CBSE Class 12 Economics

Sample Paper 02 (2019-20)

Maximum Marks: 80
Time Allowed: 3 hours

General Instructions:

i. All the questions in both the sections are compulsory. Marks for questions are indicated
against each question.
ii. Question number 1 - 10 and 18 - 27 are very short-answer questions carrying 1 mark
each. They are required to be answered in one word or one sentence each.
iii. Question number 11 - 12 and 28 - 29 are short-answer questions caring 3 marks each.
Answers to them should not normally exceed 60-80 words each.
iv. Question number 13 - 15 and 30 - 32 are also short-answer questions carrying 4 marks
each. Answers to them should not normally exceed 80-100 words each.
v. Question number 16 - 17 and 33 - 34 are long answer questions carrying 6 marks each.
Answers to them should not normally exceed 100-150 words each.
vi. Answer should be brief and to the point and the above word limit be adhered to as far as
possible.

Section A
1. Fill in the blanks:

_________ refers to the excess of revenue expenditure of the government over its
revenue receipts.

2. Give two examples of macroeconomic variables.

3. The Breakeven level of an economy is

a. C = I

b. AD = AS
 c. C = Y

d. C = AD

4. The price of 1$ has risen from Rs.48 to Rs.50. Has the Indian currency appreciated or
depreciated?

OR

Is a rising reserve of India’s foreign exchange a sign of our rising exports?

5. Public expenditure can be planned only

a. Can’t say

b. True

c. Insufficient information

d. False

6. Fill in the blanks:

________ relationship between MPS and Multiplier?

7. Fill in the blanks:

________ is the situation under which aggregate demand exceeds aggregate supply at
the full employment level.

8. State true or false:

Revaluation and appreciation of currency are one and the same thing.

9. Fill in the blanks:

A vicious circle set wherein the government takes more loans to repay earlier loans,
which is called ________.

10. Match the following-:

 (a) Non tax receipt (i) income tax

(b) Direct tax (ii) capital receipt

(c) Indirect tax (iii) fines

(d) Disinvestment (iv) G.S.T

11. Is the following revenue expenditure or capital expenditure in the context of

government budget? Give reason.

i. Expenditure on collection of taxes.

ii. Expenditure on purchasing computers.

12. Calculate APS and MPS from the following table :

Income (Rs. 000) : 0 100 200 300 400

Consumption Expenditure
40 120 200 280 360
(Rs. 000) :

OR

Complete the following table.

Income Saving Marginal Propensity to Average propensity to

(Y) (S) Consume (MPC) Consume

0 -6

20 -3 .................... ...................

40 0 .................... ..................

60 3 .................... .....................

13. Define high-powered money.

14. Distinguish between the current account and capital account of balance of payments
account. Is import of machinery recorded in current account or capital account? Give
reasons for your answer.
 OR

Distinguish between devaluation and depreciation of domestic currency.

15. Define tax. Give two examples of each of direct tax and indirect tax.

16. i. What are the activities or transactions that are not included from Gross National
Product measurement? Give reason.
ii. From the following about firm ‘X’, calculate Gross Value Added at Factor Cost by it:

Items (in thousand)

(i) Sales 2000

(ii) Opening stock 120

(iii) Closing stock 80

(iv) Purchase of intermediate products 1200

(v) Purchase of machinery 600

(vi) Subsidy 160

OR

Calculate Disposable Income and Personal Income.

Items (Rs. in Crores)

Net factor income from abroad (-) 50

Net indirect taxes 110

Current transfers by government 40

Corporate tax 60

Net domestic product at factor cost 800

National debt interest 80

Net current transfers to abroad 10

Consumption of fixed capital 50

 Domestic product accruing to government 70

Retained earnings of private corporations 10

17. Explain the role of the following in correcting deficient demand in an economy.

i. Open market operations

ii. Bank rate.
Section B

18. Define the globalization.

19. State true or false:

Physical capital and human capital both can be separated from their owners.

20. Match the following:

(a) Green Revolution (i) Related with Dairy, Milk Production

(b) White Revolution (ii) Related with Egg Production

(c) Silver Revolution (iii) Related with Cotton Production

(d) Silver Fiber Revolution (iv) Related with Agriculture Production

21. MSP announced ____ the sowing season

a. None

b. At the time of

c. Before

d. After

22. Fill in the blanks:

________ portion of India's workforce is dependent on agriculture.

OR
 Fill in the blanks:

Resources which get exhausted with sage are called ________ of energy.

