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### Economics (Code No. 58/4/3)

Time allowed : 3 hours
Maximum Marks: 80

General Instructions:

(i) This question paper comprises two sections – A and B. All questions are compulsory.

(ii) Question numbers 1 – 10 and 18 – 27 are very short-answer questions carrying 1 mark each. They are required to be answered in one word or one sentence each.

(iii) Question numbers 11 – 12 and 28 – 29 are short-answer questions carrying 3 marks each. Answers to them should not normally exceed  60 – 80 words each.

(iv) Question numbers 13 – 15 and 30 – 32 are also short-answer questions carrying 4 marks each. Answers to them should not normally exceed  80 – 100 words each.

(v) Question numbers 16 – 17 and 33 – 34 are long answer questions carrying 6 marks each. Answers to them should not normally exceed  100 – 150 words each.

(vi) Answers should be brief and to the point. Also the above word limit be adhered to as far as possible.

(vii) There is no overall choice. However, an internal choice has been provided in 2 questions of one mark, 2 questions of three marks, 2 questions of four marks and 2 questions of six marks. Only one of the choices in such questions have to be attempted.

(viii) In addition to this, separate instructions are given with each section and question, wherever necessary.

### Section – A(Macroeconomics)

1. If the value of Average Propensity to Save (APS) is 0.2 and National Income is ₹4,000 crore, then consumption will be ______. (Choose the correct alternative.)

(a) ₹4,000 crores

(b) ₹3,200 crores

(c) ₹3,800 crores

(d) ₹2,600 crores

Explanation: APC + APS = 1

APC = 1 – APS

APC = 1 – 0.2

APC = 0.8

APC x C = Consumption (C)

Consumption (C) = 0.8 x 4,000

Consumption (C) = ₹3,200 Crores

2. Loans offered by commercial banks ______ (increase/decrease) the money supply in the economy. (Fill up the blank with the correct alternative.)

3. State, whether the given statement is true or false :

‘Unexpected obsolescence is a component of depreciation.’

Unexpected Obsolescence is the loss of value of fixed assets of an organisation, which is not expected by the purchaser and occur because of natural calamities like floods, earthquakes, tornado, etc., It is not included in depreciation because the loss of value of fixed assets due to unexpected factors is a capital loss.

4. Two components of money supply are _____ and _____. (Fill up the blank with the correct answer).

1. Demand deposits with the banks such as savings and current account.
2. Time deposit with the bank such as Fixed deposit and recurring deposit.

OR

The main aim of monetary policy is _____. (Choose the correct alternative)

(a) to bring price stability in the economy.

(b) employment generation in the country.

(d) to generate greater tax revenue.

Answer: (a) to bring price stability in the economy

5. The sum of factor payments is equal to _______. (Choose the correct alternative.)

(a) Domestic Income

(b) National Income

(c) Per Capita Real Income

(d) Per Capita Nominal Income.

6. ₹2,000 note lying in wallet of Rohini, a student is an example of ______ (stock/flow) variable. (Fill up the blank with the correct alternative.)

When a variable is measured at a specific point of time, it is known as stock. The goods that are consumed over a period of time, that do not wear out immediately, or intermediate goods which do not change over time or can be measured at a given point of time are called stocks.

7. State, whether the given statement is true or false :

‘Expenditure on Ujjwala Yojana launched by the Government is an example of capital expenditure.’

Answer: False. Expenditure on Ujjwala Yojana launched by the Government is an example of revenue expenditure as it neither creates any asset nor causes any reduction in the government’s liability.

8. Define intermediate consumption.

Answer: The use of intermediate goods during the production process to create the final product is termed Intermediate Consumption.

9. Give any one example of ‘debt creating capital receipts’ in the Government Budget.

10. Define unplanned inventories (stock).

Answer: A change in inventories or stock that has incurred unexpectedly is known as unplanned stock or inventories. Simply put, it is a situation in which because of an unexpected fall in sales, the firm will have unsold goods lying around which has not been anticipated.

11. Calculate Net Value Added at Factor Cost (NVAFC) from the following data :

Answer: Value-added refers to the addition in the value of a raw material or intermediate good by an organization, during the production process.

