Target 2024 by Eco Baba

TARGET CBSE 2024 12TH ECONOMICS BY NAVEEN SADHU
UNIT-1 (NATIONAL INCOME ACCOUNTING)
1. State whether the following statement is true or false : ‘‘Expected obsolescence is included in depreciation.’’
Ans. True
2. Car purchased by a household is a . (Choose the correct alternative)

(a) Single use capital good (b) Single use consumer good
(c) Durable consumer good (d) Semi-durable consumer good
Ans. (c) Durable consumer good
3. GNP deflator is represented by which of the following formulae? (Choose the correct alternative)
(a) (Nominal GNP / Real GNP) × 100 (b) (Real GNP / Nominal GNP) × 100
(c) 100 × Change in Rate of Inflation/ Real GNP (d) 100 × Real GNP / Change in Rate of Inflation
Ans. (a) (Nominal GNP / Real GNP) × 100
4. Identify flow variable from the following –

(a) Distance between Delhi and Amritsar (b) Annual expenditure of a school
(c) Bank balance of Mr. Mukesh as on 31st March, 2022 (d) Investments of Mr. Mohit as on 31st Dec. 2021
Ans – (b) Annual expenditure of a school
5. Read the following statements carefully:

Statement 1: Gross Domestic Product (GDP) is the sum total of the gross market value of all the final goods
and services added by all the sectors in the economy during a fiscal year.
Statement 2: Gross Value Added at Market Price (GVAMP) is equal to the excess of value of output over
intermediate consumption.
In the light of the given statements, choose the correct alternative from the following:
(a) Statement 1 is true and Statement 2 is false. (b) Statement 1 is false and Statement 2 is true.
(c) Both Statements 1 and 2 are true. (d) Both Statements 1 and 2 are false.
Ans. (c) Both Statements 1 and 2 are true
6. Choose the correct alternative to fill in the blanks (i) and (ii) in the figure.
Alternatives:
(a) National, Production (b) Factor, Production (c) Factor, Consumption (d) National, Consumption
Ans. (c) Factor, Consumption
7. Operating Surplus does not include . (Choose the correct alternative to fill up the blank)
(a) Interest (b) Rent (c) Profit (d) Compensation of employees
Ans. (d) Compensation of employees
DWARKA : AL CLASSES - SECTOR 12, BOLT ACADEMY- SECTOR 22. ASHOK NAGAR: AIMS 1
8. From the statements given in Column I and Column II, choose the correct pair.
Column I Column II
A. Vegetable grown in the Personal garden (i) Non marketing activity
B. Acar used as taxi (ii) Consumer good
C. Anair-conditioner used by household (iii) Capital good
D. Scholarship given to students bygovernment (iv) Factorincome
Alternatives:
(a) A-(i) (b) B-(ii) (c) C-(iii) (d) D-(iv)
Ans. (a) A-(i)
9. On the basis of the figure given below, identify the type of flow indicated by B and D.
Alternatives:
(a) Real flow (b) Money flow (c) Nominal flow (d) National flow
Ans. (a) Real flow
10. Complete the Table.

Producer Value of output Intermediate Consumption Value Added
Farmer 2000 - 2000
Baker (i) 2000 2000
Retail Seller 4,400 (iii) 400
Total (ii) 6,000 (iv)
Alternatives:
(a) 4000, 10400, 4000, 4000 (b) 4000, 10400, 4000, 4400
(c) 2000, 6000, 6000, 4400 (d) 4000, 10400, 6000, 4000
Ans. (b) 4000,10400,4000,4400
11. 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
Ans. (a) Domestic Income or (b) National Income
12. State, whether the following statement is true or false : ‘Inventory is a stock variable.’
Ans. True
13. A 2,000 note lying in wallet of Rohini, a student is an example of (stock/flow) variable.
Ans. Stock
14. State whether the following statement is true or false :

‘‘Industrial waste driven into rivers is an example of positive externality.’’
Ans. False
15. Which of the following is not a ‘factor payment’ ? (Choose the correct alternative)
(a) Free uniform to defence personnel. (b) Salaries to the Members of Parliament.
(c) Rent paid to the owner of a building. (d) Scholarship given to the students.
Ans. (d) Scholarship given to the students.
16. Combined factor income, which can’t be separated into various factor income components is known as .
Ans. Mixed income of self- employed.
17. Net Domestic Fixed Capital Formation + Change in Stock = . (Fill up the blank)
Ans. Net Domestic Capital Formation
18. When Nominal Gross Domestic Product (GDP) is 840 crores and price Index is 120, then the Real Gross
Domestic Product (GDP) will be . (Fill up the blank with correct alternative)
(a) 700 crores (b) 900 crores (c) 800 crores (d) 500 crores
Ans. (a) 700 crores
19. If in an economy the value of Net Factor Income from Abroad is Rs. 200 crores and the value of Factor
Income to Abroad is Rs. 40 crores. Identify the value of Factor Income from Abroad.
(a) Rs 200 crores (b) Rs 160 crores (c) Rs 240 crores (d) Rs 180 crores
Ans. (c) Rs 240 crores
20. Inventory is a concept whereas the change in inventory is a concept.

Ans. Stock, Flow
21. Estimate the value of Nominal Gross Domestic Product for a hypothetical economy, the value of Real Gross
Domestic Product and Price Index are given as Rs 500 crores and Rs 125 crores respectively.
Ans. Rs 625 crores
22. The difference between National Income at market price and National Income at factor cost is
(a) net indirect taxes (b) net factor income from abroad
(c) consumption of fixed capital (d) market price
Ans. (a) net indirect taxes

Statement 1 - Net investment is a stock concept.
Statement 2 - Capital is a flow concept.
(a) Statement 1 is true and statement 2 is false (b) Statement 1 is false and statement 2 is true
(c) Both statements 1 and 2 are true (d) Both statements 1 and 2 are false
Ans. (d) Both statements 1 and 2 are false
24. Identify which of the following represents only the real flow:
Ans: (b)
25. Read the following figure carefully and choose the correct pair from the alternatives below:
Alternatives:
(a) Output, Production (b) Value added, Production (c) Output, Disposition (d) Wealth, Development
Ans. (c) Output, Disposition
26. Increase in Real Gross Domestic Product (GDP) implies in the economy.
(a) increase in the level of income (b) increase in the general price level
(c) increase in flow of goods and services (d) decrease in aggregate demand
Ans. (c) increase in flow of goods and services
UNIT-2 (MONEY AND BANKING)

Statement 1: Primary deposits are the cash deposits by general public with commercial banks.
Statement 2: Secondary deposits are those deposits which arise on account of credit provided by the commercial
banks to the people.
In light of the given statements, choose the correct alternative from the following:
Ans.(c) Both Statements 1 and 2 are true.
2. The rate at which commercial banks borrow from the Reserve Bank of India to meet their long-term
requirements is known as (Choose the correct alternative to fill up the blank)
(a) Margin requirement (b) Bank rate (c) Repo rate (d) Reverse repo rate
Ans. (b) Bank rate
3. Read the following news report carefully:

“The central bank has imposed fine on Hisar Urban Cooperative Bank Ltd. and Andaman and Nicobar State
Cooperative Bank Ltd. for violation of banking norms” According to the given report, identify the function of the
central bank.
(a) Issue of currency (b) Banker to the public (c) Banker to the Government (d) Banker’s Bank
Ans. (d) Banker’s Bank
4. Ms. Iqra Ansari, a teacher, was explaining in her class about various types of deposits with the commercial
banks. She quoted that- "These deposits form a part of M1 measure of money supply and are payable on demand
by the commercial banks."
Identify the type of deposits she was explaining about and choose the correct alternative:
(i) Demand Deposits (ii) Time Deposits (iii) Post Office Deposits
Alternatives:
(a) Only (i) (b) Only (ii) (c) (i) and (ii) (d) (i), (ii) and (iii)
Ans. (a) Only (i)
5. In the Indian economy are issued by the Reserve Bank of India and acts as legal tender money. (i)
Coins of all denomination, (ii) Currency notes of various denominations, except one rupee note and (iii) Demand
deposits
Alternatives:
(a) Only (i) (b) Only (ii) (c) Only (iii) (d) (i) and (ii)
Ans. (b) Only (ii)
6. formulates the Monetary Policy in the economy.

(a) Commercial Banks (b) International Monetary Fund (c) Central Bank (d) Central Government
Ans. (c) Central Bank
7. Identify, which of the following is not a function of the Reserve Bank of India.
(a) Controller of money supply (b) Credit provider to commercial banks
(c) Central agency preparing the annual budget of the Government (d) Issuer of currency
Ans. (c) Central agency preparing the annual budget of the Government

Statement 1: Stock variables are measured at a point of time.
Statement 2: Flow variables and stock variables are same.
(c) Both Statements 1 and 2 are true. (d) Both Statements 1 and 2 are false
Ans. (a) Statement 1 is true and Statement 2 is false.
9. The Reserve Bank of India (RBI) government securities in a bid to the stock of money in the
economy. (Choose the correct alternative to fill up the blanks)
(a) sells, decrease (b) purchases, decrease (c) sells, increase (d) purchases, not change
Ans. (a) sells, decrease
10. ‘Money is an asset which can be stored for use in future.’

In the light of given statement, identify the function of money.(Choose the correct alternative)
(a) A measure of value (b) A standard of deferred payment (c) A store of value (d) A medium of exchange
Ans. (c) A store of value

Statement 1: Money supply (M1) in India does not include 'demand deposits' with commercial banks.
Statement 2: Money supply (M1) refers to, assets available with the Commercial Banks during a particular period
of time. In the light of the given statements, choose the correct alternative.
(c) Both statements 1 and 2 are true. (d) Both statements 1 and 2 are false.
12. is an institution that accept deposits for lending purposes.

(a) Commercial Banks (b) Life Insurance Corporation (c) Reserve Bank of India (d) Government of India
Ans. (a) Commercial Banks
13. Money supply in India may increase if, (Choose the correct alternative)
1. Reserve Bank of India(RBI) injects more money in circulation
2. The commercial banks expand their credit operation
3. Tax rates are reduced by the Central Government
4. Reserve Bank of India increases the Bank Rate
Alternatives:
(a) 1,2 and 3 are correct (b) 2,3 and 4 are correct (c) 1,3 and 4 are correct (d) 1,2 and 4 are correct
Ans. (a) 1,2 and 3 are correct
UNIT-3 (INCOME DETERMINATION)
1. Suppose in a hypothetical economy, the income rises from Rs 500 crores to Rs 600 crores. As a result, the
consumption expenditure rises from Rs 400 crores to Rs 500 crores. Marginal propensity to consume in such a
case would be . (Choose the correct alternative)
(a) 0·8 (b) 0·4 (c) 1·0 (d) 0·6
Ans. (c) 1·0

Statement1:The induced consumption shows, the direct relation between consumption and income.
Statement 2: With a certain increase in income, induced consumption also increases.
3. Read the following statements- Assertion (A) and Reason ®. Choose one of the correct alternatives given
below:
Assertion (A): At the break-even level of income, the value of Average Propensity to Consume (APC) is zero.
Reason (R) : Sum of Average Propensity to Consume (APC) and Average Propensity to Save (APS) is always
equal to one.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false. (d) Assertion (A) is false, but Reason (R) is true.
Ans. (d) Assertion (A) is false, but Reason (R) is true.
4. refers to that level of Aggregate Demand, which can be met by the corresponding supply in the
economy. (Fill up the blank with correct alternative)
(a) Autonomous Consumption (b) Effective demand (c) Excess Demand (d) Deficient Demand
Ans. (b) Effective Demand

Statement 1: Savings function can be derived from Consumption function.
Statement 2: Consumption curve must always start from the point of origin.

Statement 1: Investment is defined as addition to the physical capital and changes in the inventory.
Statement 2: At equilibrium level of income, ex-post investments and ex-post savings are always equal.
Ans (c) Both Statements 1 and 2 are true.
7. If the Marginal Propensity to Save (MPS) is 0.5, what will be the value of investment multiplier?
(a) 1 (b) 2 (c) 1.6 (d) 1.45
Ans. (b) 2
8. An increase in National Income occurs by ₹ 3,000 crore, as investments increased by ₹1,200 crore. The value
of investment multiplier would be .
(a) 2 (b) 2.5 (c) 4 (d) 5
Ans. (b) 2.5
9. If in an economy, the Investment Multiplier is 4 and Autonomous Consumption is ₹30 crore, the relevant
consumption function would be . (Fill up the blank with correct alternative)
(a) C=30+0.75 Y (b) C=(-) 30+ 0.25 Y (c) C=30+0.25 Y (d) C=(-) 30 - 0.25 Y
Ans. (a) C= 30 + 0.75 Y
10. If increase in National Income is equal to increase in Savings, the value of Marginal propensity to Consume
would be .(Fill up the blank with correct alternative)
(a) equal to unity (b) greater than one (c) less than one (d) equal to zero
Ans. (d) equal to zero
11. Average propensity to Consume can never be .

(a) Positive (b) Zero (c) More than one (d) Less than one
Ans. (b) Zero
12. In an economy, break-even point and equilibrium point may lie at the same level of income, if ex-ante
investments are .
Ans. Zero
13. In the present COVID-19 times, many economists have raised their concerns that Indian economy may have
to face a deflationary situation, due to reduced economic activities in the country. Suppose you are a member of
the high powered committee constituted by the Reserve Bank of India (RBI). You have suggested that as the
supervisor of commercial banks, ................ (restriction/release) of the money supply be ensured, by the Reserve
Bank of India (RBI).
Ans. Release
14. If in an economy, the value of Investment Multiplier is 5 and dissavings (-)100 crore, the relevant savings at
income level of 1,400 crore would be crore.
(a) 80 (b)180 (c) 140 (d) 240
Ans. (b) 180
15. The range of value of Investment Multiplier is always between and .

(a) zero (0), infinity (∞) (b) one (+ 1), infinity (∞)
(c) zero (0), one (+ 1) (d) minus one (-1), plus one (+ 1)
Ans. (b) one (+ 1), infinity (∞)
16. If the central bank wants to reduce money supply in the economy, it may .
(a) increase Bank Rate (b) reduce Cash Reserve Ratio
(c) sell securities in the open market (d) buy securities in the open market
Alternatives:
(a) (i) and (iii) (b) (ii), (iii) and (iv) (c) (i), (iii) and (iv) (d) (i), (ii), (iii) and (iv)
Ans. (a) (i) and (iii)
17. (Aggregate Demand/Aggregate Supply) refers to total ex-ante expenditure in an economy during
an accounting year. (Fill in the blank with the correct alternative)
Ans. Aggregate Demand
18. If Marginal Propensity to Save (MPS) is equal to zero, the value of investment multiplier will be .
Ans. Not defined (∞)
19. Effective demand is defined as .

Ans. That level of output and employment where Aggregate Demand is equal to Aggregate supply.
20. According to the theory of Keynesian Economics, the value of Average Propensity to Consume can never be
.
(a) Zero (b) Unity (c) More than one (d) Less than one
Ans. (a) Zero
21. State whether the following statement is true or false : ‘‘As per Keynesian theory in an economy, full
employment can never exist.’’
Ans. False
22. Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative given below.
Assertion (A): Excess demand does not lead to any increase in the level of real output.
Reason (R): Excess demand creates a gap between actual demand and desired demand corresponding to full
employment level.
Alternatives:
Ans. (b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of
Assertion (A).
23. Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative given below.
Assertion (A): Rich people have lower Marginal Propensity to Consume (MPC) as compared to poor people.
Reason (R): Consumption curve makes an intercept on the y-axis at a point above the origin.
Alternatives:
Assertion (A).
24. Read the following statements - Assertion(A) and Reason (R). Choose the correct alternatives given below:
Assertion (A): Full employment refers to, absence of involuntary unemployment.
Reason (R): Under full employment situation, all willing and able bodied people get employment at prevailing
wage rate.
Alternatives:
Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of (A).
25. In an economy, the value of Marginal Propensity to Save (MPS) is 0.25, what will be the value of increase in
income, if investments increased by ₹200 crores?
(a) ₹ 200 crores (b) ₹ 150 crores (c) ₹ 1,000 crores (d) ₹ 800 crores
Ans. (d) ₹ 800 crore
26. If the entire additional income of an economy is consumed, the value of investment multiplier will be .
(a) Zero (0) (b) Not defined (∞) (c) More than one (d) Less than one
Ans. (b) Not defined (∞)
27. Name the two components of Aggregate Demand in a closed economy–

Ans. Consumption Expenditure (c) and Investment Expenditure (I)

‘‘To reduce inflation, the Central Bank should reduce Cash Reserve Ratio (CRR).
Ans. False
28. Suppose in a hypothetical economy, the income rises from Rs. 500 crores to Rs.600 crores. As a result, the
consumption expenditure rises from Rs.400 crores to Rs.500 crores. Marginal propensity to consume in such a
case would be . (Choose the correct alternative)
(a) 0.8 (b) 0.4 (c) 1.0 (d) 0.6
Ans. (c)
29. Deflationary gap indicates (excess/deficient) demand in an economy.

Ans. Deficient
30. State the meaning of Involuntary Unemployment.

Ans. Involuntary Unemployment refers to a situation in which all those people who are willing and able to
work at the existing wage rate do not get work.
31. Average Propensity to Save (APS) is the ratio of and .

Ans. total savings and total income
32. Suppose in a hypothetical economy, the savings increase by Rs. 20 crores when national income increases by
Rs. 100 crores. Compute the additional investments needed to attain an increase in national income by Rs. 6,000
crores?
Ans. Rs 1200 crores

Statement 1: In a two sector economy, consumption expenditure and investment expenditure are the two
components of Aggregate Demand.
Statement 2: Aggregate demand curve always start from point of origin with positive slope.
In the light of given statements, choose the correct alternative from the following:
Ans. (c) Both Statements 1 and 2 are true.
34. If the value of Average Propensity to Consume (APC) is 0.8 and National Income is Rs. 4,000 crore, the value
of savings will be . (Choose the correct alternative.)
(a) Rs.100 crores (b) Rs.200 crores (c) Rs.800 crores (d) Rs.500 crores
35. If Autonomous Consumption (c) is greater than zero, it indicates that the National Income of the economy will
be .
(a) Rising (b) Falling (c) Zero (d) Constant
Ans. Marks should be allotted to any of the option answered by the student.
36. In case of an underemployment equilibrium, which of the following alternative is not true ?
(a) Aggregate demand is equal to Aggregate supply.
(b) There exist excess production capacity in the economy.
(c) Resources are not fully and efficiently utilised. (d) Resources are fully and efficiently utilised.
Ans. (d) Resources are fully and efficiently utilised.
(Fill in the blank with the correct answer)
Ans.Not defined (∞)
an accounting year. (Fill in the blank with the correct alternative)
Ans.Aggregate Demand
39. If Marginal Propensity to Save (MPS) is 0.25 and initial change in investment is Rs.250 crores, then the final
change in income would be . (Choose the correct alternative)
(a) Rs.1,000 crores (b) Rs.1,200 crores (c) Rs.500 crores (d) Rs.3,500 crores
an accounting year.
Ans. Aggregate Demand
Ans. Not defined (∞)
42. Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative given below:
Assertion (A): Before reaching the Break-Even level of income, the value of Average Propensity to Consume
(APC) is greater than one.
Reason (R): The Average Propensity to Consume (APC) is the ratio of the total consumption and total income.
Alternatives:
Assertion (A).
43. Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative from those given
below.
Assertion (A): Ex-ante savings and Ex-ante investments are never equal to each other.
Reason (R): At equilibrium level of income, aggregate demand may not be equal to the aggregate supply.
Alternatives:
Ans. One mark to be allotted to all the candidates
44. Identify which of the following equations is true.

(a) MPC + MPS = 0 (b) MPC + MPS = 1 (c) MPC + MPS > 1 (d) MPC + MPS < 1
Ans. (b) MPC + MPS = 1
45. A situation in which an able-bodied person is not willing to work at the existing wage rate, is referred to as
situation. (Choose the correct alternative to fill up the blank)
(a) Full employment (b) Involuntary unemployment
(c) Voluntary unemployment (d) Disguised unemployment
Ans. (c) Voluntary unemployment
below.
Assertion (A): The value of Average Propensity to Consume (APC) can never be zero or negative.
Reason (R): Average Propensity to Consume (APC) is independent of the level of income. Alternatives:
Ans. (c) Assertion (A) is true, but Reason (R) is false.

Statement 1: The consumption curve is an upward sloping straight line curve due to the direct relationship
between income and consumption and the assumption of constant Marginal Propensity to Consume.
Statement 2: Aggregate Demand curve and Consumption curve are parallel to each other.
Ans. (c) Both statements 1 and 2 are true
48. Read the following statement -Assertion (A) and Reason (R). Choose one of the correct alternatives given
below:
Assertion (A): Ex-post Investments represent planned Investments; whereas ex-ante Investments represent actual
level of investments.
Reason (R): At equilibrium level, Ex-ante Savings and Ex-ante Investments are always equal.
Alternatives:
(c) Assertion (A) is true but Reason (R) is false. (d) Assertion (A) is false but Reason (R) is true
Ans. (d) Assertion (A) is false but Reason (R) is true
below:
Assertion (A): Saving curve makes a negative intercept on the vertical axis at zero level of income.
Reason (R): Saving function refers to the functional relationship between saving and income. Alternatives:
(c) Assertion (A) is true but Reason (R) is false. (d) Assertion (A) is false but Reason (R) is true
Ans. (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A).
50. If the value of investment multiplier = 4 and Dissavings = (-) 60, identify the correct Saving function from the
following :
(a) S = (-) 60 + 0·25 Y (b) S = (-) 60 + 0·75 Y (c) S = (-) 60 + 0·20 Y (d) S = (-) 60 + 0·60 Y
Ans. (a) S = (-) 60 + 0·25 Y
51. For the given Consumption function, C = 205 + 0·9 Y, the value of investment multiplier would be:
(a) 0·09 (b) 10·0 (c) 0·9 (d) 9·0
52. If in an economy, actual aggregate demand falls short of demand required to maintain the full
employment level, such a situation would be known as _.
(a) Deflationary gap (b) Inflationary gap (c) Excess demand (d) Full employment equilibrium
Ans. (a) Deflationary gap
53. Average Propensity to Consume refers to .

(a) level of income at which savings are equal to income (b) additional income that is not saved
(c) ratio of savings to the income (d) ratio of consumption to the income
Ans. (d) ratio of consumption to the income

Statement 1 : Ex-ante savings represent value of planned savings. Statement 2 : Savings
are directly related to the level of national income.
In light of the given statements, choose the correct alternative from following:
(a) Both Statements 1 and 2 are true. (b) Both Statements 1 and 2 are false.
(c) Statement 1 is true and Statement 2 is false. (d) Statement 1 is false and Statement 2 is true.
Ans. (a) Both Statements 1 and 2 are true.
UNIT-4 (GOVERNMNET BUDGET)

1. "In the Annual Budget 2022-23, the Government of India set up disinvestment targets of
₹ 65,000 crore". Such proceeds from disinvestment can be classified as - receipts in the Government
Budget as it leads to of the Government.
(Choose the correct alternative)
(a) capital, decrease in assets (b) revenue, increase in assets
(c) capital, increase in liabilities (d) revenue, decrease in liabilities
Ans. (a) capital, decrease in assets
2. In order to tackle the problem of rising general price level in an economy, government may come up with a
surplus budget to achieve the budget objective of.
(i) reallocation of resources (ii) price stability (iii) redistribution of income
Alternatives:
(a) (i) only (b) (ii) only (c) (iii) only (d) (i) and (iii)
Ans. (b) (ii) only

Statement 1: Tax is a legally compulsory payment.
Statement 2: Direct taxes are capital receipts of the government.
(a) Both Statements 1 and 2 are true. (b) Both Statements 1 and 2 are false.
(c) Statement 1 is true and Statement 2 is false. (d) Statement 1 is false and Statement 2 is true.
Ans. (c) Statement 1 is true and Statement 2 is false.
4. Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative
from those given below:
Assertion (A): Recovery of loans is a revenue receipt for the government.
Reason (R): Recovery of loans leads to decline in financial assets of the government. Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
the Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of
the Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
5. A tax whose burden cannot be shifted to others is imposed generally on .

(a) producer of goods (b) seller of goods (c) buyer of goods (d) income earners
Ans. (d) income earners
UNIT-5 (BALANCE OF PAYMENT)

Statement 1: Borrowings by a nation from the World Bank to finance Balance of Payment (BOP) deficit will be
recorded in the capital account.
Statement 2: Autonomous transactions are independent of the condition of Balance of Payment (BOP) account.
2. Suppose that, the Balance of Trade of a nation exhibits a deficit of ₹ 50,000 crore. The import of visible items
are five times of the exports of visible items. The value of exports of visible items would be ₹ crore.
(a) 20,000 (b) 10,000 (c) 12,500 (d) 20,300
Ans. (c) 12,500
3. Gifts and remittances sent abroad are recorded on the side of the account in Balance of
Payment. (Choose the correct alternative to fill up the blanks)
(a) credit, capital (b) debit, capital (c) credit, current (d) debit, current
Ans. (d) debit, current
4. “There exists a positive relation between foreign exchange rate and supply of foreign exchange.” Do you agree
with the given statement? Justify your answer with valid arguments.
Ans. Yes. When the foreign exchange rate rises, the goods in domestic market become relatively cheaper
for the buyers of the rest of the world. Thereby increasing the international competitiveness of Indian
exports. This raises demand for exports, which in turn may lead to increase in supply of foreign exchange
and vice-versa.
5. Assuming the following data is goven for an imaginary economy.
Year 2020 (₹ inCr.) 2021 (₹ inCr.)

