12th Standard CBSE Economics Public Exam Sample Question 2020
By QB365 on 03 Mar, 2020
12th Standard CBSE Economics Public Exam Sample Question 2020
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Important Question Part-II
12th Standard CBSE
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Reg.No. :
Introductory Micro and Macroeconomics
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Economics is:
(a)The study of stocks and bond market
(b)Mainly the study of business firms
(c)The problem of choice under scarcity
(d)The study of management decisions
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The price of good Xand the quantity demanded ofY bear a positive relationship between each other. What could be the reason behind that?
(a)X and Y are substitutes
(b)X and Y are complementary goods
(c)Y is an inferior good while X is an normal good
(d)None of the above
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Which Elasticity of Supply is shown by the supply curve parallel to x-axis?
(a)Zero
(b)Infinite
(c)Equal to one
(d)Greater than zero but less than one
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AR and MR curves are downward sloping under:
(a)Monopoly
(b)Monopolistic competition
(c)Perfect competition
(d)Both (a) and (b)
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Withdrawal of income from circular flow of income, e.g. savings, is known as
(a)leakage
(b)injection
(c)credit
(d)finance
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Consumption of fixed capital refers to fall in the value of fixed assets
(a)Due to normal wear and tear
(b)Due to abnormal wear and tear
(c)Due to foreseen obsolescence
(d)Due to normal wear and tear and foreseen obsolescence
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Money was evolved to remove the problems of barter exchange system. Find the correct sequence of evolution of money concepts
1. Paper money
2. Plastic money
3. Metallic money
4. Digital money(a)3, 1, 4, 2
(b)1, 2, 3, 4
(c)3, 4, 1, 2
(d)3, 1, 2, 4
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Value of aggregate supply equals:
(a)National Income
(b)Domestic Income
(c)Private Income
(d)Personal Income
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----------- is the year which begins on 1st April and ends on 31st March of the following year
(a)Current year
(b)Fiscal year
(c)New year
(d)None of the these
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Which is not a part of income receipts and payments from/to abroad in BoP account?
(a)Profits
(b)Grants
(c)Interest
(d)Dividends
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In which year, railways was introduced in India?
(a)1850
(b)1853
(c)1890
(d)1892
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When was planning initiated in India?
(a)In 1951
(b)In 1952
(c)In 1950
(d)In 1956
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Which of the following is/are objective(s) of GST?
(i) To eliminate classification dispute between goods and services.
(ii) To bring uniformity in tax rates.
(iii) To ensure availability of input tax credit across the value chain.
Choose from the options below:(a)Both (i) and (ii)
(b)Both(i) and (iii)
(c)Both (ii) and (iii)
(d)All of these
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JGSY programme of poverty alleviation was submerged into
(a)SGRY
(b)NFWP
(c)PMGSY
(d)All of the above
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Which Five Year Plan recognised the importance of human capital?
(a)Tenth
(b)Seventh
(c)Sixth
(d)Nineth
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Saansad Adarsh Gram Yojana (SAGy) is meant for
(a)adoption of village by members of parliament
(b)adoption of city by members of parliament
(c)adoption of school by members of parliament
(d)adoption of children by members of parliament
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Presently, __________sector is the biggest employment provider in the country.
(a)primary
(b)secondary
(c)tertiary
(d)None of these
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Skill attendants monitor only __________of the births in India.
(a)56%
(b)67%
(c)70%
(d)72%e
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Out of the following, what are the correct reasons of high opportunity cost of negative environmental impact.
1. Spending huge amounts on technology and research to explore alternative resource
2. Health costs of degraded environmental quality
3. Global warming
4. Ozone depletion
5. Industrial revolution(a)1, 2, 3 and 4
(b)Both 1 and 2
(c)3,4 and 5
(d)All of these
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______includes quantitative aspects of per capita, GDP and the quality aspects of performance in health and education.
(a)HD
(b)GDI
(c)HDI
(d)None of these
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If an economy two goods, i.e. barley and jowar, the following table summarises its production possibilities. Calculate the Marginal Opportunity Cost of barley at various combinations.
Barley 100 80 55 25 10 0 Jowar 0 25 50 75 85 87 (a) -
The following is the utility schedule of a person:
Amount consumed 1 2 3 4 5 6 Marginal Utility 6 5 4 3 2 1 Suppose that the commodity is sold for Rs.3. How many units of the commodity, the person will purchase so that his TU is maximum?
(a) -
Commodities X and Y have equal Price Elasticity of Supply. The supply of X rises from 400 units to 500 units due to a 20% rise in its price. Calculate the percentage fall in supply of Y if its price falls by 8%.
(a) -
What is firm's supply curve in the short run, operating under perfect competition?
(a) -
Which among the following are final goods and which are intermediate goods? Give reasons.
(a) Milk purchased by a tea stall
(b) Bus purchased by a school
(c) juice purchased by a student from the school canteen(a) -
Calculate (a) PDI (b) Personal Income, (c) Private Income From the following data:
S.No Contents Rs(in crores) i Direct tax paid by the households 6,500 ii Corporation tax 1,500 iii Household final consumption expenditure 24,500 iv Interest on national dept 2,000 v Savings of Private corporate sector 3,500 vi Household savings 7,500 (a) -
What is High Powered Money?
