BHOPAL SAHODAYA COMPLEX
2024-25
Answerkey
CLASS- XII TIMING- 3 HRS.
SUBJECT- ECONOMICS MARKS- 80
GENERAL INSTRUCTIONS:
All the questions are compulsory.
Questions No. 1-10 and 18-27 are multiple choice questions carrying 1 mark each.
Questions No.11-12 and 28-29 are short answer questions carrying 3 marks each.
Questions No.13-15 and 30-32 are also short type answer questions carrying 4 marks each.
Questions No. 16-17 and 33-34 are long answer questions carrying 6 marks each.
SECTION-A: MACROECONOMICS
1. (c) Both statements 1 and 2 are true
2.(c) Current account balance + Capital account balance = Zero
3. (b) decrease
4 (c) . Both statements 1 and 2 are true
5. (d) Both statements 1 and 2 are false
6. (a) direct
OR
(d)₹26,000
7. (a) evolution of money
8. (d) There is a capital account surplus of 50 million US dollars
OR
(c) (-) 18 crore
9. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion
(A).
10. (c) Assertion (A) is true but Reason (R) is false.
Ans 11. Sales
Net value added at factor cost - Change in stock + Intermediate consumption + Depreciation + Net
indirect tax
300 lakh-(-)₹60 lakh + 240 lakh +40 lakh +(₹30 lakh 0 lakh )
₹300 lakh +₹60 lakh+₹240 lakh +40 lakh+₹30 lakh
= 670 lakh
12.Following factors contribute to the demand for foreign exchange in the country:
(a) Payments of international loans.
(b) Investment in rest of the world.
(C) Direct purchases abroad as well as imports from rest of the world.
OR
Autonomous Items
~Autonomous items refer to those international economic transactions, which take place due to some
economic motive such as profit maximization. Accommodating items refer to the transactions that are
undertaken to cover deficit or surplus in autonomous transactions.
Ans 13.Given consumption function (C) = 200 + 0.5Y
Investment expenditure (I) = ₹400 crore
At the equilibrium level,
Y=C+I
Y = 200 + 0.5Y + 400
Y = 600 + 0.5Y
Y - 0.5Y = 600
0.5Y = 600
Y = 600/0.5
Y = 1 ,200
The economy is in equilibrium when the equilibrium level of income is₹ 1,200 crore.
Accordingly, if the equilibrium income = 1,500 crore, the economy is not in equilibrium.
Reason: Equilibrium is struck only when income expenditure (₹1,200 crore as in the above solution].
14. Increase in investment in an economy generates a multiplier effect on its national income. The extent of
multiplier effect (and therefore, the extent of total increase in income) depends on the marginal propensity to
consume (MPC). Higher the MPC, greater would be the multiplier effect and vice versa.
: assume that:
Increase in investment 1,000 crore.
MPC = 0.5.
Increase in Income (∆Y) =Kx ∆ I. where.
K = Multiplier
∆Y = 1/(1 - 0.5) x 1000
= 1/0.5 x 1000
= 2 x1000
=₹ 2,000 crore.
15. The principal functions of the central bank are as follows:
(i)Issuing of Notes or Currency Authority: The central bank is the sole note-issuing authority in the country. Large
number of central banks have divided their functions into two parts-banking department and issue department. It
is the issue department that is responsible for note-issuing.
(ii) Banker to the Government: Central bank acts as a banker, agent and financial advisor to the government. As a
banker to the government, it keeps the accounts of all government banks and manages government treasuries.
The loans are given to the government without any interest for short-term. It also transfers government funds. It
also buys and sells securities, treasury bills on behalf of the government. Being the apex bank of the country, it
advises the government from time to time on economic, financial and monetary matters.
(iii) Banker's Bank: It performs the function of a banker to all other banks in the country Central bank keeps part
of the cash balances of all commercial banks as deposit with a view to meeting liabilities of these banks in times
of crisis.
In short, central bank performs several important functions, e.g., issue of notes, banker to banks, banker to the
government, lender of the last resort, control of credit, etc. It plays a significant role in the context of economic
development of the country.
