proper utility of man power depends on the system of education, training and
experience of the people.
2)Expenditure on Health: Health is an important input for a development of a nation.

40 | P a g e
Provision of clean drinking water and good sanitation is very important for improvement of
health. Health expenditure directly increases the physical capacity of human being.
3) On the job training: productivity of physical capital is substantially increased with the
improvement in human capital. Due to this reason many firms provide on the job training to
their workers.
4)Expenditure on migration: - people migrate to one place to another that gives them higher
salaries. Hence it is a source of human capital formation.
5) Expenditure on Information: - Expenditure is incurred to acquire information relating to
labour market and other market. It involves amount spent on seeking information about
educational institutions, education standard their educational needs and cost of education.

Q6. “Human capital formation gives birth to innovation, invention and technological
improvement” Do you agree with the given statement? Support your answer with valid
argument. [CBSE2022]
Answer: The given statement is correct.
Human capital formation not only increase the productivity of available human resources but
also stimulates innovation and creates ability to adopt new technology.
Investment in education creates ability to adopt newer technology, facilitates invention and
innovation since educated workforce generally adapts to modern technologies and
innovation.

Q7. Distinguish between human capital and physical capital. [CBSE 2023]
Answer:
Physical capital Human capital
(i) Physical capital refers to the produced (i) Human capital refers to the stock of 'skill
means of production. and expertise of a nation at a point of time.

(ii) Physical capital is tangible, and can be (ii) Human capital is intangible, it cannot be
sold in the market like any commodity. sold in the market like a commodity.

(i) Physical capital separable from owner, (iii) Human capital is inseparable from its
therefore, presence of owner is not essential owner; therefore, it is essential that the
in the place of production. owner be present at the place where the
services are being sold.

Q8. Expenditure on on-the-job training is an important means of human capital formation in

an economy. Give valid reasons to justify the given statement.[CBSE 2023]
Ans: On-the-job-training helps workers to sharpen their specialised skills. It enables them to
raise the level of their efficiency/productivity. Firms are always inclined to undertake 'on-the
job- training' programmes. Because, returns (on account of enhanced productivity) far
exceed the cost of such programmes. Expenditure on such training programmes, therefore, is
yet another important determinant (and a source) of human capital formation.

Q9. Distinguish between Human capital and Human Development.[CBSE 2023]

Ans: The differences between human capital and human development are as follow:
Human capital is a means to an end. Human capital is a means in the sense that it consists of
'skills' as used in the process of production. It consists of 'know-how', abilities and expertise
41 | P a g e
 used as inputs in the production activity.
Human development, on the other hand, is an end itself. It refers to development of the
individuals as valuable personalities by acquiring good education and attaining good health.
Human development occurs when more and more individuals in a society are educated,
healthy and skill-oriented.

Q10. “National Education Policy 2020 of India stresses a lot on in-service teachers' training.”
In the light of the given statement, state and explain any two advantages of such on-the-job
trainings in upliftment of education sector of any nation.[CBSE 2024]
Ans. On-the-job training of teachers is important for the upliftment of the education
sector of any nation:
• As an important source of human capital formation, such trainings help to bridge the
gap between theoretical concepts and practical experiences. This enables teachers to
adapt to latest technologies.
• It enhances the professional skills of teachers by updating them about changing
teaching pedagogies.

Q11.What are the main problems of human capital formation in India? [CBSE TERM-2 2021]
Answer The various problems of human capital formation are:
i) Insufficient resources
ii) Inefficiencies.
iii)Brain Drain
iv)High growth of population
v) Lack of proper manpower planning.
vi) Weak science and technology`

Q12.State with valid reasons whether, the following statements are true or false:[CBSE 2023]
(a) "Higher productivity and production are the outcome of investment in human resources."
(b) Rising population is not the cause for quality of human capital formation.
Ans: (a) True. Investment in human resource stimulates innovation and creates ability to
absorb new technology. Technical skills acquired through sources of human capital formation
such as education, training and sound health, etc., helps labour supply to make better use of
given resources. Hence, productivity and production increases.
(b) False. Rapid rise in population adversely affects the quality of human capital. It reduces per
head availability of existing facilities that results in a fall in quality of life. In turn, this leads
to a reduction in the capacity to acquire specialized skills and knowledge.

--------------------------------------------------------------------------------------------------------------

Rural Development

1. Which of the following is not an objective of Regulated Agricultural Market ?

CBSE 2024 (58/3/1)
(i) To discourage improvement of marketing infrastructure for farmers
(ii) To make marketing systems efficient and effective for farmers to get best price their products
(iii) To discourage farmers to improve the quality and quantity of their produce
Ans. (i) and (iii)

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 2. Production of varied forms of crops against one specialised crop is called diversification of
…………… (Choose correct option) CBSE 2024 (58/3/1)
(i) Sectoral occupation
(ii) Employment structure
(iii) Crops
(iv) Industrial production
Ans. (iii) Crops

3. Micro Credit programmes play a vital role in ensuring an overall development of the rural
economy as they …….. (Choose the correct alternative) CBSE 2023 (58/1/1)
(i) Provide financial support
(ii) Lead to women empowerment
(iii) Enhance the reach of formal credit system
(iv) All the above
Ans. (iv) All the above

4. ………….. revolution was the harbinger of major changes in the credit system as it led to
diversification of the portfolio of rural credit towards production oriented lending. (choose
correct alternative) CBSE 2023 (58/1/1)
(i) White , (ii) Silver , (iii) Blue , (iv) Green
Ans. (iv) Green

5. ………….. a process which includes all the activities from sowing till the sale of the final
product in the market (Choose the correct alternative) CBSE 2023 (58/2/1)
(i) Rural Development , (ii) Agricultural diversification,
(iii) Organic farming, (iv) Agricultural Marketing
Ans. (iv) Agricultural Marketing

6. …………… have emerged as an important micro finance system and led to women
empowerment. (choose the correct alternative) CBSE 2023 (58/2/1)
(i) NABARD ,(ii) Self help group ,
(ii) Commercial Banks , (iv) Land development Banks
Ans. (ii) Self help group

7. Mention any one advantage of Organic farming. CBSE(outside) 2020

Ans. It is environment friendly farming system and helps to promote sustainable
development.

8. Name the apex institution for rural financing in India. CBSE (outside) 2020
Ans. NABARD

9. Which of the following is not an advantage of organic farming ? (Choose the correct
alternative) CBSE 2019 (58/2/1)
(A) Cheap inputs (B) Attractive returns on investment,
(C) Greater possibilities for import (D) High nutritional value
Ans. (C) Greater possibilities for import

43 | P a g e
 10. Distress sale refers to the situation when the farmers are compelled to sell their produce
immediately after the harvest , irrespective of the prevailing market price. TRUE /FALSE?
Ans. True

11. State the meaning of Cooperative Marketing. CBSE 2019 (58/3/1)

Ans. It refers to organisations of the producers to sell their produce collectively with a view
to avoid commission of middlemen between sellers & buyers and maximise gains through
large scale sales

12. State the meaning of Agricultural Marketing. CBSE 2020 (58/2/1)

Ans. It is defined as the process that comprises all operations like gathering the produce ,
processing, grading , packaging , storing etc , involved in the movement of farm produce
from the producer to the ultimate consumer.

13. Define Self-help groups (SHGs) CBSE 2021 (58/3/1)

Ans. SHGs are the groups that promote saving-habits (thrift) among rural household. Small
savings are mobilised by the SHGs and are offered as credit to its different members
depending on their need.

14. State the meaning of the term ‘Livestock’ CBSE 2022(58/2/1)

Ans. It refers to farm animals raised to produce food and fibre for the market Eg. Poultry ,
Cattle and Goats/sheep.

15. State the meaning of White Revolution. CBSE 2023 (58/2/2)

Ans. The revolution associated with a surge in the production of milk and also known as
Operation Flood

16. State and elaborate whether the following statements are TRUE or FALSE with valid
arguments :CBSE 2023 (58/1/1)
(i) In recent past GOI has taken crucial steps , like Jan-Dhan Yojana , for efficient allocation of
financial resources
(ii) Cooperatives play a vital role in the credit availability in rural India
Ans. (i) TRUE. The schemes implemented by GOI has promoted thrift habits and efficient
allocation of financial resources. Formal banking system has been benefitted by mobilization
of a substantial amount under these Yojanas
Ans. (ii) TRUE. They offer accessible financial services to the farmers and small
businessmen bridging gaps left by formal banking institutions. With lower transaction costs ,
resource pulling and risk sharing , they provide vital credit support , empowering rural
communities and fostering economic growth

17. Elaborate how a well – structured “Agricultural Marketing System “ helps the farmers to
increase their income . CBSE 2023 (58/3/1)
Ans. (i) Orderly and transparent marketing conditions facilitate sale
(ii) Provision of better infrastructural facilities like Cold storage, warehouses prevent distress sale
(iii) Developed marketing system protects farmers from the exploitation of middlemen

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 18. State the importance of Rural Banking in an economy like India CBSE 2022 (58/2/1)
Ans. Rural Banking ensures (i) availability of credit to farmers , (ii) Provision of loan to
rural population for productive need at cheap rate of interest.

19. Critically evaluate the role of rural banking system in the process of rural development in
India. (Hint. Both advantages & deficiencies of formal sector credit) CBSE 2019 (58/1/1)

20. A well-structured agricultural credit system is important for the development of rural sector.
Comment. CBSE 2023 (58/1/1)
Ans. It is very essential as it ensures
(i) Availability of adequate credit to the farmers
(ii) Provision of loans to rural population for productive needs
(iii) Increase in rural farm and non-farm activities leading to employment , output & income

21. “Recently GOI has taken numerous steps towards increasing farmer’s income through
agricultural diversification “ . CBSE 2024 (58/1/1)
In the light of above statement, explain any two advantages of diversification in agriculture.
Ans. Agricultural diversification helps in increasing famers’ income as (i) diversification
reduces the risk of agricultural activity & provides sustainable livelihood options to the rural
people and (ii) expansion into other sector provides supplementary gainful employment
during the off season.

22. “The Prime Minister urged to increase the rural income by increasing non-farm activities.”
Explain how non-farm activities can lead to rise in income of people in rural sector. CBSE
2024 (58/2/1)
Ans. Animal Husbandry (livestock farming) creates employment outside agriculture.
Specially helps in increasing income of small and marginal farmers and useful in the areas
where there is lesser scope of crop farming. Dairy sector and meat , eggs, wool & other by
products are also important productive sectors. There is urgent need to bring new technology
for promotion of good breeds of animals to enhance productivity.
Fisheries (inland & marine) is also an important source of livelihood outside agriculture
specially in a country like India. Credit facilities and upgraded fishing technology need to be
made available to the backward fishing community in India.
Horticulture (fruits, flowers etc) is another alternative source of employment . It reduces
economic vulnerability of the people and opens up new avenues of employment

23. “Organic farming is the need of the hour to promote sustainable development but, has its own
limitations”. Elaborate any two advantages and limitations each of Organic farming in the
light of the above statement. CBSE 2019 (58/1/1)
Ans. Advantages :Organic farming focuses on ‘soil health’ through the use of animal
manures and composts. It promotes sustainable development by maintaining soil fertility over
a long period of time. It is an environment friendly farming system
Disadvantages : It is beneficial for those countries where there is a huge stock of cattle
population as it depend on cattle manure as a significant farm input. Organic product has
shorter shelf-life also. It is beneficial only for the areas where labour supply is in abundance

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24. Distinguish between ‘Green Revolution’ and Golden Revolution’ CBSE 2022 (58/2/1)
Ans. GR refers to a revolutionary rise in agricultural production and productivity owing to up
gradation of technology . Golden Revolution refers to a revolutionary rise in production of
horticulture crops and honey owing to technology transformation.

25. ‘IT plays a very significant role in achieving sustainable development and food security’.
Comment. CBSE 2021 (58/1/1)
Ans. IT is an alternative source of employment for the educated youth even in rural areas. It
reduces their dependence upon conventional source of lively hood which is extremely
overcrowded. It helps in weather prediction and forecasting to bring certainty in farm
production.

EMPLOYMENT

1. Q. ‘‘Google in India has hired 4000 graduate students.’’ (CBSE2024) 1

The given statement deals with formal sector/informal sector employment.
Ans: Formal sector

2. Q. In which of the following type of unemployment, is the marginal productivity 1

of the worker zero? (Choose the correct alternative) (CBSE2020)

(A) Structural unemployment

(B) Involuntary unemployment
(C) Seasonal unemployment
(D) Disguised unemployment
Answer: (D) Disguised unemployment

3. Q. State the meaning of ‘Worker Population Ratio’. (CBSE2022) 1

Ans. Worker Population Ratio is defined as total number of workers in a country
divided by population. (In percentage).

4. Q. “Skill India” programme launched by the Government is not an attempt to 1

increase_______________________ in India. (Choose the correct alternative to
fill up the blank)(CBSE2024)
(a) human capital formation
(b) efficient utilisation of inputs
(c) increase in GDP growth
(d) inadequate spread of vocational education
Ans. (d) inadequate spread of vocational education

5. Q. Workers who are on the permanent pay-roll of their employer are 1

called___________ workers. (Choose the correct alternative to fill up the blank)
(CBSE2023)
(a) self-employed
(b) casual
(c) regular

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 (d) hired
Ans. (c) regular

6. Q. Jobless growth leads to unemployment because _____________________. 1

(Choose the correct alternative to fill up the blank)(cbse2023)
(a) Labour refuses to migrate
(b) Labour is very expensive
(c) Growth rate is low
(d) Growth is due to technological development
Ans. (d) Growth is due to technological development.

7. Q. An arrangement in which a worker uses his own resources to make a living is 1

known as ________________________ employment. (Choose the correct
alternative to fill up the blank) (CBSE2023)
(a) Self
(b) Regular-salaried
(c) Casual
(d) Wage
Ans. (a) Self
8. Q. Rohan, the owner of a land, grows only two crops in a year. He works for 8-9 1
months and for the rest of the year he remains unemployed.
In the remaining part of the year, Rohan faces __________ unemployment.
(Choose the correct alternative to fill up the blank) (CBSE2023)
(a) Disguised
(b) Seasonal
(c) Frictional
(d) Cyclical
Ans. (b) Seasonal

9. Q. Define Casual Wage Labourer. (CBSE2024) 1

Ans. A casual wage labourer is a person who is casually engaged in others’ farm
or non farm enterprises and, in return, receives wages according to the terms of
the daily or periodic work contract.

10. Q. Identify, which of the following is the correct formula for calculating Worker- 1
Population Ratio"? (Choose the correct alternative) (CBSE2024)
(𝑎) 𝑇𝑜𝑡𝑎𝑙𝑙𝑎𝑏𝑜𝑢𝑟𝑓𝑜𝑟𝑐𝑒 / 𝑇𝑜𝑡𝑎𝑙𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛𝑋 100
(b)𝑇𝑜𝑡𝑎𝑙𝑊𝑜𝑟𝑘𝑒𝑟𝑠 /𝑇𝑜𝑡𝑎𝑙𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛𝑋 100
(c)𝑇𝑜𝑡𝑎𝑙𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 /𝑇𝑜𝑡𝑎𝑙𝑙𝑎𝑏𝑜𝑢𝑟𝑓𝑜𝑟𝑐𝑒𝑋 100
(d)𝑇𝑜𝑡𝑎𝑙𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 /𝑇𝑜𝑡𝑎𝑙𝑊𝑜𝑟𝑘𝑒𝑟𝑠𝑋 100

Ans. (b)𝑻𝒐𝒕𝒂𝒍𝑾𝒐𝒓𝒌𝒆𝒓𝒔/ 𝑻𝒐𝒕𝒂𝒍𝒑𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏𝑿𝟏𝟎𝟎

11. Q. Read the following statements carefully: (CBSE2024) 1
Statement 1: As per the National Sample Survey Organization (NSSO),
unemployment is a situation in which all those who, owing to lack of work, are
not working, but are seeking work from prospective employers. They express their
willingness/availability to work under the prevailing conditions of work and
remuneration.
Statement 2: Disguised Unemployment is generally a massive problem in a highly
populated country like India.
In the light of the given statements, choose the correct alternative from the

47 | P a g e
 following :
(A) Statement 1 is true and Statement 2 is false.
(B) Statement 1 is false and Statement 2 is true.
(C) Both Statements 1 and 2 are true.
(D) Both Statements 1 and 2 are false.
Ans. (C) Both Statements 1 and 2 are true.

12. Q. Read the following statements carefully: (CBSE2024) 1

Statement 1: Casual workers are hired on a permanent basis and also get social
security benefits.
Statement 2: Workforce comprises, both employed and unemployed person.
In the light of the given statements, choose the correct alternative from the
following:
(A) Statement 1 is true and Statement 2 is false.
(B) Statement 1 is false and Statement 2 is true.
(C) Both Statements 1 and 2 are true.
(D) Both Statements 1 and 2 are false.
Ans. (D) Both Statements 1 and 2 are false.
13. Q. From the type of workers given in Column I, identify the correct nature of 1
work in Column II: (CBSE2024)
Column I Column II

1. Cement shop owner (i) Regular salaried

2. Construction worker (ii) Casual wage workers

3. Civil engineer (iii) Self-employed

(A) 1-(i); 2-(ii); 3-(iii)

(B) 1-(ii); 2-(i); 3-(iii)
(C) 1-(iii); 2-(ii); 3-(i)
(D) 1-(iii); 2-(i); 3-(ii)

Ans. (C) 1-(iii); 2-(ii); 3-(i)

14. Q. Read the following statements: Assertion (A) and Reason (R). Choose the 1
correct alternative from those given below: (CBSE2024)
Assertion (A): In the recent past, Indian economy has been facing the problem of
jobless growth.
Reason (R): Jobless growth refers to a situation where an economy is able to
produce more goods and services without generating additional employment.
Alternatives:
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct
explanation of Assertion (A).
(C)Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true.
Ans. (B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the
correct explanation of Assertion (A).

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15. Q. Read the following statements: Assertion (A) and Reason (R). Choose the 1
correct alternative given below. (CBSE2024)
Assertion (A): The nature of unemployment problem in India is multi-faceted.
Reason (R): Worker-Population ratio is an indicator used for analysing the
employment situation in a country.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of the Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct
explanation of the Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Ans. (b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the
correct explanation of Assertion (A).
16. Q. Distinguish between Voluntary unemployment and Involuntary unemployment. 2
(CBSE2022)
Ans. Voluntary unemployment refers to a situation where an able-bodied person is
not willing to work at the prevailing wage rate.
Whereas, Involuntary unemployment refers to a situation where an able-bodied
person who is willing to work at the prevailing wage rate, is not getting work.
(there may be any other relevant point/definition )

17. Q. “Amita is a regular worker in a private firm that employs twelve hired 2
workers.”Is she working in the formal/informal sector? Give valid reasons in
support of your answer. (CBSE2024)
Ans. Amita is working in the formal sector.
As formal sector includes all the public sector and private sector establishments
that employ 10 hired workers or more.

18. Q. State any two sources of data on unemployment in India. (CBSE2024) 2

Ans. Two sources of data on unemployment in India are:
• Reports of Census of India
• National Statistical Office’s Reports of Employment and Unemployment
Situation
(there may be any other valid source )

19. Q. ‘‘It is necessary to create employment in the formal sector rather than in the 3
informal sector.’’ Defend or refute the given statement with valid arguments.
(CBSE2024)
Ans: Yes, creating jobs in the formal sector rather than the informal sector is vital
because:
● Pensions, provident funds (PF), and gratuities, among other social security
benefits, are offered in the formal sector.
● Workers and businesses in the formal sector earn more consistently than those
in the informal sector.
● Because the technology utilised in formal sector businesses is updated, creating
jobs in the formal sector aids in the eradication of poverty and economic
disparities.

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20. Q. Analyse the recent trends in sectoral distribution of workforce in India : 3
Trends in Employment Pattern (Sector wise), 1993 – 2012 (in %)(CBSE2020)
Sector 1993 – 94 1999 – 2000 2011 – 12
Primary 64 60.4 48.9
Secondary 16 15.8 24.3
Services 20 23.8 26.8

Ans: According to the data, the share of workers employed in the primary sector
has drastically decreased over time. The employment proportion of the secondary
industry and the services sector, on the other hand, has risen. While the secondary
sector's part of the economy has increased by around 9% in recent years, the
services sector's share has increased by about 7%.
21. Q. Define worker-population ratio. What does it signify? (CBSE2020) 3
Answer: Worker-population ratio is calculated by dividing the total number of
workers in a country by the population of the country and multiplying it by 100.
Worker-population ratio is an indicator which is used for analysing the
employment situation in the country. This ratio is useful in knowing the
proportion of population that is actively contributing to the production of goods
and services of a country.

22. Q. The following diagram shows distribution of workforce in India. Analyse and 3
compare the nature of workforce distribution. (CBSE2021)

Ans.
a) Self-employment is the major source of livelihood in both rural areas (56%) and
urban areas (43%). It is because rural people work on their own fields and
cultivate independently. In urban areas both self-employment and regular wage
salaried jobs are greater.
b) Casual wage workers are the second major source of employment in rural areas
with 35% as compared to 15% in urban areas. It is due to lack of availability of
regular jobs in rural areas.
c) Regular salaried workers are a major source of employment in urban areas with
42% as compared to just 9% in rural areas. It is because there are more organised
job opportunities in urban areas.

23. Q. 'Casualization of workforce has become a perennial problem of the 3

Indian economy.’ Justify the given statement with valid arguments.(CBSE 2022)
Ans. Casualisation of workforce has become a perennial problem for India
because of:
 Slower growth rate of employment in the organised sector.
 Rapidly expanding construction and allied services have led to
increase in demand for casual labour.
 Self-employed small and marginal farmers are becoming casual
workers due to lower earnings in agricultural activities.

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24. Q. State and elaborate whether the following statement is true or false, with valid 3
arguments:
"Indian economy has showed satisfactory progress towards formalization of
workforce in the recent past."(CBSE2023)
Ans. False. As in the recent years, India has witnessed an unprecedented shift of
the workforce from the formal sector to informal sector. This may be primarily
due to decline in job opportunities in formal (both public and private) sector.(Any
other valid argument with suitable explanation)

25. Q. "In India, the self-employed constitute around 60% employees. The possible 3
incidence of under employment is the highest among the self-employed."
As an economist, suggest and elaborate any two measures that may be taken to
ensure more productive employment for the self-employed.(CBSE2023)

Ans. Two measures to ensure more productive employment for the self-employed
are:
i. Skill development - Skill development and training will provide people with the
required expertise and skills to undertake new ventures.
ii. Financial and technical support by Government - Financial and technical
support by government agencies, along with fulfilling the capital
requirements will also enhance the productivity of the new production
units.

26. Q. Why are less women found in regular salaried employment?(CBSE2020,2023) 3

Ans. Less women are found in regular salaried employment in India as such jobs
require skills and a higher level of literacy.
Moreover, due to a lot of social constraints, mobility of women is generally
restricted.
(there may be any other valid argument )

27. Q. “Casual workers often work in very poor working conditions.” 3

Justify the given statement. (CBSE2023)
Ans. Casual workers are the most vulnerable category of the workforce. They are
generally not protected by the regulations of the government. Hence, such workers
face a continued threat to job security. They may also not be entitled to regular
income and any social security measures.

28. Q. State and elaborate whether the following statement is true or false, with valid 3
arguments:
Worker-population ratio is an indicator, used for analysing the employment
situation in a nation.(CBSE2024)
Ans. True. Worker-population ratio is useful in knowing the proportion of
population that is actively contributing to the production of goods and services of
a country.
If the ratio is higher, it means that a greater number of people are employed and
vice versa.

29. Q. “The participation rate of people in economic activities in rural areas is more 3
than that in urban areas.”Justify the given statement. (CBSE2024)
Ans. People in rural areas have limited resources. To earn higher income people
participate more in the employment market.

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 As compared to rural areas, a large section in the urban areas can attain formal
education and have a variety of employment opportunities at their disposal. Thus,
people in urban areas look for appropriate job to suit their qualifications and skills.
Hence, participation rate of people in economic activities in rural areas is more
than that in urban areas.
30. Q. Define disguised unemployment. State its implications on output and 3
employment in a country. (CBSE2024)
Ans. Disguised unemployment refers to a situation when the person seems to be
employed but is not contributing to the output i.e., the marginal productivity of
labouris zero.
People who are disguisedly unemployed do not contribute anything to the output.
Hence, there is no change in the output and employment in a country.

31. Study the following chart of Employment and Gross Domestic Product. Analyse 3
the trend of the two variables between 1990-2012. (CBSE2024)

Ans.
 The period between 1990 to 2012 had been a significant one as India’s Gross
Domestic Product (GDP) growth rate grew positively from 3.4% in 1990s to 7.8%
in2012.
 However, the employment growth rate has shown declining trends from 1.5%
to1.12% during the same period.
 Indian economy has witnessed the peculiar phenomena of ‘jobless growth’ over
all these years i.e. GDP growth rate increased without a corresponding increase in
the rate of employment.
 During 2005-10, employment growth rate was a meagre 0.28%. However,GDP
was growing at a sky rocketing pace of 8.7%.
 In a nutshell, the period between1990-2012 was a roller coaster ride for the Indian
economy on the fronts of GDP and Employment Growth rate.
32. Q. “Kavya works on her family farm and is neither paid in cash nor in the form of 3
grains.”Can she be categorized as a worker? Give valid reasons in support of your
answer. (CBSE2023)
Ans. Women, like Kavya, carry out household tasks like cooking, fetching
waterand fuelwood and participate in farm labour. They are not paid wages in
cash orin kind. For this reason, women like Kavya are not categorized as workers.

33. Q. ‘Mr. Rishi, after completing his education, has joined his family business but 3
his marginal productivity is zero’. Comment upon the employment status of Mr.
Rishi. Give valid reasons in support of your answer. (CBSE2023)
Ans. Mr. Rishi cannot be considered as an employed person as he is disguisedly
unemployed. Disguised unemployment refers to a situation when the person seems

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 to be employed but is not contributing to the output i.e., his marginal productivity
is zero.

34. Q. “In the late 1990's India experienced a widening gap between the growth of 3
GDP and employment generation". Discuss. (CBSE2023)
Ans. After the introduction of economic reforms, in the late 1990s, Indian
economy experienced a rapid rise in the GDP growth rate. However, employment
growth started declining, in spite of rising GDP i.e., India started experiencing the
problem of Jobless Growth. Where she was able to produce more goods and
services without corresponding rise in the employment in the economy.

35. Study the given image carefully: Identify the situation depicted in the image and 4
suggest the impact of the indicated situation in the Indian economy. (CBSE2024)

Ans. The given image represents the situation of employment in informal sector.
In the formal sector, workers can form trade unions and are entitled to fair wages
and other social security measures. Whereas, workers in the informal sector do not
get regular income. Also, they do not have any protection or regulation from the
government. Many a time, workers may be dismissed without any compensation.
Hence, formal sector employees are generally in a better position as compared to
informal sector employees. Therefore, it is essential to generate employment in the
formal sector rather than the informal sector.

36. Q. "In rural areas of India, more members of a family are engaged in work, yet the 4
gross income of the family is generally low." (CBSE2024)
Identify the type of unemployment indicated in the above statement and explain
the paradox associated with it.
Ans. Disguised unemployment is indicated in the given statement. Generally, in
rural India more than required number of people are employed on a particular task
without contributing to the aggregate output.
Hence, marginal productivity of labour turns out to be zero. Consequently, gross
income of the family is lower than expected.

37. Q. “In a nation like India, self employment provides an important avenue for 4
employment generation.” (CBSE2024)
Defend or refute the given statement with valid arguments.
Ans. The given statement is defended. In a nation like India, self-employment is a
major source of livelihood for both men and women.
Self-employed workers are the ones who own and operate an enterprise to earn
their livelihood. Thus, besides creating employment opportunities for themselves,
they also generally provide employment avenues for other people in the economy.

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 -------------------------------------------------------------------------------------------------------------

SUSTAINABLE ECONOMIC DEVELOPMENT

MCQ AND OTHER 1 MARK QUESTION

1. Which of the following is not used as a strategy for the sustainable development?(CBSE
2020)
(a) Use of bio-gas
(b) Use of solar power
(c) Use of thermal power
(d) Use of hydel power
Ans.(c)Use of thermal power
2. Central Pollution Control Board has identified____ categories of large and
medium industries as polluting industries.(CBSE 2020)
(a)15 (b)17
(c)19 (d)13
Ans.(b) 17
3. Environmental factor includes:
(a) Biotic factors
(b) Abiotic factors
(c) Both (a) and (b)
(d)None of the above

Ans.(c).Both (a) and (b)

4. Which of the following statement is correct?

(A) Global warming is entirely natural phenomenon
(B) Global warming is simply an another term used for green house effect
(C) Global warming is the rise in average temperature at the earth’s surface
(D) Global warming is caused by ozone depletion
Ans. Global warming is the rise in average temperature at the earth’s surface.
5. In1997,aUN conference on climate change was held in:
(a) Japan
(b) India
(c) China
(d) Germany
Ans. Japan
6. WhicharethecatchphasesinthefollowingUNCEDdefinitionofSustainableDevelopment :
“Development that meet the need of the present generation without compromising the ability of the
future generation to meet their own needs.”
(a) Need
(b) Future generation
(c) Need and present generation
(d) Need and future generation
Ans.(d)Need and future generation

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7. BrundtlandCommissionin1987definedsustainabledevelopmentas:
(A) Atypetodevelopmentwhichputtheinterestsofdevelopingcountriesaheadoftheinterests of the
rich nations
(B) Developmentwhichmeetstheneedsofpresentgenerationwithoutcompromisingtheabilityoffuture
generation to meet their own needs
(C) Developmentthatprotectsthefuturegenerationevenattheexpenseofpresentgeneration
(D) None of the above
Ans(b)Developmentwhichmeetstheneedsofpresentgenerationwithoutcompromisingtheab
ility of future generation to meet their own needs
8. The ability of the environment to absorb degradation is:
(a) Carrying capacity
(b) Absorptive capacity
(c) (a)and(b)
(d) None of the above
Ans.(b)Absorptive capacity
9. Identify the type of activity that may be envisaged under ________ as diversification activity
– (CBSE 2023)
a. Animal Husbandry
b. Fisheries
c. Horticulture
d. Organic Farming
Ans. D. Organic Farming

SHORT AND LONG ANSWER TYPE QUESTION

Q1. State and discuss any two environmental concerns faced by India in the present
times (CBSE2020)
Ans. Two environmental concerns faced by India in the present times:
Problem of pollution: -The intensive and extensive extraction of both renewable and non-renewable
resources has exhausted some of the vital resources and we are compelled to spend huge amounts on
technology and research to explore new resources. Added to these are the health costs of degraded
environmental quality—decline in air and water quality (seventy percent of water in India is
polluted) have result in increased incidence of respiratory and water-borne diseases. Hence the
expenditure on health is also rising. To make matters worse, global
environmentalissuessuchasglobalwarmingandozonedepletionalsocontributetoincreasedfinancialcommi
tmentsforthegovernment.Thus,it is
clearthattheopportunitycostsofnegativeenvironmentalimpactsarehigh.
(i)Air pollution
(ii)Water pollution
(iii)Noise pollution
1. Excessive exploitation of natural resources:-Deforestation:- “Deforestation
refers to the removal or destruction of the forest cover of an area”. Causes of Deforestation
:-(i) It is caused by growing demand for wood other forest products by the industries
(ii)Increasingpressureofpopulation(iii)Industrializationleadstourbanizationandurbanizationand
urbanizationinducesdeforestation(iv)Constructionofdamsisanotherfactorfordeforestation.
Q2. What is meant by sustainable development? Discuss briefly any two strategies of
sustainable development.(CBSE2020) .
Ans. SUSTAINABLE DEVELOPMENT:- “Sustainable development is that process of economic

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 development which aims at raising the quality of life of both present and future generations, without
harming natural resources and environment”. The concept of sustainable development was
emphasized by the United Nations Conference on Environment and Development (UNCED), which
defined it as: ‘Development that meets the need of the present generation without compromising the
ability of the future generation to meet their own needs’.
STRATEGIES FOR SUSTAINABLE DEVELOPMENT:- 1.Use of Non-conventional
Sources of Energy: India, as you know, is hugely dependent on thermal and hydro power
plants to meet its power needs. Both of these have adverse environmental impacts.
2. LPG, Gobar Gas in Rural Areas: Households in rural areas generally use
wood, dung cake or other bio mass as fuel. This practice has several adverse implication
sliked deforestation, reduction in green cover, wastage of cattle dung and air pollution. To
rectify the situation, subsidized LPG is being provided. In addition, gobar gas plants are
being provided through easy loans and subsidy. As far as liquefied petroleum gas(LPG) is
concerned, it is a clean fuel — it reduces household pollution to a large extent. Also, energy
wastage is minimized.
3. CNG in Urban Areas: - In Delhi, the use of Compressed Natural Gas (CNG) as
fuel in public transport system has significantly lowered air pollution and the air has become
cleaner in the last few years.
Solar Power through Photo voltaic Cells: India is naturally endowed with a large quantity of solar
energy in the form of sunlight. Plants use energy to perform photosynthesis. Now, with the help of
photovoltaic cells, solar energy can be converted into electricity.
4. Mini-hydel Plants: In mountainous regions, streams can be found almost
everywhere. A large percentage of such streams are perennial. Mini-hydel plants use the
energy of such streams to move small turbines.(Any Two Strategies)

Q3.Define the following: (CBSE2020)

(a) Carrying capacity of environment.
(b) Bio-composting
(c) Sustainable development
(d) Absorptive capacity of the environment.
Ans. (a) Carrying capacity of environment: This implies that the resource extraction is not above
the rate of regeneration of the resource and the wastes generated are within the assimilating capacity
of the environment.
When this is not so, the environment fails to perform its third and vital function of life sustenance and
this results in an environmental crisis.
(b) Bio-composting: In our quest to increase agricultural production during the last five decades
or so, we almost totally neglected the use of compost and completely switched over to
chemical fertilizers. The result is that large tracts of productive land have been adversely

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 affected, water bodies including groundwater system have suffered due to chemical
contamination and demand for irrigation has been going up year after year.
Farmers, in large numbers all over the country, have again started using compost made from organic
wastes of different types. In certain parts of the country, cattle are maintained only because they
produce dung which is an important fertilizer and soil conditioner.
Earthworms can convert organic matter into compost faster than the normal composting process.
Sustainable development: “Sustainable development is that process ofeconomic
development which aims at raising the quality of life of both present and future generations,
without harming natural resources and environment”. The concept of sustainable
development was emphasized by the United Nations Conference on Environment and
Development (UNCED), which defined it as: ‘Development that meets the need of the
present generation without compromising the ability of the future generation to meet the own
needs’.
(c) Absorptive capacity of the environment: Absorptive capacity means the ability of the
environment to absorb degradation. The result — we are today at the thresh hold of
environmental crisis.
The past development has polluted and dried up rivers and other aquifers making water an economic
good. Besides, the intensive and extensive extraction of both renewable and non-renewable vital
resources and we are compelled to spend huge amounts on technology and research to explore new
resources.
Q4. State any two harmful effects of using chemical fertilizers. CBSE Term-2 2022
Ans. Two harmful effects of using chemical fertilizers are:
(i) Contamination of soil
(ii) Contamination of ground water.
Q5. Define the following a) Carrying capacity b) Absorptive capacity c) Global warming
d) Ozone depletion.
Carrying capacity of the environment implies that the resources extraction is not above the rate of
regeneration of the resources
thewastesgeneratedarewithintheassimilatingcapacityoftheenvironment.

Absorptive capacitymeanstheabilityof theenvironment toabsorb degradation.

The Global warming is due to increase in the Green-house gas concentrations, likewatervapour,
carbon-dioxide,methaneandozone intheatmosphere.

It refers to destruction of ozone in the ozone layer, due to presence of

chlorinefrommanmadechlorofluorocarbonsandotherforces

Q6.Whatarethecausesofenvironmentdegradation.
Causes of Environmentdegradationare:-
i) Population explosion

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 ii) Widespread poverty
iii) Increasing urbanization
iv) Excess use of insecticides and pesticides
v) Rapid industrialization
vi) Disregard for civic norms
Q7. Identify four factors contributing to land degradation in India.
Ans. Principal factors contributing to land degradation in India:-
(i) Loss of vegetation due to deforestation
(ii) Multiple cropping along with subsistence farming by small and marginal
(iii) Excessive use of chemical fertilizers, insecticides and pesticides
(iv) Low water-table
(v) Soil erosion occurring due to floods, strong winds and other factor.
Q8.What is environment? Explain significance of environment.
Ans. -‘ It includes all the biotic and abiotic factors that influence each Other’. While all living
elements — the birds, animals and plants, forests, fisheries etc. are biotic elements, abiotic elements
include air, water, land etc. Rocks and sunlight are all examples of abiotic elements of the
environment.
Function (Importance/ Significance) of environment:-
1. Environment offers resource for production:- resources here include both renewable and
non-renewable resources. Renewable resources are those which can be used without the
possibility of the resource becoming depleted or exhausted. That is, a continuous supply
of the resource remains available.
2. Enhances quality of life
3. Environment sustains life by providing genetic and biodiversity
4. Environment assimilates waste:- This implies that the resource extraction is not
above the rate of regeneration of the resource and the wastes generated are within
the assimilating capacity of the environment.
Q.8 State meaning of organic farming. Discuss how it helps in promoting sustainable
development. (CBSE 2023)
Ans- Organic farming is a method of agricultural production that relies on natural processes
and cycles to cultivate crops and raise livestock, without the use of synthetic chemicals. In
organic farming:
1. No Synthetic Chemicals: Organic farmers avoid using synthetic pesticides, fertilizers,
herbicides, and other chemicals. Instead, they use natural alternatives such as compost,
animal manure, crop rotation, and biological pest control.
2. Soil Health: Organic farming emphasizes the importance of soil health. Farmers focus on
building and maintaining soil fertility through practices such as crop rotation, cover cropping,
and composting, which promote beneficial microorganisms and organic matter in the soil.

58 | P a g e
 3. Biodiversity: Organic farms typically promote biodiversity by cultivating a variety of crops
and maintaining natural habitats for beneficial insects, birds, and other wildlife.
Organic farming plays a significant role in promoting sustainable development in several
ways:
i. Environmental Conservation
ii. Reduced Chemical Inputs
iii. Climate Change Mitigation
iv. Water Conservation
v. Supporting Rural Communities

ASSERTION & REASON

Alternatives
a.Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
b.Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
c.Assertion(A)is true but Reason (R)is false.
d.Assertion(A)is false but Reason (R)is true.

Q1. ASSERTION (A): The environment fails to perform its vital function of life sustenance and this
results in an environmental crisis.

REASON (R): Many resources have become extinct and the wastes generated are beyond the
absorptive capacity of environment
.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
Q2.ASSERTION (A): The environment has an important function of supplying resources, both
renewable and non-renewable resources.
REASON(R):The environment is able to perform its functions as long as the demand on these
functions is within its carrying capacity.

Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
Q3. ASSERTION(A):Sustainabledevelopmentisthedevelopmentthatmeetstheneedof present
generation without compromising the ability of the future generations to meet their own needs.
REASON(R):Conservation and promotion of natural resources.

Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
Q4.ASSERTION (A): Environmental degradation owes a great deal to supply demand reversal of
resources overtime.
REASONING(R): Global warming is wake up call to save environment.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
Q5. ASSERTION (A): Deforestation is rising at such a rapid scale that it has totally disturbed the
ecological balance of the country.
REASON(R): Deforestation is one of the major reason for soil erosion.

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 Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
------------------------------------------------------------------------------------------------------
Comparative Development Experiences of India and its Neighbours
March 24
1. Assertion (A) : China has used the market mechanism to create additional social and Economic
opportunities for its citizen
Reason (R) : Social infrastructure creation by the government has brought positive Result in human
development indicators in china 1
a . Both assertion (A) and reason ( R) are true and reason ( R) is the correct explanation of assertion
(A).
b Both assertion (A) and reason ( R) are true and reason ( R) is not the correct explanation of
assertion (A).
c Assertion (A) is true but reason (R ) is false
d Assertion (A) is false but reason (R ) is true
Ans B

2 Economic reforms were introduced in India and Pakistan in the year ---------- and -----------
respectively.
A 1988, 1978 B 1991, 1978 C 1991,1988 D1981,1991
Ans B
3 In the decade of 1970 Pakistan nationalized its -------------- industries
A Medical Infrastructure B Consumer good C Capital Good D Foreign
Trade
Ans. C
4 United Nations Department of economic and social welfare indicated that India has
overtaken China as the world’s most populous country in the month of April 2023
Explain the consequences of one child policy adopted by China in 1970s.
Ans. There will be more elderly people in proportion to young people in China
This will force China to take steps to take steps to provide social security measures with
fewer workers
5Discuss the impact of special economic zones (SEZ) on the economic growth of China.
Ans. SEZ were set up in order to attract foreign investors 1980 first four SEZ establish
Hongkong, Macau, Taiwan

2023
1. Assertion (A) :China has highest life expectancy in the world
Reason (R): Maternal Mortality rate of India is higher than that of China
a . Both assertion (A) and reason ( R) are true and reason ( R) is the correct
explanation of assertion (A).
b Both assertion (A) and reason ( R) are true and reason ( R) is not the correct
Explanation of assertion (A).
c Assertion (A) is true but reason (R ) is false
d Assertion (A) is false but reason (R ) is true

Ans- B

2 In China reforms were introduced in a phased manner in the second and later phases reforms were
introduced in ------------- sector

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 A Agriculture B Industrial C Foreign trade D Demographic

Ans B

3 In 1970 , Pakistan nationalized the industries related to ------------ goods

A Consumer B Sports C Capital D Defence

Ans Capital

4 In terms of the sectoral distribution to GDP ,economy of India is relying more on -----------
Sector .
A Secondary b Primary c Both A and B d Tertiary Sector

Ans B
5 India Is not the member of which of the following regional/global economic group
A European union B BRICS c G20 d SAARC

Ans A

6 Critically appraise the development journey of Pakistan since 1947

Ans Agriculture growth and food supply situation was based on good harvest ,economy condition was
good . when it was not, the economic condition was stagnation or negative trend
2 Most of the foreign exchange earnings came from remittances workers in the middle east
3 There was growing dependence on foreign loan on the other hand it was difficult inpaying back
loans

2022
1 The Great leap forward campaign in China focused on
a) Widespread Industrialisation
b) Privatisation
c) New agriculture strategy
d) Economic reform
Ans. A
2 Pakistan is a head of India and Pakistan in--------------
a) HDI value
b) Per Capita income
c) Access to sanitation facilities
d) Life Expectancy at birth
Ans. C
3. Explain briefly the problem faced by great leap forward campaign
Ans. A severe drought caused havoc in China Killing about 30 million people
When Russia had a conflict with China it withdrew its professional.
4. Define Liberty indicator with the help of example and its importance.
1 Measures of extent of constitutional protection rights given to citizen
2 Extent of constitutional protection of the independence of the judiciary and
Rule of law.
2021
1. In India the maternal mortality rate is higher than------------- (China/Pakistan).
Ans Pakistan

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 2 From the set of events /systems given in column I and corresponding relevant fact in
column II
About China choose the correct pair of statement
Column I Column II
A Great leap Forward 1Culivatng land collectively
B Commune system 2 Opening of the industries in their homes
C Proletarian Cultural Revolution 3 Students were sent to work and learn
about countryside
D Economic reform in China 4 1988
aA1 b B2 cC3 dD4
Ans. C 3
3 Appraise the development journey of India Since 1947
Ans 1 India’s performance in economic development has been moderate.
2 Lack of sufficient infrastructure has been a factor that prevents India’s growth.
3 One-fourth of the population is still living under poverty line.
4 India guarantees democratic rights and freedoms to her citizens.
2020
1) The main aim of ‘Great leap forward’ was to ensure rapid increase In ---------
(Primary/secondary/tertiary) sector in China.
Ans Secondary
2) As per Human development report, 2018, India ranked at 180th Position.

3) The main aim of Great leap forward (GLF) in China was to insure rapid increase of --------
A Agriculture B Industries c Services d Export
Ans Industries
4) On the basis of the following information compare and analyse the population growth
rate among the given countries
Country Estimated Population Annual growth of
(in Million) Population
China 1371 0.5
Pakistan 188 2.1

Ans Estimated population is more in China

Annual growth of Population is Less in China Because of one child norm
5) Mention the salient demographic indicators of China, Pakistan and India.

Answer. We shall compare some demographic indicators of India, China and

Pakistan.
1. The population of Pakistan is very small and accounts for roughly about one-tenth of China
or India.
2. Though China is the largest nation geographically among the three, its density is the lowest.
3. The population growth is highest in Pakistan followed by India and China. One-child norm
introduced in China in the late 1970s is the major reason for low population growth. They
also state that this measure led to a decline in the sex ratio, that is, the proportion of females
per 1000 males.
4. The sex ratio is low and biased against females in all the three countries. There is strong son-
preference prevailing in 11 these countries.
5. The fertility rate is low in China and very high in Pakistan.

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6. Urbanisation is high in both Pakistan and China with India having 28 per cent of its people
living in urban areas.
-----------------------------------------------------------------------------------------------------------

INTRODUCTORY MACRO ECONOMICS

Basic concepts of macro economics

2019

1] Give any two examples of flow concept.

Hints; expenditure, savings, depreciation, interest, exports, imports, change in inventories
(not mere inventories), change in money supply, lending, borrowing, rent, profit (any Two)

2] Define the problem of double counting in the computation of national income. State
any two approaches to correct the problem of double counting.
hint; he error of double counting occurs when the value added by a certain activity in the
production chain is added twice. For instance, the value of bread sold is inclusive of the value
of the flour, the manufacturing, the packaging, and transport.
(i) Final Output Method, and (ii) Value Added Method.
OR
“Gross Domestic Product (GDP) does not give us a clear indication of economic
Welfare of a country.” Defend or refute the given statement with valid reason.
Hint: Defend the statement .GDP doesn't take into account the income inequalities and hence
cannot be used to indicate the welfare of the entire nation. Secondly, unpaid services and the
barter exchanges that still occur in remote parts of developing countries, that are not valued
monetarily, are excluded from the GDP computation.

2020
3] State whether the following statement is true or false:
‘‘Expected obsolescence is included in depreciation.’’
Hint: False. Only expected obsolescence is considered as an element of depreciation. Loss of
value of fixed assets owing to unexpected obsolescence is called capital loss.

2022

4] using suitable example distinguish between stock variables and flow variable.
Hint: Wealth is indeed a stock factor, whereas income is just a flow factor. Wealth seems to
be the quantity of value economic products gathered at a certain moment in time, whereas
income seems to be the sum of money gained during a specific period of time.
Or

Using suitable example distinguish between positive and negative externalities

Hint: building a new school would be an example of a positive externality, because it benefits
the whole community by improving education. On the other hand, building a landfill would
be an example of a negative externality, because it harms the community by causing pollution
and lowering property values.
2023
5 ) The difference between National Income at market price and
National Income at factor cost is ________.
(Choose the correct alternative to fill up the blank)

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(a) Net indirect taxes
(b) Net factor income from abroad
(c) Consumption of fixed capital
(d) Market price
Hint -) net indirect taxes

Or

Identify which of the following represents only the real flow:

A]

GOODS AND SERVICES

FIRMS HOUSEHOLDS

FACTOR PAYMENTS

GOODS AND SERVICES

B]
FIRMS HOUSEHOLDS

FACTOR SERVICES

FACTOR PAYMENTS
C]
FIRMS HOUSEHOLDS
Consumption Expenditure

Goods and Services

D]
FIRMS HOUSEHOLDS

Consumption Expenditure
Hint: Real flow: The term real flow means the flow of factor services from households to
firms. Similarly, the flow of goods and services from firms to households.
Money flow: The money flow refers to the flow of factor payments from firms to
households for factor services.

2024
Identify which of the following is not considered as ‘Normal resident ‘of India
a ] An Indian citizen working in USA embassy located at New Delhi .
b ] An Indian officials working in Indian embassy in China .
c] An Indian diplomats visiting Canada for a summit.
D] An Indian working in an American company located in New York for a Period of more
than 1 year.
Hint: The normal resident is said to be one who ordinarily resides in the country concerned
and whose centre of economic interest lies in that country. A person is said to have his
economic interest in a country when he conducts his economic transactions in that country on
a significant scale.