(a) -
As a result of increase in investment by RS.60 crore, National Income rises RS.240 crore. Calculate Marginal Propensity to Consume.
(a) -
Calculate fiscal deficit
(a) -
Define foreign exchange rate.
(a) -
What do you understand by the drain of Indian wealth during the colonial period?
(a) -
Why and how was private sector regulated under the IPR 1956?
(a) -
Do you think outsourcing is good for India? Why are developed countries opposing it?
(a) -
Poverty is the most important problem faced by Indian economy today. In this context, state which human value is needed to deal with the problem of poverty?
(a) -
'Human resource is the main economic factor'. Discuss.
(a) -
Explain how kisan credit card caters to the credit needs of rural population?
(a) -
Why do people prefer to be voluntarily unemployed?
(a) -
Expansion of one industry facilitates the expansion of the other. How economic growth can become a dynamic process and a self-propelling activity of change?
(a) -
Identify six factors contributing to land degradation in India?
(a) -
'Special Economic lone (SEl) increases foreign investment'. Explain.
(a) -
The government has started promoting foreign capital. What is the economic value in the context of PPF?
(a) -
Explain price elasticity of demand.
(a) -
Explain the law of variable proportions in terms of marginal product with the help of a diagram.
(a) -
How does an increase in the input price affect equilibrium price and quantity exchanged of a commodity? Use diagram.
(a) -
'All producers goods are not capital goods'. Do you agree?
(a) -
Calculate 'value of output' from the following data:
S.No. Contents Rs (in lakh) (i) Net Value Added at Factor Cost \(\left( { NVA }_{ FC } \right) \) 100 (ii) Intermediate Consumption 75 (iii) Excise Duty 20 (iv) Subsidy 05 (v) Depreciation 10 (a) -
Explain the components of LRR.
(a) -
An economy is in equilibrium. Calculate Marginal Propensity to Save from the following:
National Income = Rs.1,000
Autonomous Consumption = Rs. 100
Investment Expenditure = Rs. 200(a) -
Distinguish between revenue receipts and capital receipts in a government budget.
(a) -
What is meant by 'official reserve transactions'? Discuss their importance in Balance of Payments.
(a) -
What do you understand by the drain of Indian wealth during the colonial period?
(a) -
Give the benefits of international trade.
(a) -
What problems forced the Indian government to discontinue the policies followed upto 1990?
(a) -
Explain the vicious circle of poverty
(a) -
How is human development a broader term as compared to human capital?
(a) -
Mention some obstacles that hinder the mechanism of agricultural
marketing.(a) -
When does a demand curve take the shape of a rectangular hyperbola?
(a) -
What is producer's equilibrium? Explain Marginal Cost and Marginal Revenue approach. Use diagram.
(a) -
Explain all the changes that will take place in an economy when Aggregate Demand is not equal to Aggregate Supply.
(a) -
Discuss the central problems of an economy.
(a) -
A consumer consumes only two goods. For the consumer to be in equilibrium, why must marginal rate of substitution between the two goods must be equal to the ratio of prices of these two goods? Is it enough to ensure equilibrium?
(a) -
Distinguish between:
(i) Fixed Costs and Variable Costs
(ii) Average Cost and Marginal Cost(a) -
What are the characteristics of a perfectly competitive market?
(a) -
How will you treat the following while estimating domestic product of a country? Give reasons for your answer:
(a) Profits earned by branches of country's bank in other countries
(b) Gifts given by an employer to his employees on independence day
(c) Purchase of goods by foreign tourists(a) -
(a) Explain any two drawbacks/problems of barter system.
(b) How does money help in removing these drawbacks?(a) -
Explain the concept of excess demand in macroeconomics. Also explain the role of open market operation in correcting it
(a) -
What is government budget? Explain how taxes and subsidies can be used to influence allocation of resources?
(a) -
Give, the meaning of foreign exchange and foreign exchange rate. Giving reasons, explain the relation between foreign exchange rate and demand for foreign exchange.
(a) -
Give the negative effects of the British rule in India
(a) -
Though public sector is very essential for industries, many public sector undertakings incur huge losses and are a drain on the economy’s resources. Discuss the usefulness of public sector undertakings in the light of this fact.
(a) -
How is RBI controlling the commercial banks?
(a) -
Illustrate the difference between rural and urban poverty. Is it correct to say that poverty has shifted from rural to urban areas? Use the trends in poverty ratio to support your answer.
(a) -
How does investment in human capital contribute to growth?
(a) -
Distinguish between 'Green Revolution' and 'Golden Revolution'.
(a) -
You are residing in a village. If you are asked to advise the village panchayat, what kinds of activities would you suggest for the improvement of your Village which would also generate employment?
(a) -
What is the significance of energy? Differentiate between commercial and non-commercial sources.
(a) -
Explain the relevance of intergenerational equity in the definition of sustainable development.
(a) -
What similar developmental strategies have India and Pakistan followed for their respective developmental paths?