To determine NVAFC, first of all, we have to determine Value Added or GVAMP.

Value Added = Value of Output – Intermediate Consumption

Value Added = 800 – 200

Now,

NVAFC = Value Added – Depreciation – Net Indirect Tax (Indirect Tax – Subsidies)

= 600 – 20 – [30 – 50]

= 600 – 20 + 20

NVAFC = ₹600 Crores

OR

State the three components of Income from Property and Entrepreneurship.

Answer: Income from Property and Entrepreneurship or Operating Surplus is another term used in factor payments. It is the sum total of income from property and income from entrepreneurship. Operating Surplus arises in both government and private enterprises, but does not arise in the general government sector as in this sector it works with the motive of social welfare. These components are used in determining national income through Income Method.

The three components of ‘Income from Property and Entrepreneurship’ are as follows:

• Rent/Royalties
• Interest
• Profit

12. “Management of a water polluting oil refinery says that it (oil refinery) ensures welfare through its contribution to Gross Domestic Product.”

Defend or refute the argument of management with respect to GDP as a welfare measure of the economy.

Answer: The given statement, “Management of a water polluting oil refinery says that it (oil refinery) ensures welfare through its contribution to Gross Domestic Product.” is refuted because GDP is not a good measure of welfare as it does not consider the impact of externalities. Externalities mean any benefit or harm of an activity that is caused by an individual or an organization for which they are not paid or penalised.

As the oil refineries may pollute the nearby source of water, they are not penalised for the harmful effect caused by them on people and marine life. Hence, these negative externalities do not ensure the welfare of the economy through Gross Domestic Product.

13. Define effective demand. Discuss how effective demand can be restored if ex-ante saving is less than ex-ante investment.

Answer: Effective Demand is that level of output where the Aggregate Demand of the commodities is equal to the Aggregate Supply.

When ex-ante saving is less than ex-ante investment, it means that the buyers are planning to buy more than what the producers are planning to produce, resulting in a shortage of inventories with the producers. Now, to restore the effective demand; i.e., to bring back the desired level of inventory, the producers will expand their production and will continue this procedure until the two forces become equal.

14. Elaborate the objective of ‘allocation of resources’ in the Government Budget.

Answer: Government Budget is a statement of expected receipts and expected expenditures of the Government (for the coming fiscal year) that reveals the budgetary policy of the Government to achieve the twin objective of growth and stability. The financial/fiscal year is taken from 1st April to 31st March. One of the major objectives of the Government Budget is the Allocation of Resources.

Allocation of Resources refers to the direction of resources from one use to the other. In India, the public and private sectors play an essential role in the economy. However, Private enterprises always aim at maximising profits by allocating resources to those areas of production where they can earn higher returns. There are chances that an industry like alcohol may not promote the welfare of people. The Government of a country directs the distribution of resources through its resources in order to strike a balance between the goals of profit maximization and social welfare. For example, there is the production of both necessary and luxury goods. Besides, the Government can influence the allocation of resources through:

• Tax Concessions or Subsidies: Government encourages and discourages investment in useful and harmful goods respectively by providing concessions, subsidies, imposing heavy taxes, etc., on their production. For example, Government imposes heavy taxes on producing goods that are harmful to health, like ‘cigarettes’. Similarly, Government provides subsidies for the production of goods like ‘khadi’, which are helpful to society.
• Directly Producing Goods and Services: If the private sector does not take the initiative in certain non-profitable economic activities, the Government directly controls them, like water supply, sanitation, etc. It is also known as the allocation function as the Government attempts to provide certain goods and services which can not be provided through the market mechanism.

15. Explain the function of Central Bank as ‘Banker, Agent and Advisor’ of the Government.

Answer: A central bank is a financial institution that is responsible for managing a country’s monetary policy and overseeing the banking system. It acts as the main regulator of the money supply and interest rates and plays a key role in promoting economic stability and growth. Central banks are typically independent of the government and have specific powers and responsibilities granted by law. One of the major functions of the Central Bank is that it acts as a Banker, Agent, and Advisor to the Government.