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 7] Calculate net value added at factor cost {NVAfc} from the following data
S. No. particulars Amount [Rs]
I Fixed capital goods (expected life span – 5 years) 15
Ii Domestic sales 200
Iii Change in stock (-)10
Iv Exports 10
v Single use producer goods 120
vi Net indirect taxes 20

Hint : (NVA) at factor cost = sales +change in stock – value of intermediate goods – net
indirect tax – depreciation.
Or
From the following data , estimate the value of net indirect taxes(NIT).
S No. Particulars Amount (Rs in crore)
I Net national product at 1400
market price(NNPmp)
Ii Net factor income from (-)20
abroad
Iii Gross national Product factor 1300
cost (GNPfc)
iv Consumption of fixed capital 100

Hint: Deduct dep. From gross national product at factor cost you will get net national product
at factor cost.
Now deduct net national product at factor cost from net national product at market price

National Income and related aggregates

Q.1 Identify the correct equation from the following: CBSE 2024
(A) GDPMP = NNPFC + Depreciation
(B) NDPFC = NNPFC + Net Indirect Taxes
(C) GNPMP = GDPMP + Net Factor Income from Abroad
(D) NNPFC = NDPMP + Depreciation
Ans. (C) GNPMP = GDPMP + Net Factor Income from Abroad
Q.2 Read the following statements carefully: CBSE 2023
Statement 1: Economic territory and political frontier of a nation is one and the same thing.
Statement 2: American Embassy in India is a part of the economic territory of India.
In the light of the given statements, choose the correct alternative from the following:
(A) Statement 1 is true and statement 2 is false.
(B) Statement 1 is false and statement 2 is true.
( C) Both statements 1 and 2 are true.
(D) Both statements 1 and 2 are false.
Ans. (D) both statements 1 and 2 are false.
3. The difference between National Income at market price and National Income at factor
cost is ________. (Choose the correct alternative to fill up the blank) CBSE 2022
(a) net indirect taxes
(b) net factor income from abroad

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 (c) consumption of fixed capital
(d) market price
Ans. (a) net indirect taxes
Q4 Operating Surplus does not include __________. CBSE 2021
(Choose the correct alternative to fill up the blank)
(a) Interest
(b) Rent
(c) Profit
(d) Compensation of employees
Ans (d) Compensation of employees
Q5 Read the following statements carefully: CBSE 2020
Statement 1: Stock variables are measured at a point of time.
Statement 2: Flow variables and stock variables are same.
In light of the given statements, choose the correct alternative from the following:
(a) Statement 1 is true and Statement 2 is false.
(b) Statement 1 is false and Statement 2 is true.
(c) Both Statements 1 and 2 are true.
(d) Both Statements 1 and 2 are false.
Ans. (a) Statement 1 is true and Statement 2 is false.
Q6. On the basis of the data given below for an imaginary economy, estimate the value of
Net Domestic Product at Factor Cost (NDPFC): CBSE 2024
S.No. Items Amount (in crore)
(i) Gross Domestic Fixed Capital Formation 200
(ii) Exports 50
(iii) Government Final Consumption Expenditure 320
(iv) Consumption of Fixed Capital 35
(v) Household Final Consumption Expenditure 470
(vi) Inventory Investment (Net) (-) 40
(vii) Imports 60
(viii) Net Indirect Taxes 50
(ix) Net Factor Income from Abroad 20
Ans. Net Domestic Product at Factor Cost (NDPFC) = (v)+(iii)+(i)+(vi)+(ii-vii)-(iv)-(viii)
=470+320+200+(-40)+(50-60)-35-50
= ₹ 855 crore
Q.7 (i) Elaborate the concept of Externalities with the help of suitable example. CBSE 2024
(ii) Define Operating Surplus.
Ans. Externalities refer to benefits/harms which are caused by one entity to another
without being paid/ penalized for it.
For example: Newly developed public park (Any other relevant example to be awarded
marks)
ii] Factor income earned in the form of rent, royalties, interest and profits are together
called ‘Operating Surplus’.
Q.8. On the basis of the data given below, estimate the value of Gross National Product at
Factor Cost (GNPFC): CBSE 2023
S.No. Items Amount (in crore)

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(i) Wages and Salaries 2,000
(ii) Rent and Interest 700
(iii) Corporate Tax 500
(iv) Undistributed Profit 300
(v) Consumption of Fixed Capital 200
(vi) Dividend 150
(vii) Net factor income from abroad (-) 50
Ans. Gross National Product at Factor Cost (GNPFC) = (i)+ (ii)+(iii)+(iv)+(vi)+(v)+(vii)
= 2,000+ 700+ 500+ 300+150+200+(-50) = ₹ 3800 crore
Q.9 (a) On the basis of the given data, estimate the value of National Income: CBSE 2022
S.No. Items Amount (in crore)
(i) Government Final Consumption Expenditure 110
(ii) Private Final Consumption Expenditure 200
(iii) Gross Domestic Fixed Capital Formation 30
(iv) Net Exports (-) 40
(v) Increase in Stock 20
(vi) Consumption of Fixed Capital 15
(vii) Indirect Taxes 60
(viii) Subsidies 15
(ix) Net Factor Income from Abroad (-) 40
Ans. National Income (NNPFC) = (ii) + (i) + (iii) + (v) + (iv) - (vi) – {(vii) - (viii)} + (ix)
= 200 + 110 + 30 + 20 + (-40) - 15 - 60 + 15 + (-40) = 220 crore
Q.10 State any three precautions to be taken while estimating National Income by
Expenditure Method. CBSE 2023
Ans. Three precautions to be taken while estimating National Income by Expenditure
Method are:
• Expenditure on intermediate goods should not be included.
• Expenditure on purchase of second-hand goods should not be included.
• Expenditure on purchase of financial instruments (shares, bonds, debentures etc.)
should not be included. (Any other valid precaution to be awarded marks)
Q .11 "Machine purchased by a firm is always a capital good." CBSE 2020
Do you agree with the given statement? Give valid reasons for your answer.
Ans. No. Capital goods are those final goods which help in the production of other goods
and services. A machine purchased by a firm will be a capital good when it is used for
the production of other goods and services. However, if it is purchased by a firm for
resale purposes in the same year, it will not be considered as a capital good. (To be marked as
a whole)
Q.12 Define the following: CBSE 2021
(i) Net Exports
(ii) Externalities
(iii) Problem of Double Counting.
Ans. (i) Net Export refers to the excess of the value of exports of goods and services
over the value of imports of goods and services of an economy, during an
accounting year.
(ii) Externalities refer to benefits (positive externalities)/ harms (negative

67 | P a g e
externalities) which are caused by one entity to another without being paid/
penalised for it.
(iii) Problem of double counting refers to the counting of the value of a good or
service, more than once in the estimation of national income.

Q1. If real GDP Rs.400 crore and price index is 110, the nominal GDP is………
(a) Rs 250crores
(b) Rs 220crores
(c) Rs 440crores
(d) None of the above
Ans. (c) 440
Q2. Read the following statements carefully -Assertion (A) & Reason (R) and choose the
correct alternative.
Assertion (A): Real Gross Domestic Product (GDP) is a bad indicator of economic growth
and welfare of people of the country than Nominal Real Gross Domestic Product (GDP)
Reason(R): Real Gross Domestic Product (GDP) is not affected by changes in general price
level. Secondly, because increase in real Gross Domestic Product (GDP) means more goods
and services are available to the society during the year, thus, the welfare increases.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation for
Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
for Assertion (A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Ans- (d) Assertion (A) is false but Reason (R) is true.
Q3.A firm produces ₹ 200 worth of goods per year, ₹ 40 is the value of intermediate goods
used by it during the day year and ₹ 20 is the value of consumption. The net value added will
be (a) ₹ 140 (b) ₹ 160 (c) ₹ 180 (d) ₹ 200 capital
Ans- 140
Q4. .Read the following statements carefully -Assertion (A) & Reason (R) and choose the
correct alternative.
Assertion (A): Real GDP is a better indicator of economic growth and welfare of people of
the country than Nominal GDP
Reason (R): Real GDP is not affected by changes in general price level. secondly , because
increase in real GDP means more goods and services are available to the society during the
year, thus, the welfare increases.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation for
Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
for Assertion (A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true

Ans- (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation for Assertion (A)

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Q5. If gross value added at market price is ₹350 crore, change in stock is (-) ₹ 50 crore and
intermediate consumption ₹ 200 crore, find the total amount of sales.
(a) ₹ 200 crore (b) ₹ 250 crore (c) ₹ 600 crore (d) ₹ 500 crore
Ans. B
Q6. Which among the following will not be included while calculation of National Income a)
Imputed rent of owner-occupied houses b) Goods produced for self-consumption c) Income
from the sale of second-hand goods d) Construction of new house.
Ans-(c) Income from the sale of second-hand goods
Q7. Which of the following is Factor Income?
a. Old Age Pension b. Net Current Transfer from ROW
c. Rent from Land d. None of these
Ans- c) Rent from land
Q8. Foreign Embassies in India are a part of India’s:
(a) Economic territory (b) Geographical Territory
(c)Both a & b (d) None of the above
Ans- B
3/4 Mark questions
Q9. How do you treat the following while estimating National Income? Give reasons for your
answer.
a) Profit earned by a foreign bank from its branches in India
b) Salaries paid to an Indian who is working in American embassy in India
c) Capital gain
Ans- a) Not Included – It is a factor income to abroad
b) Included – It is a factor income from abroad
c) Not included – There is no corresponding change in the flow of goods and services

Q10. Explain why subsidies are added to and indirect taxes deducted from domestic product
at market price to arrive at domestic product at factor cost?
Ans. Subsidies by government are grants that decrease the price of a commodity, whereas
indirect taxes are paid by a firm and households that increase the final price of a commodity.
Hence, to derive Gross Domestic Product at Factor Cost from Gross Domestic Product at
Market Price, we deduct indirect taxes and add subsidies. Also subsidies are the income
received while indirect taxes are paid.
Q11. Explain how ‘non-monetary exchanges’ are a limitation in taking domestic product as
an index of welfare?
Ans. The non-monetary exchanges which take place in the informal sectors are not included
in the calculation of GDP since money is not being used. For example, Service of a
housewife, kitchen gardening, etc. This results in an under estimation of GDP. Hence, GDP
calculated in the standard manner may not give us a clear indication of the productive activity
and actual welfare of the country.
Q12. Will the following be included in the national income of India? Give reason for your
answer.
[a] Financial assistance to flood victims.
[b] Profit earned by the branches of a foreign bank in India.
[c] Salaries of Indians working in the Americans Embassy in India.

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Ans- A) financial assistance to flood victims is not included in the national income of India.
This is because financial assistance is a transfer income.
B) Profits earned by the branches of the foreign bank in India are reflected in the national
income of India a negative component because it is a part of factor income to rest of the
world.
C) Salaries of Indian working in the American Embassy in India is Included in National
Income of India because it is a part of factor income from the rest of world.

Q13. From the following data, calculate Net Value Added at factor Cost:
S.no. Contents Rs. (in crore)
i Net factor income from abroad 30
ii Sales 3500
iii Purchase of intermediate goods 2000
iv Consumption of fixed capital 500
v Exports 400
vi Indirect taxes 350
vii Change in stock 50
Ans- Rs. 700 crore
Q14. Calculate from the following data, Net National Product at Market Price by
(a) Income Method and (b) Expenditure Method
S.No. Particulars Rs. in crore
(i) Compensation of Employees 1180
(ii Mixed income of self employed 820
(iii) Gross fixed capital formation 400
(iv) Consumption of fixed capital 20
(v) Employers’ contribution to social security scheme 110
(vi) Operating surplus 9500
(vii) Net capital formation 420
(viii) Exports 20
(ix) Imports 50
(x) Indirect taxes 150
(xi) Subsidies 30
(xii) Private final consumption expenditure 2,200
(xiii) Government final consumption expenditure 610
(xiv) Purchase by non-residential households in the domestic market 60
(xv) Net factor income to abroad 100.
Ans- Income Method
Net National Product at market price = Compensation of employee + Operating surplus +
mixed income of self-employed-Net factor income to abroad + Indirect tax-subsidy
1180+950+820-100+150-20=Rs.2950 cr.
Expenditure Method
Net National Product at market price = Private final consumption expenditure + Government
final consumption expenditure + net capital formation + exports-imports-net factor income to
abroad

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 2050+610+420+20-50-100=Rs.3095 cr.
Q15. Briefly explain the precautions to be taken while calculating national income by
expenditure method. Explain the ways through which double counting can be avoided in
calculation of National Income?
Ans. i) Precautions to be taken while calculating national income by expenditure method are:
Expenditure on second hand goods is not included

ii) Double counting can be avoided in calculation of National Income:

Count only value added by each production unit.
Count only value of final product.

Q16. (a). What is real GDP and nominal GDP. Which is the best indicator?

(b). Calculate National income from the following data.

Items Amt (Cr.)
i) Wages 1000
ii) Rent 5000
iii) Interest 400
iv) Dividend 3000
v) Mixed income 400
vi) Undistributed profit 200
vii) Social Security contribution 400
viii) Corporation profit tax 400
ix) Net factor income from abroad 1000

Ans- (A) RealGDP is an inflation-adjusted calculation that analyses the rate of all
commodities and services manufactured in a country for a fixed year. It is expressed in
foundation year prices and referred to as a fixed cost price.
Nominal gross domestic product is GDP that is evaluated at the present market prices. GDP is
the financial equivalent of all the complete products and services generated within a nation in
a definite time.
Real GDP is a better indicator of economic growth because it can be compared with base year
GDP. While nominal GDP cannot be compared to any previous year's GDP.
(B) NNPfc= Rs 19800 crore
Q17. Given the following data find the values of “Operating surplus” and “Net Exports”.
S.No Name of the Item Amount (Rs in Crores)
1 Wages and Salaries 2400
2 National Income 4200
3 Net Exports --
4 Factor income from abroad 200
5 Gross domestic Capital formation 1100
6 Mixed Income of Self employed 400
7 Private Final consumption Expenditure 2000
8 Net Indirect Taxes 150
9 Operating surplus ---
10 Government Final consumption Expenditure 1000
11 Depreciation 100
12 Profits 500
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 Ans. National Income = (1) +Operating surplus +(6)+(4)
Operating surplus = (2)-(4)-(6)-(1)
= 4200-200-400-2400
=1200
Net Exports = (2) –(7) – (10) – (5) +(11) +(8) –(4)
=4200-2000-1000-1100+100+150-200
= 150
Q18. a) Explain how ‘externalities’ are a limitation of taking gross domestic product as an
index of welfare.
b) Discus various components of the income method that are used to calculate national
income.
Ans. a) when the activities of somebody result in benefits or harms to others with no payment
received for the benefit and no payment made for the harm done, such benefits and harms are
called externalities.
1. Activities resulting in benefits to others are positive externalities and increase welfare; and
those resulting in harm to others are called negative externalities, and thus decrease welfare.
2. GDP does not take into account these externalities.
3. For example, construction of a flyover or a highway reduces transport cost and journey time
of its users who have not contributed anything towards its cost. Expenditure on construction
is included in GDP but not the positive externalities flowing from it. GDP and positive
externalities both increase welfare. Therefore, taking only GDP as an index of welfare
understates welfare. It means that welfare is much more than it is indicated by GDP.
b) 1. Compensation of employees: The amount earned by employees from their employer,
whether in cash or in kind or through any other social security scheme is known as
compensation of employees.
2. Operating Surplus: It is the sum of income from property and income from
entrepreneurship.
3. Mixed Income: Income of own account workers (like farmers, doctors, barbers, etc.) and
unincorporated enterprises (like small shopkeepers, repair shops) is known as mixed income.
Note: (i) To estimate amount of factor payments made by each producing unit.
(ii) To add all factor incomes/payments within domestic territory to get domestic income, i.e.,
NDPFC.
NDPFC = Compensation of employees + Operating Surplus + Mixed Income
4. Net factor income from Abroad (NFIA): NFIA is the difference between income earned
by normal residents from rest of the world and similar payments made to Non residents
within the domestic territory. Addition of NFIA to NDPFC to get NY, i.e., NNPfc.
NNPFC = NDPFC + NFIA
Q19. Explain the problem of double counting in the estimation of national income with the
help of an illustration. How it can be avoided?
Ans. The counting of the value of commodity more than once is god double counting full
stop this leads to over estimation of the value of goods and services produced. That's the
importance of avoiding double counting lies in avoiding over estimating the value of
domestic product. For example a farmer produces 11 tons of wheat and sales it for Rs. 400 in
the market of a flour mill.
The Floor mills sales it for rupees 600 to the Baker. The Baker cells the bread to the
shopkeeper for Rs. 800. The shopkeeper cells the entire bread to the final consumers for Rs.
900 .Thus, value of output = Rs ( 400+600+800+900)

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=Rs. 2,700

--------------------------------------------------------------------------------------------------------------

Money and Banking

CBSE Year: 2019

Q.no.1(a)State any two components of M1measure of money supply.

(b) Elaborate any two instruments of Credit Control, as exercised by the Reserve Bank of
India.

OR
Define Credit Multiplier. What role does it play in determining the credit creation power of
the banking system? Use a numerical illustration to explain.(6M)

Ans (a) Currency and coins held by public and

Demand deposit with commercial banks
b. Bank rate and repo rate
OR,
Credit multiplier is a ratio that measures how much money banks can create in the form of
deposits from an initial deposit:
A higher credit multiplier means a higher total credit created. For example, if the LRR is 0.2
and the initial deposit is 1,000, the credit multiplier is 5, and the total credit created is 5,000.
If the LRR is 0.5 and the initial deposit is 1,000, the credit multiplier is 2, and the total credit
created is 2,000.
The credit multiplier is important because it indicates how much potential credit a bank can
create from an initial deposit, and to what extent it can increase its loans and the money
supply. A higher reserve ratio results in a lower multiplier, and less credit created from each
deposit.

CBSE Year: 2020

Q1. In order to control the money supply in the economy, the Central Bank
may ________.
(Choose the correct alternative) (1M)
(A) Buy securities in the open market
(B) Sell securities in the open market
(C) Reduce cash reserve ratio
(D) Reduce repo rate
Ans. (B)

Q.2. Two components of money supply are ….. and …….(1M)

(Fill in the blank with correct answers)
Ans. Total volume Currency and coins held by public Demand deposit with commercial
banks.
73 | P a g e
Q.3 Using a hypothetical numerical example explain the credit creation process by
commercial Bank (4M)
OR,
Central Bank apps as the bankers to the government elaborate the given statement. (4)
Ans Credit multiplier is a ratio that measures how much money banks can create in the form
of deposits from an initial deposit:
A higher credit multiplier means a higher total credit created. For example, if the LRR is 0.2
and the initial deposit is 1,000, the credit multiplier is 5, and the total credit created is 5,000.
If the LRR is 0.5 and the initial deposit is 1,000, the credit multiplier is 2, and the total credit
created is 2,000.
The credit multiplier is important because it indicates how much potential credit a bank can
create from an initial deposit, and to what extent it can increase its loans and the money
supply. A higher reserve ratio results in a lower multiplier, and less credit created from each
deposit.
OR
It issues loans and advances to the government and does buying and selling of securities on
behalf of the government. It also advises the government to frame monetary policy of the
country to control the credit creation and money market
CBSE Year: 2021
Qno.1 ………….. is responsible for issuing ₹ 1 currency note in India.(1M)
Ans. Ministry of finance.
Q no.2 State whether the following statement is true or false
Demand deposit which come back to the commercial bank through their lending process are
known as secondary deposit.(1M)
Ans. True
Q.no.3Money multiplier plays a vital role in determining the credit creation power of the
banking system; elaborate the statement with a suitable numerical example. (4M)
Ans. Credit multiplier is a ratio that measures how much money banks can create in the form
of deposits from an initial deposit:
A higher credit multiplier means a higher total credit created. For example, if the LRR is 0.2
and the initial deposit is 1,000, the credit multiplier is 5, and the total credit created is 5,000.
If the LRR is 0.5 and the initial deposit is 1,000, the credit multiplier is 2, and the total credit
created is 2,000.
The credit multiplier is important because it indicates how much potential credit a bank can
create from an initial deposit, and to what extent it can increase its loans and the money
supply. A higher reserve ratio results in a lower multiplier, and less credit created from each
deposit.

CBSE Year: 2022

Q.no.1 If in an economy's bank rate is increased, how will it affect the demand for credit?
explain. (3M)

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Ans. The rate at which Central Bank lends money to commercial banks for a short term is
known as bank rate.
Higher the bank rate lower will be the credit
Lower the bank rate hire will be the credit creation.

CBSE Year: 2023

Q.no.1 Read the following statements carefully:
Statement 1: Primary deposits are the cash deposits by general public
with commercial banks.

Statement 2: Secondary deposits are those deposits which arise on

account of credit provided by the commercial banks to the people.
In light of the given statements, choose the correct alternative from the
Following: 1
(a) Statement 1 is true and Statement 2 is false.
(b) Statement 1 is false and Statement 2 is true.
(c) Both Statements 1 and 2 are true.
(d) Both Statements 1 and 2 are false.(1M)
Ans. C.

Q 2 The rate at which commercial banks borrow from the Reserve Bank of
India to meet their long term requirements is known as ______________. (Choose the correct
alternative to fill up the blank) 1
(a) Margin requirement
(b) Bank rate
(c) Repo rate
(d) Reverse repo rate (1M)
Ans B

Q.No.3 Read the following news report carefully:

The central bank has imposed fine on Hisar urban cooperative Bank
Ltd. and Andaman and Nicobar State Cooperative Bank Ltd. for violation banking norms
According to the given report, identify the function of the central bank.
(a) Issue of currency
(b) Banker to the public
(c) Banker to the Government
(d) Banker's bank
Ans (D)

Q.no.4 Explain the government’s banker B function of central Bank.(4M)

Ans. It issues loans and advances to the government and does buying and selling of securities
on behalf of the government. It also advises the government to frame monetary policy of the
country to control the credit creation and money market.
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 Income determination and employment
CBSE Year: 2020
1. According to the theory of Keynesian Economics, the value of Average
Propensity to Consume can never be ________.
(Choose the correct alternative)
(A) zero
(B) unity (1)
(C) more than one
(D) less than one
Ans (A) Zero
2. State whether the following statement is true or false:
‘‘As per Keynesian theory in an economy, full employment can never exist.’’

Ans.: False

3. Justify the following statement, with valid reason.

‘‘Ex-ante Aggregate Demand is always equal to Ex-ante Aggregate Supply.’’

Ans: Ex-ante Aggregate Demand is equal to Ex-ante Aggregate Supply only when the
economy is in equilibrium. At under-employment equilibrium level, when Ex-ante Aggregate
Demand falls short of Ex-ante Aggregate Supply, it will lead to accumulation of unplanned
inventories. Hence the producer will reduce employment leading to reduction in output and
income till the two forces becomes equal to each other and vice versa.

4. In an economy, if initial investments are increased by < 100 crores, discuss the working of
investment multiplier presuming marginal propensity to consume is 0·8.

Ans: The working of investment multiplier is based on the principle that one’s
expenditure is another’s income.
Given initial investment = ₹ 100 crores and MPC = 0.8

Round Change in Change in Change in Change in

Investment(₹ in Income(₹ in Consumption(₹ Saving(₹ in
crores) crores) in crores) crores)

I 100 100 80 20
II 80 64 16
III 64 51.2 12.8
- - - -
500 400 100
(Valid explanation of the table is required)
K=1/1−���
=1/0.2 = 5
ΔY= K x Δ I
= 5 x 100
= ₹ 500 crores

CBSEYear: 2021(Comp. Exam ) *no board exam due to covid

76 | P a g e
1. State; whether the following statement is true or false:
“Involuntary unemployment was the outcome of lockdown in India.”

Ans: True

2. Private consumption expenditure is directly related to ______________ (income/savings)

of the households. (Fill in the blank by choosing the correct alternative)

Ans.: Income

3. Identify the correct statement from the following:

(a) Under the situation of inflationary gap, Aggregate Demand exceeds Aggregate Supply, at
full employment level of income.
(b) Under the situation of inflationary gap, Aggregate Demand falls short of Aggregate
Supply, at full employment level of output.

Ans: a) Correct, b) Incorrect.

4. (a) State the meaning of deficient demand. Suggest any two monetary policy tools used to
reduce deficient demand.

Ans.: Deficient Demand: Deficient Demand refers to the situation when aggregate demand
(AD) is less than the aggregate supply (AS) corresponding to full employment level of output
in the economy. The situation of deficient arises when planned aggregate expenditure falls
short of aggregate supply (AS) at the full employment level. It gives rise to a Deflationary
gap.
i.) Decrease in Repo Rate: Repo rate is the rate at which commercial banks borrow money
from the central bank for short period by selling their financial securities to the central bank.
During the situation of deficient demand, the central bank decreases repo rate that encourages
commercial banks for borrowing from the central bank.

ii.) Decrease in Reverse Repo Rate: It is the rate at which the Central Bank borrows money
from commercial bank. While during the time of deficient demand, reverse repo rate is
decreased, which discourages the commercial banks to park their funds with the central bank.
It increases the lending capacity of commercial banks, which controls the deficient demand.
OR
(b) In an economy, investment increases by < 1,000 crore and marginal propensity to save is
0·25.
Calculate:
(i) Investment multiplier (K)
(ii) Total increase in income (Y)

Ans.: i) K=1/MPS
=1/0.25
=4
ii) K=∆Y/∆I
4=∆Y/1000
∆Y=4000

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6. Define: (a) Autonomous Consumption Expenditure
(b) Average Propensity to Consume

Ans.: (a) Autonomous consumption: The consumption which does not depend upon income.
(Or) The amount of consumption expenditure when income is zero. C > 0. Even if income is
zero consumption cannot be zero. Consumption will take place from past savings for
survival.
(b) Average Propensity to Consume (APC): APC is the ratio of consumption to the level of
the disposable income. As income varies, APC also varies.
𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛 𝐶
Thus, 𝐴𝑃𝐶 = =𝑌
𝐷𝑖𝑠𝑝𝑜𝑠𝑎𝑏𝑙𝑒𝐼𝑛𝑐𝑜𝑚𝑒

CBSE Year: 2022

1. Justify the following statement with the valid argument at high level of income people
generally have lower marginal propensity to consume.

Ans.: High level of income people generally have lower marginal propensity to consume, as
they have already basic amenities so that they need not to spend on basic needs.

2. Calculate equilibrium level of income for a hypothetical economy for which it is given that
i) Autonomous investment= rupees 2500 crore
ii) Consumption function C=1000 + 0.8 Y
where C = conception and Y=income.

Ans.: As We know that,

At equilibrium Y=C+I
Y = c+ MPC Y +I
Y=1000+0.8Y+2500
Y-0.8Y=1000+2500
0.2Y=3500
So that Y=1750

3. Using a hypothetical example, elaborate the working of investment multiplier in an

economy.
Ans: The working of multiplier is based on the fact that ‘one person’s expenditure is another
person’s income’. When an additional investment is made, then income increases many times
more than the increase in investment.
Symbolically: ∆I→∆Y→∆C→∆Y
The working of investment multiplier can be explained with the help of an example:
1. Suppose an additional investment of Rs. 1000 crores (∆I) is made to construct a ‘highway’.
This extra investment will generate an extra income of Rs. 1000 crores in the 1 st round. But
this is not the end of the process.
2. if MPC is assumed to be 0.80, then recipient of this additional income will spent 80% of
the Rs. 1000 crores as consumption expenditure and the remaining amount will be saved. It
will increase the income by Rs. 800 crores in the 2nd round.

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3. in the next round 80% of the additional income of Rs. 800 crores, i.e. Rs. 640 crores will
be spent on consumption and the remaining amount will be saved.
4. This multiplier process will go on and the consumption expenditure in every round will be
0.80 times of the additional income received from the previous round.
The multiplier process for income generation is shown in the following table.
PROCESS OF INCOME GENERATION
The working of a multiplier can be explained with the help of the following table which is
based on the consumption that is, ∆I=1000 and MPC=4/5. i.e. MPC = 0.8.

ROUNDS ∆I ∆Y ∆C
1. 1000.00 1000.00 0.8×1000= 800.00
2. - 800.00 0.8×800= 640.00
3. - 640.00 0.8×640= 512.00
4. - 512.00 0.8×512= 409.60
↓∞ ↓∞ ↓∞ ↓∞
TOTAL 5000.00 4000.00

Thus, an initial investment of Rs. 1000 crores leads to a total increase of Rs. 5000 crores in
∆𝑌 5000
the income. As a result, investment multiplier 𝑘= = 1000 = 5
∆𝐼

4. ‘India has been dealing with the problem of deficient demand since the imposition of lock
down in March 2020.”
State and discuss any two monetary policy measures to combat the situation of deficient
demand in India.

Ans.: i.) Open Market Operations (Purchase of Securities): During deficient demand, central
bank starts to purchase the securities from the commercial banks. Purchase of securities
increases the reserves of commercial banks. It positively affects the bank’s ability to create
credit and increases the level of aggregate demand in the economy.
ii.) Decrease in Legal Reserve Ratio (LRR): There are two components of LRR- Cash
Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
To correct the deficient demand, the central bank decreases CRR or SLR or both. It increases
the amount of effective cash resources of commercial banks and enhances their credit
creating power. It will raise the level of borrowings and helps to minimise the deficiency in
aggregate demand.

CBSE Year: 2023

1. (A) If the value of investment multiplier = 4 and the savings = ( ) 60,

identify the correct Saving function from the following :
(a) S = ( ) 60 + 0·25 Y
(b) S = ( ) 60 + 0·75 Y
(c) S = ( ) 60 + 0·20 Y
(d) S = ( ) 60 + 0·60 Y

Ans.: (b) S = ( ) 60 + 0·75 Y

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 OR
(B) For the given Consumption function, C = 205 + 0·9 Y, the value of investment multiplier
would be ___________.
(Choose the correct alternative to fill up the blank)
(a) 0·09
(b) 10·0
(c) 0·9
(d) 9·0

Ans.: (b) 10·0

2. Read the following statements: Assertion (A) and Reason (R). Choose the
Correct alternative given below:
Assertion (A) : Before reaching the Break-Even level of income, the value of Average
Propensity to Consume (APC) is greater than one.
Reason (R): The Average Propensity to Consume (APC) is the ratio of the total consumption
and total income.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation
of Assertion (A).
(c) Assertion (A) is true and Reason (R) is false.
(d) Assertion (A) is false and Reason (R) is true.

Ans.: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).

3. Identify which of the following equations is true.

(Choose the correct alternative)
(a) MPC + MPS = 0
(b) MPC + MPS = 1
(c) MPC + MPS > 1
(d) MPC + MPS < 1

Ans.: (b) MPC + MPS = 1

4. A situation in which an able bodied person is not willing to work at the existing wage rate,
is referred to as _____________ situation.
(Choose the correct alternative to fill up the blank)
(a) Full employment
(b) Involuntary unemployment
(c) Voluntary unemployment
(d) Disguised unemployment

Ans.: (c) Voluntary unemployment

CBSE Year: 2024

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1. From the given table identify that level of income where average property to save (APS)
becomes zero.
(choose the correct alternative)
Income(Rs. Crore) 0 50 100 200 300 400
Consumption(Rs. Crore) 50 75 100 150 200 250
Alternative:
(a) 50 (b) 100
(c) 200 (d) 0

Ans. (b) 100

2. Read the following statement carefully:

Statement 1: consumption and savings are the component of national output of an economy.
Statement 2: high level of income often leads to lower savings.
In the light of given statement to the correct alternative from the following:
a) Statement one is true and statement two is false.
b) Statement one is false and statement two is true.
c) Both statements one and two are true.
d) Both statements one and two are false

Ans. a) statement one is true and statement two is false.

3. Arrange the following in the correct sequential order, if the government of a nation is
trying to curtail the situation of inflationary gap:
i) Decrease in disposable income
ii) Increase in taxes
iii) Decrease in aggregate demand
Alternatives:
(a) i, ii, iii (b) iii, ii, i
(c) ii, iii, i (d) ii, i, iii

Ans. (d) ii, i, iii

4. If a straight line consumption function makes a positive intercept at the y-axis, it implies
that marginal propensity to consume------------ and average property to consume--------------
as the label of income rises.
(Fill up the blanks with correct alternatives)
A) remain constant, rises B)Falls, falls C) Rises, rises D) remain constant, falls.

Ans.: D) remain constant, falls

5. Suppose the Indian government decides to boost public investment with a defense project
of rupees 40000 crore.
Explain the likely impacts of the given situation on the income, employment and output of
the economy, assuming all other factors constant.

Ans.: Assuming all other factor constant, any increase in investment generally leads to
multiple increases in final income which in turn leads to increase in employment.
If the Indian government decide to infuse additional investment of rupees 40000 crore in the
defence project it would lead to increase the demand for goods and services leading to ride in
output and employment and consequent increase in income.

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6. a) Suppose an economy is in equilibrium. From the following data calculate investment
expenditure in the economy:
i) National income= rupees 10000 crore,
ii) Marginal propensity to save (MPS) =0.2
iii) Autonomous consumption= rupees 200 crore.

Ans.: MPC=1-MPS
=1-0.2
=0.8
At equilibrium Y=C+I
Y = c+ MPC Y +I
10000=200+0.8x10000+I
Investment expenditure (I)=Rs.1800 crore

b) “With the objective to correct deflation reserve Bank of India may decrease Repo rate.”
discuss the rationale behind the steps taken by the reserve Bank of India (RBI).

Ans.: To correct deflation reserve Bank of India may decrease the repo rate, which may lead
to reduction in lending rates by the commercial bank. This may make borrowing cheaper for
the general public. There by encouraging them to borrow more. As a result aggregate demand
in the economy may increase, consequently correctly the situation of deflation in the
economy.

GOVERNMENT BUDGET AND THE ECONOMY

1. (b) Classify the following as Revenue receipts or Capital receipts. Give valid arguments in
support of your answer: (2024) (3)
(i) Interest received on loan.
(ii) Disinvestment receipts from the sale of a government company.
iii) Financial assistance by the Government of USA for promoting girl education in India.
2. State any two examples of non-tax revenue receipts of the government. (All India 2019)

3. Give two examples of non-tax revenue receipts. (All India (C) 2014) (1)
Or
4.State any two sources of non-tax revenue receipts. (Delhi (C) 2011) (1)

Answer: Two sources of non-tax revenue receipts are

Fees
Grants/donations
5. What do you mean by an indirect tax? (All India 2019) (1)
Or
Define an indirect tax. (All India (C) 2014)
Answer: An indirect tax is one in which the burden of the tax can be shifted to another
person.
6. Define the term ‘tax’. (Delhi 2019)
Or
what is a tax? (All India (C) 2014; Delhi (C) 2012)
Or
Define tax. (Delhi 2012: All India 2010)

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 Answer: Tax is a compulsory payment made by an individual, household or a firm to the
government without reference to anything in return.
7. Difference between direct tax and indirect tax? 2022 (3)
Ans- A direct tax is a tax levied directly on a taxpayer and is paid straight to the imposing
authority. An indirect tax is levied on goods and services and is paid by an individual to the
intermediaries who then submit the tax to the government. The burden of direct taxes cannot
be shifted to another person.
8. Explain the objectives of resource allocation and income distribution in a government
budget. (4)
Ans: To accomplish distinct objectives, the government prepares the budget. The
government’s economic, social, and political policies are directly responsible for these
objectives.
 Resource reallocation:
 Reducing income and wealth disparities: Economic growth: .
 Reducing regional disparities:
9. Read the following statements: Assertion (A) and Reason (R). Choose one of the correct
alternatives given below:
Assertion (A): The government has allocated extra money in Budget 2021 to provide safe
drinking water facilities and sanitation to the people.
Reason (R): The government does it because sanitation and providing drinking water are
public goods.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is true.
Answer- a)
Explanation:- Public goods are not profitable for private sector. Thus it is the responsibilities
of the government to produce.
10. a. Elaborate the objective of „allocation of resources‟ in the Government budget.
(3)(2022)
b. Discuss briefly how the Government budget can be used as an effective tool in the
process of employment generation (3) (2022)
Ans- a. Allocation of resources: Government seeks to allocate resources with a view to
balance the goals of all sections of the society. Production of goods and services which are
injurious to health may be discouraged through taxation policy. Similarly, production of
goods of socially beneficial nature may be encouraged through subsidies. If the private sector
does not take initiative in certain activities (Public Goods), the government may directly
control them like water supply and sanitation etc.
b. Government budget can be used as an effective tool in the process of employment
generation in various ways. Investment in infrastructural projects like construction of
flyovers, bridges, expansion of roads etc. creates jobs for different sections of the workforce.
In rural/urban areas government can provide jobs through various employment generation
schemes like MGNREGA, SJSRY, and PMRY etc.
11. The Government of India has decided to vaccinate the adult population of India (with
Covaxin/ Covishield), without any charge. This would be categorized as ____________ (Fill
in the blank with correct alternative) (2021-22) 1
a) Revenue nature income
b) Capital nature expenditure
c) Revenue nature expenditure
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d) Capital nature income

12) Elaborate the objective of ‘allocation of resources’ in the Government budget. (2021-22)
OR
a) Distinguish between revenue receipts and capital receipts of the government, with suitable
examples.
b) Distinguish between direct and indirect taxes, with suitable examples.
Ans. b) Government seeks to allocate resources with a view to balance the goals of all
sections of the society. Production of goods and services which are injurious to health may be
discouraged through taxation policy. Similarly, production of goods of socially beneficial
nature may be encouraged through subsidies. If the private sector does not take initiative in
certain activities (Public Goods), the government may directly control them like water supply
and sanitation etc. OR
a) Revenue receipts are those receipts which neither create any liabilities nor cause any
reduction in the assets of the government. For example: taxes, dividends received from public
enterprises etc. Whereas; Capital receipts are those receipts which either creates liabilities or
causes reduction in the assets of the government. For example: borrowings, disinvestments
etc.
b) Direct taxes are those taxes whose impact and incidence lies on the same entity. In other
words, the liability of paying direct taxes can’t be shifted. For example: income tax. Whereas;
Indirect taxes are those taxes whose impact and incidence may lie on different entities. In
other words, the liability of paying indirect taxes can be shifted. For example: GST.

-------------------------------------------------------------------------------------------------------------
BALANCE OF PAYMENTS
2024
01 According to the Reserve Bank of India’s (RBI’s) Statistical Supplement released on 19th
May, 2023: “India’s foreign exchange reserves grew for the third straight week and reached
near an approximate level of $ 600 billion.” The above situations will _________ the
__________ side of Balance of Payments account of India.
(Choose the correct alternative to fill in the blanks)
(A) Increase, Credit (B) Decrease, Credit (C) Decrease, Debit D) Increase, Debit
Ans. (D) Increase, Debit

02 Identify the correct pair of statements given in Column I with the related terms in Column
II: Column I Column II
1. Remittances from abroad to the nation (i) Accommodating Transaction

2. Government’s policy of decreasing the (ii) Devaluation

value of the nation’s currency against foreign
currencies

3. Difference between visible exports and (iii) Balance of Payments

visible imports of a nation

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4. Government as sole authority of (iv) Flexible Exchange Rate System
determining foreign exchange rates Alternatives:

(A) 1 → (i) (B) 2 → (ii) (C) 3 → (iii) (D) 4 → (iv)

Ans. (B) 2 → (ii)

03 Read the following statements: Assertion (A) and Reason (R). Choose the correct
alternative from those given below:
Assertion (A): In case of an unfavorable Balance of Trade, the Current Account of the nation
may be in surplus.
Reason (R): Net invisible receipts of a nation can exceed the Net visible receipts.
Alternatives: (A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of the Assertion (A).
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation
of the Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true.
Ans. (A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of the Assertion (A).

04 Discuss any two factors which directly affect the demand for foreign exchange of a nation.
Ans. Two factors which directly affect the demand of foreign exchange of a nation are: •
Imports: When a country imports goods and services, it needs to pay for these imports in the
foreign currency. Therefore, higher imports result in higher demand for foreign exchange. •
Investments abroad: When domestic investors make investments abroad, the payment is to
be made in the foreign currency. This increases the demand for foreign exchange.
(Any other valid factor/explanation to be awarded marks)

2023
05 Read the following statements carefully:
Statement 1: Borrowings by a nation from the World Bank to finance Balance of Payment
(BOP) deficit will be recorded in the capital account.
Statement 2: Autonomous transactions are independent of the condition of Balance of
Payment (BOP) account.
In light of the given statements, choose the correct alternative from the following:

85 | P a g e
(a) Statement 1 is true and Statement 2 is false.
(b) Statement 1 is false and Statement 2 is true.
(c) Both Statements 1 and 2 are true.
(d) Both Statements 1 and 2 are false.
Ans. (c) Both Statements 1 and 2 are true.

06 On the basis of the given information, calculate the values of the following:
(i) Fiscal Deficit (ii) Primary Deficit S.
No. Items Amount (in ₹ crore) (i) Capital Expenditure 30 (ii) Revenue Receipts 20 (iii)
Revenue Deficit 20 (iv) Interest Payments 10 (v) Non - Debt Creating Capital Receipts 50%
of Revenue Receipts
Ans. Non- Debt Creating Capital Receipts = 50% of Revenue Receipts
= 𝟓𝟎𝟏𝟎𝟎 x 20 = ₹ 10 crore Fiscal Deficit = (iii) + (i) - Non-Debt Creating Capital Receipts
= 20 + 30 - 10 = ₹ 40 crore
Primary Deficit = Fiscal Deficit – (iv) = 40 – 10 = ₹ 30 crore

07 State any two examples of private goods.

Ans. Examples of private goods are:
• Mobile phone purchased by an individual
• Water bottle purchased by an individual (Any other valid example to be awarded marks)

08 Distinguish between ‘Public Provision’ and ‘Public Production’.

Ans. Public provision refers to those goods that are financed through the government budget
and can be used without any direct payment by public. Whereas, Public production relates to
those goods which are directly produced by the government.

2020
09 Question: Fiscal deficit can be estimated using the formula ______ (Fill in the blank with
the correct formula)
Answer: Total Expenditure ─ Total Receipts except borrowing (or any other correct answer
to be allotted marks)

10 Question: ________ is one of the most important sources of demand for foreign currency.
(Fill in the blank with the correct answer)
Answer: Import of goods and services (or any other correct answer to be allotted marks)
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11 Question: Define “Trade Surplus”
Answer: Trade Surplus refers to the excess of the receipts of exports of visible items over the
value of payments for imports of visible items.

12 Questions: (a) Define ‘Revenue Expenditure’.

Answer: (a) Revenue Expenditures are those expenditures of the government that neither
create any assets nor reduce any liabilities of the government.
Question: (b) Distinguish between Direct tax and Indirect Tax
Answer :(b) Direct taxes are those taxes in which the impact and incidence of the tax lie on
the same entities. The burden of direct taxes cannot be shifted on any other entity like Income
tax. Whereas, Indirect taxes are those taxes in which the impact and incidence of the tax lie
on different entities. The burden of indirect taxes can be shifted on other entities like GST.

2019
13 What is meant by primary deficit?
Ans- Primary deficit is the difference between fiscal deficit and the interest payments made
by the government.

14 What is meant by fiscal deficit?

Ans- Fiscal deficit is the difference between the Government’s budgetary expenditure and its
budgetary receipts excluding borrowings.

15 How are capital receipts different from revenue receipts? Discuss briefly
Ans- Capital Receipts are those receipts of government which either lead to increase in its
liabilities or reduction in its assets. For Example: receipts from recovery of loans,
borrowings, receipts from disinvestment.
Whereas; Revenue receipts are those receipts of government which neither lead to increase in
its liabilities nor reduction in its assets.
For example: income tax, profit of PSU, dividends, fees and fines etc. (any other relevant
example)

16 Define (a) “Trade surplus”. How is it different from “Current account surplus”?

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(b) “Indian Rupee (`) plunged to all time low of ` 74.48 against the US Dollar ($)”. – The
Economic Times. In the light of the above report, discuss the impact of the situation on
Indian Imports.
Ans- a) Trade surplus refers to excess of value of export of visible items over value of import
of visible items in the balance of payment account of a country. Current account surplus
refers to excess of receipts from value of export of visible items, invisible items and unilateral
transfers over payments for value of import of visible items, invisible items and unilateral
transfers. It is relatively broader concept as compare to trade surplus.

b) Indian rupee plunged to all time low of 74.48 against US dollar. It is called depreciation in
the value of Indian Rupees. It may lead to fall in imports as foreign goods will become
costlier for the domestic consumers. (To be marked as a whole)
OTHER IMP QUES
17 Read the following statements carefully:
Statement 1: Borrowings by a nation from the World Bank to finance Balance of Payment
(BOP) deficit will be recorded in the capital account.
Statement 2: Autonomous transactions are independent of the condition of Balance of
Payment (BOP) account.
In light of the given statements, choose the correct alternative from the following:
(a) Statement 1 is true and Statement 2 is false.
(b) Statement 1 is false and Statement 2 is true.
(c) Both Statements 1 and 2 are true.
(d) Both Statements 1 and 2 are false.

18As per the NSE data dated 9th June 2023, there was a net selling off worth 309 crore by
Foreign Institutional Investors (FIIs) over the period of one month i.e., 9th May 2023 to 9th
June, 2023. The above mentioned transactions will be recorded on __________ side of
___________ account of Balance of Payments of India.
(Choose the correct alternative to fill in the blanks)
(A) Debit, Current (B) Credit, Capital(C) Credit, Current (D) Debit, Capital

19 Gifts and remittances sent abroad are recorded on the _______ side of the _________
account in Balance of Payment. (Choose the correct alternative to fill up the blanks)
(a) Credit, capital (b) debit, capital (c) credit, current (d) debit, current

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20Identify, which one of the following is an intangible item in Balance of Payment (BoP). (a)
Export of food grains
(b) Imports of crude oil
(c) Export of Information Technology (IT) services to U.S.A.
(d) Import of coal by steel company in India

21 Keeping other factors constant, if the price of crude oil falls in the international market, it
may lead to ___________. (Choose the correct alternative to fill up the blank)
(a) Increase in trade deficit (b) decrease in trade deficit
(c) no change in trade deficit
(d) No change in the foreign exchange reserves
22 Read the following statements carefully:
Statement 1: Import of gold from Dubai will be recorded on the debit side of the current
account in Balance of Payments of India.
Statement 2: Outflow of Foreign Institutional Investment (FII) from Indian stock markets will
be recorded on the credit side of the capital account.
In light of the given statements, choose the correct alternative from the following:
(a) Statement 1 is true and Statement 2 is false.
(b) Statement 1 is false and Statement 2 is true.
(c) Both Statements 1 and 2 are true.
(d) Both Statements 1 and 2 are false.

23 Read the following statements carefully:

Statement 1: Depreciation of domestic currency may lead to a rise in exports.
Statement 2: Due to the depreciation of Indian National Rupee (), purchasing power of US
Dollar ($) may increase.
In light of the given statements, choose the correct alternative from the following:
(a) Statement 1 is true and Statement 2 is false.
(b) Statement 1 is false and Statement 2 is true.
(c) Both Statements 1 and 2 are true.
(d) Both Statements 1 and 2 are false.

24 An Indian company receives a loan from a company located abroad.

This transaction would be recorded on the __________ side of ____________ account in
India’s balance of payment. (Choose the correct alternative to fill up the blanks)
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(a) Credit, Current (b) Debit, Current (c) Credit, Capital (d) Debit, Capital

25 Read the following statements carefully:

Statement 1: Balance of Payment account is always balanced in accounting sense.
Statement 2: Autonomous transactions restore balance in Balance of Payment account.
In light of the given statements, choose the correct alternative from the following:
(a) Statement 1 is true and Statement 2 is false.
(b) Statement 1 is false and Statement 2 is true.
(c) Both Statements 1 and 2 are true.
(d) Both Statements 1 and 2 are false.

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90 | P a g e
 STUDY MATERIAL
FOR
LATE BLOOMERS

Unit: National Income & Related Aggregates

Memory Booster for Late Bloomers

91 | P a g e
1. Nominal Gross Domestic Product- It refers to market value of the final goods and services
produced within the domestic territory of a country during a financial year, as estimated using
the current year prices. It is also called GDP at current price.

2. Real Gross Domestic Product- It refers to market value of the final goods and services
produced within the domestic territory of a country during a financial year, as estimated using
the base year prices. It is also called GDP at constant price.

3. GNP Deflator- It shows the change in GNP with the change in price levels.

4. Net Factor Income from Abroad (NFIA)- This is the difference between the income
earned from abroad for rendering factor services by the normal residents of the country to the
rest of the world and the income paid for the factor services rendered by non-residents in the
domestic territory of a country.

5. Factor income- These are incomes received by the owners of factors of production for
rendering their factor services to the producers i.e. wages to the labour , rent to land, interest
to capital and profit to the entrepreneur.

6. Transfer payments- These are all those unilateral payments (one way payments)
corresponding to which there is no value addition in the economy, e.g. gifts, donations, etc.

7. Private sector- It refers to all those businesses and enterprises which are owned and
controlled by the private individuals.

8. Public sector- It refers to all those departmental and non-departmental businesses and
enterprises which are owned or controlled by government.

9. Public sector It refers to all those departmental and non-departmental businesses and
enterprises which are owned or controlled by government.

10. What is transfer payment- Transfer payments are all those unilateral payments
corresponding to which there is no value addition in the economy, e.g. gifts, donations.

11. Distinguish between domestic product and national product- The sum total of all factor
incomes generated or produced during an accounting year within the domestic territory of a
country is termed as domestic income or domestic product of a country.
National Product = Domestic Product + Net Factor Income from Abroad.

12. Distinguish between stock and flow

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 Stock Flow

Stocks are defined at a point in time Flows are defined over a period of time

Stocks are a static concept Flows are a dynamic concept

It does not have a time dimension It has a time dimension

Examples: Wealth, Money supply, etc. Examples: National Income, Investments, etc.

13. Define ‘depreciation’-

Ans:-Depreciation is an expected decrease in the value of fixed capital assets due to
its general use.

14. When will GDP of an economy be equal to GNP?

Ans: GDP and GNP will be equal when the ‘net factor income from abroad’ is zero.

15. When will the domestic income exceed the national income?
Ans: When the net factor income from abroad is negative.

16. If NDPFC is Rs 1,0000crores and NFIA is (-) Rs 500 crores, how much will be the
national income?
Ans: National Income = 10000 + (-500)
= Rs 9500 Crore

17. In which type of economy, domestic income will be equal to national income?
Ans: Closed economy.

18. National income differs from net national product at market price by the amount——
—–.
(a) current transfers from the rest of the world
(b) net indirect taxes
(c) national debt interest
(d) it does not differ
Ans: (b)

19. Net national product at factor cost is————-.

(a) equal to national income
(b) less than national income
(c) more than national income

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 (d) sometimes less than national income and sometimes more than it
Ans: (a)
20. Which one of the following options is an economic activity?
(a) Listening to music on the radio.
(b) Teaching one’s own son at home.
(c) Medical facilities rendered by a charitable dispensary.
(d) A housewife doing household duties.
Ans: (c)

21. Define double counting.

Ans: If a single transaction is recorded twice or more than twice in the calculation of
national income, then it is known as double counting.
Giving reasons, state whether the following statements are true or false.

22. In a closed economy, gross national product is always equal to gross domestic product.
Ans: True: When net factor income from abroad is zero i.e., income from abroad is equal to
income to abroad.

23. Gross investment can be equal to net investment.

Ans: True: It is possible when depreciation is zero.

24. Domestic Income of a country can be more than its National income.
Ans: True: It can happen when NFIA is negative i.e., factor income paid to abroad is more
than factor income received from abroad.

25. Increase in the stock of capital is known as:

(a) Capital loss (b) Capital gain

(c) Capital formation (d) None of these

ANSWER-(c) Capital formation

26-Expenditure Method

1. GNP at MP is =_______
a. GDP at MP – Depreciation b. GDP at MP + Depreciation
c. GDP at MP / Depreciation d. GDP at MP + Net factor income from abroad
Ans. GDP at MP + Net factor income from abroad

27. Net Exports is equal to Exports - ……………………( Subsidies/ Imports)

Ans: Subsidies

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28. NDP at MP = ______
a. GDP at MP – Depreciation b. GDP at FC + Net factor income from abroad
c. NNP at FC + Net indirect taxes d. All of these
Ans. (A) GDP at MP – Depreciation

29. Which of the following is not an element of final consumption expenditure?

a. Household expenditure on food
b. Government final consumption expenditure
c. Household expenditure on education
d. Expenditure on raw material
Ans. D (Expenditure on raw material)

30. Which of the following is not a part of final expenditure?

a. Consumer goods purchased by the governments
b. Consumer goods exported to rest of the world
c. Seeds purchased by the farmers
d. Fixed investment expenditure by firms
Ans. ( C) . Seeds purchased by the farmers

31. Difference between closing stock and opening stock during an accounting year is known
as ………………….
a. Increase in stock
b. Decrease in stock
c. Change in stock
d. None of these
Ans: Change in stock

32. Sugar purchased by a sweet shop is _________ good while it is a __________ good
when it is purchased by a consumer.
a. capital, final
b. final, Intermediate
c. intermediate, final
d. final , producer
Ans:- Intermediate, final

33. Which of the following is not included in the calculation of Gross National Product?
a. Purchase and Sale of Old commodities
b. Intermediate Commodities
c. (A) and (B) both
d. None of the above
Ans. (c)

34. Write three precautions to be taken while measuring NI by Expenditure method.

Ans.

