# Oswal 36 Sample Question Papers CBSE Class 12 Economics Solutions

## Macro Economics

1. (b) Statement 1 is false, and Statement 2 is true.

Explanation :

When net factor income from abroad is positive, National Income is greater than domestic factor income.

2. (b) C + I

Explanation :

According to the keynesian theory, Aggregate demand is the sum total of consumption demand and investment demand. AD = C + I.

3. (b) stock

Explanation :

Money supply is a stock variable. It represent quantities at a specific point in time and are not measured over a period.

4. (b) inverse

Explanation :

There is an inverse relationship between MPS and Investment multiplier (K). K = 1/MPC

5. (a) Direct and Positive

Explanation :

There is direct and positive relationship between MPC and multiplier. Higher the MPC, higher will be the value of multiplier and vice-versa. K = 1/1-MPC

6. (d) 3,200, 25,000, 20,000, 5,000

Explanation :

Let’s assume that the bank requires to maintain a CRR of 20 per cent.

(i) If a person deposits ₹5,000 with the bank, then the bank keeps only ₹1,000 in the cash reserve and lends the remaining ₹4,000 to another person (Loans). They open a credit account in the borrower’s name for the same.

(ii) Similarly, the bank keeps 20 per cent of ₹4,000 (i.e., 800) and advances the remaining ₹3,200 to another person (Loans). This process continues until the initial primary deposit of ₹5,000 and the initial additional reserves of ₹4,000 lead to additional or derivative deposits of ₹20,000 (4,000 + 3,200 + 2,560…….).
Adding the initial deposits, we get total deposits of 25,000. In this case, the credit multiplier is 5 (reciprocal of the CRR).

7. (b) the ratio of change in savings to change in income.

Explanation :

MPS represents the proportion of an additional or incremental increase in income that a person or household chooses to save rather than spend on consumption. It is calculated by dividing the change in savings by the change in income. MPS is a critical concept in economics as it helps us understand how changes in income affect overall savings behaviour.

8. (d) III and IV

Explanation :

People’s incomes and consumption levels can fluctuate due to various factors like changes in employment, economic conditions, and personal choices. They are flow variables because they are measured over a period of time

9. (b) ₹3,200 crores

Explanation :

APS = S /Y
S = 0.2 × 4,000 = ₹800
C = Y – S
C = 4,000 – 800 = ₹3,200 crores

10. (a) Income and Property

Explanation :

Income is the actual earnings received by individuals and businesses within a specific time frame, while property represents assets that can generate income.

11. “Taxation is an effective tool to reduce the inequalities of income.” It means government reduces inequalities in income and wealth by taxing the rich more and spending more on the poor. Further, it provides for the employment opportunities to poor that help them to earn. Government through fiscal tools of taxation, subsidies and transfer payments brings about ‘fair’ distribution of income. Equitable distribution of income and wealth is a way to bring social justice.

12. Net value added at factor cost = Sales + (Closing Stock – Opening Stock) – Intermediate purchases – Depreciation + Subsidy

Net value added at factor cost = 700 + (10 – 40) – 400 – 20 +30 = `280 crores

OR

Yes, the statement is true. Exports are included when calculating domestic product by expenditure method. This is because expenditure method measures the aggregate value of spending that the firms receive for the final goods and services which they produce. Though exports are consumed by foreign nationals, the exported goods and services are produced in the domestic territory. Exports are indeed included in the calculation of domestic product by the expenditure method because they contribute to the overall economic activity and income within a country.

13. Gross National Disposable Income = National Income + Net indirect taxes + Consumption of fixed capital + Net current transfers to the rest of the world
Gross National Disposable Income = 900 + 90 + 40 + (-10) = ₹1,020 crores

14. (A) Open market operation: It is the policy of the central monetary authority to sell and buy the government securities in the market. By buying or selling bonds, bills, and other financial instruments in the open market, a Central Bank can expand or contract the amount of reserves in the banking system and can ultimately influence the country’s money supply.

The Process: RBI purchases government securities from commercial banks and general public in a bid to increase the stock of high powered money in the economy. Similarly, RBI sells government securities to commercial banks and general public in a bid to decrease the stock of high powered money in the economy. When the Reserve Bank of India sells such instruments it absorbs money from the system. Conversely, when it buys it injects money into the system. This method of trading
in the market to control the money supply is called open market operations.