Items
Exports of visibles 1,000 1,100
Imports of visibles 800 850
The balance of trade from 2020 to 2021 by ₹ crore.
(a) increased, 200 (b) decreased, 200 (c) increased, 50 (d) decreased, 50
Ans. (c) increased, 50
6. Read the following statements - Assertion (A) and Reason (R). Choose one of the correct alternatives given
below:
Assertion(A): The Balance of Payments is in surplus, if autonomous receipts are greater than autonomous
payments.
Reason (R): Autonomous transactions are determined by the difference in the Balance of Payments.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
7. As per the Reserve Bank of India (RBI) press report, dated 22nd June, 2022:
"Net Foreign Portfolio Investment (FPI) recorded an outflow of US$15.2 billion mainly from the equity
market." The above transaction will be recorded in the account on side of Balance of payments
account of India. (Choose the correct alternative)
(a) current, credit (b) current, debit (c) capital, credit (d) capital, debit
Ans. (d) capital, debit
8. Suppose, the price of one UK Pound (£) has increased from ₹70 to ₹80, owing to market forces. This means
that value of Indian Currency (₹) has .(Choose the correct alternative)
(a) appreciated (b) depreciated (c) revalued (d) devalued
Ans. (b) depreciated
9. Keeping other factors constant, if the price of crude oil falls in the international market, it may lead to .
(a) increase in trade deficit (b) decrease in trade deficit
(c) no change in the foreign exchange reserves (d) no change in trade deficit
Ans. (b) decrease in trade deficit

Statement 1: Import of gold from Dubai will be recorded on the debit side of the current account in Balance of
Payments of India.
Statement 2: Outflow of Foreign Institutional Investment (FII) from Indian stock markets will be recorded on
the credit side of the capital account.
11. Identify, which of the following is not a source of supply of foreign exchange for India.
(a) Exports of goods and services abroad (b) Remittances by Indian workers working abroad
(c) Imports of goods and services from abroad
(d) Foreign Direct Investment (FDI) by a German automobile manufacturer
Ans. (c) Imports of goods and services from abroad
12. Read the items given in Columns I and II carefully and choose the correct pair of statements from the given
alternatives.
Column I Column II
i. Export of software by an Indian company 1. Demand of foreign currency
ii. Accommodating nature of transactions 2. Profit motive
iii. Autonomous nature of transactions 3. Non-profit motive
iv. Loan forwarded to Sri Lanka during its economic 4. Supply of foreign exchange
crisis
Alternatives:
(a) i- 1 (b) ii -2 (c) iii – 3 (d) iv - 4
Ans. All the options are wrong.
13. An Indian company receives a loan from a company located abroad. This transaction would be recorded on
the side of account in India's Balance of Payment.
(a) Credit, Current (b) Debit, Current (c) Credit, Capital (d) Debit, Capital
Ans. (c) Credit, Capital
14. “Considering the depreciation of Indian Currency (₹) in the international market, the Reserve Bank of India
(RBI) has decided to purchase Indian currency (₹) in the open market.”
This represents exchange rate system. (Fill up the blanks with correct alternative)
(a) fixed (b) flexible (c) managed floating (d) manipulated
Ans. (c) managed floating
15. Suppose, Country X, has more inflation than Country Y. Which of the following is most likely situation to
happen in such a case, assuming other factors being constant?
(a) A surplus trade balance in Country X (b) A deficit trade balance for Country X
(c) A rise in exports from Country X to Country Y (d) A deficit trade balance for Country Y
Ans. (b) A deficit trade balance for Country X

Statement 1: Balance of Payment account is always balanced in accounting sense.
Statement 2: Autonomous transactions, restore balance in Balance of Payment account.
17. Identify, which one of the following is an intangible item in Balance of Payment (BoP).
(a) Export of food grains (b) Imports of crude oil
(c) Export of Information Technology (IT) services to U.S.A. (d) Import of coal by steel company in India
Ans. (c) Exports of Information Technology to U.S.A.
18. ‘Deficit’ in Balance of Payment (BOP) refers to the excess of .

(a) Current account payments over Current account receipts
(b) Capital account payments over Capital account receipts
(c) Autonomous payments over Autonomous receipts
(d) Accommodating payments over Accommodating receipts
Ans. (c) Autonomous payments over Autonomous receipts

Statement 1: Depreciation of domestic currency may lead to a rise in exports.
Statement 2: Due to the depreciation of Indian National Rupee (₹), purchasing power of US Dollar ($) may
increase.
Ans. (c) Both statements 1 and 2 are true.
below.
Assertion (A): Government can try to reduce unemployment through special poverty removal programmes.
Reason (R): Such poverty removal programmes directly or indirectly lead to employment generation.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of the Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion.
Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of the
Assertion (A).
21. ‘Owing to the Russia-Ukraine crisis, the world is experiencing rising crude prices due to supply-side issues.’
Identify the most likely impact on the Balance of Payment situation of the Indian economy from the following:
(a) Production of cars in India will rise. (b) Production and sale of cycles in India will rise.
(c) Inflow of US Dollars in India will rise. (d) Outflow of US Dollars from India will rise.
Ans. (d) Outflow of US Dollars from India will rise.

Statement 1: Export of financial services by India will be recorded on credit side of current account.
Statement2: Foreign Direct Investments in India will be recorded on credit side of capital account.
In the light of the given statements, choose the correct alternative:
23. Suppose, following data is presented, for an imaginary economy: (all figures in ₹ ‘000 Crore)
Year Visible Exports Visible Imports
2010 280 240
2020 580 460
Identify, which of the statement about the period 2010 to 2020 is correct?
(a) Improvement in balance of trade (b) Increase in trade deficit
(c) Improvement in balance in invisibles items (d) Deterioration of balance of trade
Ans. (a) Improvement in balance of trade
24. The following information is given for an imaginary country:

Current Account Amount (in ₹’000 Crore)
Visible Exports 100
Visible Imports 150
Invisible Exports 70
Invisible Imports 30
Current Transfer 15
Balance on current account will be of ₹ thousand Crore.
(a) deficit, 10 (b) surplus,5 (c) deficit, 5 (d) surplus, 10
Ans. (b) surplus,5
25. Balance of Payments deficit is the excess of .

(a) Current Account Payment over Current Account Receipts
(b) Capital Account Payment over Capital Account Receipts
(c) Autonomous Payments over Autonomous Receipts
(d) Accommodating Payments over Accommodating Receipts
Ans. (c) Autonomous Payments over Autonomous Receipts
26. “Due to fall in the value of Indian currency (₹) in the foreign exchange market, the
Reserve Bank of India decides to buy Indian currency (₹).”
This type of action by the Central Bank is possible under exchange rate system.
(a) Flexible (b) Managed floating (c) Fixed floating (d) Fixed
Ans. (b) Managed floating
27. If a country exports goods worth ₹ 600 crore and imports goods worth ₹ 450 crore, the value of
Balance of Trade of the country would be in .
(a) deficit of ₹ 150 crore (b) surplus of ₹ 150 crore
(c) deficit of ₹ 1,150 crore (d) surplus of ₹ 1,150 crore
Ans. (b) surplus of ₹ 150 crore
28. Remittances to Indian economy from abroad would be entered on side of account
of Balance of Payment.
(a) credit, current (b) credit, capital (c) debit, current (d) debit, capital
Ans. (a) credit, current
Chapter 1 : Indian Economy at the time of Independence

Statement 1: Commercialization of agriculture under the British rule was responsible for frequent famines
between 1875 and 1900.
Statement 2: During British rule, India began to export food grains.
2. Which of the following is NOT true about foreign trade during the colonial rule?
(a) India suffered from large trade deficit.
(b) Restrictive policies of commodity production, were followed.
(c) Britain maintained a monopoly control over India's exports and imports.
(d) India became an exporter of primary products and an importer of finished goods.
Ans. (a) India suffered from a large trade deficit.
3. From the set of the events given in Column-I and the corresponding year in Column-II,.Choose the incorrect
pair:
Column- I Column- II
A. Introduction of railways in India (i) 1850
B. Incorporation of TISCO (ii) 1807
C. First Official Census of India (iii) 1881
D. Opening of Suez Canal (iv) 1869
Alternatives:
(a) A - (i) (b) B - (ii) (c) C - (iii) (d) D – (iv)
Ans. (b) B-(ii)
4. Under the British Rule, commercialisation of agriculture resulted in shifting of agriculturalproduction from
crops to crops. (Choose the correct alternative to fill up the blanks)
(a) Cash, Food (b) Cotton, Jute (c) Food, Cash (d) Jute, Food
Ans. (c) Food, Cash
5. Identify, which of the following indicates the adverse impact of British rule in India.
(a) Introduction of communication networks in India
(b) Change in composition of India’s foreign trade
(c) Introduction of modern administrative system in India

(d) Introduction of railways in India
Ans. (b) Change in composition of India’s foreign trade
Chapter 2 : Indian Economy 1950 – 1990
1. Identify, which of the following alternative is not associated with goals of economic planningin India.
(a) Ensuring equitable standard of living (b) Technological advancement
(c) Increase in economic growth (d) Promoting imports of luxury goods
Ans. (d) Promoting imports of luxury goods.
2. In 1951, agricultural contribution to India's National Income was . .

(a) Highest among the three sectors (b) Lowest among the three sectors
(c) Lower than the industrial sector (d) Lower than the service sector
Ans. (a) Highest among three sectors.
3. In the first phase of Green Revolution, output was restricted mainly to . (Choose the correct alternative)
(a) Cereals and Pulses (b) Wheat and Rice (c) Cotton and Jute (d) Jowar and Bajra
Ans. (b) Wheat and Rice
4. is known as the architect of Indian Planning.

(a) Jawaharlal Nehru (b) P.C. Mahalanobis (c) Dr. Manmohan Singh (d) Dr. Rajendra Prasad
Ans. (b) P.C. Mahalanobis
5. Identify the incorrect statement from the following:

(a) Import substitution was the strategy used to save foreign exchange.
(b) License policy ensured regional equality.
(c) Russian economic model was the base for the Indian economic system.
(d) Small Scale Industries are one of the essential tools for employment generation.
Ans. (c) Russian economic model was the base for the Indian economic system.
6. From the following alternatives, identify the correct full form of 'NITI'
(a) National Institution for Tribal India. (b) National Institution for Technical India
(c) National Institution for Transforming India (d) National Institution for Training India
Ans. (c) National Institution for Transforming India
7. Read the following statements: Assertion (A) and Reason (R). Choose the correctalternative from
those given below.
Assertion (A): Post independence, public sector was given a prominentrole, due to requirement
of huge investments in the secondary sector.
Reason (R): Industrial sector is the backbone of any economy.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of the
Assertion (A).
the Assertion (A).
Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correctexplanation of the
Assertion (A).

Statement 1: The purchase of food grains made by the Government on the MinimumSupport Price (MSP) is
maintained as buffer stock.
Statement 2: Minimum Support Price safeguards the farmers against any sharp fall infarm product prices.
9. In a ___________economy, resources are owned and operated by both public andprivate sectors.
(a) Socialist (b) Capitalist (c) Democratic (d) Mixed
Ans. (d) Mixed
10. committee was set up for the development and promotion of small scale industries in India.
(a) Karve (b) Tapas Majumdar (c) Mahalanobis (d) TRYSEM
Ans. (a) Karve
11. First Industrial Policy Resolution of Independent India was announced in the year .
(a) 1947 (b) 1948 (c) 1951 (d) 1956
Ans. (b) 1948
12. Which of the following is not the feature of economic policies pursued under economic planning of
India till 1991?
(a) Import substitution (b) Self-reliance
(c) Unrestricted flow of foreign capital (d) Land reforms
Ans. (c) Unrestricted flow of foreign capital
Chapter 3 : Economic Reforms Since 1991
1. Identify and match the correct sequence of alternatives of organisations given in Column I with the respective
functions in column II:
Column- I Column- II
A. WTO (i) provides short –term loans to Balance of Payments problem.
B. RBI (ii) is a multilateral trade negotiating body.
C. IMF (iii) facilitates lending for reconstruction and development.
D. IBRD (iv) is the Central Bank of India.
Ans. (ii), (iv), (i), (iii)

Statement 1: Economic reforms of 1991 created a growth path for all the sectors simultaneously.
Statement 2: Economic reforms of 1991 ensured accelerated growth rate in agriculture sector.
Ans. (d) Both Statements 1 and 2 are false.
Chapter 4 : Human Capital Formation
1. “Skill India” programme launched by the Government is not an attempt to increase in India.
(a) human capital formation (b) efficient utilisation of inputs
(c) increase in GDP growth (d) inadequate spread of vocational education

Ans. (d) inadequate spread of vocational education
2. In the year the Indian Government made education free and compulsory for all children between 6
– 14 years. (Choose the correct alternative)
(a) 2001 (b) 2009 (c) 2003 (d) 2007
Ans. (b) 2009
3. Which one of the following organisations regulates the health sector in India?
(a) ICMR (b) UGC (c) AICTE (d) RBI
Ans. (a) ICMR
4. Read the following statements – Assertion (A) and Reason (R). Choose one of thecorrect alternatives
given below:
Assertion (A): Human capital is not traded in the market; however its services aretraded.
Reason (R): Human capital is intangible in nature.
Alternatives:
Assertion (A).
the Assertion (A).
Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correctexplanation of Assertion
(A)
5. Benefits of physical capital accrue only to private entities, whereas human capitalprovides private as well as
benefits. (Fill up the blank with correct alternative)
(a) profitable (b) social (c) fiscal (d) monetary
Ans. (b) social
6. Identify which of the following does not reflect a direct relationship between human capital
formation and economic growth.
(a) Employability of an educated person is higher than an uneducatedperson.
(b) On-the-job training will reduce the skills of labour.
(c) Healthy workforce is a boon to the economy.
(d) Digital information helps in taking real time decisions.
Ans. (b) On-the-job training will reduce the skills of labour.

Statement 1: Economic growth means the increase in real national income of a country.
Statement 2: Human capital formation and Human development are one and the same concepts.
8. Identify, which of the following are associated with the problem of human capital formationin India?
(i) Brain drain (ii) Low academic standards (iii) Rising population (iv) Changes in social outlook
Alternatives:
(a) (i) and (ii) (b) (ii) and (iii) (c) (i), (ii) and (iii) (d) (i) and (iv)
Ans. (c) (i), (ii) and (iii)
9. Read the following statements carefully.

Statement 1: On-the-job trainings help to bridge a gap between theoretical concepts and practical experiences.
Statement 2: On-the-job trainings update the employees, with the latest changes in their work field.
10. The Government of India enacted the ‘Right to Education’ as a fundamental right for all children
in the age group of years.
(a) 6-14 (b) 6-12 (c) 5-13 (d) 5-14
Ans. (a) 6-14

Statement 1: Human capital benefits only individuals and not the society.
Statement 2: There are positive externalities of investment in human capital as society.
In light of the given statements, choose the correct alternative from following:
Ans. (b) Statement 1 is false and Statement 2 is true.
1. Which of the following statements is incorrect with respect to women education in India?
(a) Education helps to improve economic independence.
(b) Education helps to promote family welfare programmes.
(c) Education enables women to take care of their own health.
(d) Inappropriate planning of human resource improves human capital formation.
Ans. (d) Inappropriate planning of human resource improves human capital formation.
Chapter 5 - Rural Development
1. Production of diverse varieties of crops rather than one specialized crop is called .
(a) diversification of crops (b) diversification of agricultural production
(c) diversification in sectors (d) diversification of employment
Ans. (a) diversification of crops
2. is a process, which includes all the activities from sowing till sale of the finalproduce in the
market. (Fill up the blank with correct alternative)
(a) Rural Development (b) Agricultural Diversification
(c) Organic Farming (d) Agricultural Marketing
Ans. (d) Agricultural Marketing
3. have emerged as an important micro finance system and led to womenempowerment.

(a) NABARD (b) Self-Help Groups
(c) Commercial Banks (d) Land Development Banks
Ans. (b) Self-Help Groups
4. Which of the following was NOT the benefit accruing from 'Golden Revolution'?
(a) Increase in the income of the farmers. (b) Increase in production of milk and related products.
(c) Increase in production and exports of fruits and vegetables.
(d) Employment for women in rural areas.

Ans. (b) Increase in production of milk and related products.
5. markets were organised to protect the farmers from malpractices in mandis.

(a) Regulated (b) Periodic (c) Daily (d) Weekly
Ans (a) Regulated
6. revolution was the harbinger of major changes in the credit system as it led to
diversification of the portfolio of rural credit towards production-oriented lending.
(a) White (b) Silver (c) Blue (d) Green
Ans. (d) Green
7. is the apex institution which plans and evaluates policies related to rural creditneeds.
(a) Cooperative Credit Societies (b) Regional Rural Banks
(c) Self Help Groups (d) NABARD
8. Identify which of the following is a source of non-institutional credit in the rural areas of India.
(a) NABARD (b) Regional Rural Banks
(c) Money Lenders (d) Commercial Banks
Ans. (d) NABARD
9. “In order to reduce over-dependence on agriculture sector, it is necessary to opt for

diversification.”
With reference to the given statement, diversification includes .
(i) Change in cropping pattern (ii) Shift of workforce to agriculture allied activities
iii) Shift of workforce to non-agriculture sector
Alternatives :
(a) (i) and (ii) (b) (i), (ii) and (iii) (c) (i) and (iii) (d) Only (i)
Ans. (b) (i), (ii) and (iii)
Chapter 5 – Employment and Unemployment
1. Workers who are on the permanent pay-roll of their employer are called workers.
(a) self-employed (b) casual (c) regular (d) hired
Ans. (c) regular
2. Jobless growth leads to unemployment because .

(a) Labour refuses to migrate (b) Labour is very expensive
(c) Growth is due to technological development (d) Growth rate is low
Ans. (c) Growth is due to technological development.

‘‘In the past few decades, primary sector has created maximum jobs in India.’’
Ans. False
4. Micro credit programmes play a vital role in ensuring an overall development ofthe rural economy
as they _______. (Choose the correct alternative to fill up the blank)
(i) provide financial support
(ii) lead to women empowerment
(iii) enhance the reach of formal credit systemAlternatives:
(a) Only (i) and (ii) (b) Only (ii) and (iii) (c) Only (i) and (iii) (d) (i), (ii) and (iii)
Ans. (d) (i), (ii) and (iii)
5. ‘‘Google in India has hired 4000 graduate students.’’

The given statement deals with formal sector/informal sector employment.
Ans. Formal sector
6. Under type of unemployment, marginal product gained by employing one additional unit of
labour is zero.
Ans. Disguised unemployment
7. an indicator which is used for analyzing the employment situation of a country.

Ans. Work force participation rate
those given below
Assertion (A): Government can try to reduce unemployment through special poverty removal
programmes.
Reason (R): Such poverty removal programmes directly or indirectlylead to employment
generation.
Alternatives:
Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the
Assertion (A).
Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correctexplanation of
the Assertion (A).
9. Read the following statements: Assertion (A) and Reason (R). Choose the correct alternativegiven below.
Assertion (A): The nature of unemployment problem in India is multi-faceted.
Reason (R): Worker-Population ratio is an indicator used for analysing the employment situation in a
country.
Alternatives:
Assertion (A).
Assertion (A).
Ans. (b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correctexplanation of
Assertion (A).
10. If a construction site Manager hires two workers on daily wages basis, such a situation is covered under
(formal/informal) sector.
Ans. Informal
11. Greater proportion of women workers are found in (urban/rural) areas as component of Indian work
force.
Ans. Rural
below:
Assertion (A): Unemployment and poverty are inseparable twins.
Reason(R): Unemployment is the root cause of all socio-economic evils.
Alternatives:
Assertion (A).
Assertion (A).
13. An arrangement in which a worker uses his own resources to make a living is known as _employment.
(a) Self (b) Regular-salaried (c) Casual (d) Wage
Ans. (a) Self
14. Rohan, the owner of a land, grows only two crops in a year. He works for 8-9 months and for the rest
of the year he remains unemployed.
In the remaining part of the year, Rohan faces ------ unemployment.
(a) Disguised (b) Seasonal (c) Frictional (d) Cyclical
Ans. (b) Seasonal
Chapter 7 - Environment
1. Mini-hydel plants are good for the environment because:

(i) they generate electricity only for local areas.
(ii) they do not change the land use pattern.
(iii) they rely on the perennial streams. (Choose the correct alternative)Alternatives:
(a) (i), (ii) and (iii) (b) (ii) and (iii) (c) (i) only (d) (i) and (ii)
Ans. (a) (i), (ii) and (iii)
2. Solar energy can be converted into electricity with the help of.............................. (Photovoltaic cell/Lithium
cells).
Ans. Photovoltaic Cells
3. In an economy, when the rate of resource extraction is lower than the rate ofregeneration of the resource, the
environment may operate:
(a) within its carrying capacity (b) beyond its absorptive capacity.
(c) beyond its carrying capacity (d) beyond its aesthetic capacity.
Ans. (a) within its carrying capacity.
4. adopted the resolution to ban the use of Chlorofluorocarbon (CFC)compounds along

with other ozone depleting chemicals.
(a) Kyoto Protocol (b) Paris Protocol
(c) Montreal Protocol (d) Brundtland Commission Report
Ans. (c) Montreal Protocol
5. According to Herman Daly (an environmental economist), which of the followingis not an essential
step towards achieving sustainable development?
(a) Limiting human population to carrying capacity of the environment
(b) Input inefficient technological progress

(c) Rate of extraction of renewable resources should not exceed rate ofregeneration
(d) Correction of inefficiencies arising from pollution
Ans. (b) Input inefficient technological progress
6. system restores, maintains and enhances the ecological balance.

(a) Chemical farming (b) Organic farming (c) Conventional farming (d) Multi-layered farming
Ans. (b) Organic farming.
7. Carrying Capacity implies

(i) Resource extraction should remain below the rate of regeneration.
(ii) Resource extraction should be above the rate of resource regeneration
(iii) Generation of waste should remain within the absorption capacity of the environment.
(iv) Generation of waste should be more than the absorption capacity of the environment.
Alternatives:
(a) (i) and (iv) (b) (i) and (iii) (c) (ii) and (iii) (d) (ii) and (iv)
Ans. (b) (i) and (iii)
8. Identify, which of the following is an incorrect function of environment?

(a) Supplies resources (b) Assimilates waste (c) Land degradation (d) Provides aesthetic services
Ans. (c) Land degradation

‘‘Use of chlorofluorocarbons has led to ozone depletion.’’
Ans. False

‘‘Smoke emitted by the industries leads to environmental pollution.’’
Ans. True

‘‘Industrial waste driven into rivers is an example of positive externality.’’
Ans. False
12. is an example of a commercial source of energy. (Choose the correct alternative)

(a) Firewood (b) Coal (c) Agricultural waste (d) Dried dung cakes
Ans. (b) Coal
13. Central Pollution Control Board (CPCB) has identified categories of large and medium
industries as polluting industries.
(a) 15 (b) 17 (c) 19 (d) 13
Ans. (b) 17
14. Name any two non-conventional sources of energy.

Ans.The two non-conventional sources of energy are: solar energy and wind energy.
15. is not a cause for environmental degradation.
(a) Waste management (b) Deforestation (c) Global warming (d) Guarding green cover
Ans. (d) Guarding green cover
16. is not the strategy for Sustainable Development. (Choose the correct alternative)
(a) Use of bio-gas (b) Use of solar power (c) Use of thermal power (d) Use of hydel power
Ans. (c) Use of thermal power
Chapter 8 - India/Pakistan/China : Comparative Development
1. The Great Leap Forward (GLF) campaign in China focused on .

(a) Widespread industrialization (b) New agricultural strategy
(c) Privatisation (d) Economic reforms
Ans. (a) Widespread industrialization
2. Mao initiated the ‘Great Leap Forward’ in the year .

(a) 1951 (b) 1955 (c) 1958 (d) 1962
Ans. (c) 1958
3. India is not a member of which of the following regional / global economic groups?
(a) European Union (b) BRICS (c) G20 (d) SAARC
Ans. (a) European Union
4. Identify the correct alternative with reference to the following statement: “Between 1966-76, Mao introduced
this movement under which professionals andstudents were asked to work and learn from real life situations
prevailing in the countryside of China.”
(a) Commune System (b) Great Leap Forward
(c) Open Door Policy (d) Great Proletarian Cultural Revolution
Ans. (d) Great Proletarian Cultural Revolution

Statement 1: In both India and Pakistan, the service sector has been emerging as amajor source of development.
Statement 2: Amongst the neighbours of India, China has the highest life expectancyrate.
6. Pakistan introduced its economic reforms in the year .

(a) 1974 (b) 1976 (c) 1978 (d) 1988
Ans. (d) 1988
7. The main aim of ‘Great Leap Forward’ was to ensure rapid increase in
(primary/secondary/tertiary) sector in China.
Ans. Secondary
8. Economic reforms were introduced in the year in India and in the year inPakistan.
(Choose the correct alternative to fill up the blank)
(a) 1978, 1988 (b) 1988, 1978 (c) 1978, 1991 (d) 1991, 1988
Ans. (d) 1991, 1988

Statement 1: India announced its First Five Year Plan in 1951.
Statement 2: India, Pakistan and China adopted economic planning as the coredevelopment strategy.
(a) Statement 1 is true and Statement 2 is false. (b) Statement 1 is false and Statement 2 is true

Statement 1: China introduced structural economic reforms on its own, without anypressure.
Statement 2: Scholars argue that in India, the economic reforms process led to theworsening of all the
economic indicators.
In the light of the given statements, choose the correct alternatives from the following:
10. Arrange the following events in chronological order and choose correct answer from the given alternatives :
(i) Establishment of People’s Republic of China (ii) Creation of Pakistan
(iii) First Five-Year Plan of India (iv) First Five-Year Plan of China
Alternatives :
(a) (i), (iv), (ii), (iii) (b) (iii), (ii), (i), (iv)
(c) (ii), (i), (iii), (iv) (d) (iv), (iii), (ii), (i)
Statement 1: Amongst India, China and Pakistan, China is the largest nation and has thehighest population
density.
Statement 2: One-child policy introduced in the late 1970s in China led to aconsiderable decline in the
population growth rate.
Ans. (b) Statement 1 is false and Statement 2 is true.
12. On the basis of the data given below, identify the incorrect statement in terms ofannual growth of GDP
(%):(Choose the correct alternative)
Annual Growth of Gross Domestic Product (%), 1980-2017
Country 1980-90 2015-17
India 5.7 7.3
China 10.3 6.8
Pakistan 6.3 5.3
Source: Key Indicators for Asia and Pacific 2016. Asian Development Bank. Philippines:
World Development Indicators 2018
Alternatives:
(a) China was able to maintain near double-digit growth during the 1980s.
(b) Pakistan was ahead of India during 1980-2017.
(c) India experienced a rapid rise in Gross Domestic Product during 2015-17
(d) Both China and Pakistan experienced a decline in growth rate during 2015-17.
Ans. (b) Pakistan was ahead of India during 1980 – 2017.

