Macro Economics

1.  (c) Both statements 1 and 2 are true.

 Explanation :

Average Propensity to Save (APS) is a term that refers to the proportion of income saved rather than spent on current goods and services.

2. (d) both (a) and (c)

 Explanation :

Accommodating items refer to transactions that are undertaken to cover deficit or surplus in autonomous items.

3. (a) LRR

 Explanation :

LRR consist of CRR and SLR which are the major quantitative instrument of Monetary Policy of RBI which helps in controlling credit.

4. (a) Statement 1 is true and statement 2 is false.

 Explanation :

Gold Standard Rate system was old fashion. Nowadays, many of the countries do adopt market forces as their exchange rate mechanism.

5. (a) Statement 1 is true and statement 2 is false.

 Explanation :

Income method is known as Factor Payment Method because it includes all the incomes from factors of production.


(a) Operating Surplus

Explanation: Operating surplus is considered by compiling all the other income items like rent,profit, interest, royalty.

6. (b) 0.5

 Explanation :


i.e.,  =(180/90) =0.5


(a) 0.4

 Explanation :

APS + APC= 1

i.e., if APS + 0.6 = 1

⇒ APS = 1 – 0.6 = 0.4

7.(c) 1 and 3 are correct

 Explanation :

CRR is the rate through which Commercial bank have to keep their money in the form of cash with RBI, so if RBI raises CRR it impacts the credit giving functions of Banks.

8. (c) Balance of payments surplus

 Explanation :

Balance of payment surplus is a situation when autonomous receipts are more than autonomous payments.


(a) Improvement in balance of trade

 Explanation :

There is a improvement in balance of trade as compared between 2020 and 2021.

9. (c) Assertion (A) is true, but Reason (R) is false.

 Explanation :

Ex-ante saving and Ex-ante investment are not always equal to each other. They are equal only at the equilibrium level. When Ex-ante (planned) saving is not equal to Ex-ante (planned) investment, then output will tend to adjust itself till both of them become equal again.

10. (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

 Explanation :

There is a direct relationship between MPC and value of investment multiplier and not between MPS and Multiplier. Higher the value of MPC, higher the investment multiplier and vice-versa.

11. Gross Value Added at factor cost by firm Vaishali Ltd

= Sales + Change in stock (Closing stock – Opening stock) – Purchase of Intermediate products + Subsidy

= ₹ 5000 + ₹ (200 – 300) – ₹ 3000 + ₹ 400 = ₹ 2300 crores

12. (a) Indians lending abroad is recorded in the capital account of BOP, as it impact the change in the ownership of assets. It does not involve movement of goods and services across borders. Lending to abroad is recorded with a sign (–) debit side in the BOP account.

(b) As a result, demand for foreign currency increases. This is a situation where depreciation of domestic currency happens.


Current Account Deficit occurs when export of goods and services is less than import of goods and services. It is also called as CAD. Current Account Surplus occurs when export of goods and services is more than import of goods and services. It is also called as CAS.

13. (d) 0.6

 Explanation :

Initial income = ₹5,000 crores

New income = ₹6,000 crores

Change in income (ΔY) = 6,000 – 5,000 = ₹ 1,000 crores

Initial consumption = ₹ 4,000 crores

New consumption = ₹ 4,600 crores

Change in consumption = 4,600 – 4,000

(ΔC) = ₹ 600 crores

Marginal propensity to consume =(ΔC/ΔY)=(600/1,000)=0.6

14. Equilibrium level of income is determined at point where ex-ante or planned saving is equal to planned investment. This is because, in equilibrium:

Macro Economics

E is the point where S = I, hence, the point at which the economy is in equilibrium. OY is the equilibrium level of National Income.

When S > I : When savings are greater than investment in an economy, it refers to AD < AS. There will be a rise in inventory stock and prices will start to fall. To clear their stocks, the producers will now plan lesser output. This will mean lesser income in the economy. Lesser income implies lesser saving. The
process will continue till S = I. If S < I.