In Indian Context: Open market operations allow Central Banks great flexibility in the timing and volume of monetary operations. In a developing country like India, open market operations are very effective tool to control inflation or deflation. Because as a developing country’s markets expand, direct controls tend to become less effective therefore open market operations like indirect efforts become more helpful in restoring price stability. However, other monetary instruments
need to be adjusted at the same time and the market infrastructure must be transformed to achieve the desired results.

OR

(B) Money supply: It refers to the total quantity of money in circulation in an economy at any given point of time. Money is a stock concept.

Following factors determine the money supply in the economy:

(i) Prevailing Monetary Standard: Money supply is affected by the prevailing monetary standard in a country. If gold standard is adopted, there will be less supply of money as the quantity of gold is limited in a country. On the other hand, if paper currency system is adopted, money supply can be increased on the basis of demand.

(ii) Volume of Output: Volume of output or production also determines the money supply. If the level of production is high, supply of goods available for sale is high therefore; the money supply will be high due to more sale and purchase activities.

(iii) Monetary Policy: Monetary policy of the government also affects the money supply. If the Central Bank adopts tight monetary policy, there will be contraction in money supply and when monetary policy is liberal the opposite will happen.

(iv) Fiscal Policy: Fiscal policy of the government determines the money supply. If government expenditure is high and the taxes on individuals and firms are low, money supply will increase.

(v) Other Factors: Some other factors like banking habits, liquidity preference and the volume of money multiplier also determine the supply of money.

15. Let Y = 500, 600, and 700. Then consumption and APC are derived as shown:

 Y C = 300 + 0.6 Y APC = C/Y 500 300 + (0.6) 500 = 600 600/500=1.2 600 300 + (0.6) 600 = 660 660/600=1.1 700 300 + (0.6) 700 = 720 720/700=1.02

It can be seen in the above example, that the value of APC declines, as the income increases in the economy.

16. (A) Revenue Deficit = Revenue Expenditure – Revenue Receipts
100 = Revenue Expenditure – (Tax receipts + Non-tax receipts)
100 = Revenue Expenditure – ( 60 + 90)
100 = Revenue Expenditure – 150
Revenue Expenditure = 150 + 100
Revenue Expenditure = 250 crores

(ii) Interest Payments = 10% of Capital Expenditure = 10% x 240 = 24 crores
Fiscal Deficit = (Capital Expenditure + Revenue Expenditure) – (Non debt capital Receipts + Revenue Receipts)
= ( 240 + 250) – (220 + 150)
= 490 – 370
= 120 crores
Primary Deficit = Fiscal Deficit – Interest Payments
= 120 –24 = 96 crores

(B) A primary deficit indicates a positive fiscal deficit, which means the government has to borrow money in order to make interest payments and pay for any other debts or unrestricted spending done by the government.

OR

(C) Current account deficit is a negative indicator for an economy if the cause of deficit in the current account is caused by increased budget deficit due to excessive government borrowings or increased private consumption and reduced savings in the economy. However, if the current account deficit occurs due to increased investment spending, then it is likely to increase the output in the future and it will be considered as negative indicator.

(D) A government budget is an annual financial statement of estimated revenue and estimated expenditure during a financial year. Government budget is a statement of its income and expenditure. Through budgetary policy, government aims to allocate resources in accordance with economic (profit maximisation) and social (public welfare) priorities of the country. To encourage investments, government can give tax concessions, subsidies, etc., to the producers.
For example: government discourages the production of harmful consumption goods like liquor or cigarettes etc., through levying heavy taxes and encourages the use and production of “khaadi” products by providing subsidies. Government budget can be used to bring price stability or economic stability in the economy: Government can bring price/economic stability
i.e., control fluctuations in the general price level through taxes, subsidies and expenditure.
For instance, when there is inflation (continuous rise in price), government can reduce its own expenditure. When there is depression, government can reduce taxes and grant subsidies to encourage spending by the people.