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i-Intermediate expenditure should not be included as it leads to double counting
ii-Expenditure on Sale of Second hand goods should not be included
iii-Expenditure on Purchase of financial assets like share and bonds should not to be
included.

35. Distinguish between Gross Investment and Net Investment expenditure ?

Ans:
Gross Investment Net Investment expenditure
It is the total expenditure on production It is the net expenditure on production goods
goods
It is equal to = GDFCF +Change in stock It is equal to= Gross investment –
Depreciation

36. The net export can be negative or positive. . (TRUE/FALSE)

Ans. True

37. Payment of GST tax is included in national income. . (TRUE/FALSE)

Ans. false

38. Net domestic capital formation is = GDFCF + Depreciation – Change in stock.

(TRUE/FALSE)
Ans. False

39. How do we get Net Indirect Taxes?

Ans. NIT= Indirect Taxes – Subsidies
Income Method

40. Can National Income be equal to domestic income ?

Ans. Yes . If NFIA = 0 , NI = DI

41.Can National Income be less than domestic income ?

Ans. Yes. NI = DI + NFIA . If NFIA <0 , NI < DI

42. What is Mixed Income in NI accounting ?

Ans. Mixture of wage & non-wage income earned by small self - employed people

43.Fill in the gaps :NNPfc = NDPfc + ………….

Ans. Net factor income from abroad (NFIA)

44. Define national Income.

Ans. The factor income earned by normal residents of country in an accounting year. It also
includes net factor income from abroad.

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45. Compensation of employees = Wages in cash & kind + Pension on retirement +
…………………
Ans. Employer’s contribution to social security schemes.
46. Can National income be more than Domestic Income?
Ans. Yes. If NFIA is positive NI > DI

47. Write the formula for finding domestic income.

Ans. Domestic Income (NDPfc ) = Compensation of Employees + Operating Surplus
+ Mixed Income of self employed
48. Write the formula for finding National Income by income method.
Ans. National Income (NNPfc) = Domestic Income + Net factor income from abroad
= NDPfc + NFIA
49. Briefly discuss the meaning of Compensation of employees
Ans. Compensation of employees is the income from labour. It is earned by providing labour
services in the production process.
Compensation of employees = Compensation in cash & kind + Social security contribution
by employer + Retirement pension

50. Briefly discuss the meaning of Operating Surplus

Ans. Operating Surplus is the sum total of Income from property and income from
entrepreneurship.
OS = Income from Property + Income from entrepreneurship
= ( Rent + Royalty + Interest) + Profit
= (Rent + Royalty + Interest ) + ( Dividend + Undistributed Profit + Corporate Tax)

51.Write three precautions to be taken while measuring National Income by Income Method.
Ans.
i-Transfer Income should not be included in NI as they are unilateral transfers
ii-Income from sale of second hand goods should not be included. However, Commission
paid for such transaction to agent should be included.
iii-Illegal income should not be included.

52.GVA MP OF PRIMARY SECTOR + GVA MP OF SECONDARY SECTOR + GVAMP OF

TERTIARY SECTOR =………………………………..

ANS- GDP MP

53. GVA MP = SALES+…………………….

ANS- CHANGE IN STOCK

54. DOMESTIC SALES + EXPORT = …………….

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 ANS- SALES

55.GVA MP – NIT = ……………

ANS- GVAFC

56. Identify whether the following things are included while calculating national income?
(say yes or no ) give reason.

(1) Intermediate goods are included while calculating national income.

Ans- No, the value of these goods is already added.

(2) Production of services for self-consumption is not included.

Ans- YES, because it is difficult to measure their market value

57. What is Problem of Double Counting? State the methods to avoid it.
Ans. Problem of double counting refers to adding the value of one output more than once
while estimating National Income.
Methods to avoid it: Final output method , Value added method

58. Write down two precautions to be taken while measuring NI by output method .
Ans.
i-Value of intermediate goods should not be included to avoid double counting
ii-Sale of Second hand good not to be included as its value has already been included in the
year it was produced.

IMPORTANT FORMULA

1 GDP+ NFIA= GNP

2 GDP- DEPRECIATION=NDP

3 Net Investment = Gross Investment – Depreciation

4. Net Indirect Tax

Net Indirect Tax = Indirect Taxes – Subsidies

5. Market Price

Market Price = Factor Cost + Net Indirect Taxes

6. Net factor Income from Abroad (NFIA)

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7. Net Factor Income from Abroad = Factor income earned from abroad – Factor income paid
abroad

8. National Income (using NFIA)

National Income = Domestic Income + NFIA

9. Depreciation

Depreciation = Gross Value – Net Value

10. GDPFC = GDPMP – Net Indirect Taxes

NDPMP = GDPMP – Depreciation

11Net National Product at Market Price (NNPMP)

NNPMP = GNPMP – Depreciation

12 Net National Product at Factor Cost (NNPFC) or National Income

NNPFC = GNPMP – Net Indirect Taxes – Depreciation

DISTINGUISH BETWEEN

1. Distinguish b/w real GDP and Nominal GDP.

Ans. Real GDP – (i) When GDP is measured at base year price it is called real GDP.

(ii) It is true indicator of economic growth.

Nominal GDP- – (i) When GDP is measured at current year price it is called nominal GDP.

(i) It is not true indicator of economic growth.

2. Distinguish b/w National Income And Domestic Income:

Ans. National Income: Factor Cost and Market Price:

(i)National Income refers to net money value of all the final goods and services produced by
the normal residents of a country during an accounting year.

(ii)NNPfc = NDPfc + NFIA

Domestic Income:

(i) Domestic Income refers to a total factor incomes earned by the factor of production within
the domestic territory of a country during an accounting year.

NDPfc = NNPfc - NFIA

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3. Distinguish b/w Factor Cost and Market Price:

1. Factor Cost (FC):

(i) It refers to amount paid to factors of production for their contribution in the production
process

FC =MP - NI

2. Market Price (MP):

(i)It refers to the price at which product is actually sold in the market.

MP = FC+ NIT

4 Distinguish b/w Factor income and Transfer income:

Factor Income: (i) Factor income is the income received by the factor of production for
rendering their services to the firms.

(ii) It is included in estimation of national income.

(iii) Example: rent, interest, profit, wages.

Transfer Income: (i) Transfer income is unilateral income received without rendering any
services.

(ii)It is not included in estimation of national income.

(iii) Gift, Donation, scholarship etc.

SHORT ANSWERS

1. Define domestic income.

Ans: Domestic income is the net money value of all the final goods and services produced
within the domestic territory of a country during a period of one year.

2. Define current transfers.

Ans. Current transfers are those transfers which are paid from the current income of the payer
and added to the current income of the recipient for consumption, expenditure.

3. Define GDP at market price.

Ans. GDP at market price refers to market value of final goods and services produced within
the domestic territory of the country within one year, inclusive of depreciation.

4. Define NDP at market price.

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Ans. NDP at market price refers to market value of final goods and services produced within
the domestic territory of the country within one year, exclusive of depreciation.

5. Define NNP at factor cost.

Ans. NNP at factor cost refers to the market value of final goods and services produced
within the domestic territory of a country during the period of an accounting year, inclusive
of net factor income from abroad but exclusive of depreciation and estimated at factor cost.

6. Define factor income from abroad.

Ans. Factor income from abroad is the factor income earned by our residents who are
temporarily residing abroad. Example: Salaries of Indians working in Russian embassy in
India.

7. Define factor income to abroad.

Ans. Factor income to abroad is the factor income earned by non-residents who are
temporarily residing in our country. Example: Salaries of Americans working in Indian
embassy in America.

8. What must be added to domestic factor income to obtain national income?

Ans. Net factor income from abroad.

9. Define NNP at factor cost.

Ans. NNP at factor cost refers to the market value of final goods and services produced
within the domestic territory of a country during the period of an accounting year, inclusive
of net factor income from abroad but exclusive of depreciation and estimated at factor cost.

10. Define factor income from abroad.

Ans. Factor income from abroad is the factor income earned by our residents who are
temporarily residing abroad. Example: Salaries of Indians working in Russian embassy in
India.

11. Define factor income to abroad.

Ans. Factor income to abroad is the factor income earned by non-residents who are
temporarily residing in our country. Example: Salaries of Americans working in Indian
embassy in America.

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 MONEY & BANKING

Q1. Choose the appropriate function of money which supports savings accounts in a financial
institution.
a) An exchange medium
b) Store of value
c) The standard for deferred payments
D) A measure of value
Answer: b

Q2. Choose the primary function of money

a) The savings function
B) An exchange medium
c) The unit of account function
d) The store of the value function
Answer: b

Q3. Choose the secondary functions of money

a) Measure of value
B) An exchange medium
c) Store of value
d) None of the above
Answer: c.

Q4. What is store of value as function of money?

Answer:- With money, people hold liquidity and value in a much more convenient manner.

Q5. What do you understand by the medium of exchange function of money?

Answer:- The primary function of money is, acting as a medium of exchange between two
parties involved in a transaction. It avoids the practical problems of wastage of time and
resources, involved in the barter system of an exchange.

Q6. Money Supply in India is:

a) Currency held with the public b) Demand deposits with the banks
c) Other deposits with RBI d) All of the above
Ans: (d)

Q7. Which of the following is not included in the M1 money supply of India?
a) Time deposits b) Demand deposits
c) Other Deposits d) Currency held with the public
Ans: (a)

Q8. M1 in the money stock in India refers to:

a) Post office saving deposits b) Total post office deposits
c) Currency plus demand deposits plus other deposits with RBI

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d) Time deposits with banks
Ans: (c)

Q9. Demand deposits include:

a) Saving account deposits and fixed deposits
b) Saving account deposits and current account deposits
c) Current account deposits and fixed deposits
d) All type of deposits
Ans: (b)

Q10.M1 includes time deposits of commercial banks.

Ans: False

Fill in the blanks

Q11. Three components of M1 money supply is currency held with the public, demand
deposit and …………………
Ans: Other deposits with RBI
Q12. Define money supply.
Ans: The money supply is the total amount of money- cash, coins, and balances in the bank
accounts in circulation.
Q13. Define demand deposits.
Ans Demand deposits are those deposits that are payable on demand by a cheque or other
means.
Q14.Complete the formula
M1 = C + DD + ……..
And: OD
Q15. Money is a -------- concept
A) Dynamic
B) Static
c) Both a and b
d) None
Answer a
Q16...What is money?
Anything which acts as a medium of exchange, measure of value and store of value is called
money. Example –A rupee in India is money, as it is a commonly accepted medium of
exchange.
Q17. Which is the most liquid measure of the money supply?
(a) M4 (b) M3
(c) M2 (d) M1
Ans D-M1
Q18. ------------- is known as transaction money
(a) M4 (b) M3
(c) M2 (d) M1
Ans D-M1
Q19. What items are not included in M1 measures of supply?

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a) Currency and coins held in public
b) Other deposits with RBI
c) Inter Bank deposits
d) Net Demands deposits with bank
Ans-C-Inter Bank Deposits

Q20. Write the formula of Money multiplier.

1
Ans. Credit/Money Multiplier (K) = 𝐶𝑅𝑅

Q21. What is the formula of Credit creation?

1
Ans. Money/Credit creation = Primary deposits × 𝐿𝑅𝑅/𝑅𝑅

Q22. Define credit creation.

Ans. Credit creation refers to creation of demand deposits with the commercial banks on the
basis of their cash reserves.

Q23. Explain the effect on credit creation due to increase in CRR.

Ans. Higher the CRR, lower the capacity of the commercial bank to create money.

Q24. Write two factors which can fluctuate credit creation capacity of commercial bank.
Ans. Credit creation capacity of commercial bank depends on two factors-
a) Amount of initial deposits
b) Rate of LRR

Q25. Who are authorized to perform open market operations?

Ans. Open market operations are performed by the RBI on behalf of the government.

Q26. How is Inflation controlled through open market operations?

Ans. To control Inflation, central bank sells securities in open market.

Q27. How is Deflation controlled through open market operations?

Ans. To control deflation, central bank purchases securities in open market.

Q28. What is margin requirement?

Ans. A margin requirement refers to the difference between market value of the security
offered for loan and the amount of loan offered by the commercial banks.

Q29. How is Inflation controlled through margin requirement?

Ans. During Inflation, supply of money is reduced by raising the requirement of margin.

Q30. How is Deflation controlled through margin requirement?

Ans. During Deflation, supply of money is increased by lowering the requirement of margin.

Q31. What is meant by quantitative tools of credit control ?

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 Ans. Quantitative credit control refers to control of overall credit in the economy, affecting
all sectors of the economy equally and without discrimination.

Q32. What is meant by qualitative tools of credit control?

Ans. Qualitative credit control refers to selective credit control that focuses on allocation of
credit to different sectors of the economy.

Q33. Define CRR.

Ans. Cash reserve Ratio: It refers to that minimum portion of total net deposits of
Commercial Banks which have to be maintained with Central Bank.

Q34. What is meant by credit multiplier?

Ans. 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

Q.1-Whenever the central bank offers securities in the open market, the credit creation
capability of the banking industry is expected to ___________
a) Fall
b) Rise
c) No effect
d) May rise or may fall
Ans: (b) Rise

Q.2 Given CRR = 4% and SLR = 16%, the value of the money multiplier will be
___________.
a) 50
b) 25
c) 8.33
d) 6.25
Ans: (a) 50

Q.3.To help the country’s credit situation at the time of inflation, the RBI
may______________.

a) Repo Rates should be reduced

b) Purchase stocks and bonds in the open market.
c) Reduce the cash reserve to debt ratio.
d) Sell securities in the open market
Ans: (d) Sell securities in the open market

Q.4. What happens when margin requirements are increased?

a) There has been no change in the amount of money in circulation.
b) more likely to borrow more money resulting in a rise in the money supply
c) It decreases borrowing capacity and money supply
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d) None of the following
Ans: (c) It decreases borrowing capacity and money supply

Q.5. Commercial banks create money in the following ways:

a) Issuing currency
b) Creation of bank deposits
c) Neither (1) nor (2)
d) Both (1) and (2)
Ans: (b) Creation of bank deposits

Q.6.The central bank’s reduction of the CRR has the following effect on the commercial
banks’ capacity to create credit:
a) Positive
b) No effect
c) Negative
d) Can be negative or can be positive
Ans : (a) Positive

Q.7. By lowering the central bank’s margin requirements, borrowers’ borrowing capacity
______________.

a) Falls
b) No effect
c) Rises
d) May rise or may fall
Ans: (c) Rises

Q8. Credit cards issued by the banks are to ___________.

(a) Encourage consumer spending
(b) Increase aggregate demand the economy
(c) Increase in aggregate supply
(d) Both (a) and (b)
Ans- D

Q9. With an increase in SLR, flow of Credit in the economy ________.

a) Increases
b) Decreases
c) Remains unchanged
d) None of these
Ans- B

Q10. Credit creation means creation of _____________

a) Primary deposits
b) Secondary deposits
c) Time deposits

106 | P a g e
 d) None of these
Ans- B

Q11. The process of money creation or credit creation is done by ___________.

a) Rural bank
b) Central bank
c) World bank
d) Commercial bank
Ans- D

Q12. Credit creation by commercial banks is determined by_______.

a) Cash reserve ratio
b) Statutory liquidity ratio
c) Initial deposits
d) All the above
Ans. D
NUMERICAL BASED QUESTIONS

Q1. What is the value of money multiplier when initial deposits are Rs. 500 crores and LRR
is 10%?
Ans: 10
Q2. What will be the value of multiplier if CRR is 10% ?
Ans: 10 times
Q3. Total deposits created by commercial banks are Rs. 12,000 crore and LRR is 25%.
Calculate the amount of initial deposits.
Ans. 3000 crore
Q4. If legal reserve ratio is 20%, What will be the value of money multiplier?
Ans: 5
TRUE AND FALSE QUESTIONS
Q1.There is inverse relation between LRR and the size of the money multiplier. Whether true
or false?
Ans. TRUE
Q2. Credit multiplier reflects the maximum amount of credit that the commercial banks can
legally create on the basis of CRR. Whether true or false?
Ans. TRUE
Q3. Commercial banks do not create money. Whether true or false?
Ans. FALSE
Q4. Open market operations are meant to increase or decrease the supply of money in the
Economy. Whether true or false?
Ans. TRUE
Q5. Higher the legal reserve ratio, greater would be the money creation in the economy.
Whether true or false?
Ans. FALSE
Q6. Credit multiplier is the reciprocal of CRR. (True/False)
Ans. True

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Q.7 what is Money?
Ans. 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.8. What are the PRIMARY functions of money?
Ans. The functions of money can be classified into Primary
Primary Functions
A) Money act as a common medium of
B) Money act as a common measure of value
Q. 9. What are the Secondary functions of money?
Ans. Secondary Functions
1) Money act as a Standard of Deferred
2) Money acts as a Store of Value

Q.10. What is Barter system?

Ans. It refers to the exchange of goods for goods. In other words, it refers to the direct
exchange of goods & services with another.
Q.11. What are the measures of money supply?
Ans.: M1, M2, M3, M4 are the alternative measures of money supply
Q.12. What is High powered money?
Ans: High powered money is money produced by the RBI and the government.
It consists of two things (i) Currency held by public and (ii) Cash reserve with the bank
Q.13._______ and _______ are generally Known as Narrow money supply concept.
Answer: M1 and M2
Q.14. Who issues the one-rupee notes and coins in the country?
Ans.: Ministry of Finance.
Q.15.money refers to the money backed by the authority of the government.
Ans.: Fiat money.
Q.16.Which thing, solves the problem of “Double coincidence of wants”?
Ans.: Money
Q.17.Which of the thing that is generally accepted by everyone as a medium of exchange?
Ans.: Money
Q.18 Distinguish between Static and Dynamic Functions of money.
Ans.:
Static functions Dynamic functions
Static functions of money are those functions Dynamic functions are those functions which
which assure smooth working of the influence the economic system through its
economic system impact on Price level, Rate of Interest.

Q.19 Distinguish between Narrow & Broad Definitions of Money.

Ans.:
Narrow definition Broad definition
Narrow definition of money refers to its The broad definition of money has extended
function as medium of exchange the function of money to a high degree of
money ness (liquidity) & is widely used as a
store of value.

108 | P a g e
Q. 20. Who regulates Money Supply?
Answer: RBI
Q.21. Money Supply is a ___________ (Stock/ Flow) concept.
Answer: STOCK

Q.22. which of the following is a step that the central bank will take to encourage greater
investment in the economy?

a) It will look to increase the cash reserve ratio

b) It will look to reduce the cash reserve ratio

c) It will look to increase the bank rate

d) It will look to sell the government securities in the open market

Answer: b

Q.23. Which of the following is a step that the central bank will take to increase the overall
availability of credit?

a) It will sell the government securities in the market

b) It will buy more government securities from the market

c) It will raise the reverse repo rate

d) It will raise the repo rate

Answer: a

Q.24. Which of the following statements is true about the Indian monetary system?

a) The Indian monetary system is based on the gold standard

b) The Indian monetary system is based on the credit money standard

c) The Indian monetary system is based on the paper standard

d) The Indian monetary system is based on the metallic standard

Answer: c

Q.25.Which of the following statements represents the main function of the central bank in a
country?

a) It is responsible for the regulation over the supply of money in the market

b) It is responsible for the issuance of notes within the country

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c) It acts as a banker both to the government and to other banks in the country

d) All of the above

Answer: d

Q.26 Which of the following statements is true about demand deposits?

a) It includes both fixed deposits and current account deposits

b) It includes both savings account deposits and fixed deposits

c) It includes both current account deposits and savings account deposits

d) It includes fixed deposits, current account deposits and savings account deposits

Answer: c

Q.27 Which of the following statements is true about the central bank?

a) It regulates the entire banking system in the country

b) It is under the ownership of the central government of a country

c) It is the apex bank of a country

d) All of the above

Answer: d

Q.28.Which of the following statements about the bank rate is true?

a) Bank rate is different from interest rate

b) Bank rate is the discount rate provided by the central bank of a country

c) Bank rate is defined as the rate at which the central bank of a country gives credit to the
commercial banks

d) All of the above

Answer: d

Q.29.Which of the statements gives a true picture of the effect of the central bank selling
securities in the market?

a) The credit creation capacity of commercial banks will fall

b) The credit creation capacity of commercial banks will rise

c) The credit creation capacity of commercial banks may rise or fall

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d) There is no effect on the credit creation capacity of commercial banks

Answer: a

Q.30 Which of the statements gives a true picture of the effect of lowering the cash reserve
ratio by the central bank of a country?

a) The lending capacity of commercial banks will increase

b) The lending capacity of commercial banks will decrease

c) The lending capacity of commercial banks may increase or decrease

d) There is no effect on the lending capacity of commercial banks

Answer: a

Q.31 Which of the statements gives an accurate picture of the effect of the rise of the reverse
repo rate by the central bank of a country?

a) The demand for goods and services in the country will decrease

b) The demand for goods and services in the country will increase

c) The demand for goods and services in the country may increase or decrease

d) There is no effect on the demand for goods and services in the country

Answer: a

Q.32 Define Commercial bank.

Ans. 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.33 Define a central bank.

Ans.: Central bank is an apex body that controls, operates, regulates and directs the entire
banking and monetary structure of the country

Q34. Define ‘money multiplier’.

Answer: Money multipliers refer to the fraction by which money get multiplied in the process
by the commercial banks.

Q35. Define demand deposits.

Answer: Demand deposits are current and savings account deposits with banks or other
financial institutions, which are payable on demand.

Q36. State the role played by the Central Bank as the “lender of last resort”.
Answer: Central Bank functions as a lender of last resort which means, when commercial

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 banks fails to get credit from any other source, Central Bank help commercial banks by
lending money.

Q37.What is reverse repo rate?

Answer:-It is the rate at which the Central Bank accepts deposits of commercial banks.

Q38. Give the meaning of cash reserve ratio.

Answer:-The percentage of total deposits, which a Commercial Bank needs to keep as reserve
with the Central Bank, is termed as Cash Reserve Ratio.

Q39.What are time deposits?

Answer: Time deposits are fixed term and recurring deposits having a fixed period of
maturity, where the term of deposit may vary. Cheques cannot be issued against them and
they are not payable on demand but these deposits yield interests for the depositor

Q40.What is a Central Bank?

Answer:-The Central Bank is an apex banking institution which controls the entire banking
system and money supply of a country. Reserve Bank of India is the Central Bank of India.

Q41.What is statutory liquidity ratio?

Answer:-Commercial Bank is required to maintain a fixed percentage of its assets in the form
of cash or other liquid assets. This is termed as Statutory Liquidity Ratio.

Q42-What is meant by bank rate?

Answer: The rate at which Commercial Banks can borrow funds from Central Bank without
any collateral security.

Q43.Explain the bankers’ bank function of the Central Bank.

Answer: Central Bank keeps the cash balances of Commercial Banks and issues loans to
them on requirements in the same manner as the Commercial Bank does for its customers. A
Central Bank has almost the same relation with the other Commercial Banks of the country
that the Commercial Banks have with the common public. That is why the Central Bank is
also called as banker’s bank.

Q44. Write few differences between the Central & Commercial Bank.
Ans. Central Bank Commercial Bank
1. It has the monopoly of note issue. 1. It does not have right to issue note.
2. Its motive is maximizing the social 2. Its aim is to earn personal profit.
Welfare.
3. It acts as a controller of credit. 3. It creates the credit in the society.
4. It is fully a govt. institution 4. It may be a govt. or private body.
5. It does not directly deal with the public. 5. It directly deals with public

112 | P a g e
Q45. Calculate the value money multiplier and the total deposit created if initial deposit is of
Rs. 500 crores and LRR is 10%.
Ans: Money multiplier = 1/LRR which is equal to 1/0.1=10
Initial deposit Rs. 500 crores

Total deposit = Initial deposit x money multiplier = 500 x 10 = 5000 crores.

Q46. If total deposits created by commercial banks are Rs.12000, LRR is 25% calculate
initial deposit.
Ans: Money multiplier = 1/LRR = 1/.25 = 4
Initial deposit = Total deposit / money multiplier = 12000/4 = 3000

Q47. Calculate LRR, if initial deposit of Rs. 200 cores lead to creation of total deposits of Rs.
1600 cores.
Ans: Money multiplier = Total deposits/Initial deposits = 1600/200=8
Money multiplier = 1/LRR = 8=1/LRR. LRR = 1.25 or 12.5

DETERMINATION OF INCOME AND EMPLOYMENT

Q1. Give the meaning of Aggregate Demand.

Ans- Aggregate Demand of an economy is measured in terms of the (expected) Total
Expenditure on all products (goods and services) in the economy during an accounting year.

Q2. Write the components of Aggregate demand of two sectors Economy.

Ans: - AD = Consumption + Investment

Q3. Value of APS is negative when

(A) Y>C (B) Y<C C) Y=C D) S=Y
Ans- (B) Y<C

Q4- Average propensity to save is always greater than zero (True /False)
Ans False

Q5 The value of MPS can never be negative (True /False)

Ans- True

Q6. APS cannot be negative (True /False)

Ans:-False

Q7. ---------------refers to actual or realised saving in an economy during a year

(a) Ex-ante saving (b) APS (c) MPS (d) Ex-post saving Ans. Ex-post saving
Ans APS

Q8. If an increase of Rs 10000 in investment in an economy results in an increase in income

of Rs 40000, what will be MPS

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 (A) 0.4
(B) 4
(C) 0.25
(D) 0.30
Ans B

Q9. Differentiate MPS and APS

Ans:-APS refers to Average Propensity to save which defines the amount of savings in every
1 rupee of income for all levels of income which can be less than zero at income levels which
are lower than the break-even point whereas Marginal Propensity to save refers the ratio
between the change in income and its corresponding change in savings which varies 0 to 11-
Difference between Average Propensity to Save (APS) and Marginal Propensity to Save
(MPS)
Average Propensity to Save Marginal Propensity to Save (MPS)
Basis (APS)

It is the ratio of saving to the It is the ratio of change in saving to the change
Meaning
corresponding income level. in total income.

When there are dissaving,

As the change in saving can never be negative,
Average Propensity to Save
Value Marginal Propensity to Save can never be less
can be less than zero. It means
less than than zero. It means that as the change in
that till consumption is more
zero consumption can never be more than change in
than national income, APS will
income, MPS will never be less than zero.
be less than zero.

Formula APS = S/Y MPS = Change in Savings/ Change in Income

10. Calculate the value of Marginal Propensity to Consume (MPC), if in an economy,

autonomous consumption is ₹ 500 crores, ex-ante investments are ₹ 4000crores and
equilibrium level of Income of the economy is ₹ 18,000 crores.
Ans:-We know that consumption function is: 𝐶 = 𝑐̅+ 𝑀𝑃𝐶. 𝑌
At equilibrium level of Income in the economy Y = C + I
Given, Autonomous Consumption (𝐶̅) = ₹ 500 crores and
Ex-ante Investments (I) = ₹ 4000 crores
18,000 = 500 + MPC (18,000) + 4,000
MPC (18,000) = 18000 – 4500
MPC = 13,500/18,000
MPC = 0.75

11. If MPC =0.75 WHAT WILL BE THE VALUE OF K

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 (a) 1
(b) 2
(c) 3
(d) 4
ANS d

12. IF APC = 0.5 WHAT IS THE VALUE OF APS

a) O.25
b) O.50
c) O.75
d) 0.10
ANS:-b

Q13.Which of the following statement is true

a) Value of APC > MPC
b) APC falls with increase in income
c) Both a and b
d) None
Answer:-C

Q 14.Which of the following statement is NOT true

a) If the entire additional income is consumed, then ΔC = ΔY, making MPC = 0
b) MPC is the slope of consumption curve and remains constant throughout in the short run.
c) Value of MPC varies between O and 1.
d) MPC = Change in Consumption (Δ C) / Change in Income (ΔY)
Answer:- a

Q15. AD curve is a:
a) Horizontal straight line parallel to the X-axis
b) Positively sloped curve
c) Negatively sloped curve
d) Vertical straight line parallel to the Y-axis
Ans: (b)

Q16. Which of the following is not a component of aggregate demand in a two sector
economy?
a)Net Exports b)Government expenditure
c) Consumption d) both (a) and (b)
Ans: (a)

Q17. AD curve starts:

a) From the origin b) Point below origin
c) Point above origin d) none of these
Ans: (c)

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 Q18. Give meaning of aggregate demand.
Ans: Aggregate demand refers to the total value of final goods and services which all the
sectors of an economy are planning to buy at given level of income during a period of one
accounting year.
Q19. What are the components of aggregate demand in an open economy?
Ans :i) Private final consumption Expenditure, ii)Government final consumption expenditure,
iii)Gross domestic capital formation and iv)Net export
Fill in the blanks
Q20. AD = C + I + ………….+ (X-M)
Ans: G
Q21. Which of the following can have a Negative value?
a) APC
b) MPC
c) MPS
d) APS
Ans: d)
Q22. Calculate MPC and MPS from the following data.
Income 100 200
Consumption 85 160
Ans :- MPC: - 0.75 MPS :- 0.25

Q23. What is meant by full employment?

Ans. Full Employment: It refers to a situation in which all those people who are willing to
work and able to work are getting the work (job) at prevailing market wage rate.
Q24. What is meant by involuntary unemployment?
Ans. Involuntary Unemployment: It refers to a situation in which all those who are willing to
work and able to work are not getting the work (job) at prevailing market wage rate.

Q25. What is meant by voluntary unemployment?

Voluntary Unemployment: It refers to a situation in which all those who are able to work are
getting the work (job) at prevailing market wage rate

Q26. What is fiscal policy?

Ans. Revenue and expenditure policy of the government to correct the situations of
Excess and deficient demand is known as fiscal policy.
Q27. What is meant by frictional unemployment?
Ans. Frictional unemployment occurs due to time required in shifting of jobs in a dynamic
economy.
Q28. In a given situation, when AD>AS in an economy then___________.
a) General Price level in the economy will decrease.
b) Inventory stock will increase beyond desired level.
c) Situation of excess demand arises.
d) Producers will increase planned output.
Ans. (c)
Q29. If AD<AS, what will be the impact of the situation in an economy?

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a) Decrease in inventories, income, employment and general price level
b) Increase in inventories, income, employment and general price level
c) Decrease in income, output, employment and general price level
d) No change in output but increase in employment and general price level
Ans. (d)
Q30. AD<AS will cause a situation of ______________.
a) Deflation
b) Inflation
c) Over employment
d) None of these
Ans. (a)
Q31. If government increases its expenditure on the infrastructural project, how will this
impact the aggregate demand?
a) Increases
b) Decreases
c) Remains constant
d) Increase in a three sector closed economy
Ans. (a)
Q32. What will be the impact on the aggregate demand, if the government increases tax rates
as it is a main source of government’s revenue?
a) Increases
b) Decreases
c) Remains constant
d) Either Increase or decrease
Ans. (b)
Q33. In case of underemployment equilibrium,Which of the following alternative is not true?
a) Aggregate demand is equal to aggregate supply
b) There exists excess production capacity in the economy
c) Resources are not fully and efficiently utilised
d) Resources are fully and efficiently utilised
Ans. (c)

Q34. With a view to correcting inflationary gap, which of the following fiscal policy
measures should be adopted?
a) Reduction in public expenditure
b) Increase in taxes
c) Increase in public debt
d) All of these
Ans. (d)

Q35. Natural unemployment occurs due to___________.

(a) Shortage of factors of production
(b) Time required in adjusting to change in technology
(c) Time required in shifting from one job to the other
(d) both (b) and (c)

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 Ans. (d)
Q36. The gap by which actual aggregate demand exceeds the aggregate demand required to
establish full employment equilibrium is known as___________.
a) Deficit demand
b) Deflationary gap
c) Inflationary gap
d) Excess demand
Ans. (c)
Q37. Policy related to taxation and government expenditure is called_________.
a) Monetary policy
b) Fiscal policy
c) Foreign trade policy
d) Moral suasion
Ans. Fiscal policy
Q38. To correct Excess demand, RBI must _______ the margin requirement.
a) increase
b) decrease
c) not change
d) remove
Ans. (b)
Q39. Deficient demand leads to________________
a) Deflationary gap
b) Inflationary gap
(c) Both (a) and (b)
d) None of the above
Ans. (a)
Q40. In the situation of excess demand___________________.
a) Aggregate Demand is less than the level of output.
b) Aggregate Demand is more than the level of output.
c) Aggregate Supply is less than the level of output.
d) Aggregate Supply is more than the level of output.
Ans. (b)
Q41. In case of underemployment equilibrium__________________
(a) AS = AD
(b) There is excess capacity in the economy
(c) Resources are not fully utilized
(d) all of these
Ans. (d)
Q42. By increasing the tax burden on the producers, the government intends
to_____________________.
(a) Correct the situation of deficient demand
(b) Correct the situation of inflationary gap
(c) Correct the situation of excess demand
(d) Both (b) and (c)
Ans. (d)

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 Q43. Which of the following can be used to correct inflationary gap?
(a) Increase in taxation
(b) Cut in the cost of credit
(c) Cut in government expenditure
(d) both (a) and (c)
Ans. (d)
Fill in the blanks
Q1. ___________ is the impact of deficient demand on production and employment?
Ans: Decreases.
Q2. Deflationary gap indicates ___________demand in an economy
Ans. Deficient
Q3. Change in government spending is part of___________ policy.
Ans: Fiscal.
Q4. Decrease in cash reserve ratio will lead to _______in aggregate demand.
Ans. Rise.
Q5. A cut in repo rate by RBI is likely to _____________the demand for goods and services
in the economy.
Ans. Increase
Q6. Keynesian theory of employment is based on the concept of _____________.
Ans. Aggregate Demand and aggregate supply.

Q1. Distinguish between voluntary unemployment and involuntary unemployment.

VOLUNTARY INVOLUNTARY UNEMPLOYMENT
UNEMPLOYMENT
(1) Voluntary unemployment refers to that part (1) Involuntary unemployment refers to
of the population which prefers not to work that part of the labour force of the country,
even though suitable work is available for which is able to work and prefers to work,
them but it is out of work, on account of no fault
or wish of its own.

(2) It is not taken into account for determining (2) It is taken into account for determining
the labour force of the country the labour force of the country

Q2. Distinguish between autonomous investment and induced investment.

Autonomous investment Induced Investment

It refers to the investment expenditure It refers to the investment expenditure

Which is incurred by the Government with which is incurred by the enterprises with
the motive to promote the level of growth the motive to make greater investment and
and development? receive higher return.

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 etc. the Induced investment.

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 It is independent with the level of income. It is dependent with the level of income.

Q3. Distinguish between inflationary gap and deflationary gap?

Ans.
Inflationary gap Deflationary gap
The excess of aggregate demand over The excess of aggregate supply over
aggregate supply at the full employment aggregate demand at the full employment
level is known as inflationary gap. level is known as deflationary gap.

Q4. Distinguish between fiscal measures and monetary measures.

Fiscal Measures Monetary Measures

1. These are the tools used by the 1. These are the tools used by the central
government by managing tax revenues and bank to regulate the flow of money and
expenditures in the economy. interest rates in an economy.
2. Examples : Taxes, public expenditures, 2. Examples : bank rate, repo rate, open
public borrowings, borrowings from RBI market operations, margin requirement etc.
3. These are used to solve the problems of 3. These are used to solve the problems of
deficient demand and excess demand. deficient demand and excess demand.

Q5. Distinguish between deficient demand and excess demand .

Excess demand Deficient demand
Excess demand refers to the situation when Deficient demand refers to the situation when
actual aggregate demand (AD) is more actual aggregate demand (AD) is less than the
than the planned aggregate supply (AS) at planned aggregate supply (AS) at the full
the full employment level. employment level.

PICTURE BASED QUESTIONS

Q1.

On the basis of the given diagram answer the following question:

What does EF indicate in the above diagram?
a. Excess demand c. Inflationary gap
b. Deficient demand d. Both a and c
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 Ans. (d) Both a and c.
Q2. In the given figure, what does the gap ‘KT’ represents? State any two fiscal measures to
correct the situation.

Ans. The gap ‘KT’ represents Deficient demand or deflationary gap.

Two fiscal measures to correct deflationary gap are-
a. Public expenditure should be increased.
b. Taxes should be decreased.

Q3.

On the basis of the above flow chart answer the following question:
Choose the correct alternative to be filled in given blank.
a. Low savings c. Low output
b. Low inducement to invest d. Low profit
Ans. (c) Low output.

GOVERNMENT BUDGET

1. Read the report given below and answer the questions:

“Disinvestment occurs when the government sells its stake to the private entrepreneurs. This
is good means of tackling revenue deficit, provided the disinvestment is related to such
government companies which are running into losses. To the extent, revenue deficit is funded
through disinvestment, need for borrowing is reduced. Lesser borrowing is a sign of financial
prudence of the government which is good for growth and stability of an economy.”
Read the above paragraph and answer the following question.

Q 1 Why disinvestment is a capital receipts?

ANS- Because by the act of disinvestment government asset reduces.

Q 2 What is the implication of revenue deficit?

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ANS- Decrease in capital assets or liabilities OR It has to accommodate by government
FOREX reserve by decreasing its FOREX.

2. Read the report (Case Study) given below and answer the questions:
“In Financial year 2021-22, the government’s capital expenditure is estimated at Rs. 5.54
lakh crore (annual increase of 29%) and the revenue expenditure is estimated to be Rs. 29.29
lakh crore (annual increase of 12%). So, what are capital and revenue expenditure? Expenses
which effect a change to the assets of the government like recovery of loans are called capital
expenditure. All other expenses like payment of salaries are termed as revenue expenditure.
The central govt. is targeting expenditure of Rs.5.54 lakh crore which means more economic
activities which means more jobs can get created which can fuel consumption and demand
thereby helping the economy grow.”

Q3. What is the budget expenditure of the govt. during 2021-22?

(a) Rs. 5.54 lakh crore (b) Rs. 34.83 lakh crore
(c) Rs. 29.29 lakh crore (d) Rs. 23.75 lakh crore
Ans:- Rs. 34.83 lakh crore

Q4. Which of these effects assets of the govt.?

(a) Revenue Expenditure (b) Capital Expenditure
(c) Both a& b (d) None of these
Ans- Capital Expenditure

Q5. More capital expenditure means:

(a) More jobs (b) More consumption demand
(c) More growth (d) All of these
Ans- All of these

Q6. Expenditure is recurring in nature.

(a) Revenue (b) Capital
(c) Budget (d) Non- planned
Ans- Revenue

Q7. Which of these an asset of the government?

(a) Lenders (b) Borrowers
(c) Pensioners (d) All of these
Ans- Lenders

3. Read the report (Case Study) given below and answer the questions:
“Mr. Sunil Kumar Sinha, Principal economist at India Rating and research- which expects
financial year 2020-21 fiscal deficit at 7% of GDP. The expenditure pattern suggests that
expansion in fiscal deficit is not due to increased expenditure which has been muted so far.
The higher fiscal deficit is primarily originating from lower receipts. Corporation tax
collections were Rs. 1.03 lakh crore lower year-on-year and income tax collections were
down Rs. 33 crore. Non-tax revenue has also been lower so far at just 32% budget amount.”

Q8. The duration of financial year 2020-21 was:

(a) 1st Jan 2020.- 31st Dec.2020 (b) 1st Jan.2020- 31st March.2021
(c) 1st April.2020- 31st Dec.2020 (d) 1st April.2020- 31st March 2021
Ans-1st April.2020- 31st March 2021

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Q9. Higher fiscal deficit means:
(a) Higher GDP (b) Higher lending
(c) Higher borrowings (d) Lower borrowings
Ans- Higher borrowings

Q10. Corporation tax is an example of:

(a) Revenue receipt (b) Capital receipt
(c) Revenue expenditure (d) Capital expenditure
Ans- Revenue receipt

Q11. Which of these an example of Non-tax revenue?

(a) Income tax (b) Wealth tax
(c) Property tax (d) Escheat
Ans- Escheat

Q12. Budget deficit means:

(a) Budget Expenditure = Budget receipts (b) Budget Expenditure < Budget receipts
(c) Budget Expenditure > Budget receipts (d) Budget Expenditure> = Budget receipts
Ans- Budget Expenditure > Budget receipts.

Q13. State which of the following in not correct?

a) Revenue deficit is the excess of total expenditure over total receipts.
b) Only current income and current expenses are included in this deficit.
Ans : a)

Q14. Revenue Deficit can be estimated using the formula _____.

a)Revenue deficit = Borrowings
b) Revenue deficit = Fiscal Deficit + Interest Payments
c) Revenue deficit = Primary Deficit – Interest Payments
d) Revenue deficit = Revenue Expenditure – Revenue Receipts
Ans : d)

Q 15 The focus of the government budget is to:

a) Maximize fiscal deficit
b) Minimise fiscal deficit
c) Maximize expenditure
d) Maximize revenue
Ans :- b)

Q16. A large share of ________ in fiscal deficit indicates that a large part of borrowing is
being used to meet the government’s consumption expenditure needs rather than investment.
a)Revenue deficit
b) Primary deficit
c) Budgetary deficit
d) Borrowings
Ans: a)

Q17, Revenue Deficit = Revenue Expenditure - _____________

Ans :- Revenue Receipts.

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Q18. State True or False.
The excess of capital expenditure over capital receipts is known as Revenue Receipts.
Ans : False.

Q19. What is a balanced budget?

Ans:A Government budget is said to be a balanced budget if the estimated Government
expenditure is equal to expected Government receipts in a particular financial year.

Q20. Define surplus budget.

Ans: A Government budget is said to be a surplus budget if the expected Government
revenues exceed the estimated Government expenditure in a particular financial year.

Q21. What is deficit budget?

Ans: A Government budget is said to be a deficit budget if the estimated Government
expenditure exceeds the expected Government revenue in a particular financial year.

Q22. Write some merits and demerits of balanced budget.

Ans: Merits
a) It ensures financial stability.
b) It avoids wasteful expenditure.
Demerits
a) The process of economic growth can be hindered.
b) Welfare activities may be restricted.

Q23. Differentiate between surplus and deficit budget.

Ans: A Government budget is said to be a surplus budget if the expected Government
revenues exceed the estimated Government expenditure in a particular financial year.

Q24. A Government budget is said to be a deficit budget if the estimated Government

expenditure exceeds the expected Government revenue in a particular financial year.
Which one of the following is not an objective of government Budget?
a) Reallocation of resource b) Economic Stability
c) Increasing Regional Disparities d) Economic Growth
Ans C

Q25. In order to tackle problem of rising general price level in an economy, government may
Come up with a surplus budget to achieve the budget objective of ----------.
1. Reallocation of resources
2. Price Stability
3. Redistribution of Income
a) 1 only
b) 2 only
c) 3 only
d) 1 and 3identify
Ans B

Q26. Budget is used as an important policy instrument to combat fluctuation in an economy

. In the light of above lines identify the related objectives of government budget.
a) Allocation of resources
b) Stabilisation of resources
c) Growth of the economy
d) Redistribution of income
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Ans B

Q27. SEZ are created by the government to achieve the objective of

a) Reallocation of resources
b) Redistribution of income
c) Reducing regional disparities
d) Economic Stability
Ans C

Q28. “Increasing the rate of income tax is a part of which objectives of government.
a) Reallocation of resources
b) Economic Stability
c) Reducing regional disparities
d) Reducing inequalities in income and wealth
Ans D

Q29. Free distribution of LPG connection to poor people is assign of social justice. Identify
the objective of government budget.
a) Promote economic growth
b) Management of public enterprises
c) Create equitable distribution of income
d) Create fluctuation in revenue of budget
Ans C

Q30. The Government can achieve its budget objective of redistribution of income by
a) Managing the general price level in the economy to the desired level.
b) Increasing the GDP of the economy
c) Bringing the production of goods and services under its absolute control
d) Rationalisation of taxes in pro poor direction
Ans D

DEFINITION BASED QUESTIONS

Q.1 Define capital expenditure.

Capital expenditure is the government expenditure which reduces the liability of the
government and also creates assets for the government

Q.2 Define Revenue expenditure.

Revenue expenditure is the government expenditure which neither reduces the liability of
the government nor creates any assets for the government

Q3. Define fiscal deficit Answer

It is the excess of total expenditure over the sum of revenue receipts and total capital
receipts excluding borrowings

Q4. What is public expenditure?

Answer: it is the expenses incurred by the government for the maintenance of the
government and to provide social welfare to the society.

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Q5. Explain the implications of the Fiscal deficit?
a). Borrowing.When the government borrowing increases, its liability also increases to
repay the loan with interest.
b). Inflation
c). Burden debt on future generation
d). Increased risk of debt trap
e). Crowding out effect

ONE WORD QUESTIONS

Q1. Identify which of the following statements is true

a. Fiscal deficit is the difference between plant revenue expenditure and plant revenue
receipt
b. Fiscal deficit is difference between total planned expenditure and total planned receipts
c. Primary deficit is the difference between total planned receipts and interest payments
d. Fiscal deficit is the sum of primary deficit and interest payment
Ans: d

Q2. Which one of the following is not a capital expenditure?

a. Loans advanced by World Bank b. Construction of school buildings
c. Repayment of loans d. Tax receipts
Ans: d

Q3. Which of the following is not true about the fiscal deficit?
a. Represents the borrowing of the government
b. Is the difference between total expenditure and total receipts of the government
c. Is the difference between total expenditure and total receipts other than
borrowing d. Increases the future liability of the government
Ans: b

Q4. Disinvestment of equity in public sector undertaking is a ……………….

Policy instrument.
a.Monetary b. Fiscal
c. Both a and b d. Neither a nor b
Ans: d

Q5. Fiscal deficit equals ( choose the correct alternative)

a. Interest payments b. Borrowings less interest payments
c. Interest payments less borrowing d. Borrowings
Ans: d

Q6. Which one of the following is a part of capital expenditure?

a. Salary paid to government employees
b. Expenditure on construction of roads

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c. Pension paid to retired government employees
d. Interest paid on national debt
Ans: b

Q7. Which one of the following statements is true?

a. Loans from IMF is a revenue receipt
b. Higher revenue deficit necessarily lead to higher fiscal deficit
c. Borrowings by a government represents a situation of fiscal deficit
d. Revenue deficit is the excess of capital receipts over the revenue
receipts
Ans: c

Q8. …………… deficit includes interest payment by the government on the past
loans. (fill in the blanks with correct answer) ( fiscal/ revenue/ primary)

Ans. Fiscal deficit

Q9. Give two types of expenditure which can reduce inequalities of

income.

Answer: Unemployment allowance and old age pension.

Q10. State any two items of revenue expenditure in a government
budget.
Answer; Payments of salaries of government employees, Interest payment

Q11. Why are subsidies treated as revenue expenditure?

Answer: They neither create assets nor reduce

Q12. Why is payment of interest a revenue expenditure?

Answer: It neither creates any asset nor reduces government

Q13. How can the government reduce the deficit?

Answer: The government should take steps to increase its receipts by raising the tax rates or
imposing new taxes or sale of shares of public sector undertakings. The government should
try to reduce its productive and administrative expenditure.

Q14.Fiscal deficit equal:

(a) Interest payment
(b) Borrowings
(c) Interest payment less borrowings
(d) Borrowings less interest payments
Answer- Borrowings

Q15. Expenditure on Ujjwala Yojana launched by the government is an example of

capital expenditure.

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(True/ False)
Answer- False, as it does not reduces any liability of the government

Q16. Expenditure on collection of taxes is a _____________ (revenue / capital) expenditure.

Answer- It is revenue expenditure because it neither create any assets nor reduces any
liability.
DIFFERENCE BETWEEN
Q1. Distinguish between Capital Expenditure Revenue Expenditure.
Capital Expenditure Revenue Expenditure

1 It create assets for the government It do not create assets for the government

2 It reduce liability of the government It does not reduce liability of the government.

e.g. Construction of roads, dams, school e.g. Student’s scholarship, Old age pensions,
buildings Repayment of loan subsidies Interest payment on loan.

Q2. Distinguish between Plan and Non plan expenditure

Plan Expenditure Non Plan Expenditure

1 Plan expenditures arise only when the Non plan expenditures are used for day to day
plans say so about such expenditures. operations of the government.

2
It arises only when the plans provide for It is must for every economy and the
such expenditure. government cannot escape from it.

Q3. Distinguish between Development and Non-development

Development Non-development
1 The expenditure which is related The expenditure incurred on the important
directly to the economic and social general services of the government.
development of the country.
2 It includes all the social, community, It includes pensions, cost of tax collection,
economic and developmental assistance defense expenditure, etc.
to the state

Q4. Distinguish between Fiscal deficit and Revenue deficit.

Fiscal deficit Revenue deficit

1 Fiscal deficit refers to the excess of total Revenue deficit represents a situation in
expenditure, including both revenue and which a country's net amount of revenue
capital expenditure, over total receipts, earned is less than the expected revenues.

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 which includes both revenue and capital
receipts (excluding borrowings).
2 Fiscal Deficit = Total Expenditure - Revenue Deficit = Revenue Expenditure -
Total Receipts (excluding borrowings) Revenue Receipts

FORMULA BASED QUESTIONS

Q1. In a government budget revenue deficit is 50,000 crores and borrowings are 75000
crore. How much is the fiscal deficit?
Answer: 75000 cr

Q2. Form the following data calculate fiscal deficit:

S. No. .Items ₹ (Billion)

1. Capital Receipt 68
2 Revenue Receipt 160
3 Interest Payment 20
4 Borrowings 32
5 Tax Revenue 50
6 Non-Tax Revenue 10

Ans -. Since data on capital expenditure is not given in the question. Hence Fiscal
Deficit = Borrowing = ₹ 32 Billion.

Q3. In a government budget the revenue deficit is Rs. 35 crores. If revenue

receipts are Rs.70 crores and capital expenditure Rs.120 crores then how much
is the revenue expenditure?
Ans- Revenue deficit = revenue expenditure -revenue receipt
35 crores = revenue expenditure - 70 crore
revenue expenditure = 35 crores + 70 crore =105 crore

Q4. In a government budget the primary deficit is Rs.12000 crores and interest
payment is Rs.7000 crores. How much is the physical deficit?
Ans-. Primary deficit = fiscal deficit - interest payment
12000 crores =fiscal deficit - 7000 crores
Fiscal deficit = 12000 crores + 7000 crores, = 19000 crores.

Q5. The interest requirement as per the government budget during a year is ₹1, 40, 000
crores. If total borrowing requirements of the government are estimated at 2, 70,000
crores, then how much is a primary deficit.