The Reserve Bank of India (Central Bank) acts as an agent, banker, and financial advisor to the Central Government and all the State Governments. As a banker, the Central bank carries out every banking business of the government, such as:

• To keep the cash balances of the Central and State Governments, the Central Bank maintains a current account.
• It accepts receipts and makes payments for the government and also carries out exchange, remittance, and other banking operations of the Central and State Governments.
• Ultimately, it gives loans and advances to the government for temporary periods. The government sells its treasury bills to the Central Bank in order to borrow money.

As an agent, the Reserve Bank of India (Central Bank) is responsible for the management of public debt.

As a financial advisor, it gives advice to the government from time to time on financial, monetary, and economic matters.

OR

Elaborate, how does a Central Bank stabilize money supply through ‘Bank Rate’.

Answer: A central bank is a financial institution that is responsible for managing a country’s monetary policy and overseeing the banking system. It acts as the main regulator of the money supply and interest rates and plays a key role in promoting economic stability and growth. Central banks are typically independent of the government and have specific powers and responsibilities granted by law.

Bank Rate is the rate at which a country’s central bank (in case of India, RBI) lends money to commercial banks to meet their long-term financial needs. Bank Rate has the same effect on credit as that of Repo Rate. To stabilize the money supply in the economy, the Central Bank increases the bank rate, which forces commercial banks to increase their lending rates. Once the lending rates are increased, it makes borrowings costlier for the general public.

Hence, the Central Bank increases bank rate to discourage the general public from taking loans from commercial banks, which as a result restrict the money supply in the economy.

16. (a) Given the following information, state whether the economy is in equilibrium or not:

Answer: An economy is in equilibrium when the Aggregate Demand is equal to the Aggregate Supply; i.e., AD = AS(Y).

In the given question, MPC = 0.8, Y = ₹4,000 Crores, and Autonomous Consumption = ₹700 Crores

AD = 700 + 0.8 (4,000)

AD = ₹3,900 and AS = ₹4,000.

The economy in the given question is not in equilibrium because here AD < AS.

(b) Answer the following questions based on the figure given below:

(i) At which level of income Average Propensity to Save (APS) will be equal to zero & why?
(ii) What does ‘OA’ signify with respect to consumption function?

i) Average Propensity to Save (APS) is the ratio of savings to the corresponding income level at a point of time.

APS will be zero at the break-even point; i.e., at point B. At the break-even point, Consumption (C) = Income (Y), or Savings (S) = 0.

ii) OA signifies Autonomous Consumption with respect to the consumption curve.

Autonomous Consumption is the minimum consumption level required for survival. Simply put, it is consumption at zero level of national income. An individual meets this consumption level either from past savings or by selling assets or through borrowings. Autonomous Consumption is denoted by .

For Visually Impaired Candidates only :

(b) (i) Define consumption function.

(ii) What is the significance of dis-savings?

b) i) The functional relationship between consumption and national income is known as Consumption Function. It represents the willingness of households to purchase goods and services at a given income level during a given period of time. It is represented as:

C = f(Y)

Where, C = Consumption, Y = National Income, and f = Functional Relationship

The consumption function is a psychological concept that shows consumption levels at different income levels in an economy. Besides, it is influenced by subjective factors like consumer habits, preferences, etc.

ii)  Dis-savings is a situation when Consumption (C) is more than Income (Y). This situation signifies that the spending done for the basic needs (necessary for one’s survival) is financed by borrowings and past savings.

17. State, giving valid reasons whether the following statements are true or false :

(i) Trade deficit is always a great cause of worry for an economy.

(ii) Depreciation of currency has same effect on exports as devaluation of currency.

(iii) ‘Indians investing in assets abroad’ will be recorded under debit side of capital account in Balance of Payments.

i) False.

Trade deficit is a situation when the imports of goods are more than the exports of goods. Even though the Balance of Trade is unfavourable for the country, it is not always a great cause of worry for an economy. It is because trade deficit reflects an increase in investment which builds the capital stock which will ultimately increase the future output in an economy.

ii) True.

Currency Depreciation means a decrease in the value of domestic currency in terms of foreign currency. Devaluation of currency means a reduction in the price of domestic currency in terms of all foreign currencies under the fixed exchange rate regime. Depreciation and devaluation both have the same effect on exports as both of them normally encourages exports from a country as they become cheaper for foreign nationals and they can now buy more domestic goods with the foreign currency.

iii) True.