Statement 1: In the agricultural sector, communes were established,where land holdings were
allocated to individual households for ownership.
Statement 2: Special Economic Zones (SEZs) were established to attract foreign investors and
technology.
Ans. (b) Statement 1 is false and Statement 2 is true
14. " Multiple reasons for economic slowdown and re-emergence of poverty inPakistan may be
enumerated." Identify which of the following might not be one of them.
(i) Rising dependence on foreign loans (ii) Stable macroeconomic indicators
(iii) Unstable agricultural growth
Alternatives:
(a) (i), (ii) and (iii) (b) (ii) and (iii) (c) (i) and (iii) (d) Only (ii)
Ans. (d) Only (ii)
those given below.
Assertion (A): Lower child mortality rate is a better indicator of genderequality.
Reason (R): Preference for a male child exists in India, Pakistan and China.
Alternatives:
Assertion (A).
the Assertion (A).

Statement 1: One-child policy' was very effectively used in controllingthe population by the
Chinese authorities.
Statement 2: One-child policy, according to scholars, led to a decline ingender ratio (the proportion
of females per 1000 males).
17. Pakistan is ahead of India in the case of .

(a) HDI value (b) Per capita income
(c) Access to sanitation facilities (d) Life expectancy at birth
Ans. (c) Access to sanitation facilities

‘‘Proportion of people living below poverty line is more in India as compared to Pakistan.’’
Ans. True
19. Arrange the following events of China in chronological order and choose the correctalternative:
(i) Great Proletarian Cultural Revolution (ii) Great Leap Forward Campaign
(iii) Introduction of Economic Reforms (iv) First Five Year PlanAlternatives:
(a) (ii), (iv), (iii), (i) (b) (iv), (ii), (i), (iii)
(c) (ii), (iv), (i), (iii) (d) (iv), (i), (ii), (iii)
Ans. (b) (iv), (ii), (i), (iii)

Statement 1: ‘Liberty indicators’ measure the extent of constitutional protection given to the citizens.
Statement 2: India provides fair constitutional protection to its citizens.
Ans. (c) Both statements 1 and 2 are true.
21. Read the following statements: Assertion (A) and Reason (R). Choose the correct alternativegiven below.
Assertion (A): China adopted the 'Open Door Policy' as a major economic reform initiative.
Reason (R): It aimed at industrialising the country on a massive scale.
Alternatives:
Assertion (A).
the Assertion (A).
Ans. (b) Both Assertion (A) and Reason (R) are true, and Reason (R) is not the correctexplanation of
Assertion (A).
22. China initiated in 1958, that aimed at industrializing the country on amassive scale.
(a) The Great Proletarian Cultural Revolution (b) Setting up of Special Economic Zones
(c) Introduction of Economic Reforms (d) The Great Leap Forward Campaign
Ans. (d) The Great Leap Forward Campaign.
23. acts as a measure of 'the extent of democratic participation in social andpolitical decision-
making.’
(a) Human Development Index (b) Liberty Indicator
(c) Economic Growth (d) Poverty Index
Ans. (b) Liberty Indicator

Statement 1: Great Proletarian Cultural Revolution was introduced in China in 1950's.
Statement 2: China's growth is mainly contributed by the manufacturing sector.
Ans. (d) Both statements 1 and 2 are false.
23. Identify the incorrect statement from the following: (Choose the correct alternative)
(a) China's Economic growth rate is better than that of Pakistan.
(b) Pakistan is behind India in HDI ranking.
(c) One Child Policy norm was adopted in Pakistan
(d) In 1991, India adopted New Economic Reforms.
Ans. (c) One Child Policy norm was adopted in Pakistan.
24. India is not a member of which of the following regional/global economic grouping ?
(a) SAARC (b) BRICS (c) G-7 (d) G-20
25. The main aim of ‘Great Leap Forward’ (GLF) in China was to ensure rapid increase of .
(a) Agriculture (b) Industries (c) Services (d) Exports
26. Read the following statements - Assertion (A) and Reason (R). Choose one of the correctalternatives given
below:
Assertion (A): During 1980's, economic growth rate of Pakistan was more than that of India.
Reason (R): Pakistan followed the path of mixed economic structure with equal participationof the public and the
private sector.
Alternatives:
Assertion (A).
the Assertion (A).

Statement 1: Special Economic Zones (SEZ's) policy has led to huge Foreign DirectInvestment (FDI) flow to
China.
Statement 2: China's rapid industrial growth was the result of its economic reform in 1981.

Statement 1: First Five Year Plan of China commenced in the year 1956.
Statement 2: Both India and China adopted Socialist Economy model, following USSR.
Ans. (d) Both statements 1 and 2 are false.
29. Introduction of Economic Reforms in China took place in the year .

(a) 1978 (b) 1980 (c) 1988 (d) 1991
30. Maternal Mortality Rate is high in (China/Pakistan).

Ans. Pakistan
31. Which of the following countries initiated its process of Economic Reforms in the year 1991? (Choose the
correct alternative)
(a) Pakistan (b) India (c) Russia (d) China
Ans. (b) India
32. ‘GLF’ with respect to the People’s Republic of China referred to as .

(a) Giant Leap Forward (b) Great Lead Forum (c) Great Leap Forward (d) Giant Lead Forum
Ans. (c) Great Leap Forward
33. In China, commune system is related to sector.

(a) Agriculture (b) Industry (c) Service (d) Informal
Ans. (a) Agriculture
34. Great Leap Forward (GLF) was the campaign launched by Mao in the year .
(a) 1952 (b) 1958 (c) 1960 (d) 1968
Ans. (b) 1958
35. and are the reasons for the slowdown of the Pakistan economy since independence.
I. political instability
II. over-dependence on remittances from abroad
III. stable performance of agriculture sector
IV. growth of service sector
Alternatives:
(a) I and II (b) II and III (c) III and IV (d) I and IV
Ans. (a) I and II
36. From the set of the events given in column I and corresponding facts given in Column II, choose the correct
pair of statement:
COLUMN I COLUMN II
i. Dual Pricing A. Economic Reforms of 1991
ii. Setting up of Special Economic Zones in China B. To attract foreign Direct Investment
iii. Commune System C. Backyard based Industrial production units
iv. Great Proletarian Cultural Revolution D. Collective Farming
Alternatives:
(a) i – A (b) ii – B (c) iii – C (d) iv – D
Ans. (b) ii – B
37. Read the following statements carefully.

Statement 1: Both India and Pakistan initiated their economic reforms without any pressures.
Statement 2: Pakistan has successfully implemented the SEZ policy and reaped its benefits using the Export
Promotion policy.
below:
Assertion (A): In the late 1970s, China’s population growth rate had sharply declined.
Reason(R): China has witnessed an increase in the proportion of elderly people owing to stringent family
planning programmes.
Alternatives:
Assertion (A).
the Assertion (A).
39. Choose the correct alternative from those given below:

Assertion (A) : China has the highest life expectancy in the world.
Reason (R) : Maternal Mortality Rate of India is higher than that of China.
Alternatives :
Assertion (A).
Assertion (A).
40. In China, reforms were introduced in phased manner. In the second and later phases, reforms were
introduced in sector.
(a) Agriculture (b) Industrial (c) Foreign Trade (d) Demographic
Ans. (b) Industrial
41. In the 1970s, Pakistan nationalised the industries related to goods.

(a) Consumer (b) Sports (c) Capital (d) Defence
Ans. (c) Capital
42. India is not a member of which of the following regional/global economic groups?
(a) SAARC (b) BRICS (c) G-7 (d) G-20
Ans. (c) G-7
43. In terms of the sectoral contribution to Gross Domestic Product (GDP), economy of India is relying
more on sector.
(a) Primary (b) Secondary (c) Tertiary (d) Financial
Ans. (c) Tertiary
MACROECONOMICS - NUMERICALS
UNIT.1: National Income Accounting
Question.1:
Calculate the value of “ Change in Stock” from the following data:
S.NO Items Amount (in ₹Crores)
i. Sales 400
ii Net Value Added at Factor cost (NVAFC) 200
iii Subsidies 10
iv Change in Stock ?
v Depreciation 40
vi Intermediate Consumption 100
Answer:
Change in stock= (ii) +(vi)+(v)-(iii)-(i)
= 200+100+40-10-400
= (-) ₹70 Crores.
Question.2:
Suppose only one Good 'X' is produced in the country. Output of Good X during year 2018 and 2019 were 100
units and 110 units respectively. The market price of the product during the two years was ₹ 50 and ₹ 55 per unit
respectively. Calculate the percentage change in Real Gross Domestic Product (GDP) in year 2019 using 2018 as
the base year.
Answer:
Year Output (in units) Market Price (₹ per unit) Real GDP (in ₹)
2018 100 50 5,000
(Base Year)
2019 110 55 5,500
(CurrentYear)
Percentage (%) Change in Real GDP = Change Base Year Real GDP x 100
Base Year Real GDP
= 5500-5000 x 100
5000
= 10%
Question.3:
Suppose in a financial year, the Gross Domestic Product (GDP) at market price of a country was ₹1,100 crore.
Net factor income from Abroad was ₹100 crore, the net indirect taxes was
₹150 crore and National income was ₹850 crore.
Calculate the value of depreciation, on the basis of above information.
Answer:
National Income (NNPFC) = Gross Domestic Product at Market Price (GDPMP) –
Depreciation + Net factor income from abroad – Net Indirect Taxes
= 850 = 1,100 – Depreciation + 100 – 150
Depreciation = 1,100 + 100 – 150 – 850
Depreciation = ₹ 200 crore
Question.4:
Calculate Net Value added at Factor Cost (NVA FC) from the following data:
S. No. Particulars Amount (in ₹ crores)
(i) Value of Output 800
(ii) Intermediate Consumption 200
(iii) Indirect Taxes 30
(iv) Depreciation 20
(v) Subsidies 50
(vi) Purchase of machinery 50
Answer:
NVAFC = (i) – (ii) – (iv) – [(iii) – (v)]
= 800 – 200 – 20- [30 – 50]
= ₹ 600 crores
Question.5:
Calculate Gross Value Added at Market Price :
S. No. Particulars (₹ in lakh)

(i) Depreciation 20
(ii) Domestic Sales 200
(iii) Change in Stocks (–)10
(iv) Exports 10
(v) Single use producer goods 120
Answer:
Gross Value Added at Market Price = (ii) + (iii)+(iv) – (v)
= 200+ (-)10 + 10 – 120
= ₹ 80 lakhs
Question.6:
Using the following data of an imaginary economy, calculate and compare the Real Gross Domestic Product
(GDP) for the given years :
Year 2015-16 2016-17
Nominal GDP Rate 8.4% 9%
GDP deflator 140 125
Answer:
GDP Deflator
2014-15 2015-16 2016-17
Nominal GDP = 10,000 (Assume) 10,840 11,815
Real GDP = 10,000 (Assume) 7742 (approx) 9452 (approx)
Question.7:
Calculate the value of Domestic Income from the following data:
S No Particulars Amount (In Crore)
(i) Rent and Royalties 1,300
(ii) Net Indirect Taxes 200
(iii) Wages & Salaries (in cash & in kind) 1,700
(iv) Corporate Tax 400
(v) Depreciation 400
(vi) Retained Earnings 300
(vii) Dividends 400
(viii) Net Factor Income from Abroad (-) 120
(ix) Mixed Income of Self Employed 1,400
(x) Change in Stock (-) 200
Answer:
Domestic Income (NDPfc) = (iii) + (i) + (iv) + (vi) + (vii) + (ix)
= 1,700 + 1,300 + 400 + 300 + 400 + 1,400
= ₹ 5,500 crore
Question.8:
Using the following data of an imaginary economy, calculate and compare the Real Gross Domestic Product
(GDP) for the given years :
Year 2015 – 16 2016 – 17
Nominal GDP Rate 8·4% 9%
Real GDP 6 7.2
Question.9:
Calculate Gross Value Added at Market Price (GVAMP) from the following data :
Item No Particulars Amount
i Depreciation 20
ii Domestic Sales 200
iii Change in Stock (–) 10
iv Exports 10
v Single Use Producer Goods 120
vi Net Indirect Taxes 20
Answer:
GVA MP = [(ii)+(iii)+(iv)]-(v)
= [200+(-)10+10]-120
=200-120
= 80 lakhs
Question.10:
The value of the Nominal Gross National Product (GNP) of an economy was Rs 2,500 crores in a particular year.
The value of GNP of that country during the same year, evaluated at the price of base year was Rs 3,000 crores.
Calculate the value of GNP deflator of the year in percentage terms. Has the price level risen between the base
year and the year under consideration ?
Answer:
Given that Nominal GNP = 2500 crores and Real GNP = 3000
GNP Deflator = Nominal GNP /Real GNP × 100
= 83.33 %
No, the price level has reduced from base year to current year by 16.67%.
Question.11:
On the basis of the data given below for an imaginary economy, estimate the value of Net Domestic Product at
factor cost.
S.No. Items Amount(₹ in crore)
(i) Household Consumption Expenditure 2,000
(ii) Government Final Consumption Expenditure 1,500
(iii) Gross Domestic Fixed Capital Formation 1,000
(iv) Net addition stock 300
(v) Exports 700
(vi) Net Indirect Taxes 350
(vii) Imports 200
(viii) Consumption of Fixed Capital 250
Answer:
Net Domestic Product at Factor Cost (NDPfc) = (i)+(ii)+(iii)+(iv)+(v)–(vii)–(vi)-(viii)
= 2,000+1,500+1,000+300+700–200–350–250
= ₹ 4,700 crore
Question.12:
From the following data calculate the value of Domestic Income :

S. No. Items Amount (in Rs crores)
i Compensation of Employees 2,000
ii Rent and Interest 800
iii Indirect Taxes 120
iv Corporate Tax 460
v Consumption of Fixed Capital 100
vi Subsidies 20
vii Dividend 940
viii Undistributed Profits 300
ix Net Factor Income from Abroad 150
x Mixed Income of Self Employed 200
Answer:
Domestic Income (NDPfc) = (i) + (ii) + (iv) + (vii) + (viii) + (x)
= 2000 + 800 + 460 + 940 + 300 + 200
= 4,700 crore
Question.13:
Given the following data, find Net Value Added at Factor Cost by Sambhav producing Wheat :
S.No. Items Rs in crores
I Sale of wheat by the farmer in the local market 6800
ii Purchase of Tractor 5000
iii Procurement of wheat by the Government from the farmer 200
iv Consumption of wheat by the farming family during the Year 50
V Expenditure on the maintenance of existing capital stock 100
Vi Subsidy 20
Answer:
Net Value Added at Factor Cost (NVAfc) = (i) + (iii) + (iv) + (vi) – (v)
= Rs.6800 + Rs.200 + Rs.50 + Rs.20 – Rs.100
= Rs.6,970 crore
Question.14:
Suppose the Gross Domestic Product (GDP) of Nation X was Rs. 2,000 crores in 2018-19, whereas the Gross
Domestic Product of Nation Y in the same year was Rs. 120,000 crores. If the Gross Domestic Product of Nation
X rises to Rs. 4,000 crores in 2019-20 and the Gross Domestic Product of Nation Y rises to Rs. 200,000 crores in
2019-20. Compare the rate of change of GDP of Nations X and Y, taking 2018-19 as base year.
Answer:
Nation 2018-19 2019-20 Real GDP
X Rs 2000 crores 4,000 crores 2000 /2000 X 100 = 100 %
Y 120,000 200,000 croes (80,000 / 120,000) X 100 = 66.67%
Nation X has registered a GDP growth rate of 100% and has performed better on the front of GDP rise as
compared to Nation Y that has registered a GDP growth rate of 66.67%.
Question.15:
‘Real Gross Domestic Product is a better indicator of economic growth than Nominal Gross Domestic Product’.
Do you agree with the given statement? Support your answer with a suitable numerical example.
Answer:
Using the following example–
Year 2015 – 16 2016 – 17

Nominal GDP Rate 8·4% 9%
Real GDP 6 7.2
So, we can say that Nominal GDP doesn't take into consideration the inflation
Question.16:
Calculate ‘Depreciation on Capital Asset’ from the following data
S.No. Particulars Amount (In Rs Crores)
I Capital value of the asset 1,000
Ii Estimated life of the asset 20 years
Iii Scrap Value Nil
Answer:
Depreciation = 1000 / 20 = 50 crores
Depreciation on capital asset =
( Cost of the capital asset – Scrap value ) / Estimated life of the capital assets.
Question.17:
Calculate compensation of employees from the following data :
S.No. Particulars Amount (Rs in Crores)
i Profits after tax 20
ii Interest 45
iii Gross Domestic Product at Market Price 200
iv Goods and Services Tax 10
v Consumption of Fixed Capital 50
vi Rent 25
vii Corporate Tax 5
Answer: Rs 45 crores
Question.18:
Find the Value Added by Firm A, from the following information:
S.No. Particulars Amount (in ₹ crore)
(i) Purchase of factor inputs by Firm A 5
(ii) Purchase of non-factor inputs by Firm A 2
(iii) Sales by Firm A to other firms in the domestic economy 10
(iv) Import of raw materials by firm A from rest of the world 5
(v) Excess of opening stock over closing stock 3
Answer:
Value added = Value of output - Intermediate consumption Value added by firm A
= (iii)- (v) – (ii + iv)
= 10 - 3 –(2+5)
=0
Question.19:
Suppose in a hypothetical economy there are only two Firms A and B, Firm A sold goods for ₹ 2,000 to Firm B
and purchased goods for ₹ 1,000. Firm B exported goods for ₹ 2,500 and had domestic sales of ₹ 1,500. Calculate
Net Domestic Product at market price, if consumption of fixed capital is ₹ 200.
Answer:
Value of Output (in ₹) Intermediate Consumption (in ₹) Value Addition (in ₹)
A 2,000 (to B) 1,000 (Purchases) 1,000
B 2,500 (exports) 2,000 2,000

1,500(domestic sales)
Total 6,000 3,000 3,000
Net Domestic Product at MP = Gross Domestic Product at MP – Consumption of Fixed Capital
= 3,000 – 200 = ₹ 2,800
20. Suppose in an imaginary economy, Gross Domestic Product (GDP) at market price in 2019-20 was
₹ 5,000 crore, National Income was ₹ 3,500 crore, Net Factor Income paid by the economy to rest of
the world was ₹ 450 crore and the Net Indirect Taxes was ₹ 400 crore.
Estimate the value of consumption of fixed capital for the economy from the information given above.
Ans.
National Income (NNPfc) = GDPmp – Consumption of Fixed Capital - Net factor income paid
by the economy to the rest of the world
– Net Indirect Taxes
3,500 = 5,000 - Consumption of Fixed Capital – 450 – 400
Consumption of Fixed Capital = ₹ 650 crore
UNIT.2: Money and Banking
Question.1:
"The process of credit creation by commercial banks comes to an end when the total of required reserves become
equal to the initial deposits." With the help of a numerical example, prove that the given statement is true.
Answer:
The given statement is true. This can be proved with the help of the following example: The process of credit
creation is based on the assumptions that: entire banking system is a single unit all transactions are routed through
the bank only.
Round Deposits Loans Reserves (20%)

1 1000 800 200
2 800 640 160
3 640 512 128
… … … …
… … … …
Total 5000 4000 1000
When a commercial bank receives initial/primary deposits (say ₹ 1,000), as per the requirement of the Central
Bank, it has to maintain some reserves. The remaining amount is made available for loans. The lent sum of money
is received back in the next round of deposits as secondary deposits.
Total deposit creation = Initial deposits x 1/ Reserve Ratio

= 1,000 x 1/0.2
= ₹ 5,000
This process of deposit, reserve and lending continues till initial deposits become equal to the sum total of
reserves.
Question.2:
Using a suitable numerical example, explain the credit creation process of the banking system, in a hypothetical
economy.
Answer:
The process of money creation is based on the assumptions that, entire banking system is a single unit all
transactions are routed through the bank only. When a commercial bank receives initial/primary deposits (say ₹
1,000), as per the requirement of the Central Bank, it has to maintain some reserves. The remaining amount is
made available for loans. The lent sum of money is received back in the next round of deposits as secondary
deposits. This process of deposit, reserve and lending continues till initial deposits become equal to the sum total
of reserves.
Total deposit creation = Initial deposits x 1/ Reserve Ratio

= 1,000 x 1/0.2
= ₹ 5,000
Hence, total deposits of ₹ 5000 are created.
Round Deposits Loans Reserves (20%)

1 1000 800 200
2 800 640 160
3 640 512 128
… … … …
… … … …
Total 5000 4000 1000
UNIT.3: Income Determination
Question.1:
Answer the following questions based on the data given below:
(i) Planned investment = ₹ 100 crore
(ii) C = 50+ 0.5 Y
(a) Determine the equilibrium level of income.
(b) Calculate the saving and consumption expenditure at equilibrium level of National Income.
Answer.
(a) At equilibrium level of income
Y = C +I
Y = (50 + 0.5Y) +100
Y- 0.5Y= 150
Y = 150/0.5
= ₹ 300 crores
Equilibrium level of income = ₹ 300 crores
(b) S = - C +( 1-b) Y
= - 50 + (1-0.5) (300)
= ₹ 100 crores
Y = C+S
300 = C + 100
C = 300-100
= ₹ 200 crores
Question.2:
In an economy, if initial investments are increased by ₹ 100 crores, discuss the working of investment multiplier
presuming marginal propensity to consume is 0.8
Answer:
The working of investment multiplier is based on the principle that one’s expenditure is another’s income. Given
initial investment = ₹ 100 crores and MPC = 0.8
Round Change in Investment Change in Income Change in Consumption (₹ Change in Saving
(₹ in crores) (₹ in crores) in crores) (₹ in crores)
I 100 100 80 20
II - 80 64 16
III - 64 51.2 12.8
- - - -
Total 500 400 100
K=
∆Y = K x ∆ I
= 5 x 100
= ₹ 500 crores
Question.3:
Calculate the value of Marginal Propensity to Consume (MPC), if in an economy, autonomous consumption is Rs.
500 crores, ex-ante investments are Rs. 4000crores and equilibrium level of Income of the economy is Rs. 18,000
crores.
Answer:
We know that consumption function is: 𝐶 = 𝑐̅ + 𝑀𝑃𝐶. 𝑌
At equilibrium level of Income in the economy Y = C + I
Given,
Autonomous Consumption (𝐶)̅ = Rs. 500 crores and Ex-ante Investments (I) = Rs. 4000 crores
18,000 = 500 + MPC(18,000) + 4,000
MPC (18,000) = 18000 – 4500
MPC = 13,500/18,000
MPC = 0.75
Question.4:
Suppose the following information is given about a hypothetical economy: C = 100 +0.75 Y
(where, C = Consumption and Y = Income), I = 200 (I = Autonomous Investment)
Calculate the following on the basis of the given information:
(i) Equilibrium Level of Income
(ii) Aggregate Demand at Equilibrium Level of Income
(iv) Marginal Propensity to Save
Answer:
Given, C = 100 + 0.75Y; I = 200
We know that;
At equilibrium level of income Y = C+I
Y = (100 + 0.75Y) + 200 0.25Y = 300
Y = 1,200
At the Equilibrium level of income AD = Y

⸫ AD = 1,200
MPS = 1 – MPC MPS = 1 – 0.75 = 0.25
Question.5:
Suppose consumption function for an economy is C = 80 + 0.75 Y (where C = consumption function and Y =
national income) and the investment expenditure is ₹ 200 crore.
Estimate the following:
(i) Equilibrium level of income
(ii) Values of consumption and saving at equilibrium level of income
Answer:
Given, C = 80 + 0.75Y I =200 crore
As we know, at the equilibrium level
Y = C+I
Y = (80 + 0.75Y) + 200
Y = 280 + 0.75Y
0.25Y = 280
Y = ₹ 1,120 crore
At equilibrium level of Income;

Y = 1,120 crore
C = 80 + 0.75 (1120)
C = 920 crore
Y = C+S
S = 1120-920
S= 200 crore
Question.6:
In an economy, if initial investments are increased by 100 crores, discuss the working of investment multiplier
presuming marginal propensity to consume is 0·8.
Answer:
Draw the schedule
Rounds Change in Change in Change in Change in Savings
Investment Income Consumption (0.8) (0.2)
Intial 100 100 80 20
Round 1 80 64 16
Round 2 64 51.2 12.8
Total 100 500 400 100
Explain the Schedule : Mention that the investment multiplier works on the premise that one person’s
consumption is an income for another.
Question.7:
For a hypothetical economy, assuming there is an increase in the Marginal Propensity to Consume (MPC) from
75% to 90% and change in investment to be ₹1,000 crore.
Using the concept of investment multiplier, calculate the increase in income due to change in Marginal Propensity
to Consume (MPC).
Answer:
Given, Change in Investment (Δ𝐈) = ₹ 1,000 crore
MPC Investment Multiplier Change in Income (ΔY)
K = 1 / 1-MPC ΔY = 𝐊𝐱 ΔI
0.75 K = 1 / 1-0.75 = 4 4 x 1,000 = 4,000
0.90 K = 1 / 1-0.9 = 10 10 x 1,000 = 10,000
Hence, with the change in MPC from 0·75 to 0·90 and

Increase in income = 10,000 – 4,000 = ₹ 6,000 crore
Question.8:
Answer the following questions based on the data given below :
(i) Planned investment = Rs. 100 crore
(ii) C = 50 + 0.5 Y
(b) Calculate the saving and consumption expenditure at equilibrium level of National Income.
Answer:
(a) At equilibrium level of income, Y = C +I
Y = (50 + 0.5Y) +100
Y – 0.5Y= 150
Y= 150/0.5 = Rs. 300 crores
Equilibrium level of income = Rs. 300 crores
(b) S = –C +( 1-b) Y
= - 50 + (1-0.5) (300)
= Rs. 100 crores
Y = C+S
300 = C + 100
C = 300-100
= Rs. 200 crores
Question.9:
On the basis of following information, identify whether the economy is in equilibrium or not :
S. No Particulars Amount
i Autonomous Consumption and 500 crores
Investment Expenditure
ii Marginal Propensity to Save (MPS) 0.2
iii National Income Rs.4,000 crores
Answer:
The economy is in equilibrium when AD = AS (Y)
AD = + MPC (Y)
AD = 500 + 0.8 (4,000) ( Given Y = Rs.4,000)
AD = 500 + 3200
AD = Rs. 3,700crores
Therefore, AD (Rs. 3,700crores) < AS (Rs. 4,000crores), the economy is not in equilibrium
Question.10:
Answer the following questions based on the data given below :
(i) Planned Investments = Rs.100 crore.
(ii) C = 50 + 0.50 Y
(b) Calculate the value of Savings at equilibrium level of National Income.
(c) Calculate the value of Investment Multiplier.
Answer:
(a) At Equilibrium AD = Y = C + I
Thus, Y = (50 + 0.5Y) + 100
Y – 0.5 Y = 150
Y = 150/0.5
= Rs. 300 crores.

