CBSE Sample Papers for Class 12 Economics Term 2 Set 6 with Solutions

Students can access the CBSE Sample Papers for Class 12 Economic with Solutions and marking scheme Term 2 Set 7 will help students in understanding the difficulty level of the exam.

CBSE Sample Papers for Class 12 Economics Term 2 Set 6 with Solutions

General Instructions :

• This is a subjective question paper containing 13 questions.
• This paper contains 5 questions of 2 marks each, 5 questions of 3 marks each and 3 questions of 5 marks each.
• 2 marks questions are Short Answer Type Questions and are to be answered in 30-50 words.
• 3 marks questions are Short Answer Type Questions and are to be answered in 50-80 words.
• 5 marks questions are Long Answer Type Questions and are to be answered in 80-120 words.
• This question paper contains Case/Source Based Questions.

Maximum Marks: 40
Time: 2 Hours

Short Answer (SA) Type I Questions (2 Marks)

Question 1.
The saving function of an economy is S = -200 + 0.25Y. The economy is in equilibrium when income is equal to ₹2,000. Calculate investment expenditure at equilibrium level of income.
Answer:
At equilibrium, Savings (S) are equal to Planned Investment (I). It is given that,
S = -200 + 0.25Y
Equilibrium level of income is ₹2,000. Substituting the value of Y in the savings function, we get S = -200 + 0.25 x 2,000
S = -200 + 500 ⇒ S = ₹300
or I = ₹300 [∵ at equilibrium level of income Savings (S) = Investment Expenditure (I)]
Thus, investment expenditure at equilibrium level of income is ₹300.

Question 2.
Explain the role of fiscal policy in fighting inflationary tendencies.
Or
Explain the role of fiscal policy in fighting deflationary tendencies.
Answer:
When government plans to spend less in the economy than its receipts as a part of fiscal policy, it impacts the flow of income in the economy by reducing quantity of money in circulation.

With a fall in the money supply, the purchasing power of people also fall, leading to a fall in the level of aggregate demand. As aggregate demand falls, the price level or the rate of inflation also falls.
Or
When government plans to spend more in the economy than its receipts as a part of fiscal policy, it impacts the flow of income in the economy by increasing quantity of money in circulation.

With increase in money supply, the purchasing power of people also rise, leading to an increase in the level of aggregate demand. As aggregate demand rises, the price level also rises and rate of deflation begins to fall.

Question 3.
Differentiate between intermediate goods and final goods.
Or
Write a short note on inventory investment.
Answer:
Difference between intermediate and final goods

Basis	Intermediate Goods	Final Goods
Meaning	They are those goods which are still within the production boundary i.e., either value need to be added or are meant for resale.	They are those goods which are out of the production boundary and available for direct consumption by their buyers.
Purpose or Use	These goods may be resold by the firms to make profits during the accounting year.	These goods are not resold by the firms to make profits during the accounting year.

Or
Inventory investment refers to the chage in the stock of finished goods, semi-finished goods and raw materials over the period of a year. This stock keeps varying over time. Inventory investment is the difference between closing stock and opening stock, i.e., Closing Stock – Opening Stock.

Question 4.
“Special Economic Zone (SEZ) increases foreign investment”. Explain.
Answer:
A Special Economic Zone (SEZ) is a geographical region that has economic laws different from a country’s typical economic laws. Usually, the goal is to increase foreign investment.

Question 5.
Observe the table given below and answer the question
Worker-Population Ratio in India, 2017-2018

Sex	Worker-Population Ratio
–	Total	Rural	Urban
Men	52.1	51.7	53.0
Women	16.5	17.5	14.2
Total	34.7	35.0	33.9

As per the given data, briefly explain why women participation in the workforce is less as compared to their male counterparts?

Explain briefly any two social effects of unemployment in India.
Answer:
Women participation in the workforce is less than the male counterparts majorly because of two reasons i.e., lack of skills among female population and most of the women are expected to look after their household coarse and thus, unable to participate in employment activities.
Or
The following are the social effects of unemployment (any two)

• It causes enormous sufferings to unemployed workers due to their nil income.
• Many social evils like dishonesty, immorality, drinking, gambling etc. are the outcomes of unemployment.
• It causes social disruption in the society and the government has to incur a heavy expenditure on law and order.

Short Answer (SA) Type II Questions (3 Marks)

Question 6.
Observe the data given below and answer the question

Sex Ratio at Birth, Child Sex Ratio and Sex Ratio at State-level (2012-13)

Source https://imvw.censusindia.gov.in/vital_statistics/AHS/AHS_report_partl.pdf It can be observed from the data that the child sex ratio and sex ratio at birth is less than overall sex ratio in all states of India. Give reason for this trend.
Answer:
India’s sex ratio is biased towards girl child. Even today, most of the people prefer a boy over a girl ji due to the fact that a boy will support their parents at old ages. Also, due to lack of proper health care, illiteracy and awareness, number of deaths are high at birth. Specially in states like 5rclisha, Bihar, Rajasthan and Uttarakhand. This disparity is higher due to above mentioned reasons.