Capital Account comprises all the transactions, which has a direct or indirect impact on the assets and liabilities of the country or government with regard to the outside world. When Indians invest in assets abroad it will result in outflow of foreign currency; hence, it will be recorded under the debit side of capital account in Balance of Payment.

OR

(a) Explain, what can be the likely impact of depreciation of the home currency on imports to the country.

(b) Distinguish between Current Account Deficit (CAD) and Current Account Surplus (CAS).

#### Impact of depreciation of home currency on imports to the country:

Currency depreciation means a fall in the price of domestic currency (₹) in comparison to foreign currencies ($). For example, earlier people can get goods worth ₹60 from a unit of the dollar, but now they can get goods worth ₹64 from 1$. It means that they have to give more money in terms of rupees to get goods from a foreign country, resulting in losses for importers. Therefore, imports of the economy may tend to fall.

b) Current Account Deficit (CAD): A situation when the current account’s receipts are less than its payments is known as Current Account Deficit. Simply put, this situation arises when the value of exports of goods and services is less than the value of imports of goods and services.

Current Account Surplus (CAS): A situation when the current account’s receipts are more than its payments is known as Current Account Surplus. Simply put, this situation arises when the value of exports of goods and services is more than the value of imports of goods and services.

(The goods and services here consist of visible items, invisible items, and unilateral transfers.)

### Section – Ba(Indian Economic Development)

18. Define mixed economy.

Answer: A Mixed Economy system is a combination of both capitalist and socialist economic systems. It incorporates the benefits of both systems and avoids their drawbacks. In a mixed economy, both the public and private sector coexists, and the private & public sector collaborates to achieve social objectives within an economic framework. India is the biggest example of a mixed economy.

19. World Trade Organisation (WTO) was established in 1995, as a successor organisation to _______. (Fill up the blank with the correct answer)

20. Great Proletarian Cultural Revolution was introduced under the leadership of _______. (Choose the correct alternative)

(a) Mao Zedong

(b) J.L. Nehru

(c) M.K. Gandhi

(d) M.A. Jinnah

21. Define disguised unemployment.

Answer: A situation in which the number of employees/workers engaged in a work is more than the actual requirement is known as disguised unemployment. Another name for disguised unemployment is Hidden Unemployment. For example, if only four workers are required on a piece of land but 7 workers are engaged on that land, then 3 workers are disguised unemployed.

22. _______ policy followed in first seven five year plans of India, aimed at substituting imports with domestic production. (Fill up the blank with the correct answer)

23. In the past few decades _________ (primary/secondary/tertiary) sector has created maximum jobs opportunities in India. (Fill up the blank with the correct alternative)

24. The main aim of ‘Great Leap Forward’ (GLF) was to ensure rapid increase of _______ in China. (Choose the correct alternative)

(a) agriculture

(b) industries

(c) services

(d) exports

25. Which of the following is NOT a benefit of organic farming? (Choose the correct alternative.)

(a) Cheaper inputs

(b) Attractive returns on investment

(c) Greater import possibilities

(d) Higher nutritional value

26. State whether the following statement is true or false :

“World Bank is also known as International Bank for Registration and Delimitation (IBRD).”

World Bank is also known as International Bank for Reconstruction and Development (IBRD).

OR

Define Marketed Surplus.

Answer: Marketed Surplus is that portion of the agricultural produce which is sold by the farmers in the market. Simply put, it is the difference between the total output produced by the farmers and their self-consumption from that output.

Marketed Surplus = Total farm output produced by a farmer – Own Consumption of farm output

27. Introduction of Economic Reforms in China took place in the year _________. (Choose the correct alternative.)

(a) 1978

(b) 1980

(c) 1988

(d) 1991

28. “Rapid increase in economic growth surely trickles down to the people under the absolutely poor category.”

Defend or refute the given statement with valid argument.

Answer: A poor person is an individual who lives a difficult life as he is not able to afford the necessities of life, which morally degrade him. He is incapable of acting like a human being. He feels demoralized by how society treats him.