So, equilibrium level of income = Rs. 300 crores.
(b) Consumption at equilibrium level of income

S = (-) c + (1-b)Y
S = (-)50 +( 0.5)(300)
Savings = Rs. 100 crores
(c) Investment Multiplier = 1 / 1−𝑀𝑃𝐶

= 1 / 1−0.5
=2
Question.11: From the following data, calculate:
(a) Consumption Expenditure and
(b) Investment Expenditure for the economy.
S.No. Particulars Amount
i Equilibrium level of income 5,000
ii Autonomous consumption 500
iii Marginal Propensity to Save 0.4
Answer:
(a) We know that :
Consumption expenditure = ć + bY
= 500 + 0.6 (5,000)
= Rs. 3,500 crores
(b) Also, at equilibrium level, Y = C + I
5,000 = 3,500 + I
I = Rs. 1,500 crores
Question.12:
In an economy, if initial investments are increased by Rs 100 crores, discuss the working of investment multiplier
presuming marginal propensity to consume is 0·8.
Answer:
The working of investment multiplier is based on the principle that one’s expenditure is another’s income. Given
initial investment = 100 crores and MPC = 0.8.
Explain the table and explanation in paragraph.
Question.13:
In a hypothetical economy, when savings are zero, it is given that :
(a) The level of Income = Rs. 100 crore, and
(b) Autonomous Consumption = Rs. 40 crore
Calculate the value of Marginal Propensity to Consume (MPC) in the economy.
Answer:
Given; Y = Rs. 100 crore and c = Rs. 40 crore
When S = 0; C=Y (break-even point) Hence, C= Rs. 100 crore
We know, C = c + MPC(Y) 100
100 = 40 + MPC (100)
MPC = 60/100
= 0.6
Question.14:
Estimate the value of ex-ante Aggregate Demand (AD), if autonomous investment and consumption expenditure
is Rs. 50 crore, Marginal Propensity to Save (MPS) is 0.2 and level of income is Rs. 300 crore.
Answer:
Given, MPS=0.2 and A (c+I)= Rs. 50 crore
MPC= 1-MPS=1-0.2=0.8
AD = A+ MPC(Y)
AD = 50+0.8(300)
AD = Rs. 290 crore.
Question.15:
Estimate the value of ex-ante Aggregate Demand (AD), if autonomous investment and consumption expenditure
(a) is Rs. 60 crore, Marginal Propensity to Consume (MPC) is 0.8 and level of income is Rs. 500 crore.
Answer:
Given, MPC=0.8 and A (c+I)= Rs. 60 crore
AD = A+ MPC(Y)
AD = 60+0.8(500)
AD = Rs. 460 crore
Question.16: If an economy plans to increase its income by ₹ 2,000 crore and the Marginal Propensity to
Consume is 75%. Estimate the increase in investment required to achieve the targeted increase in income.
Answer:
Given, MPC = 0.75, ΔY = ₹ 2,000 Crore
K = 1 / 1−𝑀𝑃𝐶
= 1 / 1−0.75
= 1 / 0.25 = 4
According to the question:
K = ΔY / ΔI
4 = 2000 ΔI
ΔI = 2000 / 4
= ₹ 500 Crore
Therefore, increase in investment (ΔI) required = ₹ 500 Crore
UNIT.4: Government Budget
Question.1:
From the following data, calculate (a) Revenue deficit and (b) Fiscal deficit:
Particulars Amount (in Rs. crores)
(i) Tax Revenue 1,000
(ii) Revenue Expenditure 3,821
(iii) Non-tax Revenue 2,000
(iv) Recovery of Loans 135
(v) Capital Expenditure 574
(vi) Disinvestment 100
(vii) Interest Payments 1,013
Answer:
(a) Revenue Deficit = [(ii)-{ (i)+(iii) }]
= 3821-(1000+2000)
= ₹ 821 crores
(b) Fiscal deficit = [ { (ii) +(v) }- { (iii) +(i) +(iv) +(vi) } ]
= [(3821+574)- (2000+1000+100+135)]
= [(4395)-(3235)]
= ₹1160 crores
Question.2:
From the following data, calculate the primary deficit
SNo. Particulars Amount (in ₹ crore)

(i) Revenue deficit 40
(ii) Non-debt creating capital receipts 190
(iii) Tax revenue 125
(iv) Capital expenditure 220
(v) Interest payments 20
Answer:
Primary deficit = {(i) + (iv) – (ii)} – (v)
= {40+220-190} – 20
= ₹ 50 crore.
UNIT.5: Balance of Payment

NO NUMERICALS
MACROECONOMICS – UNITWISE Short and Long Question
UNIT-1: National Income Accounting
Q.1. “Circular flow of income in a two- sector economy is based on the axiom that one’s expenditure is other’s
income.” Support your answer with valid reasons.
Answer: In a two sector economy households and firms exist to run the economy.
Households render factor services to the firms and earn factor incomes from them. Whereas; firms produce and
sell goods and services to households and earn their income by an equal magnitude. Thus, in a circular income
mode, the axiom that one’s expenditure is other’s income holds true.
Q.2. Distinguish between ‘value of output’ and ‘value added’.

Answer: Value of output is the estimated money value of all the goods and services, inclusive of change in stock
and production for self consumption. Whereas;
Value added is the excess of value of output over the value of intermediate consumption.
Q.3. “Gross Domestic Product (GDP) is not the best indicator of the economic welfare of a country.”Defend or
refute the given statement with valid reasons.
Answer: The given statement can be defended on the following grounds, as GDP may not take into account:
Non monetary exchanges like services of housewives.
Externalities (benefits/harms) caused by human activities.
Distribution of Income (GDP).
Q.4. Subsidies to the producers, should be treated as transfer payments.’ Defend or refute the given statement
with valid reason.
Answer: The given statement is defended, as subsidy is a transfer payment. Subsidy is the financial assistance
provided by the government to producers to fulfil its social welfare objectives. Government does not get anything
in consideration for the same. It does not contribute to the current flow of goods and services and hence do not
contribute to any value addition.
Q.5. Explain Circular Flow of Income in a two sector economy.

Answer: Two sector model consists of production sector and household sector. Households are the owners of
factors of production and supply factor services to production sector. The production units in return make factor
payment. Households spend the entire income on the purchase of goods and services produced by firms. Thus,
consumption expenditure flows from households to firms, completing the circular flow of income.
Q.6. Define Real Gross Domestic Product.

Answer: Real Gross Domestic product is the sum total of the money value of all final goods and services
produced in an economy during the year estimated at some given base year’s prices.
Q.7. Discuss briefly the three components of ‘Income from Property and Entrepreneurship.’
Answer:
Income from property and entrepreneurship (operating surplus) includes:
i. Rent/Royalties ii. Interest iii. Profit
Q.8. What are ’externalities’? State its types with suitable examples.
Answer:
Externalities refer to the benefits/harms caused by a firm/individual to the society in general, without being
penalised.
There are two types of externalities :-
Positive externalities – Social benefits. E.g. saving of time/fuel with construction of better roads in a country
Negative externalities - Social harms for example pollution caused by stubble burning in some states of India.
(any other suitable definition/example to be allotted marks)H
Q.9. “Final goods include only those goods which are consumed by the households”. Defend or refute the given
statement with valid reason.
Answer:
The given statement is refuted as final goods include those goods which are either consumed by the households or
purchased by a producer for investment purposes.
Q.10. “Circular flow principle is based on the assumption that one’s expenditure will become other’s income.”
Explain the given statement.
Answer:
In a two sector economy households and firms exist to run the economy. Households render factor services to the
firms and earn factor incomes from them. Whereas; firms produce and sell goods and services to households and
earn their income by an equal magnitude. Thus, in a circular income mode, the axiom that one’s expenditure is
other’s income holds true.
Q.11. "While estimating Gross Domestic Product (GDP) by expenditure method, entire focus is on expenditures
incurred by the residents of the country."
Do you agree with the given statement? Give valid reason in support of your answer.
Answer:
No. This is because Gross Domestic Product (GDP) by expenditure method takes into account the aggregate
spending on all the final goods and services in the domestic territory, whether incurred by the residents or non-
residents during a given period of time.
Q.12. Define the problem of double counting in the estimation of National Income. Discuss two approaches to
correct the problem of double counting.
Answer:
Problem of double counting in the estimation of National Income arises due to counting the value of commodities
more than once. This leads to overestimation of the value of goods and services produced in the economy.
Two approaches to correct the problem of double counting are-
(i) Final Output Method: According to this method, value of only the final goods and services should be added to
determine the national income.
(ii) Value Added Method: According to this method, sum total of the value added by each producing unit should
only be taken in consideration. It means the value of intermediate consumption should not be considered.
Q.13. Define the following:

(i) Capital Goods (ii) Gross Domestic Product
(iii) Flow Variables (iv) Income from property and entrepreneurship
Answer:
(i) Capital Goods are those final goods which help in further production of other goods and services. e.g.
machinery
(ii) Gross Domestic Product is the sum total of market value of all the final goods and services produces within
the domestic territory of a country during a year.
(iii) Flow Variables are those economic variables which is measured over a period of time e.g. national income
(iv) Income from property and entrepreneurship is the income which arises from ownership of
physical/financial/intellectual property and reward to the entrepreneur for his contribution to the production of
goods and services in the form rent, royalty, interest and profit.
Q.14. How should the following be treated in estimating National Income of a Country? Give valid reasons.
(i) Profits earned by Foreign Banks in India.
(ii) Expenditure on upgradation of fixed asset by a firm.
Answer:
(i) Profits earned by foreign banks in India should not be included in the National Income because it is a factor
income paid to non-residents.
(ii) Expenditure on upgradation of fixed asset by a firm should be included in the National Income, as it is a part
of capital formation.
Q.15. "Many goods and services which may contribute to welfare, but are not included in estimating Gross
Domestic Product (GDP)." Do you agree with the given statement? Give valid reason in support of your answer.
Answer:
Yes, there are many goods and services that may contribute to welfare in an economy but may not be included in
the estimation of Gross Domestic Product. These transactions are referred to as non-market transactions.
Transactions like domestic services rendered by a home maker contribute to welfare but are not included in the
estimation of GDP as they are not paid for.
Q.16.
Justify the following statement:
"Depreciation is a fall in the value of an asset due to expected obsolescence."
Answer:
Yes. Depreciation is the continuous fall in the value of an asset due to expected obsolescence. Value of fixed
assets may fall owing to change in technology over a period of time.

(i) Net Exports (ii) Externalities(iii) Problem of Double Counting.
Answer:
(i) Net Export refers to the excess of the value of exports of goods and services over the value of imports of goods
and services of an economy, during an accounting year.
(ii) Externalities refer to benefits (positive externalities)/ harms (negative externalities) which are caused by one
entity to another without being paid/ penalised for it.
(iii) Problem of double counting refers to the counting of the value of a good or service, more than once in the
estimation of national income.
Q.18. State the meaning of 'normal resident' of a country.

Answer:
Normal resident of a country refers to an individual or an institution who ordinarily resides in a country and
whose centre of economic interest also lies in that country.
Q.19. "Machine purchased by a firm is always a capital good."

Do you agree with the given statement? Give valid reasons for your answer.
Answer:
No. Capital goods are those final goods which help in the production of other goods and services. A machine
purchased by a firm will be a capital good when it is used for the production of other goods and services.
However, if it is purchased by a firm for resale purposes in the same year, it will not be considered as a capital
good.
Q.20. With suitable examples, distinguish between final goods and intermediate goods.
Answer:
Final Goods refer to those goods which are either used for consumption purpose or for investment purpose. For
example: A shirt purchased by a consumer.
Whereas;
Intermediate goods are those goods which are either used for resale or further production purposes in the same
year. For example: Cloth used by a firm to manufacture shirts
Q.21. Using a suitable numerical example, distinguish between Real Gross Domestic Product (GDP) and Nominal
Gross Domestic Product (GDP).
Answer:
Real Gross Domestic Product (GDP) is the money value of all the final goods and services produced in the
domestic territory of an economy, measured at base year prices.
Whereas;
Nominal Gross Domestic Product (GDP) is money value of final goods and services produced in the domestic
territory of an economy, measured at current year prices.
For example, considering base year be 2000 and current year be 2001
Year Price(in₹) Output(in units) Real GDP(P0Q1) NominalGDP(P1Q1)
2000 10 100 1,000 1,000

2001 15 100 1,000 1,500
It is evident from the above data that nominal GDP is more than real GDP owing to an increase in price without
any corresponding change in output level.
Q.22. Read the following text carefully:

In India, after Covid-19 period, household and private sector consumption, as measured by Private Final
Consumption Expenditure (PFCE), was ₹ 39.7 trillion in nominal terms in Q1 FY23, compared with ₹ 28.4
trillion for the same period last year, and ₹ 39.2 trillion in the fourth quarter (Q4) of 2021-22 (FY22). As a
percentage of Nominal GDP, PFCE was 61.1 per cent, compared with 55.5 per cent in Q1 FY22. However, in real
terms at constant prices, PFCE grew just 9.88 per cent, compared with Q1 of 2019-20-the year before the Covid-
19 pandemic.
"Recovery in domestic demand is reflected in the growth rates of PFCE and Gross Fixed Capital Formation
(GFCF) over the corresponding quarter of the previous year," said D.K. Srivastava. GFCF came in at ₹ 19 trillion
in Q1 FY23, compared with ₹ 14.4 trillion in Q1 FY22. However, it was slightly lower than ₹20.2 trillion in Q4
FY22. In the media briefing after the GDP numbers, Finance Secretary T.V. Somanathan said this trend was
expected as GFCF in present Q1 was usually lower than the previous year's Q4. On the basis of the given text and
common understanding, answer the following questions:
Compare and analyse the trends of change in PFCE as a percentage of GDP, both in real and nominal terms.
Answer:
Household and private sector consumption, as measured by Private Final Consumption Expenditure(PFCE) was at
39.7 trillion in nominal term in Q 1 FY 23 compared with 28.4 trillion for the same period last year
and 39.2 trillion in the fourth quarter of 2021-22. As a percentage of nominal GDP, PFCE was 61.1 %,
compared with 55.5% in Q 1 FY 22. In real terms, PFCE grew just 9.88%, compared with Q1 of 2019-20.
Q.23. ‘Domestic services (Household Services) performed by a woman are not considered as an economic
activity.’ Defend or refute the given statement with valid reason.
Answer:
The given statement is defended. As the activities which are performed by a woman (homemaker) cannot be
evaluated in monetary terms. Therefore these activities are not considered as an economic activity.
Q.24. "Private Final Consumption Expenditure is an important factor determining Gross Domestic Product at
Market Price." Justify the given statement.
Answer:
Private final consumption expenditure (PFCE) refers to the expenditure incurred by the household sector on all
types of consumer goods. It is a measure of total amount spent by consumers on the purchase of final goods and
services. Therefore, it is an important factor determining Gross Domestic product at Market Price.
Q.25. ‘‘Net factor income from abroad can never be negative.’’ Defend or refute the given statement with valid
argument.
Answer:
The given statement is refuted. Net factor income from abroad is the difference between factor income earned
from rest of the world and factor income paid to rest of the world.
If the value of factor income paid to rest of the world is greater than the factor income earned from rest of the
world, the resulting value (net factor income from abroad) can be negative.
Q.26. “Subsidies to the producers, should be treated as transfer payments.’ Defend or refute the given statement
with valid reason.
Answer:
The given statement is defended, as subsidy is a transfer payment. Subsidy is the financial assistance provided by
the government to producers to fulfil its social welfare objectives. Government does not get anything in
consideration for the same. It does not contribute to the current flow of goods and services and hence do not
contribute to any value addition.
Q.27. ‘Gross investment is always greater than net investment.’’ Defend or refute the given statement with valid
argument.
Answer:
The given statement is refuted. Gross investment includes addition to capital stock which also includes
replacement for the normal wear and tear (depreciation). Whereas, addition to capital stock in an economy is
measured by net investment. So, in an accounting sense, if the value of depreciation becomes zero, only then
gross investment will be equal to net investment.
Q.28. Distinguish between exports and net factor income from abroad.
Answer:
Exports : Refers to the value of the goods and services sold by an economy to the rest of the world
Net Factor Income from Abroad : This is the difference between factor income earned from the rest of the world
and factor income paid to the rest of the world.
Q.29. Differentiate between the concepts of ‘demand for domestic goods and services’ and ‘domestic demand for
goods and services’.
Answer:
The demand for domestic goods and services is the sum total of demand for goods and services by both the
domestic and foreign countries; whereas, domestic demand for goods and services is the sum total of domestic
demand for domestic as well as foreign goods.
Q.30. Discuss briefly the meaning of ‘Value Addition’.

Answer:
Value addition is the excess of the value of output over the value of intermediate consumption.
Value Addition = Value of Output – Value of Intermediate Consumption.
Q.31. Giving valid reasons, state how the services of a ‘School Teacher’ will be undertaken in estimation of
National Income.
Answer:
The services of a school teacher will be included in the national income of the country as it contributes to the
current flow of services in the economy.
Q.32. Discuss briefly how the money received from the sale of a second hand car will be undertaken in estimation
of national income
Answer:
The money received from the sale of a second hand car will not be included in the national income of the country
as it does not contributes to the current flow of goods in the economy.
Q.33. Define Intermediate Good.

Answer:
An intermediate good refers to that good which is purchased during the year by a firm from another for the
purpose of further production/resale.
Q.34. “India's GDP is expected to expand 7.5% in 2019-20: World Bank - The Economic Times. Does the given
statement mean that welfare of people of India increase at the same rate? Comment with reason.
Answer:
Generally it is considered that an increase in the Gross Domestic Product (GDP) of any economy (India in this
case) ensures increase in welfare of the people of the country. However, this may not always be correct.
Some of the prime reasons for the same are :
(a) Unequal distribution and composition of GDP,
(b) Non-monetary transactions in the economy which are not accounted for in GDP, and
(c) Occurrence of externalities in the economy (both positive and negative).
Q.35. State with valid reason, which of the following statement is true or false:
Gross Value Added at market price and Gross Domestic Product at market price are one and the same thing.
Answer:
The given statement is false as Gross Domestic Product is the result of sum of Gross Value Added by all the
producing units/firms in an economy, during an accounting year.
Q.36. Intermediate goods are always durable in nature.

Answer:
The given statement is false as intermediate goods are generally non-durable in nature. They are the goods used as
raw material and they lose their identity in the production process for the creation of a new commodity, during an
accounting year.
Q.37. Compensation to the victims of a cyclone is an example of a welfare measure taken by the government‟.
State with valid reason, should it be included/not included in the estimation of national income of India.
Answer:
Compensation given to the victims of a cyclone is an example of a social welfare measure taken by the
government. However, it is not included in estimation of national income as it is a transfer payment which does
not lead to corresponding flow of goods and services.
Q.38. Giving valid reasons explain which of the following will not be included in estimation of National Income
of India?
(a) Purchase of shares of X. Ltd. by an investor in the National Stock Exchange.
(b) Salaries paid by the French Embassy, New Delhi to the local workers of the housekeeping department.
(c) Compensation paid by the Government of India to the victims of floods.
Answer:
(a) As such transactions are mere paper claims and do not lead to any value addition.
(b) Yes this will be included in the calculation of national income as the local workers’s center of economic
interest is within the economic territory of India. However, it won’t be included in calculation of domestic
income.
(c) Compensation paid by the Government of India is mere transfer payment and does not lead to any flow of
goods and services in an economy.
Q.39. State two components of “Net Factor Income from Abroad”

Answer: Component of net factor income from abroad are :
(i) Net compensation of employees
(ii) Net income from property and entrepreneurship
(iii) Net retained earnings of resident companies abroad
Q.40. Distinguish between Consumption goods and Capital goods.

Answer:
Consumption goods refer to those final goods which directly satisfy the wants of the end user/consumer.Whereas;
Capital goods are those final goods which help in the production of other goods and services.
Q.41. “National income includes income earned by factors of production, within the domestic territory only.”
Defend or refute the given statement with valid reasons.
Answer:
The given statement is refuted, as national income is the factor income earned by the normal residents of a
country, irrespective of whether earned within or outside the domestic territory.
Q.42. Explain any two precautions that should be taken into account, while estimating National Income by
Expenditure method.
Answer:
Two precautions of Expenditure Method are:
(i) Any expenditure on intermediate consumption should not be included, as it may lead to problem of double
counting.
(ii) Expenditure on transfer payments should not be included, as these are unilateral in nature.
Q.43. Distinguish between ‘Value Addition’ and ‘Final Value of Output’.
Answer:
Value Addition refers to the excess of ‘Value of Output’ over the ‘Value of Intermediate Consumption’.
Value Addition = Value of Output – Value of Intermediate Consumption
Whereas;
Final Value of output refers to the total money value of goods and services produced during a given period of
time.
Final Value of output = (Number of units produced) x (Price per unit)
Q.44. “National income is always greater than domestic income”. Do you agree with the given statement?
Support your answer with a valid reason.
Answer:
No. Net factor income from abroad (NFIA) is the component which depicts the difference between National
income (NNPFC) and Domestic income (NDPFC). National income can be less than the domestic income in case
of negative NFIA
i.e. when, Factor Income from abroad < Factor Income to abroad.
Q.45. In the estimation of Gross Domestic Product (GDP) using expenditure method, focus lies only on
expenditure by the residents of the country.”
Do you agree with the given statement? Give valid reasons for your answer.
Answer:
No. This is because Gross Domestic Product (GDP) by expenditure method takes into account the aggregate
spending on all the final goods and services in the domestic territory, whether incurred by the residents or non-
residents during a given period of time.
Q.46. Define Gross Domestic Product (GDP) deflator and discuss its importance.
Answer:
GDP Deflator is the ratio of Nominal to Real GDP. It is a tool which is used to eliminate the effect of price
fluctuations in the economy and to determine the real change in physical output of current year. GDP deflator
helps in comparison of growth rate of the economy.
Q.47. State and discuss any two precautions to be considered while estimating national income by Expenditure
Method.
Answer:
(i) Expenditure on second hand goods is not to be included in the final consumption expenditure as the production
of these goods might not be attributed to the current year.
(ii) Expenditure on ‘intermediate goods’ are not to be taken into account, to avoid the problem of double counting
of value of goods and services.
48. State any three precautions that are taken while estimating national income by production method.
Ans. Three precautions that are taken while estimating national income by production method:
• Value of intermediate goods should not be included in the estimation of National Income, to avoid
the problem of double counting (as their value has already been included in the value of final goods)
• Imputed value of goods for self-consumption should be taken into consideration while estimating
National Income, as it adds to the current flow of goods and services.
• Sale and purchase of financial assets should not be included in the estimation of National Income,
as such transactions are mere paper claims and do not lead to value addition.
49. (i) State the meaning of domestic income.
Ans. Domestic Income is the sum total of income earned by the factors of production (wages, profits, rent,
interest) within the domestic territory of a country, during an accounting year.
(ii) Discuss briefly how distribution of income affects the welfare of an economy.
Ans. Distribution of income is one of the limitations of using GDP as an index of welfare.
A rise in Gross Domestic Product (GDP) may not benefit all sections of society in the same dimension. The benefit
of increase in GDP may be concentrated in the hands of a few individuals while the majority of people may remain
deprived of such benefits. This may lead to inequitable distribution of income.
Hence, the welfare of the entire economy may not increase despite the increase in GDP.
UNIT-2: Money and Banking
Q.1. Explain the function of central bank as ‘Banker, Agent and Advisor’ of the government.
Answer:
As the Government’s banker, the Central bank accepts receipts and makes payments on behalf of the government.
It lends loans to the government for varied purposes. As the agent and advisor to the government, it manages
public debt on behalf of the government and also advices on policy matters.
Q.2. Elaborate how a Central Bank stabilizes money supply through ‘Bank rate’.
Answer:
Bank rate is the rate of interest at which central bank lends money to commercial banks to meet their long term
needs. An increase in bank rate may force commercial banks to increase their lending rate. It will make
borrowings costlier to general public. This leads to discouraging people to borrow and will thus restrict money
supply in the economy or vice-versa.
Q.3. “To boost the falling demand in the economy, the Reserve Bank of India recently reduced Repo rate.”
Elaborate the rationale behind the steps taken by the Central Bank.
Answer:
Repo rate is the rate at which Reserve Bank of India lends funds to the commercial banks for a short period of
time. A decline in repo rate may induce commercial banks to reduce the lending rates. This may encourage
demand for loans in the market leading to greater funds at the disposal of general public. This may lead to
creation of higher Aggregate Demand in the economy.
Q.4. Elaborate any two instruments of credit control, exercised by the Reserve Bank of India.
Answer:
Two instruments of credit control are
Repo rate – It is the rate of interest at which central bank lends to commercial banks for their short term
requirements. An increase in repo rate will force commercial banks to increase their lending rates. It will make
borrowings costlier to general public.
Open market operations- It refers to buying and selling of government securities by the central bank from and to
the general public. When central bank sells its securities, it reduces liquidity (deposits) with commercial banks
and adversely affects credit creating power of banks.
Q.5. What role does credit multiplier play in determining the credit creation capacity of the banking system? Use
a numerical illustration to explain.
Answer:
Credit multiplier measures the amount of money that the banks are able to create in the form of deposits with
every initial deposit.
The credit creation by commercial banks depends on credit multiplier as it is inversely related to LRR. Higher the
value of credit multiplier, higher will be the total credit created and vice - versa.
For Example: suppose LRR is 0.5 and initial deposit is Rs. 1,000
Credit multiplier =
Total credit created = 2 x 1000 = 2,000
Whereas, Suppose the LRR is 0.2 and initial deposit is 1000
Credit multiplier =
Total credit created = 5 x 1,000= 5,000
Thus, with the same initial deposit total credit creation increases with an increase in the value of credit multiplier.
Q.6. “Central bank acts as the banker to the government”. Elaborate the given statement.
Answer:
The central bank acts as the banker to the Government, maintain accounts of government for the purpose of
accepting deposits and advancing loans. The central bank purchases and sells government securities in the open
market on behalf of the government. It may also advise the government on policy matters, if solicited. (to be
marked as a whole)
Q.7. Using a hypothetical numerical example, explain the process of credit creation by a commercial bank.
Answer: Credit multiplier measures the amount of money that the banks are able to create in the form of deposits
with every initial deposit. The credit creation is inversely related to LRR. Higher the credit multiplier, higher will
be the total credit created and vice - versa.
The credit creation by commercial banks is determined by :
The amount of the initial deposit.
The Legal Reserve Ratio (LRR).
Suppose the initial deposits are ₹ 1000 and LRR is 10%, the banks will keep 10% of the deposits i.e. ₹ 100 as
reserves and will lend the remaining amount of ₹ 900. Those who borrow will spend the money for making
payments.
It is assumed that the entire ₹ 900 comes back as secondary deposits to the banking system. Now the banks will
again keep 10% of ₹900 i.e. ₹ 90 as reserve and lend out ₹ 810. This process continues till total reserves become
equal to initial reserves.
Total money creation =

Hence, the initial deposit of ₹ 1000 has led to the total
money supply of ₹ 10,000.
Q.8. Read the following news published on September 26, 2022:

“The central bank has increased the benchmark lending rate by 140 basis points” Identify the likely cause and
consequences behind this action taken by the Reserve Bank of India.
Answer:
Inflation in the economy may be the cause behind the rise in the benchmark lending rate by the Central bank. This
step may force the commercial banks to increase the cost of borrowing for the general public. It may discourage
the general public from taking loans. As a result, it may lead to fall in Aggregate Demand and subsequent fall in
inflation.
Q.9. Explain the ‘Government’s Bank’ function of the central bank.