17. (A) (i) Difference between value of exports and imports of goods are called Balance of Trade: The statement is valid because the balance of trade represents the net value of a country’s exports minus its imports of tangible goods (physical products) over a specific period, usually a year. It is an essential component of a country’s balance of payments, specifically the current account. A positive balance of trade, where exports exceed imports, is referred to as a trade surplus, while a negative balance, where imports exceed exports, is called a trade deficit. The balance of trade provides insights into a nation’s trade competitiveness and its ability to generate income from exporting goods.

(ii) External assistance is recorded in the balance of payment account: This statement is also valid because external assistance, which includes financial aid, grants, loans, and other forms of support provided by foreign governments, international organisations, or entities to a country, is recorded in the balance of payments (BoP) account. It specifically falls under the capital and financial account of the BoP. The capital and financial account captures all financial transactions
between a country and the rest of the world, including foreign aid and investments. External assistance can have a significant impact on a country’s BoP, as it represents an inflow of funds from abroad, affecting a nation’s overall balance of payments position.

(B) With the increase in the foreign visit by the people India, the demand for foreign currency increases. With the supply of foreign currency remaining same, the foreign exchange rises, implying a depreciation of rupees. This can be explained diagrammatically as follows:

In the figure, DD and SS are the initial demand curve and supply curve for foreign currency respectively. E is the initial equilibrium point, with OR as the equilibrium exchange rate. An increase in the demand for foreign currencies shifts the demand curve from DD to D’D’ With the shift in demand curve, new equilibrium is established at point E’ where the exchange rate rises from OR to OR1 and the demand and supply of foreign currencies rises from OQ to OQ1. A rise in the exchange rate implies currency depreciation.

## Indian Economic Development

18. (b) Change in composition of India’s foreign trade.

Explanation :

Introduction of Railways, communication network and effective administrative system are positive impacts of British rule in India.

19. (d) All of the above.

Explanation :

Prior to the establishment of British rule in India, India had an independent economy and flourishing markets. The livelihood of most of the population was based on the agriculture sector, Moreover, the handicraft industry of India was one of the most flourished industry in the world.

20. (c) D and C

Explanation :

Organic Farming discards the use of chemical fertilizers and pesticides. It is ecofriendly farming with high nutritional value. But shorter shelf-life and High cost are constraints in organic farming.

21. (c) Global Warming

Explanation :

Global warming is the ongoing rise in Earth’s average temperature caused by the release of greenhouse gases into the atmosphere. It results in adverse effects such as melting polar ice caps, more frequent heatwaves, and disruptions to ecosystems. Mitigating global warming is crucial to address climate change’s long-term impacts.

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

Explanation :

China has lowest density of population as compared to India and Pakistan. China has the very large geographical area. Density of population is calculated by dividing the total population with total area. More is the area less will be the density of population.

23. (b) Unemployment

Explanation :

Rural-urban migration is often driven by economic factors, and unemployment is a key economic factor that motivates people to move from rural to urban areas. In rural areas, limited job opportunities or seasonal employment can result in high unemployment rates or underemployment

24. (b) (i) and (ii)

Explanation :

British policies ruined the small scale manufacturing industries of India as these industries faced a stiff competition by the British machine made products and India was reduced to a cheap raw material provider. Moreover, British machine made products or finished goods were imported in India on a large scale to make India a market for British finished goods.

25. (c) Agricultural marketing

Explanation :

It covers the services involved in moving an agricultural product from the farm to the consumer.

26. (b) Both statements 1 and 2 are true.

Explanation :

India announced its first five year plan in the year 1951. In India, overall objectives of five year plans focussed on the socialistic pattern of society. The socialistic pattern of society implies, that there should not be a private profit but social gain and the socio-economic relations, as well as the developmental patterns, should be keenly planned. There should be equality in terms of income and wealth of the people, and the employment disparities should be reduced as much as possible.

27. (c) (iii)-(C)

28. I defend the given statement that disguised unemployment is a common form of unemployment in rural India

(i) Disguised Unemployment refers to a situation when the number of workers employed is more than required. And it is quite common in rural areas.

(ii) In rural areas, the most common occupation is farming and most of the members of a family are engaged on the farms. They seem to work but their marginal productivity is zero.

(iii) If some of the members are removed from the farms, there will be no effect on production.