The given statement, ‘‘Rapid increase in economic growth surely trickles down to the people under the absolutely poor category.’’ is refuted because of the following reasons:

• The growth in population has resulted in a very low growth in the per capita income of the country.
• Also, the green revolution has increased the regional disparity and the gap between poor and rich farmers.
• Ultimately, the rich have grabbed the benefits of economic growth.

OR

“Human Capital Formation gives birth to innovation, invention and technological improvements.” Do you agree with the given statement? Support your answer with valid arguments.

Answer: Human Capital Formation is the process of addition made to the stock of skilled and capable people in the country over a time period. Yes, the given statement “Human Capital Formation gives birth to innovation, invention and technological improvements” is correct as this process not only increases productivity of the available human resource but also helps in stimulating innovation among them, which ultimately helps in creating the ability to adopt new technologies.

Simply put, by making investment in education, one can create the ability to adopt new technologies, and facilitate invention and innovation. It is because educated human resource usually move towards modern technologies and innovation.

29. Compare and analyse the given data of India and China, with valid reasons :

Answer: The given table related to the data of India and China shows the following aspects about its population growth and sex ratio:

1. The annual growth rate of the population in China is less (0.5%) than the growth rate in India (1.2%) because of the “One Child Policy” in China. India too wanted to spread awareness among people related to family planning measures, but the decreasing rate of population is China is more than the decreasing rate in India.
2. The number of females per 1000 males in India is less (929) than the number of females per 1000 males in China (941). It is because in India people prefer a son (male) as their child instead of a daughter (female).

30. Discuss briefly any two salient features of India’s pre-independence occupational structure.

Answer: Distributing working people across primary, secondary, and tertiary sectors of the economy is known as Occupational Structure. The primary sector consists of production units that exploit natural resources like water, land, etc. For example, mining, fishing, forestry, etc. The secondary sector consists of production units that transform one good into another good. For example, construction companies, power generation companies, etc. The tertiary or service sector consists of production units that are engaged in producing services. For example, finance, education, transport, etc.

The salient features of the occupational structure of India on the eve of Independence are as follows:

1. Predominance of Primary Occupation: Largest share of the workforce; i.e., 70-75% were found in the agricultural sector. However, the manufacturing and service sector accounted for 10% and 15-20% respectively.
2. Regional Variation: On the eve of independence, regional variation was growing. There was a decline in the dependence of the workforce on the agricultural sector in the states of Andhra Pradesh, Tamil Nadu, Karnataka, Kerala, West Bengal, and Maharashtra. However, the increase in the manufacturing and service sectors in these states was good. Also, during the same time, the share of the workforce in the agricultural sector in the states of Orissa, Punjab, and Rajasthan increased.

OR

Discuss briefly the rationale behind choosing ‘Self-reliance’ as a planning objective for the Indian economy.

Answer: The planning commission proposed that India should formulate a plan for a period of 5 years for its development and economic growth, known as the Five Year Plan. Till now, twelve five-year plans have been completed in India. Under the influence of then Prime Minister Pt. Jawahar Lal Nehru, India established its first five-year plan inspired by the Soviet Union. The basic goals behind the Five Year Plan are growth, modernisation, self-reliance, and equity.

Self-reliance means anything that India is capable of manufacturing domestically will not be imported, especially food and agricultural products. In nutshell, Self-reliance means development through domestic resources. The major objectives of choosing Self-reliance as a planning objective for the Indian economy are as follows:

• To reduce Foreign Dependence: As India recently got freedom from foreign control, it was necessary for India to become independent or self-reliant and reduce its dependency on foreign countries, especially for food or agricultural items.
• To avoid Foreign Interference: The government of India was afraid that dependency on foreign countries for food supplies, capital, & technology may increase foreign interference in the economic policies of the country.

31. “Some economists believe that the economic reforms have adversely affected the agriculture sector in India.”

Do you agree with the given statement? Justify your answer with valid reason.

Answer: The economic condition of India in 1991 was pathetic. The government was unable to generate revenues from the sources like taxation. The income from public enterprises was also low. However, the government has to spend more on various issues like unemployment, overpopulation, and poverty, which increases the need to introduce economic reforms in India. Economic Reforms are the set of economic policies that aims to accelerate the pace of growth and development in the economy.