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Ans-. Total borrowing requirements of the government are estimated at ₹ 2, 70,000 crores.
It means, Fiscal deficit = ₹ 2, 70,000
Primary deficit = Fiscal Deficit –Interest Payment
Primary Deficit = ₹ 2, 70,000 crores –₹ 1,40,000 crores
= ₹ 1, 30,000 crores.

CLASSIFICATION OF RECEIPTS – REVENUE RECEIPTS AND CAPITAL

RECEIPTS , PRIMARY DEFICIT

Q1. Give two examples of non-tax revenue receipts

Ans: Two sources of non-tax revenue receipts are:

(i) Fees
(ii) Grants/donations

Q2. Why borrowings are called a capital receipt?

Ans. Borrowings lead to increase in liabilities of the government; hence, it is a capital receipt.

Q3. What is escheat?

Ans: Escheat refers to the claim of the Government on the property of a person who dies
without leaving behind any legal heir or a will.

Q4.What is meant by progressive tax?

Ans: Progressive tax is a tax in which taxpayer pay high taxes if he earns more income and
lower tax if he earns less.

Q5.What is borrowings in government budget?

Ans: Borrowing is a loan taken by the government and falls under capital receipts in the
Budget document.

Q6. State three sources of capital receipts in government budget.

Ans: Three sources of capital receipts in government budget are: recovery of loans,
borrowings, and disinvestment.

Q7. What do you mean by non- debt creating capital receipts? Give two examples of such
receipts.
Ans: Non-debt creating capital receipts include all capital receipts except borrowings.
Examples: Recovery of loans and funds from disinvestment.

Q8. Give two examples of capital receipts which create liability.

Ans: Public borrowing and borrowing from abroad.

Q9. Give two examples of capital receipts which reduce assets of the government.

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Ans: Recovery of loans and sale of shares of public sector undertakings (disinvestment).

Q10. Why is service tax an indirect tax?

Ans: Because it can be shifted on to other persons.

Q11. What is a tax?

Ans: Tax is a compulsory payment made by the people to the government to incur public
expenditure for common benefit of the people

MULTIPLE CHOICE QUESTIONS:

Q1. Receipts which do not affect asset or liability status of the govt. are _______
(a) Revenue receipts
(b) Capital receipts
(c) Budgetary receipts
(d) None of these
Ans- (a)

Q2. Which of the following is not a Revenue Receipt?

(a) Recovery of loans
(b) Foreign grants
(c) Profits of public enterprises
(d) Wealth tax
Ans- (a)

Q3. Primary deficit equals______________

(a) Borrowings
(b) Interest Payments
(c) Borrowings less than interest payments
(d) Borrowings and interest payments both
Ans- (c)

Q4. Which of the following is a correct measure of primary deficit ?

(a) Fiscal deficit – Revenue deficit
(b) Revenue deficit – Interest payments
(c) Fiscal deficit – Interest payments
(d) Capital expenditure – Revenue expenditure
Ans- (c)

Q5. Primary deficit in a govt. budget will be zero, when----------

(a) Revenue deficit is zero
(b) Net interest payment is zero
(c) Fiscal deficit is zero
(d) Fiscal deficit is equal to interest payments
Ans- (d)

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Q6. GST is an example of ___________.
a) Direct tax b) Indirect tax
c) Wealth tax d) Both a and b
Ans- (b)

Q7. Tax is_______________.

A) A legal payment
B) Compulsory payment
C) An optional payment
D) Both a and b
Ans- d

Q8. The difference between fiscal deficit and interest payment is called____________.
A) Fiscal deficit
B) Primary deficit
C) Revenue deficit
D) None of these
Ans- b

Q9. Tax and Non-Tax receipts are components of_____________________.

a. Revenue receipts
b. Capital receipts
c. Both (a) & (b)
d. None of these
Ans- a
Q10. Which of the following is an example of direct tax ?
a. VAT
b. Excise duty
c. Entertainment tax
d. Wealth tax
Ans- d

Q11. Which one is a correct statement?

a. Indirect taxes are generally progressive in nature
b. GST is an indirect tax
c. Sales tax is a direct tax
d. Income tax is an indirect tax
Ans. (b)

Q12. Which of the following sources of receipts in the government budget increases its
liabilities? (Choose the correct alternative.)
a. Direct taxes
b. Recovery of loans
c. Borrowings
d. Dividend from public sector undertakings

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Ans. (c)

TRUE OR FALSE

Q1. If, in an economy, the estimated receipts of a government during a year are less than the
estimated expenditure, the budget would be called Budget deficit. (True or False)
Ans. True

Q2. Fees, licence fees, fines are examples of capital receipts. (True or False)
Ans: false

Q3. Money received by the government of India from disinvestment of Air India is an
example of capital receipt (True/False).
Ans True

Q4. Money received by government of India from selling of postal order is an example of
capital receipt (True or False)
Ans False

Q5. Money received by Indian railways department from selling of tickets to passenger is an
example of revenue receipts (True or False)
Ans True

Q6. If Government of India borrows 50, 0000 dollars from World Bank it is treated as
revenue receipt (True or False)
Ans False

Q7. If interest payment is being deducted from fiscal deficit, we get primary deficit (true or
false)
Ans True.

DISTINGUISH BETWEEN

Q1. Distinguish between direct tax and indirect tax.

Direct Tax Indirect Tax

Tax burden falls on taxpayers Tax burden passes on to consumers
Calculated based on income, wealth, or assets Calculated based on consumption or transaction
value
Examples: income tax, property tax, wealth Examples: sales tax, excise tax, value-added tax
tax (VAT), GST

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 Q2. Distinguish between progressive tax and regressive tax.

Progressive Tax Regressive Tax

A progressive tax is a tax system in which the A regressive tax is a tax system in which the tax
tax rate increases as the taxable income or rate decreases as the taxable income or wealth of
wealth of individuals increases. individuals increases.
In a progressive tax system, the tax rate In a regressive tax system, the tax rate decreases as
increases progressively with higher income income levels increase.
levels.
Progressive taxes aim to reduce income Regressive taxes tend to have a greater impact on
inequality by placing a higher tax burden on lower-income individuals.
high-income individuals.

NUMERICALS

Q1. If primary deficit is 3000 and interest payment is 400, then what will be the value of
fiscal deficit?

Ans. FD = PD + interest payment

FD = Rs. 3,400 crore

Q2. In a government budget, primary deficit is Rs. 12,000 crore and interest payment is Rs.
7000 crore, how much is the fiscal deficit?

Ans. FD = 12,700 crore

Q3. If interest requirement is 1, 40,000 crore, total borrowings requirement of government is

2, 70,000 crore. How much is primary deficit?

Ans. PD = FD - IP

PD = 1, 30,000 crore

BALANCE OF PAYMENT
1. What does “Trade Deficit” mean?
a. The value of exports of goods and services is more than the value of imports of goods and
services.
b. The value of imports of merchandise is more than the value of exports of merchandise.
c. Negative balance on account of trade in goods, services and transfers.
d. Foreign exchange payments on account of invisible items are in excess over the receipts of
Invisible items.
Ans : (B) The value of imports of merchandise is more than the value of exports of
merchandise.
2. Balance of Payments is a .......... concept.
a) Flow

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 b) Stock
c) Vibrant
d) Narrow
Ans. (a) Flow
3. If Japanese import more goods from India?
a. India's BOP will improve.
b. Japan's BOP will deteriorate.
c. India's BOP will deteriorate.
d. Both a) and b)
Ans. (d) Both (a) and (b)
4. In which of the following categories are the transactions of the balance of
Trade recorded?
(a) Visible items
(b) Invisible items
(c) Capital transfers
(d) All of these
Ans. (a) visible items
5. ---------------------- is a record of all economic transactions between the residents of one
country and ROW.
a- Balance of Payment b-Balance of Trade
c- Balance of current account d- Balance of capital account
Ans. (a) Balance of Payment
6. …………….. is the difference between exports and imports of merchandise
transactions.
a- Balance of Payment b-Balance of Trade
c- Balance of current account d- Balance of capital acc
Ans. (b) Balance of Trade
7. Economic Transactions in BOP are :
(a) Visible (b) Invisibles
(c) Capital transfers (d) All of these
Ans. (d) All of these
8. Balance of trade is the difference between :
(a)Export & import of goods (b) Receipts & payments of unilateral transfers
(c) Export & Import of services (d) None of these
Ans. (a) Export & import of goods

9. BOP deficit is the excess of :

(a) Current account payments over current account receipts
(b) Capital account payments over capital account receipts
(c) Autonomous payments over autonomous receipts
(d) Accommodating payments over accommodating receipts
Ans. (c)Autonomous payments over autonomous receipts

10. Two friends Mitra and Monika were discussing exchange rate systems. ‘Under this system,
the exchange rates are determined by the market forces of demand and supply. However,

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 deliberate efforts are made by the competent authority to keep the exchange rates within a
specific range’.
The above -mentioned statement was given by Monika. Identify the type of exchange rate
system was she talking about.
(a) Fixed Exchange rate (b) Floating exchange rate ,
(c )Managed Floating exchange rate (d) Managed fixed exchange rate
Ans. (c) Managed Floating exchange rate
11. Match the following :

Column I Column II
1. Balance of Trade A. Always balanced in accounting sense
2. Balance of Payments B. Record of visible transaction
3. Trade surplus C. Dirty floating exchange rate system
4. Managed Floating D. Excess of value of import of goods over
export of goods

Ans. 1 (B), 2 (A), 3 (D), 4 (C)

12. Formula of BOT.
Ans. BOT = EXPORTS – IMPORTS
13. When one country manipulates exchange rate against the interest of other country is known
as……………
Ans. Dirty floating
14. What is meant by managed floating exchange rate?
Ans. It means the rate which is determined by the market forces and the central bank
stabilizes the exchange rate in case of appreciation or depreciation of domestic currency.
15. What do you mean by balance of payment?
Ans-The balance of payments of a country is a systematic record of all economic transactions
between its residents and residents of the rest of the world during a given period of time.
16. Define Foreign Direct Investment.
Ans. It refers to purchase of an asset in rest of the world, such that it gives direct control to
the purchaser over the asset.
17. What do you mean by balance of trade?
Ans. The term balance of trade means the difference between the exports and imports of
goods of a country. Balance of trade refers to the visible items only.
18. What do you mean by balance of deficit payment?
Ans. The balance of deficit payments means that the nation imports more goods and services
than its exports.
19. What is meant by managed floating exchange rate?
Ans. It means the rate which is determined by the market forces and the central bank
stabilizes the exchange rate in case of appreciation or depreciation of domestic currency.

20. Charity from abroad will be recorded on………………….. Balance of payments accounts.
(Credit/ debit)
Ans. Credit
21. Decrease in the value of domestic currency by the government is called…………

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 Ans. Devaluation
22. Increase in the value of domestic currency by the market forces of demand and supply is
known as ………………………
Ans. Appreciation
23. Current Account of BOP records all payments to rest of the world as debit. (T/F)
Ans: False
24. Difference of exports and imports of goods indicates the balance of trade. (T/F)
Ans: True
25. The floating foreign exchange rate is controlled by Central Bank of country. (T/F)
Ans: False
26. Foreign investment from rest of the world will be recorded in current account of BOP.
(True/False)
Ans: False
27. When credit side of balance of payment is greater than debit side of it , balance ofpayment
will be in surplus. . (True/False)
Ans: True
28. Balance of payments records transactions related to goods only. . (True/False)
Ans: False
29. Balance of Payments includes only visible items. . (True/False)
Ans: False
30. Current account of balance of payments account records only exports and imports of goods
and services, transaction of factor’s income and transfer payment. . (True/False)
Ans: True
31. Floating exchange rate is managed by the RBI. . (True/False)
Ans: True
32. Borrowing and lending in the international money market is a part of current account Balance
of payments. . (True/False)
Ans: False
33. Find the balance on the balance of payments account. Is the overall balance of payments
balanced?
Items (Rs in lakhs)
(i) Capital account balance (−) 400
(ii) Value of imports 150
(iii) Value of exports 450
(iv) Unilateral transfers 100
(v) Balance of visible trade 200
Ans:-Balance on the Balance of payment account
= Value of exports-Value of imports +unilateral transfer +Capital account balance
= ₹ 450 lakhs -₹ 150 lakhs + ₹ 100 lakhs +(-) ₹ 400 lakhs
=0
34. The balance of trade shows a deficit of Rs 5,000 crore and the value of imports are Rs 9, 000
crore. What is the value of exports?
Ans:- Balance of Trade = - ₹ 5,000 crore Value of Imports =₹ 9,000 crore
Balance of trade (Deficit) = Value of Exports – Imports Value of Exports
= Balance of trade (Deficit) + Imports = - ₹ 5,000 crore + ₹ 9,000 crore = ₹ 4,000 crore

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35. The balance of trade shows a deficit of Rs 300 crore. The value of exports is Rs 500 crore.
What is the value of imports?
Ans:- Balance of Trade = - ₹ 300 crore
Value of exports = ₹ 500 crore
Balance of trade (Deficit) = Value of Exports – Imports
Imports = Exports – Balance of trade ((deficit)
= ₹ 500 crore – (-₹ 300 crore)
= ₹ 800 crore
36. Find current account balance from the following:
Items (Rs in crores)
(i) Capital account balance80
(ii) Export of services 20
(iii) Balance of visible trade 50
(iv) Transfers from one country to an another country5
Ans:- Current account Balance
=Balance of visible trade + export of service +transfer from one country to an another
country
= ₹ 50 crores + ₹ 20 crores + ₹ 05 crores
= ₹ 75 crores
37. Find Current Account Balance from the following data:
Items Rs in lakh
(i) Balance of visible trade 9000
(ii) Export of services 9000
(iii) Import of services 3000
Current Account Balance= Exports – Imports+ Balance of visible of trade
= ₹ 9000- ₹3000+₹ 9000
= ₹ 15000
FOREIGN EXCHANGE RATE

1. Fixed exchange rate - Fixed exchange rate is the rate of exchange which is officially fixed
by the government or monetary authorities of a country.
2. Flexible exchange rate (also known as floating exchange rate)-The exchange rate is
determined by the forces of market demand and market supply of foreign exchange.
3. The depreciation of domestic currency- depreciation of domestic currency refers to
decrease in the value of domestic currency in terms of foreign currency due to change in
demand and supply of currency under flexible change rate system.
4. Appreciation of domestic currency-
Appreciation of domestic currency refers to increase in the value of domestic currency in
terms of foreign currency due to change in demand and supply of currency under flexible
exchange rate system.
5. Devaluation of currency- devaluation of currency means when the Government of a
country officially lowers the external value of its domestic currency in respect to all other
foreign currencies.

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6. Revaluation of currency- revaluation currency means when the Government of a country
officially raises the external value of its domestic currency, in respect to all other foreign
currencies.

7. Write any two merits of fixed exchange rate .

Ans. The merits of fixed exchange rate are:
(a) Stability in exchange rate
(b) Promotes capital movement and international trade
(c) No scope for speculation
8. Write any two demerits of fixed exchange rate.
Ans. The demerits of fixed exchange rate are:
(a) Need to hold foreign exchange reserves
(b) Enhance dependence on external sources

9. Write any two merits of flexible exchange rate.

Ans. The merits of flexible exchange rate are:
(a) No need to hold foreign exchange reserves
(b) Leads to automatic adjustment in BOP Account
(c) Increase the efficiency in economy by achieving optimum utilization of resources,
10. Write any two demerits of flexible exchange rate.
Ans- The demerits of flexible exchange rate are:
(a) Fluctuations in future exchange market
(b) Encourages speculation
(c) Discourages international trade and investment.
11. How is foreign exchange rate determined?
Ans. The rate of foreign exchange is determined at a point where demand for and supply of
for exchange are equal.
Fill in the blanks:
1. Increase in supply of foreign exchange from USA will cause ____
(appreciation/depreciation) of Indian currency.
Ans. Appreciation
2. A system in which foreign exchange rate is determined by market forces of demand and
supply and central bank stabilises the exchange rate in case of appreciation or depreciation of
domestic currency:
(a) Fixed exchange rate system
(b) Floating exchange rate system
(c) Managed floating exchange rate system
(d) All of these
Ans. (c)
3. When foreign exchange rate is high, the central bank............ (Sells/buys) foreign exchange
from foreign exchange reserves.
Ans. Sell
True / False:
Q.1 when one country manipulates exchange rate against the interest of other country, is
known as dirty floating. (True / False)

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Ans- True
Q.2 Flexible exchange rate system enhances movement of capital across different countries
of the world. (True / False)
Ans- True
Q,3 Flexible exchange rate system is to be supported with international reserves. (True /
False)
Ans- False
Q.4 Fixed exchange rate promotes venture capital in foreign exchange market. True / False
Ans- False
Q.5 Flexible exchange rate system is determined by the govt. of a country. (True / False)
Ans- False
Q.6 Fixed exchange rate system implies low risk and low uncertainty of future payments. It
encourages international trade. (True / False)
Ans- True
Q.7 Fixed exchange rate system is determined by the market forces demand and supply of
currency. (True / False)
Ans- False

INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

CASE BASED QUESTIONS

CASE STUDY 1
“The economic policies pursued by the colonial government in India were concerned
more with the protection and promotion of the economic interests of their home country
than with the development of the Indian economy. Such policies transformed the
country into a supplier of raw materials and consumer of finished industrial products
from Britain.”
Q1. What was the main concern of the colonial government in India?
Ans.The main focus of the economic policies pursued by the colonial government was to
make India a mere supplier of raw materials for Britain's own industrial base which was
undergoing rapid expansion, The Indian Economy was exploited in order to promote British
industries.

Q2. According to you, what was the outcome of these economic policies pursued by this
government in India?
Ans. The economic policies pursued by the colonial government in India were exploitative
and aimed at extracting wealth and resources for the benefit of Britain. These policies
resulted in the drain of wealth, deindustrialization, poverty, and social disruption.
Q3. “The British introduced the railways in India in 1850, which is considered as one of their
most important contribution. Explain the statement
Ans. The railways affected the structure of the Indian economy in two ways. On the one
hand, it enabled people to undertake long distance travel and thereby breaking the
geographical and cultural barriers. On the other hand, it fostered 'Commercialization of
Indian Agriculture' which in turn adversely affected the self-sufficiency of the village
economy in India.”

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Q4 which is the most important contribution of British in India?
Ans. The correct answer is the railways. The first passenger train ran in India on 16th April
1853 from Bombay to Thane. Railways in India were introduced during the rule of Lord
Dalhousie. The main reason for starting railways in India is to transport goods from one place
to another

(5) Elaborate the two ways in which the railways affected the structure of the Indian
economy.
Ans. On the one hand, it enabled people to undertake long-distance travel and thereby break
geographical and cultural barriers while, on the other hand, it fostered commercialization of
Indian agriculture which adversely affected the self-sufficiency of the village economies in
India.

CASE STUDY 2
“The British East India Company, whose political power gradually expanded in India
from 1757onwards, used huge revenue generated by the provinces under its rule for
purchasing Indian raw materials, spices and goods. Thus, the continuous inflow of
bullion that used to come into India on account of foreign trade stopped altogether. The
Colonial government used land revenue for waging wars in India and Europe leaving
little for development of India. In short span of 80 years (1780-1860 AD) under colonial
rule, India changed from being an exporter of processed goods for which it received
payment in bullion, to being an exporter of raw materials and a buyer of manufactured
goods. More specifically, in the 1750s, mostly fine cotton and silk was exported from
India to markets in Europe, Asia, and Africa; by 1850sraw materials, which chiefly
consisted of raw cotton, opium, and indigo, accounted for most of India's exports. The
ruthless exploitation under British colonial rule completely devastated India’s economy.
India’s population was subject to frequent famines, had one of the world's lowest life
expectancies, suffered from pervasive malnutrition and was largely illiterate. As per
British economist, Angus Maddison India's share of the world income went from 27%
in1700 AD (compared to Europe's share of 23%) to3% in1950.”

Q1 Name the fine cotton imported from India which gained worldwide fame due to its fine
quality.
Ans- Malmalor Malmal shahi

Q2. What was the two-fold motive behind the systematic deindustrialization effected by the
British in pre-independent India?
Ans. The two-fold motive behind systematic deindustrialization was-
-An exporter of raw materials
-Buy manufactured goods.

Q3. What was literacy rate and life expectancy during the British period in India?
Ans-16% and 32years

Q4. What led to drain of Indian wealth?

Ans. The Colonial government used land revenue for waging wars in India and Europe
leaving little for development of India. This led to drain of Indian wealth. The drain of wealth
theory has been described as the constant flow of national wealth from India to England for
which India did not get adequate economic, commercial material return.

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 CASE STUDY 3

The Indian economy during the era of 1950-1990 was largely following a socialist model
with a greater focus on building the public sector for the welfare of the people of that
country. There were a number of changes made in the economy from the time of the
British Raj, and it led to self-reliance and greater participation of the industrialists in
the nation-building exercise during that era.

Q1. Which of the following statements is true about the licensing policy followed by the
Indian Economy in the 1950-1990 era?
A) It helped to promote regional equality in the industry
B) It helped to check the undue expansion of the industrial sector
C) It helped to promote regional equality in the industry as well as to check the undue
expansion of the industrial sector
D) None of the above
Ans- C
Q2. What was the main reason behind the private sector not coming forward to start the
capital goods industries?
A) The private sector suffered from a lack of capital
B) The private sector suffered from a lack of demand for their finished goods
C) The private sector suffered from a lack of capital as well as a lack of demand for their
finished goods
D) None of the above
Answer: C

Q3.-The Indian economy on the eve of Independence was:

(a) Developed
(b) Underdeveloped
(c) Stagnant
(d) Both (b) and (c)
Answer-(d) Both (b) and (c)

CASE STUDY 4
The performance of Indian economy during the period of first seven five year plans
(1950-1990) was satisfactory if not very impressive. On the eve of independence, India was
an industrially backward country, but during this period of first seven plans our industries
became far more diversified, with the stress being laid on the public investments in the
industrial sector. The policy of import substitution led to protection of the domestic industries
against the foreign producers but we failed to promote a strong export surplus. Although the
public sector expanded to a large extent, it could not bring the desired level of improvement
in the secondary sector. Excessive government regulations prevented the natural trajectory of
growth of entrepreneurship as there was no competition, no innovation and no modernisation
on the front of the industrial sector. Many Public Sector Undertakings (PSUs) incurred huge
losses due to operational inefficiencies, red tapism, poor technology and other similar
reasons. These PSU's even continued to function because it was difficult to close a
government undertaking even if it was a drain on the country's limited resources. On the

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agricultural front, due to the measures taken under the Green Revolution, India more or less
became self-sufficient in the production of food grains. So the need for reforms of economic
policy was widely felt in the context of changing global economic scenarios to achieve
desired growth in the country.

Q: 1. Which of the following was not a reason for the public sector to play a major role in the
initial phase of Indian economic planning?
(a) lack of sufficient capital for investment with Private entrepreneurs
(b) Government aimed for social welfare
(c) The market was big enough to encourage private industrialists for investment
(d) The government wanted to protect the domestic producers from foreign competition
Ans. c
Q.2. Inward looking trade policy aimed at:
(a) Substituting imports with domestic production
(b) Substituting exports of consumer goods with capital goods
(c) Follow an open economy model
(d) Restrictions on movement of currency flows
Ans. a
Q3. Mechanization of Indian agriculture was one of the causes of the Green Revolution in
India. (True/False)
Ans. a
Q4. Assertion:(A) Many public sector undertakings incurred huge losses due to operational
inefficiencies.
Reason: (R) Red tapism was one of the reasons for continuation of such enterprises.
Alternatives
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true, but Reason(R) is false
(d) Assertion (A) is false, but Reason (R) is true
Ans. a

ONE WORD QUESTIONS

Q1. - Farming which focuses on basic needs of the family is called:
(a) Stagnant farming
(b) Subsistence farming
(c) Commercial farming
(d) None of these.
Answer: (b) Subsistence farming

Q2- Decay of handicrafts was caused by:

(a) British tariff Policy
(b) Competition from machine-made products
(c) Change in the patterns of demand
(d) All of these.
Answer: (d)

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Q3- On the eve of independence, India was net exporter of:
(a) Primary products
(b) Industrial products
(c) Capital goods
(d) All of these
Answer: (a)

Q4. Which sector was the major contributor to GDP of the country as well as the biggest
employer on the eve of independence?
(a) Agriculture
(b) Industry
(c) Services
(d) Manufacturing
Answer: Agriculture

Q5-During colonial period, India‘s demographic profile showed:

(a) High birth rate
(b) High death rate
(c) High infant mortality rate
(d) All of these.
Answer: (d)

Q6-What is meant by commercialisation of Agriculture?

(a) Production of crop for sale in the market
(b) Production of crop for self-consumption
(c) Production of crop for storage
(d) Production of crop for free distribution
Answer: (b)

Q7- When could zamindars lose their rights?

(a) When the crops failed
(b) When the farmers do not sow the seeds
(c) When the dates for depositing specified sums of revenue failed
(d) When the crops weren‘t harvested
Answer: (c)

Q8-When was the Tata Iron and Steel Company incorporated?

(a) 1910
(b) 1904
(c) 1913
(d) 1907
Answer: (d)

Q9-During British rule, more than half of India‘s foreign trade was restricted to …………
(a) Britain
(b) China
(c) USA
(d) Japan
Answer: (a)

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Q10-Which of the following was the cause of stagnation in the agricultural sector in the
colonial period?
(a) Land Settlement
(b) Low Level of Technology
(c) Negligible Use of Fertilisers
(d) All of the Above
Answer: (d)

Q11- Which one of the following is the long-term objective of Indian economic planning?
(a) Human Capital Formation
(b) Eradication of Poverty
(c) Growth with social justice
(d) Development of Industries
Answer: (c)

Q12- NITI stands for

(a) National Institution for Transforming India
(b) National Institute for Transforming India
(c) National Institute for Transformation in India
(d) National Institution for Transformation in India
Answer: (a)

Q13- ______ is known as Architect of Indian Economic Planning.

(a) Dadabhai Naoroji
(b) VKRV Rao
(c) R.C Desai
(d) Dr. Mahalanobis
Answer: (d)

Q14 Which sector received top most priority in the first five year plan in India?
(a) Secondary (b) Service
(c) Agriculture (d) All sectors
Ans. c

Q15. The new agriculture strategy was adopted in India during the
(a) Fifth plan (b) Fourth plan
(c) Second plan (d) Third plan
Ans. (d) Third plan

Q16. -------------- implies setting up an upper limit of the land that could be owned by a
landowner.
(a) Land ceiling (b) Land fragmentation
(c) Land quota (d) Land restriction
Ans. (a) Land ceiling

Q17. Who is the father of green revolution in India?

(a) Norman E Borlaug (b) M S Swaminathan
(c)Garry Backer (d) Dr PM Jha
Ans. (b) M S Swaminathan

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Q18. Identify the element which is not related to the green revolution.
a) Improved seeds b) New strategy for agriculture
b) Fertilizers d) Increase in population
Ans.d increase in population

Q19. The revolution in the field of agriculture production is known as:

a) White revolution. b) Green revolution.
c) Blue revolution. d) Golden revolution.
Ans. (b) Green revolution

Q20. Green revolution was comparatively more successful in which states?

Ans. Punjab, Haryana and Tamil Nadu

Q21. What does HYVP stand for?

a) High Yielding Varieties Products
b) High Yielding Various Programme
c) High Yielding Varieties Programme
d) High Yielding Various Products

Ans- (a)High Yielding Varieties Products

Q21. The agriculture produces which is sold in the market by the farmers is known as
(a)Trade deficit (b) Marketable surplus
(c) Subsidy (d) Import Substitution
Ans. (b) Marketable surplus

Q22. Make the correct combination between the following columns Column A Column B
A. Land ceiling (i) Increase in the production of food grains using high
yielding variety seeds.
B. Land reforms (ii) Portion of agricultural produce sold in the market.
C. Green revolution (iii) Fixing the maximum limit of land holding for an
individual.
D. Marketed surplus (iv) Change in the ownership of land (land to tillers)
a (iii) (iv) (i) (ii) b (i) (ii) (iii) (iv)
c (iv) (ii) (iii) (i) d (ii) (i) (iv) (iii) Ans. a

Q23. The practise of leaving land free of cultivation for some time so that it regains its
fertility is known as ______________
Ans- Fallowing

Q24. The first industrial policy resolution in Independent India was introduced in the year
(a)1948 (b) 1954
(c) 1950 (d) 1956
Ans (a) 1948

Q25. Mahalanobis model stressed upon the establishment of

a. consumer goods industries.
b. export oriented industries.
c. agro-based industries.
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d. capital and basic goods industries
Ans. d. capital and basic goods industries

Q26. How many industries have been reserved for the public sector under Industrial Policy
Resolution, 1956?
(a)19 (b) 17
(c) 8 (d)21
Ans. b

Q27. Which were the major industrial concessions as provided by the government in order to
bring about balanced regional development?
(i) Tax holiday for the newly established units in backward regions.
(ii) Supply of power at concessional rates
(iii) Provision of cheap labor and technology
(iv) Support from the government towards using more capital intensive techniques
(a) (ii)and (iii) (b) (i)and (iv)
(c) (i)and (ii) (d) (iii) and (iv)
Ans. c
Q28. Which industry is called the Sunrise industry?
Ans. Electronic goods industry

Q29. Another name of Village and Small-Scale Industries Committee set up in 1955 is:
(a) Lakdawala committee (b) Karve committee
(c) Narasimham committee (d) Hussain committee
Ans. b

Q30. For a small scale industry, investment limit is:

(a)Less than 1 crore (b) Less than 5 crore
(c)Less than 10 crore (d)Less than 20 crore
Ans- (c) Less than 10 crore

Q31. In 1955, Karve committee was constituted for aiming the

(a) Promotion of rural development using small scale industries
(b) Promotion of agriculture using modern inputs
(c) Promotion of banking services through higher infrastructural support
(d) Promotion of land settlement system with modifications in the existing norms
Ans. a

Q32. Small scale industries are (Labour intensive/Capital Intensive)

Ans- Labour Intensive

Q33. To protect goods produced in India from imports, government made use of
(a)Quotas (b) Tariff
(c) Both a and b (d)Neither a and b
Ans. (c) Both a and b

Q34. Import substitution means

a. Constant rate of imports

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b. Increase in Imports
c. Producing imported goods domestically
d. Ban on Imports
Ans. (c) Producing imported goods domestically

Q35. Export production is an

(a)Outward looking strategy (b)Inward looking strategy
(c)Fiscal strategy (d)Political strategy
Ans- (a) Outward looking strategy

Q36. Policy of import substitution is pursued to promote self sufficiency. (True/False)

False. Inward looking trade strategy relies on the policy of import substitution.

Q37. Post-independence, India has always focused on becoming a self-sufficient or a self-

reliant nation. in the present era this goal has been termed as
(a) Safal Bharat (b) Kaushal Bharat
(c)Atmanirbhar Bharat (d)Apna Bharat

Ans. c

DISTINGUISH BETWEEN

TARIFFS QUOTA

1 Tariffs are a tax on imported goods and Quotas specify the quantity of goods
service which can be imported

2 They make imported goods more expensive It Protect the domestic firms from
and discourage their use foreign competition.

Capital Intensive Labour Intensive

1 More capital and less labour is used More labour and less capital is used

2 Capital intensive technique increases Labour intensive technique generates more

productivity of the economy employment opportunities

Green Revolution Golden Revolution

1 1.Substantial increase in the production 1.Rapid growth in the production of

of food grains by using modern inputs horticulture crops such as fruits, vegetables,
and irrigation is called Green revolution flowers etc. is called golden revolution
2.It led to increase in the production of 2.It led to increase in the production of fruits
rice and wheat ,vegetables, flowers etc.

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PUBLIC SECTOR PRIVATE SECTOR

Public sectors include the public goods and The private sector is the part of a country's
governmental services such as the military, economic system that is run by individuals and
law enforcement, infrastructure companies, rather than a government entity

Their main motive is Social welfare Their main motive is profit maximisation

IMPORT SUBSTITUTION EXPORT PROMOTION

It is a strategy under trade policy that Abolishes the It is a strategy to increase the market
import of foreign products and encourages share for local products and services in
production in the domestic market. foreign nations.

PICTURE BASED QUESTIONS

Q1. Rapid industrialization was the objective of which five-year plan?

Ans. Rapid industrialization was the objective of the second five year plan.
Q2. Who was the architect of the Industrial revolution in India?
Ans. P.C. Mahalanobis
Q3. Which sector was given the primary role in the process of industrial development of the
country?
Ans. Public sector
Q4. What is the objective of licensing policy?
Ans. Main objective of industrial licensing was to encourage industries in backward regions.
Q5. How were domestic industries protected from foreign competition?
Ans. Protection to domestic industries was provided by increasing tariff rates and fixing
import quotas

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Q1. Identify the person shown in the picture.
Ans. M.S. Swaminathan
Q2. What is his contribution in the field of agriculture?
Ans. Swaminathan was a global leader of the green revolution. He has been called the main
architect of the green revolution in India for his leadership and role in introducing and
further developing high-yielding varieties of wheat and rice.
Q3. Why was there a need for food security in India?
Ans. India did not have enough production of food grains to meet its domestic demand and
had to depend on imports. The Indian government's policy response then naturally laid
priority on increasing aggregate food production by launching the green revolution in the
late 1960s.
Q4.An ability of a country to ensure food availability through domestic food production is
called ____________________
Ans. Self Reliance

ECONOMIC REFORMS SINCE 1991: FEATURES AND APPRAISAL OF

LIBERALIZATION, PRIVATISATION AND GLOBALISATION, CONCEPT OF
GST AND DEMONETISATION

Q1. What was the aim of demonetization?

Ans. The aim was to stop the circulation of black money in the market. To help in creation of
cashless economy.

Q2. GST Council is what type of body?

Ans. Constitutional Body

Q3. How did increase in fiscal deficit created the requirement of economic reforms?

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Ans. Due to increase in fiscal deficit, the interest paid by the Govt. for the borrowings
became 36.4%of the Govt. expenditure. So economic reforms became essential for the
Government.

Q4. What is meant by outsourcing?

Ans. A system of hiring business services from the outside world is called Outsourcing.

Q5. Define privatization.

Ans. Selling off part of equity of PSEs to the public (Disinvestment), Privatization is the
outright sale of public sector companies
Q6. Define liberalization.
Ans. Liberalisation refers to the freedom of the economy from the direct controls imposed by
the government.

Q7. What is included in financial sector?

Ans. Financial sector includes Investment Banks, Stock Exchange operations and Foreign
Exchange Markets.

Q8. Who are included in foreign Institutional Investors?

Ans. Merchant bankers, Mutual Funds and Pension Funds

Q9. What is the another name of World Bank?

Ans. International Bank for Reconstruction and Development (IBRD)

Q10. What status has been granted to public sector enterprises to improve their efficiency?
Ans. Maharatna , Navaratna and Miniratna

Q11. Name any two services outsourced from India.

Ans. Voice based business processes like call centers, record keeping

Q12. Which are three main components of new economic policy?

Ans. Three components of new economic policy are - Liberalisation, Privatization,
Globalisation

Q13. Which is the most important outcome of the process of Globalization ?

Ans. Globalisation refers to the integration of domestic economy with the global world.

Q14. Which is the most important outcome of globalisation?

Ans. The most important outcome of the process of globalisation is outsourcing, greater
access to global markets and access to advanced technology. (Any one)

Q15. What is meant by demonetisation?

Ans. The withdrawal of currency from use as a legal tender.

Q16. What is meant by GST?

Ans. GST is a comprehensive, multi-stage, destination-based tax that is levied on every value
addition.

Q17. What is meant by disinvestment?

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Ans. Disinvestment is an excellent tool for discarding the loss incurring Public Sector
Enterprises.

Q18. When was devaluation done and Why?

Ans. Devaluation of the Indian rupee happened in 1991. Devaluation of the Indian rupee was
a step to get more foreign investments.

Q19. What is the purpose behind the implementation of GST?

Ans. The objective of goods and services tax (GST) is to reduce tax evasion and create one
nation, one tax and one market in India.

Q20. Under financial sector reforms, how was the role of RBI changed?
Ans. Under the financial sector reforms, the role of RBI was shifted from regulator to
facilitator of financial sector.

Q21. In order to mark the end of the “license raj, which measure was taken by the
Government of India?
Ans. Liberalisation measure

Q22. Which is the main objective of the WTO?

Ans. To enlarge production and trade of goods across countries.

Q23. How can you define Navaratnas ?

Ans. Navratnas are highly efficient profit-making PSUs and are revenue generators for the
government.

Q24. What was the aim of removing quantitative restrictions on trade by the government ?
Ans. The aim of removing quantitative restriction was an initiative to increase international
competitiveness of industrial production and also to bring foreign investment and technology
into the economy.

Q25. When was the New Economic Policy announced?

Ans. July, 1991

DISTINGUISH BETWEEN

Structural Reforms Stabilization Reforms

Structural reforms aimed at improving Short-term policy measures that
the efficiency of the economy and government takes to improve the BOP
increasing its international situation in an economy are called
competitiveness. stabilisation measures.

Tariff barriers Non-tariff barriers

Tax on imports which results in the Barriers other than tariff such as import
price rise of imported goods. licensing, quota restrictions (quantity of

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 imported goods) are called non- tariff
barriers.

This is done to protect domestic This is done to protect domestic

industries from stiff competition from industries from stiff competition from
MNCs. MNCs.

Bilateral trade Multilateral trade

1. It refers to trade agreements of one country1. It refers to trade agreements of one country
with the other. with many countries of the world.
2. Example trade between Pakistan and 2. Example India can trade with USA, Russia,
China. China, Arabian countries etc.

FDI FII
1. FDI is known as Foreign Direct Investment. 1. FII is known as Foreign Institutional
2. It refers to investment by the foreigners by way Investment.
of their business establishments in India. 2. It refers to investment in Indian
3. It implies ownership and control of business. companies (by way of purchasing their
4. Example. Coke, Pepsi, Domino’s, McDonald. equity or shares) by the foreign banking
and non-banking institutions.
3. It is Portfolio investment, which does not
involve any direct control.

Industrial sector reforms Fiscal sector reforms

1. Abolition of Industrial Licensing 1. Role of RBI modified from regulator to
2. Contraction of public sector facilitator.
3. Freedom to import capital goods. 2. Emergence of Private Banks.

TABLE BASED / PICTURE BASED QUESTIONS

Q.1.Read the following table and give the answers:
Growth of GDP and Major Sectors(in%)
Sector 1980- 1992- 2002- 2007- 2012-2017XIIPlan
1991 2001 2007 2012 TargetI TargetII
Agriculture 3.6 3.3 2.3 3.2 4.0 4.2
Industry 7.1 6.5 9.4 7.4 9.6 10.9
Services 6.7 8.2 7.8 10.0 10.0 10.0
Total 5. 6 6.4 7.8 8.2 9.0 9.5

On the basis of above information elaborate the sectoral growth of agriculture,industry and
services in 2012-17.
Ans: During the reform period, the growth of agriculture has declined. While
the industrial sectors reported fluctuation, the growth of service sector has gone

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up. This indicates that the growth is mainly driven by the growth in the service
sector. The Twelfth Plan (2012-2017)envisages the GDP growth rate at 9 or 9.5
per cent.

Q2. Observe the following picture of economic growth story of our country and give the
answer?

“IT Industry is seen as a major contributor to India’s exports”. Do you agree with
the statement. Explain.
Ans: IT Industry is not seen as a major contributor to India’s export but after
economic reforms, we have seen a boom in the IT sector. in India after the 1990s
with the introduction of economic reforms and the Software Technology Parks of
India (STPI) scheme. India's software exports grew at the rate of 12.2%
according to a report of economics times.
Observe the following picture and answer the given question:

Q. Outsourcing provides an employment opportunity in big cities. After

economic reforms, India became a better outsourcing destination. Do you agree
with the statement, Give reasons for your answer?
Ans. Most multinational corporations, and even small companies, are
outsourcing the services to India where they can be availed at a cheaper cost
with reasonable degree of skill and accuracy. The low wage rates and

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 availability of skilled man power in India have made it a destination for
global outsourcing in the post-reform period.

CURRENT CHALLENGES FACING INDIAN ECONOMY

HUMAN CAPITAL FORMATION
SHORT ANSWER AND MCQ
Q.1. _____ refers to the produced means of production.
a) Human capital b) Human development
c) Physical capital d) Both a and c
Ans. d
Q.2. which cost is involved in Migration?
a) Transportation cost b) Higher Living cost in different place
c) Both a and b d) None of these
Ans. c
Q.3. Problems in Human Capital Formation is
a) Low academic standards b) Brain Drain
c) Rising population d) All of these
Ans. d
Q.4. Education is important because
a) Expands mental horizon
b) Develops human personality
c) Helps in economic development
d) All of these
Ans. d
Q.5. Expenditure on health can be done in the form of: –
a) Preventive Medicine b) Curative Medicine
c) Social Medicine d) All of these
Ans. d
Q.6. ____ and _____ sector needs huge investment.
a) Education b) Health
c) Both a and b d) None of these
Ans. c
Q.7. Human development is ___ of human welfare.
a) A Parameter b) An Index
c) An Attribute d) None of these
Ans. a
Q.8. Expenditure on health makes a person more efficient and productive.
(True/ False)
Ans. True

Q.9 Which of the following statements is true about human capital?

a. Human resource and human capital are related to each other
b. Human development and human capital are related to each other
c. Both a and b are correct
d. Both a and b are incorrect
Ans: b

Q 10. Which of the following statements is not a merit of human capital formation?

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a. Human capital formation plays an important role in improving technical knowledge
b. Human capital formation helps to expand the size of businesses
c. Human capital formation is important for the purpose of changing social outlooks
d. Human capital formation leads to an increase in the overall cost of production
Ans-d

Q.11.What are the two major sources of human capital in a country?

Answer. Two main sources of human capital are investment in education and health.

Q.12. what are the indicators of educational achievement in a country?

Answer. Educational attainment is measured by primary education, youth literacy and adult
literacy.

Q13.Which of the following statements is true about human capital?

(a) Human resource and human capital are related to each other
(b) Human development and human capital are related to each other
(c) Both a and b are correct
(d) Both a and b are incorrect
Answer: b

Q14. Which of the following statements is true about the importance of education?
(a) Education is important because it helps to expand the mental horizon of an individual
(b)Education is important because it helps to develop the human personality
(c) Education is important because it helps in the cause of economic development of nation
(d)All of the above
Answer: d
Q15.Which of the following statements is not a merit of human capital formation?
(a)Human capital formation plays an important role in improving technical knowledge
(b)Human capital formation helps to expand the size of businesses
(c) Human capital formation is important for the purpose of changing social outlooks
(d)Human capital formation leads to an increase in the overall cost of production
Answer: d

Q 16. Which of the following statements is not true about the education levels?
(a)Years of schooling is an indicator of the education level of an individual
(b)Teacher pupil ratio is an indicator of the education level of an individual
(c) Enrollment rate is an indicator of the education level of an individual
(d)Life expectancy is an indicator of the education level of an individual
Answer: d

Q17.Which of the following statements about education expenditure is accurate?

(a) levels take up the major share Elementary levels take up the major share of total
educational expenditure in India
(b) Tertiary levels take up the major share of total educational expenditure in India
(c) Secondary levels take up the major share of total educational expenditure in India
(d) Higher of total educational expenditure in India
Answer: a

Q18. Which of the following is correct about human resource?

(a)A person is a human resource if he/she is willing to work
(b)A person is a human resource if he/she is able to work
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 (c) A person is a human resource if he/she is from a particular age group
(d)All of the above
Answer: c

Q19. The expenditure on education by the Indian government _______.

(a)Is expressed as a percentage of the gross domestic product (GDP)
(b)Is expressed as a percentage of the total government expenditure
(c) Both a and b are correct
(d)Both a and b are incorrect
Answer: c

Q20.Which of the following is a major source of human capital formation in India?

(a)Expenditure on on-the-job training
(b)Expenditure on education
(c) Both a and b are correct
(d)Both a and b are incorrect
Answer: c

Q21. Which of the following statements about rural-urban migration is tru

(a)Illiteracy is one of the main reasons for rural-urban migration in India
(b)Inflation is one of the main reasons for rural-urban migration in India
(c) Lack of infrastructure is one of the main reasons for rural-urban migration in India
(d)Unemployment is one of the main reasons for rural-urban migration in India
Answer: d
Q22. Which of the following is an accurate definition of physical capital?
(c) Physical capital refers to the total stock of the tangible inputs of production like land and
machinery
(c) Physical capital refers to the process of increasing and acquiring skilled people for the job
(c) Physical capital refers to the share of a company
(c) All of the above
Answer: a

Q23.Which of the following is the problem of human capital formation?

(c) Rising population is one of the main problems of human capital formation in India
(c) Brain drain is one of the main problems of human capital formation in India
(c) Low academic standards are one of the main problems of human capital formation in
India
(c) All of the above
Answer: d

Q24.Which of the following agencies is responsible for implementing the rules and
regulations for technical education?
a. Indian Council of Medical Research (ICMR)
b. All India Council of Technical Education (AICTE)
c. University Grants Commission (UGC)
d. National Council of Educational Research and Training (NCERT)
Answer: b

Q25. Which of the following is the meaning of people as a resource?

(a) It means that people are the natural capital of a country based on their existing skills
(b) It means that people are the human capital of a country based on their existing skills
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(c) It means that people are the technical capital of a country based on their existing skills
(d) It means that people are the overall capital of a country based on their existing skills
Answer: b
Rural Development

Q1. Define Rural Development.

Ans. Program of actions for the socio-economic upliftment of the rural people through
development of social & economic infrastructure.

Q2. What is Agricultural Credit?

Ans. It refers to borrowing of money by the farmers from various sources to meet their
financial needs

Q3.What is Agricultural Marketing?

Ans. A process which comprises all operations like Assembling, Processing, Storage,
Transporting and distribution, involved in the movement of farm produce from the
producer to the ultimate consumer.

Q4.What is Distress sale?

Ans. Distress sale refers to the situation when the farmers are compelled to sell their
produce immediately after the harvest, irrespective of the prevailing market price.

Q5. State the meaning of Cooperating Marketing.

Ans. It refers to organizations of the producers to sell their produce collectively with a
view to avoid commission of middlemen between sellers & buyers and maximize gains
through large scale sales

Q6.Define Self-help groups (SHGs)

Ans. SHGs are the groups that promote saving-habits (thrift) among rural household.
Small savings are mobilized by the SHGs and are offered as credit to its different
members depending on their need.

Q7.______ markets were organized to protect the farmers from malpractices .

a) Regulated b) Periodic
c) Weekly d) Daily
Ans. a) Regulated

Q8.Identify the correct pair from the following column I and column II:
Column I Column II
1. A Land development Banks a) their function is to cater to micro-
credit needs of rural people
2. Self - help groups b) these provide long term loans on
security of land
3. Regional Rural banks c) these have been set up to provide
loans to urban zone.
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 4. NABARD d) it was established
on 12th July 1982
Ans. 4 – (d)
Q9.SHGs have helped in the empowerment of:
a.) Men
b.) Women
c.) Traders
d.) Banker
Ans. b.) Women
Q10.Which of the following is not related to agricultural marketing?
a,) storage
b ) preservation
c.) processing
d.) use of chemical fertilizers
Ans. d.) use of chemical fertilizers

Q11.The Apex body which coordinates the functioning of different Financial

Institutionsworking for the expansion of rural credit
(A) NABARD
(B) self-help groups
(C) regional rural bank.
(D )Commercial bank
Ans. (A) NABARD

Q12.Which of the following is an institutional source of rural credit?

(A) Moneylenders (B) Regional Rural Banks
(C) Traders (D) Landlords
Ans: B

Q13.Which Indian state has been held as a success story in the efficient implementation
of milk cooperatives?
(A) Punjab (B) Gujarat
(C) Uttar Pradesh (D) West Bengal
Ans:(B) Gujarat

Q14.Why is the minimum support price fixed by the government ?

(A) For the government’s own benefit
(B) To safeguard the interests of farmers
(C) To save the interest of interest of off consumers
(D) None of these
Ans: B

Q15.Which of the following is unorganized sector

(A) Gramin Bank (B) Cooperative
(C) Money lenders and traders (D)Land Development Banks
Ans: C

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Q16.Micro Credit programs play a vital role in ensuring an overall development of the
rural economy as they ………………… (Choose the correct alternative)
(i) Provide financial support
(ii) Lead to women empowerment
(iii)Enhance the reach of formal credit system
(iv) All the above
Ans. (iv) All the above
Q17. Name the apex institution for rural financing in India.
Ans. NABARD
DISTINGUISH BETWEEN
GREEN REVOLUTION GOLDEN REVOLUTION
The introduction of High-Yielding Varieties The Golden Revolution refers to the fast
(HYV) of seeds and a rise in the usage of expansion in the production of various
irrigation systems, pesticides, and fertilisers horticulture products, including fruits,
are collectively referred to as the "Green vegetables, flowers, medicinal and fragrant
Revolution." plants, spices, and plantation crops.
Green Revolution helped to make India self- Golden Revolution made India a world leader
sufficient in the production of food grains. in the production of mangoes, bananas,
coconut and spices.
The Green Revolution increased agricultural Golden Revolution offered possibilities for
incomes and facilitated food security. sustainable livelihoods and food

INSTITUTIONAL SOURCES NON-INSTITUTIONAL SOURCES

Institutional sources include co- operatives, Non-Institutional sources include
commercial banks including the SBI Group, moneylenders, traders and commission
RBI and NABARD. agents, relatives and landlords.
Rate of interest is less. Rate of interest is more.
The provision of adequate credit to the They used to take advantage of small and
farmers at a cheap rate of interest and marginal farmers by asking for high rates of
assisting small and marginal farmers, so interest and manipulating accounts to keep
they can raise their agricultural productivity them in debt.
and maximise their income.

ORGANIC FARMING CONVENTIONAL FARMING

Organically grown food has more 1.chemical farming has less nutritional value
nutritional value than chemical farming thus than organic farming.
providing us with healthy foods.
the produce is pesticide-free and produced
The produce is full of chemical fertilizers
in an environmentally sustainable way and pesticidesand not environmental
friendly
Organic produce may also have more The produce is more life span.
blemishes and a shorter shelf life than
sprayed produce

CASE STUDY BASED QUESTIONS

CASE STUDY 1

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Organic food is growing in popularity across the world. Many countries have around 10 per
cent of their food system under organic farming. There are many retail chains and
supermarkets which are accorded with green status to sell organic food. Moreover, organic
foods command higher price of around 10-100 per cent than conventional ones.
Organic agriculture offers a means to substitute costlier agricultural inputs (such as
HYV seeds, chemical fertilisers, pesticides etc.) with locally produced organic inputs
that are cheaper and thereby generate good returns on investment.