(a)
Section - A
Section - B
Section - C
Section - D
Section - E
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Important Question Part-II Answer Keys
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(c)
The problem of choice under scarcity
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(a)
X and Y are substitutes
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(b)
Infinite
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(d)
Both (a) and (b)
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(a)
leakage
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(c)
Due to foreseen obsolescence
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(d)
3, 1, 2, 4
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(a)
National Income
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(b)
Fiscal year
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(b)
Grants
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(a)
1850
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(c)
In 1950
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(d)
All of these
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(a)
SGRY
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(b)
Seventh
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(a)
adoption of village by members of parliament
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(c)
tertiary
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(b)
67%
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(a)
1, 2, 3 and 4
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(c)
HDI
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Marginal Opportunity Cost (MOC) of Barley = \(Units \ of \ Barley \ Sacrified\over More \ Units \ of \ Jowar \ Produced\)
Barley(Y) Jowar(X) MOC 100 0 - 80 25 \({100-80\over 25-0}={20\over 25}=0.8\) 55 50 \({80-55\over 50-25}={25\over 25}=1\) 25 75 \({55-25\over75-50}={30\over25}=1.2\) 10 85 \({25-10\over85-75}={15\over10}=1.5\) 0 87 \({10-0\over87-85}={10\over2}=5\) The curve will be downward sloping and concave to the origin.
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Given, Es of X = Es of Y
Qx = 400 ,Q'x = 500
Percentage change in price of X = 20%
Percentage change in price of Y = 8%
\(\Delta\)Qx = Q'x - Qx = 500 - 400 = 100 units
Price Elasticity of Supply of X
(Es) = \({Percentage\ Change\ in\ Quantity\ Supplied\over Percentage\ Change\ in\ Price}\)
= \({{\Delta Q_X\over Q_X}\times 100\over 20} = {{100\over 400}\times 100\over 20} = {25\over 20}\) = 1.25
Price Elasticity of Supply of X
(Es) = \({Percentage\ Change\ in\ Quantity\ Supplied\over Percentage\ Change\ in\ Price}\)
1.25 = \({Percentage\ Change\ in\ Quantity\ Supplied\over 8}\)
[\(\because\)Es of X = Es of Y]
\(\therefore\) Percentage fall in quantity supplied of Y = 1.25 \(\times\) 8 = 10% -
It is MC curve of the firm starting from a point where MC = AVC (minimum). In Figure, short period supply curve of the firm is MC curve starting from point Q where AR = AVC (minimum).
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(a) 'Milk purchased by a tea stall' is intermediate goods. Reason It will be used as a raw material for making tea and involves value addition.
(b) 'Bus purchased by a school' is final good. Reason School purchases bus as long -term durable product and it is an investment for school. It is not for re-sale.
(c) 'Juice purchased by a student from school canteen' is final good. Reason Here juice is purchased for direct satisfaction of student's need, i.e. juice is being consumed by its end user. -
(a) Personal Disposable Income = (iii) + (vi)
= 24,500 + 7,500 = Rs 32,000 Crores
(b) Personal Income = PDI + (i)
= 32,000 + 6,500 = Rs 38,500 Crores
(C) Private Income = Personal Income + (ii) + (v)
= 38,500 + 1,500 + 3,500 = Rs 43,500 Crores -
High Powered Money refers to the currency created by the Central Bank (Reserve Bank of India). It serves as the basis of bank money. This is the reason for high powered money to be called 'Base Money' or 'Monetary Base'. Greater the base, more the supply of money by the commercial banks. Supply of high powered money is controlled by the Reserve Bank of India.
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MPC = 0.75
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S.No Items Rs (in crore) (i) Borrowings 9000 (ii) Interest 300 Primary Deficit
Fiscal Deficit = Borrowings
Thus,fiscal deficit=Rs 9000 -
Foreign exchange rate is the price of a foreign currency in terms of demestic currency
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The Britishers exploited India in every possible way. Raw material from India was exported and expensive finished goods were imported to India. Also, the heavy administrative costs related to running of the colonial rule in India, in the form of wages and salaries of the administrative staff, and the expenses borne by Britishers in fighting wars, were borne by revenues generated in India. All this led to drain of India's wealth.
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Under IPR, 1956, the private sector was kept under state control through a system of licenses. No new industry was allowed unless a license was obtained from the government. Even an existing industry had to obtain a license for expanding output or for diversifying production.
The objective behind regulating the private sector through licenses was to promote equitable development in the country. It was easier to obtain a license if the industrial unit was to be established in backward areas. -
Outsourcing is good for India since it has generated new employment opportunities in the Indian economy, contributed to GDP and has increased the foreign reserves of the country. The developed countries are opposing outsourcing services to India because it results in loss of employment opportunities in these countries.
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The value of human welfare is the most important while dealing with the problem of poverty. It is necessary for the government of the country to ensure that the people living below poverty line are adequately taken care of by introducing welfare measures for the poor and the downtrodden.
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Of all the factors of production, viz. land, labour, capital and organisation; labour or human resource is the most important economic factor because it is the only factor which is active. All the other factors are inactive. In the absence of human resource, production in an economy will come to a stand still. Therefore, it is correctly said that human resource is the main economic factor.
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Kisan Credit Card (KCC) scheme is an example of credit facility which was introduced by the government in 1998-99.