When S < I, it implies a situation when withdrawal of expenditure (S) is lesser than injection of expenditure (I) into the circular flow of income. Accordingly, overall expenditure in the economy would exceed than what is required to buy the planned output. It is a situation of higher AD than AS. To cope with the situation, the producers would now plan higher output. Higher output would mean higher income and higher saving. The process will continue till S = I.

15. Functions of RBI in context of the case are:

1. Issuing authority of currency: Central Bank is given the sole monopoly of issuing currency in order to secure control over volume of currency and credit. These notes circulate throughout the country as legal tender money. It has to keep a reserve in the form of gold and foreign securities as per statutory rules against the notes issued by it.

2. RBI acting as a bankers to bank: In India, Reserve Bank of India (RBI) is known as the banker’s bank. It acts as a bank for all the commercial banks in India. RBI holds their cash reserves, lends them short-term funds and provides them the central clearing and remittances facilities.


  • 1. Open market operations is the sale and purchase of government securities and treasury bills by RBI or the Central Bank of the country.
  • 2. The objective of OMO is to regulate the money supply in the economy.
  • 3. When the RBI wants to increase the money supply in the economy, it purchases the government securities from the market and it sells government securities to suck out liquidity from the system.
  • 4. RBI carries out the OMO through commercial banks and does not directly deal with the public.
  • 5. OMO is one of the tools that RBI uses to smoothen the liquidity conditions through the year and minimise its impact on the interest rate and inflation rate levels.

16. (a) National Income by Income Method:

= Compensation of employees + Operating surplus + Mixed income of self employed + Net factor income from abroad

= 200 + 200 + 85 + (–) 5 = 200 + 200 + 85 – 5 = ₹ 480 crores

(b) National Income by Expenditure Method:

= Private final consumption expenditure + Government final consumption expenditure + Gross domestic fixed capital formation + change in stock (closing stock – opening stock) + Net exports – Consumption of fixed capital – Net indirect taxes + Net factor income from abroad

= 300 + 150 + 70 + (25 – 15) + (10 – 20) – 10 – 25 + (–) 5 = ₹ 480 crores

17. (a) The contribution of different taxes in GTR for 2021-22 BE, the collection of revenue is the highest from GST i.e., 29 % which is followed by corporation tax which contributes to almost 25 % equivalent to taxes on income other than the corporation tax. The most important observation is the share of Excise duties (15%) and customs (6%). If India wants to achieve the target under Make in India project then they need to increase the custom duties on luxurious items. So that the revenue can be increased by other sources.

(b) Tax revenue is the money that, the government receives from taxation. The majority of the government’s funding comes from taxes. Sources of income include people, government agencies, businesses, trade, royalties from the use of national resources and for foreign aid.


  • 1. Revenue Budget shows only revenue receipts and revenue expenditure of the government, Capital Budget shows capital receipts and capital expenditure of the government.
  • 2. Revenue and Capital budget should not be viewed as independent to each other. In fact, fiscal deficit and primary deficit are measured by accounting for both the revenue as well as capital receipts and expenditure.
  • 3. When revenue deficit bounds up it is invariably reflected in terms of higher capital receipts causing increase in government liability or decrease in government assets.


Indian Economic Development

18. (d) Low level of literacy, high mortality rates, low expectancy rate, high level poverty

 Explanation :

India’s demographic condition was characterised by high level poverty, low level of  literacy, high mortality rates, low expectancy rates, etc.

19. (d) China

 Explanation :

China is moving ahead of both India and Pakistan in terms of indicators of human development.


(b) industries

 Explanation :

The main aim of Great Leap Forward in China was to ensure a rapid increase of industries.

20. (a) (i) and (ii)

 Explanation :

Licensing policy of government was to promote income and regional equality because it emphasized on bifurcation of income and other disparities.


(a) China

 Explanation :

The Great Leap Forward was a five-year plan instituted by the Chinese Communist Party in 1958. Its goal was to evolve China into a modern industrial society.

21. (b) 1982

 Explanation :

NABARD was formed on July 12, 1982 by an Act of Parliament.

22. (c) A-(iv), B-(i), C-(ii), D-(iii)

23. (c) Both statements 1 and 2 are true.