OR

Role of Banks in Rural Development in India:

(i) Expansion of commercial banks and cooperative banks helped in mobilisation of idle savings of people in rural areas.

(ii) Provision of credit to rural people for farming and non-farming occupations encouraged them to become self-employed.

(iii) Increased employment opportunities have led to increase in income of people and their standard of living.

29. The government owned companies or resources can be transferred to private companies in the following ways:

(i) Transfer of ownership: The government can either withdraw their ownership or sell their companies to private sector entities.

(ii) Disinvestment: The government can sell the portions of Public Sector Units to the private sector to open the door for modernisation and financial discipline in these units.

(iii) Other methods: Other methods of privatisation include public tender, public auction, transfer of state control, public sale of shares and direct agreement between government and private entities.

30. The institutional structure of rural banking today consists of a set of multi-agency institutions, namely, commercial banks, regional rural banks (RRBs), cooperatives and land development banks. They are expected to distribute adequate credit at cheaper rates.
Self-Help Groups have also emerged to fill the gap in the formal credit system because the formal credit delivery mechanism has not only proven inadequate but has also not been fully integrated into the overall rural social and community development.
Rapid expansion of the banking system had a positive effect on rural farm and non-farm output, income and employment, especially after the green revolution — it helped farmers to avail services and credit facilities and a variety of loans for meeting their production needs.
However, with the exception of commercial banks, other formal institutions have failed to develop a culture of deposit mobilisation — lending to worthwhile borrowers and effective loan recovery.
Agriculture loan default rates have been eternally high as the farmers do not tend to repay their loans. Consequently, the expansion and promotion of the rural banking sector has taken a backseat after reforms.
To improve the situation, it is suggested that banks need to change their approach from just being lenders to building up relationship banking with the borrowers. Inculcating the habit of thrift and efficient utilisation of financial resources needs to be increased among the farmers too.

31. (A) (i) ”The trade policies followed by the British affected the composition, structure, and volume of foreign trade.” - True
This statement is true. The trade policies implemented by the British Empire had a profound impact on the composition, structure, and volume of foreign trade in the regions they colonised.
British colonial policies often prioritised the extraction of raw materials and resources from the colonies to benefit the British economy. This led to a significant shift in the types of goods traded, with colonies exporting raw materials and agricultural products while importing finished manufactured goods from Britain

(ii) “Infant mortality rate of India during British rule was 28 per thousand alive births.” - False This statement is false. The infant mortality rate in India during British rule varied across regions and time periods, but it was generally much higher than 28 per thousand alive births.
Historically, India faced numerous public health challenges during the colonial period, including inadequate access to healthcare, poor sanitation, and malnutrition. These factors contributed to higher infant mortality rates, often well above the figure mentioned. Accurate estimates of infant mortality rates during the British colonial period indicate that rates are
significantly higher than 28 per thousand alive births, especially in rural areas.

OR

(B) In 1952, we were spending meager 0.6% of India’s GDP on education that rose to only 4% in 2014. This has fallen well short of 6% target as proposed by the Education Commission in 1964. Moreover throughout this period the increase in education expenditure has not been uniform and there has been irregular rise and fall. This shows the apathy of government towards investment in the education system. If the recommended 6% p.a. of the GDP would have been spent properly the
present education system would have reached unforseen heights.

32. The situation depicted in the given image is demonetisation. The removal of a currency unit as a legal tender is known as demonetisation. Demonetisation was carried out in India, when Prime Minister Narendra Modi announced to the citizens on Nov. 08, 2016, that ₹500 and ₹1000 notes were going to be removed from the Indian monetary system with immediate effect. The policy was announced with no prior notice to the people, however, the government provided a few months to people to deposit all their money in ₹500 and ₹1000 denominations in the banks.
The goal was to combat fake currency, eradicate a thriving black money market in the country, fight terrorist financing and tax evasion in the country. People with huge amounts of black money were forced to deposit their money into the banking system and those who could not produce tax proofs of the money held with them were levied a heavy penalty of 200 per cent of the amount owned.