It facilitates access to credit from commercial banks and Regional Rural Banks. Under the scheme, the eligible farmers are provided with a Kisan Card and passbook from the relevant bank. The farmers can make withdrawals and repayments of cash within the credit limit as specified in the Kisan Credit Card (KCC) -
People prefer to be voluntarily unemployed for the below mentioned reasons:
(i) They do not want to work at the wages that are being offered.
(ii) They are not willing to migrate to the place at which job is being offered.
(iii) They think that the job offered is below their calibre. -
Availability of proper means of transport and communication, ample sources of energy and a developed system of banking and finance generate an environment of inter-industrial linkages.
In this situation, expansion of one industry facilitates the expansion of the other: Accordingly, growth becomes a dynamic process and a self-propelling activity of change. -
The factors responsible for land degradation in India are:
(i) Loss of vegetation occurring due to deforestation.
(ii) Unsustainable fuel, wood and fodder extraction.
(iii) Shifting cultivation.
(iv) Reduction of forest lands.
(v) Forest fires and overgrazing.
(vi) Non-adoption of adequate soil conservation
measures. -
A Special Economic Zone (SEZ) is a geographical region that has economic laws different from a country's typical economic laws. Usually, the goal is to increase foreign investment.
Special Economic Zones attract investors since they offer high quality infrastructure facilities and support services. Besides allowing duty free import of capital goods and raw materials, attractive fiscal incentives and simpler customs, banking and other procedures are offered in such zones. -
With the government promoting foreign capital, with the widening of the market, the domestic producers will have to meet the work-ethics and quality of the foreign products in order to survive in the cut-throat competition. In terms of PPF if the production was taking place inside the PPF, then by excelling in quality to meet global standards, production capacity will improve and march outwards to be on the given PPF. Moreover, promotion of foreign capital will also lead to increase in resources and technology through foreign investment and hence the PPC will shift rightward also.
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"Degree of responsiveness of the amount demanded of a given good to a change in its price" is called price elasticity of demand.
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The law of variable proportions states that if we go on using more and more units of a variable factor (labour), keeping other inputs fixed, the total product increases at an increasing rate in the beginning, then increases at a diminishing rate and after a level of output, it ultimately falls. In accordance with law, the marginal product increases in the beginning, then it starts falling but remains positive and ultimately it continues to fall and becomes negative also. The following schedule and diagram illustrate the law:
Units of
Land
Units of
Labour
\(M{P}_{L}\) Phases 1
1
1
1
2
3
2
4
6
Phase I.
MP rises (Increasing returns to a factor)
1
1
1
4
5
6
4
2
0
Phase II.
MP falls but remains positive
(Diminishing returns to a factor)
1
1
7
8
-2
-4
Phase III.
MP becomes negative (Negative returns ta a factor)
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An increase in the price of an input used in the production of a commodity increases the unit cost of production of the commodity. This will cause a decrease in the supply of a commodity and leads to a leftward shift of the supply curve as shown in the diagram given below.
The demand curve of the commodity remaining the same, this will cause the market price of the commodity to rise and quantity exchanged to fall. It is clear from the diagram that as a result of a decrease in supply, the supply curve shifts leftward. As a result, the equilibrium price rises from OP to OP1 and the equilibrium quantity falls from OQ to OQ0.
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Yes, I agree that all producer goods are not capital goods because producer goods includes:
(i) Goods which are used as raw material like wood used to make furniture.
(ii) Goods which are used as fixed assets like plant and machinery.
Capital goods include only fixed assets of the producers. These are durable goods. On the other hand, goods used as raw material are not capital goods.
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Rs 50 lakh
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Two components of LRR are CRR and SLR. Under CRR, the banks are required to deposit a percentage of their net demand and time deposits with the Central Bank whereas, under SLR, the banks are required to maintain a specified percentage of their net deposits in the form of designated liquid assets.
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Y = \(\bar { C } \) + MPC(Y) + I
1000 = 100 + MPC(1000) + 200
MPC = \(\frac { 1000-100-200 }{ 1000 } \) = \(\frac { 700 }{ 1000 } \) = 0.7
So, MPS = 1 - MPC
= 1 - 0.7 = 0.3 -
The receipts which neither create any corresponding liability for the government nor create any reduction in asset is termed as revenue receipts .e.g. tax receipts of the government.The receipts which either create corresponding liability for the government or which lead to reduction in assets of the government is termed as capital receipts, eg. loans taken by the government,disinvestment of any public sector undertakings, etc.
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(i) Overall balance is reflected in the 'official reserve transactions' of the RBI, as it is the custodian of foreign exchange reserves of the country. All foreign exchange transactions in the country take place through RBI. If the overall balance is positive, it causes an increase in official reserves, if overall balance is negative, it causes a decrease in official reserves. Hence,
(ii) Current Account Surplus + Capital Account Surplus = Increase in Official Reserves
(iii) Current Account Deficit + Capital Account Deficit = Decrease in Official Reserves -
The Britishers exploited India in every possible way. Raw material from India was exported and expensive finished goods were imported to India. Also, the heavy administrative costs related to running of the colonial rule in India, in the form of wages and salaries of the administrative staff, and the expenses borne by Britishers in fighting wars, were borne by revenues generated in India. All this led to drain of India's wealth.