The given statement is true. The Economic Reform process has adversely affected the agriculture sector in the following ways:

1. Reduction of Public Investment: There has been a decline in public investment in the agriculture sector involving irrigation, power, market ties, roads, research, and advancement.
2. Liberalisation and Reduction in Import Duties: There have been several policy changes influencing this sector, which include (a) lowering of import taxes on agricultural goods (b) Elimination of minimum and fair support prices (c) removing quantitative constraints on agricultural products. Due to growing international competition, all of these policies had a negative impact on Indian farmers.
3. Removal of Subsidy: Lifting of fertilizer subsidies increased production costs, which adversely impacted the small and marginal farmers.
4. Shift towards Cash Crops: Agricultural production has switched from food crops to export crops as a result of export-oriented policy measures.

32. (a) State the names of six Indian Systems of Medicine (ISM) under the AYUSH scheme of the Government of India.

(b) Name any two non-conventional sources of energy.

a) AYUSH scheme is India’s well-developed alternative healthcare system. At present, there are 27,951 AYUSH dispensaries, 4,095 hospitals and around 8 lakh registered practitioners in India. The six Indian Systems of Medicine (ISM) under the AYUSH scheme of the Government of India include Ayurveda, Yoga, Unani, Siddha, Naturopathy, and Homeopathy.

b) The sources of energy which have come into use only recently are known as non-conventional sources of energy. These sources of energy are renewable and eco-friendly. Two non-conventional sources of energy are wind energy and geo-thermal energy.

33. What is meant by sustainable development? Discuss briefly any two strategies of sustainable development.

Answer: The development process that helps in meeting the needs of present generation without compromising the ability of future generations to meet their needs is known as Sustainable Development. The basic purpose behind sustainable development is to ensure that for the future generation, the present generation should leave stock of quality of life. The origin of term ‘Sustainable Development’ is in the International Union for the Conservation of Natural Resources (IUCN) 1980 World Commission Strategy report.

#### Strategies for Sustainable Development

To achieve sustainable development it is essential to adopt the following strategies:

1. Use Cleaner Fuels: In Urban areas, the use of CNG as fuel is being promoted. The use of CNG (Compressed Natural Gas) in Delhi has shown a significant reduction in air pollution. In Rural areas, generally, cow dung cakes, wood or other biomass is being used as fuel which adversely affects the environment and results in deforestation, reduction in green cover, etc. To attain sustainability in rural areas, the use of LPG and Gobar Gas as fuel is being promoted as these are cleaner fuels than wood or cow dung cakes and also help in the reduction of household pollution to a large extent.
2. Use of Non-conventional Sources of Energy: To meet its power needs, India depends mostly on thermal and hydropower plants. However, these plants have a huge adverse impact on the environment. Therefore, to reduce the harmful impact on the environment, non-conventional sources like wind power and solar rays are suggested as these two energy sources are cleaner and greener. However, because of the lack of technological devices, these sources are not yet explored on a large scale. Besides, in the areas where there is high-speed wind, windmills can be used to provide electricity as they do not have any adverse impact on the environment.

34. (a) Define worker-population ratio. What does it signifies?

(b) Analyse the trends in sectoral distribution of work force in India on the basis of data:

a) Worker-population Ratio is the ratio of total number of workers to the total population and is generally expressed in terms of percentage. The formula for calculating the worker-population ratio is:

Significance: The worker-population ratio signifies that part of a population which has a active contribution in the production of goods and services of a country.

b) With the given information about the trends in employment patterns, it can be concluded that the proportion of workforce in India in the primary sector is rapidly decreasing from 74.3% (in 1972-73) to 48.9% (in 2011-12). However, the employment share of both secondary and service sectors has increased by approximately 13.4% (in the last 40 years) and 12% (in the last 40 years), respectively.

OR

(a) “The Prime Minister urged to increase the rural income by increasing non-farm activities.”

Explain how non-farm activities can lead to rise in income of people in rural sector.

(b) “Indian health system needs the increased dose of public expenditure to cure itself.”

Defend or refute the given statement with valid arguments.