33. (A) The growth rate of GDP and its sectoral components declined in Pakistan in 1990s compared to pre-reforms era. This is because the agricultural growth and food supply situation in Pakistan were not based on an institutionalised process of technical change, but on good harvest. When there was a good harvest, the economy was in good condition, otherwise, the economic indicators showed stagnation or negative trends. Most of the foreign remittances came from Pakistani workers in the Middle-east and the exports of highly volatile agricultural products. Pakistan also extensively relied on foreign loans on the one hand and faced increasing difficulty in paying back the loans on the other.

(B) The indicators of Human Development Index include GDP per capita, or proportion of population below poverty line or health indicators such as mortality rates, access to sanitation, literacy, life expectancy or malnourishment. For most of these indicators, China is doing better than India and Pakistan. For instance, the value of Human Development Index for China, India and Pakistan are 0.75, 0.64 and 0.56 respectively. Also, China ranks the highest at 85 among the three countries on
the basis of Human Development Index.
Pakistan is ahead of India in decreasing proportion of people below the poverty line and its performance in sanitation is better than India. But neither of these two countries have been able to save women from maternal mortality. In China, for one lakh births, only 27 women die whereas in India and Pakistan, about 178 and 174 women die respectively. All the three countries report providing improved drinking water sources for most of its population. Among the three countries, India has the highest share of poor.

OR

(C) China’s rapid economic development is an aggregate outcome of introducing the reforms in phases since 1978. The following are the various factors that led to the rapid growth in the economic development in China: In the initial phase, reforms were initiated in the agriculture, foreign trade and investment sectors. The system of collective farming known as the Commune System was implemented. Under this system, the land was divided into small plots that were allocated to the
individual households. These households were allowed to keep the remaining income from land after paying the taxes to the government.
In the later phase, reforms were initiated in the industrial sector. During this phase, the private firms and village and township enterprises were allowed to produce goods and services and compete with the state-owned enterprises. The dual pricing was implemented. This implies that the farmers and the industrial units were required to buy and sell a fixed quantity of inputs and output at a fixed price, and the remaining quantities were traded at the market price. Gradually, with the rapid increase in aggregate production in the later years, the quantities traded in the market increased by many folds. The reforms also included setting up Special Economic Zones to attract foreign investors and encourage its exports. Therefore, the aggregate focus of all these economic reforms resulted in rapid industrial growth and economic development in China.

(D) The provided statement highlights several factors contributing to China’s success in leading various human development indicators:

1. Infrastructure Development: China’s investment in infrastructure, particularly in education and healthcare, has played a crucial role in improving human development indicators. Access to quality education and healthcare services has been a priority in their development strategy.
2. Land Reforms: Land reforms have helped distribute land more equitably, ensuring that a larger portion of the population has access to and benefits from land resources, which can contribute to improved living conditions.
3. Decentralised Planning: The existence of decentralised planning allows for more tailored and localised development initiatives, which can address specific needs and challenges faced by different regions within China.
4. Small Enterprises: The presence of small enterprises that can be easily regulated contributes to economic growth and job creation, which can have a positive impact on various human development indicators such as income and employment.
5. Provision of Basic Services: Even before economic reforms, China had a system in place to provide basic health services in villages and ensure equitable food distribution, which laid a foundation for improved human development.
6. Incremental Reforms: Many of these reforms were implemented gradually, starting on a small scale and then expanding, allowing for experimentation and adjustment before broader implementation

34. (i) Diversification can be regarded as the reallocation of some of the farm’s productive resources, such as land, capital, farm equipment and labour to other products. Diversification in agriculture includes two aspects one relates to change in cropping pattern to shift from subsistence farming to commercial farming (by shifting from single cropping system to multi-cropping system) and the other relates to a shift of workforce from agriculture to other allied activities (livestock, poultry,
fisheries, etc.)

(ii) The need and importance of diversification of such activities in rural sector are:
(a) There is a greater risk in depending exclusively on farming for livelihood.
(b) It is essential and useful to provide productive sustainable livelihood options to rural people in India.
(c) In India, much of agricultural employment activities are concentrated in the Kharif season, whereas, in Rabi season it becomes quite difficult to find gainful employment.

Diversification of agricultural activities is important because it helps to generate supplementary and gainful employment.
(a) It reduces the risk of agriculture sector.
(b) It helps to provide ecological balance.
(c) It provides sustainable livelihood options to farmers.

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