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The main benefits of international or foreign trade are:
(i) International trade encourages specialisation on the basis of comparative advantage. This enables a country to obtain foreign goods at a cheaper rate in context of the domestic resources used.
(ii) An increase in export trade widens the country's total market. Production of more goods will further lower the cost of production, leading to lower cost per unit.
(iii) It widens the scope of industrialisation.
(iv) It encourages competition, leads to innovation and increases capital flows.
(v) International trade acts as an 'engine of growth'. It transmits growth from one part of the world to another. So, the demand in Britain for raw material brought prosperity to Australia, Canada, New Zealand, etc.
(vi) It helps the country to earn valuable foreign exchange. -
Since Independence, India followed the mixed economy framework by combining the advantages of the market economic system with those of the planned economic system. But over the years, this policy resulted in the establishment of a variety of rules and laws which were aimed at controlling and regulating the economy. These rules ended up hampering the process of growth and development. The economy was facing problems of declining foreign exchange, growing imports without matching rise in exports and high inflation. India changed its economic policies in 1991 due to the financial crisis and pressure from international organisations like the World Bank and IMF.
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Various circle of poverty implies that poverty is the cause of poverty There are many vicious circles of poverty. One of them is depicted below:
various Circle of Poverty -
Human capital considers education and health as a means to increase labour productivity. Human development is based on the idea that education and health are integral to human well-being because only when people have the ability to read and write and the ability to lead a long and healthy life, they will be able to make other choices they value.
In human capital view, any investment in education and health is unproductive, if it does not enhance output of goods and services
In the human development perspective, human beings are ends in themselves. So, human capital is a part of human development. -
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The central problems of an economy are as follows:
(a) What to produce is defined as the problem of choice between different goods that can be produced from the given scarce resources. An economy has millions of commodities to pr.oduce. It has to decide whether to produce luxury goods or necessities. It may have to decide between capital goods and consumer goods and so on.
(b) How to produce is defined as the problem of choice between different techniques of production available in the economy. Every economy faces the problem as to how resources should be combined for the production of a given commodity. Depending upon the abundance of a particular resource, an economy may choose between labour-intensive and capital- intensive techniques.
(c) For whom to produce is defined as the problem of choice between different ways of functional and physical distribution of income and output in the economy. What goods should be consumed and by whom depends upon how national product/income is distributed among people/factors of production. All central problems arise due to scarcity of available resources, having alternative uses. -
Consumer equilibrium is defined as the level of consumption where the consumer derives maximum satisfaction from the consumption of commodities and does not have any desire to change from that level of consumption.
The consumer will continue to substitute Y for X as long as the marginal rate of substitution is greater than or equal to the price ratio of both the commodities.The necessity of this condition can be explained with the help of the
given diagram.In the given diagram IC1, IC2 and IC3 represent the indifference map for the consumer representing the consumer's scale of preferences. AB represents the budget line which shows various combinations of the
two commodities that a consumer can purchase from his given income and price of the commodities. Consumer equilibrium is achieved at point E where the budget line is tangential to the indifference curve.
(i).If Marginal Rate of Substitution is greater than the price ratio or market rate of exchange: This is represented by point D in the given diagram.When the marginal rate of substitution is greater than the market rate of exchange then it would represent that the consumer is willing to sacrifice in a higher proportion as compared to the price ratio or market rate of exchange. Hence, the consumer becomes ready to consume more of X by sacrificing Y. Due to increase in consumption of X, the MRS between X and Y will fall. This process continues till the level where the marginal rate of substitution becomes equal to the market rate of exchange.
(ii).Similarly, if MRS is less than the price ratio, then the consumer will become ready to consume less of X. Due to decrease in consumption of X, the MRS between X and Y will increase. This process continues till the level where MRS becomes equal to the market rate of exchange.
Hence, the consumer will be at equilibrium, i.e., the consumer's behaviour will be stable only if the marginal rate of substitution becomes equal to market rate of exchange.
No, the equality of MRS to price ratio or market rate of exchange is not enough to achieve equilibrium. The diminishing marginal rate of substitution or convexity of indifference curve is also a necessary condition to achieve equilibrium. In fact it is a necessary condition in order to achieve a unique equilibrium point for the consumer. -
(i)
Fixed Costs Variables Costs (a) Fixed Cost are the Costs which do not change with change in the level of output. Variable costs are the costs which directly change with change in the level of output. (b) These costs remam even if the output is zero There are no variable costs at zero level of output. (c) Example: Rent for factory building, wages to permanent staff, interest in on capital ete. Example: Expenses on raw material used in production, wages to daily workers ete. (ii)
Average Cost Marginal Cost (a) Average cost is per unit cost of production. Marginal cost IS addition made to total cost when an additional unit of commodity is produced. (b) It is calculated by dividing the total cost by number of units produced AC = Total Cost/No. of units produced.
\(AC=\frac{TC}{Q}\)
Marginal cost IS addition made to total cost when an additional unit of commodity is produced
(c) AC=AFC+AVC It is calculated by dividing the change in total variable cost by change in number of units produced.