23. Fill in the blanks:

________ is a credit scheme extended to the poor through Self Help Groups (SHGs).

24. Which one of these is not a cause of poverty in India?

a. Unequal distribution of land.

b. Migration of people from rural to urban India

c. Income inequalities

d. Low level of economic development

25. Fill in the blanks:

________ refers to the compost made from cattle dung, human waste and plant residue,
used as fertilizer and soil conditioner.

26. Top most country in HDI ranking is

a. Australia

b. Norway

c. United state

d. Japan

27. Per Capita GNI means

a. How much is country GDP

b. How much on an average a country earn

c. How much on an average a person earn

d. How much is country national income

28. A truck driver had to pay Rs. 2,000 as challan as his truck was emitting black
soot. Why do you think he was penalised? Was it justified? Give reasons.

OR

Discuss the role of three services needed in supply of electricity. Should they be in
different hands?

29. ‘There is a downward trend in inequality world-wide with a rise in the average
education levels’. Comment.

30. Write a brief note on trade and investment policy reforms. How did it lead to
economic growth?

31. Which economic system do you think was most suited to Indian economy and why?

OR

Discuss fiscal policy reforms under New Economic Policy 1991.

32. Comment on the growth rate trends witnessed in China and India in the twol decades
with the help of table given below.

GDP% India China

1991-2000 5.7 10.4

2001-2005 6.3 9.5

2017-2018 6.7 6.4

33. Organic farming is a holistic way of life'. Do you agree? Support your answer with
arguments.

34. What problems are being faced by the power sector in India?

OR

What are the causes of unemployment in India?

 CBSE Class 12 Economics
Sample Paper 02 (2019-20)

Solution
Section A

1. Revenue deficit

2. National Income, Aggregate Demand and Investment.

3. (c) C = Y
Explanation: See the figure below:

4. Indian currency has depreciated.

OR

Not necessarily. In case of India, it is certainly not. Our forex reserves have tended to
rise largely because of remittances from abroad by the NRIs.
 5. (d) False
Explanation: Public expenditure can be planned as well as non plan expenditure.
Plan expenditure refers to the expenditure which is directly related to the economic
and social development of the country whereas non plan expenditure refers to the
expenditure which is not directly related to the economic and social development of
the country.

6. Negative

7. Excess demand

8. False

9. Debt Trap

10. (a) - (iii), (b) - (i), (c) - (iv), (d) - (ii)

11. i. Expenditure on a collection of taxes is a revenue expenditure for the government as

it neither adds to its assets nor reduces its liabilities.

ii. Expenditure on purchasing computers is a capital expenditure for the government

as it results in an increase in assets.

12.

Income Consumption Saving APS=S/Y MPS

0 40 -40 -

100 120 -20 0.2

200 200 0 0 0.2

300 280 20 0.2

400 360 40 0.2

OR

Change Change in Marginal Average

Income in Saving Consumption Consumption Propensity Propensity
 (Y) Income (S) (C) Expenditure to to
( Y) ( C) Consume Consume

0 - -6 6 - - -

20 20 -3 23 17 0.85 1.15

40 20 0 40 17 0.85 1.00

60 20 3 57 17 0.85 0.95

Formulae used
C = Y-S , MPC = C/ Y, APC = C/Y

13. High-powered money is money produced by the RBI and the government. It consists
of two things:
(i) Currency held by the public and
(ii) Cash reserves with the commercial banks.
(iii) Other deposits with RBI.
H=C+R+OD

14. (i) Current account: Current account is that account which records imports and
exports of goods and services and unilateral transfers, income and transfer payments
during a year.
(ii) Capital account: Capital account is that account which records all such transaction
between residents of a country and rest of the world which cause a change in the
asset or lability status of the residents of a country or its government.
(iii) Import of machinery is an import item. So, it will be included or recorded under
the current account.

OR

Depreciation of a currency means a decrease in the price of the domestic currency in

terms of the foregin currency. It corresponds to an increase in the exchange rate. For
eg. if the value of a rupee in terms of US dollar falls from Rs. 60 to Rs. 65, more rupees,
i.e. 65 rupees will be required to buy one US dollar. Depreciation of currency
encourages exports and discourages imports.
 Like depreciation, devaluation means fall in the external value of the domestic
currency in terms of the foreign currency. Both devaluation and depreciation make
domestic goods cheapter for the foreigners.