 Explanation :

Health expenditure is a source of human capital formation as a healthy workforce will be more productive than a unhealthy one. Thereby, health expenditure increases supply of healthy labour force and greater productivity and efficiency.

24. (c) Both statements 1 and 2 are true.

 Explanation :

With the aim of economic development, Pakistan adopted the pattern of a mixed economy where both private and public sectors coexist. Pakistan introduced a variety of regulated policy frameworks for import substitution, industrialisation during the 1950s and 1960s.

25. (a) high

 Explanation :

When the rate of resource extraction is higher than that of its renewal, many resources get exhausted or become on the verge of extinction. As a result, we are forced to invest too much in exploration of alternate resources.


Ans. (a) 1986

 Explanation :

The Environment Protection Act was enacted in 1986. It was made to protect or improve the environment.

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

 Explanation :

Disguised unemployment is unemployment that does not affect aggregate economic output. It occurs when productivity is low and too many workers are filling too few jobs. It can refer to any part of the population that is not employed at full capacity.

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

 Explanation :

The result of the policy was a general reduction in China’s fertility and birth rates. After 1980, the fertility rate declining and dropping below two children per woman in the mid 1990s.

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

 Explanation :

The result of the policy was a general reduction in China’s fertility and birth rates. After 1980, the fertility rate declining and dropping below two children per woman in the mid 1990s.

28. The strategies for Sustainable Development are :

  • 1. Use of non-conventional sources of energy : To achieve the objective of sustainable development, we should use non-conventional energy like solar, wind and nuclear energy.
  • 2. Use of LPG, gobar gas in rural areas: LPG, global gas should be used to overcome the problem. As LPG and global gas are cleaner fuels.
  • 3. Wind power: Wind mills can be used to provide electricity in the areas, where the speed of wind is usually high.

29. No, full employment does not mean a situation of zero unemployment. In an economy, there is always some natural rate of unemployment will left in economy,which is the minimum rate of unemployment caused by structural changes in the system of production.

  • Two ways to tackle the problem :
  • 1. Integrated rural development.
  • 2. Development of urban industry to tackle the problem of migration.
  • OR
  • In rural areas, poverty compels people (particularly female workers) to accept low-wage jobs.
  • This is due to:
  • 1. Owing to social conditions and constraints, female workers of the rural areas do not migrate to urban areas for better jobs.
  • 2. Low financial resource compel them to supplement their family income even if they are paid low.

30. (i) China has performed better than India and Pakistan. China’s HDI rank in the world is 87, contrasting with 130 and 154 for India and Pakistan. However, India may attain higher ranking with some liberty parameters in HDI.

(ii) Life Expectancy of China i.e., 76.9 years is the highest. It is pointer towards the increasing health care in China.

31. (a) Green Revolution is the process/event to increase the production of food grains (wheat and rice) due to the introduction of High-Yielding varieties of seeds, use of fertilizers and pesticides and better management techniques.

(b) Three gains of Green Revolution are : (any three)

  • (i) Squirt in crop productivity.
  • (ii) Self-sufficiency in food grain production and buffer stock.
  • (iii) Shifting of agriculture from subsistence farming to commercial farming.
  • (iv) Change in the orientation of farmers, outlook.


Plans must have goals. Without goals, there is no planning. In fact, planning is defined as a strategy that defines how to allocate the country’s scarce resources to different uses, these planning is enshirend under certain goals.

  • The goals of planning as pursued in India are as under:
  • 1. GDP growth or increase in GDP.
  • 2. Updating the technical know-how and adoption of new technology briefly called modernisation.
  • 3. Achieving self-reliance in financial resources and self-sufficiency particularly in food grain production.
  • 4. Equitable distribution of income in the economy.

32. (a) TRUE, Rising population reduces the quality of life and capacity to acquire knowledge and specialised skills.

(b) TRUE, because productivity level is very low in primary sector, accordingly, structure of wage rate is not much beyond the subsistence levels of life.

33. (a) Organic farming is a system of farming that relies upon the use of organic inputs for cultivation. It discards the use of chemical inputs.