Read the above text and answer the following questions

(i) What is organic farming
Ans: Farming without chemical fertilizers and pesticides / sustainable farming .
(ii) List out any two benefits of organic farming?
Ans: 1-It is environment friendly and sustainable
2-It is more employment generative
3-Having more demand in the world so more beneficial
(iii) List any two problems of organic farming?
Ans:1- Inadequate infrastructure.
2-problem of marketing the products

CASE STUDY 2

On the given picture answer the following questions.

(i) Identify the activity performed by women in given diagram .
Ans: Entrepreneurial activity.
(ii) Which one of the following odd from others?
a- Fishing b-Poultry farming
C-horticulture d-Animal husbandry
Ans:-C-horticulture
(iii) Name any two agriculture allied economic activity that can increase the income of
farmers?
Ans: Food processing, Bee rearing

CASE STUDY 3
. (i) Identify the activities in rural development given in the picture below:

161 | P a g e
Ans: Agricultural allied activities.
(ii) What is product diversification in rural development ?
Ans:- change in cropping pattern and the other relates to a shift of workforce from agriculture
to other allied activities (livestock, poultry, fisheries etc.) and non-agriculture sector

EMPLOYMENT

One Sentence Questions:

Q1 -What is Employment ?
Ans.-Employment means the state of having a job or being employed. Employers can be an
organization or an individual, etc

Q2 -Define Worker?
Ans- A worker is an individual who is in some employment to earn a living. He is engaged in
some production activity.

Q3- What do you mean by Self-employed Worker?

Ans Self-employed workers are those who are engaged in their own business or own
profession

Q4-Define hired Worker?

Ans- Those workers who work for others they renders their services to other,
Q5- What is Casual Worker ?
Ans Casual workers are the daily wagers. They are not hired by their employers on regular
basis.

Q6 -What is regular Worker?

Ans- Regular workers are permanent pay-roll of their employers. A regular worker is usually
a skilled worker.
Q7- Define Labour Supply ?
Ans- It refers to supply of labour corresponding to different wage rates.

Q8- What is Labour Force?

Ans- It refers to the number of persons actually working or willing to work. It is not related to
wage rate.
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Q9 -What is Work Force?
Ans- It refers to the number of persons actually working and does not account for those who
are willing to work.

Q10- Define Informalisation of Workforce?

Ans; It refers to a situation where percentage of work force in the formal sector tends to
decline and that in the informal sector tends to rise.
Q11 -What is Unemployment?
Ans Unemployment occurs when someone is willing and able to work but does not have a
paid job.

Q12-.What is Jobless Growth?

Ans- It is defined as a situation where GDP grows faster than the employment opportunities
resulting in unemployment.

Q13- What is Casualisation ?

Ans- It refers to a situation when the percentage of casually hired workers in the total
workforce tends to rise over time.

Q14- What is Unemployment Rate?

Ans It is calculated as percentage of labour force who are unemployed, not as percentage of
total population.

Q15- What is Frictional unemployment?

Ans It is defined as the unemployment that occurs because of people moving or changing
occupations.

16 -What is Structural unemployment?

Ans It is defined as unemployment arising from technical change such as automation.

17 -What is Cyclical unemployment?

Ans It is defined as workers losing their jobs due to business cycle fluctuations in output.

18 - What is Open Unemployment?

Ans It refers to that situation wherein the worker is willing to work and has the necessary
ability to work yet he does not get work

19 - What is Seasonal Unemployment?

Ans It refers to a situation where a number of person that are not able to find a job in a
particular season.

20 - What is participation ratio?

Ans The participation ratio is the percentage of the population engaging in productive
activity. It is often referred to as the worker population ratio.PMGRY :Pradhan Mantri
Gramodaya Rozgar yojana.

21 - What is MNREGA ?
Ans Mahatma Gandhi National Rural Employment Guarantee Act-2005

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22 - What is Disguised unemployment?
Ans It is a kind of unemployment in which some people look like being employed but are
actually not employed fully.

23- What is Educated Unemployment?

Ans It is a kind of unemployment in which educated people, are underemployed because their
qualification does not match the job.

24 -What is the full form of NSSO?

Ans National Sample Survey Organisation.

25 What is Organised sector ?

Ans The organised industry offers its employees job security. They are only required to work
a certain amount of hours per week.

Fill in the blanks:

1. The workers who own and operate an enterprise to earn their livelihood are known
as............
Ans.Self employed workers

2. The newly emerging jobs are found mostly in the.............sector.

Ans.Service/Tertiary

3.Labour force =............ + unemployed persons who are willing and available for work.
Ans.Workforce

4. The workers in formal sector are entitled to ............... benefits.

Ans.Social security

5. All private sector establishments which employ less than 10 workers are called........
Ans. Informal sector establishment

6. .......................includes persons who are engaged in economic activities.

Ans. Workforce

7. The activities which contribute to gross domestic product of the country are called
……………activities.
Ans. Economic

8. .................... workers use their own resources to get employment.

Ans.Self employed

9. ..................ratio is used to measure the participation of people in employment.

Ans. Worker population

10. In the past few decades...........(primary/secondary/tertiary) sector has created maximum

jobs opportunities in India.

Ans. Tertiary sector

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11. “Google in India has hired 4000 graduate students”. The given statement deals with
formal sector/informal sector employment.
Ans. Formal Sector
12. If a construction site manager hires two workers on daily wage basis, such a situation is
covered under (formal/informal sector).
Ans. Informal sector
13. Greater proportion of women workers are found in (urban/rural) areas as a component of
Indian work force.
Ans. Rural
14. ...............is an indicator which is used for analysing the employment situation of a
country.
Ans. Workforce participation rate
15. Under .............type of unemployment, marginal product gained by employing one
additional unit of labour is zero.
Ans. Disguised unemployment
16. All private sector establishments which employ less than ............ (10/12) workers are
called informal sector establishments.
Ans. 10
17. A doctor running his own clinic is an example of worker.
Ans. Self employed
18... ............. (Work/Labour) force is sum total of employed and unemployed persons who
are willing and able to work.
Ans. Labour

DISTINGUISH BETWEEN
Hired workers Self-employed workers

1 These workers are employed by 1) These use their self- employed resources to earn
others (employers ) on salary. a living.

2 These work on resources (land 2) These use their own resources to get
,capital and Entrepreneur) provided employment i.e, they use self owned land,
by others. E.g. A civil engineer in capital and entrepreneur. E.g. A doctor running
the construction company, a doctor his own clinic, a cement shop owner.
working in a government hospital
etc.

Regular workers Casual Workers

1. These are hired on permanent basis e.g., These are not hired on permanent basis e.g.,
a doctor employed in a government daily wage earners who work on
hospital construction sites.

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2. These are entitled to social security These are not entitled to social security
benefits (pension etc) from their benefits from their employers.
employers.

3. These have strong bargaining power as These have weak bargaining power as they
they can form trade unions cannot form trade unions.

Formal Sector Informal Sector

1 It is an organised sector which includes all It is an unorganised sector which includes

the public sector enterprises and private all the private sector enterprises which
enterprises which employ 10 or more than employ less than 10 workers.
10 workers.

2 Employees working in this sector are Employees working in this sector are
known as formal workers. known as informal workers.

3 The workers are entitled to social security The workers are not entitled to social
benefits. security benefits.

4 The workers in this sector can form trade The workers in this sector cannot form trade
unions. union.

5 6% of the total workforce is employed in 94% of the total workforce is employed in

the formal sector. (According to 2009- informal sector.
2010 data)
(According to 2009-2010 data)

Disguised unemployment Seasonal Unemployment

1 Most common type of This is another common form of unemployment

unemployment in farm sector prevailing in India. It occurs because agriculture is
seasonal in nature. The farmer is unemployment in
off season.

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2 It is a situation when more than On an average , a farmer in India remains
actually required number of unemployed for about 6-7 months in a year, if he
workers are engaged in work grows just one crop in a year and because he can
,Ifsome of them are withdrawn not prepare his land for any other crop in off
from the job, the total output will season, he remains unemployed during this
remain unaffected . period.

3 It is common type of Some of these migrate to urban areas to find job

unemployment in rural areas.. in off season and if they are not able to pick a job
there, the problem of unemployement will persist.

4 Thus when all those who Seasonal unemployment occurs in many other
apparently seem working in seasonal activities too, such as brick making,
agriculture are not able to sugarcane crushing, ice-cream making, woolen
contribute individually to the total processing etc.
output, would be counted in
disguised unemployment.

Picture and table based Questions:

Question-1 See the picture Dam construction work is a direct way of employment generation
by the government.

Ans- GOVERNMENT AND EMPLOYMENT GENERATION Mahatma Gandhi

National Rural Employment Guarantee Act 2005. It promises 100 days of guaranteed wage
employment to all rural households who volunteer to do unskilled manual work. The scheme
based on this Act is one of the many measures the government has implemented to generate
employment for those who are in need of jobs in rural areas.
Union and State governments have played an important role in generating employment or
creating opportunities for employment generation. Many programmes that the governments
implement, aimed at alleviating poverty, are through employment generation. They are also
known as employment generation programmes.

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What I object to is the ‘craze’ for machinery, not machinery as such. The craze is for what
they call labour-saving machinery. Men go on ‘saving labour’ till thousands are without
work and thrown on the open streets to die of starvation.......... Mahatma Ghandhi

Question 2: See the picture and explain in brief.

Ans- unemployment as a situation in which all those who, owing to lack of work, are not
working but either seek work through employment exchanges, intermediaries, friends or
relatives or by making applications to prospective employers or express their willingness or
availability for work under the prevailing condition of work and remunerations. . Economists
define unemployed person as one who is not able to get employment of even one hour in half
a day.
Types of unemployment
1- Open unemployment.
2-disguised unemployment.
3- seasonal unemployment-
Question-3 Read table carefully and analyse data--

Source- EMPLOYMENT : GROWTH, INFORMALISATION AND OTHER ISSUES ; NCERT 2024-25

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Ans- Distribution of workforce by industrial sectors shows substantial shift from farm work
to non-farm work In 1972-73, about 74 per cent of workforce was engaged in primary sector
and in 2011-12, this proportion has declined to about50 per cent. Secondary and service
sectors are showing promising future for the Indian workforce. You may notice that the
shares of these sectors have increased from 11 to 24 per cent and 15 to 27 per cent,
respectively.
The distribution of workforce in different status indicates that over the last five decades
(1972-2018), people have moved from self-employment and regular salaried employment to
casual wage work. Yet self-employment continues to be the major employment provider.
Stagnation of secondary sector and moderate rise in self-employement during 2011-18.
Scholars call the process of moving from self-employment and regular salaried employment
to casual wage work noticed during 1972-94 as casualisation of workforce. This makes the
workers highly vulnerable.

Question- 4. See the table and analyse GDP growth and employment.

EMPLOYMENT : GROWTH, INFORMALISATION AND OTHER ISSUES ; NCERT

2024-25

Ans-GROWTH AND CHANGING

STRUCTURE OF EMPLOYMENT Here we look at two developmental indicators —
growth of employment and GDP. During the period 1950–2010, Gross Domestic Product
(GDP) of India grew positively and was higher than the employment growth. However, there
was always fluctuation in the growth of GDP. During this period, employment grew at the
rate of not more than 2 per cent.
Development in the late 1990s: employment growth started declining and reached the level of
growth that India had in the early stages of planning. During these years, we also find a
widening gap between the growth of GDP and employment. This means that in the Indian
economy, without generating employment, we have been able to produce more goods and
services. Scholars refer to this phenomenon as jobless growth..

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 SUSTAINABLE DEVELOPMENT
Q1.Interpret the given picture on account of current environmental challenges and answer the
following questions.

1. How is Deforestation a serious environmental concern? List any two points.

Ans :- Deforestation disturbs natural habitat & water cycle.
It leads to soil erosion and loss of bio diversity.
2. What is Deforestation?
Ans :- Large scale cutting down of tress for developing projects.

Q2. Interpret the given picture on Land Degradation and answer the following questions.

1. What is Land Degradation?

Ans :- It refers to a decline in the overall quality of soil, water or vegetation condition
commonly caused by human activities.
2. List any two causes of Land Degradation.
Ans:- 1) Loss of vegetation due to deforestation.
2) Overgrazing.

Q3. List any two reasons of high the opportunity costs of negative environmental impact.
Ans: - The intensive and extensive extraction of both renewable and non-renewable resources
has exhausted some of these vital resources and we are compelled to spend huge amounts on
technology and research to explore new resources.
Degraded environmental quality — decline in air and water quality has led health costs.
Global warming and ozone depletion also contribute to increased financial commitments for
the government

Q4. What happens when the rate of resource extraction exceeds that of their regeneration?
Ans: - It leads to environment crisis.

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Q5. Two major environmental issues facing the world today are ____________ and
_____________.
Ans:- Global warming and Ozone depletion.

Q6. What is sustainable development?

Ans: - ‘Development that meets the need of the present generation without compromising the
ability of the future generation to meet their own needs’

Q7. The Brundtland Commission emphasizes on protecting of the _____________.

Ans: - Future generation

Q8. What is Bio composting?

Ans: - Making of compost made from organic wastes of different types. Eg. Earthworms can
convert organic matter into compost faster than the normal composting process.

Q9. List strategies for sustainable development.

Ans: - Use of Non-conventional Sources of Energy
Use of Wind Power.
Solar Power through Photovoltaic Cells.
Bio composting.

Q10. List any two methods of Bio pest control.

Ans: Mixed cropping and growing different crops in consecutive years on the same land.
Awareness is spreading about various animals and birds which help in controlling pests. For
example, snakes are one of the prime groups of animals which controls damages done by rats.

Q11. What is the factor that contributes to global warming?

(a) Deforestation
(b) A decrease in cattle production
(c) Burning of petroleum and coal products
(d) Hydrogen gas released in animal waste
Answer: (c) Burning of petroleum and coal products

Q12. What is the full form of CFG?

(a) Chlorofluorocarbons
(b) Hydrofluorocarbons
(c) Ultra Fluorocarbons
(d) Photo Fluorocarbons
Answer: (a) Chlorofluorocarbons

Q13. What is the example of overuse of environmental resources?

(a) Land Degradation & Deforestation
(b) Land Up gradation & Reforestation
(c) None
(d) Both (a) and (b)
Answer: (a) Land Degradation & Deforestation

Q14. The Chipko Movement, for protection of the forest, was started in which part of India?
(a) Kerala
(b) Uttarakhand
(c) Karnataka

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(d) Maharashtra
Answer: (a) Uttarakhand

Q15. Give two examples of resources overuse.

Answer: The two examples of resources overuse are:
i) Excessive tree demolishing
ii) Excessive exploitation of fossil fuel

Q16. Define Renewable resources?

Answer: Renewable resources refers to that type of resources that can be utilized without
being exhausted. Such as trees, fishes, etc.

Q17. Define Renewable resources?

Answer: Renewable resources refer to that type of resources that can be utilized without
being exhausted. Such as trees, fishes, etc.

Q18. What happens when the rate of resource extraction exceeds that of their regeneration?
Answer. The carrying capacity of the environment implies that the resource extraction is not
above the rate of regeneration of the resources and the waste generated are within the
assimilating capacity of the environment. Absence of carrying capacity of environment
means absence of life.

Q19. Is environmental crisis a recent phenomenon? If so, why?

Answer. Yes, because India is suffering from population explosion. India has approximately
20 per cent of livestock population on a mere 2.5 per cent of the world’s geographical area.
The high density of population and livestock and the competing uses of land for forestry,
agriculture, pastures, human settlements and industries exert an enormous pressure on the
country’s finite land resources. The per capita forestland in the country is only 0.08 hectare.
There is an excess felling of about 15 million cubic metre forests over the permissible limit.
Indiscriminate felling of trees has led to destruction of forest cover.

Q20. Distinguish between renewable non-renewable resources?

Renewable resources – Non-renewable resources-
Renewable resources are those Non-renewable resources are those resources
inexhaustible resources capable of being that are likely to be exhausted or depleted on use.
replenished easily. Water, trees and fish Petroleum, coal and iron ore are non-renewable
are the renewable resources resources. The pace of re-occurrence of these
resources is slower than that of their exploitation

Q21. How the opportunity cost negative Environmental impact are high?
Increased financial commitments of the Government due to Global warming and Ozone
depletion and rise in expenditure on health due to decline in air and water quality shows that
opportunity cost of the negative environment impact on high.

Q22. Distinguish between Carrying capacity and Absorptive capacity

Carrying capacity of the environment Absorptive capacity means the ability of the
implies that the resources extraction is environment to absorb degradation. c) Global
not warming is due to an increase in Greenhouse gas

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above the rate of regeneration of the concentrations, like
resources and the wastes generated are water vapour, carbon dioxide, methane, and ozone
within the in the atmosphere. d) It refers to the destruction of
Assimilating capacity of the ozone in the ozone layer, due to the presence of
environment. chlorine
from manmade chlorofluorocarbons and other forces

ASSERTION & REASON

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q23. ASSERTION (A): The environment fails to perform its vital function of life sustenance
and this results in an environmental crisis.
REASON (R): Many resources have become extinct and the wastes generated are beyond the
absorptive capacity of environment.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)

Q24...ASSERTION (A): The environment has an important function of supplying resources,

both renewable and non-renewable resources.
REASON (R): The environment is able to perform its functions as long as the demand on
these functions is within its carrying capacity.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

Q25.ASSERTION (A): Sustainable development is the development that meets the need of
present generation without compromising the ability of the future generations to meet their
own needs.
REASON (R): Conservation and promotion of natural resources.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)

Q26.ASSERTION (A): Environmental degradation owes a great deal to supply demand

reversal of resources over time.
REASONING (R): Global warming is wake up call to save environment.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

Q27. ASSERTION (A): Deforestation is rising at such a rapid scale that it has totally
disturbed the ecological balance of the country.
REASON (R): Deforestation is one of the major reason for soil erosion.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

Q28. Which of the following is not used as a strategy for the sustainable development?

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(a) Use of bio-gas (b) Use of solar power
(c) Use of thermal power (d) Use of hydel power
Ans. (c )Use of thermal power

Q29. Central Pollution Control Board has identified _________________ categories of large
and medium industries as polluting industries.
(a) 15 (b) 17
(c) 19 (d) 13
Ans. (b) 17

Q30. Environmental includes:

(a) Biotic factors (b) Abiotic factors
(c). Both (a) and (b) (d) None of the above
Ans. (c). Both (a) and (b)

Q 31. 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 the earth’s surface
(D)Global warming is caused by ozone depletion
Ans. (c) Global warming is the rise in average temperature at the earths Surface

Q32. On the basis of below image answer the following question

1 Name the type of energy being produced in this figure

Ans Gobar Gas Plant
2 Two Benefits of this energy
Ans1) It is a clean fuel
2) It has reduces the household pollution and also energy wastage is minimised.
Q33. On the basis of below image answer the following question

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 1) Name the India’s most industrialised region shown in figure
Ans Damodar Valley
2) Explain one strategy to control it from becoming an ecological disaster.
Ans Rate of extraction is less than rate of regeneration.

Q34. The ‘agenda’ 21 of rio summit 1992 is related to -

( a) sustainable development. ( b) polluter - pays principle
( c ) environmental education. ( d) preservation of ozone layer
Ans A

Q35. The first airport powered solar energy was -

( a) Bangalore. ( b) cochin. ( c) london. ( d) frank furt
Ans B

Q36. Define carrying capacity of environment.

Ans. The environment is able to perform its functions without any interruption as long as
the demand on these functions is within its carrying capacity. Carrying capacity means to
fulfill the following conditions:(i) extraction of resources should be less than the rate of
regeneration of resources; and (ii)wastes generated are within the assimilating (absorption)
capacity of the environment.

Q37. What is bio-diversity loss?

Ans. The high density of population, livestock and the competing uses of land for agriculture,
forestry, human settlements, industries etc. Exert an enormous pressure on the country’s
finite resources, which puts a strain on the eco-system resulting in extinction of plants and
animal species. This loss in known as bio-diversity loss.

COMPARATIVE DEVELOPMENT OF INDIA, CHINA AND PAKISTAN

VERY SHORT QUESTION ANSWER

Q.1 From the set of events/systems given in column I and corresponding relevant fact given
in column II, about China, choose the correct pair of statement: s
Column I Column II
A Great Leap Forward (i) Cultivating land collectively
B Commune System (ii) Opening of the Industries in their homes
C Proletarian Cultural revolution (iii) Students were sent to work and learn
from the countryside
D Economic Reforms in China (iv) 1988
(a) A - (i) (b) B - (ii) (c) C - (iii) (d) D –
(iv)
Ans- c

Q.2 _______ adopted ‘One Child Policy’ as a measure to control population

(a) India (b) China
(c) Pakistan (d) Russia
Ans- b

Q3. Which type of economic system is followed in china?

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[a] mixed economy [b] socialist economy
[c] Capitalist economy [d] none of these
Ans- b

Q4. Arrange the following events occurred in China in chronological order and choose the
correct alternative:
[i] Great Proletarian Cultural Revolution
[ii] Great Leap Forward Campaign
[iii] Introduction of Economic Reforms
[iv] First Five-Year Plan
[a] (ii) (iv) (iii) (i) [b] (iv) (ii) (i) (iii)
[c] (ii) (iv) (i) (iv) [d] (iv) (i) (ii) (iii)
Ans- b

Q5. In terms of the sectoral contribution to GDP, the economy of China is relying more on:
[a] Primary sector [b] Secondary sector
[c] Tertiary sector [d] None of these
Ans- b

Q6. The collective farming in China was termed

[a] SOEs [b] GLF
[c] Commune system [d] Economic reforms
Ans- c

Q7. During the period 2016-2020, China worked on _____________ its Five Year Plan.
[a] 12th [b] 13th
[c] 14th [d] 15th
Ans- 13th

Q8. Which one of the following was not the impact of the one-child policy norm?
[a] Population growth reduced
[b] Burden of old aged people increased
[c] Working population reduced in China arresting the economic growth
[d] There was unrest among the people
Ans- d

Q9. Proportion of the people below poverty line is more in:

[a] India [b] Pakistan
[c] China [d] USA
Ans- a

Q10. The fertility rate is very high in

[a] Pakistan [b] India
[c] China [d] USA
Ans- a

Q11. _______________ has the highest life expectancy.

[a]India [b] China
[c] Pakistan [d] both (a) and
(c)
Ans- b

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Q12. When were economic reforms introduced in China?
[a] 1979 [b] 1977
[c] 1978 [d] 1980
Ans- c

Q13. Introduction of economic reforms in Pakistan took place in ___________

[a] 1978 [b] 1980
[c] 1988 [d] 1991
Ans- c

Q14. Identify demographic indicator from the following:

[a] Urbanization [b] GNP
[c] Mean years of schooling [d] Percentage of undernourished
children
Ans- a

Q15. The Great Proletarian Cultural Revolution was introduced under the leadership of
_________________.
(a) Mao Zedong (b) J. L. Nehru
(c) M.K. Gandhi (d)M.A. Jinnah
Ans. (a) Mao Zedong

Q16. Maternal mortality rate is high in ________________

Ans. Pakistan

Q17. Dual pricing policy was adopted by:

[a] Pakistan [b] India
[c] China [d] USA
Ans- c china

Q18. India is not a member of which of the following regional / global economic group:
(a) European Union (b) BRICS
(c) G-20 (d) SAARC
Ans. (a) European Union

Q19. The main aim of the Great Leap Forward in China was to ensure a rapid increase of
____________.
(a) Agriculture (b) Industries
(c) Services (d) Export
Ans. (b) Industries

Q20. In which year, China announced its first five-year plan?

(a) 1950 (b) 1951
(c) 1953 (d) 1954
Ans. (C) 1953

Q21. China's great leap forward was in the year.

(a) 1953 (b) 1955
(c) 1958 (d) 1999
Ans. (c) 1958

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Q22. India relied on:
(a) Public sector (b) Inward looking strategy of growth
(c) Both (a) and (b) (d) None of these
Ans. (c) Both (a) and (b)

Q23. The reforms in china were dictated by

(a) World Bank
(b) International Monetary Fund
(c ) Thought process of the Chinese leadership itself
(d) None of these
Ans. c) Thought process of the Chinese leadership itself

Q24. One child policy was discontinued in china in the year

(a) 2016 (b) 2017
(c) 2015 (d) 2014
Ans. 2016

Q25. Which type of economic system is followed in India?

[a] Mixed economy [b] Socialist economy
[c] Capitalist economy [d] None of these
Ans- a

Q26. _______________ has the highest life expectancy.

(a) India (b) China
(c) Pakistan (d) both (a) and (c)
Ans. China

Q27. Identify demographic indicator from the following ______________.

(a) Urbanisation (b) GNP
(c) Mean years of schooling (d) Percentage of undernourished children
Ans. Urbanisation

Q28. On the basis of the data given below, identify the incorrect statement in terms of growth
of GDP (%).
Country 1980-90 2015-17
India 5.7 7.3
China 10.3 6.8
Pakistan 6.3 5.3
(a) China was able to maintain near double digit growth during 1980s.
(b) Pakistan was ahead of India during 1980-2017.
(c) India experienced a rapid rise in Gross domestic product during 2015-17.
(d) Both China and Pakistan declined in growth rate during 2015-17.
Ans. (B) Pakistan was ahead of India during 1980-2017

Q29. Which of the following has lowest density of population?

(a) India
(b) China
(c) Pakistan
(d) None of these
Ans. (b) China
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Q30. HDI has limited usefulness because __________________.
(a) It gives more emphasis on literacy as compared to other indicators.
(b) It does not include sufficient indicators for health.
(c) It does not account for liberty indicators.
(d) It accounts for human rights
Ans. (c) It does not account for liberty indicators

SHORT QUESTION AND ANSWER

Q1. What is the common failure story of India and Pakistan?
Ans- (i) The relatively inward looking economic policies
(ii) The mind-set of the politicians and bureaucrats has not shown a progressive change
(iii) Fiscal management is grossly disappointing
(iv) Large proportion of tax revenue is spent to meet defense expenditures
(v) Deficient urban service (water, electricity and transport)
(vi) A wide lag between the formulation of policies on the one hand and their
implementation.

Q2. What are the areas where India has an edge over Pakistan?
Ans-(i) In the area of skilled manpower, research and development institutions, India is better
placed than Pakistan
(ii) Human capital formation
(iii) India has shown a remarkable breakthrough in the export of software
(iv) India also has a better record of investment in education
(v) Owing to rapid decline in population growth rate (fertility rate)
(vi) Issues of health facilities in India are better than in Pakistan.

Q3. What are the areas where Pakistan has an edge over India?
Ans.- (i) Pakistan has achieved better results with regards to migration of workforce from
agriculture to industry
(ii) Pakistan growth strategy has a better than Pakistan
(iii) External trade has expanded much faster in Pakistan than India
(iv) Pakistan has achieved better results as regards access to improved water resources.

Q4. State Comparison between Indian Economy and Pakistan’s Economy: -

Ans.- (i) Both the countries have mixed economy
(ii) Economic reforms were interdicted in 1988 in Pakistan and India introduced reforms
since 1991
(iii) India is ahead of Pakistan in the areas of telecommunication, information, technology,
human capital formation
(iv) Pakistan is ahead of India in the areas of urbanization and sanitation facilities.

Q5. Why does China have an edge over the Indian Economy?
Ans.-We know that reforms were initiated in China in 1978.
(i)The Chinese reform process began more comprehensively during the 80s
(ii)Global exposure of the economy has far more wider in China than in India,
Thus:-
(a) China was liberal in allowing FDI in retail
(b) China allowed forging investors 100% equity investment
(c) Establishing SEZ
(d) China has emerged as the 2nd largest economy in the world
(e) Chinese agriculture is a commune system (collective cultivation) of farming.

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Q6. State two indicators of human development.
Ans. Two indicators of human development are:
(i) Human Development Index (HDI)
(ii) Life expectancy rate at the time of birth.

Q7. .By whom is the Human Development Index prepared every year?
Ans. United Nations Development Programme (UNDP)

Q8. What can you say about sex ratio of India, Pakistan and China?
Ans. Sex ratio is biased against females in all the three countries.

Q9.In context of India and Pakistan, which sector contributes the highest towards the GDP of
the country?
Ans. In India and Pakistan, service/tertiary sector contributes the highest towards the GDP of
the country.

Q10.What change takes place in sectorial share of employment in normal course of

employment?
Ans. In the normal course of development, countries first shift their employment from
agriculture to manufacturing and then to services.

Q11. Inspite of being the world’s most populous country, China’s annual growth rate of
population (0.46) is lower than India’s annual growth rate of Population (1.03) and Pakistan’s
annual growth rate of population (2.05) . Which reason is responsible for it?
Ans. The one child policy was part of a birth planning program designed to control the size of
the rapidly growing population of China.

Q12. “Pakistan economy is much slower or slowdown for a long period of time” Give any
one reason responsible for it?
Ans. Political instability, over-dependence on remittances along with volatile performance of
agricultural sector. (Any one reason)

Q13. Which may be defined as the measure of the extent of demographic participation in the
social and political decision making?
Ans. Liberty indicator

Q14. Study the following information, which country can be termed as the best on the HDI
indicator?

Countries Human Development Index (HDI)Value

Country A 0.648

Country B 0.759

Country C 0.562

Ans. Country B

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Q15. Give only one comment on the infant mortality rate among India and Pakistan.
Ans. Infant mortality rate is very high in Pakistan (66) as compared to India (38). This is
because of -large sized families more undernourished children and poor health of the mothers
(any one)

Q16. Now-a-days, nations are forming regional and global economic groupings such as the
SAARC, European Union, ASEAN, G-8, G-20, BRICS etc. Why are such regional and
economic groupings formed?
Ans. The regional and economic groupings are essential for developing countries as they face
Competition not only from developed nations but also amongst themselves. These groupings
focus on enhancing their competitiveness in the international markets.

Q17. Name any two indicators of comparative development.

Ans. (a) GDP growth rate
(b) Demographic profile

Q18. Name any two areas of development where India has topped Pakistan.
Ans. Health and Education

Q19. Name any two areas of development where Pakistan has topped over India.
Ans. Occupational structure and Urbanisation

Q20. In which sector of the economy, has China surpassed India and Pakistan?
Ans. Manufacturing Sector

PICTURE BASED QUESTIONS

Q.1 Study the following picture and answer the given question:

i) Identify the country with highest GDP growth rate in the picture:
a. India
b. China
c. Pakistan
d. None of the above
Ans. Option (b)
ii) In which year GDP growth rate was very high:
a. 2006
b. 2004
c. 2007
d. None of the above
Ans. Option (c)
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Q.2 Study the following picture and answer the given question:

(i) Name the country which has highest percentage of people below poverty line.
(ii)Which countries have lowest and highest urbanization?

Q.3 Study the following picture and answer the given question:

(i)Which country has highest density of people?

(ii)Which country has lowest annual growth of population?

TRUE OR FALSE

Q1. In comparison to India, urbanisation is high in China with more than 56 percentage
of people living in urban areas. ( True or False).
Ans. True

Q2. Heavy dependence on exports has led to slowdown of the Chinese economy. (True or
False)
Ans. True. Due to fall in global demand for the Chinese goods

Q3. Expanding focus on defence preparedness has led to economic slowdown in Pakistan.
(True or False )

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Ans. True. Due to rising public expenditure on defence goods.
Q4. As per HDI report 2018, India was ranked at 180th position. (True or False)
Ans. False, India at 130th position

Q5. Pakistan has performed better than India in case of rural-urban migration. (True or False)
Ans. True. Due to more movement of population from rural to urban areas

TABLE BASED QUESTIONS

Q1. Based on the given data, compare any three parameters for the economies of India and
China.
SL.NO. ITEM INDIA CHINA

i) Human development index (HDI) 0.609 0.727

ii) HDI (Rank) 130 90

iii) Life Expectancy at birth (in years) 62.2 75.8

iv) GDP per capita (PPP $ US) 5,730 13,572

Ans. 1-HDI (value): (i) HDI is an important indicator of socio- economic development.
Higher value of HDI shows higher level of growth and development of a nation. As per given
report, HDI for India is 0.609, which is lesser than that of China (0.727).
2-HDI Rank: HDI values are used to create ranking of different countries. China is placed at
90th position in the world whereas, India stands at 130 th position. Higher rank indicates socio-
economic development.
3-Life Expectancy at birth (in years): A country which provides better health and civic
facilities secure a higher life expectancy for its citizens. China has higher life expectancy than
India by an margin of approximately 8 years.
Q2.Compare and analyse the given data of India and China,with valid reasons.

Country Annual Growth Rate of population(2015) Gender Ratio (Per thousand males)
INDIA 1.2% 929
CHINA 0.5% 941
Ans. Comparison and observations:
 Annual Growth rate of population is much lower in China (0.5%) than India (1.2%) .
It became possible only after successful implementation of One child policy
introduced in China in 1979.
 Gender ratio is more skewed in India 929 per 1000 males than China941 per 1000
males.
 This reflects a strong preference for a male child in the Indian society, it is a sign of
higher social backwardness in India than China.

Q3.On the basis of the below-mentioned information answer the following questions:
Country Density Sex Ratio Fertility Urbanisation
(per sq. Km) Ratio
India 455 924 2.2 34
China 148 949 1.7 59
Pakistan 275 943 3.6 37
-World Development Indicators 2019, www.worldbank.org

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(a) Which of the following countries shows brighter signs of gender equality?
a. India c. Pakistan
b. China d. Both b and c
Ans. (b) China
(b) Compare the density of the three countries.
Ans. Among the countries mentioned above, density of population is the highest in India,
i.e., 455 and lowest in China i.e., 148.
(c ) Which country has lowest fertility ratio?
Ans. China
Q4. Answer the following questions on the basis of the following data:
(i)Comment upon the HDI rank among the three countries.
(ii)Which country has the highest life expectancy?

Country HDI value HDI Rank Life Expectancy at Birth

(years)
India 0.645 130 69.7
China 0.761 87 76.9
Pakistan 0.557 154 67.3
-Human Development Report 2019 and 2020

Ans. (i) On the basis of the schedule, we can say that China has the best HDI rank in the
world compared to India and Pakistan. China’s rank is 87. Whereas 130 and 154 for India and
Pakistan respectively.

Ans (ii) Among all the three countries, China has the highest life expectancy of 76.9 years. It
signifies about better healthcare facilities in China compared to India and Pakistan.

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 BRIGHT
ACHIEVERS

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NATIONAL INCOME AND RELATED AGGREGATE
ASSERTION AND REASON BASED QUESTIONS
Read the following statements-Assertion (A) and Reason ( R) . Choose one of the correct
alternatives given below:

Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is false
d) Assertion (A) is false but Reason (R) is true

Q1. Assertion (A): Sale and purchase of shares, bonds and debentures is not included in the
estimation of national income.
Reason (R): Financial assets are mere paper claims which do not add to the flow of goods and
services, hence not included in the estimation of National Income.
Ans. (a)
Q2. Assertion(A): Gross domestic capital formation refers to investment expenditure by the
producing sector in a country.
Reason(R): Business fixed investment is the amount which producing units spend on
purchase of second hand equipments and machines in the domestic territory of the
country.
Ans. (c)
Q3. Assertion(A): Expenditure on intermediate goods are counted in the calculation of GDP.
Reason(R): Intermediate goods are those used in the production of final goods and services.
Ans. (d)

Q4.Assertion (A): Domestic Income is a territorial concept.

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Reason (R): Domestic Income includes the value of final goods and services produced in the
entire world.
Ans. (c)

Q5. Assertion (A): Domestic Income is equal to National Income in the case of a closed
economy.
Reason (R): Closed Economy has no economic relations with the rest of the world.
Ans. (a)

Q6. Assertion (A): Owing to increase in GDP, all of the people have not benefited.
Reason (R): The distribution of GDP is not uniform
Ans. (a)

Q7. Assertion (A) : Net indirect tax is the basis of difference between market price and factor
cost.
Reason (R) : By adding net exports to domestic income, we estimate national income.
Ans. (c)

Q8. Assertion (A) : Real GDP is a better index of economic growth than the nominal GDP.
Reason (R) : The index of Real GDP always reflects a change in the level of output.
Ans. (a)

Q9. Assertion (A):Money received from the sale of second hand car will be considered while
estimating national income.
Reason (R):Their value is already includedand it does not contribute to the current flow of
goods and services.
Ans. (d)

Q10. Assertion (A):Imputed value of owner occupied lands are a part of both domestic
income and national income.
Reason (R):Factors of production are bound to give its services regardless of the fact that it is
giving its services to the owner or an outsider.
Ans. (a)

Q11 Assertion (A): While calculating GDP using the expenditure approach, the value of
imports is subtracted.
Reason (R): Imports are included when value of consumption and other components of
expenditure are calculated.
In the light of the above statements, choose the correct answer from the options given
a) Both Assertion and Reason are true, and Reason is the correct explanation of Assertion.

b) Both Assertion and Reason are true, but Reason is not the correct explanation of
Assertion.
c) Assertion is true, but Reason is false.
d) Assertion is false, but Reason is true.

Answer: (a) Both Assertion and Reason are true, and Reason is the correct explanation of
Assertion.
Q12. Assertion: Gross domestic capital formation refers to investment expenditure by the
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 producing sector in a country
Reason: Business fixed investment is the amount which producing unit spend on
purchase of second hand equipment and machines in the domestic territory of
the country.
a) Both Assertion and Reason are true, and Reason is the correct explanation of Assertion.
b) Both Assertion and Reason are true, but Reason is not the correct explanation of
Assertion.

c) Assertion is true, but Reason is false.

d) Assertion is false, but Reason is true.
Answer: (c) Assertion is true reason is false

Q13. Assertion: In the circular flow of income, households receive factor income.
Reason: Factor income represents payments made to factors of production, including
wages, rent, interest, and profit.
a) Both Assertion and Reason are true, and Reason is the correct explanation of Assertion.
b) Both Assertion and Reason are true, but Reason is not the correct explanation of
Assertion.
c) Assertion is true, but Reason is false.
d) Assertion is false, but Reason is true.
Answer: (a) Both Assertion and Reason are true, and Reason is the correct explanation of
Assertion.
Q14. Assertion: Transfer payments are included in the calculation of national income.
Reason: Transfer payments represent payments made by the government to individuals
without any corresponding productive activity.
a) Both Assertion and Reason are true, and Reason is the correct explanation of Assertion.
b) Both Assertion and Reason are true, but Reason is not the correct explanation of Assertion.
c) Assertion is true, but Reason is false.
d) Assertion is false, but Reason is true.

Answer: (b) Both Assertion and Reason are true, but Reason is not the correct explanation of
Assertion.
Q15. Assertion: The income method calculates GDP by summing all factor incomes earned
within an economy.
Reason: It includes wages, rent, interest, and profit.
a) Both Assertion and Reason are true, and Reason is the correct explanation of Assertion.

188 | P a g e
 b) Both Assertion and Reason are true, but Reason is not the correct explanation of
Assertion.
c) Assertion is true, but Reason is false.

d) Assertion is false, but Reason is true.

Answer: (a) Both Assertion and Reason are true, and Reason is the correct explanation of
Assertion.
Q16. Assertion (A):Operating surplus is income from property (rent, royalty and interest)

and income from entrepreneurship i.e. Profits (Dividends + Corporation

Tax + Corporate Savings).
Reason (R ):Operating Surplus does not originate in general government sector as
there is no income from property and entrepreneurship.

a) Both Assertion and Reason are true, and Reason is the correct explanation of
Assertion.
b) Both Assertion and Reason are true, but Reason is not the correct explanation of
Assertion.
c) Assertion is true, but Reason is false.
d) Assertion is false, but Reason is true
Answer (b)

Q17. Assertion: The aggregate consumption by the households of the economy is equal to the
aggregate expenditure on goods and services produced by the firms in the economy.
Reason: In this simplified (Two Sector) Economy, there are two ways in which the
households may dispose off their earnings – by spending their income on the goods and
services produced by the domestic firms and Imports.
a. Both assertion and reason are true and reason is correct explanation of assertion.
b. Both assertion and reason are true and reason is not correct explanation of assertion.
c. Assertion is true but reason is false.
d. Assertion is false but reason is true.
Ans:- c In sector Economy there is no “Rest of the World”

Q18.Statement-1: Domestic Income of a country can be more than its National income.
Statement-2: Nominal GDP can never be less than Real GDP.
a)Both statements are true.

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 b) Both statements are false.
c) Statement -1 is true and statement-2 is false.
d) Statement -1 is false and statement-2 is true.

Answer: (c) Statement -1 is true and statement-2 is false.

Q19. Statement-1: Exports do not form a part of domestic factor income.

Statement-2: Exports are a part of net factor income from abroad.
a) Both statements are true.
b) Both statements are false.
c) Statement -1 is true and statement-2 is false.
d) Statement -1 is false and statement-2 is true.

Answer: (b) Both statements are false.

Q20. Assertion (A): Depreciation is always termed as consumption of fixed capital

Reason (R): Depreciation refers to that value of fixed capital which is used up in the process

of production 1
a . Both assertion (A) and reason ( R) are true and reason ( R) is the correct explanation of
assertion (A).
b Both assertion (A) and reason ( R) are true and reason ( R) is not the correct explanation
of assertion (A).
c Assertion (A) is true but reason (R ) is false
d Assertion (A) is false but reason (R ) is true
Ans: (a)

STATEMENT BASED QUESTIONS

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Read the following statements carefully and choose the correct option from below:
a) Statement 1 is true and Statement 2 is false.
b) Statement 1 is false and Statement 2 is true.
c) Both Statements 1 and 2 are true.
d) Both Statements 1 and 2 are false.

Q1. Statement 1: Real GDP is a better indicator of economic growth of a nation.

Statement 2: Increase in Real GDP refers to increase in availability of goods and
services.
Ans. (c ) Both Statements 1 and 2 are true.

Q2. Statement 1: GNP at market price is the sum total of gross domestic product at market
price
and net indirect taxes.
Statement 2: GNP at factor cost is the sum total of net domestic product at factor cost and
net factor income from abroad.
Ans. (d) Both Statements 1 and 2 are false.

Q3. Statement 1: National income can be less than Domestic income.

Statement 2: When net factor income from abroad is in negative, NDP at factor cost can
be
more than NNP at factor cost.
Ans. (c) Both Statements 1 and 2 are true.

Q4. Statement 1: Environmental pollution causes a loss of social welfare.

Statement 2: Externalities are only the good impact of an activity without paying the
price
for that.
Ans. (a) Statement 1 is true and Statement 2 is false.

Q5. Statement 1: When Nominal GDP is ₹840crore and price index is 120, then the Real
GDP
will be ₹700crore.
Statement 2: Price Index shows change in price level over time.

Ans. (c) Both Statements 1 and 2 are true.

Q6. Statement 1: When the income is being spent on the goods and services produced by the
firms, it takes the form of aggregate expenditure received by the firms.

Statement 2: Since the value of expenditure must be equal to the value of goods and services,
we can equivalently measure the aggregate income by “calculating the aggregate value of
goods and services produced by the firms”.
a. Both statements are true.
b. Both statements are false.
c. Statement 1 is true and statement 2 is false.
d. Statement 2 is true and statement 1 is false.
ANS: a

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CASE BASED QUESTIONS

Read the following text carefully and answer the following questions :

National income of India constitutes the total amount of income earned by the whole
nationals of our country and originated both within and outside its territory during a particular
year. The National Income Committee in its first report wrote, "A national income estimate
measures the volume of commodities and services turned out during a given period, without
duplication.” The estimates of national income depict a clear picture about the standard of
living of the community. The national income statistics diagnose the economic ills of the
country and at the same time suggest remedies. The rate of savings and investment in an
economy also depends on the national income of the country. Moreover, the national income
measures the flow of all commodities and services produced in an economy. Thus, the
national income is not a stock but a flow.
It measures the total productive power of the community during a given
period. Further, the National Income Committee has rightly observed, "National income
statistics enable an overall view to be taken of the whole economy and of the relative
positions and inter-relations among its various parts". Thus, the computation of national
income and its
analysis has been considered an important exercise on economic literature.

Q1. Is national income a flow concept ? Why?

Ans. Yes, national income is a flow concept because it measures the flow of all
commodities and services produced in an economy over the period of time.

Q2. How shall the free services provided by the owners of the production units be treated
while estimating National Income ?
Ans. Owners of the production provide their labour to the family but do not charge any
salary. They provide finance but do not charge any interest. Owners produce goods and
services in their own-occupied building but do not charge any rent, despite of the services
performed. It should be noted that the “Imputed Value” of these must be included in
National Income.

Read the following text carefully and answer the following questions :

Factor income generated during an accounting year within the domestic territory of a country
is called domestic income. Domestic territory includes territory lying within the political
frontiers including territorial waters of the country and also ships and aircrafts operated by
residents of the country across different parts of the world. The domestic territory also
includes fishing vessels, oil, natural gas , rigs and floating platforms operated by the residents
of the country in the international waters or engaged in extraction in areas in which the
country has the exclusive and military establishments of the country located abroad. To know
national income, the factor income from abroad is added to domestic income. Net factor
income from abroad is the difference between factor income earned by the residents abroad
and factor income earned by non- residents who are temporarily residing in our country.

Q1. What is Net Factor Income from Abroad ? Can domestic income be greater than national
Income? If yes, when ?

Ans. Net factor income from abroad is the difference between factor income earned by the
residents abroad and factor income earned by non-residents who are temporarily residing in

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our country. Yes, domestic income can be greater than national Income, when net factor
income from abroad is negative.

Q2. Distinguish between factor payment and transfer payment.

Ans.

Basis Factor Income Transfer Income

(i) Meaning Payment received in exchange Income received without providing

for rendering productive any good or service in return is
services is called factor called transfer income.
income.

(ii) Concept It is an earned income, hence, It is unearned income hence, it is a

it is an earning concept. receipt concept.

(iii) Example Rent, wages, interest profit Gift, subsidy, scholarship, old age
etc. pension etc.

Case study New Delhi:

The centre an eased norms to offer 50% of salary for three months as unemployment
allowance to lakhs of workers who are members of the employees state insurance
corporation and also their jobs due to the corona virus pandemic .The move comes as a major
relief for industrial workers, who have lost jobs or are on the verge of losing jobs due to the
impact of the pandemic and the lockdown, which had stalled economic activity. There have
been demands from several sections to provide wage relief to workers his hard by the
pandemic
1.The demand for wage relief to workers has been due to loss of jobs because of
(pandemic/voluntary retirement).
Ans: Pandemics
2. Benefit of unemployment allowance would be available to workers ………… ( a ) who
have lost job due to pandemic ( b ) who are on the verge of losing job due to pandemic ( c )
both (i) and (ii) ( d ) neither (i) nor (ii)
Ans: (c)
3 . Unemployment allowance is a ……………… (factor/transfer ) income.
Ans: transfer
4. Transfer payment are ……….(included/not included ) in the estimation of national
income.
Ans: not included
5.Mention the components of Net Factor Income From Abroad (NFIA).
Ans. Following are the components of NFIA:-
(i) Net compensation of employees.
(ii)Net Income from property and entrepreneurship, which includes rent, interest, divided etc.
(iii)Net Retained earnings of resident companies abroad

NUMERICALS

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Q1. The value of the Nominal Gross National Product (GNP) of an economy was Rs. 2500
crore in a
particular year. The value of GNP of that country during the same year, evaluated at the price
of base
year was Rs. 3000 crore. Calculate the value of GNP deflator of the year in percentage terms.
Has the price level risen between the base year and the year under consideration?

Ans : Given that GNP=₹2500 Crore and real GNP=₹3000 Crore

GNP deflator = Nominal GNP / Real GNP x 100
= 2500 / 3000 x 100
= 83.33 %
No, the price level has reduced from base year to current year by 16.67 %.

Q2. calculate GNP at market price, NDP at factor cost .

Items Rupees in crores

GDP at MP 5500

Depreciation 75

Indirect taxes 250

Subsides 120

Net factor income from abroad 400

Ans. GNPMP =5900, NDPFC= 5295

Q3. In a single day Raju, the construction worker, collects 500 from construction activities;
over this day, his equipment depreciates in value by ₹50. Of the remaining ₹ 450, Raju pays
sales tax worth ₹30, takes home ₹200 and retains ₹220 for improvement and buying of new
equipment. He further pays ₹20 as income tax from his income.
Based on this in formation, complete Raju's contribution to the following
measures of income: (i) Gross Domestic Product at market price, (ii) NNP at market price,
(iii) NNP at factor cost.

Ans. (i) GDPMP = ₹500 (Raju's contribution to GDP)

(ii) NNPMP = GDPMP - Depreciation = ₹500- ₹50 = ₹450 (Raju's contribution to NNPMP)
(iii) NNPFC = NNPMP- Net indirect taxes
= ₹450- ₹30 = ₹420 (Raju's contribution to NNPFC).

HOTS QUESTIONS

Q1. Government incurs expenditure to popularise yoga among the masses. Analyse its impact
on gross domestic product and welfare of the people.

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Ans :Yoga helps people to improve their mental, intellectual and emotional welfare. People
remain healthy in terms of physical fitness with a continuous practice of yoga. Thus yoga
helps the people in improving their welfare.
Healthy people contribute more towards the production process which leads to increase in
quantity of goods and services produced in the economy and GDP will rise. Psychological
balanced people will be highly efficient in providing their services to the people of the
economy. Thus services generated by them will increase and have a positive impact on the
GDP.

Q2. Government spends on child immunization program. Analyse its impact on gross
domestic product and welfare of the people.

Ans :The government spends on child immunization program which leads to an increase in
society's welfare.
 It is in the sense that if a complete immunization is provided to children of a nation
then it prevents them from the deadly disease and there will be a drastic reduction in
the number of child falling ill.
 This then checks absenteeism and dropout ratios from school.
 With a complete work of vaccination, there is also reduction in the number of
premature deaths. All the factors contribute to superior human capital which then
ensures the better and efficient utilization of physical resources.

Q3. Define externalities. Give an example of negative externality. What is its impact on
welfare?

Ans: An externality is the cost or benefit that affect a form or an individual who did not
choose to incur that cost or benefit.
An example of negative externality is pollution.The impact of pollution on the welfare of
people is :
(a)It weakens the lungs to the function well.
(b) It causes irritation of eyes,nose, mouth and throat.

Q4. Distinguish between Real GDP and Nominal GDP, using a suitable numerical example.
Ans.
NOMINAL GDP REAL GDP
1. Nominal GDP is the market value of 1. Real GDP is the market value of the
the final goods and services produced final goods and services (Q) produced
within the domestic territory of a within the domestic territory of a
country during an accounting year, as country during an accounting year, as
estimated using the current year estimated using the Base year price
prices (P). (*P).