\(MC=\frac { \triangle TVC }{ \triangle Q } \)
\(M{ C }_{ n }=TV{ C }_{ n }-TV{ C }_{ n-1 }\)
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A perfectly competitive market is such a market in which an individual firm is a price-taker and has no influence on price which is given on fixed by the industry (price-maker).
Its main characteristics are :
(i) Large number of buyers and sellers: The number of buyers and sellers is so large that the output sold by any individual seller is very less or insignificant with respect to the total output of the industry. So, the contribution of any single seller has negligible impact on the total output being sold in the market. So, an individual seller has no impact on the price in the market.
The number of buyers is also, so large that an individual buyer has no independent significance as he purchases a very insignificant proportion of the total output being sold by this industry. So an individual buyer has no impact on the price in the market. Thus, in this market no single seller or single buyer has any significant impact on the price of the product being bought and sold in this market.
(ii) Allfirms produces and sell homogeneous products: By homogeneous products we mean that buyers do not differentiate between products of different firms. i.e. they treat products of all firms as homogeneous. It is because products of all firms are either identical or are stardardised due to which they are treated as identical. So, the buyers find products of different firms as perfect substitutes of each other. As a result, the buyers are not ready to pay different prices due to which no firm is able no influence the price.
(iii) Perfect knowledge prevails in this market: Perfect knowledge about the prevailing price of the homogenous product, exists in this market. So that, there is no exploitation of any buyer/seller. There is also a perfect knowledge to all firms in relation to input market. All firms have equal access to raw material and technology used in the production process. No firm can have a cost advantage over other firms and hence, all firms operate at a uniform cost structure.
(iv) Freedom of entry and exit: A firm can enter/leave the industry any time it wants, as there are no obstacles in way of new firms entering the industry and existing firms leaving the industry in the long run. In the short run, profits/losses are possible. If the firms make profits, new firms enter and raise the total supply of the 'industry. This reduces the market price and wipes out the profits. If the firms are incurring losses, the existing firms start leaving the industry and reduce the total supply. This will raise the price till the losses are totally wiped out. -
(a) Profits earned by branches of country's bank in other countries It is not included while estimating the domestic product of a country as these profits are not earned within the domestic territory of the country.
(b) Gifts given by an employer to his employees on independence day It is not included while estimating the domestic product of a country as it is a transfer payment.
(c) Purchase of goods by foreign tourists It will be included in the estimation of domestic product of a country as the goods have been produced and sold within the domestic territory of the country. -
(a) The two major drawbacks of the barter system are:
(i) Lack of a common measure of value. The first drawback of the barter system is the absence of a common unit in terms of which to measure and state the value of goods and services. As a result, it is very difficult to determine any fixed ratio of exchange between different goods. In the absence of a common unit, proper accounting is impossible.
(ii) Lack of store of value. The second drawback of the barter system is that it does not provide for any method of storing wealth or value or purchasing power. People can store only in terms of commodities which is subject to certain problems such as costly storage, increase or decrease in the value of the commodity and the difficulty in disposing of the commodity without loss.
(b) The above mentioned drawbacks of the barter system are overcome by money by serving as:
(i) A unit of value. Money serves as a unit of value in terms of which the value of all goods and services are measured. The prices of all goods and services can be fixed in terms of money. Thus, the problem of a common measure of value under barter system can be avoided by the use of money. (ii) Money as a store of value. Money serves as a good store of value. It is more convenient to store value or wealth in terms of money because (a) storage of money does not need much space and (b) value of money remains relatively stable compared to other commodities. Thus, the problem of storing value in terms of commodities can be avoided by the use of money. -
The situation in an Y economy, when Aggregate Demand is more than the Aggregate Supply corresponding to full employment, is termed as excess demand situation. In other words, the level of Aggregate Demand exceeds the level of Aggregate Supply, even when there is full capacity production in the economy.
Where, ADFE= AD at full employment
ADAE= AD above full employment
EF = Excess demand
In the above figure, E is the point where AD = AS, i.e. equilibrium point. But at the current excess demand of ADAE' Aggregate Demand FP is more than the Aggregate Supply of EP. Hence, EF represents the excess demand in the economy. Excess demand leads to reduction in inventories and inflation in the economy. High prices encourage producers to produce more to reach the desired level of stock. Hence, the AS will also rise and economy will attain a new equilibrium at point G with National income OP'.
Role of Open Market Operations to Correct the Problem of Excess Demand
Open market operations refer to sale and purchase of securities by the Central Bank on behalf of government in the open market. It directly affects the supply of money in the hands of citizens of the country. In case of excess demand, the Central Bank sells its securities to common public and financial institutions. It reduces the supply of money in the economy and reduces the money/credit creation power of commercial banks. Thus, the Aggregate Demand comes down and the economy attains equilibrium. -
Government Budget is a statement of the estimates of the government's expected receipts and government's expected expenditure during the financial year or fiscal year which runs from 1st April to 31st March. One of the important objective of the government budget is 're-allocation of resources'.
The government of a country, through its budgetary policy, directs the allocation of resources in a manner such that there is a balance between the goals of profit maximisation and social welfare by ensuring that there should be production of necessity goods as well as comfort and luxury goods and the goods which cannot be provided through market mechanism. e.g. Roads, parks, street lights (public goods) etc are provided by the government.