Answer:
The central bank acts as a banker to the Government. It maintains the banking accounts of the government for the
purpose of receiving/making payments on its behalf. It provides loans to the government, as per its requirements.
The central bank also purchases/ sells government securities in the open market on behalf of the government.
Q.10. Read the following text carefully:

"After setting up a working group to study the possibility of a Central Bank Digital Currency (CBDC) in India in
2020, the RBI revealed a concept note on digital rupee (e-Rupee) on 7th October, 2022." "The e-Rupee will
provide an additional option to the currency available forms of money. It is substantially not different from bank
notes, but being digital it is likely to be easier, faster and cheaper." RBI said that it broadly defines CBDC as the
legal tender issued by a central bank in a digital form. It is akin to paper currency in a different form. On the basis
of the above text and common understanding, answer the following questions: Identify and discuss the function of
central bank indicated above text.
Answer:
The function being discussed here is the Bank Of issue or Currency Authority. In India, the Central bank has the
sole authority for issuing currency in the economy. This ensures uniformity in the issue of currency and it gives
the central bank, control over the money supply.
Q.11. Define Reverse Repo Rate. Discuss briefly, how this instrument helps in controlling credit creation by
commercial banks.
Answer:
Reverse Repo Rate is the rate of interest at which commercial banks can park their surplus funds with the Central
Bank.
In order to control the credit creation capacity of the commercial banks, the Central Bank may increase/decrease
Reverse Repo Rate. This induces commercial banks to transfer more/less funds to the Central Bank which in turn
reduces/ increases the lending capacity of the commercial banks. As a result, credit creation by commercial banks
may be reduced/ increased.
Q.12. Explain the role of Central Bank as Governments' agent and advisor.
Answer:
As Government’s agent, the Central Bank accepts receipts and makes payment on behalf of the government. For
instance, Central Bank issues government securities such as bonds, treasury bills, etc. It makes all arrangements in
connection with the floatation, conversion or redemption of these securities. It manages the national debt on
behalf of the government. As the Government’s financial advisor, the Central Bank advises the government on all
economic, financial and monetary matters.
Q.13. Define ‘Repo Rate’.

Answer:
Repo rate refers to the rate at which the Central Bank lends to the commercial banks for their short-term
requirements.
Q.14. Outline the recent change made by the Monetary Policy Committee of Reserve Bank of India in the repo
rate.
Answer: The Monetary Policy Committee of Reserve Bank of India raised the repo rate by 50 basis points.
Q.15. "Increase in repo rate is an important tool used by Monetary Policy Committee to combat the situation of
inflation in the Economy." Justify the given statement.
Answer:
To deal with the situation of inflation, the Monetary Policy Committee (MPC) of Reserve Bank of India has
increased the repo rate. An increase in repo rate will force the commercial banks to increase their lending rates
making the credit costlier for the general public. Thereby, discouraging the borrowings. Consequently, Aggregate
Demand will fall and thereby correcting the problem of inflation in the economy.
Q.16. As per the following news published in The Economic Times on 26th December, 2021: ‘Reserve Bank of
India has sold government securities worth ₹ 8,710 crore in the secondary market, over the last four weeks, to
drain out excessive liquidity’. Identify the likely cause and the consequences behind, this type of action plan of
the Reserve Bank.
Answer:
The given instance where, Reserve Bank of India has sold government securities in the secondary market
indicates towards inflation as a possible cause behind the action taken by RBI. By selling off the government
securities, RBI withdraws money from circulation and thereby reducing the lending capacity of the commercial
banks. In this process, the economy will experience contraction of credit, leading to reduction in consumption and
investment demand. Consequently, the inflationary pressure in the economy will get eased out.
Q.17. State any two advantages of digital rupee.

Answer:
Two advantages of Digital Rupee: Easier, Cheaper, Faster etc
Q.18. Read the following text carefully, discuss briefly the relevant function of the Central Bank, indicated :
Recently, Reserve Bank of India (RBI) conducted a statutory inspection for supervisory evaluation against a
Commercial Bank. The commercial bank was imposed with stringent penalties, owing to deficiencies in
regulatory compliances. As per the Central Bank, the inspection revealed non-compliances vis-à-vis different
directions issued by RBI, on the following fronts:
i. ATM Card frauds
ii. Ensuring integrity and quality of data
iii. Loans to small borrowers (adapted/moderated -livemint.com)
Answer:
The given text indicates the ‘supervisory function’ of the Central Bank, under which the Reserve Bank of India
(RBI) regulates and supervises routine functioning of the commercial banks. Under this function, the RBI may
exercise periodic inspections/audits of commercial banks, filing of reports by commercial banks and other
statutory compliances. Central bank may take necessary corrective and punitive actions against the banks owing
to deficiencies in regulatory compliances.
Q.19. ‘Reserve Ratio and Credit Creation are inversely related.’ Do you agree with the given statement? Justify
your answer with a suitable numerical example.
Answer:
Yes, there exists an inverse relation between Reserve Ratio and Credit Creation in the economy. We know that:
Money Multiplier = 1 𝑅𝑒𝑠𝑒𝑟𝑣𝑒 𝑅𝑎𝑡𝑖𝑜 Credit Creation = Initial Deposits x Money Multiplier Assuming that the
value of initial deposits is ₹ 10,000 crore
(All figure in ₹ crore)
Reserve Ratio Money Multiplier Initial Deposits Credit Creation
(Initial Deposits x Money Multiplier)
10% 1 / 0.1 = 10 10,000 1,00,000
25% 1 / 0.25 = 4 10,000 40,000
From the above calculation, we can conclude that higher the reserve Ratio, lesser credit will be created by
Commercial Banks in the economy.
20. (i) “As per announcement made by the Governor of Reserve Bank of India (RBI) on May 4, 2022, it
has been decided to increase the Cash Reserve Ratio (CRR) by 50 basis points from 4% to 4.5%.”
Analyse the impact of this step of RBI on total credit creation in the economy.
Ans. The total amount of credit creation in an economy depends upon the amount of initial deposits and
cash reserve ratio (CRR). An increase in the CRR by RBI may lead to lesser availability of deposits
with commercial banks. This may curtail the lending capacity of commercial banks.Thus, adversely
affecting the total credit creation in the economy.
(ii) Explain the ‘Store of Value’ function of money.

Ans. Money in the form of wealth can be stored easily for future use. Money is the most convenient and
economical way to transfer purchasing power from present to future use. It is durable in nature and
occupies less space for storage.
21. (a) Explain the significance of Unit of Account function of money.

Ans. Money acts as a unit of account, as the value of all goods and services can be expressed in terms of money.
The value of all goods and services in a country can be measured in a common denomination. Consequently, with
the fluctuation in the price, it alters the purchasing power in the hands of the public facilitating smooth
functioning in the economy.
(b) How does change in margin requirements affect availability of credit in an economy? Explain briefly.
Ans. Margin requirement refers to the difference between the amount of the loan and value of the security offered
by the borrower against the loan. An increase in margin requirement implies a decrease in the amount of loan
available on the security offered. Thus, it will lead to decline in the availability of credit in the economy and vice
versa.
UNIT-3: Income Determination
Q.1. In the given figure, what does the gap ‘KT’ represent? State and discuss any two fiscal measures to correct
the situation.
Answer:
KT’ represents inflationary gap
Two fiscal measures to correct the situation of inflationary gap are –
Increase in Taxes - To curb the inflationary gap the government may increase the taxes. This may reduce the
purchasing power in the hands of the public which in turn may reduce the Aggregate Demand in the economy to
bring it equal to the Aggregate Supply.
Reduction in Government Expenditure- To curb the inflationary gap the government may reduce its non
developmental expenditure. This may reduce the purchasing power in the hands of the people which in turn will
reduce the Aggregate Demand in the economy to bring it equal to the Aggregate Supply.
Q.2. What is meant by deflationary gap? State and discuss any two fiscal measures to correct the situation of
deflationary gap.
Answer:
Deflationary gap is that situation when Aggregate Demand is lesser than Aggregate Supply corresponding to full
employment level.
Two fiscal measures are to control it are:

(i) Decrease in Taxes - To curb the deflationary gap the government may decrease the taxes. This may increase
the purchasing power in the hands of the people which in turn may increase the Aggregate Demand in the
economy to bring it equal to the Aggregate Supply.
(ii) Increase in Government Expenditure- To curb the deflationary gap the government may increase its
expenditure. This may increase the purchasing power in the hands of the people which in turn may increase the
Aggregate Demand in the economy to bring it equal to the Aggregate Supply.
Q.3. Justify the following statement with valid reason.

“Ex- ante Aggregate Demand is always equal to Ex- ante Aggregate Supply.”
Answer:
Ex-ante Aggregate Demand is equal to Ex-ante Aggregate Supply only when the economy is in equilibrium. At
under-employment equilibrium level, when Ex-ante Aggregate Demand falls short of Ex-ante Aggregate Supply,
it will lead to accumulation of unplanned inventories. Hence the producer will reduce employment leading to
reduction in output and income till the two forces becomes equal to each other and vice versa.
Q.4. ‘‘To boost the falling demand in the economy, Reserve Bank of India recently reduced Repo Rate and
Reverse Repo Rate.’’ Elaborate the rationale behind the steps taken by the Central Bank.
Answer:
The steps taken by the Central Bank to boost the falling demand in the economy are justified as the reduction in
the Repo rate and Reverse Repo Rate will increase the availability of funds in the market through the commercial
banks.
Rationale : A decrease in Repo/Reverse Repo Rate will push the commercial banks to reduce the lending rate and
will eventually make the borrowings cheaper for the general public. As a result the consumption demand in the
economy may increase
Q.5. What is meant by deflationary gap? State any two monetary measures to correct the situation of deflationary
gap.
Answer:
Deflationary gap is the amount by which the actual aggregate demand falls short of the level of aggregate demand
required to establish the full employment equilibrium.
Two monetary measures to control deflationary gap are as under :
(i) Cash Reserve Ratio (CRR) : Lowering the CRR may raise the lending capacity of the commercial banks.
This may lead to rise in the aggregate demand in the economy.
(ii) Open Market Operation (OMO) : The Central Bank may purchase the government securities in the open
market to pump additional funds into the hands of the general public.
Q.6. Elaborate the likely economic rationale behind the increase in Repo Rate by the Monetary Policy Committee.
Answer:
An increase in the repo rate will force the commercial banks to increase the lending rates, which may make
borrowing costlier to the general public. It may discourage general public from borrowing funds. As a result,
Aggregate Demand in the economy may decrease, thereby controlling the inflationary pressures in the economy.
Q.7. Read the following information carefully:

"The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), recently increased the Repo Rate
by 50 basis points. The Rate stands today at 5.40%, whereas Reverse Repo Rate was left unchanged at 3.35%."
Answer the following questions:
Identify the nature of the two monetary policy measures mentioned in the above text.
Answer:
The two monetary policy measures mentioned in the above text are of quantitative nature.
Q.8. Discuss briefly, how the government can control the situation of deflation using the following:
(i) Taxation Policy and (ii) Government Expenditure Policy
Answer:
(i) Taxation Policy: To control deflation, the government may reduce the tax rates. This step may increase the
disposable income (purchasing power) in the hands of the general public. Consequently, it may lead to a rise in
Aggregate Demand, thereby controlling the situation of deflation.
(ii) Government Expenditure Policy: To control deflation, the government may raise public expenditure. This
step may result in an increase in the level of Aggregate Demand in the economy by raising the income of people
Q.9. Suppose an imaginary economy is facing a situation of deficient demand in the short run time period.
Discuss briefly, the probable impacts of the same on the economy.
Answer:
Deficient Demand may have an adverse impact on output, employment and income level.
As Aggregate Demand is less than Aggregate Supply at full employment level of income, this may lead to
unintended accumulation of inventories. To restore desired/intended level of inventories, producers may contract
production which in turn may reduce the employment, output, and income level in the economy. Lack of demand
for goods and services may also lead to a fall in the general price level in the economy.
Q.10. If planned savings exceeds planned investments in an economy, explain its likely impact on income, output
and employment.
Answer:
When planned savings exceeds planned investments it means households are planning to consume less than what
the firms expected them to consume.
This will lead to unintended accumulation of inventories. To restore the desired/intended level of inventories,
producers may contract production which in turn reduces the employment, output and income level.
Q.11. "In an economy ex-ante Aggregate Demand is more than ex-ante Aggregate Supply." Explain its impact on
the level of output, income and employment.
Answer:
When ex-ante Aggregate Demand is more than ex-ante Aggregate Supply, it means that households are planning
to consume more than what the firms expect them to. This will lead to unintended fall in inventories. To restore
the desired/intended level of inventories, producers may expand production. As a result, there may be an increase
in the level of output, employment and income in the economy.
Q.12. As per the following news published in “The Hindu” on 6th August, 2022:
“The Monetary Policy Committee (MPC) of the Reserve Bank of India raised the Repo Rate by 50 basis points."
Identify and explain the likely cause and consequences behind this type of action taken by the Reserve Bank of
India.
Answer:
Inflation in the economy may be the cause behind the rise in repo rate by the Monetary Policy Committee (MPC)
of Reserve Bank of India (RBI). This step may force commercial banks to increase the lending rates. It may
discourage the borrowings by the general public. This may lead to fall in Aggregate Demand and thus may result
in fall in rate of inflation.
Q.13. India‟s GDP contracted 23.9% in the April-June quarter of 2020-21 as compared to same period of 2019-
20, suggesting that the lockdown has hit the economy hard‟. The Hindustan Times, 1st September 2020 State and
discuss any two fiscal measures that may be taken by the Government of India to correct the situation indicated in
the above news report.
Answer:
The situation suggests that Aggregate Demand is less than Aggregate Supply.
Following two fiscal measures may be taken to control it:
Decrease in Taxes - To curb the situation, the government may decrease the taxes. This may increase the
purchasing power in the hands of the general public. This may increase the Aggregate Demand in the economy to
Increase in Government Expenditure - The government may also increase its expenditure. This may increase
the purchasing power in the hands of the general public which in turn may increase the Aggregate Demand in the
economy to bring it equal to the Aggregate Supply.
Q.14. Discuss the working of the adjustment mechanism if, Aggregate Demand (AD) is greater than Aggregate
Supply (AS).
Answer:
When Aggregate Demand is greater than Aggregate Supply (AD>AS), buyers are planning to, buy more goods
and services than what producers are planning to produce. It will lead to fall in planned inventories below the
desired level. The producers in turn will produce more, which will raise the income level i.e. AS, till AD becomes
equal to AS.
Read the following news report and answer Questions 15-18 on the basis of the same :
The Reserve Bank of India (RBI), cut Repo Rate to 4.4%, the lowest in at least 15 years. Also, it reduced the Cash
Reserve Ratio (CRR) maintained by the banks for the first time in over seven years. CRR for all banks was cut by
100 basis points to release Rs. 1.37 lakh crores across the banking system. RBI governor Dr. Shaktikanta Das
predicted a big global recession and said India will not be immune. It all depends how India responds to the
situation. Aggregate demand may weaken and ease core inflation. (The Economic Times; March 27th, 2020)
Q.15. Cut in Repo rate by RBI is likely to (increase/decrease) the demand for goods and services in
the economy.
Answer: increase
Q.16. Decrease in Cash Reserve Ratio will lead to (choose the correct alternative)
(i) Fall in aggregate demand (I i) Rise in aggregate demand
(iii) No change in aggregate demand (iv) Fall in general price level
Answer: (ii) Rise in aggregate demand
Q.17. The difference by which actual Aggregate Demand exceeds the Aggregate Demand, required to establish
full employment equilibrium is known as (inflationary gap/deflationary gap).
Answer: inflationary gap
Q.18. The impact of „Excess Demand‟ under Keynesian theory of income and employment, in an economy are:
(choose the correct alternative)
(a) Decrease in income, output, employment and general price level
(b) Decrease in nominal income, but no change in real output
(c) Increase in income, output, employment and general price level
(d) No change in output/employment but increase in general price level.
Answer: (d) - No change in output/employment but increase in general price level.
Q.19. Define effective demand. Discuss how, effective demand can be restored, if ex-ante Aggregate Demand
(AD) is more than ex-ante Aggregate Supply (AS).
Answer:
Effective Demand refers to that level of employment where Aggregate Demand is equal to Aggregate Supply.
If ex-ante Aggregate Demand (AD) is more than ex-ante Aggregate Supply (AS), it means buyers are planning to
buy more than what the producers are planning to produce.
Thus, the inventories-in-hand of producers may fall. As a result, producers may plan to raise output and
employment. This mechanism will continue to operate till the two forces become equal.
Q.20. An economy is operating at under-employment level of income’. What is meant by the given statement?
Discuss one fiscal measure and one monetary measure to tackle the situation.
Answer:
An economy is said to be operating at under employment equilibrium level, if the planned aggregate expenditure
falls short of available output in the economy, corresponding to the full employment level. It results into excess of
output available over the anticipated aggregate demand at full employment level. To tackle such a situation the
aggregate demand has to be increased up to the level that the stocks can be cleared.
Following measures may be taken for the same :
(i) Decrease in Taxes : The government under its fiscal policy may decrease the rate of taxes (both direct and
indirect taxes). This will ensure greater purchasing power in the hands of general public. This will help to increase
aggregate demand and remove the deflationary gap.
(ii) Increase in Money Supply : Central bank through its expansionary monetary policy can increase the money
supply in the economy. Central bank can use tools like bank rate, cash reserve ratio, repo and reverse repo rates
etc. to ensure greater money in the hands of general public which would in turn increase the aggregate demand in
the economy and be helpful in reducing/removing the deflationary gap.
Q.21. Explain, how the ‘Reverse Repo Rate’ helps in correcting Excess Demand in an economy ?
Answer:
Reverse Repo rate is the rate of interest at which commercial banks can park their surplus funds with the central
bank, for a relatively shorter period of time. To deal with the situation of excess demand this rate may be increase
by the central bank. It may encourage the commercial bank to park their surplus funds with Central Bank. As a
result, the availability of creating credit with the commercial bank will be reduced. Consequently, consumption
expenditure and investment expenditure may get reduced, implying reduction in Aggregate Demand.
Q.22. Discuss the working of the adjustment mechanism in the following situations :
(a) If Aggregate demand is greater than Aggregate supply.
(b) If Ex-Ante Investments are less than Ex-Ante Savings.
Answer:
(a) If ex-ante Aggregate Demand (AD) is more than ex-ante Aggregate Supply (AS), it means buyers are planning
to buy more than what the producers are planning to produce. Thus, the inventories-in-hand of producers may fall.
As a result, producers may plan to raise output and employment. This mechanism will continue to operate till the
two forces become equal.
(b) If ex-ante investments are lesser than ex-ante savings, it means buyers are planning to buy less than what the
producers are planning to produce. Thus, the un planned undesired inventories-in-hand of producers may rise. As
a result, producers may plan to reduce output and employment. This mechanism will continue to operate till the
two forces become equal.
Q.23. Define Full employment.
Answer:
Full employment refers to a situation where all those who are willing and able to work, at the prevailing wage rate
get work.
Q.24. As the income increases, people tend to save more’. Justify the given statement.
Answer:
At a lower level of income, a consumer spends a larger proportion of his/her income on consumption expenditure
(basic survival requirements). As the income increases, owing to the psychological behavior of a consumer
(rational), people tend to consume less and save more for future uncertainty.
Q.25. How to get rid of the inflationary gap (This is a diagram question ). Identify the gap.
Answer:
Two fiscal measures to correct the situation of inflationary gap are–
(a) Increase in Taxes : To curb the inflationary gap the government may increase the taxes. This may reduce the
purchasing power in the hands of the public which in turn may reduce the Aggregate Demand in the economy to
(b) Reduction in Government Expenditure : To curb the inflationary gap the government may reduce its non-
developmental expenditure. This may reduce the purchasing power in the hands of the people which in turn will
reduce the Aggregate Demand in the economy to bring it equal to the Aggregate Supply.
In the given figure, ‘KT’ represent inflationaly gap.
Q.26. State the Meaning of Effective Demand :

Answer:
Effective demand refers to that level of aggregate demand which is fully met by the corresponding supply in the
economy.
Q.27. Answer the following questions on the basis of given figure

(i) What does the shaded area AOB indicate?
(ii) What is the significance of point B?
Answer:
(i) The shaded area AOB represents the dis-savings.
(ii) Point B indicates break-even level of income where
Consumption(C) is equal to Income (Y) or Savings (S) are zero.
Q.28. Distinguish between Voluntary unemployment and

Involuntary unemployment.
Answer:
Voluntary unemployment refers to a situation where an able-bodied person is not willing to work at the prevailing
wage rate. Whereas, Involuntary unemployment refers to a situation where an able-bodied person who is willing
to work at the prevailing wage rate, is not getting work.
Q.29. Explain any two fiscal measures to correct the situation of deficient demand.
Answer:
Two fiscal measures which may be used to solve the problem of deficient demand are :
(i) Decrease in taxes may lead to an increase in the money at the disposal of the public. In turn, this may push the
consumption and investment expenditure in the economy, thereby correcting the deficient demand.
(ii) Increase in government expenditure may increase the purchasing power in the hands of the public. This
may increase the aggregate expenditure in the economy, thereby correcting the deficient demand.
Q.30. "Average Propensity to Save (APS) can be negative. " Defend or refute the given statement with valid
explanation. The given statement is defended.
Answer:
Average Propensity to Save can be negative in case of dissavings i.e., C>Y.
Q.31. Distinguish between Full employment and Involuntary unemployment.

Answer:
Full employment refers to a situation where all the resources are fully and efficiently employed; i.e., there is an
absence of involuntary unemployment. Whereas; Involuntary unemployment refers to a situation where an able-
bodied person who is willing to work at the prevailing wage rate, is not getting work.
Q.32. Explain any two monetary measures to correct the inflationary gap situation.
Answer:
Two monetary measures to correct the inflationary gap in the economy are :
(i) Increase in repo rate may force the commercial banks to increase their lending rates which may make
borrowing costlier to the general public. Consequently, the Aggregate Demand may fall.
(ii) Increase in reverse repo rate may encourage the commercial banks to park their surplus funds with the
Central Bank. As a result, credit creating capacity of the commercial banks may be reduced. Consequently,
Aggregate Demand may fall.
Q.33. Describe the adjustment mechanism, if ex-ante savings are less than ex-ante investments.
Answer:
If ex-ante savings are less than ex-ante investments, it means that the buyers are intending to buy more than what
the producers are intending to produce. Thus, the inventories will fall below the desired level. To restore the
desired level of inventories, producers may intend to increase output and employment in the economy. This
mechanism will continue till the equilibrium is reinstated.
Q.34. In an economy, if there is a fall in Bank Rate, how would it affect the demand for credit? Explain.
Answer:
Reduction in the bank rate (by the Central Bank), may lead to a fall in the lending rates by the commercial banks.
Consequently, loans available at lower rates may encourage the general public to borrow more. This may result in
an increase in the demand for credit in the economy.
Q.35. Discuss the working of the adjustment mechanism if, Aggregate Demand (AD) is greater than Aggregate
Supply (AS).
Answer:
When Aggregate Demand is greater than Aggregate Supply (AD>AS), buyers are planning to, buy more goods
and services than what producers are planning to produce. It will lead to fall in planned inventories below the
desired level. The producers in turn will produce more, which will raise the income level i.e. AS, till AD becomes
equal to AS.
36. State the meaning of the following: (i) Investment multiplier (ii) Full employment
Ans.
(i) Investment multiplier is the ratio of the total change in final income to a given change in
initial investment.
(ii) Full employment refers to a situation where all those who are willing and able to work at
the prevailing wage rate, are getting work.
37. Describe the adjustment mechanism, if ex-ante aggregate demand (AD) is less than ex-ante
aggregate supply (AS).
Ans. When ex-ante Aggregate Demand (AD) is less than ex-ante Aggregate Supply (AS), it means
that households are planning to consume lesser than what the firms expect them to. This may lead to
the unintended accumulation of inventories.
To bring back the inventories to the desired level, producers may reduce output (AS) till it becomes equal
to the Aggregate Demand and there is no further tendency to change.
UNIT-4: Government Budget
Q.1. Define ‘Revenue Expenditure’.

Answer:
Revenue Expenditures are those expenditures of the government that neither create any assets nor reduce any
liabilities of the government.
Q.2. Distinguish between Direct tax and Indirect Tax

Answer:
Direct taxes are those taxes in which the impact and incidence of the tax lie on the same entities. The burden of
direct taxes cannot be shifted on any other entity like Income tax.
Where as,
Indirect taxes are those taxes in which the impact and incidence of the tax lie on different entities. The burden of
indirect taxes can be shifted on other entities like GST. National
Q.3. From the information given in the diagram, categorize the items into revenue receipts and capital receipts,
stating valid reasons.
Answer:
Revenue receipts: Corporation tax, Customs, Income tax, Non-tax revenue, GST and other taxes, Excise duties.
Reason: Revenue receipts neither leads to decrease in assets nor increase in liabilities.
Capital receipts: Borrowing and other liabilities, Recovery of loan.
Reason: Capital receipts either leads to decrease in assets or increase in liabilities.
Q.4. Distinguish between Revenue deficit and Fiscal deficit.

Answer:
Revenue deficit refers to the excess of estimated revenue expenditure over the estimated revenue receipts of the
government, during a fiscal year.
Whereas;
Fiscal deficit is the excess of the total estimated expenditure over its total estimated receipts excluding
borrowings of the government, during a fiscal year.
Q.5. Elaborate ‘Economic stability’ function of the Government Budget.