OR
Money supply has two components: currency and demand deposits. Currency is issued by the central bank
whereas demand deposits are created by the commercial banks. They create money in the form of demand
deposit related to the loans offered by them. Demand deposits of the commercial banks are many times more
than their cash reserves. This is based on the historical experience of the banks that cash withdrawal of funds is
only a small percentage of the total demand deposits.
The money created by the commercial banks in the form of demand deposits is mainly used for investment or
production purposes. Any rise in investment leads to many times more increase in the national income of an
economy, via., the multiplier effect.
16.Domestic Factor Income = Compensation of employees Rent + Interest + Profit Mixed income of self-
employed
National Income = Domestic factor income + Net factor income from abroad
Thus, domestic factor income is greater than national income when net factor income from abroad is
negative
(ii) True. Difference between GDP at market price and GDP at factor cost is the net indirect taxes.
Net indirect taxes= Indirect taxes - Subsidies
The parameters of tax and subsidies emerge only when we are considering a three sector economy
including households, producers and the government.
(iii) False. Social welfare depends both on the quantum of output as well as the composition of output. If
goods are produced primarily for richer sections of the society (ignoring the interest of poorer sections of
the society), social welfare is bound to remain low even when the quantum of output is rising.
(b)(i) Expenditure on maintenance of a building is not included in national income. It is an intermediate
expenditure incurred on the maintenance of an income generating asset.
(ii) Expenditure on adding a floor to the building is included in national income. It is an investment
expenditure or capital formation, as an additional floor leads to asset formation.
(iii) Expenditure on fertilizers by a farmer is not included in national income because it is an intermediate
cost for the farmer, as fertilizers are used up in the process of production.
17. (a) The values above highlight a case of deficit in the revenue account as revenue receipts are less
than revenue expenditure.
Since revenue receipts and revenue expenditures are related largely to recurring expenses of the
government (as on administration and maintenance), high revenue deficit gives a warning to the
government either to cut its expenditure or increase its tax/non-tax receipts.
In less developed countries like India, often the situation arises when the government is to incur huge
expenditure on administration and maintenance (particularly on law & order and defence) and it is
difficult to force the poor people to pay high taxes. In such situations, the government is compelled to
cope with high revenue deficit through borrowings or disinvestment. While borrowing increases liability of
the government, disinvestment reduces her assets. A well planned strategy is needed to strike a balance
between assets and liabilities. Otherwise, the whole financial system in the economy may get
destabilised.
(b) Economic growth means GDP growth. GDP growth is an important objective of government budget.
The government tries to increase the rate of GDP growth through its revenue and expenditure policy (or
budgetary policy). On the expenditure side. the government focuses on the creation of infrastructural
facilities in the economy by making autonomous investment. Good infrastructure is expected to induce
private investment. Accordingly, GDP growth is stimulated.
On the revenue side, the government offers tax-exemptions (tax holidays) to boost investment. The budget 2018,
for example, offers 100% tax exemption to 'agricultural produce-processing' industry. This is expected to increase
investment in this industry leading to GDP growth.
OR
(a) Development expenditure is related to investment expenditure or productive expenditure which enhances
production capacity in the economy. Example: Expenditure by the government on roads and bridges. Non-
development expenditure is related to consumption expenditure by the government (also called unproductive
expenditure). Example: Expenditure by the government on food security.
(b) Fiscal deficit is a reflection of fiscal indiscipline. It is particularly true when fiscal defict is incurred on account
of non-development expenditure (like expenditure on freebies to garner votes during elections). Such
expenditures only contribute to inflationary spiral in the country, leading to economic instability.
SECTION-B: INDIAN ECONOMIC DEVELOPMENT
18.. (c) To meet the official and war expenses of the British
19. (c) promoting equality in Indian agriculture
OR
(c)< 10 crore
20. (a) India
21. (b) Self Help Group
22. (c) C-(iii)
23. (c) Both statements 1 and 2 are true
24. (d) Both statements 1 and 2 are false
25. (a) National Mission on Sustainable Agriculture
26. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
27. (d) Assertion (A) is false but Reason (R) is true.