2. Nominal GDP = Q x P 2. Nominal GDP = Q x *P

3. When nominal GDP rises, the flow of 3. When real GDP rises, It always
goods and services in economy may indicates the rise in production of
or may not rise during an accounting goods and services.
year

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Numerical Example :Suppose, the output of commodity- X during the year 2019 was
500units. The market price of the commodity during the same year was Rs.50 per unit while
the price in the base year was Rs.40 per unit. So the Nominal GDP and Real GDP would be:
Nominal GDP = 500 x Rs 50 = Rs.25, 000.
Real GDP = 500 x Rs 40 = Rs.20, 000.

Q5. Giving reason, explain how the following should be treated in the estimation of National
Income ?
(i) Payment of interest by a firm to a bank.
(ii) Payment of interest by a bank to an individual.
(iii) Payment of interest by an individual to a bank.

Ans. (i) Payment of interest by a firm to a bank: It will be included in the estimation of
National Income, as it is a factor income. Also, firms take loans for investment purposes.
(ii) Payment of interest by a bank to an individual: it will be included in the estimation of
National Income as it is a factor income.
(iii) Payment of interest by an individual to a bank: It will not be included in the estimation of
National Income as consumer takes a loan for consumption purposes.
Q6. “Real GDP is a better index of welfare.” Explain this statement.
Ans: Real GDP is considered as an index of welfare of the people. Welfare of the people is
measured in terms of the availability of goods and services per person. Higher the
growth of GDP , greater is the flow of goods and services. Greater is the availability of goods
and services per person.
Q7. Will the following be included in National Income of India? Give reasons for your
answer.
(i) Financial help given to flood victims.
(ii) Profits earned by an Indian bank from its branches abroad.
(iii) Salaries paid to non-resident Indians working in Indian Embassy in America.
Ans.
(i) Financial help is a transfer payment because no factor service is provided in return. It is,
therefore, not included in national income.
(ii) Profit earned by an Indian bank from its branches abroad is factor income from abroad,
and so included in national income.
(iii) Salaries paid to NRI’s working in Indian Embassy in America is factor income paid to
abroad. It is deducted from India’s national income. So it is not included in India’s national
income.

Q8. Will the following factor incomes be included in domestic factor income of India? Give
reasons for your answer.
(i) Compensation of employees to the residents of Japan working in Indian embassy in Japan.
(ii) Profits earned by a branch of foreign bank in India.
(iii) Rent received by an Indian resident from Russian embassy in India.
Ans.
(i) It is a part of domestic factor income of India because the Indian embassy in Japan is a
part of domestic territory of India.
(ii) It is a part of domestic factor income of India because the foreign bank is located in the
domestic territory of India.
(iii) It is not a part of domestic income of India because Russian embassy in India is not a
part of domestic territory of India.

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Q9. Explain how ' distribution of GDP ' is a limitation in taking GDP as an index of welfare.
Ans.: Distribution of GDP : If there is inequality in the distribution of income such that
concentration of income is in few hands only resulting in making the rich more richer and
poor more poorer . It will reduce economic welfare of the poor more because for him utility
of a rupee of income is more than the rich .
If with the rise in per capita real income, inequality in the distribution of GDP rises, it may
lead to a decline in welfare ( on macro level ) of the poor.

Q10. Read the following statements and answer the questions:

a. Domestic/household services performed by a woman may not be considered as an
economic activity’. Defend or refute the given statement with a valid reason.
b. ‘Compensation to the victims of a cyclone is an example of a welfare measure taken by the
government’. State with a valid reason, should it be included/not included in the estimation of
the national income of India.

Ans. a. The given statement is defended, as it is difficult to measure the monetary value of the
services performed by a woman (homemaker). Therefore, these activities may not be
considered as an economic activity.
b. Compensation given to the victims of a cyclone is an example of a social welfare measure
taken by the government. However, it is not included in the estimation of national income as
it is a transfer payment that does not lead to a corresponding flow of goods and services.

Q11. ‘GDP as an index of welfare of a country has some limitations.’ Defend or refute the
given statement with valid reason.

Answer: This statement is true, so it is defended. GDP as an index of welfare

of a country is not free from limitations. It also has some limitations which are
as follows: (i) Distribution of GDP is
not taken into account.
(ii) Composition of GDP is not taken into consideration.
(iii) Non-monetary exchanges are not recorded which underestimates the
GDP.
(iv) Externalities are not considered.

Q12. Give one example of positive and one example of negative externality.
Answer :
Example of positive externality : construction of flyovers or highways reduces transport cost
and journey time of its users who have not contributed anything towards its cost. Expenditure
on construction is included in GDP but not the positive effects flowing from it hence
underestimating the welfare indicated by GDP.
Example of negative externality : Environmental pollution caused by industrial plants
decrease in welfare. Pollution of water and air caused by plants is not considered in the
estimation of GDP. This pollution adversely affects the health of the people thus producing
goods increases welfare but creating pollution decreases welfare.

Q13. Should the following be treated as normal resident of India ? Give reason for
your answer.
I. Foreigner working in Indian embassy in Taiwan
II. Indian working in Asian Development bank in Philippines
III. Indian student in UK who has been living there for five years

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Ans. I) Not a normal resident of India as his economic interest doesnot lie in India.
II) Normal resident of India as his economic interest lies in India .
III) Normal resident of India as his economic interest lies in India.

Q14. Suppose the Gross Domestic Product (GDP) of Nation X was ₹ 2,000 crores in 2018-
19, whereas the Gross Domestic Product of Nation Y in the same year was ₹ 120,000 crores.
If the Gross Domestic Product of Nation X rises to ₹ 4,000 crores in 2019-20 and the Gross
Domestic Product of Nation Y rises to ₹ 200,000 crores in 2019-20.
Compare the rate of change of GDP of Nations X and Y, taking 2018-19 as base year.
Answer:

Nations/ 2018-19 2019-20 Growth Rate of GDP

Years = 𝑪𝒉𝒂𝒏𝒈𝒆𝒊𝒏𝑮𝑫𝑷/
𝑩𝒂𝒔𝒆𝒀𝒆𝒂𝒓𝑮𝑫𝑷 x 100
(Base year = 2018-19)
X ₹2,000 crores ₹ 4,000 crores = 2000/2000 x 100
= 100%
Y ₹1,20,000 crores ₹2,00,000 crores
= 80000/120000 x 100
= 66.67%
Nation X has registered a GDP growth rate of 100% and has performed better on the
front of GDP rise as compared to Nation Y that has registered a GDP growth rate of
66.67%.

Q14. Observe and analyze the following circular flow Model in two sector Economy and
Answer the following Questions.

I. The two arrows at the bottom of the diagram similarly represent the ____________.
a) Goods and services market b) factors of production market
b) Transaction Market c) Both a & b
ANS:- Factors of production market
2. The above mentioned sketchy illustration of an economy is admittedly a simplified one.
Such a story which describes the functioning of an imaginary economy is called a
___________ Model .

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ANS:- Macroeconomics
Q15.There may fundamentally be four kinds of contributions that can be made during the
production of goods and services. Contribution made by fixed natural resources remuneration
for which is called __________.
ANS:- Rent

Q16..“Machine purchased is always a final good.” Do you agree? Give reasons for your
answer.
Ans:- No
If good is used for either consumption or investment, it is a final good. However, if it is used
for resale in the same year, it is an intermediate good.

Q17. Explain the basis of classifying goods into intermediate and final products. Give
suitable examples.
Ans . Intermediate Products and Final Products
Goods and services purchased by a production unit from other production units with the
purpose of reselling or with the purpose of using them to produce some other things are
called intermediate products. The expenditure on them is called intermediate cost or
intermediate consumption.
Goods and services purchased for consumption, i.e., for satisfaction of wants, and for
investment are called final products. Expenditure on them is called final expenditure.
Q18. Flow of Goods & services and factors of production across different sectors in a barter
economy is known as:
(a) Circular flow (b) Real flow
(c) Monetary Flow (d) Capital Flow
Ans:((b)

Q19. Service of a teacher:

(a) Capital goods

(b) Consumption goods
(c) Services
(d) Can be Consumption goods and intermediate goods.
Ans(c)
Q20. Factor income is different from transfer income. Prove it, with the help of examples.

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Ans: Factor Income: Factor income refers to income earned by individuals or businesses
through the use of their factors of production.
Examples: wages, rent and royalty, interest and profit.

Transfer Income: Transfer income received by an individual without rendering any

productive service in return is known as transfer income.
Examples: old age pension, pocket money, Grants, financial help, scholarships etc.

Q21. Gross investment is always greater than Net Investment. Defend or refute the given
statement with valid argument.
Ans The given statement is refuted Gross investment includes addition to capital stock which
also includes replacement for normal wear and tear.
Whereas, addition to capital stock in the economy is measured by net investment. So in the
accounting sense if the value become zero, only then gross investment will be equal to net
investment.

Q22. Depreciation is a fall in the value of an asset due to expected obsolescence, justify the
statement.
Ans: yes, Depreciation is the continuous fall in the value of assets due to expected
obsolescence, value of fixed assets may fall owing to change in technology over a period of
time.
Q-23- Unexpected Obsolescence is a component of depreciation.
Ans: No, Depreciation is the continuous fall in the value of assets due to expected
obsolescence, value of fixed assets may fall owing to change in technology over a period of
time. Unexpected Obsolescence is a capital loss.
Q-24- Calculate consumption of fixed capital.

Particulars Rs in cr
NNP FC 4000
GDP MP 5000
NIT 300
NFIA 200

ANS: GDP MP=NNP fc +CFC-NFIA + NIT

5000=4000+CFC-200+300
5000=4100+ CFC

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5000-4100=CFC
900cr=CFC

Q 25 .when Nominal Gross Domestic Product (GDP) is ₹840 crore and price Index is 120,
then the Real Gross Domestic product (GDP) will be————-.

(a) ₹700 crore (b) ₹900 crore (c) ₹800 crore (d) ₹500 crore

Answer: ( a )

Q 26. A firm produces ₹100 worth of goods per year,₹20 is the value of intermediate goods
used by it during the year and ₹10 is the value of capital consumption. The net value added
will be.

(a) ₹100 (b) ₹80 (C)₹70 (d)₹130

Answer: (a) 40. Market price include

Q 27.The part of NNP which actually accrues to the owners of factors of production is
called———
.Answer: Net National Product at Factor Cost or National Income.
Q 28.Net value added at factor cost =₹100 crore,
Depreciation =₹30 crores,

Subsidies =₹15crore
And Intermediate Consumption =₹185 crore,
Then “Gross value of output” is:
(a)₹300 crore (b)₹330 crore (c)₹130 crore (d)₹230 crore
Answer: ( a ) 51.
Q29. Explain the steps involved in calculation of national income through income method
Answer: Classify the producing enterprises into industrial sectors like primary, secondary and
tertiary.
a) Estimate the following factor income paid out by the producing units in each
sector i.e.
*Compensation of employees
*Operating surplus
*Mixed income of self employed
b) Take the sum of the factor income by all the industrial sectors to arrive at the NDP
Fc (Which is called domestic income)

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 c) Add net factor income from abroad to the net domestic product at factor cost to
arrive at the net national product at factor cost.

Q30 Give the uses of National Income accounting.

Answer:. a. Estimation of National income
b. Factor wise distribution of income
c. Formulation of policies
d. Structure of the economy

Q31. Which of the following is factor income from abroad for an Indian resident and why?
(a) Interest income received by Indian resident on the bonds of
companies operating in USA.
(b) Remittances by Indians settled abroad to their families in India.
Answer: (a) Yes because income received by a resident of a country is a part of a Factor
income from abroad
(b) No. Because it’s a transfer payments (Unilateral)

Q32. What are the precautions to be taken in calculating national income by income
method?
Answer i) Transfer earnings should not be included in the national income.
ii) Income from illegal activities should not be included in the national income
iii) Brokerage income on sale and purchase of bonds is to be included.
iv) Windfall gains should not be included.

Q33. In the estimation of a country's National Income, are the following items included?
Provide reasons for each.
(i) Rent-free house to an employee by an employer
(ii) Purchases by foreign tourists

(iii) Purchase of a truck to carry goods by a production unit

Answer: (i) Rent-free house to an employee by an employer: No, it is not included as it is
considered a non-monetary benefit.
(ii) Purchases by foreign tourists: Yes, it is included .These purchases generate revenue for
local businesses and are considered a part of the country's gross domestic product.
iii) Purchase of a truck to carry goods by a production unit: Yes, it is included as this
transaction represents investment in capital goods, which adds value to the production
process and contributes to the country's economic output
Q 34 .Mention the situations in which following equations will hold true:
(i)Value of output is equal to value added

(ii)National Income at current price = National Income at constant price

(iii)Gross domestic capital formation =Gross domestic fixed capital formation
(iv)Operating surplus=Rent +Royalty +Profit
Ans. (i) When Intermediate consumption is zero

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(ii) When price in the base year is = Price in the current year
(iii) When change in stock is zero
(iv) When there is no income in the form of interest
Q35. Differentiate between –
i. Net Exports and Net Factor Income from Abroad

ii State one difference between ‘inventory’ and ‘change in inventory’.

Answer:. Differences between net exports and net factor income from abroad are:
1) Net exports refers to the difference between exports and imports. While net factor
income from abroad is the difference between factor income from abroad and factor income
to abroad.
2) Net exports is a domestic concept while NFIA is a national concept.
3) Net exports includes non- factor services while NFIA includes only factor services
Inventory is a stock concept as it is related to a point of time while change in inventory is a
flow concept as it is measured over a period of time.
Q36. State and explain whether these items will be included/excluded in National Income.
i. Payment by foreign tourist.
ii. Purchase of car by household.

iii. Receipts from sale of land.

iv. Purchase of taxi by taxi driver.
v. Expenditure on construction by a flyover by the government.
Answer: .i. Yes, purchases by foreign tourist are exports and, therefore they are included in
the national income through the expenditure method.

ii. Yes, it will be included in the national income as it is a part of the private final
consumption expenditure.
iii. No, it will not be included as land is a free gift from nature and cannot be produced.
iv. Yes it will be included in the national income as it is a part of the gross domestic capital
formation.
v. Yes, it will be included in the national income as it is a part of cross domestic capital
formation.

Q37. In an economy, following transactions took place. Calculate value of output and value
added by Firm B:

i. Firm A sold to firm B goods of 80 crore; to firm C 50 crore; to household 30 crore

and goods of value 10 crore remains unsold

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ii. Firm B sold to firm C goods of 70 crore; to firm D 40 crore; goods of value 30 crore
were exported and goods of value 5 crore was sold to government.
Answer: Value of output of firm B= Sales of firm B to firm C+ Sales of firm B to firm D +
Exports +Sales of firm B to Government
= 70+40+30+5 = 145 crores
Value Added by Firm B= Value of output by Firm B – Purchases by Firm B from firm A
= 145 -80 = 65 crore

Q38. Study the table given below which has information about two firms of an economy.

Wages (in ₹) Profits (in ₹) Interest (in ₹) Rent (in ₹)

FIRM A 50 150 100 100

FIRM B 90 210 100 100

Further, it should be noted that

1. Net Factor Income from Abroad is (-) ₹ 20
2. Employee's contribution to the Social Security Fund by Firm A and Firm B is ₹ 5 and ₹ 10
respectively Calculate the National Income.

Answer: NDP (factor cost) = 50+150+90+210+100+100+100+100 = Rs. 900

National Income= Net National Product (factor cost)
Net Domestic Product (factor cost) + Net Factor Income from Abroad NI= NNP (factor cost)
NNP FC = 900 + (-) 20= Rs. 880

Q39. From the following data, calculate National Income by income method,

Items (Rs` in crore)

(i) Interest 150
(ii) Rent 250
(iii) Government final consumption expenditure 600
(iv) Private final consumption expenditure 1,200
(v) Profits 640
(vi) Compensation of employees 1,000
(vii) Net factor income to abroad 30
(viii) Net indirect taxes 60
(ix) Net exports (–) 40
(x) Consumption of fixed capital 50
(xi) Net domestic capital formation 340

Sol. National Income= Compensation of employees + Operating surplus (Interest + Rent +

Profits) – Net factor income to abroad

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= ` 1,000 Crore + (` 150 Crore + ` 250 Crore + ` 640 Crore) – ` 30 Crore
= ` 1,000 Crore + ` 1,040 Crore – 30 Crore
= ` 2,010 Crore.

Q40-. Calculate gross national income by income method;

i) Factor income from abroad 10

ii) Compensation of employees 150
iii) Factor income to abroad 15
iv) Consumption of fixed capital 15
v) Interest 40
vi) Indirect taxes 30
vii) Subsidies 10
viii) Rent 40
ix) Profit 100

Answer: GNPFC= Compensation of employees + rent + interest + profit + consumption of

fixed capital + indirect taxes – subsidies + factor income from abroad – factor income to
abroad
= 150+40+40+100+15+30-10+10-15
=360
Q41. Calculate GNP FC by income method:
i) Rent 40
ii) Net exports 20
iii) Interest 60
iv) Profit 120
v) Compensation for employees 800
vi) Consumption of fixed capital 20
vii) Net indirect taxes 100
viii) Net factor income from abroad (-)20
Answer: GNP FC = Rent + interest + profit + Compensation for employees + consumption of
fixed capital + Net indirect taxes + Net factor income from abroad
= 40 + 60+ 120+800+20+100+(-)20
= 1120

Topic: Money & Banking (Bright Students)

Q-1Which of the following agency is responsible for issuing 1 Rupee currency:

a) RBI
b) Ministry of Commerce
c) Ministry of Finance
d) NITI Ayog
ANS: C

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Q-2Money supply may increase, if ……

a) Central Bank injects more money to circulation

b) Commercial Banks expand credit creation
c) Tax rates are reduced
d) Central Bank increases Bank rate
ANS:A

Alternatives:

i) a, b & c are correct

ii) b, c & d are correct
iii) a, c & d are correct
IV) a, b & d are correct

ANS:A

Q-3- In order to encourage investment, the Central Bank may ……..

a) Reduce Cash Reserve ratio

b) Increase Cash reserve ratio
c) Sell Govt. Securities to open market
d) Increase Bank rate
ANS: C

Q-4- Assertion (A): Commercial Banks keep only a fraction of deposits as Cash Reserve
and use remaining deposits for giving loans etc.

Reason (R): All the depositors of commercial banks do not approach the banks for
withdrawal of money at the same time and not withdraw the entire amount.

Alternatives:

a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.
ANS:B

Q-5- Assertion (A): Money supply is a stock concept

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Reason (R): Money supply is measured over a period of time.

a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.
Ans: c

Q-6- Assertion (A): Net demand deposits of commercial banks are included to money
supply.

Reason (R): Inter-bank deposits are the deposits held by banks on behalf of other
banks and do not belong to the public.

a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.
Ans: a

Q-7- Assertion (A): Secondary function of money is also known as derivative function.
Reason (R):

a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Aassertion (A) is false but Reason (R) is true
Ans: a

Q-8- Assertion (A): Currency held by the Govt. and banks are not included to money
supply.

Reason (R): Currency can be legally used to make payments of debts or other
obligations.

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 a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.
Ans: b

Q-9- Assertion (A): Demand deposits with commercial banks are not a part of money
supply.

Reason (R): Demand deposits are treated as equal to currency held by public.

a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.
Ans: d

Q-10- Assertion (A): In India, no one can refuse to accept payments made in currency
notes.

Reason (R): Currency notes have unlimited tender in India.

a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.
Ans: a

Q-11- Assertion (A): Demand deposits are a non-legal tender money or optional
money.

Reason (R): depositors are given cheque facility to withdraw money from their account
or to make payments in case of demand deposits

a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion

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 c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.
Ans: b

Q-12- Assertion (A): M1 type of money is universal in nature.

Reason (R): M1 type of money is known as narrow measurement of money supply.

a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.
Ans: b

Q-13- Assertion (A): Unit of account function of money gives specific value of variety of
goods.

Reason (R): Innovation in production is directly related to this function of

money.

a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.
Ans: c
Q-14- Statement-1: Medium of deferred payments function helps in expanding the money
market.
Statement-2: Deferred payments function is related to future settlement of contracts.

Alternatives:
a) Both Statements are true.
b) Both Statements are false.
c) Statement-1 is true but Statement-2 is false.
d) Statement-1 is false but Statement-2 is true.
Ans: a
Q-15- Statement-1: Money with unlimited legal tender is not issued by the central bank.
Statement-2: No money can have unlimited legal tender.

Alternatives:

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 a) Both Statements are true.
b) Both Statements are false.
c) Statement-1 is true but Statement-2 is false.
d) Statement-1 is false but Statement-2 is true.
Ans: b
Q-16- Statement-1: Central Bank can be owned and Governed by the Government of the
Private sector.
Statement-2: Central Bank operates in public interests without profit motive.
Alternatives:
a) Both Statements are true.
b) Both Statements are false.

c) Statement-1 is true but Statement-2 is false.

d) Statement-1 is false but Statement-2 is true.-
Ans: d
Q-17- Statement-1: Central bank is the main instrument in money supply.
Statement-2: Commercial banks are the supplier of money in the economy.
Alternatives:

a) Both Statements are true.

b) Both Statements are false.
c) Statement-1 is true but Statement-2 is false.
d) Statement-1 is false but Statement-2 is true.
Ans: d
Q-18- Statement-1: Expansion in money supply indicates growth of the economy
Statement-2: Expansion of money supply tends to inflation.
Alternatives:
a) Both Statements are true.
b) Both Statements are false.
c) Statement-1 is true but Statement-2 is false.
d) Statement-1 is false but Statement-2 is true.
Ans: d
Q-19- Statement-1: The money issued by the financial authority is called a fiat money.
Statement-2: A Fiat money carries the order of the authority in financial transactions.
Alternatives:

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 a) Both Statements are true.
b) Both Statements are false.
c) Statement-1 is true but Statement-2 is false.
d) Statement-1 is false but Statement-2 is true.
Ans: a
Q-20- Statement-1: The face value of a paper currency may be more than its material value.
Statement-2: Representative money can’t have value more than its exchange value.

Alternatives:
a) Both Statements are true.
b) Both Statements are false.
c) Statement-1 is true but Statement-2 is false.
d) Statement-1 is false but Statement-2 is true.
Ans: b
Q-21-Statement-1: Money supply of a country is dependent on the Govt. monetary policy.
Statement-2: Govt. has no role to play with the monetary policy of the central bank.

Alternatives:
a) Both Statements are true.
b) Both Statements are false.
c) Statement-1 is true but Statement-2 is false.
d) Statement-1 is false but Statement-2 is true
Ans: b
Q-22- Statement-1: The central bank can issue currency notes, but it can’t roll back the
money supply.
Statement-2: Demonetization is the sole discretion of the central bank.
Alternatives:
a) Both Statements are true.
b) Both Statements are false.
c) Statement-1 is true but Statement-2 is false.
d) Statement-1 is false but Statement-2 is true.
Ans: d

Q-23- Statement-1: Exchange of goods with goods without using money is known as barter
system.

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Statement-2: Barter system is a non-economic function.
Alternatives:
a) Both Statements are true.
b) Both Statements are false.
c) Statement-1 is true but Statement-2 is false.
d) Statement-1 is false but Statement-2 is true.
Ans: c

Q-24- Statement-1: The central is the issuer of money through its legal authority.
Statement-2: Commercial banks are the creator of money through lending.
Alternatives:
a) Both Statements are true.
b) Both Statements are false.
c) Statement-1 is true but Statement-2 is false.
d) Statement-1 is false but Statement-2 is true.
Ans: a
Q-25-Assertion (A): Reverse repo rate is the ratio at which the Central Bank lends funds to
commercial banks
Reason (R): When Reserve Repo Rate is raised, it encourages the commercial banks to park
their funds with the central bank.
Alternatives:- a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is True but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True

Ans. d) Assertion (A) is False but Reason (R) is True

Q-26- Assertion (A) : Central bank as a banker to the government, works as a financial
adviser.
Reason (R) : Government borrows internally from banks and the general public.

Alternatives:-
a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)

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c) Assertion (A) is True but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True
Ans. b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
Q-27- Assertion (A): To control the rising demand in the economy. Reserve bank of India
recently reduced repo rate and bank rate.
Reason (R): Decrease in repo rate and bank rate causes decreases in the rate of interest which
leads to rise demand of credit because of which more money flows into the economy,
purchasing power of people increases. Thus, aggregate demand rises and deficient demand is
corrected.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).

(b) Both Assertion (A) and Reason (R) are true and Reason (R) is the not correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false
(d) Assertion (A) is false but Reason (R) is true
Ans: (d)

Q-(28-30)Assertion and Reason Questions :

In the following questions,

a statement of Assertion (A) is followed by a statement of Reason (R).

Mark the correct choice as :
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).

(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false,
(d) Assertion (A) is false but Reason (R) is true.

Q-28-.Assertion (A). Higher the legal reserve ratio, lower will be the credit creation and
lower the legal reserve ratio, higher will be the credit creation.
Reason (R). Money/deposit multiplier is a multiple by which total deposits increase due to
primary deposits. It refers to the amount by which the initial deposits multiply into a larger
amount of final deposits.

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Money multiplier =1/LRR/RDR (LRR=Legal Reserve Ratio, RDR = Reserve Deposit Ratio)
Ans. A
Q-29-Assertion (A) Reserve ratio and credit creation power of commerclal bank are directly
related .
Reason (R) Credit creation is the product of the reciprocal of Reserve Ratio (RR) and primary
deposit .
Ans. d

Q-30- Assertion (A): Margin requirement is increased to correct inflationary gap

Reason ® : It is a quantitative method to control credit
Ans. © A true R false

STATEMENT BASED QUESTIONS/MCQs

1. Read the following statements carefully.

Statement-1 : Money is created by the Central Bank
Statement-2 : Money creation is controlled by the Commercial Banks
In the light of the given statements, choose the correct alternatives:
(a) Statement 1 is true and statement-2 is false

(b)Statement 1 is false and statement-2 is true

(c) Both Statement 1and statement-2 are true
(d) Both Statement 1and statement-2 are false
Ans. (d) Both Statement 1 and statement 2 are false
2. What is true for the Central Bank?
(a) Apex Bank of the Country
(b) Ownership of the Government
(c) Regulates the entire banking system in the country

(d) All the above

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Ans : (d) All the above
3. Which is not a quantitative method of credit control?
(a) Bank Rate
(b) Moral Suasion
(c) Open Market Operations
(d) Change in CRR
Ans. (b) Moral Suasion

4. Which of the following is a qualitative method of credit control?

(a) Variation in cash reserve ratio of banks

(b) Restriction on consumer credit

(c) Open market operations
(d) Variation in bank rate
Ans: (b) Restriction on consumer credit
5. An increase in the Bank Rate generally indicates that the
1. market rate of interest is likely to fall
2. Central Bank is no longer making loans to commercial banks
3. Central Bank is following an easy money policy

4. Central Bank is following a tight money policy

Ans. (4) Central Bank is following a tight money policy
6. Repo rate is the rate at which -----------------
Ans- Commercial bank can take loan from central bank
7. As an advisor to the government central bank frames policies to regulate the :
(a) Money market
(b) Capital Market
(c) Financial and Capital market
(d) none of these
Ans (a)
8. CRR refers to –
a) Operative cash reserve
b) Non- operative cash reserve

c) Sterilized cash reserve

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d) Both (a) and (c)
Ans: (a)
9. Mr Rakesh Sharma , an economics teacher, was explaining the concept of ‘minimum
percentage of the total deposits to be kept by any commercial bank with the Central Bank of
the country, as per norms and statute prevailing in the country’.
From the following, choose the correct alternative which specifies towards the concept
explained by her ?

(a) Cash Reserve Ratio

(b) Repo Rate
(c) Bank Rate
(d) Statutory Liquidity Ratio
Ans: (a)
10. Which of the following does not qualify for ‘’banker’s bank’’ function of RBI ?
a) Keeps the cash reserves of the commercial banks in its custody.
b) Managing the public debt .

c) Advancing loans to commercial banks .

d) Settling interbank claims .
Ans. b) Managing the public debt .
11. The role of RBI has been changed from ................ to ................. under
New Economics Policy 1991.
a) Facilitator to Regulator b) Supervisor to facilitator
c) Regulator to facilitator d) Facilitator to supervisor
Ans. c) Regulator to facilitator
12. Statement 1: A fall in SLR increases money supply on the economy.
Statement 2: Fall in SLR enhances capacity of the commercial banks to create
Credit .

Choose the correct Option.

a) Both statements are true.
b) Both statements are false.
c) Statement 1 is true and Statement 2 is false.
d) Statement 1 is false and Statement 2 is true.
Ans. (a)

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13. The central bank can increase the availability of credit by:
a) Raising the repo rate b) Raising reverse repo rate
a) Buying government securities d) selling the government securities
Ans. Buying government securities
14. From the set of statements given in column I and column II, choose the correct pair of
statements:

Column I Column II
(a) SLR (i) Fixed by the commercial bank
(b) Primary deposits (ii) Derivative Deposits
(c) Commercial bank (iii) Advisor to the Government
(d) Central bank (iv) Provides ‘clearing house’ facility
Ans.(d) Central bank- (iv) Provides ‘clearing house’ Facility
15. Match the following :
Column I Column II
1. CRR a. Central bank
2. Reverse Repo rate b. Charged by commercial bank
from public
3. Lender of last resort c. Given by central bank
4. Repo rate d. Quantitative tool of credit control
Ans. 1 (d), 2 (c) , 3 (a) , 4 (b)

16. In the COVID-19 times Indian Economy have been Experiencing the deflationary
shocks many small and medium scale industries closed Many Economists opined that without
support (availability of chief credit) from government and monetary authority it is difficult to
revive. Suppose you are a member of the high powered committee constituted by the Reserve
Bank of India (RBI).
You have suggested that the Repo rate should be ___________ (reduced /increased) (Choose
the correct alternative).

Ans. Reduced
17. Statement 1. Open market operations refer to purchase and sale of government
securitles in the open market by RBI to control money supply.
Statement 2. By purchasing the government securities, RBI injects additional purchasing
power to contract credit and reduce money supply.
(a) Both the statements are true.
(b) Both the statements are false,
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 (c) Statement 1 is true and statement 2 is false.
(d) Statement 1 is false and statement 2 is true.

Ans . c
18. Statement 1. The value of money multiplier is determined by the reserve ratio prevailing
in the monetary system.
Statement 2. The process of credit creation directly relates to the value of reserve ratio
(a) Both the statements are true.
(b) Both the statements are false,

(c) Statement 1 is true and statement 2 is false.

(d) Statement 1 is false and statement 2 is true.

Ans. c
19. Statement 1. Primary deposits are the cash deposits by general public with commercial
banks.
Statement 2. Secondary deposits are those deposits which arise on account of credit provided
by te commercial banks to the people.

(a) Both the statements are true.

(b) Both the statements are false,
(c) Statement 1 is true and statement 2 is false.
(d) Statement 1 is false and statement 2 is true.

Ans.A
20.Statement 1.:Margin requirement is increased to correct deficient demand

Statement 2:it is quantitative method to control credit

(a) Both the statements are true.
(b) Both the statements are false,
(c) Statement 1 is true and statement 2 is false.
(d) Statement 1 is false and statement 2 is true.

Ans. (b) both false

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 21.Statement 1:Higher the LRR higher will be the credit creation
Statement 2:LRR is fixed by the commercial bank
(a) Both the statements are true.
(b) Both the statements are false,
(c) Statement 1 is true and statement 2 is false.

(d) Statement 1 is false and statement 2 is true.

Ans. (b) both false

22.Statement 1:At a given point of time money multiplier is equal to 5 then the legal reserve
ratio will be 10% .
statement 2: LRR is fixed by commercial bank.
(a) Both the statements are true.
(b) Both the statements are false,
(c) Statement 1 is true and statement 2 is false.
(d) Statement 1 is false and statement 2 is true.

Ans. (b) both false

23. Statement 1: If LRR is 20% and primary deposit are Rs. 1000 the total amount of money
will be created of Rs. 2000.
Statement 2: In the above situation money multiplier will be 5.
(a) Both the statements are true.

(b) Both the statements are false,

(c) Statement 1 is true and statement 2 is false.
(d) Statement 1 is false and statement 2 is true.
Ans. (d) 1 false 2 true
24. Statement 1: Value of money multiplier decrease with an increase in cash reserve ratio
Statement 2: CRR is quantitative method to control credit.

(a) Both the statements are true.

(b) Both the statements are false,
(c) Statement 1 is true and statement 2 is false.
(d) Statement 1 is false and statement 2 is true.
Ans. (a)Both true

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 SHORT ANSWER BASED QUESTIONS
Q-1- What is high powered money?
Ans: High powered money is the total liability of the monetary authority of the country. It is
also known as the monetary base created by the central bank.
Q-2- What is meant by money multiplier?
Ans: Money multiplier indicates the maximum amount of additional money that commercial
bank can legally create. It is denoted as k=1/CRR

3. How can Central Bank control credit creation at the time of deflation changing Cash
Reserve ratio ?
Ans. CRR is the minimum percentage of bank deposits which commercial banks are
legally required to keep with the central bank . At the time of deflation , there is a
need to increase money supply in the economy. If Central bank reduces CRR , funds
available for credit creation will be more with commercial bank . As a result they will
create more credit and hence money supply will increase.

4. ‘ To boost the falling demand in the economy , RBI has recently reduced Repo rate ‘ .
Elaborate the rationale behind the steps taken by the Central bank.
Ans. Repo rate is the rate of interest at which RBI lends funds to commercial banks
for a short period of time . A decline in repo rate may induce commercial banks to
reduce the lending rate . This may increase demand for loan leading to greater funds
with the people. It may increase aggregate demand in the economy.

5. Elaborate the role played by the Central Bank as the ‘lender of last resort’.
Ans. Central bank functions as a lender of last resort which means , in case the
commercial banks fail to meet their financial requirements from other sources, they
can, as a last resort, approach to the central bank for loans and advances. The central
bank assists such banks through discounting of approved securities and bills of
exchange.

6. What is the main difference between Cash Reserve Ratio and Statutory liquidity
ratio ?
Ans. Cash Reserve Ratio: It refers to the minimum percentage of a bank’s total
deposits, which it is required to keep with the central bank.
Statutory Liquidity Ratio : It refers to minimum percentage of net total demand and
time liabilities, which commercial banks are required to maintain with themselves.
7. Bring out the role of Central Bank as the controller of money supply or credit
using Bank rate.
Ans. The central bank will hike the bank rate if it wants to regulate lending.
Commercial bank will increase rate of interest as a result of this. Borrowing will be
expensive. It will reduce money supply. Likewise, a decrease in the bank rate
significantly decreases money market lending rates, which in turn stimulates
commercial and industrial activity, requiring more credit from
banks. As a result, the volume of bank credit will increase.

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 8. How can Central Bank use Reverse repo rate in controlling credit creation at the time
of inflation in an economy?
Ans. Reverse Repo rate is the rate at which commercial bank park their excess fund
with central bank.
At the time of inflation, there is a need to reduce money supply in the economy. If
central bank increases Reverse Repo rate, commercial bank will park more money
with central bank. As a result, they will have less amount to issue as loan to general
public & hence money supply will be reduced.

CASE BASED QUESTIONS

Read the following news report and answer the following questions on the basis of the
same.

1. The Reserve Bank of India’s monetary policy kept its repo rate unchanged at 4
percent while maintaining an ‘accommodative stance’ as long as necessary at least
through the current year to the next year, RBI governor Shaktikanta Das announced
on Friday. The RBI governor announced that the decision was taken unanimously
and added that the reverse repo rate too was kept unchanged at 3.35 percent. The
Central Bank had slashed the repo rate by 115 basis points since late March 2020 to
support growth. This is the fourth time in a row that the MPC decided to keep the
policy rate unchanged. The central bank
also sees FY 22 GDP growth rate at 10.5 percent. The RBI’s governor said that the
inflation has eased below the level of 6 percent.
The outlook on the growth has also improved significantly. He also said that MPC
judged that need of the hour is to continue supporting the growth. He added that the
signs of recovery have strengthened further and list of normalizing sectors is
expanding .
a) Which of the following is a qualitative credit control technique of RBI ?
i ) Change in repo rate ii) Change in reverse repo rate iii) Change in Bank rate
a) i Only
b) i, ii, and iii
c) iii only
d) none of these
b) Cut in reverse repo rate is likely to---------- ( increase/ decrease ) the demand for
goods and services in the economy
c) In order to control inflation in the economy what should Reserve Bank of India
do ?
a) Increase reverse repo rate
b) Increase repo rate
c) Both a and b
d) Neither a nor b
d) What do you mean by the term repo rate ?
i) the rate at which Central Bank takes loan from commercial banks for short term
ii) the rate at which Central Bank takes loan from commercial banks for long
term.
iii) the rate at which Central Bank provides loan to commercial banks for short
term.
iv) the rate at which Central Bank provide loan to commercial bank for long term

Ans. (a) d) none of these

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 (b) increase
(c) Both a and b
(d) iii. The rate at which Central Bank provides loan to commercial
banks for short term

2. Read the following case study paragraph carefully and answer the questions on the
basis of the same. The Reserve Bank of India raised inflation forecasts on the back of
higher oil and other raw materials while it maintained the growth forecast at 9.5% for
FY22 despite anaemic investment demand. Governor Shakti kanta Das said inflation
measured by the consumer price index (CPI) might remain close to the upper
tolerance band of 6% up to September expecting easing of pressure thereafter on
kharif harvest arrivals. [RBI has fixed inflation rate target in between 2%-6 %.] The
central bank projected CPI at 5.7% for FY22 compared to its earlier projection of
5.1%. “The supply-side drivers could be transitory while demand-pull pressures
remain inert, given the slack in the economy. A pre-emptive monetary policy response
at this stage may kill the nascent and hesitant recovery that is trying to secure a
foothold in extremely difficult conditions,” Das said.
Crude oil prices are volatile with implications for imported cost pressures on
inflation, RBI said. “The combination of elevated prices of industrial raw materials,
high pump prices of petrol and diesel with their second-round effects, and logistics
costs continue to impinge adversely on cost conditions for manufacturing and
services, although weak demand conditions are tempering the pass-through to output
prices and core inflation
1. How does RBI promote growth process of country ?
a) By controlling price level in country b) By changing various interest rates and
money supply c) By increasing supply of products d) All of above
2. Why does RBI fix the inflation target ?
a) To make growth process fast b) To make coordination with government c) To
manage exchange rate d) To stabilize economy
3. Why increasing crude oil prices are matter of concern ?
a) Increasing crude oil prices are increasing transportation cost b) Increasing crude
oil prices are making economy potentially unstable c) Increasing crude oil prices are
volatising growth process d) Increasing crude oil prices are adversely affecting
demand.
Ans. 1 (b) , 2(d) , 3 (b)
3. Read the following case study paragraph carefully and answer the questions on the
basis of the same. Repo (repurchase) rate also known as the benchmark interest
rate is the rate at which the RBI lends money to the commercial banks for a short-
term (a maximum of 90 days). When the repo rate increases, borrowing from RBI
becomes more expensive. If RBI wants to make it more expensive for the banks to
borrow money, it increases the repo rate similarly, if it wants to make it cheaper
for banks to borrow money it reduces the repo rate. If the repo rate is increased,
banks can’t carry out their business at a profit whereas the very opposite happens
when the repo rate is cut down. Generally, repo rates are cut down whenever the
country needs to progress in banking and economy. If banks want to borrow
money (for short term, usually overnight) from RBI then banks have to charge this
interest rate. Banks have to pledge government securities as collateral. This kind
of deal happens through a re-purchase agreement. If a bank wants to borrow, it has

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 to provide government securities at least worth ₹ 1 billion (could be more because
of margin requirement which is 5%–10% of loan amount) and agree to repurchase
them at ₹1.07 billion (US$15 million) at the end of borrowing period. So the bank
has paid ₹65 million (US$910,000) as interest. This is the reason it is called repo
rate.
1. What kind of tool Repo rate is ?
a) Qualitative tool
b) Quantitative tool
c) Fiscal tool
2. Why Repo rate is called Repurchasing rate ?
a) Commercial bank has to mortgage its securities with RBI
b) Commercial bank has to make an agreement to repurchase the securities mortgage
with RBI
c) Commercial banks have to pay interest on borrowings
3. If inflationary conditions persist in economy then what should be done with Repo
rate ?
a) Repo rate should be reduced
b) Repo rate should be increased
c) Does not change Repo rate
d) None of above
Ans. 1 (b) , 2 (b) , 3 (b)

UNIT- 3 DETERMINATION OF INCOME & EMPLOYMENT

ASSERTION AND REASONING QUESTION
ON AGGREGATES DEMAND AND ITS COMPONENTS
Q1 : Assertion: Changes in aggregate demand have no impact on the equilibrium level of
output and price level in an economy.
Reason: Changes in aggregate demand can shift the aggregate demand curve, leading to
changes in the equilibrium level of output and price level in an economy.
Option 1: Both Assertion and Reason are correct, and the Reason is the correct explanation of
the Assertion.
Option 2: Both Assertion and Reason are correct, but the Reason is NOT the correct
explanation of the Assertion.
Option 3: Assertion is correct, but the Reason is incorrect.
Option 4: Assertion is incorrect, but the reason is correct

ANS: B

Q2 : Assertion: Changes in the aggregate demand curve can cause shifts in the aggregate
supply curve.
Reason: Changes in aggregate demand can affect businesses' expectations and decisions
regarding production levels and future investments, resulting in shifts in the aggregate supply
curve.
Option 1: Both Assertion and Reason are correct, and the Reason is the correct explanation of
the Assertion.
Option 2: Both Assertion and Reason are correct, but the Reason is NOT the correct
explanation of the Assertion.
Option 3: Assertion is correct, but the Reason is incorrect.
Option 4: Assertion is incorrect, but the reason is correct.

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ANS: A

Q3 : Assertion: Changes in aggregate supply can cause inflation in an economy.

Reason: Increases in aggregate supply can lead to higher production costs, which in turn can
drive up prices and cause inflation.
Option 1: Both Assertion and Reason are correct, and the Reason is the correct explanation of
the Assertion.
Option 2: Both Assertion and Reason are correct, but the Reason is NOT the correct
explanation of the Assertion.
Option 3: Assertion is correct, but the Reason is incorrect.
Option 4: Assertion is incorrect, but the reason is correct.

ANS : A

Q4 : Assertion (A): Consumption and investment are the two components of aggregate
demand in a closed economy.
Reason (R): Aggregate demand curve always start from origin with a positive slope.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(c) Assertion (A) is false but Reason (R) is true
(d) Assertion (A) is true but Reason (R) is false
ANS : A

Q5 . Assertion : The value of marginal propensity to consume can be greater than one.
Reason : The value of Average propensity to save can be negative as well. In the light of the
given statements, choose the correct alternative from the following
(a) Assertion is true, but Reason is false
(b) Assertion is false, but Reason is true
(c) Both Assertion and Reason are true and Reason is the correct explanation of Assertion.
(d) Both Assertion and Reason are true, but Reason is not the correct explanation of
Assertion.
ANS : B

Q6-Assertion (A): If MPC is higher the value of investment multiplier will also be higher.
Reason (R): There exists a direct relationship between MPC and the value of multiplier.
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the
correct explanation of Assertion (A)
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason (R) is true.
Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)

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Q7-Assertion(A): Higher the value of MPC, higher is the value of Investment
multiplier
Reason(R): Investment multiplier is directly related to MPS
a. Both A and R is true and R is the correct explanation of A
b. Both A and R is correct but R is not the correct explanation of A
c. A is correct but R is not correct
d. A is not correct but R is correct
Ans. (c) A is correct but R is not correct
Q8-Assertion(A) : At Break- even point, consumption is equal to National Income.
Reason(R) : APC falls continuously with an increase in income as the proportion
of income spent on consumption keeps on decreasing.
a. Both A and R is true and R is the correct explanation of A
b. Both A and R is correct but R is not the correct explanation of A
c. A is correct but R is not correct
d. A is not correct but R is correct
Ans. (b) Both A and R is correct but R is not the correct explanation of A
Q9 Assertion (A) : Minimum Value of multiplier is one.
Reason (R ) :Minimum value of multiplier indicates that entire additional income is
consumed.
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the
correct explanation of Assertion (A)
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason (R) is true.
Ans. c. Assertion (A) is true but Reason (R) is false.
Q10-Assertion (A) : When MPC rises, value of multiplier rises and more chances of
economic growth and increase in national income.
Reason (R) : Investment generates income and this additional income causes a change in
consumption. Additional consumption expenditure generates additional income for producers
of goods and services.This process keeps repeating till the total increase in income equals the
product of multiplier and change in investment ; Y=K. I
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the
correct explanation of Assertion (A)

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c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason (R) is true.
Ans : (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)

Q11-Assertion (A) : Full employment refers to absence of involuntary unemployment.

Reason (R) : Under full employment situation , all willing and able bodied people get
employment at prevailing wage rate.
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the
correct explanation of Assertion (A)
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason (R) is true.
Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
Q12.Assertion- Excess Demand provides greater opportunity for employment in the economy
at full employment level.
Reasoning- excess demand refers to the situation when aggregate demand is more than the
aggregate supply corresponding to full employment level of output in the economy.
Ans- A is false but R is correct

Q13.Assertion (A): Excess demand is a situation when AD > AS in an economy at full

employment level.
Reason (R): It is due to increase in the level of money supply in the economy.
Ans. (a)

Q14.Assertion (A): Deficient demand is a situation when AD < AS in an economy at full

employment level.
Reason (R): It is due to decrease in the level of money supply in the economy.
Ans-(b)

Q15Assertion- AD is greater than AS after full employment level.

Reasoning- Excess of AD over AS at full employment is due to rise in MPC or reduction in
taxes.
Ans- (a)

Q16Assertion- Investment is reduced when AD is greater than AS

Reason- Excess of investment at full employment level will lead to more inflationary level
Ans-(a)

Q17Assertion- Excess Demand does not affect the output and employment in the economy
Reason- Because in the above condition the economy is already operating at full employment
level.

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Ans-(a)
STATEMENT BASED QUESTIONS (level-1)
In light of the given statements, choose the correct alternative from the following:

(a) Both the Statements are true.

(b) Both the Staternents are false.
(c) Statement 1 is true and Statement 2 is false.
(d) Statement 1 is false and Statement 2 is true
Q1. Statement 1: In case of excess demand, central bank should decrease the bank rate.
Statement 2: In case of excess demand, central bank starts buying securities from commercial
banks.
Ans-(b)
Q2. Statement 1: Excess demand does not affect the level of output because economy is
already at full employment level.
Statement 2: Excess demand leads to a rise in general price level of the economy.
Ans-( a)
Q3. Statement 1: Deficient demand causes voluntary unemployment in the economy.
Statement 2: Deficient demand occurs due to fall in consumption expenditure, investment
expenditure, etc.
Ans-(d)
Q4. Statement 1: The problems of excess and deficient demand can be solved by bringing a
tochange in the level of aggregate supply in the economy.
Statement 2: Monetary Policy is the policy adopted by Central Government to control credit
in the economy.
Ans-(b)

Q5. Statement 1: To control the situation of excess demand, government tries to reduce level
of aggregate expenditure in the economy by increasing rates of taxes and imposing some new
taxes.
Statement 2: During excess demand, the aggregate demand in the economy is more than the
full employment level of output.
Ans-(a)

Q6. Statement 1: Increase in Reverse Repo Rate helps to correct the excess demand.
Statement 2: The credit creating power of Commercial Banks can be increased by raising the
reverse repo rate.
Ans-(c)

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Q7- Statement -1 : There is always full employment equilibrium in the economy.
Statement -2- At the full employment equilibrium in the economy, where AD = AS maystrike
even when there is underemployment.
(a) Statement 1 is correct but 2 is incorrect
(b) both the statements are incorrect
(c) both the statements are correct
(d) Statement 1 is incorrect but 2 is correct
Ans. (b) both the statements are incorrect

Q8-Statement 1 : Equilibrium in the economy occurs when planned investment and planned
savings are equal.
Statement 2 : When planned investment and planned savings are not equal to each other, then
output will have to adjusted till the equilibrium is attained.
(a) Statement 1 is correct but 2 is incorrect
(b) Both the statements are incorrect
(c) Both the statements are correct
(d) Statement 1 is incorrect but 2 is correct
Ans. (c) Both the statements are correct .
Q9- Statement 1 : Over full employment equilibrium refers to a situation when the aggregate
demand is equal to the aggregate supply beyond the full employment level.
Statement 2 : Over full employment equilibrium causes deficient demand and deflationary
gap in the economy.
(a) Statement 1 is correct but Statement 2 is incorrect
(b) Both the statements are incorrect
(c) Both the statements are correct
(d) Statement 1 is incorrect but Statement 2 is correct
Ans. (a) Statement 1 is correct but Statement 2 is incorrect
Q-10- Statement 1 : Investment multiplier is the ratio of increase in investment and increase
in income.
Statement 2 : Investment multiplier is directly related with MPS
(a) Statement 1 is correct but Statement 2 is incorrect
(b) Both the statements are incorrect
(c) Both the statements are correct
(d) Statement 1 is incorrect but Statement 2 is correct
Ans. (b) Both the statements are incorrect
Q11-Statement 1 : Lower the value of MPS , lower is the value of multiplier
Statement 2 : Higher the value of MPC , higher is the value of multiplier

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(a) Statement 1 is correct but Statement 2 is incorrect
(b) Both the statements are incorrect
(c) Both the statements are correct
(d) Statement 1 is incorrect but Statement 2 is correct
Ans. (d) Statement 1 is incorrect but Statement 2 is correct
Q-12-Statement 1: When investment multiplier is 1, the value of MPC is zero.
Statement 2: When investment multiplier is zero, the value of MPC is one.
a. Statement 1 is true and statement 2 is false.
b. Statement 1 is false and statement 2 is true.
c. Both the statement are true.
d. Both the statement are false.
Ans. (a)Statement 1 is true and statement 2 is false.

NUMERICALS 6 MARKS

Q 1 . Briefly state the concept of consumption function. Explain with schedule and diagram.

Answer: (i) Consumption function expresses functional relationship between aggregate

consumption and national income. Thus, consumption (C) is a function of income (Y).
C = F (Y)
Where,
C = Consumption
F = Function
Y = Disposable income

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(ii) It can be explained with the help of the following schedule and diagram:

The above schedule and diagram shows Keynes’ Psychological law of Consumption, which
states that as income increases consumption expenditure also increases but increase in
consumption is smaller than the increase in income.

Q 2 . What is APC? How is it calculated?

Answer: The ratio of aggregate consumption expenditure to aggregate income is known as

average propensity to consume. It indicates the percentage (or ratio) of income which is being
spent on consumption. It is worked out by dividing total consumption expenditure (C) by
total income (Y). APC=C/Y

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Q3 Explain saving function with the help of schedule and diagram.