(b) The main advantages of organic farming in India are:

  • (i) Discards the use of non-renewable resources: Unlike conventional farming, organic farming does not use synthetic chemicals which are petroleum-based.
  • (ii) Environment friendly: Chemical fertilizers pollute the groundwater by raising its nitrate content which is health hazard and pollute the environment. Organic farming does not use chemical fertilizers.
  • (iii) Sustains soil fertility: Use of animal manures and composts helps sustain soil fertility. Organic farming is conducive to sustainable development of agriculture.
  • (iv) Healthier and tastier food: Organic farming offers healthier and tastier food compared with conventional farming.
  • (v) Inexpensive technology for the small and marginal farmers.


Majority of the farmers in India produce for subsistence and rarely generate surplus for further investment. Also, the gestation period between crop sowing and realisation of income after the sale of agriculture produce is very long. Therefore, credit requirement becomes inevitable for Indian farmers.

Credit requirement is for two purpose:

1. Productive purpose: Short-term credit (period of 6-12 months, to purchase inputs like seeds, fertilizers, payment of bills etc.), Medium term credit (period 1-5 years, purchase of machinery, construction of fence, digging, etc), Long term credit (period of 5-20 years, ro purchase additional  land, acquiring assets like tractors, to make permanent improvements on land etc.)

2. Non-productive purpose: These includes credit requirements for celebration of marriages, births and deaths, litigation, consumptions. etc.

34. (a) Union Ministry of Micro, Small and Medium Enterprises, the new definition and criterion will come into effect from 1st July, 2020.

After 14 years since the MSME Development Act came into existence in 2006, a revision in MSME definition was announced in the Aatmanirbhar Bharat package on 13th May, 2020. As per this announcement, the definition of Micro manufacturing and services units was increased to ₹ 1 crore of investment and ₹ 5 crore of turnover. The limit of small unit was increased to ₹ 10 crore of investment and ₹ 50 crore of turnover. Similarly, the limit of medium unit was increased to ₹ 20 crore of investment
and ₹ 100 crore of turnover. The Government of India on 01.06.2020 decided for further upward revision of the MSME definition. For medium Enterprises, now it will be ₹ 50 crore of investment and ₹ 250 crore of turnover. The impact area suggest that many of the handicraft and traditional industries can be summarised with three basic support:

  • (i) Employment generation.
  • (ii) Financial support for the industries through various loan schemes.
  • (iii) Skill development through training programs.

(b) AATMANIRBHAR BHARAT PROGRAM has given a swift rise in various fields which are mentioned as an examples.

Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. MSMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural and backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. MSMEs are complementary to large industries as ancillary units and this sector contributes enormously to the socio-economic development of the country.

Example- Khadi is the proud legacy of our national freedom movement and the father of the nation.
Khadi and Village Industries (KVI) are two national heritages of India. One of the most significant aspects of KVI in Indian economy is that it creates employment at a very low per capita investment. The KVI Sector not only serves the basic needs of processed goods of the vast rural sector of the country, but also provides sustainable employment to rural artisans. KVI today represent an exquisite, heritage product, which is ‘ethnic’ as well as ethical. It has a potentially strong clientele among the middle and upper echelons of the society.

Example- Coir Industry is an agro-based traditional industry, which originated in the state of Kerala and proliferated to the other coconut producing states like Tamil Nadu, Karnataka, Andhra Pradesh, Orissa, West Bengal, Maharashtra, Assam, Tripura, etc. It is an export oriented industry and having greater potential to enhance exports by value addition through technological interventions and diversified products like Coir Geotextiles, etc. The acceptability of Coir products has increased rapidly due to its ‘environment friendly’ image.

Ministry of Micro, Small and Medium Enterprises (M/o MSME) envision a vibrant MSME sector by promoting growth and development of the MSME Sector, including Khadi, Village and Coir Industries, in cooperation with concerned Ministries/Departments, State Governments and other Stakeholders, through providing support to existing enterprises and encouraging creation of new enterprises.

KHADI and COIR industries can be seen as a superior local products which are enjoyed by Indian People.

CBSE 36 Sample Question Papers Commerce Stream

All Subjects Combined for Class 12 Exam 2023

CBSE 36 Sample Question Papers Humanities Stream

All Subjects Combined for Class 12 Exam 2023

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