Answer:
The government may need to correct the fluctuations (income, employment and prices) in the economy. These
may depend upon the level of Aggregate Demand, which in turn depends upon the spending decision of
households and firms.
To stabilize the economy, under the state of inflation/deflation, Government may alter taxes/expenditure,
accordingly.
Q.6. With suitable examples, distinguish between Direct taxes and Indirect taxes.
Answer:
Direct Taxes refer to those taxes whose impact and incidence lie on the same entity. Its burden cannot be shifted.
For example: Wealth tax, Corporate tax etc.
Whereas;
Indirect Taxes refer to those taxes whose impact and incidence may lie on different entities. Its burden can be
shifted. For example: Goods and services tax, Excise duty etc.
Q.7. State any two examples of non-tax receipts of the Government.

Answer:
Dividends and profits on investments.
Fees and other receipts.
Q.8. "In the recent times, the Government of India has incurred a lot of expenditure on acquisition of indigenous
defence items under 'Make-in-India' programme." Identify and discuss the two types of budget expenditures
which may be undertaken by the Government as suggested in the above statement.
Answer:
Two types of budget expenditures on the acquisition of indigenous defence items under 'Make-in-India'
programme which may be undertaken by the government are as follows :
Capital Expenditure- This refers to that expenditure of the government which either leads to creation of assets or
reduction in liabilities.
Revenue Expenditure- This refers to that expenditure of the government which neither leads to creation of assets
nor reduction in liabilities.
Q.9. State the meaning of 'fiscal deficit' under the Government Budget.
Answer:
Fiscal deficit refers to the excess of estimated expenditure over estimated receipts of the government excluding
borrowings. It indicates towards the borrowing requirements of the government during a given period of time.
Q.10. "Government provides essential items like food grains almost free to the families below poverty line."
Identify and explain the objective of the government budget indicated.
Answer:
The government budget objective of ‘Redistribution of Income’ is indicated in the given statement.
Government can influence inequalities of income through taxes and public expenditure. It can impose taxes on the
rich reducing their disposable income. It can spend on free goods and services like food grains to the families
below poverty line to ensure their welfare/ raising their standard of living.

(i) Revenue deficit and (ii) Primary deficit
Answer:
(i) Revenue deficit is defined as the excess of revenue expenditure of the government over its revenue receipts.
(ii) Primary deficit is defined as the difference between fiscal deficit and interest payments.
Q.12. State whether the following statements are true or false, with valid reasons:
(i) High tax on higher income groups aims to achieve the 'reallocation of resources' objective of the Government.
(ii) Borrowings are a revenue receipt of the government.
(iii) Fiscal deficit always leads to inflation.
Answer:
(i) False. The government uses its taxation policy to improve the distribution of income and wealth. It indicates
the objective of redistribution of income of the government budget.
(ii) False. It is a capital receipt as it creates liability for the government.
(iii) False. If the borrowings (i.e. fiscal deficit) are to be used for some developmental purposes, it may not be
inflationary in nature. However, in other cases, it may be inflationary.
Q.13. Study the given picture carefully:

The following questions based on common knowledge and
picture: Categorise the given items in the picture into
tax/non-tax receipts.
Answer:
Tax receipts- Individual Income Tax, Property Tax,
Corporate Income Tax and Sales & Gross Receipts Tax
Non-tax receipts- Motor Vehicle License Fee and Fines
Q.14. "Government has started spending more on

providing free services like education and health to the
poor." In the light of above statement, explain how the
government can use the budgetary policy in reducing 'inequalities of income'.
Answer:
Government’s budgetary policy has two aspects- taxation and public expenditure. To reduce inequalities in
income and wealth, the government may adopt an expenditure policy which is in favour of lower income groups.
Government expenditure on providing free services like education and health to the poor may positively affect
their disposable income.
Consequently, budgetary policy of the government can be used to reduce inequalities of income.
Q.15. Elaborate the objective of ‘allocation of resources’ in the Government Budget.

Answer:
Allocation of resources: Government seeks to allocate resources with a view to balance the goals of all sections of
the society. Production of goods and sevices which are injurious to health may be discouraged through taxation
policy. Similarly, production of socially beneficial goods may be encouraged through subsidies. If private sector
does not take initiative in certain activities (Public Goods) government may directly control them like water
supply and sanitation etc.
Q.16. Distinguish between revenue receipts and capital receipts of the government, with suitable examples.
Answer:
Revenue receipts are those receipts which neither creates any liabilities nor causes any reduction in the assets of
the government. For example: taxes, dividends received from public enterprises etc.
Whereas;
Capital receipts are those receipts which either creates liabilities or causes reduction in the assets of the
government. For example: borrowings, disinvestments etc.
Q.17. Compare the trends depicted in the figures given below:
Answer:
Considering the data represented in the given diagram, trend of year-on-year deficit (reporting for April to
November) may be stated as follows:
(i) Fiscal Deficit in 2020 increased to 10.8 lakh crore from 8.1 lakh crore in 2019. In 2021 it has gone down to 7
lakh crore. 1 3
(ii) Primary Deficit in 2020 increased to 6.9 lakh crore from 4.7 lakh crore in 2019. In 2021 it has gone down to
2.4 lakh crore.
(iii) Fiscal Deficit in 2020 increased to 135.1% of Budget Expenditure from 114.8% in 2019. In year 2021, it is
46.2% of Budget Expenditure.
UNIT-5: Balance of Payment
Q.1. “US dollar has recorded a jump of 0.75 paise per dollar (p/$) in the last one month; this situation might bring
smiles and sorrows to different types of traders (exporters and importers).”Justify the given statement.
Answer:
The given condition indicates to the situation of depreciation of home currency (₹) vis-a-vis foreign currency (US
$). This implies that more units of Indian currency (₹) is to be paid to buy one unit of foreign currency (US $).
This may lead to sorrows for importers, as they have to pay higher amount for their imports.
Also, this may bring smiles for exporters, as they would be getting higher earnings for their exports
Q.2. “India is taking huge leaps in the index of Ease of doing Business; as a result many MNCs are shifting their
production base to India.” In the light of the above statement, comment upon the flow of foreign exchange and its
likely impact on the Indian Economy.
Answer:
India, with greater ease of doing business, may attract many more MNC’s to shift their production base to India,
thereby increasing the inflow of foreign exchange (say $) to the Indian economy. This increase in foreign direct
investments (FDI) by MNCs will lead to increase in the supply of foreign exchange in India leading to a fall in the
rate of foreign exchange, i.e. Indian Rupee (₹) may appreciate. Increase in FDI will result in increase in
production and hence may also generate employment opportunities in the Indian economy.
Q.3. "The central bank needs to intervene under the managed floating system."
Do you agree with the given statement? Support your answer with valid reasons.
Answer:
Yes. Under the managed floating system, the central bank allows the exchange rate to be determined by market
forces of demand and supply. It may buy and sell foreign exchange to moderate exchange rate fluctuations. This
intervention is undertaken to keep the exchange rate within the desired range.
Q.4. ‘Taxation is an effective tool to reduce the inequalities of income.’ Justify the given statement with valid
reasons.
Answer:
The given statement is appropriate. The government may impose higher taxes (both direct and indirect taxes) on
the richer class, reducing their purchasing power. Government may use the same tax revenue to provide goods
and services (free or at subsidized price) to the poorer section of society to support them.
Q.5. Two friends, Deepak and Krish were discussing the impact of increase in GST rates on luxury items, as
recently undertaken by the Government. Krish was of the view that most of the luxury items (like foreign travel,
imported cigarettes, etc.) should be taxed exorbitantly, while the items related to daily consumption of poor and
middle class should be tax-free.
Identify and explain the objective of the Government budget Krish is suggesting.
Answer:
Krish is suggesting the objective of ‘Re-distribution of income’ to reduce income inequalities in the economy.
To ensure equitable distribution of income, the government may impose higher taxes on luxury items. This will
reduce the purchasing power in the hands of rich.
On the other hand, lower/no taxes may be imposed on commodities purchased by poorer section of society. They
may also be provided with subsidies on the essential commodities. This may increase their disposable income.
Q.6. Differentiate between the concepts of ‘demand for domestic goods and services’ and ‘domestic demand for
goods and services’.
Answer:
The demand for domestic goods and services is the sum total of demand for goods and services by both the
domestic and foreign countries; whereas, domestic demand for goods and services is the sum total of domestic
demand for domestic as well as foreign goods.
Q.7. Distinguish between ‘Current Account Deficit’ and ‘Current Account Surplus’
Answer:
Current Account Deficit (CAD) refers to excess of payments for value of import of visible items, invisible items
and unilateral transfers over the receipts from value of export of visible items, invisible items and unilateral
transfers.
Whereas;
Current Account Surplus (CAS) refers to excess of the receipts from value of export of visible items, invisible
items and unilateral transfers over the payments for value of import of visible items, invisible items and unilateral
transfers over.
Q.8. Giving valid reasons, state whether the following statements are true or false:
(i) Dividend received from investment abroad is recorded on the credit side of the capital account.
(ii) Depreciation of the Indian Currency will lead to promotion of Indian exports.
Answer:
(i) False. Dividend received from investment abroad is recorded on the credit side of current account, as neither
assets nor liabilities of the country get affected.
(ii) True. Depreciation of the Indian currency will lead to promotion of Indian exports. As Indian exports become
relatively cheaper for the rest of the world, thereby increasing the international competitiveness of Indian exports.
Q.9. State, giving valid reasons weather 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.
Answer:
(i) False, trade deficit is a lesser cause of worry if it reflects a rise in investment which will build the capital stock
and increase the future output in an economy.
(ii) True, both depreciation and devaluation have same effect on exports of an economy. The two terms, although
synonymous, are used in different context. The term devaluation is used in a fixed exchange rate system whereas
depreciation is under the flexible exchange rate system.
(iii) True, Indians investing in assets abroad will lead to an outflow of foreign currency, it will be recorded under
debit side of capital account of balance of payment.
Q.10. Explain what can be the likely impact of depreciation of the home currency on imports to the country.
Answer:
Depreciation of home currency results in a fall in the value of domestic currency (say ₹) in terms of foreign
currency. Consequently foreign goods may become dearer in terms of the domestic currency, leading to losses for
importers. Hence, imports of the economy may tend to fall.
Q.11. Distinguish between Autonomous transactions and Accommodating transactions.

Answer:
Autonomous transactions are those international economic transactions which are independent of the state of
Balance of Payments (BOP). These transactions generally take place with ‘economic motive’. Such transactions
are called ‘above the line’ transactions in the Balance of Payments account.
Whereas;
Accommodating transactions are those international economic transactions which are undertaken (by competent
authorities) to cover the surplus or deficit in Balance of Payments. These transactions are independent of any
economic motive. Such transactions are called ‘below the line’ transactions in the Balance of Payments account.
Q.12. Distinguish between a ‘Current account deficit’ and a ‘Trade deficit’.

Answer:
Current Account Deficit (CAD) refers to excess of payments for value of import of visible items, invisible items
and unilateral transfers over the receipts from value of export of visible items, invisible items and unilateral
transfers.
Whereas;
Trade deficit refers to the excess of the payments for value of import of visible items over the value of receipts of
export of visible items.
Q.13. “Balance of payment (BOP) is always balanced in the accounting sense”. Defend or refute the given
statement with valid reasons.
Answer:
The given statement is defended, as Balance of payment (BOP) is based on the principles of double entry book
keeping system. Any deficit/ surplus created through autonomous transactions are corrected by the corresponding
surplus/deficit in accommodating transaction by monetary authority.
Q.14. Briefly the determination of exchange rate under the flexible exchange rate system.
Answer:
Equilibrium rate of exchange is established at a point where the quantity demanded and quantity supplied of
foreign exchange are equal. In the foreign exchange market, if disequilibrium occurs, it may lead to a situation of
excess demand or excess supply.
The market mechanism will drive the exchange rate back to the equilibrium level. This implies that the free
market forces of demand and supply will operate in such a manner that the equilibrium rate of exchange is
automatically restored.
Q.15. "Under the flexible exchange rate system, the Central Bank does not intervene in the foreign exchange
market. Justify the statement, giving valid arguments.
Answer:
Under the flexible exchange rate system, the foreign exchange rate is determined through free market forces of
demand and supply. An equilibrium rate of exchange is established at a point where the quantity demanded and
quantity supplied of foreign exchange are equal.
In case of any disequilibrium, market forces of demand and supply will automatically bring the exchange rate
back to the equilibrium level. Hence, the Central Bank does not have any active role to play in the determination
of exchange rate under the flexible exchange rate system.
Q.16. Explain the impact of home currency depreciation on the exports of a nation.
Answer:
Depreciation of home currency is referred to as a situation of fall in the price of home currency in terms of a
foreign currency.Depreciation of home currency may lead to promotion of exports from the nation as the goods
become relatively cheaper. This will increase the international competitiveness of the exports from the home
country to the rest of the world.
Q.17. Differentiate between Surplus in Balance of Trade and Current Account Surplus.
Answer:
Surplus in the Balance of trade arises when the value of exports of visibles is more than the value of imports of
visible.
Whereas,
Current account surplus arises when receipts from exports of visibles, invisibles and unilateral transfers are
more than payments for imports of visible, invisibles and unilateral transfers.
Q.17. Explain, how exchange rate is determined under a free market exchange rate system.
Answer:
Equilibrium rate of exchange is established at a point where the quantity demanded and quantity supplied of
foreign exchange are equal. In the foreign exchange market, if disequilibrium occurs, it may lead to a situation of
excess demand or excess supply. The market mechanism will drive the exchange rate back to the equilibrium
level. This implies that the free market forces of demand and supply will operate in such a manner that the
equilibrium rate of exchange is automatically restored.
Q.18. Distinguish between autonomous and accommodating transactions in Balance of Payments Accounts
Answer:
Autonomous transactions are those international economic transactions which are independent of the state of
Balance of Payments (BOP). These transactions generally take place with ‘economic motive’. These transactions
are called ‘above the line’ transactions in the Balance of Payments account.
Whereas;
Accommodating transactions are those international economic transactions which are undertaken (by competent
authorities) to cover the surplus or deficit in Balance of Payments. These transactions are independent of any
economic motive and are called ‘below the line’ transactions in the Balance of Payments account.
19. Explain two sources of supply of foreign exchange.

Ans. Two sources of supply of foreign exchange are:
• Exports: Exports of domestic goods and services to the rest of the world leads to an inflow of
foreign currency. Thus, it is a source of supply of foreign exchange.
• Investmentsfromabroad: Investments made by the rest of the world result in inflow of foreign
currency. Thus, it is a source of supply of foreign exchange.
IED – CHAPTERWISE Short and Long Question
Chapter 1 : Indian Economy on the of Independence

Q.1. State any one positive contribution made by the British in India.
Answer: Introduction of Railways
Q.2. Indicate the volume & direction of foreign trade of India at the time of Independence.
Answer:
The restrictive policies of commodity production, trade and tariff pursued by the colonial rule adversely affected
the volume and direction of India’s foreign trade, as:
(i) British maintained monopoly control over India’s exports and imports.
(ii) More than half of India’s foreign trade was restricted to Britain while while the rest was allowed with a few
other countries like China, Ceylon (Sri Lanka) and Persia (Iran)
(iii) India had huge export surplus during the colonial rule.
Q.3. Explain any two shortfalls of the industrial policy under the British rule.
Answer:
Discriminatory tariff policy followed under the British rule led to the systematic de-industrialisation. Due to the
lack of public investment, India could not develop a sound industrial base under the colonial rule.
Q.4. Comment upon any two salient features of occupational structure of India on the eve of Independence.
Answer:
The occupational structure of India on the eve of independence had the following two main features:
(i) Predominance of agriculture sector: The agricultural sector accounted for the largest share of workforce
with approximately three-forth of the workforce depending on agriculture, directly or indirectly.
(ii) Growing regional variation- Due to rise of manufacturing and services sector in some parts of India (like the
then Madras, Bombay and Bengal Presidencies) the dependency ratio of workforce on agricultural sector
declined.
Q.5. State and explain any two main causes behind infrastructural development by British rule.
Answer:
Two main causes behind infrastructural development by British rule were:
(i) Mobilisation of army: The roads were built primarily to serve the purpose of mobilising the army within India
and drawing out raw materials from the countryside to the nearest railway station or the port.
(ii) Maintenance of law and order: The introduction of the electric telegraph in Indiaserved the purpose of
maintaining law and order
“Despite being the main occupation of about 85% of the country's population during
British rule, agricultural sector continued to experience stagnation”
Q6. Briefly explain any two reasons responsible for the backwardness of Indian agriculture on the eve
of independence.
Ans. Two reasons responsible for the backwardness of Indian agriculture on the eve of
independence were:
• Land Settlement System: The colonial government introduced the Zamindari system. The
zamindars used to exploit cultivators by extracting a major portion of the produce in the form of rent
leading to misery among the farmers.
• Lack of infrastructure facilities: Lack of irrigation facilities and low level of technology contributed
to the dismal level of agricultural productivity, which added up to aggravate the plight of the farmers.
Chapter 2 : Economic Planning
Q.1. Explain briefly the rationale behind the 'License Raj' under the Industrial PolicyResolution, 1956.
Answer:
The aim of License Raj under the Industrial Policy Resolution 1956, was to keep the private sector under control.
No new industry was allowed unlessa license was obtained from the Government. This policy was used for
ensuring regional equality.
Q.2. Quote the four goals of the five year plans process of India.
Answer:
The four goals of the five year plans process of India were –
(i) Growth (ii) Modernisation (iii) Self-reliance (iii) Equity
CASE STUDY:
Read the following text carefully:
According to NITI Aayog, India has a technological advantage to facilitate digital banks. There is a need for
creating a regulatory framework for promoting this. NITI Aayog, in its report titled "Digital Banks: A Proposal
for Licensing and Regulatory Regime for India", offers a template and roadmap for a digital bank licensing and
regulatory regime for a country. India's public digital infrastructure, especially Unified Payments Interface (UPI)
has successfully faced this. With Aadhar, India is at the cusp of operationalizing its own open banking framework.
This demonstrates that India has the technology stock to fully facilitate digital banks. Digital banking allows a
user to set up automatic payments for regular utility bills.Digital banking enables fund transfers to reduce the
risk of counterfeit currency. Bypromoting a cashless society, digital banking restricts the circulation of black
money.
On the basis of the given text and common understanding, answer the following questions:
Q.3. Which institution has been replaced by NITI Aayog in India? Who is the ex-officioChairman of NITI
Aayog?
Answer:
Planning Commission has been replaced by NITI Aayog.
Prime minister is the ex-officio Chairman of NITI Aayog.
Q.4. Explain the need and types of land reforms implemented in the agriculture sector.
Answer:
At the time of independence, the Indian land tenure system was characterised bythe intermediaries, stagnant
growth rate and unequal distribution of land; making theland reforms inevitable.
Major land reforms introduced by the government were:
(i) Abolition of intermediaries and (ii) Land ceiling
CASE STUDY:
Read the following text carefully:
With independence, India chose the closed economy model in pursuit of its objective of industrial self-
sufficiency. As a result, industrial structure has become considerably important. In the post-independence
era, the industrial growth was rapid during the first two decades, especially during the Second and
Third Plan period. The Second Plan introduced ‘Industrial Revolution’ in the country. The main reasons
for high rates of industrial growth witnessed during this period were due to:
Emphasis on industrialisation in economic policies.
Making industrial growth the main objective in the industrial policy andplanning.
Huge investments being made to support capacity creation in industrial sector
Growing demands for a variety of new products on the part of the urbanconsumers and the
relatively better-off sections of the society.
Pace of economic expansion supported by domestic savings and inflow ofresources from abroad.
On the basis of the given text and common understanding, answer the followingquestions:
Q.5. State the time period of the Second Five Year Plan of India.
Answer: 1956 to 1961
Q.6. Who is considered as the Father of the Second Five Year Plan of India?
Answer: P.C Mahalanobis
Q.7. Discuss briefly any two reasons behind the industrial growth during the Secondand Third Five
Year Plans of India.
Answer:
Two reasons behind the industrial growth during the Second and Third FiveYear Plans of India were:-
(i) Growing demands for a variety of new products on the part of theurban consumers and the
relatively better-off sections of the society.
(ii) Pace of economic expansion supported by domestic savings and inflowof resources from abroad.
Q.8. Why was public sector given a leading role in industrial development during the planningperiod? Explain.
Answer:
At the time of independence, the Indian industrialists lack the financial and technical resources needed for the
nation to be modernized and self-sufficient. Also, themarket was not big enough to encourage industrialists to
undertake major projects even if they had the capital to do so.
Moreover, the decision to develop the Indian economy on socialist lines made itessential for the public sector to
take the leading role.
Q.9. “Rapid increase in economic growth surely trickles down to the people under the absolutely poor category.”
Defend or refute the given statements with valid arguments.
Answer:
This statement is refuted because-
(i) Population growth has resulted in a very low growth in per capita income
(ii) The Green Revolution has increased the regional disparity and also the gap between the rich and the poor
farmers.
(iii) The gains of economic growth have been grabbed by the rich.
Q.10. “Import restrictions were imposed in India with the dual objective to save foreign exchange reserves and to
be self- sufficient.” Justify the given statement with valid arguments.
Answer: The given statement is appropriate as the policy aimed at:
Protecting the domestic industries from foreign competition by substituting imports with domestic production.
Saving scarce foreign exchange by restricting the volume of imports.
Thus, in the early post-independence era the dual objectives helped India to move towards the goal of self-
reliance.
Q.11. State the meaning of import substitution Explain how import substitution can protect the domestic
industries.
Answer:
Import substitution refers to a policy of replacement or substitution of imports by domestic production.
The domestic industries of India were not in a position to compete against the goods produced by developed
economies. So, the policy of import substitution helped in protecting them in two ways:
The tariff on imported goods, and
Fixation of quotas helped in restricting the level of imports.
As a result, the domestic firms could expand without fear of competition from the foreign market.
Q.12. Discuss briefly, how institutional reforms (land reforms) have played a significant role in transforming
Indian agriculture.
Answer:
After independence the government of India took several institutional/land reforms to ensure transformation of
Indian agriculture, such as:
(i) Land ceiling – It ensured reduction of concentration of land ownership in few hands.
(ii) Abolition of Zamindari system – It focused on elimination of farmers’ exploitation and promotion of
agricultural growth.
Q.13. ‘Land ceiling promotes equity.’ Support the given statement with valid explanation.
Answer:
Land ceiling means fixing the maximum size of land which could be owned by an individual, beyond which it
would be taken over by the government and would be allotted to landless and small farmers. The purpose of land
ceiling was to reduce the concentration of land ownership in few hands and promote equity.
Chapter 3 : Economics Reforms Since 1991
Q.1. State and discuss any two main advantages of digital banking.
Answer: Two main advantages of digital banking are:
Cashless Society: By promoting a cashless society, digital banking restricts thecirculation of black money. Since
all transactions are routed through banks, it eliminates the use of unaccounted money.
Convenience: It enable users to set up automatic payments for regular utilitybills. Thus, it provides a convenient
method for customers to settle payments.
Q.2. India is often called the ‘Outsourcing Destination’ of the World. Discuss the prime reasons for this name
given to India.
Answer:
Reasons for India as outsourcing destination-
(i) Availability of skilled manpower- India has vast skilled manpower which enhances the faith of MNCs.
(ii) Favourable Government policies- MNCs get various types of lucrative offers from the Indian government
such as tax holidays, tax concessions etc.
Q.3. Define Multilateral trade.

Answer:
Multilateral trade refers to exchange of goods and services between morethan two nations.
CASE STUDY:
Read the following text carefully and answer the given questions on the basis of the same and common
understanding.
The stabilisation and structural adjustment measures, initiated under the 1991 “Economic Reforms” mark a
watershed moment in India’s economic policies. For almost three decades since independence, India’s
development strategy and economic policies were guided by the objectives of accelerating the growth of output
and employment with social justice and equity.
Ever since the 1970’s, it was realised that many of the regulations on economic activities have outlived their
usefulness and were in fact hampering economic growth and development. In response to this, the government
initiated some milderliberalisation reforms for almost a decade since the early 1980’s.
However, the Indian economy soon had to face the Gulf crisis and consequently:
(i) The uncertainties about the oil prices;
(ii) The external payment problems;
(iii) The serious inflationary pressures;
(iv) The scarcities of essential commodities;
(v) The deterioration of fiscal discipline, etc.
These led to the Indian economy onthe verge of Economic crisis.
In response to this emerging crisis, the Government initiated a set of stabilisation andstructural reforms like:
(i) Reduction in fiscal deficit;
(ii) Containment of growth in money supply:
(iii) An exchange rate adjustment system etc.
The key objective of stabilisation policy was to bring the growth of aggregate demandin line with long term
growth path of the economy.
In conjunction, the structural adjustment measures like;
(i) industrial delicensing
(ii) liberalisation of policy regime governing international trade
(iii) deregulation of financial sector

Were taken to improve the supply side of the economy. This shifted the long-termgrowth path of the economy
itself completely. (Adapted and modified)
Source:
https://niti.gov.in/planningcommission.gov.in/docs/reports/genrep/arep9099/at94-95.htm
Q.4. Discuss briefly any two major steps taken by the Government of India on ‘Financial Sector’ front under the
Economic Reforms of 1991.
Answer:
Two steps taken by the government of India on financial sector under the Economic Reforms of 1991 were:
(a). Change in the role of Reserve Bank of India (RBI): The role of RBI was reduced from regulator to
facilitator of financial sector. This means that financial sector was given greater autonomy (to take decisions) on
many matters independent of RBI.
(b). Origin of Private Banks: The reform process led to establishment of private sector banks of Indian as well
as foreign origin.
Q.5. Briefly outline any two reasons for the initiation of Economic Reforms in 1991.
Answer:
Two reasons for the initiation of economic reforms were:
(i) High inflationary pressure and (ii) Mounting fiscal deficit
Q.6. Government introduced a set of stabilisation and structural reforms to solve the economic crisis. State the
key initiatives and objectives of these policies adopted by the Government of India.
Answer:
In response to the economic crisis, Government of India initiated a set of:
Stabilization measures like reduction in fiscal deficit, containment of growth in money supply etc.
Structural reforms such as industrial delicensing, deregulation of financial sector etc.
The key objective of such policies was to bring the growth of aggregate demand in line with long term growth
path of the economy.
Q.7. "Many economists believe that the economic reforms process of 1991 had adversely affected the
agricultural sector." Do you agree with the given statement? Quote valid arguments in favour of your
answer.
Answer:
Yes. The agricultural sector was adversely affected by the reform process as public investment in agriculture
sector especially in infrastructure had fallen. Further, the partial removal of fertiliser subsidy had led to increase in
the cost of production, which had severely affected the small and marginal farmers.
Moreover, there had been a shift from production for the domestic market towards production for the export
market focusing on cash crops putting pressure on prices of food grains.
Q.8. Discuss any two liberalisation measures pertaining to the financial sector, introduced by theGovernment of
India during the economic reform process of 1991.
Answer:
The financial sector witnessed a major revamp under the economic reformprocess of 1991. The two main
measures in this direction may be quoted as:
Redefining the role of RBI from regulator to facilitator of the financial sector. It implies that the financial sector
could now take decisions on many matters without consulting the RBI.
The reform policies led to the establishment of private sector banks (Indian as well as foreign).
Q.9. Explain the reasons why the industrial sector has performed poorly in the reform period.
Answer:
Industrial sector performed poorly in the reform period because of decreasingdemand for industrial products
due to various reasons such as cheaper imports, etc.Cheaper imports have, thus, replaced the demand for
domestic goods. Moreover, the infrastructure facilities including power supply, remained inadequate due to lack
of investment.
Q.10. State the meaning of 'Privatisation'.