Answer: (i) Propensity to save (or saving function) shows the functional relationship between
aggregate savings and income. S=f(Y) In other words, the part of income which is not spent
on current consumption is known as saving. By deducting consumption expenditure (C) from
income (Y), we get saving (S). S = Y – C

Q 4 . In an economy, S = -100 + 0.6 Y is the saving function, where S is saving and Y is

National Income. If investment expenditure is Rs.1100. Calculate
(i) Equilibrium level of National Income.
(ii) Consumption expenditure at equilibrium level of National Income.

Ans. S = -100 + 0.6 Y

l=*1100
(i) Equilibrium level of National Income
S=l
-100 + 0.6Y = 1100
0.6Y = 1100+100
Y= 1200/0.6=Rs. 2000
Y= Rs. 2000
(ii) Consumption expenditure at equilibrium level of National Income
Y= C + l

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C= Y- l
C =2000-1100 = Rs. 900
C = Rs. 900

Q.5. C = 100 + 0. 4Y is the consumption function of an economy, where C is

consumption expenditure and Vis National Income. Investment expenditure is Rs. 1100.
Calculate
(i) Equilibrium level of National Income.
(ii) Consumption expenditure at equilibrium level of National Income.

Ans. Given, C =100 + 0.4Y

l= Rs. 1100
(i) Equilibrium level of National Income
Y=C + I
Y= 100 + 0.4Y+1100
Y- 4Y = 100+1100
– 0.6Y = 1200
Y= 1200/ 6
Y= Rs. 200
(ii) Consumption expenditure at equilibrium level of income
C = 100 + 0.4y
C =100 + 0 .4 x 2000
C = 100 + 800=900
C = Rs.900

(Case Study Based)

Q6- On the basis of the following news report, answer the followings: -

The RBI Governor Dr. S K Das on Friday announced a series of steps to boost liquidity in a
stimulus worth 3.2% of GDP to counter the Economic impact of the corona virus outbreak.
The RBI reduces the repo rate by 75 basis points to 4.4% and Reverse Repo rate by 90 basis
points 4%.

Cash reserve ratio of all banks have been reduced by 100 basis points to 35 of net
demand and time liabilities with effect from the fortnight beginning March 28 for a period of
one year.

Reverse repo rate cut more so that banks can increase their lending capacity. RBI will
also inject liquidity worth Rs. 3.74 Lakh Crores into the system. He also predicted a big
global recession and said India will not be immune. Aggregate demand may weaken and ease
core inflation.

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(i) In the situation of Inflationary gap at full employment level of income: -

a) AD> AS

b) AD <AS

c) AD=AS

d) None of these

Ans: (a)

(ii) Decrease in cash reserve ratio will lead to ------ (rise/fall) in AD.

Ans: Rise

(iii) Cut in repo rate by RBI is likely to ……… demand for goods & services.

Ans: Increase

(iv) When at full employment level of income, AD is less than AS; it is termed as ……
a) Inflationary gap
b) Deflationary gap

c) Excess demand
d) Both (a) & (b)

Ans: (b)

Q-7 Read the following news abstract and answer questions (i) – (iv) on the basis of the
same.

At the macro level, inflation indices are not constructed for the sake of it. They are of basic
importance in assessing the state of an economy at any given point of time.. a rise in inflation
is referred as an indicator of emerging supply side constraint. Deflation, on the other hand,
suggests a collapse in demand. These situations require different policy interventions. A
demand shock is needed when inflation starts rising. This could be in the form of an interest
hike or rationing. A deflationary economy needs a stimulus. This could be given via direct
cash transfers or cut in interest rates, which would then lower the cost of consumption and
investment. The RBI mandated to use policy rates to achieve a balance between inflation and
growth.

(i) Define aggregate supply.

Ans: Aggregate supply refers to the value of all final goods and services that are planned
to be produced by all the producing units in an economy during a given period of time.

(ii) Which of the following is not a reason for excess demand?

a) Rise in Consumption demand
b) Fall in MPC

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 c) Deficit financing
d) Increase in investments

Ans: (b)

(iii) A rise in inflation is referred as an indication of emerging………(demand/supply)

side constraint.

Ans: Supply

(iv) The two key ingredients of aggregate demand are……

a) Consumption & investment
b) Investment & Growth
c) Both (a) & (b)
d) Neither (a) & (b)

Ans: (a)

Q8-If MPC is 0.4 the investment multiplier will be

a) 1.67 b) 2.5
c) 6 d) 4
Ans- (A) 1.67
Q-9 Find out the value of multiplier when
(i) MPC=0.80
(ii) MPS=0
Ans.(i) K=1/1-MPC
K=1/1-0.80 = 1/0.2 =5
(ii) K=1/MPS =1/0 = infinity (∞)
Q-10-It is planned to make a new investment of Rs 1400 crore in the economy. How much will be the
increase in national income is marginal propensity to save is 0.4 ? Calculate
Ans- increase in Investment=1400 crore
MPS=0.4
K=1/MPS =1/0.4=2.5
K=∆Y/∆I , ∆Y=K×/∆I =2.5×1400=3500
Increase in national income by Rs.3500 crore
Q-11-In an economy an increase in investment leads to 4 times increase in national income.
CalculateMPC.
Ans –Increase in income = 4 times increase in investment or
∆Y=4∆I or ∆Y/∆I =4
Thus multiplier K=4
We know K=1/1-MPC 4=1/1-MPC

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4(1-MPC) =1 , 1-MPC=1/4, 1-MPC=0.25
MPC=1-0.25
MPC=0.75
Q-12- If MPS= 0.3, autonomous consumption = ₹ 50 crores and investment = ₹ 100 crores,
thenEquilibrium income will be:
a) ₹ 500 crores b) ₹ 150 crores
c) ₹ 300 crores d) ₹ 45 crores
Ans (A) ₹ 500 crores
In an economy, Autonomous investment increases by Rs 160 Crore. The value of theInvestment
multiplier is 4. Calculate the MPC?
Ans-K=1/1-MPC , 4=1/1-MPC , 4-4 MPC=1 ,( 1-4)/4 = 3/4
MPC=0.75
Q-13- Full Employment refers to a situation when all resources in an economy- land, labour and
capital are fully and efficiently employed. However for simplicity full employment is restricted to the
labour market only. Thus in full employment situation demand for labour is equal to available supply
of labour at a given level of wage rate that is labour market is in equilibrium. However in a situation
labour market, equilibrium, some natural unemployment may occur. Due to imperfections of labour
market some workers may be reduced unemployed temporarily. It largely occurs due to time
required in shifting of jobs in a dynamic economy. This is called frictional unemployment.
1) What is Full employment?
2) In full employment demand for labour varies with supply of labour at given wage rate.
(True/False)
3) Why some workers are removed temporarily?
4) How does Frictional unemployment occur?
Ans:- 1) Full Employment refers to a situation when all resources in an economy-land, labour and
capital are fully and efficiently employed.
2) False
3) Due to imperfections of labour market some workers may be reduced unemployed temporarily.
4) Frictional unemployment occurs due to time required in shifting of jobs in a dynamic economy.
Q-14-The production of final goods employs factors such as labour, capital, land and
entrepreneurship. In the absence of indirect taxes or subsidies, the total value of the final goods
output is distributed among different factors of production – wages to labour, interest to capital,
rent to land etc. Whatever is left over is appropriated by the entrepreneur and is called profit. Thus
the sum total of aggregate factor payments in the economy, National Income, is equal to the
aggregate value of the output of final goods, GDP. In the above example the value of the extra
output, 10, is distributed among various factors as factor payments and hence the income of the
economy goes up by 10. When income increases by 10, consumption expenditure goes up by
(0.8)10, since people spend 0.8 (= mpc) fraction of their additional income on consumption. Hence,
in the next round, aggregate demand in the economy goes up by (0.8)10 and there again emerges an
excess demand equal to (0.8)10. Therefore, in the next production cycle, producers increase their
planned output further by (0.8)10 to restore equilibrium. When this extra output is distributed
among factors, the income of the economy goes up by (0.8)10 and consumption demand increases
further by (0.8)210, once again creating excess demand of the same amount. This process goes on,
round after round, with producers increasing their output to clear the excess demand in each round

235 | P a g e
and consumers spending a part of their additional Equilibrium Output and Aggregate Demand in the
Fixed Price
1-National Income, is equal to the aggregate value of the output of final goods, GDP.(True/False)
2) There exists a __________relationship between AD and Income.
a) Positive b) Negative
c) Neutral d) None of the above
3) Explain investment multiplier.
Ans:-
1-True
2-Positive
3-The term investment multiplier refers to the concept that any increase in public or private
investment spending has a more than proportionate positive impact on aggregate income and the
general economy. It is rooted in the economic theories of John Maynard Keynes.

Q 14- Read the following text carefully and answer the given questions on the basis of the
same and common understanding: 2+2+2=6

The world's leading orange juice manufacturers may have to consider using alternative fruits
as they face a supply crisis.
A report from Fundecitrus and Citrus BR said that the climate crisis and a citrus disease
known as greening have caused Brazilian orange farmers to harvest their smallest crop in
decades.
Brazil is the world's largest orange juice producer and exporter. The report predicted that
Brazil's main orange-producing areas of Sao Paulo and Minas Gerais will harvest 232.38
million 40.8kg boxes this year, a drop of 24.36% compared to the previous year.
"Should this production forecast hold true, this will be the second smallest crop since 1988-
1989," it said.
Florida, the world's second-largest producer of orange juice, is also facing severe shortages
due to disease and poor weather conditions, the Financial Times reported.

a) Will there be any effect on aggregate supply and aggregate demand in an

economy?
b) How does it may affect the equilibrium conditions of an economy?
c) What policy may be used to maintain equilibrium by Government?
Ans. a) Yes, It may affect the aggregate demand due to price hike due shortage of
supply and also may affect aggregate supply due to loss of the exporter.
(b) Yes it may affect the equilibrium condition as it create less supply, will
connect to deficient supply. Due to shortage of supply next year employment may
reduce more.
(c) Government may interfere in case of Deficient supply, by two ways by
reducing tax and increasing expenditure.

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Q15- Read the following text carefully and answer the given questions on the basis of the
same and common understanding: 1+1+2=4
With inflation remaining at elevated levels, central banks around the world, including the
Reserve Bank of India (RBI), will kill excess demand in economy over the next six to eight
months, sources in the know said. They also indicated that there could be a rate hike in June,
when the inflation forecast for the current financial year would be raised.
The RBI, the sources said, might announce more steps such as raising the limit on held-to-
maturity (HTM) bonds to support government borrowings but might not come out with any
further quantitative easing GSAP (Government Securities Acquisition Programme) measures.
Changes in aggregate demand bring about changes in the level of output, employment,
income, and price. These changes are generally cyclical in nature. These changes, more
generally, follow a cycle of four different stages namely boom, recession, depression and
recovery. The cyclical nature of economic activity is known as trade cycle or business cycle.
Boom is a stage of economic activity characterized by rising prices, rising employment,
rising purchasing power.
During the boom period economy may get overheated, if it so happens, the monetary
authorities, the financial institutions begin to play cautiously. There may be cuts in
investment, resulting in cuts in employment; decline in purchasing power, economy may be
caught in a web of pessimism, leads to recession. During this stage, if effective corrective
measures are not undertaken, the economy may find itself caught in the whirlpool of
depression. It is a stage where investment, employment, output touches the bottom. As the
economy moves out of depression, it enters the phase of recovery. Keynesian diagnosis of
trade cycles is given in terms of changes in aggregate demand. These are ‘excess demand’
and ‘deficient demand ‘that cause trade cycle.

1. During the time of ‘excess demand’, Govt. should .................. the public expenditure.

a) Reduce b) increase c) unchanged d) none of these.

Answer: Reduce

2. Investment depends on:

a) Supply. b) income

c) saving d) Both (a) and (c)

Answer: Income.

3. “Reserve Bank of India (RBI), will kill excess demand in economy over the next six
to eight months,” How.

Answer- Government direct to RBI to control money supply in the economy. RBI use
open market operation where it can sell out securities in the open market to reduce
money supply.

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Diagram based Questions:

1. What does EF represent in the given diagram:

Options:
(a) Inflationary gap
(b) Deflationary gap
(c) Over full employment equilibrium
(d) Full employment equilibrium
Ans. Inflationary gap
2.In the figure given below, what does the gap ‘EF’ represent ?

Options:
(a) Deflationary gap
(b) Inflationary gap
(c) Excess demand
(d) Full employment
Ans. (a)
3. When equilibrium is at point E1,in given diagram over full employment of resources will
be equal to:

Options:
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(a) FE (b). OM © EM (d) MM1
Ans. (d)
4. When equilibrium is at point E1,in given diagram under employment of resources will be
equal to:

Options:
(a) E1Y (b). OY © EM (d) YYf
Ans. (d)YYf
5. In the given diagram which is a point of equilibrium, corresponding to over full
employment of resources:

(a) F (b). E © E1 (d) None of these

Ans. © E1
6. In the given diagram which is a point of equilibrium, corresponding to under employment
of resources:

Options:
a) F (b). E © E1 (d) Y
Ans © E1

Topic: ‘Govt. Budget & the Economy’

ASSERTION AND REASONING BASED
Assertion (A): Fiscal deficit is a reflection on Govt. borrowings.

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Reason (R): Fiscal deficit is the excess of budgetary expenditures over the budgetary receipts
less borrowing.
Alternatives:

e) Both Assertion (A) & Reason (R) are correct and Reason is the correct explanation of
Assertion.
f) Both Assertion(A) & Reason (R) are correct and Reason is not the correct explanation
of Assertion
g) Assertion (A) is true but Reason (R) is False.
h) Assertion (A) is false but Reason (R) is true.
Ans : b
Q-2- Assertion (A): A deficit budget is a sign of government inefficiency.

Reason (R): A budgetary deficit may be a planned strategy of the Government during the
periods of depression.
e) Both Assertion (A) & Reason (R) are correct and Reason is the correct explanation of
Assertion.
f) Both Assertion(A) & Reason (R) are correct and Reason is not the correct explanation
of Assertion

g) Assertion (A) is true but Reason (R) is False.

h) Assertion (A) is false but Reason (R) is true.
Ans: d
Q-3- Assertion (A): Govt has allocated extra money in budget 2021-22 to provide safe
drinking water facilities and sanitation to the people.
Reason (R): The Govt does it because sanitation and providing drinking water are public
goods.
a) Both Assertion (A) & Reason (R) are correct and Reason is the
correct explanation of Assertion.

b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct explanation
of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true
Ans: a
Q-4- Assertion (A): The Govt Budget is an important monetary policy instrument.

Reason (R): Govt Budget is a financial statement of budgetary receipts and budgetary
expenditures of the Govt during a fiscal year.
e) Both Assertion (A) & Reason (R) are correct and Reason is the correct explanation of
Assertion.

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 f) Both Assertion(A) & Reason (R) are correct and Reason is not the correct explanation
of Assertion
g) Assertion (A) is true but Reason (R) is False.

h) Aassertion (A) is false but Reason (R) is true.

Ans: d
Q-5- Assertion (A): The impact and incidence of an indirect tax lie on different persons.
Reason (R): Indirect taxes can be avoided by not entering into those transactions, which call
for such taxes.
e) Both Assertion (A) & Reason (R) are correct and Reason is the correct explanation of
Assertion.
f) Both Assertion(A) & Reason (R) are correct and Reason is not the correct explanation
of Assertion
g) Assertion (A) is true but Reason (R) is False.
h) Assertion (A) is false but Reason (R) is true.
Ans: c

Q-6- Assertion (A): Expenditure on Ujjwala Yojna launched by the Govt is an example of
revenue expenditure.
Reason (R): It is the expenditure that neither creates assets nor reduces liabilities.
e) Both Assertion (A) & Reason (R) are correct and Reason is the correct explanation of
Assertion.
f) Both Assertion(A) & Reason (R) are correct and Reason is not the correct explanation
of Assertion
g) Assertion (A) is true but Reason (R) is False.
h) Assertion (A) is false but Reason (R) is true.
Ans: a
Q-7- Assertion (A): The Govt Budget is the statement showing actual receipts and
expenditures of the Govt in the coming financial year.
Reason (R): The Govt Budget is presented by the finance minister of India.
e) Both Assertion (A) & Reason (R) are correct and Reason is the correct explanation of
Assertion.
f) Both Assertion(A) & Reason (R) are correct and Reason is not the correct explanation
of Assertion

g) Assertion (A) is true but Reason (R) is False.

h) Assertion (A) is false but Reason (R) is true.
Ans: b

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Q-8- Assertion (A): Govt should reduce subsidies to curb revenue deficit.
Reason (R): Providing subsidies on an LPG cylinder is a part of revenue expenditure.
e) Both Assertion (A) & Reason (R) are correct and Reason is the correct explanation of
Assertion.
f) Both Assertion(A) & Reason (R) are correct and Reason is not the correct explanation
of Assertion
g) Assertion (A) is true but Reason (R) is False.

h) Assertion (A) is false but Reason (R) is true.

Ans: a
Q-9- Read the following statements: Assertion (A) and Reason (R). Choose one of the correct
alternatives given below:

Assertion (A): Govt.do not earns profit through PSUs.

Reason (R): Non – tax revenue refers to receipts of the govt. from all sources other than
those of tax receipts
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).

(b)Both (A) and (R) are true and (R) is not the correct explanation of (A).
(c) (A) is true but (R) is false
(d)(A) is false but (R) is true.
Ans.(d) )(A) is false but (R) is true.
Q-10-Assertion (A): A large Fiscal deficit leads to burden on future generation.
Reason (R): Interest payments and repayment of loans taken today would have to be paid in
future.
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).
(b)Both (A) and (R) are true and (R) is not the correct explanation of (A).
(c) (A) is true but (R) is false
(d)(A) is false but (R) is true.

Ans. (a) Both (A) and (R) are true and (R) is the correct explanation of (A).
Q-11-Assertion (A): Receipt of fees by the govt. is a revenue receipt.
Reason (R):Revenue receipts reduce assets of the govt.
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).
(b)Both (A) and (R) are true and (R) is not the correct explanation of (A).
(c) (A) is true but (R) is false

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(d)(A) is false but (R) is true.
Ans. (c) (A) is true but (R) is false
Q-12-Assertion (A): An increase in the govt. spending increases the tax burden on citizens.
Reason (R): Taxes finance government spending.
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).

(b)Both (A) and (R) are true and (R) is not the correct explanation of (A).
(c) (A) is true but (R) is false
(d)(A) is false but (R) is true.
Ans. (d) (A) is false but (R) is true.
Q-13-Assertion (A): Recovery of loans is an example of revenue receipts.
Reason (R): Capital receipts are the source of income of the govt.

(a) Both (A) and (R) are true and (R) is the correct explanation of (A).
(b)Both (A) and (R) are true and (R) is not the correct explanation of (A).
(c) (A) is true but (R) is false
(d)(A) is false but (R) is true.
Ans.(d) (A) is false but (R) is true.

STATEMENT BASED QUESTIONS

Q-1-Statement 1- Fiscal deficit includes borrowings to create loan

Statement 2- Fiscal deficit depicts borrowings required to meet current year
budget expenditure
a) Both are correct
b) Both are wrong
c) Statement 1 is correct and statement 2 is wrong

d) Statement 1 is wrong and statement 2 is correct

Ans. d) Statement 1 is wrong and statement 2 is correct
Q-2- Read the following statements carefully.
Statement-1 : Repayment of loans is called revenue expenditure
Statement-2 :Payment of interest on loan is called revenue expenditure
In the light of the given statements, choose the correct alternatives:

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(a) Statement 1 is true and statement-2 is false
(b) Statement 1 is false and statement-2 is true
(c) Both Statement 1and statement-2 are true
(d) Both Statement 1and statement-2
Ans. (b) Statement 1 is false and statement-2 is true

Q-3- Read the following statements carefully.

Statement-1 The revenue deficit refers to the excess of government’s revenue expenditure
over revenue receipts
Statement-2 The fiscal deficit refers to the excess of government’s capital expenditure over
capital receipts. In the light of the given statements, choose the correct alternatives:
(a)Statement 1 is true and statement-2 is false
(b)Statement 1 is false and statement-2 is true
(c) Both Statement 1and statement-2 are true

(d)Both Statement 1and statement-2 are false

Ans. (a)Statement 1 is true and statement-2 is false
Q-4- Read the following statements carefully.
Statement-1 :All those receipts of government which creates assets or reduce liabilities are
termed as capital receipts.
Statement-2 ::All those receipts of government which creates liabilities or reduce assets are
termed as capital receipts. In the light of the given statements, choose the correct alternatives:
(a) Statement 1 is true and statement-2 is false
(b) Statement 1 is false and statement-2 is true

(c) Both Statement 1and statement-2 are true

(d)Both Statement 1and statement-2 are false
Ans. (b) Statement 1 is false and statement-2 is true
Q.5- Statement 1: The expenditure by the government which leads to an increase in
government assets, is termed as capital expenditure
Statement 2: Expenses on the construction of national highways, dams are examples of
capital expenditure
Ans- c) Both statements 1 and 2 are true

Q6. Statement 1: Revenue expenditures neither cause any increase in the government assets
nor cause any reduction in government liabilities.
Statement 2: Expenditure on old age pensions, salaries, etc are examples of revenue
expenditure
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Ans- c) Both statements 1 and 2 are true
Q-7. Statement 1: Interest payments by government on loans taken is also an example of
revenue expenditure.

Statement 2: Expenditure on old age pensions, salaries, etc. are examples of capital
expenditure
Ans. (a) Statement 1 is true and statement 2 is false
Q8-Statement 1: Expenditure on scholarships is a revenue expenditure

Statement 2: Fiscal deficit = Revenue expenditure – Interest payments

Ans. (a) Statement 1 is true and statement 2 is f

Numerical Questions

Q.1. In a government budget, the revenue deficit is ₹35 crores. If the revenue receipts
are ₹70 crores and capital expenditure is ₹120 crores, then how much is the revenue
expenditure?
ANS. Revenue deficit = Revenue expenditure – Revenue receipt
₹35 crores = Revenue expenditure – ₹70 crores
Revenue Expenditure = ₹35 crores + ₹70 crores
= ₹105 crores
Q. 2. In a government budget, the primary deficit is ₹12,000 crores and interest
payment is ₹7,000 crores. How much is the fiscal deficit?
ANS. Primary deficit = Fiscal deficit – Interest payment
₹12,000 crores = Fiscal deficit – ₹7,000 crores
Fiscal deficit = ₹12,000 crores + ₹7,000 crores

= ₹19,000 crores
Q. 3. As per the government budget, the interest payments are estimated at ₹10,000
crores, which is 40% of the primary deficit. Calculated the fiscal deficit.
ANS. Let primary deficit = x

₹10,000 crores = 40% of x = 0.40 x

x= ₹10,000 crores/0.40 = ₹25,000 crores
Primary deficit = Fiscal deficit – Interest payment

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 ₹25,000 crores = Fiscal deficit – ₹10,000 crores
Fiscal deficit = ₹25,000 crores + ₹10,000 crores
= ₹35,000 crores
Q.4. From the given table, Find the following:

(a) Fiscal deficit

(b) Primary deficit

Particulars (₹ in crores)

Revenue expenditure 70,000

Borrowings 15,000
Revenue receipt 50,000
Interest payment 25% of revenue deficit

ANS. Revenue deficit = Revenue expenditure – Revenue receipt

Revenue deficit = ₹70,000 crores – ₹50,000 crores = ₹20,000 crores
Interest payment = 25% of revenue deficit = ₹20,000 crores x 25/100[1]

= ₹5,000 crores
Fiscal deficit = Borrowings = ₹15,000 crores
Primary deficit = Fiscal deficit – Interest payment
Primary deficit = ₹15,000 crores – ₹5,000 crores
= ₹10,000 crores
Q. 5. From the given information, determine the following:

(a) Capital expenditure

(b) Total expenditure
(c) Interest payments

Particulars (₹ in crores)

Fiscal deficit 12,000

Revenue deficit 9,000

Primary deficit 5,000

Revenue receipts 6,000
Non-debt capital receipts 10,000

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 ANS. (a) Fiscal deficit = Revenue deficit + (Capital expenditure – Non-debt creating capital
receipts)
₹12,000 crores = ₹9,000 + (Capital expenditure – ₹10,000

Capital expenditure = ₹12,000 crores – ₹9,000 crores + ₹10,000 crores

= ₹13,000 crores
(b) Total expenditure = Revenue expenditure + Capital expenditure
Revenue expenditure = Revenue deficit + Revenue receipt
= ₹9,000 crores + ₹6,000 crores
= ₹15,000 crores

Total expenditure = Revenue expenditure + Capital expenditure

= ₹15,000 crores + ₹13,000 crores
= ₹28,000 crores
(c) Primary deficit = Fiscal deficit – Interest payments
₹5,000 crores = ₹12,000 crores – Interest payments
Interest payments = ₹12,000 crores – ₹5,000 crores

= ₹7,000 crores
Q-6- Calculate , Fiscal Deficit and Primary Deficit from the following data:
Items (Rs in crore)
(i) Revenue expenditure 22000
(ii) Capital expenditure 28,000
(iii) Revenue receipts 17500
(iv) Capital receipts (net of borrowing) 20,000

(v) Interest payments 5,000

Ans: Fiscal Deficit = Total expenditure – Total receipts other than borrowing
= (22000+28000) – (17500+20000)
= 50000 – 37500
= 12500
Primary deficit = Fiscal deficit- interest payment

= 12500- 5000
= 7500

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Q-7- As per the government budget, the interest payments are estimated at ₹ 10,000 crores,
which is 40% of primary deficit. Calculated fiscal deficit ?
Ans:-

Let, Primary defict = x

₹10,000 crores = 40% of x = 0.40 x
x= ₹10,000 crores / 0.40 = ₹25,000 crores
Primary Deficit = Fiscal deficit- Interest payment
₹25,000 crores = Fiscal deficit –₹10,000 crores
Fiscal deficit = ₹25,000 crores + ₹10,000 crores= 35000

Q-8-From the following information, determine: (a) Capital Expenditure (b) Total
Expenditure (c) Interest Payments
Particulars (₹in crores)
Fiscal Deficit 20
Revenue Deficit 15
Primary Deficit 10

Revenue Receipts 45
Non- debt Capital Receipts 80
Ans:-
(a) Fiscal deficit= Revenue deficit + (Capital expenditure – Non-debt creating capital
receipts)

20 = 15 + (Capital expenditure – 80)

Capital expenditure = 20+80 – 15
= 100-15
= 85
(b) Total expenditure = Revenue expenditure + Capital expenditure
As , (Revenue expenditure = Revenue deficit + Revenue receipt)

=> RE = 15+45=60
Total expenditure will be = 60+ 85
=145 crores
Q-9- In a government budget , Revenue deficit is Rs. 35 Crore. If revenue receipts are Rs. 70
crore and Capital expenditure is Rs. 120 Crore, then how much is the Revenue Expenditure?

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(a) Rs. 35 Crore
(b) Rs. 70 Crore
(c) Rs. 2 Crore
(d) Rs. 105 Crore
Ans. (d) Rs. 105 Crore

Q-10- From the following information find the revenue deficit. Tax revenue = 1000 , Non
Tax Revenue = 150 , net Borrowings by Government = 780, Disinvestment Proceeds = 50,
Revenue Expenditure = 1500 , Capital Expenditure = 480. (All figures in Rs. Crore).
(a) Rs. 150 crore
(b) Rs. 350 crore
(c) Rs. 1150 crore
(d) Rs. 50 crore
Ans. Rs 350 crore

Q-11-The interest payments as per the government budget id Rs. 1, 40,000 crore. If total
borrowing requirements of the government are estimated at rs. 2, 70,000 crore. How much is
the Primary Deficit?
(a) Rs. 1,40,000 crore (b) Rs. 2,70,000 crore (c) Rs. 4,10,000 crore (d) Rs. 1,30,000 cr

Ans. (d) Rs. 130000 cr

HOTS/ ANALYTICAL QUESTIONS

Q. 1. What is a balanced government budget? Explain the multiplier effect of a
balanced budget.
Ans: The overall difference between government receipts and spending is known
as the government budget balance, also known as general government balance, public budget
balance, or public fiscal balance. Simply said, a balanced budget is one in which spending
does not exceed earnings. This term can be applied to any budget, including that of a
company, a non-profit organisation, or even a family. The term is, however, most commonly
linked with a government budget. An effectively balanced budget displays fiscal health by
demonstrating that expenditure remains in line with costs.
The following are the multiplier effects of a balanced budget:
1. The balanced-budget multiplier is a metric that estimates the change in aggregate
production caused by a change in government taxation on its own.
2. This multiplier comes in handy for analysing fiscal policy changes that include both
government purchases and taxes.
3. The multiplier for a balanced budget is one. The "good" impact of a change in government
purchases on aggregate production is large, although not entirely, countered by the "negative"
impact of a change in taxes.

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4. The first injection's purchase of aggregate production is the only element of the impact of
the change in government purchases that is not compensated by the rise in taxes. As a result,
the initial change in government purchases is equal to the change in aggregate production.

Q. 2. What are the Non-Tax Revenue receipts?

Ans: The following are non-tax revenue receipts:
1. Postage payments, tolls, interest on funds borrowed from the government, credit
corporations, railways, and postal department, as well as electrical services, are all examples
of commercial revenue.
2. Dividends and interest
3. Fees, penalties, fines, and other administrative revenue

Q. 3. What are the three major ways of Public Expenditure?

Ans: The following are the three major methods in which the government spends money:
1. Revenue and capital expenditures are the first two items on the list.
2. Planned and unplanned expenses
3. Expenditures for development and non-developmental purposes.

Q. 4. Define Direct taxes and Indirect taxes. Also give two examples of each.

Ans: Direct taxes are those that are imposed immediately on a person's property or income.
The public pays these taxes directly to the government. Income tax, wealth tax, corporate tax,
and other taxes are examples.
Indirect taxes are levied on people's income and assets as a result of their consumer
spending. These taxes are imposed on one individual, but they are paid by another. Customs
duties, excise duties, sales tax, service tax, and other taxes are examples.

Q.5 What are the three major ways of Public Expenditure?

Ans: The following are the three major methods in which the government spends money:
1. Revenue and capital expenditures are the first two items on the list.
2. Planned and unplanned expenses
3. Expenditures for development and non-developmental purposes.

Q-6-What does Zero Primary deficit mean ?

Ans. If Primary Deficit = 0 , the Fiscal Deficit = Interest payment. It means the whole
amount borrowed by the Govt. is used for interest payment of the previous loan.
Q-7-Giving reason , state whether the following is Revenue / Capital expenditure in a govt.
budget :
(a) Expenditure on scholarships
(b) Expenditure on building a bridge.
Ans . (a) Revenue expenditure as it neither creates any asset nor reduces liability
(b)Capital expenditure as it leads to creation of asset of the Govt.
Q-8- What are non-debt creating capital receipts ?

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 Ans. Capital receipts excluding borrowing are known as non-dept creating Capital
receipts. Ex. Disinvestment, Recovery of loan
Q-9-Giving reason, Classify the following as Revenue / Capital receipt :

(a) Borrowing from IMF

(b) Profits of public sector undertaking
(c) Recovery of loan
Ans. (a) Borrowing from IMF is Capital receipt as it increases liability of the Govt.

(b)Profits of PSUs is revenue receipt as it neither creates liability nor reduces

assets.
(c ) Recovery of loan is Capital receipt as it reduces assets.

Q-10-Choose the correct alternatives to be filled in given blanks A, B and C.

Revenue Capital
Budget Budget

Revenue Capital
B C Expenditure
Expenditure

(a) A - Revenue receipts, B- Capital receipts C-Government budget

(b) A - Capital receipts, B - Government budget, C- Revenue receipts
(c) A - Capital receipts, B - Revenue receipts, C-Government budget
(d) A-Government budget, B Revenue receipts, C-Capital receipts
Ans. (d) A-Government budget, B Revenue receipts, C-Capital receipts

Q-11-Recently the government budget showing the trend of rising fiscal deficit specially after
Covid-19 . What would be major causes of rising fiscal deficit ? Illustrate.
Ans: Yes, it is true that the fiscal deficit of India has increased from 2019 onwards
due to following reasons :
1- due to fall in revenue receipts during covid-19
2-Due to implication transition period of tax reform GST revenue receipts decline
3- To ensure the social welfare the govt. has to spend a lot on public goods
4- Govt. of India has initiated many infrastructural schemes which leads in govt.
Expenditure.

CASE BASED QUESTIONS

CASE-1:-
Read the case, and answer the questions based on the case study given below
respectively.

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 Revenue receipts seek advice from the ones receipts which neither create any legal
responsibility nor purpose any discount inside the belongings of the authorities. They
are ordinary and ordinary in nature and authorities gets them in its ordinary path of
sports. A receipt is a sales receipt, if it satisfies the subsequent crucial situations.
The receipt should now no longer create a legal responsibility for the authorities. For
example, taxes levied via way of means of the authorities are sales receipts as they do
now no longer create any legal responsibility. However, any quantity, borrowed via
way of means of the authorities, isn’t a sales receipt because it reasons a growth
within the legal responsibility in phrases of reimbursement of borrowings. The receipt
should now no longer purpose lowers inside the belongings. For example, receipts
from sale of stocks of a public Enterprise isn’t a sales receipt because it ends in a
discount in belongings of the authorities. Revenue receipts of the authorities are
usually categorized beneath neath heads: Tax sales and non-tax sales Tax sales refers
to sum general of receipts from taxes and different responsibilities imposed via way
of means of the authorities. Tax is a unilateral obligatory price made via way of
means of human beings and groups to the authorities without connection with any
direct advantage in return. Tax sales may be similarly categorized as: Direct taxes and
Indirect taxes.

1.Receipts from sale of stocks of a public Enterprise isn’t a ______ because it ends in
a discount in belongings of the authorities.
Ans:- Sales receipt
2.Taxes levied via way of means of the authorities are sales receipts as they do create
a legal responsibility.(True/False)
Ans:- Fales
3.Explain Revenue receipt.
Ans:- Revenue receipts are received from the sales of goods, use of any business
resources yielding any interest, and dividend.
4:- What is tax.
Ans:- Tax is a unilateral obligatory price made via way of means of human beings and
groups to the authorities without connection with any direct advantage in return. Tax
sales may be similarly categorised as: Direct taxes and Indirect taxes
5:- How the Government can impact allocation of assets?
Ans:- Government can impact allocation of assets via:

Tax concession or subsidies: To inspire investment, authorities can deliver tax

concession, subsidies, etc. to the producers. For example, authorities discourage the
manufacturing of dangerous intake items via heavy taxes and encourages the usage of
khadi merchandise via way of means of imparting subsidies.

CASE-2:-
Read the following hypothetical text and answer the given questions: -

GDP growth is the central objective of government budgetary policy. It is achieved in

two ways: (i) by making public investment expenditure, and (ii) by inducing private
investment expenditure (through tax rebates and subsidies).Allocation of Resources:
Private enterprises will always desire to allocate resources to those areas of
production where profits are high. However, it is possible that such areas of
production (like production of alcohol) may not promote social welfare. Through its
budgetary policy, the government of a country directs the allocation of resources in a
manner such that there is a balance
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 between the goals of profit maximization and social welfare. Production of goods
which are injurious to health (like Cigarettes and Whisky) is discouraged through
heavy taxation. On the other hand, production of 'socially useful goods' (like,'Khadi')
is encouraged through subsidies

(A)Public enterprises will always desire to allocate resources to those areas of

production, where: -
a. Profits are high
b. Cost is low
c. Social welfare is high
d. Revenue is high
Ans:- (c)
(B). GDP growth is the central objective of government budgetary policy.
a. True b. False
Ans:- (a)
(C)In country like India, which sector is to be emphasized ?
(a) Private (b) Public (c) Both (d) None
Ans:- (c)

CASE-3:-
Read the following article and answer the questions given below :
India has scaled back expenditure, including on productive assets that aid economic growth, as the
government is confronted with the risk of its budget deficit blowing out. Capital expenditure - the
money spent on creating, maintaining, or improving fixed assets like roads and factories - stood at
40% of the budgeted amount in the six months to September, down from 55.5% in the year-ago
period, data from the government's Controller General of Accounts show. The overall spending
during the period was 49% of the budget aim compared to 53% last year. That's despite Prime
Minister Narendra Modi's government outlining measures worth more than 21 trillion rupees ($281
billion) to counter the economic and social fallout of the Covid-19 outbreak. A closer look at the
numbers shows the bulk of the spending was directed toward the poor and the farmers, with
allocation. Spending on capital assets has so far trailed the so-called revenue expenditure that
includes interest payments and overheads such as salaries, the data released last week showed.
Modi's government placed spending curbs on some ministries from April through December to
manage Its cash flow .

(Source : Business Standard, Nov. 5, 2020 )

1. A reduction in capital expenditure ie., the money spent on creating, maintaining or

improving fixed assets is done to reduce the risk of.... ................ deficit (revenue/budget).
(Choose the correct alternative)
Ans. budget
2. Allocation of resources in the budget in the six months to September 2020 is directed
towards............... . (Choose the correct alternative)
(a) economic upliftment of the economy
(b) social upliftment of the economy
(c) the poor and the farmers
(d) all of these
Ans. all of these
3. Capital expenditure refers to the estimated expenditure of the government in a fiscal year
which .... .......(reduces/increases) liabilities of the government. (Choose the correct
alternative)
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Ans. Reduces
4. Identify which of the following statements is false : (Choose the correct alternative)
(a) The government can finance its budgetary deficit through borrowings, disinvestment and
deficit financing.
(b) Fiscal deficit equals borrowings
(c) Recovery of loans is a revenue receipt
(d) Interest on loans is a non-tax revenue receipt
Ans. Recovery of loans is a revenue receipt

CASE-4:-
Read the following news report and answer questions (i) - (iv) on the basis of the same
Economic costs of COVID-19 are going to be high and widely spread. Even if the world
economy is lucky to see a recovery in the second half of the year, the IMF estimates that
pandemic will shrink world output by at least 3%. To mitigate the economic costs of the
disease rich countries have rolled out huge fiscal and monetary packages. On average the
developed economies are looking at fiscal deficits upward of 11% of their gross domestic
products (GDP) for this, they are also allocating separate funds in their budgets.
In India, a timely executed lockdown has helped in flattening of the COVID curve,
saving many lives. The process, however, has put brakes on the economic engine. Rating
agencies Fitch and Moody's have slashed growth forecasts for FY 21 to 0.8%, to 0.2%,
respectively. To revive, the economy needs a raft of fiscal and monetary measures.
-The Economic Times; May 6th, 2020
(i) Primary deficit in a government budget will be zero, when
(a) Revenue deficit is zero
(b) Fiscal deficit is zero
(c) Net interest payments are zero

(d) Fiscal deficit is equal to interest payment

Ans. (d) Fiscal deficit is equal to interest payment

(ii) A budget shows ………………. policy of the government.

Ans. fiscal
(iii) A large fiscal deficit implies ……………….

(a) Very small amount of savings (b) Small amount of borrowings

(c) Large amount of borrowings (d) No borrowings

Ans. (c) large amount of borrowings

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(iv)…………….. Deficit refers to the excess of total revenue expenditure over to revenue
receipts.

Ans. Revenue

CASE-5:-
Read the following news report and answer questions (i) - (iv) on the basis of the same
Fiscal deficit targets sometimes lead to vicious cycles. As an economy slows, so do
tax collections, and if the government slows down its spending to meet the deficit targets, it
exacerbates weak growth - one of the risks flagged in this column last year ('Seize the
slowdown', i.e., August 30, 2019). This risk has moderated with the government budgeting an
increase in the expenditure to GDP ratio for both the current and the next fiscal years. The
cuts to expenditure this year in the revised estimate versus what was budgeted are mostly due
to the food subsidy being pushed off-budget, a reduction in interest payments (partly as short-
term interest rates did fall during the year), and the known shortfalls in PM-Kisan (the
number of farmers registering for it so far has been much lower than what was earlier
anticipated). However, there are two important fiscal risks still. The first comes from fiscal
pressures felt by state governments and the second relates to the non-tax receipts that will
fund expenditure growth in 2021, providing a counter-cyclical buffer.
-The Indian Express; October 19th, 2020
(i) When liability to pay a tax and the burden of that tax lies on the same person, it is known
as …………. tax.

Ans. direct
(ii) Borrowings in a government budget is …………………
(a) Revenue deficit (b) Fiscal deficit (c) Primary deficit (d) Deficit in taxes

Ans. (b) Fiscal deficit

Balance of payment and Foreign exchange

market
Questions for High Achievers
Q1. Assertion (A): Repayment of international loans is a component of foreign exchange
demand.
Reason (R): Fixed Exchange Rate System refers to the system in which the rate of exchange
is determined by govt.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is false

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d) Assertion (A) is false but Reason (R) is true

Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)

Q2. Assertion (A) : Equilibrium exchange rate is determined by the demand for and supply of
foreign exchange in the market.

Reason (R) : At equilibrium, demand for foreign exchange is equal to supply of foreign
exchange.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)

c) Assertion (A) is true but Reason (R) is false

d) Assertion (A) is false but Reason (R) is true
Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)

Q3. Assertion (A) : Rise in the value of domestic currency in terms of foreign currency in the
market is called appreciation of domestic currency.
Reason (R) : When there is appreciation of domestic currency, export of domestic country
increases.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is false
d) Assertion (A) is false but Reason (R) is true

Ans. (c) Assertion (A) is true but Reason (R) is false

Q4. Assertion (A) Spot market is of daily nature.

Reason (R) : In spot market future transactions are carried out.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)

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b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is false

d) Assertion (A) is false but Reason (R) is true

Ans. (c) Assertion (A) is true but Reason (R) is false

Q5. Assertion(A): Fixed Exchange rate system involves active involvement of central bank
/government of the respective countries.
Reason (R): In fixed exchange rate system, once the exchange rate is decided it is usually
kept as fixed in order to maintain the stability in economic transactions
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is false
d) Assertion (A) is false but Reason (R) is true
Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)

Q6. Assertion(A): Foreign exchange management and control is undertaken by commercial

banks.
Reason (B): RBI has to maintain the official rate of exchange of rupee to ensure its stability.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is false
d) Assertion (A) is false but Reason (R) is true
Ans. (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

Q7. Assertion: Accommodating items refers to the transactions that are undertaken to cover
the Gap in the balance of payments.
Reason: These items are also known as ‘Above the line items’
Both assertion and reason are true and reason is correct explanation of assertion.

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Both assertion and reason are true and reason is not correct explanation of assertion.
Assertion is true but reason is false.
Assertion is false but reason is true.
Ans :- c
Q8. Assertion (A):Autonomous transaction are independent of the state of BOP

Reason (R):Autonomous items are also known as above the line item
a . Both assertion (A) and reason ( R) are true and reason ( R) is the correct
explanation of assertion (A).
b Both assertion (A) and reason ( R) are true and reason ( R) is not the correct
explanation of assertion (A).
c Assertion (A) is true but reason (R ) is false

d Assertion (A) is false but reason (R ) is true

Ans( b)

Q9. Assertion: Accommodating transactions are Non-Compensating capital transactions.

Reason: Accommodating transactions are meant to correct the disequilibrium in autonomous
items of BOP.
a. Both assertion and reason are true and reason is correct explanation of assertion.
b. Both assertion and reason are true and reason is not correct explanation of assertion.
c. Assertion is true but reason is false.
d. Assertion is false but reason is true.
Ans :- d

Q10. Assertion (A):Trade of invisible items between two nations is a part of capital account
of balance of payment.
Reason (R):Transactions that affect the asset-liability status of a country in relation to the
rest of world are known as capital account transaction.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true.

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Ans: (d)
Q11. Read the following statements - Assertion (A) and Reason (R). Choose one of the
correct alternatives given below:

Assertion (A): India became an exporter of primary products and an importer of finished
consumer and capital goods produced in Britain.
Reason (R): Restrictive policies of commodity production, trade and tariff pursued by the
colonial government adversely affected the structure, composition and volume of India’s
foreign trade.
Alternatives:

a. Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the
correct explanation of Assertion (A)
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason (R) is true.

Answer - Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)

STATEMENT BASED QUESTIONS./MCQs

Q1. Statement 1: If there is a current account deficit in BOP, then this deficit is settled by
borrowings from IMF or foreign monetary authorities.
Statement 2: Any deficit & surplus created through autonomous transactions is corrected by
the corresponding surplus or deficit in accommodating transaction by Government.
a. Both statements are true.
b. Both statements are false.
c. Statement 1 is true and statement 2 is false.
d. Statement 2 is true and statement 1 is false.
Ans :- c

Q-2-Statement 1:Capital account transactions are not recorded in balance of trade.

Statement 2:Balance of trade is also known as ‘trade balance’.
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a.Both the statement are true.
b.Both the statement are false.
c.Statement 1 is true and statement 2 is false.
d.Statement 2 is true and statement 1 is false.
Ans: (a)

Q-3- Statement 1:Capital account has direct effect on income, output and employment of the
country.
Statement 2:Capital account is used to finance deficit in current account or absorb surplus of
current account.
a. Both the statement are true.
b. Both the statement are false.
c. Statement 1 is true and statement 2 is false.
d. Statement 2 is true and statement 1 is false.

Ans: (d)
Q-4- which of the following is correct
i. Trade Balance or Merchandise Balance = Export - Imports
ii. Goods and Services Balance = Trade Balance + Balance on account of non-factor services
iii. Invisible Balance = Balance on account of non-factor services+ balance on Income +
balance on current transfers
iv. Current Account Balance = Trade Balance+ Invisible Balance
(a)-only i
(b)- ii and iv
© ii and iii
(d) i ,ii,iii,and iv

Answer:- d
Q-5- The measurement of Balance of Payments deficit is based on: -
(a) Autonomous transaction
(b) Accommodating transaction
© Capital account transaction
(d)Current account transaction

Ans A
Q6. The teacher was discussing in the class with students “Foreign exchange
transactions which are independent of other transactions in the balance of payment account.”

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Identify the above statement about which type of foreign exchange transactions the teacher is
talking about?
Current transactions

Capital transactions
Autonomous transactions
Accommodating transaction
Ans C
Q7. Statement 1: Acomodating transaction takes place on both current and capital account
Statement 2: Autonomous transaction are undertaken to maintain the balance in BOP
a .Both the statements are true.
b. Both the statements are false
c. statement 1 is true and statement 2 is false
d. statement 2 is true and statement 1 is false

Ans (b)
Q-8- An Indian real estate company receives rent from Google in New York. This
transaction would be recorded on………………..side of
……………..account. (Fill up the blanks with correct alternative)
a. credit, current c. debit, capital
b. credit, capital d. debit, current
Answer :- a. credit, current

Q-9- Statement 1: Decrease in demand for foreign currency leads to a fall in exchange rate.
Statement 2: Decrease in demand for foreign currency causes depreciations of the
domestic currency.
a. Statement 1 is true and Statement 2 is false.
b. Statement 1 is false and Statement 2 is true.
c. Both Statements 1 and 2 are true.

d. Both Statements 1 and 2 are false

Ans. (a) Statement 1 is true and Statement 2 is false.
Q10. Statement 1 : Par rate of exchange occurs when supply of foreign exchange is equal to
demand for foreign exchange.
Statement 2: Other things remaining constant, increase in demand for foreign exchange leads
to a rise in exchange rate.
a. Statement 1 is true and Statement 2 is false.
b. Statement 1 is false and Statement 2 is true.
c. Both Statements 1 and 2 are true.
d. Both Statements 1 and 2 are false

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Ans. (c )Both Statements 1 and 2 are true.
Q11. Statement 1: If US $ exchanges for ₹70, instead of ₹ 60 earlier, the domestic currency
(Indian rupee) shows depreciation.
Statement 2: Depreciation of domestic currency encourages imports.
a. Statement 1 is true and Statement 2 is false.
b. Statement 1 is false and Statement 2 is true.
c. Both Statements 1 and 2 are true.
d. Both Statements 1 and 2 are false

Ans. (a)Statement 1 is true and Statement 2 is false.

Q12. Statement 1: Under appreciation of domestic currency, less rupees are needed to buy
one US dollar.
Statement 2 :Appreciation of domestic currency is a situation of fall in exchange rate.
a. Statement 1 is true and Statement 2 is false.
b. Statement 1 is false and Statement 2 is true.
c. Both Statements 1 and 2 are true.
d. Both Statements 1 and 2 are false

Ans. (c)Both Statements 1 and 2 are true.

Q13. Statement 1: Under revaluation, value of the domestic currency (Indian rupee) is
deliberately raised by the government.
Statement 2: Devaluation of currency is the same as depreciation of currency.
a. Statement 1 is true and Statement 2 is false.
b. Statement 1 is false and Statement 2 is true.
c. Both Statements 1 and 2 are true.
d. Both Statements 1 and 2 are false

Ans. (a)Statement 1 is true and Statement 2 is false.

Q14. Statement 1: Exchange rate is said to be fixed when it is set and maintained by market
forces demand and supply.
Statement 2: Changes in the flexible rate of exchange are planned and introduced by the
government.
a. Statement 1 is true and Statement 2 is false.
b. Statement 1 is false and Statement 2 is true.
c. Both Statements 1 and 2 are true.
d. Both Statements 1 and 2 are false

Ans. (d)Both Statements 1 and 2 are false.

CASE BASED QUESTIONS

Q1. On the basis of below statement, answer the following questions.

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Capital Account records all international transactions of assets. An asset is any one of the
forms in which wealth can be held, for example: money, stocks, bonds, Government debt, etc.
Purchase of assets is a debit item on the capital account. If an Indian buys a UK Car
Company, it enters capital account transactions as a debit item (as foreign exchange is
flowing out of India). On the other hand, sale of assets like sale of share of an Indian
company to a Chinese customer is a credit item on the capital account.
i)What are the main two components of current account of BOP.

ii) ‘Capital account transactions lead to future claims’. Defend or refute the given statement
with valid arguments.
Ans: i)Investments and borrowings
ii)The given statement is defended. Capital account records all international transactions
of assets, where assets are different forms of wealth holding instruments. For example:
money, bonds, stocks, Government debts, external borrowings etc. All these instruments
create future claims, one way or another. Thus, we may say that capital account transactions
give rise to future claims.