So, the government levies tax on the richer sections of society. The money collected from taxes is spent on providing public goods and giving subsidies on necessary goods to the poorer section of society. So, the government re-allocates resources by collecting taxes from the rich and giving subsidies to the poor, and tries to achieve equitable distribution of income. -
Foreign exchange refers to any foreign currency. Thus, US dollars, British pounds are foreign exchange for India. Foreign exchange rate is the price of one currency in terms of another currency. It is the rate at which exports and imports of a country are valued during a period of time.
There is an inverse relation between foreign exchange rate and demand for foreign exchange. Higher the foreign exchange rate, lower the demand for foreign exchange and lower the foreign exchange, rate, higher the demand
for foreign exchange. Suppose the' price of US dollar in India falls from Rs 50 to Rs 40. It means that earlier Indian people had to part with Rs 50 to buy one dollar worth of goods from USA. Now they have to part with Rs 40 to buy one dollar worth of goods from USA. It implies that American goods have become cheaper for Indian buyers. At a lower price of US dollar, India is ready to buy more goods from USA.
This raises the demand for US dollars. So, lower the price of US dollars,higher is the demand for US dollars and vice versa. Graphically, the demand curve of foreign exchange is downward sloping y signifying the inverse relation between foreign exchange rate and demand for foreign exchange. In the figure, at price Or, the demand for foreign exchange is OF. At a lower price ' the demand is \(OP_{ 0 }\) , i.e., higher. At a higher price \(OF_{ 1 }\) , demand is \(OP_{ 1 }\) i.e., lower than OF. -
The negative effects of the British rule in India are as follows:
(i) Colonila expoitation through trade malpractices The Britishers exploited India by the following the given trade practices:
(a) Thry colllected raw material for British industries from India.
(b) They sold finished goods of British industries in India. To encouraged the above trade, no duty was charged on imports from Britain and subsidy was given for exporting raw material to Britain.
(ii) Use of british capital to export country's resources THe Britishers used their capital and enterpreneurial skills to exploit India's natural resources and cheap labour resources. THe Britishers invested in mining and plantation industries and paid very low wages to the workers inspite of unsafe working conditions.
(iii) Developement of industries which complemented the British industries The Britishers invested only in those industries which complemented the growth of their industries back home. So, they invested in developing railways, post and telegraphs, rubber, tea and coffee plantations, etc. They totally neglected the developement of key and basic industries like iron and steel, machine making industries, etc. Jute and cotton tectile industries, were also discouraged as they could have been a threat for the textile factories of Britain
(iv) Economic drain The Britishers drained the country economically. They took away various wealthy possessions that India possessed, e.g. the famous Kohinoor diamond. Accordigng to an estimate, approximately a trillion to the gems and jewels.
(v) Partition of the country This was the most diastatic consequence of the British rule in India; the effects of which we still face in the form of cross-border terrorism. The Britishers fuelled the Hindu-Muslim dispute for their own benifit, which led to the partition of the country. -
Although, the inefficiency and low productivity in Public Sector Undertakings (PSUs) may lead to wastage of scarce resources and result in huge losses forming a constraint on economic resources of the country, they do have some advantages.
Public sector has been playing a very significant role in the economic development of India.
Following points will validate the same:
(i) Creation of a strong industrial base Public Sector Undertakings have contributed significantly towards the development of heavy and basic industries, thus creating a strong industrial base.
(ii) Development of infrastructure PSUs have helped in development of infrastructure of the country. A developed infrastructure boosted the progress of private sector in the country.
(iii) Mobilisation of savings Government companies formed under PSUs mobilise the savings of individuals through offer of shares, and use these savings for the economic development of the country.
(iv) Help to earn foreign exchange Many PSUs produce goods which can be exported. The export earnings of PSUs such as HMT, STC, etc have helped increase the flow of foreign exchange in the country. Also, PSUs such as BREL, ONGC, etc helped the country to save on the import bill.
(v) Development of backward areas PSUs are generally opened in backward areas so that these areas are also able to progress economically.
(vi) Generation of employment opportunities PSUs have generated substantial employment opportunities and have helped to address the problem of poverty and unemployment.
(vii) To promote equality PSUs check concentration of power in few hands and promote equality in the country.
The above points reveal that PSUs play an important role in economy of the country. -
RBI controls the commercial banks through the following measures:
(i) RBI flxes the bank rate and repo rate Bank rate is the interest rate at which the RBI lend funds to other commercial banks in the country. It is also called the discount rate. In order to control the supply of currency in the economic system RBI often uses the bank rate. On the other hand, Repo Rate is the rate at which commercial banks will borrow the funds from the RBI against the securities. In order to make credit dearer, RBI increases these rates.
(ii) Variable reserve ratios The commercial banks have to keep a certain proportion of their total assets in the form of liquid assets so that they are always in a position to honour the demand for withdrawal by their customers. Generally, the following two reserves are required to be kept:
(a) Cash Reserve Ratio (CRR) It refers to the percentage of deposits of the commercial banks which they have to maintain with the RBI in cash form.