Answer: Privatisation refers to shedding of the ownership or management of a governmentowned enterprise.
Q.11. 'Agriculture sector has been adversely affected by the Economic reform process.' Comment.
Answer:
The agricultural sector was adversely affected by the economic reform process inIndia as public investment in
agriculture sector especially in infrastructure has fallen toa great extent. Furthermore, the partial removal of
fertiliser subsidy has led to increasein the cost of production, which has severely affected the small and marginal
farmers. Moreover, there has been a shift from production for the domestic market towards export- oriented
production focusing on cash crops putting pressure on prices of food grains.
Q.11. Distinguish Bilateral and Multilateral Trade.

Answer:
Bilateral Trade refers to the exchange of goods and services between two nations.
Whereas;
Multilateral Trade refers to exchange of goods and services between more than twonations.
CASE STUDY:
Read the following text carefully and answer the given questions on the basis of the sameand common
understanding:
India urged the World Trade Organisation (WTO) to relax rules to allow the country to exportfood grains from its
public stocks to the nations facing food crisis. India can help, reduce foodinsecurity but there is hesitation on the
part of the WTO, in relaxing its rules. India's Finance Minister said food, fuel and fertilizers are global public
goods and ensuring access of these fordeveloping and emerging economies is critical. She also shared India's
experiences, includingrobust gains in agriculture production, citizen centric food security programmes and
innovativedelivery mechanisms such as the 'One Nation one Ration Card' Scheme.
(Source: The Economic Times; July 16, 2022)
Q.12. State and discuss any two objectives of World Trade Organisation.
Answer:
Objectives of World Trade Organisation (WTO) are:
(i) It helps in providing greater market access to all member countries as it provides equal opportunities to all
countries in the international market.
(ii) It facilitates bilateral and multilateral trade by removing tariff and non-tariffbarriers.
Q.13. Name any two steps taken by India to strengthen the food security.
Answer:
Two steps taken by India to strengthen food security are:
(i) Robust gains in agriculture production.
(ii) Citizen-centric food security programme.
Q.14. Name any one Maharatana company.

Answer:
Indian Oil Corporation Limited.
CASE STUDY:
Read the following text carefully and answer the given questions on the basis of the same and common
understanding: The Green Revolution in India began in the mid-1960s marking a transition from traditional
agriculture in India to high-yielding varieties of seeds and the associated modern agricultural techniques. The
need for introduction of Green Revolution in India arose due to a shortage of food-grains in the post-independent
period.
The government in the post-independent India wanted to ensure self-dependence in terms of food-grain
production. Such efforts coincided with the development of high-yielding varieties of seeds of wheat developed
by Dr. Norman Borlung and his associates in Mexico. These seeds also necessitated changes in farming
techniques such as the addition of fertilizers, pesticides and better irrigation facilities. High yielding varieties of
seeds were first introduced in India in the states of Punjab, Haryana and parts of western Uttar Pradesh.
In the early period of the green revolution in India, the focus was to acclimatise the new system with the more
resource-intensive agricultural methods. The argument for introducing the new crop varieties was to increase
agricultural production in terms of higher crop yields. The seeds introduced during the early period of the green
revolution in Punjab were not highyielding by themselves. These high yields were possible due to the seeds being
highly responsive to certain inputs such as irrigation water and fertilizers. The green revolution in India, thus,
necessitated a resource-intensive process whereby, those who could make significant capital investments could
benefit, whereas, those others became more marginalized in regions affected by practices of the green revolution
in India. On one hand, the results derived from the green revolution helped farmers to increase their yield and
income and on the other hand, it helped the government to procure and preserve more food grains through
agencies like Food Corporation of India. These food grain reserves were helpful in creation of buffer stocks in
India, which helped in the situations of adversities.
Q.15. Why was Green revolution implemented and how did it benefit the farmers?
Answer:
Green revolution was implemented in India to overcome the shortage of food-grain availability in the post-
independence period. Green revolution has increased the production and productivity in the agriculture sector
which was otherwise very low. It helped in improving the income of the farmers by creating marketable surplus,
increased employment and output.
Q.16. Justify the following statement with valid explanation: ‘Green revolution enabled the government to
procure sufficient food grains to build its stocks that could be used during time of shortage’
Answer:
The given statement is appropriate as the Green Revolution helped government to procure and preserve more food
grains through agencies like Food Corporation of India. Increase in food grain production has been so substantial
that India not only started maintaining buffer stocks of food grains but also became a dominant player in food
grain exports market.
Chapter 4 : Human Capital Formation
Q.1. “Economists believe that India should spend at least 6% of its GDP on Education for achieving desired
results.” Justify the statement with valid reason.
Answer:
The given statement is appropriate as it was recommended by the Education Commission of 1964-64. The
government is spending 4 percent (approx.) of GDP on education, which is quite inadequate. Education is an
important component of human capital formation as it helps in increasing the availability of skilled and educated
labour force in the country which
may result in greater production and economic growth.
Q.2. Explain, how does ‘Investment in Human Capital’ contributes to growth of an economy.
Answer:
Investment in Human Capital may contribute to growth of economy in the following ways:
(i) Generally, the productivity of an educated, skilled and healthy workforce is relatively higher than an
uneducated, unskilled and unhealthy worker. Such investment may increase the productivity of the economy as a
whole.
(ii) Human Capital Formation may promote inventions, innovations and technological improvements. This may
create the ability to adopt new technologies which increase the production and productivity in the economy.
Q.3. ‘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:
The given statement is correct. Human Capital Formation not only increases the productivity of available human
resources but also stimulates innovation and creates ability to adopt new technologies. Investment in education
creates ability to adopt newer technologies, facilitates invention and innovation since educated workforce
generally adapts to modern technologies and innovation.
Q.4. ‘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:
The given statement is correct. Human Capital Formation not only increases the productivity of available human
resources but also stimulates innovation and creates ability to adopt new technologies.
Investment in education creates ability to adopt newer technologies, facilitates invention and innovation since
educated workforce generally adapts to modern technologies and innovation.
Q.5. Explain the role of education in the economic development of the nation.
Answer:
Education provides knowledge to understand changes in society and scientific advancements. It stimulates
inventions and innovations in the economy. Similarly, the availability of educated labour force facilitates
adaptation to new technologies. Technical skills acquired through education provide an opportunity to make
better use of given resources thereby promoting economic development of the nation.
Q.6. State, with valid reasons whether, the following statements are true or false:
(i) "Higher productivity and production are the outcome of investment in human resources."
(ii) Rising population is not the cause for quality of human capital formation.
Answer:
(i) True. Investment in human resource stimulates innovation and creates ability toabsorb new technology.
Technical skills acquired through sources of human capital formation such as education, training and sound health
etc. helps labour supply to makebetter use of given resources. Hence, productivity and production increases.
(ii) False. Rapid rise in population adversely affects the quality of human capital. It reduces per head availability
of existing facilities that results in a fall in quality of life. Inturn, this leads to a reduction in the capacity to acquire
specialised skills and knowledge.
Q.7. “Health is one of the most important sources for human capital formation. Health furnishes the complete
state of well-being desired for a nation to grow with its people.” Elaborate the given statement.
Answer:
The given statement is appropriate, as health is a state of complete physical, mental and social well-being of a
person and not the mere absence of disease. It is a yardstick of one’s well-being. Healthy manpower contributes
more to the growth and development of the nation.
Q.8. Dr. Khurana, a dentist, ran his clinic in an economically backward area. He was earninga comparatively low
income. So, he decided to move to a city and spent a huge amount for the same." Identify and explain the type of
expenditure incurred by Dr. Khurana, which directly contributed to the process of human capital formation.
Answer:
The expenditure incurred by Dr. Khurana on shifting his clinic from economically backward area to the city
comes under the category of “Expenditureon migration”. Expenditure on migration is the source of human capital
formation. Peoplemigrate in search of jobs that fetch them higher salaries. Technically qualified persons like
engineers and doctors, migrate to other areas because of higher incomes and better opportunities.
Q.9. Distinguish between human capital and physical capital.

Answer:
Human capital refers to the stock of knowledge, skill and ability imbibed inthe owner of the same, i.e., human
capital is inseparable from its owner. It cannot be sold in the market, only its services can be sold in the market.
Whereas;
Physical capital are the assets (plant and machinery, building etc.), which are tangible in nature. It is separable
from its owner. It can be transacted in the market.
Q.10. “Active Government intervention is essential in education and health sectors in India.”
Do you agree with the given statement? Give reasons in support of your answer.
Answer:
Yes. Government intervention is essential in education and health care services as it creates both private and
social benefits. Expenditure on educationand health make substantial long-term impacts. Since, such impacts
cannot be easily reversed the government intervention becomes essential
Q.11. "Expenditure on On-the-job training is an important means of human capitalformation in an economy."

Give valid reasons to justify the given statement.
Answer:
On-the-job training has become an integral part of work environment in therecent times as it adds to the
productive capacity of employees. Firms encouragesuch trainings, as the benefits outweighs the cost of
these trainings. It enablesemployees to adapt newer technologies and modern ideas and is an importantsource of
human capital formation.
Q.12. Distinguish between ' Human Capital' and 'Huma n development'.

Answer:
Human capital considers education and health as a means to increase labour productivity. Human capital treats
human beings as a means to achieving theultimate end of an increase in productivity.
Whereas;
Human development is based on the idea that education and health are integral tohuman well-being. Human
development treats human beings as ends in themselves
Q.13. Discuss the need for promoting women’s education in India.

Answer:
The need to promote education for women in India is imminent. It helps inimproving economic independence and
social status of women. Women education makesa favourable impact on fertility rate and health care of women
and children.
Q.14. State whether the following statements are true/false, with valid arguments:
(a) Human Capital and Human Development are one and the same thing
(b) India has a poor stock of technical manpower.
Answer:
(a) The given statement is not true to perfection. These two may sound similar but are not exactly same. Whereas,
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 wellbeing.
(b) The given statement is not true. India has a rich stock of scientific and technical manpower in the world. Also,
India has taken a number of steps to improve it qualitatively and ensure that they are optimally utilized.
Q.15. “India has failed to implement the recommendations of Education Commission of 1964 -66.” Give valid
arguments in support of the given statement.
Answer:
The given statement is appropriate. Over the years India has not been able to raise the educational standards to the
desired level. Education Commission of 1964-66 had recommended that at least 6 % of GDP should be spent on
education so as to make a noticeable rate of growth in educational achievements. However, the current
expenditure level has been quite inadequate. Thus, necessary steps must be taken by the government in this
direction.
16. Explain how ‘expenditure on information’ and ‘expenditure on migration’ acts as a source of human
capital formation.
Ans. Expenditure to acquire information relating to labour and other markets is necessary to make
decisions regarding investment in human capital. Information relating to job opportunities enables
people to increase their earning potential. Thus, it is a major factor that influences human capital
formation.
Expenditure on migration is another important source of human capital formation. People migrate in
search of better employment opportunities that may fetch them higher income. Technically qualified
workforce migrate to other areas because of higher income and better opportunities.
Chapter 5 : Rural Development
Q.1. “Ujjawala Yojana has been a game changer for rural India.” State any three conventional fuels being targeted
under the Ujjawala Yojana.
Answer:
The conventional sources of energy causes environmental pollution therefore the government have introduced the
‘Ujjwala Yojna’ as a game changer for rural India by providing free LPG gas cylinders (cleaner fuel) to rural
households.
The three conventional fuels targeted under Ujjawala Yojana are:
(i) Agricultural waste and dried dung, (ii) Firewood and (iii) Coal
Q.2. State the meaning of ‘Agricultural Marketing’.

Answer:
Agricultural marketing is a process that involves assembling storage, processing, transportation, packaging,
grading and distribution of different agricultural commodities across the country.
Q.3. State any three challenges facing rural development in India.

Answer:
Three challenges faced by rural development in India are:
(a) development of human resource.
(b) development of infrastructure
(c) measures for alleviation of poverty
Q.4. Critically evaluate the role of rural banking system in the process of rural development in India.
Answer:
Rapid expansion of the banking system had positive effect on rural farm and non farm output, income and
employment. In spite of it, following problems have been faced in the rural banking such as-
(i) The volume of rural credit in the country is still insufficient in comparison to its demand and institutional
sources have failed to cover the entire rural farmers of the country.
(ii) Less attention has been given on the credit requirements of needy (small and marginal farmers) and the
problem of overdue in agricultural credit continues.
Q.5. Discuss briefly the importance of micro credit programme in rural India.
Answer:
Micro-credit programmes have emerged to fill the gap in the formal credit system. The formal credit delivery
mechanism has not been fully integrated into the rural social structure. Since, some collateral is required, vast
proportion of poor rural households go out of the credit network. Micro-credit system has brought these poor
households in the ambit of formal credit system by providing them loans at the concessional rate of interest.
Q.6. “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 of rural sector.
Answer:
Non-farm activities (agro-processing industries, poultary, craft, handloom) provide alternative avenues for
sustainable livelihood and may raise the level of income as the risks due to fluctuations in production and market
prices is generally less. Agriculture in India is mainly a seasonal occupation, however, during off seasons, it
becomes difficult to find employment and
stabilize farmer’s income. Thus, the Prime Minister has urged appropriately in the best interest of the farmers of
the rural India.
Q.7. “Recently the Government of India has taken numerous steps towards increasing thefarmer's income
through agricultural diversification.”
In light of the above statement, explain any two advantages of diversification inagriculture.
Answer:
Agricultural Diversification helps in increasing farmers’ income as:
(i) There is a greater risk in depending exclusively on farming for livelihood. Diversification reduces the risk from
the agriculture sector. It also providessustainable livelihood options to the rural people.
(ii) Expansion into other sectors provides supplementary gainful employment during the off season period
Q.8. Discuss any two merits and demerits of the Green Revolution in the agricultural sectorin the Indian
Economy.
Answer:
Merits of Green Revolution:
(i) Green revolution enabled India to achieve self-sufficiency in foodgrains.This led to the creation of buffer
stocks in India.
(ii) The farmers’ income increased substantially due to increase in marketedsurplus.
Demerits of Green Revolution:

(i) As the HYV technology was easily accessible to big farmers, it increased thedisparities of income between big
and small farmers.
(ii) The HYV crops were more prone to pest attacks.
Q.9. Discuss briefly, why agricultural diversification is essential for sustainable livelihoods.
Answer:
The need for diversification arises from the fact that there is a greater risk independing exclusively on farming
for livelihood. Expansion into other related sectors isdesirable to provide supplementary gainful employment and
in realising higher levels of income for rural people. Hence, there is a need to diversify through focus on allied
activities, non-farm employment and other emerging alternatives of livelihoodproviding sustainable
livelihoods in rural areas.
Q.10. Organic Farming is the need of the hour to promote sustainable development but, hasits own limitations."
Elaborate any two advantages and limitations each of organic farming in the light of theabove statement.
Answer:
Advantages of Organic farming are:
(i) Organic farming is the system of farming that relies upon the use of organic inputs for cultivation such as
animal manures and composts. It is chemical free which helps in soil conservation.
(ii) Organic produce has more nutritional value than chemical farming.
Limitations of organic farming an as follows:

(i) Yields from organic farming are lesser than the modern agricultural farming. Therefore, small and marginal
farmers may find it difficult toadapt to large scale production.
(ii) Produce from organic farming generally has a shorter shelf life than sprayedproduce.
Q.11. Elaborate how a well-structured 'Agricultural Marketing System' helps thefarmers to increase
their income.
Answer:
A well-structured ‘Agricultural Marketing System’ helps the farmers toincrease their income as:
(i) Orderly and transparent marketing conditions facilitate sale of farmers’produce.
(ii) Provision of better infrastructural facilities like cold storage and warehousesprevent distress sale.
(iii) It protects farmers from the exploitation of middlemen/intermediaries.
Q.12. State the importance of rural banking in an economy like India.

Answer:
Rural banking is important for an economy like India as it ensures -
(i) Availability of adequate credit to the farmers.
(ii) Provision of loans to the rural population for productive needs at cheaper rate of interest.
Q.13. “Self-Help Groups provide stimulus for institutionalised lending, employment generationand women
empowerment in the rural areas." Justify the given statement with valid explanation.
Answer:
Self-help groups (SHG’s) have, truly, emerged overtime to fill the gap in the formalcredit system in the rural India.
The formal credit delivery mechanism in India is notonly inadequate but has not been fully integrated into overall
rural society.
As the rural poor do not have sufficient assets for collateral, they stay away from the formal credit system. SHGs
provide funds at concessional rates to this section of society. In addition to this, SHGs provide support to women
for the establishment of small businesses leading to employment generation and women empowerment.
Q.14. Define Agricultural diversification.

Answer:
Agricultural diversification relates to change in cropping pattern or shift ofworkforce from agriculture to other
allied activities.
Q.15. State the meaning of organic farming. Discuss how does it help in promoting sustainabledevelopment.
Answer:
Organic farming refers to a whole system of farming that restores, maintains andenhances the ecological
balance.
Organic farming is the system of farming that relies upon the use of organic inputs for cultivation such as animal
manures and composts. Organic produce has more nutritionalvalue. It is pesticide free which helps in soil
conservation. Consequently, organic farming is conducive to sustainable development.
CASE STUDY:
Adoption of Village by Parliamentarians
In October, 2014, the Government of India introduced a new scheme called Saansad AdarshGram Yojana
(SAGY). Under this scheme, Members of India's Parliament need to identify and develop one village from their
constituencies. To begin with, MPs can develop one village as a model village by 2016, and two more by 2019,
covering over 2,500 villages in India. According to the scheme, the village can have a population of 3,000 - 5,000
in the plains and 1,000 -3,000 in the hills and should not be the MP's own or their spouse's village.MPs are
expected to facilitate a village development plan, motivate villagers to take up activities and build infrastructure in
the areas of health, nutrition and education.
Q.16. On the basis of the given text and common understanding, answer the following questions: State and
discuss, any two objectives which the Government of India wanted to achievethrough ‘Saansad Adarsh Gram
Yojana (SAGY)’.
Answer:
Two objectives of ‘Saansad Adarsh Gram Yojana (SAGY)’:
(i) Identify and develop one village: Under this scheme, Members of India'sParliament need to identify and
develop one village from their constituencies.
(ii) Facilitate village development plan: To build infrastructure in the areas ofhealth, nutrition and
education.
Q.17. State the yardsticks for selecting villages under the SAGY Scheme.
Answer:
As per the Saansad Adarsh Gram Yojana (SAGY):
The village can have a population of 3,000 - 5,000 in the plains and 1,000 – 3,000in the hills.
The village should not be the MP’s own or their spouse’s village.
Q.18. Explain the role of micro-credit system in meeting credit requirements of poor.
Answer:
Micro-credit programmes have emerged to fill the gap in the formal credit system. The formal credit delivery
mechanism has not been fully integrated into the rural social structure. Since, some collateral is required, vast
proportion of poor rural households goout of the credit network.
Micro-credit system has brought these poor households in the ambit of formal credit system by providing them
loans at the concessional rate of interest.
19. State and discuss any two obstacles that hinder the mechanism of agricultural marketing.
Ans. Two obstacles that hinder the mechanism of agricultural marketing are:
• Private trade (by moneylenders, rural political elites, big merchants, and rich farmers) predominates
agricultural markets. Thereby, the benefits of government policy instruments cannot be extended to all
farmers while marketing their produce.
• Inadequate infrastructural facilities generally become an obstacle to meet the growing demand for
effective agricultural marketing.
20. Explain any two objectives behind providing more and more institutional credit to farmers.
Ans. Two objectives behind providing more and more institutional credit to farmers:
• Moneylenders and traders might exploit small and marginal farmers and landless labourers by lending to
them at high rates of interest.
• Private money lenders may exploit small and marginal farmers by manipulating their accounts.
Q21. (i) How did horticulture encourage rural development in India?

Ans. In India, farmers adopted diverse horticultural crops such as fruits, vegetables, tuber crops, flowers etc. It
played a vital role in enhancing socio- economic conditions of farmers. It led to creation of employment
opportunities for women and underprivileged classes as well.
Thus, horticulture has emerged as a successful sustainable livelihood option, promoting rural development in
India
Chapter 6 : Employment and Unemployment
Q.1. Why are less women found in regular salaried employment?

Answer:
(i) Lesser women are found in regular salaried employment in India, as such jobs require skills and high level of
literacy.
(ii) Lack of mobility among women in India due to social constraints.
Q.2. Analyse the recent trends in sectoral distribution of workforce in India:

Trends in Employment Pattern (Sector wise), 1983-2012(in %)
Sector 1993-94 1999-2000 2011-2012
Primary 64 60.4 24.3
Secondary 16 15.8 24.3
Services 20 23.8 26.8
Answer:
The given data indicates that over the given period, the proportion of workforce in primary sector has gone down
rapidly. Whereas, the employment share of both secondary sector and the services sector has increased. While the
share of secondary sector has gone up by approximately 9% recently, the corresponding figure for services
sector has gone up by approximately 7%.
Q.3. "In rural areas of India, more members of a family are engaged in work, yet the gross incomeof the family is
generally low."
Identify the type of unemployment indicated in the above statement and explain the paradoxassociated with it.
Answer:
Disguised unemployment is indicated in the given statement. Generally, in rural India more than required number
of people are employed on a particular task without contributing to the aggregate output.
Hence, marginal productivity of labour turns out to be zero. Consequently, gross incomeof the family is lower
than expected.
Q.4. Discuss briefly the concept of ‘Informalisation of workforce’ in India.

Answer:
In the recent years India has witnessed an unprecedented shift of the workforce from the formal sector to informal
sector. This process whereby, the proportion of informal worker in the total workforce increases is known as
informalisation of workforce. The government has initiated the modernization of the informal sector and
provision of social security of measure to the worker in the informal sector.
Q.5. Define Worker- Population ratio. What does it signifies?

Answer:
Worker Population Ratio refers to the ratio of total number of workers to the total population. It is generally
expressed in percentage.
Worker population = x 100

This ratio signifies the proportion of population that is actively contributing to the production of goods and
services of a country
Q.6. Analyse the trends in sectoral distribution of workforce in India on the basis of data Trends in
Employment Pattern (Sector-wise), 1972 – 2012 (in %)
Sector 1972-73 1983 1993-94 1999-2000 2011-2012
Primary 74.3 68.6 64 60.4 48.9

Secondary 10.9 11.5 16 15.8 24.3
Services 14.8 16.9 20 23.8 26.8
Total: 100.0 100.0 100.0 100.0 100.0
Answer:
The given data indicates that over the given period, the proportion of workforce in primary sector has gone down
rapidly. Whereas, the employment share of both secondary sector and the services sector has increased. While the
share of secondary sector (between 1993-94 and 2011-12) has gone up by approximately 9%, the corresponding
figure for services sector has gone up by approximately 7%.
Q.7. Comment upon the informalisation of labour force in India.

Answer:
In the recent years India has witnessed an unprecedented growth of informal sector or unorganised sector. In India
almost the entire agricultural sector and a very large number of industrial and service sector units fall in informal
sector. Those employed under this sector, generally, are not entitled to get re gular salary and other social security
benefits.
Thus, Informalisation of labour force refers to a situation where by the proportion of workforce in the informal
sector to total workforce increases. Keeping in view the growth of this sector and disadvantages attached to it, the
government, in recent times, has initiated the modernisation of this sector and provision of social security
measures to the workers in this sector.
Q.8. Why are less women found in regular salaried employment?

Answer:
Less women are found in regular salaried employment in India as such jobs require skills and a higher level of
literacy. Moreover, due to a lot of social constraints, mobility of women is generally restricted.
Q.9. In India, the self-employed constitute around 60% employees. The possible incidenceof under employment is
the highest among the self-employed."
As an economist, suggest and elaborate any two measures that may be taken to ensuremore productive
employment for the self-employed.
Answer:
Two measures to ensure more productive employment for the self-employedare:
(i) Skill development - Skill development and training will provide people withthe required expertise and skills to
undertake new ventures.
(ii) Financial and technical support by Government - Financial and technical support by government agencies,
along with fulfilling the capital requirements will also enhance the productivity of the new production units.
Q.10. Define Worker Population Ratio. Discuss its usefulness.
Answer:
Worker Population Ratio (WPR) is defined as the total number of workers ina country divided by population. It
is represented in percentage.
Worker Population Ratio is an indicator which is used for analysing the employment situation in the country. This
ratio is useful in knowing the proportion of population that is actively contributing to the production of goods and
services of a country. Higher the worker population ratio, higher the engagement of people in economic activities
and vice versa.
Q.11. ‘Mr. Rishi, after completing his education, has joined his family business but his marginal productivity is
zero’.
Comment upon the employment status of Mr. Rishi. Give valid reasons in support of your answer.
Answer:
Mr. Rishi cannot be considered as an employed person as he is disguisedly unemployed. Disguised
unemployment refers to a situation when the person seems to be employed but is not contributing to the output
i.e., his marginal productivity is zero.
Q.12. “Kavya works on her family farm and is neither paid in cash nor in the form of grains.”Can she be
categorized as a worker? Give valid reasons in support of your answer.
Answer:
Women, like Kavya, carry out household tasks like cooking, fetching water and fuelwood and participate in farm
labour. They are not paid wages in cash orin kind. For this reason, women like Kavya are not categorized as
workers
Q.13. In the past few decades (primary/secondary/tertiary) sector has created maximum jobs
opportunities in India.
Answer: Tertiary
Q.14. State whether the following statements are true/false with valid arguments: Economic
participation of women as homemakers is not accounted for in the Gross Domestic Product.
Answer:
True. Activities performed by women as homemakers are not recognized as productive work. They are not paid
for it and hence not accounted for in the Gross Domestic Product.
Q.15. Indian economy has shown excellent shift from informal sector to formal sector in the recent past.
Answer:
False. In the recent years, India has witnessed an unprecedented shift of the workforce from the formal sector to
informal sector. This may be primarily due to decline in job opportunities in formal (both public and private)
sector.
Q.16. “It is necessary to create employment in the formal sector rather than in the informal sector.” Defend or
refute the given statement with valid arguments.
Answer:
The given statement is true and can be defended on the following arguments:
(i) Formal sector of employment provides greater job security as compared to informal sector of employment.
(ii) Under the formal sector of employment people are entitled to better social security benefits.
Q.17. In the late 1990's India experienced a widening gap between the growth of GDP and employment
generation". Discuss.
Answer:
After the introduction of economic reforms, in the late 1990s, Indian economyexperienced a rapid rise in the GDP
growth rate. However, employment growth started declining, in spite of rising GDP i.e., India started
experiencing the problem of Jobless Growth. Where she was able to produce more goods and services without
corresponding rise in the employment in the economy.
Q.18. Define ‘Jobless Growth’.