However, devaluation is done when a country has adopted fixed exchange rate
system while depreciation is done when a country has adopted a floating exchange
rate system.

15. A tax is defined as a compulsory payment imposed by the government on the

households and producers or on the people of the country. It is a compulsory payment
made by the people to the government without expectation of any direct returns or
benefits to the taxpayer.

i. Direct tax: It is a tax levied on income and wealth and its final burden cannot be
shifted on to others. In other words, the burden falls on the same persons on
whom it is levied.
Example: (1) Income tax (2) Corporate profit tax.
ii. Indirect tax: It is a tax levied on goods and services and its financial burden can be
shifted on to others.
Example: (1) Goods and services tax

16. (i) Activities or transactions that are not included from Gross National Product
measurement are:

Purely Financial Transaction: Buying and selling of security: - Because it does

not rather add to any production services. Government transfer payments:-
Because it is a one-sided payment made by the Government.
Transfer of used (Second hand) goods: - Because it is already counted at the
time of production and hence it will lead to double counting.
Non- market goods and services: - Because it is not bought and sold into the
market and thus it is not included.
The value of leisure: - Because leisure does not refer any productive services.

(ii) Gross Value Added at Factor Cost by Firm X

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

 intermediate products
= 2000 thousand + (80 thousand – 120 thousand) + 160 thousand – 1200 thousand
= 2000 thousand – 40 thousand + 160 thousand – 1200 thousand
= 920 thousand

OR

Gross National Disposable Income =Net National Disposable income** + Depreciation

GNDI = 850 + 50 = 900 Crore.

**Net National Disposable Income (NNDI)
= NNPFC* + NIT + Net Current Transfers from rest of the world

= 750 + 110 + (-10)

= Rs 850 crore
*NNP​FC= NDPFC+ NFIA

= 800 + (- 50) = Rs. 750

Personal Income = Private Income - Corporate Tax - Retained Earnings

Private Income = Income from domestic product accruing to private sector (IDPAPS) +
NFIA + Current transfers from Govt. + Net current transfer from the rest of the world
+ National Debt Interest (NDI)
NDPFC = IDPAPS + IDPA Public sector

800 = IDPAPS + 70
730 = IDPAPS
Private Income = 730 + (- 50) + 40 + (- 10) + 80
= Rs. 790 crore
Personal Income = 790 - 60 - 10 = Rs. 720 crore

17. i. Open market operations refer to the sale and purchase of securities by the central
bank. Deficient demand refers to AD falling short of AS at full employment. In this
situation the central bank buys securities in the open market and makes payment
to the sellers. The money flows out of the central bank and ultimately reaches the
commercial banks as deposits. This raises the lending capacity of the banks.
 People can borrow more. This will raise AD.
ii. Bank rate is the rate of interest which the central bank charges on the loans given
to commercial banks. In case of deficient demand central banks can reduce the
hank rate. This forces the commercial banks to reduce lending rate. Since
borrowing becomes cheaper people borrow more. AD rises.
Section B

18. Globalization is the free movement of goods, services and people across the world in a
seamless and integrated manner.

19. False

20. (a) - (iv), (b) - (i), (c) - (ii), (d) - (iii)

21. (c) Before

Explanation: The minimum support prices are announced by the Government of
India at the beginning of the sowing season for certain crops on the basis of the
recommendations of the Commission for Agricultural Costs and Prices (CACP)

22. 3/5

OR

Non renewable sources

23. Micro finance

24. (b) Migration of people from rural to urban India

Explanation: High population growth rate is one of major reasons of poverty in
India. This further leads to high level of illiteracy, poor health care facilities and lack
of access to financial resources. Caste system and unequal distribution of income and
resources is another reason of poverty in India.