28.The given image indicates towards the environmental challenge of ‘global warming’. Global warming is a
gradual increase in the average temperature of the earth’s lower atmosphere as a result in the increase in
greenhouse gases.The statement given, ‘we are running out of time, act now before it’s too late’ represents the
urgency of actions to be taken to control the situation. Various studies have shown that global warming is causing
rise in sea level, loss of coastal land, increase risks of floods etc.
Ans29. This is because of the following reasons:
(i) Owing to their family as well as social constraints, female workers in the rural areas are unwilling to
migrate for jobs outside their villages.
(ii) Constraints of migration compels them to work in the area of their residence even for a low wage.
OR
No, both are different terms. Diversification of crop production implies production of a diverse variety of
crops rather than one specialised crop. It implies a shift from single- cropping system to multi-cropping
system. Whereas, diversification of production activity implies a shift from crop farming to non-farm
areas of production activity or other areas of employment. It raises income as well as stabilises it.
Finding sustainable livelihood away from crop farming becomes all the more significant in view of the
fact that crop farming sector is overburdened.
Ans 30 . The given data shows that China has gained economic strength over the given period of time
India witnessed 5.7% growth rate whereas, China was able to maintain near double-digit growth during
the decade of 1980s. The growth rate of China has decelerated to an average of 6.8%, over the period
2015-17. In the
recent past India has posted a decent rise in the growth rate. While India had lesser growth rate in the
decade of 1980's, it has enhanced well by registering an average growth rate of 7.5%, over the period
2015-17. 31.
Ans 31. (i) Privatisation means partial or full ownership and management of public sector enterprises by
the private sector
(ii) Economic reforms in India have focused basically on the growth and diversification of industry and
trade. Agriculture suffered a neglect. Ironically, investiment in agriculture sector, particularly in
infrastructure (including irrigation, power, roads, etc.), has fallen in the reform period. The withdrawal of
fertiliser 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.
Agriculture has been neglected, largely owing to the fact that unlike industry, it does not attract FDI.
Or
Two main causes behind infrastructural development by British rule were
(1)Mobilisation of Army: The roads were built primarily fom the churnurpose of moldsung Mobilinyinthin
India and drawing out raw materials from the countryside to the nearest railway station or the port.
(2) Maintenance of Law and Order: The introduction of the electric telegraph in India served the purpose
of maintaining law and order.
32. (a) True Investment in human resource stimulates innovation human capital lity to was new True
logs Technical skills acquired through sources supply to make bettmation such an technolog, training
and sound health, etc., helps labour supply to make better use of givenresources. Hence, productivity
and production increases.
(b) False. Rapid rise in population adversely affects the quality of human capital. It reduces per bead
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 specialised skills and knowledge
33 (a) (i) Agricultural diversification refers to the allocation of farm's productive resources to diverse
areas of crop output, so as to reduce market risk. Owing to changes in the relative price structure, if one
crop fetches low revenue, the other may fetch high Thus, diversification helps stabilisation of farm
income by lowering the market rak Diversification also minimises risk occurring due to monsoon failure
(ii) Organic farming is a system of farming that relies upon the use of organic inputs for cultivation and
discards the use of chemical inputs Animal manures and composts are examples of organic inputs used.
Organic farming focuses on 'soil health rather than 'crop health through the use of animal manures and
composts. Hence, organic farming promotes sustainable development by maintaining soil fertility over a
long period of time
Or
(b) (i) The need to promote education for women in India is imminent. It helps in improving economic
independence and social status of women. Women education makes a Favourable impact on fertility
rate and health care of women and children.
(ii) Absorptive capacity means the ability of the environment to absorb degradation. For instance, high
population and the affluent consumption in the developing countries and production standards of the
developed nations have placed a huge stress on the environment. Many resources are becoming extinct
and the wastes generated are beyond the absorptive capacity of the environment.
34. (a) Objectives of World Trade Organisation (WTO) are:
• It helps in providing greater market access to all member countries as it provides equal opportunities to
all countries in the international market.
• It facilitates bilateral and multilateral trade by removing tariff and non-tariff barriers.
(b) Two steps taken by India to strengthen food security are:
Robust gains in agriculture production.
Citizen-centric food security programme.