(b) Statutory Liquidity Ratio (SLR) It refers to the percentage of deposits to be maintained as reserves in the form of gold or foreign securities by commercial banks. By varying reserve ratios lending capacity of commercial banks can be affected.
(iii) Fixing margin requirements The margin refers to the "proportion of the loan amount which is not financed by the bank". By increasing or decreasing margin requirements the RBI tries to control the lending capacity of banks.
(iv) Credit rationing RBI can fix the upper limit of credit amount to be granted for various purposes. This can help in lowering the credit exposure of commercial banks to undesirable sectors. -
Rural poor are the poor people residing in villages and small towns. The rural poor work mainly as landless agricultural labourers, cultivators with very small land holdings, landless labourers and tenant cultivators.
On the other hand, the urban poor are the poor people living in metros and big cities. Urban labourers do a variety of casual jobs, sell a variety of things on roadsides and are engaged in various other such activities. It can be seen from the given table that poverty ratio has shifted from rural to urban areas.Year-wise poverty Ratio Years Rural (in%) Urban (in%) India (in%) 1973-74 56.4 49.0 54.9 2004-05 28.3 25.7 27.5
It is evident from the above table that rural poverty has declined significantly from 56.4% in 1973-74 to 28.3% in 2004-05 whereas, decline in urban poverty (from 49% to 25.7%) is not that significant.
Moreover, the gap between the rural and urban poverty ratios which 'was around 7% in 1973-74 fell to just around 2% in 2004-05 again signifying the shift in poverty from rural to urban areas. -
Investment in human capital is believed to be positively related to economic growth. The contribution of human capital formation to economic growth can be explained as follows:
(i) Increase in labour productivity Investment in human capital through expenditure on education, health, etc enhances the productivity of labour as they become physically fit and skilled in their jobs
It leads to efficient utilisation of the material inputs and capital. With increase in productivity, output increases at an increasing rate and hence economic growth accelerates
(ii) Innovations Human capital formation helps in preparing learned scientists and researchers in various subjects who bring out innovative products, technologies and processes and thus add to the economic growth.
(iii) Capacity to adopt Advanced technology can be adopted only if the skills and knowledge required for using that technology are present in the country.
Investment in education and on the job training helps to create these skills and enhances the knowledge base and thus helps in absorption of new technologies which leads to higher production and thus economic growth.
Thus, it is evident that human capital contributes to economic growth in various ways. -
Green Revolution Golden Revolution The introduction of High-Yielding Varieties (HYV) of seeds and the increased use of fertilisers, pesticides and irrigation facilities which led to substantial increase in output of cereals is known as the Green Revolution. The rapid growth in the production of diverse horticultural crops such as fruits, vegetables, tuber crops, flowers, medicinal and aromatic plants, spices and plantation crops is known as Golden Revolution. It led to increase in the production of rice and wheat. It led to increase in the production of fruits, vegetables, flowers, aromatic plants, spices, etc. Green Revolution made India self-sufficient in the production of foodgrains. Golden Revolution made India a world leader in the production of mangoes, bananas, coconut and spices. Green Revolution provided food security and raised agricultural incomes Golden Revolution provided nutrition and sustainable livelihood options. -
I would suggest the following activities to generate employment in village:
(i) There should be multiple cropping in the village.
(ii) Other activities related to agriculture such as plantation, horticulture, dairying, animal husbandry should be encouraged.
(iii) Cottage industry should be encouraged.
(iv) More and more facilities of education, health services, roads, etc should be created in the village -
Energy is essential for all the three sectors, viz. primary, secondary and tertiary sector. It is a critical aspect of the development process of nation. It is also required in houses for cooking, household lighting, heating, etc.
The differences between commercial and noncommercial sources of energy are:Commercial Sources of Energy Non-commercial Sources of Energy Consumers have to pay a price for energy generated through these sources. Consumers do not have to pay a price for energy generated through these sources These sources of energy are exhaustible These sources of energy are renewable These sources are used by business These sources are generally used by households. Coal, petroleum and electricity are examples of commercial sources of energy Firewood and cow-dung are examples of non-commercial sources of energy -
Sustainable development in itself makes it obligatory for the development process to be such that the basic needs of not only the present generation, but also of the future generations are taken care of. It becomes the moral duty of this generation to handover the Earth to the future generation in good form. Therefore, if the resources are overused or misused, they will deplete so fast that the production capacity of the future generations would not be sustainable. Sustainable development aims at maximising the welfare of both present and future generations. It does not mean hindering the existing pace of economic growth, but refers to a judicious or optimum utilisation of resources in such a manner that pace of economic growth sustains with intergenerational equity.
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India and Pakistan have followed following similar strategies in their respective development plans:
(i) India and Pakistan both started their development process on the basis of economic planning after getting independence in 1947.
(ii) Both of them have adopted the mixed economic system involving the co-existence of both the public and the private sector.
(iii) Both the countries relied more on the public sector for initiating the process of growth and development.
(iv) Both of them introduced economic reforms around the same time to strengthen their economies. Pakistan initiated reforms in 1988 and India followed in 1991.
(v) They both have announced Five Year Plans for growth and development.
Section - A
Section - B
Section - C
Section - D
Section - E