25. Bio-composting

26. (b) Norway

Explanation: The Human Development Index (HDI) is a composite statistic of life
expectancy, education, and income per capita indicators. A country scores
 higher HDI when the life expectancy at birth is longer, the education period is longer,
and the income per capita is higher.
27. (c) How much on an average a person earn
Explanation: GNI per capita - Gross national income (GNI) is the sum of value added
by all resident producers plus any product taxes (less subsidies) not included in the
valuation of output plus net receipts of primary income (compensation of employees
and property income) from abroad

28. He was penalised because of the rules of Pollution Control Board. As per the rules, an
owner of a vehicle needs to keep it under pollution control for which he needs to get
is serviced regularly and obtain a certificate of "pollution under control" from an
authorised station. It was justified because the negative opportunity cost of
environment degradation is irreversible and hence we need to take preventive steps.
Paying penalty is actually the extent of negative externality the truck driver has given
to society. Once the environment is polluted, it can't be cured so it must be prevented
before hand.

OR

The three services needed in supply of electricity are as follows:

i. Generation of electricity
ii. Transmission of electricity
iii. Distribution of electricity

All these services should be in different hands. The main service, i.e. transmission of
electricity should be in the hands of the government and they should decide on issues
relating to transmission. The government and private sector may operate in the areas
of generation of electricity and distribution of electricity. Involving private sector
enterprises in distribution will bring more and more financial resources in power
sector as well as promote competition which will result in better services to the
people.

29. It is believed that education level reduces global inequality. Education imparts the
knowledge and technical skills which enhance the productivity of people. An
educated person possesses higher productivity and efficiency and hence, a relatively
 higher income earning capacity. The higher income earning capacity and greater
acceptability of modern techniques with rise in average education level across the
world has raised the living standards and quality of life in the underdeveloped
nations.

Distribution of income has become less skewed and income disparity between the
rich and the poor is reducing across the world with better-earning opportunities
available due to rise in education levels. Governments of different countries have
been investing heavily in the education sector as rise in average education levels not
only reduce inequality but also other problems like poverty, unemployment and
underutilisation of resources.

30. Liberalisation of trade and investment was initiated to increase international

competitiveness of industrial production and also the flow of foreign investments and
technology into the economy. Prior to these reforms, in order to protect domestic
industries, India was following a regime of quantitative restrictions on imports and
restrictions of foreign investments. Foreign trade and investment is an opportunity
for the economy to grow faster and expand. Various reforms in policies are carried
out to improve foreign trade and investment and at the same time keep domestic
market safe. The liberalization of trade policy in 1991 was one of the major reforms
which are still carried on in the economy. Reducing import duties and encouraging
foreign investment is part of reforms under this sector.

These reforms are useful in the growth of country in the following ways:

1. It helps in lowering the cost of goods by removing tariff barriers.

2. These reforms help in bringing economies of scale by increasing specialisation.
3. These reforms help in maintaining friendly relations with other countries.
4. These reforms increase competition, which in turn help firms to increase efficiency
in production.
5. It helps in earning foreign exchange.

31. i. In my opinion mixed economy system suited the most to attain a dual goal of
efficiency and equity.
ii. It was absolutely a right decision on part of our planners to opt mixed economy
 approach. The conditions in which British had left us were such which could not
be handed over completely to private sector.
iii. Neither public sector had enough funds to be a socialist economy. We could also
not de-rule law of inheritance in the situations of partition.
iv. Therefore, we adopted a mixed economic system with a strong public sector and
co-existence of private ownership with democracy.

OR

Fiscal reforms mean increasing the revenue receipts and reducing the public
expenditure of govt. in a manner that production and economic welfare are not
adversely affected. Its main objective was to reduce fiscal deficit which stood at 8.5
percent of GDP in 1990-91. Taxation syatem was made more scientific and rational.
Income tax slabs were reduced upon the recommendations of TRC. The peak rate of
customs duties has been reduced to 15% in budget 2006-07. Excise duty on several
commodities were reduced. Govt. made special efforts to cut public expenditure.

Rationalisation of Tax Systems: To rationalise the indirect tax system at the centre
by removing distortion in the structure there is a need to remove multiplicity of tax
rates of central excise duties on various goods and services. With tax reform initiated
since 1991, this has been now achieved with few exceptions.
Now, there is a single excise duty called CENVAT (which is in the form of value added
tax) on all products which enter a production chain. The argument for a single
CENVAT is that it will remove the distortions in the tax system as a result of
multiplicity of rates of excise duties.

The Fiscal Responsibility and Budget Management Act (FRBMA), 2003 has been
implemented and it emphasises on

a. Revenue led fiscal consolidation

b. Better expenditure outcomes.
c. Rationalisation of tax regime.