Q-2- India’s balance of payments position improved dramatically in 2013-14 particularly in

the last three quarters. this moved in large part to measure taken by the government and the
Reserve Bank of India (RBI) and eat some part to the overall macro-economic slowdown that
fed into the external sector. current account deficit (CAD) declined sharply from a record
high of U.S. dollar 88.2 billion (4.7% of GDP) in 2012 -1/3 to U.S. dollars 32.4 billion (1.7%
of GDP) in 2013 -14. After staying at perilously unsustainable levels off well over 4.0
percentage of GDP in 2011 -12 and 2012 -13, the improvement in BOP position is a welcome
relief, and there is need to sustain the position going forward. This is because even as CAD
came down, net capital flows moderated sharply from U.S. dollars 92.0 billion in 2012 -13 do
U.S. dollar 47.9 billion in 2013-14, that two after a special swap window of The RBI under
the non resident Indian (NRI) scheme / overseas borrowings of banks alone yielded U.S.
dollar 3 4.0 billion. This led to some increase in the level of external debt, but it has remained
at the manageable levels. the large depreciation of the rupee during the course of the year,
note with standing sizable accretion to reserve in 2013 – 14, could partly be attributed to
frictional forces and partly to the role of expectations in the forex market. the rupiah has
stabilized the recently, reflecting an overall sense of confidence in the forex market as in the
other financial markets of a change for better economic

prospects there is a need to nurture and build upon this optimism through creation of an
enabling environment for investment inflows so as to sustain the external position in an as yet
uncertain global milieu. --------- The Hindu, archives

1 External debt is recorded at:

a) credit, capital account
b) debit, capital account
c) credit, current account
d) debit, current account

2 Money sent by NRI to their families in India included in:

a) credit, capital account

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b) debit, capital account
c) credit, current account
d) debit, current account

3 Which of the following is not a component of BOP?

a) current account

b) revenue account
c) capital account
d) official reserves

4 Positive balance of net capital flow shows:

a) outward flow of foreign exchange
b) inward flow of foreign exchange

c) decrease in the level of external debt

d) decrease in future claims
Answers: 1.b ,2. c ,3. b, 4. d
Q-3- Read the following paragraph and answer the questions given below on the basis of the
same :
This is considered as one of the most important reasons for the falling value of the Indian
Rupee. A trade deficit happens when a country imports more than it exports. As per the latest
reports, India's trade deficit has hit S14.S8 billion
since November 2014. The major imports include gold, crude oil etc. The Introduction of
GST and demonetization also accounts for the depreciation of Indian rupee by disrupting the
domestic supply chains which is derived from the increasing domestic demands. The US has
the trade deficit of ST trillion than any other country. But the yare exporting as much as they
import. But being a county, which imports more than it exports, India loses the value of its
currency (Rupee) as it uses a foreign currency for trade.

i. Depreciation of Indian Rupee implies that __________________

a)Rupee depreciates in relation to a foreign currency.
b)we need more rupees to buy a dollar.
c)Rupee gains its value in relation to a foreign currency.
d) both (a)and (b)
Ans. (d)

ii. An increase in demand for foreign currency leads to ______________

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a) increase in exchange rate and appreciation of the domestic currency
b)fall in exchange rate and appreciation of the domestic currency
c)rise in exchange rate and depreciation of the domestic currency
d)fall in exchange rate and depreciation of the domestic currency
Ans. (c)

iii. In case of steep fall in the value of rupee, the _________may sell
foreign exchange and buy back rupee from the foreign exchange market.
(a) Reserve Bank of India.
(b) Commercial Banks
(c)Ministry of Finance
(d) Ministry of Commerce

Ans. (a)

iv. In case of _______of domestic currency, less rupees are needed to buy one U.S. dollar.
a) depreciation
b) appreciation
c)devaluation

d) all of these
Ans. (b)

Q-4- Read the following information carefully and answer the following:
MUMBAI: The Indian rupee opened on a flat note and slipped 5 paise to 73.05against the US
dollar NSE 1.38 % in opening trade on Wednesday. However, strong macroeconomic data
and a rally in the domestic equity market restricted the rupee's fall, forex dealers said. At the
interbank foreign exchange, the rupee opened at 73.05 against the dollar ,registering a fall of
5 paise from the last close .In the previous session, the rupee had settled at73.00 against the
US dollar. Mean while, India's economic growth surged by a record 20.1 percent in the April-
June quarter of this fiscal, helped by a low base of the year-ago period, despite a devastating
second wave of COVID-19.Foreign institutional investors were net buyers in the capital
market on Tuesday as they purchased shares worth Rs 3,881.16 crore, as per exchange data.
On the domestic equity market front, the 30-share index was trading234.34 points or 0.41 per
cent up at a record high of 57,786.73. Similarly, the broader NSE Nifty which had surged to
its lifetime high of 7,194.35, was later trading 31.55 points or 0.18per cent up at
17,163.75.Meanwhile, the dollar index, which gauges the greenback's strength against a
basket of six currencies, rose 0.12 per cent at 92.73.
--------- The Economic Times, September 01, 2021----

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i. Indian rupee opened on a flat note and slipped 5 paise to 73.05 against the US dollar
,implies that ________________________.
(a) Rupee dollar exchange rate has slipped

(b) Rupee dollar exchange rate has increased

(c) Dollar rupee exchange rate has increased
(d) All of the above
Ans. (a) Rupee dollar exchange rate has slipped

ii. Why the foreign Institutional investors purchase more shares of Indian companies?

(a) Because rupee cost of Indian shares became cheaper

(b) Because rupee cost of Indian shares became dearer
(c) Because dollar cost of Indian shares became cheaper
(d) Because dollar cost of Indian shares became dearer
Ans. (c) Because dollar cost of Indian shares became cheaper

iii. The above situation indicates that ________________

(a) There is devaluation of Indian Rupee
(b) There is revaluation of Indian Rupee
(c) There is depreciation of Indian Rupee
(d) There is appreciation of Indian Rupee
Ans. (c) There is depreciation of Indian Rupee

iv. As the Foreign exchange rate has been rose from $1 = Rs.73.00 to $1:Rs.73.05 , it will
__________________.
(a) Boost India’s import
(b) Boost India’s export

(c) No effect on India’s import and export

(d) All of the above
Ans. (a) Boost India’s import

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Q-5- Read the following paragraph and answer the questions given below on the basis of the
same

Each nation has its own currency when monetary transactions are conducted within
The national borders, payments are made in the currency of that country for example
Indian currency is called rupee. To be more exact it is called Indian rupee payments
within the national borders of India are made in Indian rupees. Similarly, each other
nation has its own currency for example Pakistan currency is called Pakistani rupee USA
currency US dollar Kuwait currency Kuwaiti Dinar UAE currency dirham and so on
payments within the nation borders of Pakistan are made in Pakistani rupees
payment within the national border of USA is USA dollars, etc.When transactions are
conducted across National borders one currency must be converted into another. Conversion
rate between two currencies is decided by two ways first fixed exchange rate second floating
or flexible exchange rate.

i. .Exchange rate refers to the rate at which the followings exchanged:

(a) Goods

(b) Currencies
(c)Services
(d)All the above
Ans. (b)

ii.Who fixed the flexible exchange rate ?

(a) Market force

(b)Government
(c) Both a and b
(d) None of these
Ans. (a)

iii. ______________refers to a system in which exchange rate for a currency is fixed by the
government.
(a) Fixed exchange rate
(b) flexible exchanged rate

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(c ) floating exchange rate
(d ) none of the above
Ans. (a)

iv. When the value of domestic currency is deliberately reduced by the government ,it is
called ________________________
(a) depreciation
(b) appreciation
(c) revaluation

(d) devaluation
Ans. (d)

Q-6- Read the following case study carefully and answer the questions :
It is well known the restrictions between fixed and flexible exchange rates often involves the
question of exchange restrictions because countries are limited in their ability to maintain free
international transactions, fixed exchange rates and monetary independence at the same time.
In recent history, the fixed exchange rate system has often been accompanied by exchange
rate restrictions of one type or another, indicating the desire of many countries to maintain
monetary independence or possibly to maintain inappropriate levels of exchange rates, given
some policy objectives. Until recently, for example, some countries participating in the
European Monetary System maintained controls on capital transactions. In addition to
restrictions on capital transactions, many countries under fixed exchange rates have used, and
some continue to use, exchange restrictions on current transactions.
-IMF Working Paper,1997
i. Enlist some features of fixed exchange rate.
Ans. Some features of fixed exchange rate are as follows:

(a) Fixed exchange rate is determined by the government.

(b) Changes in the fixed rate of exchange are planned and introduced by the government, or
the Central Bank of the country (RBI in India).
(c) As set and maintained by the government, the fixed rate of exchange leads to devaluation
and revaluation

ii. Enlist some features of flexible exchange rate.

Ans. Some features of flexible exchange rate are as follows:

(a) Flexible exchange rate is determined by the forces of supply and demand in the
international money market.

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(b) Changes in the flexible rate of exchange are linked to changes in the market forces of
supply and demand.
(c) As determined by the forces of supply and demand, flexible rate of exchange leads to
depreciation of the domestic currency, and appreciation of the domestic currency.

HOTS QUESTIONS

Q1. Classify whether the following transactions will be recorded in current account or capital
account.
i)Purchase of shares of Reliance by Microsoft.
ii)Imports of computer spare parts from Germany.
Ans: (i)
Q2. Distinguish between Current Account Deficit and Current Account Surplus.

Current Account Deficit (CAD) arises when debit items are more than credit items ,i.e. when
foreign exchange receipts in the current account fall short of foreign exchange payments, it
leads to current account deficit. It indicates net outflow of foreign exchange CAD signifies
that the nation is a borrower from rest of the world.
Current Account Surplus (CAS) arises when credit items are more than debit items. It
indicates net inflow of foreign exchange. CAS signifies that the nation is a lender to the rest
of the world
Q3. Distinguish between trade deficit and current account deficit.
Trade Deficit: It refers to the excess of the payments for imports of visible items over the
value of receipts of exports of visible items
Current Account Deficit (CAD) arises when debit items are more than credit items ,i.e. when
foreign exchange receipts in the current account fall short of foreign exchange payments, it
leads to current account deficit. It indicates net outflow of foreign exchange CAD signifies
that the nation is a borrower from rest of the world.
Q4. Define 'Trade surplus' .How is it different from 'Current Account Surplus' ?
Trade Surplus: It refers to the excess of the receipts of exports of visible items over the value
of payments for imports of visible items.

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Current Account Surplus (CAS) arises when credit items are more than debit items. It
indicates net inflow of foreign exchange. CAS signifies that the nation is a lender to the rest
of the world.
Q5. Distinguish between autonomous transactions and accommodating transactions of
balance

of payments account.

Autonomous Transactions Accommodating Transactions

1. These transactions take place for These transactions take place for
profit purpose Managing BoP equilibrium.
2 These transactions are responsible for 2These transactions are responsible for
deficit or surplus in BOP correction deficit or surplus in BOP
3These involve movement of goods across 3These do not involve movement of goods
the countries across the countries
4Above the line items 4Below the line items

Q6. Give the meanings of 'autonomous' transactions and in the balance of payments
accounts.
Ans: Autonomous transactions are those transactions which take place with the purpose
of profit. They have no meaning with equilibrium of BoP. They are also called ‘above the
line items’. All the transactions of ‘Current account and Capital account’ are Autonomous
transactions.

Q-7- Recently Government of India has doubled the import duty on gold. What impact is
itlikely to have on foreign exchange rates and how?
Ans. When the government increases the import duty of gold, the import of gold will fall
.This reduces the demand for foreign currency. With the supply of foreign currency
remaining the same, the foreign exchange rate would fall. This implies an appreciation of
rupees.

Q-8. “Foreign Institutional Investors (FIIs) remained net seller in the Indian capital markets
over the last few weeks". -The Economic Times. State and discuss the likely effects of the
given statement on foreign exchange rate with reference to the Indian Economy.
Ans. Selling of securities by Foreign Institutional Investors (FIIs) in the Indian capital
markets will lead to fall in the supply of foreign currency in the economy.
* It is a supply shock that causes a backward shift of supply curve of foreign exchange for the
Indian economy.
* Consequently, equilibrium exchange rate will rise. More rupees are to be paid for buying a
unit of foreign currency, leading to depreciation of domestic currency.
Q-9-Explain the relation between the fall in price of a foreign currency and its demand. Give
two examples.

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 Ans. Fall in the price of a foreign currency is a situation when less Indian rupees are needed
to buy unit of foreign currency. It leads to a rise in demand for foreign goods and services.
Accordingly, demand for foreign currency tends to rise.
Two examples of a rise in demand for foreign goods and services (leading to a rise in demand
for foreign currency) are as these:
(1) When the price of a foreign currency falls, it becomes cheaper to go abroad for higher
education. Number of students going abroad will rise, leading to a rise in demand for
foreign currency.
(2) When the price of foreign currency falls it becomes cheaper to go abroad for medical
treatment. Number of patients going abroad for medical treatment will rise, leading to
rise in demand for foreign currency.
Q10. Many large Multinational Corporations (MNCs) have recently shifted their investments
from China and have started their production in India, thereby boosting the Make in India
plans of the Government. Presuming other factors being constant, discuss the effects of the
given statement on foreign exchange rates with reference to the Indian Economy.
Ans.* Investments by large multinational corporations (MNCs) in India will ensure greater
inflow of foreign exchange in the economy, leading to an increase in the supply of foreign
currency.
* It is a supply shock that causes a forward shift of supply curve of foreign exchange for the
Indian economy.
* Consequently, exchange rate will fall. Less rupees are to be paid for buying a unit of
foreign currency, leading to appreciation of domestic currency.

Q11. "India is taking huge leaps in the index of Ease of Doing Business, as a result many
MNCs are shifting their production base to India." In the light of the above statement,
comment upon the flow of foreign exchange and its likely impact on the Indian economy.
Ans: It is true that as a result of huge leaps in the index of Ease of Doing Business, many
MNCs are shifting their production base to India. As a consequence of it, FDI has risen
manifold in the domestic economy. Rise in FDI implies the influx of foreign exchange in the
domestic economy. Influx of foreign exchange has tended to impact the Indian economy in
the following ways.
a) Other things remaining constant, increase in the supply of foreign exchange acts as
supply shock that leads to a forward shift in supply curve of foreign exchange.
Consequently, exchange rate falls.
b) Forex reserves of the RBI tend to rise. It helps RBI to effectively manage the BOP
deficit by way of 'movement of official reserves'
c) High reserves of foreign exchange, owing to its increasing influx in the domestic
economy improves credit rating of the economy in the international money markets.

UNIT- 6 INDIAN ECONOMY (1950-1990 & ECONOMIC REFORM SINCE-1991)

Q-1- Assertion (A): India developed a sound base in industrial development

during the British Rule.
Reason (R): The industrial sector was lacking of modernization, capacity
building and public investment.
i) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.

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j) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
k) Assertion (A) is true but Reason (R) is False.
l) Assertion (A) is false but Reason (R) is true.
ANS: D

Q-2- Assertion (A): India became an exporter of primary articles and an importer
of finished consumer and investment goods from England.
Reason (R): Restrictive policies of production, trade & tariff of the colonial
Govt. adversely affected the structure, composition & volume of foreign trade.
a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.

ANS: A
Q-3-Assertion (A): Railways brought a significant change in the structure of
Indian Economy.
Reason (R): It enabled people to break geographical & cultural barriers and
promoted commercialization of agriculture..
e) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
f) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
g) Assertion (A) is true but Reason (R) is False.
h) Assertion (A) is false but Reason (R) is true.

ANS: A
Q-4-Assertion (A): TISCO was set in 1907 by an Indian entrepreneur Tata.
Reason (R): The British Govt. in principle agreed to purchase Iron & Steel from
Tata.
a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.
ANS: A
Q-5-Assertion (A): Infant mortality rate was too high in the colonial India.
Reason (R): The public health infrastructures were too poor to provide minimum
health & hygiene support to the countrymen.
a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.
ANS: A
Q-6Assertion (A): The British Government established monopoly control over
India’s foreign trade.
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 Reason (R): The opening of Suez canal acted as a regent to increase trade with
the Britishers & other European countries.
a) Both Assertion (A) & Reason (R) are correct and Reason is the correct
explanation of Assertion.
b) Both Assertion(A) & Reason (R) are correct and Reason is not the correct
explanation of Assertion
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is false but Reason (R) is true.

ANS: B
Q-7-ASSERTION (A):The industries became more diversified during 1950-90 as compared
to the Situation at the time of independence.
REASON (R): Excessive government regulation prevented industrial growth during this
period.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b)Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

Q-8- Assertion (A) Many public sector undertakings incurred huge losses due to operational
inefficiencies.
Reason R) Red tapism was one of the reasons for continuation of such enterprises.
Alternatives
(a)Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b)Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct
explanation of Assertion (A)
(c)Assertion (A) is true, but Reason(R) is false
(d)Assertion (A) is false, but Reason (R) is true
Ans. A

Q-9-Read the following statements carefully and choose the correct alternative:
Assertion (A): Just a year after independence, efforts towards land reforms were introduced.
Reason (R) : Ownership of land would give incentives to the tillers to invest in making
improvements.
A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
Ans:- A) Both A and R are true and R is correct explanation of A

Q-10-Read the following statements carefully and choose the correct alternative:
Assertion: Industrial Policy Resolution of 1956 was adopted, in accordance with the goal of
the state controlling the commanding heights of the economy
Reason: System of licenses was used for all the industries after the IPR 1956.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
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(B) Assertion and reason both are true but reason is not the correct explanation of assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
Ans:- (C) Assertion is true, reason is false

Q-11-Read the following statements carefully and choose the correct alternative:
Assertion: Most of the major policy initiative for example land Reform and green
revolution helped India to become self - sufficient in food grain production
Reason: The proportion of people depending on agriculture did not decline as expected
( A) Both assertion and reason are true and reason is the correct explanation of assertion.
(B) both assertion and reason are true but reason is not the correct explanation of assertion.
( C) Assertion is true but reason is false.
(D) The assertion is false but reason is true.
Ans:- (B) both assertion and reason are true but reason is not the correct explanation of
assertion.
Q-12-.Assertion (A): India is emerging as an important outsourcing destination of the world.
Reason (R) : India offers an abundant supply of labour at a low wage rate .
Ans. (a)
2.Assertion (A) : Under NEP, role of RBI shifted from that of facilitator to a regulator.
Reason(R) : Now, market forces decide interest rate structure, volume and the pattern of
investment.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false,
(d) Assertion (A) is false but Reason (R) is true.
Ans. (d)
Q-13-Assertion (A). To overcome economic crisis and accelerate the growth rate of Indian
economy, New Economic Policy was adopted by the government in July 1991 with elements
of Liberalisation, privatisation and Globalisation.
Reason (R). In 1991 India met with an economic crisis relating to its external debt. The
government was not able to make repayments on its borrowings from abroad. Foreign
exchange reserves dropped to levels that were not sufficient for even a fortnight.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false,
(d) Assertion (A) is false but Reason (R) is true.

Ans (a)
Q-14- Assertion (A). Globalisation is an outcome of the set of various policies that are aimed
at transforming the world towards greater interdependence and integration. It involves
creation of networks and activities transcending economic, social and geographical
boundaries.
Reason (R). Globalisation is a strategy of the developed countries to expand their markets in
other countries.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
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 (c) Assertion (A) is true but Reason (R) is false,
(d) Assertion (A) is false but Reason (R) is true.

Ans. (b)

Q-15-Assertion (A). The objective of goods and services tax is to reduce tax evasion and
create one nation, one tax and one market in India.
Reason (R). The Parliament passed a law, goods and services tax act 2016 to simplify and
introduce a unified direct tax system in India.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false,
(d) Assertion (A) is false but Reason (R) is true.

Ans.(c)

Q-16- Assertion (A). In 1991, as an immediate measure to resolve the Balance of Payments
crisis, the rupee was devalued against foreign currencies.
Reason (R). Devaluation of currency was eminent, to replenish the deteriorated foreign
exchange reserves.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false,
(d) Assertion (A) is false but Reason (R) is true.

Ans (a)

STATEMENT BASED QUESTIONS

Q-1-Statement 1-According to the Industrial Policy Resolution, 1956, industries were

classified into three categories on the basis of ownership
Statement 2-The first category consisted of industries which ‘could be established and
developed exclusively as private sector enterprises.
Alternatives:
(a) Both the statement are true
(b) Both the statement are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
Ans-(c) Statement 1 is true and Statement 2 is false

Q-2-Read the following statements carefully and choose the correct alternative:
Statement 1: Indian planners gave more importance to public sector during the period of 1950
– 1990.
Statement 2: Under Industrial Policy Resolution of 1956 , public sector was given leading
role in Industrial development.
Alternatives:
(a) Both the statement are true
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(b) Both the statement are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
Ans. Ans. a) both the statement is true.

Q-3- Read the following statements carefully and choose the correct alternative:
Statement 1: Commercialization of agriculture was coercively introduced by the Britishers.
Statement 2: The aim of commercialization of agriculture was to support the Indian industries
Alternatives:
(a) Both the statement are true
(b) Both the statement are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
Ans-(c) Statement 1 is true and Statement 2 is false

Q-4-Statement-1- Small scale industries are capital intensive.

Statement -2-Samll scale industries are playing very important role in rural development.
a- 1 is true but 2 is false
b-1 and 2 both are true
c-1 and 2 both are incorrect
d-1 is false and 2 is correct
Ans : d

Q-5-Statement-1-In 1955, Karve Committee was established to promotion of Agriculture

with modern technology.
Statement -2-In 1950 a small -scale industrial unit was one which invested a maximum of
rupees five lakh.
a- 1 is true but 2 is false
b-1 and 2 both are true
c-1 and 2 both are incorrect
d-1 is false and 2 is correct
Ans; d

Q-6- Statement 1- Green revolution refers to the large increase in food grain.
Statement -2- USA denied India PL 480 imports.
Alternatives:
(a) Both the statement are true
(b) Both the statement are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
Ans-(A) (a) Both the statement are true

Q-7- .Statement I- The tax reduction in the economic reforms period was aimed at yielding
larger tax revenue and curb tax evasion.
Statement 2- Tax reductions negatively affected the developmental and welfare
expenditure of government.
(a)Both the statements are true.
b) Both the statements are false.
c) Statement - I is true,, statement -II is false.
d) Statement -II is true, statement -I is false.

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Ans . A

Q-8) Statement I: A few liberalisation measures were introduced in 1980s in areas of

industrial licensing, expert- import policy, technology upgradation, fiscal policy and foreign
investment.
Statement II: The industrial sector, financial sector, tax reforms, foreign exchange markets
and trade and investment sectors received greater attention in and after 1991.
(a)Both the statements are true.
b) Both the statements are false.
c) Statement - I is true,, statement -II is false.
d) Statement -II is true, statement -I is false.

Ans. A
Q-9. Statement I: The reform policies led to the establishment of private sector banks, Indian
as well as foreign. Foreign investment limit in banks was raised to around to 90%
Statement II: After the reform policies introduced in and after 1991,in most industries, the
market has been allowed to determine the prices.
(a)Both the statements are true.
b) Both the statements are false.
c) Statement - I is true,, statement -II is false.
d) Statement -II is true, statement -I is false.

Ans. D
Q-10-. Statement-I: In 1991, as an immediate measure to resolve the balance of payments
crisis, the rupee was devalued against foreign currencies.
Statement-II: Quantitative restrictions on imports of manufactured consumer goods and
agricultural products were also fully removed from April 2001.
(a)Both the statements are true.
b) Both the statements are false.
c) Statement - I is true,, statement -II is false.
d) Statement -II is true, statement -I is false.

Ans. A
Q-11- Statement 1: Economic Reforms of 1991 paved the way for the liberalisation of Indian
Economy.
Statement 2: Economic Reforms of 1991 relaxed the restrictions imposed by the government
on private sector.
(a)Both the statements are true.
b) Both the statements are false.
c) Statement - I is true,, statement -II is false.
d) Statement -II is true, statement -I is false.

Ans. C
Q-12- Statement 1: World Trade Organisation (WTO) was established in 1995, as a successor
organisation to General Agreement on Trade and Tariff (GATT).

Statement 2: GATT was established in 1923 with 48 member countries.

(a)Both the statements are true.
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b) Both the statements are false.
c) Statement - I is true,, statement -II is false.
d) Statement -II is true, statement -I is false.

Ans. C

CASE BASED STUDY

CASE-1;-

In 1955, the Village and Small-Scale Industries Committee, also called the Karve
Committee, noted the possibility of using small-scale industries for promoting rural
development. It is believed that small-scale industries are more ‘labour intensive’ i.e., they
use more labour than the large-scale industries and, therefore, generate more employment.
But these industries cannot compete with the big industrial firms; it is obvious that
development of small- scale industry requires them to be shielded from the large firms. For
this purpose, the production
of a number of products was reserved for the small-scale industry; the criterion of reservation
being the ability of these units to manufacture the goods. They were also given concessions
such as lower excise duty and bank loans at lower interest rates.
Answer the following questions based on the above text.
1-Name the committee which was set up for the development of small scale industries in
India?
Ans: Karve Committee

2-Why are small scale industries more important for India?

Ans: i-small-scale industries are more ‘labour intensive’ can create more employment.
ii-rural development is possible by small scale industries.

3- ‘Small-scale industry requires them to be shielded from the large firms.’ What does it
mean?
Ans: Subsidies or protection from big firms.

Case-2:-
In accordance with the goal of the state controlling the commanding heights of the economy,
the Industrial Policy Resolution of 1956 was adopted. This resolution formed the basis of the
Second Five Year Plan, the plan which tried to build the basis for a socialist pattern of society
.This resolution classified industries into three categories. The first category comprised
industries which would be exclusively owned by the government; the second category
consisted of industries in which the private sector could supplement the efforts of the public
sector, with the government taking the sole responsibility for starting new units; the third
category consisted of the remaining industries which were to be in the private sector.

Answer the following questions :

i- IPR 1956 was formed during second five year plan, what was the period of second five
year plan ?
a-1951-56 b- 1956-61
c-1969-74 d-1956-74
Ans: b
ii-. How many types Industries were classified in IPR 1956?
(a) 2 (b) 3
(c) 5 (d) 6
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Ans: b
iii- Public sector industries were given importance which is operated by -----------
a-The Govt. b-Private
c-Both a & b d-Neither a nor b
Ans: a
iv-For first category of industries there was reservation of ---------------(Public sector/Private)
Ans: Public sector

CASE-3-
New Economic Policy of India was launched in the year 1991 under the leadership of
P.Narasimha Rao. This policy opened the door of the India Economy for the global exposure
for the first time. In this New Economic Policy P. V. Narasimha Rao government reduced the
import duties, opened reserved sector for the private players, devalued the Indian currency to
increase the export. This is also known as the LPG Model of growth. New Economic Policy
refers to economic liberalization or relaxation in the import tariffs, deregulation of markets or
opening the markets for private and foreign players, and reduction of taxes to expand the
economic wings of the country. Former Prime Minister Manmohan Singh is considered to be
the father of New Economic Policy (NEP) of India. Manmohan Singh introduced the NEP on
July 24,1991. Main Objectives of New Economic Policy – 1991, July 24 The main objectives
behind the launching of the New Economic policy (NEP) in 1991 by the union Finance
Minister Dr. Manmohan Singh are stated as follows:
The main objective was to plunge Indian Economy in to the arena of ‘Globalization and to
give it a new thrust on market orientation. The NEP intended to bring down the rate of
inflation.
On the basis of above case study answer the following questions -
1.New Economic Policy of India was launched in the year 1991 under the leadership of
.................. (choose the correct alternative))
a] P. V. Narasimha Rao
b]Atal Bihari Bajpayi
c] Sharad Pawar
d] None of these
Answer: A
2 .................................. is also known as the LPG Model of growth. ((choose the correct
alternative)) (New Economic Policy / New Education Policy)
Answer: New Economic Policy
3 State whether the given statement is true or false:
Former Prime Minister Manmohan Singh is considered to be the father of New Economic
Policy (NEP) of India. ((choose the correct alternative: True / False)
Answer: True

CASE-4-
Privatisation implies shedding of the ownership or management of a government owned
enterprise. Government companies are converted into private companies in two ways (i) by
withdrawal of the government from ownership and management of public sector companies
and or (ii) by outright sale of public sector companies. Privatisation of the public sector
enterprises by selling off part of the equity of PSEs to the public is known as disinvestment.
The purpose of the sale, according to the government, was mainly to improve financial
discipline and facilitate modernisation. It was also envisaged that private capital and
managerial capabilities could be effectively utilised to improve the performance of the PSUs.
On the basis of above case study answer the following questions
1. Define disinvestment .
Ans Selling off part of the equity of govt. sector to the private sectors.
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 2.-------------- the full form of PSUs.
Ans- Public sector undertakings.
3. Give one merit of Privatisation
Ans- To improve financial discipline and facilitate modernisation. and any other point

IMAGE BASED QUESTIONS

38. Read the picture below and answer the following questions :

(a) Identify the agricultural technology mentioned here.

(b) Write two positive & two negative impacts of Green Revolution on farmers
(c) What is marketable surplus ?
Ans. (a) New Agricultural Strategy / HYV technology

(b) Positive impacts : Increase in agricultural production & productivity ,

Increase in income. Negative Impacts : Increase in disparity between small & big
farmers, Risk of pest attack as HYV crops were more prone to attack by pests.
(c) Marketable surplus refers to that part of agricultural which is sold in the
market by the farmers after fulfilling their own consumption requirements.

39. Read the table : (a) draw a pie-chart to show the sectoral contribution to GDP
And (b) write two points on the usefulness of public sector in industrial development.

Ans. (a) Drawing pie – chart on the basis of the table given
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 (b) Usefulness of Public Sector in industrial development :
(i) It can create a strong industrial base
(ii) It can prevent concentration of economic power

Question-1 What does the picture indicate? Explain relevant things what does it say?

Ans- Picture indicate outsourcing term

Outsourcing: This is one of the important outcomes of the globalisation process.
With the help of modern telecommunication links including the Internet, the text, voice and
visual data in respect of these services is digitised and transmitted in real time over continents
and national boundaries. Most multinational corporations, and even small companies, are
outsourcing their services to India where they can be availed at a cheaper cost with
reasonable degree of skill and accuracy. The low wage rates and availability of skilled
manpower in India have made it a destination for global outsourcing in the post-reform
period.

Question2 – Identify the logo of the organisation which was founded

in 1995. Write some points in brief.

Ans: World Trade Organisation (WTO): WTO was founded in 1995 as the successor
organisation to the General Agreement on Trade and Tariff (GATT). GATT was established
in 1948 with 23 countries as the global trade organisation to administer all multilateral trade
agreements by providing equal opportunities to all countries in the international market for
trading purposes. WTO is expected to establish a rule-based trading regime in which nations

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cannot place arbitrary restrictions on trade. purpose is also to enlarge production and trade of
services, to ensure optimum utilisation of world resources

Q 1.Privatisation has done more harm than good. Justify your answer.
Ans. No, I do not agree with this view. Even though disinvestment would increase
the revenue of the government, the profit-making Public Sector Units(PSUs) are revenue
generator for the government and they should be retained in the public sector because the
profits of these undertakings add to the revenues of the government and can be used to
develop other PSUs and the infrastructure of the company.

The profit making PSUs should not be privatised just for the reason that the government can
get funds to cover the deficit in government budget. A profit-making PSU should be
privatised only if it can earn better revenues and thus higher profit if run more efficiently by
the private sector. Also, in the process of disinvestment, if the assets of the profit-making
industries are undervalued, it will lead to a substantial loss to the government. Also, the
government should retain the strategic profit making industries to avoid emergence of any
monopoly in the private sector.

Q. 2. What were the focus points of the 1st and 2nd five-year plan?
Answer: Agriculture was the focal point for the 1st five-year plan whilst Industries was the
focal point for the 2nd five-year plan.

Q. 3 Define small scale industries.

Answer: Small scale industries are those which have fixed investment in plant and
machinery, whether held on ownership basis or lease basis or hire purchase basis not more
than ₹. 1 crore.

Q.4. Define a socialist economy.

Answer: Socialist economy is that kind of economy which focuses on production of goods
and services for consumption by the people. In a socialist economy the factors of production
are owned by the state. It is the complete opposite of the capitalist economy, where the
primary focus is on sale and profit.
Q.5. Define the land ceiling.
Answer: Land ceiling refers to the size (dimension) of the land that an individual or family
can possess. In India, this act was passed during the year 1961-62 and it was controlled by all
the state governments. However, the ceiling limits vary from state to state.

SUSTAINABLE DEVELOPMENT
Q. 1. What is Global Warming?

Answer: Global warming is an increase in the average temperature of the earth’s lower
atmosphere and ocean.

Q.2. Give two examples of misuse of resources

Answer: The two examples of misuse of resources are:

 Use of river to absorb industrial effluents

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  Use of wood as household fuel

Q. 3. Why was the Central Pollution Control Board (CPCB) set up?
Answer: In order to address three major environmental concerns in India, viz water, air and land
pollution, the government set up the Central Pollution Control Board (CPCB) in 1974.

Q.4. What is meant by environment? (NCERT)

Answer: Environment is defined as the total planetary inheritance or the totality of all
resources. It includes all the biotic (e.g. birds, animals, plants, forests, etc) and abiotic (e.g.
water, Sun, land, mountains, etc) factors that influence and depend upon each other.

Q.5. What is the meaning of biodiversity?

Answer: Biodiversity is the variety of all life forms including animals and plants that can be
found either in one location or the whole planet.

Q.6. What are natural resources?

Answer: Natural resources are the resources which have been provided by the nature in the
form of land, air, water, forests, animals, sunshine, etc. Natural resources are free gifts of
nature. They are foundation of the prosperity of a country. Natural resources may be of two
types:

 Renewable natural resources

 Non-renewable natural resources

SUSTAINABLE DEVELOPMENT

1. Read the following statements: Assertion (A) and Reason (R). Choose one of the
correct alternatives given below:

Assertion (A): Sustainable development is essential for the economic growth of the country.

Reason (R): Sustainable development ensures that environment-friendly measures are

adopted for carrying out the production process.

Alternatives:

a) Both Assertion and Reason are true and Reason (R) is the correct
explanation of Assertion (A)
b) Both Assertion and Reason are true and Reason (R) is not the correct
explanation of Assertion (A)
c) Assertion (A) is True but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True

Ans – a)

2. Read the following statements: Assertion (A) and Reason (R). Choose one of the
correct alternatives given below:

Assertion (A): Sustainable Development must be adopted to save the environment from
degradation.

Reason (R): It is a matter of discussion among different countries of the world.

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Alternatives:

a) Both Assertion and Reason are true and Reason (R) is the correct
explanation of Assertion (A)
b) Both Assertion and Reason are true and Reason (R) is not the correct
explanation of Assertion (A)
c) Assertion (A) is True but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True

Ans – c)

3. Read the following statements: Assertion (A) and Reason (R). Choose one of the
correct alternatives given below:

Assertion (A): Sustainable development is critical to well being of human society.

Reason (R): Environmentally sound policies do not harm the environment or deplete the
natural resources.

Alternatives:

a) Both Assertion and Reason are true and Reason (R) is the correct
explanation of Assertion (A)
b) Both Assertion and Reason are true and Reason (R) is not the correct
explanation of Assertion (A)
c) Assertion (A) is True but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True

Ans – b)

4. Read the following statements: Assertion (A) and Reason (R). Choose one of the
correct alternatives given below:

Assertion (A): Non-renewable resources are abundant in nature.

Reason (R): Non-renewable resources will get exhausted after several years of usage.

Alternatives:

a) Both Assertion and Reason are true and Reason (R) is the correct
explanation of Assertion (A)
b) Both Assertion and Reason are true and Reason (R) is not the correct
explanation of Assertion (A)
c) Assertion (A) is True but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True

Ans – d)

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 5. Read the following statements: Assertion (A) and Reason (R). Choose one of the
correct alternatives given below:

Assertion (A): All resources are not exhaustible.

Reason (R): Renewable resources can become non-renewable.

Alternatives:

a) Both Assertion and Reason are true and Reason (R) is the correct
explanation of Assertion (A)
b) Both Assertion and Reason are true and Reason (R) is not the correct
explanation of Assertion (A)
c) Assertion (A) is True but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True

Ans – b)

6. Read the following statements: Assertion (A) and Reason (R). Choose one of the
correct alternatives given below:

Assertion (A): The crude oil reserves are going down for the entire world and the countries
need to find substitute fuel for crude oil.

Reason (R): A country that is dependent on imports for crude oil will demand more crude oil
in the future.

Alternatives:

a) Both Assertion and Reason are true and Reason (R) is the correct
explanation of Assertion (A)
b) Both Assertion and Reason are true and Reason (R) is not the correct
explanation of Assertion (A)
c) Assertion (A) is True but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True

Ans – b)

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Unit : Development Experience of India , Pakistan &
China

Q1ASSERTION – REASON QUESTION

Read the following statements: Assertion (A) and Reason (R). Choose one of the
correct alternatives given below:
Assertion (A): After independence, India adopted ‘Mixed Economy’ as its path of
development or strategy of growth.
Reason (R) : The planners and politicians of the country wanted to combine the merits
of both socialism and capitalism .
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).
(b) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true.
Ans. (a) Both (A) and (R) are true and (R) is the correct explanation of (A).

Q2Assertion (A): Pakistan followed a process of import substitution in the initial

years of independence.
Reason (R): Its main goal was to provide protection to the domestic producers.
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).
(b) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true.
Ans. (a) Both (A) and (R) are true and (R) is the correct explanation of (A).

Q3Assertion (A): Pakistan has experienced a phenomenal rise in its growth rate.
Reason (R): Domestic investment and FDI has been shrinking in Pakistan.
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).
(b) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true.
Ans. (d) (A) is false but (R) is true.

Q4Assertion (A): China has a very high density of population

Reason (R): It is very large in terms of geographical area.
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).
(b) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true.
Ans. (d) (A) is false but (R) is true

Q5 Assertion (A): ‘One child policy’ of 1979 has been successful in China.
Reason (R): China has been able to control its rate of population growth.
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).
(b) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true.
Ans. (a) Both (A) and (R) are true and (R) is the correct explanation of (A).

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 Q6 Assertion (A): The sex ratio is biased against females in all three countries i.e
India, China and Pakistan due to preference for male child.
Reason (R): In recent times, all three countries are adopting various measures to
improve the situation.
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).
(b) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true.
Ans. (a) Both (A) and (R) are true and (R) is the correct explanation of (A).

Q-7-. Assertion (A). China has the highest life expectancy in the world.
Reason (R). Maternal Mortality Rate of India is higher than that of China.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false,
(d) Assertion (A) is false but Reason (R) is true.

Ans.(d) Assertion (A) is false but Reason (R) is true.

Q-8-. Assertion (A). Inspite of being the world’s most populous country, China’s
annual growth rate of population (0.46) is lower than India’s annual growth rate of
population (1.03) and Pakistan’s annual growth rate of population (2.05).
Reason (R). The one-child policy was part of a birth planning program designed to
control the size of the rapidly growing population of the people’s Republic of China.
One child norm was introduced in China in the late 1970s.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false,
(d) Assertion (A) is false but Reason (R) is true.
Ans.(A)
Q-9-.Assertion (A): Pakistan followed a process of import substitution in the initial
years of independence.
Reason (R) : Its main goal was to provide protection to the domestic producers.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false,
(d) Assertion (A) is false but Reason (R) is true.
Ans (A)

Q-10-. Assertion (A) : China has a very high density of population.

Reason : It is very large in terms of geographical area.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false,
(d) Assertion (A) is false but Reason (R) is true.
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 Ans.(d)Assertion (A) is false but Reason (R) is true.

Q-11-. Assertion (A) : “One Child Policy” of 1979 has been successful in China.
Reason (R) : China has been able to control its rate of population growth.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false,
(d) Assertion (A) is false but Reason (R) is true.
Ans. (a)

Q-12-. Assertion (A) : Pakistan has experienced a phenomenal rise in its growth rate.
Reason (R) : Domestic investment and FDI has been shrinking in Pakistan.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false,
(d) Assertion (A) is false but Reason (R) is true.
Ans.(d)Assertion (A) is false but Reason (R) is true.

STATEMENT BASED QUESTIONS

In light of the given statements, choose the correct alternative from the following:
(a) Both the Statements are true.
(b) Both the Statements are false.
(c) Statement 1 is true and Statement 2 is false.
(d) Statement 1 is false and Statement 2 is true
1.Statement 1: Economic reforms in China were dictated by the World Bank and
International Monetary Fund.
Statement 2 : The reforms introduced in 1978 failed to sustain the pace of growth of
China.
Ans.(b) Both the Statements are false.

2. Statement 1 : India, Pakistan and China adopted planning as the core development
strategy.
Statement 2 : All the three countries relied on the public sector as the core sector of
the economy.
Ans. (a) Both the Statements are true.

3. Statement 1 : Experience of India shows a major shif directly from primary to the
tertiary sector .
Statement 2 : The economy of India has integrated with the global economies at a
faster pace.
Ans.(a) Both the Statements are true.

4. Statement 1. China observed increase in number of elderly population which led to

burden of more social security measures on the government for elderly population.

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 Statement 2. ‘One Child Norm’ was introduced in China in 1970's which reduced the
population growth rate.
Ans.(a)Both the Statements are true.

5. Statement 1. Both India and Pakistan initiated their economic reforms without any
external pressures.
Statement 2, Pakistan has successfully implemented the SEZ policy and reaped its
benefits using the Export Promotion policy.
Ans.(b)Both the Statements are false.

6. Statement 1. First Five Year Plan of China commenced in the year 1956.
Statement 2. Both India and China adopted Socialist Economy model, following
USSR.
Ans.(b)Both the Statements are false.

7. Statement 1. In both India and Pakistan, the service sector has been emerging as a
major source of development.
Statement 2. Amongst the neighbours of India, China has the highest life expectancy
rate.
Ans.(a)Both the Statements are true.
8. STATEMENT 1- First five-year plan of India was commenced in the year 1951
STATEMENT 2- The motive of the plan was to promote industries.

Alternatives:
( a ) both the statements are true
( b ) both the statements are false
( c ) statement 1 is true but statement 2 is false
( d ) statement 1 is false but statement 2 is true
Ans-( c ) statement 1 is true but statement 2 is false

9. STATEMENT 1 : Economic reforms in China were dictated by World Bank and IMF.
STATEMENT 2 : The reforms introduced in 1978 proved to sustain the pace of
China.

Alternatives:
( a ) both the statements are true
( b ) both the statements are false
( c ) statement 1 is true but statement 2 is false
( d ) statement 1 is false but statement 2 is true
Ans. ( d ) statement 1 is false but statement 2 is true

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 10. STATEMENT 1- Experience of India shows a major shift directly from primary to
tertiary sector.
STATEMENT 2- The economy of India is integrated with the global economies at
faster pace.
Alternatives:
( a ) both the statements are true
( b ) both the statements are false

( c ) statement 1 is true but statement 2 is false

( d ) statement 1 is false but statement 2 is true
Ans-(a ) both the statements are true
11. STATEMENT 1-India, Pakistan and china adopted planning as the core
developmental strategy.
STATEMENT 2-All the three relied on the private sector as the core sector of
the economy.
Alternatives:

(a ) both the statements are true

(b ) both the statements are false
(c ) statement 1 is true but statement 2 is false
(d ) statement 1 is false but statement 2 is true
Ans- (c ) statement 1 is true but statement 2 is false
12. STATEMENT 1- Under commune system peasants shared farm implement and
pooled their land to create larger fields that could yield greater output.
STATEMENT 2- It focused on widespread industrialization of the economy.
Alternatives:

(a ) both the statements are true

(b ) both the statements are false
(c ) statement 1 is true but statement 2 is false
(d ) statement 1 is false but statement 2 is true
Ans- (c ) statement 1 is true but statement 2 is false
13. STATEMENT 1- Mao initiated Great Leap Forward in 1958
STATEMENT 2- The main aim of GLF campaign in China was to ensure rapid
increase of Industries.
Alternatives:
(a ) both the statements are true
(b ) both the statements are false

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 (c ) statement 1 is true but statement 2 is false
(d ) statement 1 is false but statement 2 is true
Ans. (a ) both the statements are true
Case Study

1The present day fast industrial growth in China can be traced back to the reforms
introduced in 1978. China introduced reforms in phases. In the initial phase, reforms
were initiated in agriculture, foreign trade and investment sectors. In agriculture, for
instance, commune lands were divided into small plots, which were allocated (for use
not ownership) to individual households. They were allowed to keep all income from
the land after paying stipulated taxes.

In the later phase, reforms were initiated in the industrial sector. Private sector firms,
in general, and township and village enterprises, i.e., those enterprises which were
owned and operated by local collectives, in particular, were allowed to produce
goods. At this stage, enterprises owned by government (known as State Owned
Enterprises—SOEs), which we, in India, call public sector enterprises, were made to
face competition. The reform process also involved dual pricing. This means fixing
the prices in two ways; farmers and industrial units were required to buy and sell
fixed quantities of inputs and outputs on the basis of prices fixed by the government
and the rest were purchased and sold at market prices.
Over the years, as production increased, the proportion of goods or inputs transacted
in the market also increased. In order to attract foreign investors, special economic
zones were set up.
i- When was economic reform initiated in India ?
a-1958 b-1991
c-1978 d-2001
Ans: b
ii- Why did China develop special economic zone policy?
a-To increase GDP b-To increase foreign investment
c- To control population d-To decrease imports
Ans: b
iii- Commune system was initiated in China during --------------------
a- Great Proletarian Cultural Revolution
b-Great Leap Forward (GLF) campaign
c-during economic reform
d-None of these
Ans: b
iv-Great Leap Forward campaign was launched in China in _____ year.
a- 1948 b- 1958 c- 1968 d-1978
Ans: b

14. Read the table and answer the question asked below
Items India China Pakistan
Human Development Index (Value) 0.645 0.761 0.557
Rank (based on HDI) 130 87 154
Life Expectancy at Birth (years) 69.7 76.9 67.3
Mean years of Schooling (% aged 15 and above) 6.5 8.1 5.2
Gross National Income per capita (PPP US$) 6,681 16,057 5,005
% of People living Below Poverty Line (National) 21.9 1.7 24.3
Infant Mortality Rate (per 1000 live births) 29.9 7.4 57.2

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 Maternal Mortality Rate (per 1 lakh births) 133 29 140

i-Which country human development indicators is comparatively better ?

a- China b- India c- Pakistan d- a & b
Ans: a
ii-Among India, China and Pakistan, -------------- has the lowest urbanisation.
Ans: India
iii-Health indicator of …………………………….. of better among India, China and
Pakistan
Ans: China
iv-……………………………….. norm and the resultant arrest in the growth of
population also have other implications. (One child policy/GLF)
Ans: One child policy

2 Observe the following picture and answer the following questions:

(i) As per the picture what is major source of land use pattern in India, China and
Pakistan?
Ans- More area is under cultivation in India followed by Pakistan and China.
(ii) Which countries produce more rice?
Ans- China produce more rice followed by India and Pakistan
3 Observe the following picture and answer the following questions :

(i) What is the other use of this border along with tourism?

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 Ans- Trade
(ii) This border used to do trade between ……. and ……… countries.
Ans-India and Pakistan

3- The China-Pakistan Economic Corridor (CPEC) has deepened the decades-long strategic
relationship between the two nations. But it has also sparked criticism for burdening Pakistan
with mountains of debt and allowing China to use its debt strategic assets of Pakistan.

The foundations of CPEC, part of China's Belt and Road Initiative, were laid in May 2013. At
the time, Pakistan was reeling under weak economic growth. China committed to play an
integral role in supporting Pakistan's economy.

Pakistan and China have a strategic relationship that goes back decades. Pakistan turned to
China at a time when it needed a rapid increase in external financing to meet critical
investments in hard infrastructure, particularly power plants and highways. CPEC's early
harvest projects met this need, leading to a dramatic increase in Pakistan's power generation
capacity, bringing an end to supply-side constraints that had made rolling blackouts a regular
occurrence across the country.

Pakistan leaned into CPEC, leveraging Chinese financing and technical assistance in an
attempt to end power shortages that had paralyzed its country's economy. Years later, China's
influence in Pakistan has increased at an unimaginable pace.

China As Pakistan's Largest Bilateral Creditor: China's ability to exert influence on Pakistan's
economy has grown substantially in recent years, mainly due to the fact that Beijing is now
Islamabad's largest creditor. According to documents released by Pakistan's finance ministry,
Pakistan's total public and publicly guaranteed external debt stood at $44.35 billion in June
2013, just 9.3 percent of which was owed to China. By April 2021, this external debt had
ballooned to $90.12 billion, with Pakistan owing 27.4 percent -$24.7 billion of its total
external debt to China, according to the International Monetary Fund (IMF).

Additionally, China provided financial and technical expertise to help Pakistan build its road
infrastructure, expanding north- south connectivity to improve the efficiency of moving
goods from Karachi all the way to Gilgit-Baltistan (POK). These investments were critical in
better integrating the country's ports, especially Karachi, with urban centers in Punjab and
Khyber Pakhtunkhwa provinces.

Despite power asymmetries between China and Pakistan, the latter still has tremendous
agency in determining its own policies, even if such policies come at the expense of the
longterm socioeconomic welfare of Pakistani citizens.

(a) Outline and discuss any two economic advantages of China Pakistan Economic Corridor
(CPEC) accruing to the economy of Pakistan.

(b) Analyse the implication of bilateral 'debt-trap' situation of Pakistan vis- à-vis the Chinese
Economy.Ans.a) Economic advantages of China Pakistan Economic Corridor (CPEC) to the
economy of Pakistan are:

(i) China provided financial and technical expertise to help Pakistan build its road
infrastructure, supporting employment and income in the economy

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(ii) CPCE has led to a massive increase in power generation capacity of Pakistan. It has
brought an end to supply-side constraints in the nation, which had made blackouts a regular
phenomenon across the country.

Ans.(b) China has become famous for its 'Debt Trap Diplomacy' in recent times. Under this
China provides financial and technical expertise/assistance to help various nations to bring
them under its direct or indirect influence. The first and the foremost implication of the
diplomacy is that Beijing has now become Islamabad's largest creditor. According to
documents released by Pakistan's finance ministry, its total public external debt stood at
$44.35 billion in June 2013, just 9.3 percent of which was owed to China. By April 2021, this
external debt had ballooned to $90.12 billion, with Pakistan owing 27.4 percent -$24.7 billion
- of its total external debt to China, according to the IMF

4-Based on the following data ,compare any two parameters for the economies of India and
china, 2017-2019

Items India China

Human Development index (HDI)value 0.645 0.761

Rank(based on HDI) 130 87

Gross national income per capita (PPP US $) 6,681 16,057

Life Expectancy at Birth (years) 69.7 76.9

Sources: human development report 2019 and 2020 and world development Indicators (www.
World bank.org); key indicators for Asia and the pacific 2019, Asian Development bank
(ADB)
Ans- i) India' s HDI is 0.645 while China's HDI is 0.761 .it indicates china is showing better
performance in various parameters. better HDI also indicates that fruits of GDP growth is
percolated .

ii) china is doing good in qualitative terms also government has taken many steps for the well
being people which is reflected in better life expectancy.

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