Question 7.
Calculate intermediate consumption from the following data

Items	₹ (in lakhs)
Value of Output	600
Net Value Added at Factor Cost (NVAFC)	240
Sales Tax	45
Subsidy	15
Depreciation	60

Or
Calculate Net Value Added a Factor Cost (NVA_FC)

Items	₹ (in crores)
Sales	1,750
Purchase of Raw Material	1,300
Indirect Taxes	175
Consumption of Fixed Capital	125
Closing Stock	110
Opening Stock	115
Subsidies	10

Answer:
Gross Value Added at Market Price (GVA_MP)
= Net Value Added at Factor Cost (NVA_FC) + Depreciation + (Sales Tax – Subsidy)
= 240 + 60 + (45 – 15) = ₹330 lakh
Now, GVA = Value of Output – Intermediate Consumption 330 = 600 – Intermediate Consumption
⇒ Intermediate Consumption = 600 – 330 = ₹270 lakh
Or
Net Value Added at Factor Cost (NVA_FC) = Sales + Change-in-stock – Purchase of Raw Material – Consumption of Fixed Capital – (Indirect Taxes – Subsidies)
= 1,750 + (-5)-1,300 – 125 -(175 – 10)
= 1,750 – 5-1,300 – 125 – 165 = ₹155 crore
Note Change-in-stock = Closing Stock – Opening Stock = 110-115 = – ₹5 crore

Question 8.
Explain the relationship between Marginal Propensity to Consume (MPC) and Multiplier (K).

Direction Read the following text carefully and answer questions 9 and 10 given below

Health and education are today largely paid for and almost entirely administered by governmental bodies or non-profit institutions. The situation is worse for developing countries like India. This situation has developed gradually and is now taken so much for granted that little explicit attention is any longer directed to the reasons for the special treatment of education even in countries that are predominantly free enterprise in organisation and philosophy. The result has been an indiscriminate extension of governmental responsibility.

The role assigned to government in any particular field depends, of course, on the principles accepted for the organisation of society in general. In a free private enterprise exchange economy, government’s primary role is to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets free.

Beyond this, there are only three major grounds on which government intervention is to be justified. One is ‘natural monopoly’ or similar market imperfection which makes effective competition (and therefore thoroughly voluntary exchange) impossible.

A second is the existence of substantial ‘neighbourhood effects,’ i.e., the action of one individual imposes significant costs on other individuals for which it is not feasible to make him compensate them or yields significant gains to them for which it is not feasible to make them compensate him—circumstances that again make voluntary exchange impossible.

The third derives from an ambiguity in the ultimate objective rather than from the difficulty of achieving it by voluntary exchange, namely, paternalistic concern for children and other irresponsible individuals. The belief in freedom is for ‘responsible’ units, among whom we include neither children nor insane people.

In general, this problem is avoided by regarding the family as the basic unit and therefore, parents as responsible for their children; in considerable measure, however, such a procedure rests on expediency rather than principle. The problem of drawing a reasonable line between action justified on these paternalistic grounds and action that conflicts with the freedom of responsible individuals is clearly one to which no satisfactory answer can be given.

Source https://zmvw.edchoice.org/who-we-are/our-legacy/articles/the-role-of-government-in-education/
Answer:
Relationship between MFC and Multiplier (K)
The value of multiplier is determined by the value of MPC.
We know that, K = \(\frac{\Delta Y}{\Delta I}\)

K.ΔI = ΔY or Δl = \(\frac{\Delta Y}{K}[latex] or [latex]\frac{\Delta Y}{K}\) = ΔI

We also know that, Y = C + I or ΔY = ΔC + ΔI or ΔI = ΔY – ΔC

On putting the value of ΔI from equation (ii) in the equation (i),
\(\frac{\Delta Y}{K}\) ΔY – ΔC

On dividing the above equation by ΔY,
\(\frac{\Delta Y}{K} \times \frac{1}{\Delta Y}=\frac{\Delta Y}{\Delta Y}-\frac{\Delta C}{\Delta Y} \text { or } \frac{1}{K}=1-\frac{\Delta C}{\Delta Y} \text { or } K=\frac{1}{1-\Delta C / \Delta Y}\)
Here, \(K=\frac{1}{1-M P C}\)
∵ \(\frac{\Delta C}{\Delta Y}=\mathrm{MPC}\)

This shows that there is a direct relationship between Multiplier (K) and Marginal Propensity to Consume (MPC). As the value of MPC rises, the value of multiplier also rises and vice-versa.

e.g., if MPC = 0.75 then, \(\frac{1}{1-0.75}\) = 4 and when the value of MPC = 0.80, then K = \(\frac{1}{1-0.80}\) = 5.

Question 9.
Deepak argues that in the present era, there is no need for government intervention in health sector. However, his friend Raju argues that health care services create social benefits and are an important component of human development and therefore, there is a need for government intervention in health sector. Decide with reasons, who is right in both of them?
Answer:
Raju is right, the government intervention in this sector is essential due to the following reasons

1. Expenditure on health, make substantial long-term impact and it cannot be reversed. Hence, this sector needs to be regulated.
2. Individual consumers of health services do not have complete information about the quality of services and their costs.
3. The government has to ensure that private institutions in this sector adheres to the standards stipulated by the government and charge the correct price.

Question 10.
Briefly explain the importance of social infrastructure.
Answer:
The significance of social infrastructure lies in the following (any three)

• It helps in building a healthy generation for future, that will be more productive and efficient. “Q
• Social infrastructure helps in the growth of literacy, which in turn helps in the growth of the society.
• It further helps in the skill formation, which is an important parameter in the context of economic XI growth.
• It helps in improving and providing a quality life to the people.
• Social infrastructure helps in the formation of human capital, which complements the physical capital to form an efficient system of growth and development.

Long Answer (LA) Type Questions (5 Marks)

Question 11.
Explain briefly the various development strategies of China.
Or
China has been able to develop rapidly as compared to India and Pakistan. Why?
Answer:
Certain development strategies of China are discussed below
(i) Great Leap Forward (GLF) Campaign This campaign, initiated in 1958, aimed at industrialising the country on a massive scale. People were encouraged to setup industries in their backyards. In rural areas, communes were started. Under the commune system, people collectively cultivated land.

(ii) Great Proletarian Cultural Revolution (1966-76) In 1965, Mao Tse Tung started a cultural revolution on a large scale. In this revolution, students and professionals were sent to work and learn from the countryside.

(iii) 1978 Reforms Since 1978, China began to introduce many reforms in phases. The reforms were initiated in agriculture, foreign trade and investment sector. In agriculture, lands were divided into small plots which were allocated to individual households.

They were allowed to keep all income from the land after paying taxes. In later phase, reforms were initiated in industrial sector. All enterprises which were owned and operated by local collectives in particular, were allowed to produce goods.

(iv) One-Child Norm The Chinese government introduced one-child norm to check its growing population. Couples were allowed to have only one child. In case, they gave birth to second child, social assistance was to be stopped.

(v) Special Economic Zones SEZs were set up for the development of the most backward regions of the country by encouraging new industries.

Or
China has been able to develop rapidly as compared to India and Pakistan due to the following reasons

• China initiated to implement the economic reforms in 1978 without any compulsion by the World Bank and IMF.
• China established infrastructure in the field of health and education that helped effectively in improving the social and economic indicators.
• China implemented land reforms that increased the productivity.
• There was long existence of decentralised planning.
• The size of individual enterprises was kept small.

All the factors mentioned above helped positively towards economic development.

Question 12.
Explain briefly the steps taken in estimating national income by the value added method. Also, explain any two precautions required to be taken in this method.
Answer:
Steps for measuring national income by value added method (product method) are enumerated below

Step 1 Classify All the Production Units The units are traditionally classified into primary, secondary and tertiary sectors which are further classified into sub-sectors like agriculture, manufacturing, banking, etc.

Step 2 Estimate NVA_FC of each industrial sector by taking the following sub-steps
(i) Estimate Value of Output It can be estimated by two ways
(a) A sum of sales and net addition to stocks (If entire output is not sold within the year).
(b) Quantity of output multiplied by price (If entire output is sold within the year).

(ii) Deduct Intermediate Consumption It should be deducted from the value of output to arrive at GVA_MP, (Intermediate consumption already includes imports).
(iii) Deduct Consumption of Fixed Capital It should be deducted from GVA_MP to arrive at
NVA_MP.
(iv) Deduct Net Indirect Tax It should be deducted from NVA to arrive at NVA_FC of an industrial sector.

Step 3 Take the sum of NVA_FC of all the industrial sectors of the economy. By doing so, we will arrive at net domestic product at factor cost. ENVA_FC = NDP_FC

Step 4 Add net factor income from abroad to NDP_FC to arrive at National Income.

National Income (NNP_FC) = NDP_FC + Net Factor Income from Abroad (NFIA)

Precautions to be taken while computing national income by this method are given below

• Take the value of final product only i.e., intermediate goods not to be included.
• Do not include exports, if total sales are given.

Question 13.
(i) Calculate investment expenditure from the following data about an economy which is in equilibrium
National Income = ₹1,000
Marginal Propensity of Save = ₹0.20
Autonomus Consumption Expenditure = ₹100

(ii) Free play of market mechanism is often talked about in economic theories of both microeconomics and macroeconomics. This is consideied as an efficient system that doesn’t require involvement of authorities to correct any economics discomforts. Briefly explain the macroeconomic automatic adjustment mechanism.
Answer:
(i) Given, Y = ₹1,000
MPS = 0.20, \(\bar{C}\) = ₹100, I = ?
b or MPC = 1 – MPS
= 1 – 0.20 = 0.80
Y = C +1
or Y = \(\bar{C}\) + bY +1
1,000=100 + 0.80 x 1,000 + I
I = 1,000 – 900, I = 100

(ii) When Aggregate Supply is greater than Aggregate Demand (AS > AD) or when Aggregate Demand is greater than Aggregate Supply (AD > AS), there are auto-mechanisms in a free market economy that tend to restore the equality between Aggregate Supply and Aggregate Demand. This mechanism is termed as adjustment mechanism.