32. Undoubtedly, China is leader in the economic growth rate. Its growth has crossed 9%
whereas India has crossed 5% growth rate upto 2005. The table shows that the growth
rate of GDP between 1991-2000 was higher in comparison to India. But during the
 period 2001-05, this difference reduced to some extent. Even the GDP in China was
almost higher than that of India. But in 2017-18 the GDP growth rate of India was
higher than that of China.

33. I agree that organic farming is a holistic way of life.

a. Organic farming is the process of producing food naturally.

b. This method avoids the use of synthetic chemical fertilizers and genetically
modified organisms.
c. It is eco-friendly and essential for sustainable development. It has a zero impact
on environment.
d. It substitutes costlier agricultural inputs such as HYV seeds, chemical fertilizers,
pesticides, locally produced organic inputs etc. which are cheaper and thereby
generate good returns on investments.
e. It generates income through export as the demand, for organically grown crops
are on the raise.
f. It provides healthy food as organically grown food has more nutritional value
than food grown through chemical farming.
g. It can provide more employment opportunities in India as it requires more
labourers for production than chemically produced goods.
h. In the long run organic farming saves energy and protect the environment. It also
slows down global warming.
34. i. At present, India is able to add only 20000 MW a year. India’s installed capacity to
generate electricity is not sufficient to feed an annual economic growth of 7-8%.
ii. State Electricity Boards (SEBs), which distribute electricity, incur losses exceeding
Rs.500 billion, due to transmission and distribution losses.
iii. Electricity is stolen in different areas and tariffs are not paid which also adds to
the losses of SEBs.
iv. Private sector power generators and foreign investors are not yet ready to enter
the power generation sector in a major way, which has placed the responsibility
largely on the public sector which is under financial pressure.
v. There is general public unrest due to high power tariffs and prolonged power cuts
in different parts of the country.
vi. Thermal power plants which have the greatest share in India’s power sector, are
 facing a shortage of raw material.
vii. India,s installed capacity to generate electricity is not sufficient to feed an annual
economic growth of 7%.

OR

1. Rapid Population Growth: It is the leading cause of unemployment in rural India.

In India, particularly in rural areas, the population is increasing. rapidly. It has
adversely affected the unemployment situation largely in two ways. In the first place,
the growth of population directly encouraged the unemployment by making large
addition to labour force. It is because the rate of job expansion could never have been
as high as population growth would have required.
2. Limited Land: Land is the gift of nature. It is always constant and cannot expand
like population growth. Since, India's population is increasing rapidly, therefore, the
land is not sufficient for the growing population. As a result, there is heavy pressure
on the land. In rural areas, most of the people depend directly on land for their
livelihood. Land is very limited in comparison to population. It creates the
unemployment situation for a large number of persons who depend on agriculture in
rural areas.
3. Seasonal Agriculture: In rural society agriculture is the only means of
employment. However, most of the rural people are engaged directly as well as
indirectly in agricultural operation. But, agriculture in India is basically a seasonal
affair. It provides employment facilities to the rural people only in a particular season
of the year. For example, during the sowing and harvesting period, people are fully
employed and the period between the post-harvest and before the next sowing they
remain unemployed. It has adversely affected their standard of living.
4. Defective Education: The day-to-day education is very defective and is confined
within the class room only. Its main aim is to acquire certificates only. The present
educational system is not job oriented, it is degree oriented. It is defective on the
ground that it is more general than the vocational. Thus, the people who are getting
general education are unable to do any work. They are to be called as good for
nothing on the ground that they cannot have any job here, they can find the ways of
self-employment. It leads to unemployment as well as underemployment.
5. Backward Method of Agriculture: The method of agriculture in India is very
backward. Till now, the rural farmers followed the old farming methods. As a result,
the farmer cannot feed properly many people by the produce of his farm and he is
unable to provide his children with proper education or to engage them in any
profession. It leads to unemployment problem.
6. Decline of Cottage Industries: In rural India, village or cottage industries are the
only means of employment particularly of the landless people. They depend directly
on various cottage industries for their livelihood. But, now-a-days, these are adversely
affected by the industrialisation process. Actually, it is found that they cannot
compete with modern factories in matter or production. As a result of which the
village industries suffer a serious loss and gradually closing down. Owing to this, the
people who work in there remain unemployed and unable to maintain their
livelihood.