Answer:
Jobless growth refers to the situation, when an economy is able to produce more goods and services without a
proportionate increase in employment opportunities.
Q.19. Define disguised unemployment.

Answer:
Disguised unemployment is a situation where in the number of workers engaged in a work is more than
actually/optimally required.
Q.20. Study the following chart showing the Growth of Employment and Gross Domestic Product and analyse the
trend of the two variables from 1990-2012.
Answer:
The period between 1990 to 2012 had been a significant one. Introduction of Economic Reforms in India has
changed everything in India. Variables shown in the given graph show that GDP growth rate has taken an
upwards tread over the years whereas the situation of Employment growth rate has seen major fluctuations while
going down in overall trend.
GDP growth rate has increased from a meager 3.4% in 1991 to 7.8% in 2012. However the employment growth
rate has shown declining trends from 1.5% in 1991 to 1.12% in 2012. Between the period 1999-2005 the
employment generation rate was at peak since independence i.e. 2.28% p.a. with the corresponding GDP growth
rate standing at a decent 6.1% p.a.
The gap between the two variables is maximum between the period 2005-10 when the employment growth rate
hit the lowest in history of Independent India i.e. 0.28%. In the same period the GDP growth rate had hit the
highest level since independence to the tune of 8.7% p.a. Indian economy has witnessed the peculiar phenomena
of ‘jobless growth’ over all these years. Learning from the situation government had put in serious efforts on
employment front and brought it to a level of 1.12% p.a. between the period 2010-12.
In all the period between 1990-2012 has been a real roller coaster ride for the India economy on the two front of
GDP and Employment Growth rate.
Q.21. Compare and analyze the ‘Women Worker Population Ratio’ in on following information:
Worker Population
Sex Total Rural Urban

Men 52.1 51.7 53.0
Women 16.5 17.5 14.2
Total 34.7 35.0 33.9
Answer:
The data in the given table reveals that:
(a) Women constitute 16.5% of the total worker population in the economy.
(b) The number of women workers in rural areas (17.5%) are relatively higher than the women workers in urban
areas (14.2%).
Due to the abject poverty in rural areas, rural women are compelled to work more than their urban counterparts.
Q.22. ‘In recent times the Indian Economy has experienced the problem of Casualisation of the workforce. This
problem has only been aggravated by the outbreak of COVID-19.’ Do you agree with the given statement?
Discuss any two disadvantages of casualisation of the workforce in the light of the above statement.
Answer:
The given statement is quite appropriate with reference to the ‘casualisation of labour’ in India.
(i) For casual workers, the rights of the labour are not properly protected by labour laws. Particularly, during
pandemic times, as demand for goods and services fell the casual workers were left jobless, without any
compensation or support.
(ii) During the COVID-19 lockdown millions of casual workers lost their jobs, raising the question of their
survival. Also, additional health expenditure added to their troubles. Had such workers been working under the
formal sector, it would have given them some respite in their difficult times.
Q.23. Defend or refute the following statement with valid explanation: ‘Disguised unemployment is a common
form of unemployment in rural India’
Answer:
The given statement is true. Disguised unemployment is a situation where the marginal productivity of labour is
zero. In India, this situation is often witnessed, as farming is more of a family affair in rural areas and most of
the members are generally engaged on the farms without any direct contribution to the production process. This
problem persists in rural India due to lesser availability of jobs.
Q.24. ‘Casual wage work is the major source of employment in rural India ‘. Defend or refute the given
statement with valid reason.
Answer:
The given statement is refuted. In rural areas, non-farm job opportunities are limited. People generally do not
show preference to acquire skill and training for non-farm occupation .They prefer to stay on family farms and
fields as self-employed.
Q 25. “Casual workers often work in very poor working conditions.” Justify the given statement.
Ans. Casual workers are the most vulnerable category of the workforce. They are generally not protected
by the regulations of the government. Hence, such workers face a continued threat to job security. They
may also not be entitled to regular income and any social security measures.
Q26. i) Distinguish between ‘Green Revolution’ and ‘Golden Revolution’.

Ans. A significant increase in the production of horticulture products in India is termed as Golden
Revolution.
Whereas,
Green Revolution refers to large scale increase in production of food grains (like wheat, rice etc.)
resulting from the use of high yielding variety seeds, chemical fertilizers, modern sophisticated
agricultural equipments etc.
(ii) State any three limitations of organic farming.

Ans. Three limitations of organic farming are as follows:
• Yields from organic farming are relatively less than the modern agricultural farming.
Therefore, small and marginal farmers may find it difficult to adapt to large-scale production.
• Produce from organic farming has a relatively shorter shelf life.
• Possibilities of off-season cropping is limited in organic farming
Chapter 7 : Environment
Q.1. Define any two of the following:

(a) Absorptive capacity of environment
(b) Carrying capacity of environment
Answers:
(i) Absorptive capacity of the environment- It means the ability of the environment to absorb degradation
without causing environmental damage.
(ii) Carrying capacity of environment – It implies that the resources extraction is not above the rate of
regeneration of the resources and wastes generated are within the assimilating capacity of the environment.
Q.2. Define the following :

(i) Carrying capacity of environment
(ii) Bio- composting
(iii) Sustainable Development
(iv) Absorptive capacity of the environment
Answer:
(i) Carrying capacity of environment – It implies that the resources extraction is not above the rate of
regeneration of the resources and wastes generated are within the assimilating capacity of the environment.
(ii) Bio composting - It refers to the process of converting organic waste of various types into natural manure.
(iii) Sustainable development - It refers to the development process that meets the needs of present generation
without compromising on the ability of the future generations to meet their respective needs.
(iv) Absorptive capacity of the environment- It means the ability of the environment to absorb degradation
without causing environmental damage.
Q.3. Explain absorptive capacity of environment with example.

Answer:
Absorptive capacity means the ability of the environment to absorb degradation. For instance, high population and
the affluent consumption in the developing countries and production standards of the developed nations have
placed a huge stress on the environment. Many resources are becoming extinct and the wastes generated are
beyondthe absorptive capacity of the environment.
Q.4. Interpret the given picture with reference to current environmental challenges.
Answer:
The given picture indicates the usage of renewable sources of
energy. Poweris the need of the hour and the usage of non-
renewable sources of energy lead toan environmental crisis.
On the other hand, using renewable sources of energy like solar,
wind, and hydro energies ensure sustainable development without
anyadverse impact on the environment. The power generated
through these resources is a cleaner and greener alternative.
Q.5. Discuss any one current environmental challenge.

Answer:
Global warming is a gradual increase in the average temperature of the earth’s lower atmosphere. It is caused by
increases in carbon dioxide and other greenhouse gases. Burning of fossil fuels and deforestation are the major
causes of Global Warming.
Global warming is responsible for the melting of polar ice, leading to rising sea levels and coastal flooding, etc.
Q.6. Interpret the situation of earth as depicted in the given picture, with reference to current environmental
challenges
Answer:
The given image depicts the environmental challenge of ‘Global
Warming’.
Global warming is a gradual increase in the average temperature of the
earth’s lower atmosphere. It is caused by increases in carbon dioxide
and other greenhouse gases. Burning of fossil fuels and deforestation
are the major causes of Global Warming. Global warming is
responsible for melting of polar ice, leading to rise in sea level and
coastal flooding etc
Q.7. State and discuss any one strategy involved in attaining sustainable
development in India.
Answer:
Mini-hydel Plants- In mountainous regions, streams can be found almost everywhere. A large percentage of such
streams are perennial. Mini-hydel plants use the energy of such streams to move small turbines. The turbines
generate electricity which can be used locally. Such power plants are more or less environment-friendly as they
do not change the land use pattern.
Q.8. In the light of the given image, explain any one strategy to ensure sustainable development.
Answer:
One of the strategies to ensure sustainable development
depicted in the given image is the usage of wind energy.
Wind power is a popular source of sustainable renewable
energy. In the areas where speed of wind is usually high,
wind mills can provide electricity without any adverse
impact on environment.
Q.9. Interpret the above picture on account of environmental challenge -

Answer:
Deforestation is defined as large scale cutting down of trees
for executing developmental projects. It is a serious
environmental concern, since it can result in the loss of
biodiversity, damage of natural habitats, disturbances in the
water cycle, soil erosion etc. Deforestation is also the main
contributor to the environmental problems like climate
change and global warming.
Q.10. Serious concerns over the climate change is taking over the attention of the world."
In the light of the above statement and image, discuss any two strategies to tackle this global concern of
Environmental degradation.
Answer:
In order to tackle the problem of environmental
degradation, following strategies are highlighted in the
given image:
Use of wind energy: In areas where speed of wind is
usually high, windmillscan be used to generate
electricity without any adverse impact on the
environment.
Use of solar energy: With the help of photovoltaic
cells/solar panels, solar energy can be converted into
electricity. This technology is extremely usefulfor
remote areas and is free from pollution.
Q.11. State and discuss any two principal causes of environmental degradation.
Answer:
Two principal causes behind environmental degradation:
(i) Population Rise : Rising population is one of the major causes for degradation of the environment as it adds to
the burden on natural resources, leading to environmental crisis.
(ii) Consumption Levels : It has been observed that the developing and developed nations have witnessed
affluent consumption levels in the past, bringing disequilibrium in the demand and supply of the natural
resources, pushing the world to the threshold of the environmental crisis.
Q.12. “Recently Indians have drifted away from the traditional knowledge and practice and caused large scale
damage to environment”. Explain how, adopting the traditional practices can be helpful in achieving the objective
of sustainable development?
Answer:
The given statement is quite appropriate. Indian traditional practices were environment friendly and worked as
complementary to the system and not its controller. The traditional agriculture system, healthcare system,
housing, transport etc. were intrinsically environment friendly. The traditional practices used natural products and
processes which are more or less free from side effects. For example by adopting medicinal plants/products we
can conserve the resources and achieve the objective of sustainable development.
Q.13. “Maintaining Air Quality Index (AQI) is the need of the hour.” Do you agree with the given statement?
Justify your answer with a valid argument.
Answer:
The given statement is true. Owing to the rise in air pollution, monitoring and maintaining good air quality is the
need of the hour. Better air quality helps to reduce medical issues like asthma and other respiratory problems.
Q.14. ‘Pesticides are chemical compounds designed to kill pests. Many pesticides can also pose health risks to
people even if exposed to nominal quantities. ‘In the light of the above statement, suggest any two traditional
methods for replacement of the chemical pesticides.
Answer:
The traditional practices can help in controlling contamination without the use of chemical fertilizers, as follows :
(i) Neem trees and its by products are a natural pest-controller, which has been used since ages in India. Recently,
the government promoted the sale Neem coated urea as a measure of natural pest control.
(ii) Large variety of birds should be allowed to dwell around the agricultural areas, they can clear large varieties
of pests including insects.
Q.15. “If the rate of resource extraction exceeds the rate of regeneration, it leads to reduction in carrying capacity
of the environment. ”Discuss the rationale of the given statement with valid reasons.
Answer:
The environment is able to perform its functions uninterruptedly so long as the demand for these functions is
within the carrying capacity of the environment. This means that the resources are not extracted beyond the rate of
their regeneration.
If there is a disequilibrium (demand being more than supply), the environment fails to replenish itself and it will
lead to environmental crisis. Thus, to maintain a healthy environment, the carrying capacity of the environment
must be valued and respected.
Q.16. State any two advantages of Mini-hydel Plants.

Answer:
Two advantages of mini-hydel plants are: (i) Eco-friendly. (ii) Generation of sufficient amount of electricity to
satisfy local demands.
Q.17. “If the rate of resource extraction exceeds the rate of regeneration, it leads to a reduction in carrying
capacity of the environment.” Highlight any two consequences, stated in the given statement.
Answer:
Two consequences of such a situation are :
(i) Global warming which may lead to the melting of polar ice and an eventual rise in sea level.
(ii) Other environmental problems like Ozone depletion may cause serious threats to living organisms (sustenance
of life).
Q.18. Explain any two advantages of use of Non-Conventional Sources of Energy.
Answer:
Two advantages of the use of non-conventional sources of energy are:
(i) Cleaner energy – Such sources of energy are eco-friendly in nature.
(ii) Cost-effective – Energy generation from such sources has lower maintenance costs.
Q.19. Explain how the opportunity cost of negative environmental impact is high.
Answer:
Opportunity costs of negative environmental impacts are high as :
(i) The intensive and extensive extraction of both renewable and nonrenewable resources, compelled the
government to spend huge amounts on technology and research to explore new resources.
(ii) Global environmental issues such as global warming and ozone depletion also contribute to increased
financial commitments for the government.
Q.20. Give two instances of

(i) Overuse of environmental resources. (ii) Misuse of environmental resources.
Answer:
(i) Two instances of overuse of environmental resources are :
(a) Extraction of groundwater in excess of the recharge capacity.
(b) Large scale overgrazing
(ii) Two instances of misuse of environmental resources :
(a) use of wood as a household fuel
(b) industrial effluents dumped in rivers.
Q.21. Interpret the given picture on account of current environmental challenges.

Answer:
The given image indicates towards the environmental
challenge of ‘global warming’. Global warming is a gradual
increase in the average temperature of the earth’s lower
atmosphere as a result in the increase in greenhouse gases.
The statement given, ‘we are running out of time, act now
before it’s too late’ represents the urgency of actions to be
taken to control the situation. Various studies have shown
that global warming is causing rise in sea level, loss of
coastal land, increase risks of floods etc.
Q22. Elaborate any two ill-effects of Deforestation as depicted in the given picture.
Ans. Two ill-effects of deforestation are:
• Deforestation leads to loss of vegetation and biodiversity. Encroachment of forest land disturbs
the natural habitat of various species of flora and fauna. Deforestation results in the breakdown
of the normal functioning of the ecosystem.
• Large-scale cutting down of trees may lead to an increase in the amount of greenhouse gases
such as carbon dioxide, methane, etc. in the atmosphere. Subsequently increasing the
Earth's average temperature gradually i.e. Global Warming.
Q23. Explain briefly any two functions of the environment.

Ans. Two functions of the environment are:
• Supply of Resources: The environment supplies resources both renewable and non-renewable
on a continuous basis.
• Sustenance of Life: By providing genetic and bio diversity the environment helps in sustenance
of life.
Chapter 8 - India/Pakistan/China : Comparative Development
Q.1. Compare and analyse the given data of India and China with valid reasons :
Country Annual growth rate of population (2015) Sex ratio (per thousand males)
India 1.2% 929
China 0.5% 941
Source: World Development Indicators, 2015
Answer:
The given data shows that China could arrest its annual population growth rate with the implementation of some
stringent measure in late 1970’s like the introduction of one child norm. This step has been instrumental in
controlling the growth of population in China. India stands virtually more than double to China at its annual
population growth rate of 1.2% as compared to China’s annual population growth rate of 0.5% pa.
The social dynamics of both the countries are similar to each other; sex ratio is low and biased in both the
countries due to preference for male child. Whereas, India stands at 929 females per 1000 males, China is not far
ahead at 941 females per 1000 males.
Q.2. From the data given below, compare and contrast India's and China's sectoral contributiontowards
GVA/GDP
Sector India China
Agriculture 16 7
Industry 30 41
Services 54 52
Total 100 100
Answer:
In both nations, the contribution of the agricultural sector to GDP is the least of the three sectors. Whereas; the
service sector is the highest contributor to GDP in bothnations.
The contribution of the agriculture sector to the GDP in India stands at 16% which isapproximately more than
double of China, i.e. 7%.
In China, the contribution of the industrial sector (41%) is way ahead of India (30%),owing to technological
upliftment and rapid industrial growth in China in the 1970s.
The service sector contributes more than half to the GDP in both India (54%) andChina (52%) indicating the
scale of economic growth in the two nations.
Q.3. Explain valid reasons for the slow growth and re-emergence of poverty in Pakistan.
Answer:
The reasons for the slow growth and re-emergence of poverty in Pakistanare:
(i) Agricultural growth and food supply situation were not based on institutional process of technical change but
on good harvest. Hence, Pakistan faced a volatile performance in the agriculture sector.
(ii) Overdependence on remittances and foreign aid on the one hand and increasing difficulty in paying back the
loans on the other.
Q.4. On the basis of the given data:
Analyse the iteams between India and China.
Q.5. Read the following schedule carefully
Analyse the output growth trend in the three sectors over the given years between India and China.
Answer:
In the last few decades, output growth in the agriculture sector declined for bothIndia and China. In the industrial
sector, China attained a growth rate of 10.8% in 1980s but declined to 8.1% in 2011-15. India also witnessed a
decline in the industrialgrowth rate from 7.4% in 1980s to 5% in 2011-15.
In case of service sector, China was able to maintain highest rate of growth during 1980–1990 i.e. 13.5% which
declined to 8.4% in 2011-15. Whereas, India’s growth
increased from 6.9% in 1980s to 8.4% in 2011-15.
Thus, China’s growth is contributed by both the manufacturing and service sectors and India’s growth mainly by
the service sector.
Q.6. Compare and analyse the following information related to Annual Growth of Gross DomesticProduct (GDP)
of India and China.
Annual Growth Rate of GDP
Country 1989-90 2015-17
India 5.7 7.3
China 10.3 6.8
Answer: The given data
shows that China has gained economic strength over the given period of time. India witnessed 5.7% growth rate
whereas, China was able to maintain near double-digit growth during the decade of 1980s. The growth rate of
China has decelerated to an average of 6.8%, over the period 2015-17.In the recent past India has posted a decent
rise in the growth rate. While India had lessergrowth rate in the decade of 1980’s, it has enhanced well by registering
an average growth rate of 7.3%, over the period 2015-17.
Q.7. Identify one income indicator and one health indicator, each.
Answer:
Income indicator – Gross National Income per Capita (PPP US$)Health indicator – Maternal Mortality Rate (per 1
lakh births)
Q.8. Compare India and China on the basis of any one of the indicator identified above in part (i).
Answer:
Maternal Mortality Rate is very high in India as compared to China. For every 1 lakh births 29 women lose their
lives in China, whereas this figure standsat 133 for India.
Q.9. ‘‘India, China and Pakistan have travelled more than seven decades of developmental path with varied
results.’’ Explain the given statement with valid arguments.
Answer:
(i) Till the late 1970s, all the three countries were maintaining the same level of low development.
(ii) Over the last three decades, the three countries have taken different levels of development
(iii) India has performed moderately over the years. Majority of its people still depend on agriculture.
(iv) Infrastructure is lacking and more than one fourth of its population live below poverty line.
(v) Pakistan performed low because of political instability, overdependence on remittances and foreign aid along
with volatile performance of agriculture.
(vi) China has used the market system to succeed in raising the rate of growth in economy with stress on
alleviation of poverty.
Q.10. State the meaning of ‘Commune’.

Answer:
Commune refers to a system of collective farming under which people were made to cultivate farm land in China
under Great Proletarian Cultural Revolution.
Q.11. Compare India and Pakistan on the basis of their demography

Answer:
India and Pakistan can be compared on demographic front as follows (as per the World Bank Report 2015) :
(i) The population growth rate of the two nations is growing rapidly. Indian population is growing at around 1.2%
p.a. whereas that of Pakistan is growing at around 2.1% p.a.
(ii) The fertility rate of the two nations depicts the clear reason for the difference in the population growth rate.
The fertility rate on an average of India stands at 2.3 kids per female and that of Pakistan stands at 3.7 kids per
female.
(iii) The sex ratio of the two nations stand quite near to each other, showing preference of male child in both the
nations. India stands at 929 females per 1000 males and Pakistan stands at 947 females per 1000 males.
Q.12. On the basis of the following information, compare and analyse the population growth rate among the given
countries:
Country Estimated Population (in million) Annual Growth of Population (in %)
China 1371 0.5
Pakistan 188 2.1
Source : World Development Indicators, 2017
Answer:
The given data shows that, on annual population growth rate front, Pakistan (2.1%) stands virtually more than
four times China (0.5%). China could arrest its annual population growth rate, with the implementation of some
stringent measures in the late 1970s, like the introduction of the ‘One Child Norm.
Q.13. State any two reasons for slow economic growth and re-emergence of poverty in Pakistan.
Answer:
The reasons for the slowdown of growth and re-emergence of poverty in Pakistan’s economy were:
(i) Volatile performance of the agriculture sector due to lack of institutionalized process of technical change.
(ii) Over-dependence on remittances and foreign aid.
Q.14. Compare and analyse the following information related to Imports and Exports of the three neighbouring
nations:
Answer:
The above table shows that during the given periods the Exports from India to Pakistan have increased at an
annualized rate of 3.7 % while the same with China shows 2.6% of growth. On the other hand, India’s import
from China accounted for a massive 10.3 %. The corresponding figure with Pakistan witnessed an average of
5.1% respectively. The situation indicates that Indian imports from China are too high in comparison to the
exports to China. This shows that Indian economy was over-dependent on Chinese economy for goods and
services, over the given period of time. Whereas, in case of Pakistan gap is quite narrow, which may be due to
various reasons.
15. “Post-1947 India and Pakistan adopted similar developmental strategies for their respective development
paths. Do you agree with the given statement? Give valid reason for your answer.
Ans. Yes. Similar developmental strategies were adopted by India and Pakistan for their respective development
paths as:
(i) Both the nations have followed the path of mixed economic structure involving the public as well as the private
sector.
(ii) Both India and Pakistan adopted import substitution policy in order to protect their domestic industries from
foreign competition.
Q16. Critically appraise the developmental journey of Pakistan since 1947.

Ans. Pakistan followed the mixed economy model with the co-existence of public and private sectors. Pakistan
adopted the import substitution policy, to protect its domestic industries. The agrarian structure of the economy was
altered by the Green Revolution. In the 1970s, nationalisation of capital goods industries was undertaken, whereas
this policy was reversed in the late 1970s and 1980s.
Economic reforms were introduced in 1988, however, political instability and overdependency on remittances led
to a fall in economic growth.
Q17. Appraise the developmental journey of India since 1947.

Ans. Indian economy envisaged a mixed economy framework, with the coexistence of public and private sector.
The progress during the first seven five-year plans was reasonable. Owing to the Green Revolution, India achieved
self-sufficiency in food grain production. Moreover, the industrial sector became well diversified with a dominant
public sector
Post 1991, with the introduction of economic reforms and the opening up of the Indian economy, the industrial and
tertiary sectors witnessed remarkable growth. Hence, the developmental journey of India post-independence
changed the structure of the Indian economy drastically.

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TARGET CBSE 2024 12TH ECONOMICS BY NAVEEN SADHU

UNIT-1 (NATIONAL INCOME ACCOUNTING)

2. Car purchased by a household is a . (Choose the correct alternative)

4. Identify flow variable from the following –

5. Read the following statements carefully:

10. Complete the Table.

11. Sum of factor payments is equal to . (Choose the correct alternative)

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

20. Inventory is a concept whereas the change in inventory is a concept.

23. Read the following statements carefully:

UNIT-2 (MONEY AND BANKING)

1. Read the following statements carefully:

3. Read the following news report carefully:

6. formulates the Monetary Policy in the economy.

8. Read the following statements carefully:

Ans. (a) sells, decrease

10. ‘Money is an asset which can be stored for use in future.’

11. Read the following statements carefully:

12. is an institution that accept deposits for lending purposes.

UNIT-3 (INCOME DETERMINATION)

2. Read the following statements carefully:

5. Read the following statements carefully:

6. Read the following statements carefully:

11. Average propensity to Consume can never be .

15. The range of value of Investment Multiplier is always between and .

19. Effective demand is defined as .

27. Name the two components of Aggregate Demand in a closed economy–

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

29. Deflationary gap indicates (excess/deficient) demand in an economy.

30. State the meaning of Involuntary Unemployment.

31. Average Propensity to Save (APS) is the ratio of and .

33. Read the following statements carefully:

Ans. Aggregate Demand

44. Identify which of the following equations is true.

47. Read the following statements carefully:

53. Average Propensity to Consume refers to .

54. Read the following statements carefully:

UNIT-4 (GOVERNMNET BUDGET)

3. Read the following statements carefully:

5. A tax whose burden cannot be shifted to others is imposed generally on .

UNIT-5 (BALANCE OF PAYMENT)

1. Read the following statements carefully:

5. Assuming the following data is goven for an imaginary economy.

Year 2020 (₹ inCr.) 2021 (₹ inCr.)

10. Read the following statements carefully:

16. Read the following statements carefully:

18. ‘Deficit’ in Balance of Payment (BOP) refers to the excess of .

19. Read the following statements carefully:

22. Read the following statements carefully:

24. The following information is given for an imaginary country:

25. Balance of Payments deficit is the excess of .

Chapter 1 : Indian Economy at the time of Independence

1. Read the following statements carefully:

(c) Introduction of modern administrative system in India

Chapter 2 : Indian Economy 1950 – 1990

2. In 1951, agricultural contribution to India's National Income was . .

4. is known as the architect of Indian Planning.

5. Identify the incorrect statement from the following:

8. Read the following statements carefully:

2. Read the following statements carefully: