CBSE Sample Papers for Class 12 Economics Set 7 with Solutions

Students must start practicing the questions from CBSE Sample Papers for Class 12 Economics with Solutions Set 7 are designed as per the revised syllabus.

CBSE Sample Papers for Class 12 Economics Set 7 with Solutions

Time Allowed: 3 Hours
Maximum Marks: 80

General Instructions:

This question paper contains two sections:
Section A – Macro Economics
Section B – Indian Economic Development
This paper contains 20 Multiple Choice Questions type questions of 1 mark each.
This paper contains 4 Short Answer Questions type questions of 3 marks each to be answered in 60 80 words.
This paper contains 6 Short Answer Questions type questions of 4 marks each to be answered in 80 100 words.
This paper contains 4 Long Answer Questions type questions of 6 marks each to be answered in 100 150 words.

SECTION-A (40 Marks)
(Macro Economics)

Question 1.
Identify which of the following is not a function of the Reserve Bank of India?
(a) To act as the banker to the Government of India
(b) To act as the custodian of the gold reserve of India
(c) To act as the financial advisor to the Government of India.
(d) To issue coins and one rupee note
OR
Demand Deposits include ____ and _____
(Fill up the blank with correct alternative)
(I) Saving account deposits
(II) Fixed deposits
(III) Current account deposits
(IV) Post Office Saving Alternative:
(a) (I) and (II)
(b) (II) and (III)
(c) (I) and (III)
(d) (I) and (IV) [1]
Answer:
(d) To issue coins and one rupee note
Explanation : In India currency notes are issued by the Reserve Bank of India (RBI), which is the monetary authority in India.

Related Theory
The Government of India has the sole right to mint coins. The designing and minting of coins in various denominations is also the responsibility of the Government of India.

(c) (I) and (III)
Explanation: Demand deposits are payable by the bahk on demand from the account holder. Other deposits, e.g. fixed deposits, have a fixed period to maturity and are referred to as time deposits.

Caution
There is another negotiable instrument i.e. cheque which includes instructions to the bank, duly signed by the drawer, to transfer funds of a certain amount to a specified individual subject to clearance.

Question 2.
When does a situation of deficient demand arise in an economy?
(a) AD > AS
(b) S > 1
(c) AD < AS
(d) S < 1 [1]
Answer:
(c) AD < AS
Explanation : Deficient demand refers to the situation when aggregate demand (AD) is less than the aggregate supply (AS) corresponding to full employment level of output in the economy.

Caution
There is another concept i.e. Excess demand means the situation when aggregate demand is in excess of aggregate supply corresponding to full employment. It is advisable to students that do not confuse between these two concepts.

Question 3.
Two friends Riya and Surendra were discussing about aggregate demand.
“The components of aggregate demand in an open economy are household consumption expenditure, private investment expenditure, and government expenditure.”
Identify the one of the components that is missing in the above statement.
(a) Household investment expenditure
(b) Net exports
(c) Factor payments
(d) Transfer payments [1]
Answer:
(b) Net exports
Explanation : In an open economy
Aggregate demand = Household consumption expenditure + Private investment expenditure + Government investment expenditure + Net exports (exports-imports)

Question 4.
Other things remaining the same, when in a country the market price of foreign currency reises, national income is likely: (Choose the correct alternative)
(a) Likely to rise
(a) Likely to fall
(a) Likely to rise or to fall both
(a) Not affected [1]
Answer:
(a) Likely to rise
Explanation : Exports will increase and imports will decrease and there will be greater flow of foreign exchange in the domestic economy.

Related Theory
When foreign currency becomes cheaper, the effect on national income is likely to be negative, i.e„ exports will decrease and imports will increase, which will ultimately lead to lesser flow of foreign exchange in the domestic income and fall in national income.

Question 5.
Assertion (A): Central Bank lower the Cash Reserve Ratio to increase the money supply.
Reason (R): The Central Bank uses the reserve ratio as one of its key monetary policy tools.
(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. [1]
Answer:
(c) Assertion (A) is true but Reason (R) is false.
Explanation : Central Banks lower the Cash Reserve Ratio to increase the money supply as it increases the leading power of the commercial banks, which in turn increases the money supply in an economy.

Caution
Be careful about decrease in CRR and SLR by the Central bank because decreasing SLR will cause growth in the economy.

Question 6.
Assertion (A): Increase in import duty of gold with have a favourable effect on BOP situation.
Reason (R): Demand for foreign exchange will fall.
(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. [1]
Answer:
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A)
Explanation : This will reduce import of gold and thus will have a favourable effect on BOP situation, as demand for foreign exchange will fall

Question 7.
Read the following statements carefully and choose the correct alternative from the following:
Statement 1: Demonetization was the step taken by the Government of India in order to tackle the problems of corruption, black money, terrorism and circulation of fake currency in the Indian Economy.
Statement 2: Demonetization has ensured improved tax compliance in India over the period of time.
Alternatives:
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and Statement 2 is false.
(d) Statement 2 is true and Statement 1 is false. [1]
Answer:
(a) Both the statements are true
Explanation: Demonetization refers to the act of stripping a currency as legal tender. Demonetization significantly reduces corruption from taking place.

The advantages of Demonetization are:

To control black money and corruption by stopping hoarding of money;
To prevent from duplication of currency notes;
to fight against terrorism by ripping off money funding or money laundering to the terrorist associations operating in India,
To reduce tax avoidance.

Question 8.
Read the following statements carefully and choose the correct alternative from the following:
Statement 1 : Money supply includes the least liquid measure of the Money supply.
Statement 2 : Money supply includes the currency with public outside banks and demand deposits with banks.
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and Statement 2 is false.
(d) Statement 2 is true and Statement 1 is False. [1]
Answer:
(d) Statement 2 is true and Statement 1 is False

Question 9.
Read the following statements carefully and choose the correct alternative from the following:
Statement 1: Currency notes and coins are called fiat money.
Statement 2: RBI is responsible for giving the bearer of the currency equal purchasing power.
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and Statement 2 is false.
(d) Statement 2 is true and Statement 1 is False.
OR
Read the following statements carefully and choose the correct alternative from the following:
Statement 1: Speculative demand for money is inversely related to the rate of interest.
Statement 2: Different people have different expectations regarding the future movements in the market rate of interest based on their private information regarding the economy.
Alternatives:
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and Statement 2 is false.
(d) Statement 2 is true and Statement 1 is false. [1]
Answer:
(a) Both the statements are true.

(a) Both the statements are true.
Explanation: When the interest rate is very high everyone expects it to fall in future and hence anticipates capital gains from bond holding. Hence people convert their money into bonds. Thus, speculative demand for money is low. When interest rate comes down, more and more people expect it to rise in the future and anticipate capital loss. Thus they convert their bonds into money giving rise to a high speculative demand for money.

Question 10.
Choose the correct alternatives to be filled in given blanks A and B:

Initial
Deposit
₹ 10,000

A Cash
Reserve
Ratio = ?

Money
Multiplier = 5

B
Credit
Creation = ?

(a) 10% and ₹ 5000
(b) 20% and ₹ 50,000
(c) 20% and ₹ 1,00,000
(d) 50% and ₹ 50,000
OR
The key indicators of RBI Monetary Policy along with their current rates in the table given below:

On 9^th October 2020, RBI has kept the Repo Rate unchanged at 4.00% and reduced reverse repo rate to 3.35%. In addition to that, the bank rate stands at 4.65%. This has been done to limit the damage to the economy caused bg the Covid-19 and subsequent lockdowns.
What does RBI Monetary Policy 2020 mean?
(a) It is the policy formulated by the RBI in 2020 related to expenditure and taxation of the government.
(b) It is the policy formulated by the RBI in 2020 realted to money matters of the country.
(c) It is the policy formulated by the RBI in 2020 related to the government budget.
(d) All of the above [1]
Answer:
(b) 20% and 50,000

(b) It is the policy formulated by the RBI in 2020 related to money matters of the country.

Question 11.
“GDP only measures goods and services produced in an economy and ignore those transactions that do not come under monetary terms.” In view of the above statement, discuss the limitations of GDP as an index of welfare of a country. [3]
Answer:
The limitations of using GDP as an indicator of welfare of a country are as follows:

inflation: GDP does not take into account the level of prices in a country. Because of inflation, the cost of living increases leading to a decrese in the standard of living.
GDP ignores externalities: Economic growth usually goes hand in hand with increased exploitation of both renewable and non-renewable resources like accidents, natural disasters, pollution level etc. So, GDP fails to consider the costs or valuations of such factors.
GDP disregards income pattern: GDP disregards the income distribution pattern. The increase in aggregate national income may be a result of the increase in income of a few individuals. Thus, this may lead to false interpretation of social welfare.

Question 12.
“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.
OR
Define intermediate goods and final goods. Can milk be an intermediate good ? Give reasons for your answer. [3]
Answer:
The given statement can be defended on the following ground, 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)

Goods purchased by a production unit from other production units for resale or for using them completely during the same year are intermediate goods. Goods purchased for consumption/investment are final goods. Milk purchased by a restaurant is an intermediate good, because it is purchased for reselling.

Question 13.
Write down the three identities of calculating the GDP of a country by the three methods. Also briefly explain why each of these should give us the same value of GDP. [4]
Answer:
Three identities for calculating the GDP of a country by three methods:

(1) Product Method or Value Added Method:
In this method, national income is measured as a flow of goods and services. The money value of all final goods and services produced in an economy is calculated during a year. These final goods are directly consumed and not used in further production process.

(2) Income Method: Under this method, national income is measured as a flow of factor payments (wages, rent, interest and profit) to the owners of factors of production (labour, land, capital and enterprise)

(3) Expenditure Method : Under this method national income is measured in terms of expenditure on the purchase of goods and services produced in the economy during an accounting year. All these three methods give the same value of GDP because the income is either consumed or invested. Here, saving is considered equal to investment.
GDP- Total consumption (C) + Investment (10 + Government Consumption expenditure (G) + Net exports (X – M)

Question 14.
How is exchange rate determined under the flexible exchange rate system? [4]
Answer:
Under the flexible exchange rate system, the exchange rate is determined by the forces of demand and supply of foreign currency. It is also known as floating exchange rate. The equilibrium exchange rate is determined at a level where demand for foreign exchange is equal to the supply of foreign exchange. In flexible exchange rate system, the Central bank does not intervene in the foreign exchange market.

In the figure, the demand curve DD intersect the supply curve SS at equilibrium point E. OM on Y axis is the equilibrium exchange rate.

Question 15.
The value of marginal propensity to consume is 0.6 and initial income in the economy is Rs. 100 crores. Prepare a schedule showing Incomes, Consumption and Savings. Also, show the equilibrium level of income by assuming autonomous investment of ₹ 80 crores.
OR
An economy is in equilibrium. From the following data, calculate the marginal propensity to save:
(A) Income = Rs. 10000
(B) Autonomous consumption = 500
(C) Consumption expenditure = 8000 [4]
Answer:
Given that;
Marginal Propensity to Consume (MPC) = 0.6
Initial income = Rs. 100 crores
Autonomous investment = 80 crores
C = C + bY
C = 0 + 0.6 (Y)

Aggregate Demand (AD) = Aggregate Supply (AS)
AD = C + I and AS = C + S
Therefore, the equilibrium level of income is Rs. 200 crores.

Applying the equation – C = C + bY
Where C = Consumption expenditure = 8000
C = Autonomous consumption = 500
Y = Income = 10,000
Thus, 8,000 = 500 + b x 10,000
8,000 – 500 = 10,000 b
7,500/10,000 = b
b = 0.75 = MPC
Now,
MPC + MPS = 1
0.75 + MPS = 1
MPS = 1 – 0.75 = 0.25
Hence, the value of MPS = 0.25

Question 16.
In the light of 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 which means aggregate demand is more than aggregate supply corresponding to full employment level. Two fiscal measures to correct the situation of inflationary gap are:

(1) Revenue Policy To correct the situation of inflationary gap, government raises the rate of all taxes. This reduces the purchasing power by reducing disposable income (i.e., after tax income) of the people which in turn will reduce the aggregate demand in the economy.

(2) Expenditure Policy To correct the situation of inflationary gap, government should reduce its public expenditure. This reduces the purchasing power by reducing total income of the people which in turn will reduce the aggregate demand in the economy.

Question 17.
What do you understand by ‘parametric shift of line’ ? How does a line shift when its slope decreases and its intercept increases?
OR
Explain the equilibrium level of income with the help of saving and investment approach. If savings fall short of the investment, how will the economy reach its equilibrium? [6]
Answer:
Parametric sloping shift of line occurs when the value of a parameter changes.
Consider the equation of a straight Y = a + bX where b > 0 is the slope of the straight line and a > 0 is the intercept on the vertical axis. When X increases by 1 unit the value of Y increases by b units. These are called movements of variables along the line. The entity ‘a’ is called the parameter or constant of the line. As the value of b increases the straight line swings upwards. This is called the parametric shift of line.

A positively sloping straight line swings or rotates downwards as its slope decreases.
A positively sloping straight line shifts upward parallel when its intercept increases.

According to saving ‘ and investment approach, the equilibrium level of an economy is achieved at a point where the ” investment curve intersects the saving curve. In the figure below, autonomous investment curve intersects the upward sloping saving curve at point A, income corresponding to this point of intersection is termed as equilibrium income. Therefore, in the given figure equilibrium level of saving and investment is 100 and the equilibrium income is 300.

If saving falls short of investment, then this means that people are consuming more and aggregate demand is more than the aggregate supply. In this situation, producers are running out of their inventories and therefore, will plan to produce more. Consequently output and income level will increase until the economy will reach its equilibrium.

SECTION – B (40 Marks)
(Indian Economic Development)

Question 18.
Match the situations given in Column I with their respective implications given in Column II: (Choose the correct alternative)

(a) A—(II); B—(III), C-(IV); D-(I)
(b) A—(III); B—(IV); C—(I); D—(II)
(c) A—(I); B—(II); C—(III); D-(IV)
(d) A—(II); B—(IV); C—(I); D—(III) [1]
Answer:
(b) A—(III); B—(IV); C—(l); D—(II)

Question 19.
Just as a country can turn physical resources like land into physical capital like factories, similarly, it can also turn human resources like nurses, farmers, teachers, students into human capital like engineers and doctors. Which of these justifies the need for human capital?
(A) It leads to efficient use of resources
(B) It leads to economic growth
(C) It helps in creating a society free of discrimination
(D) It allows individual freedom [1]
Answer:
(b) It leads to economic growth
Explanation: Economic growth means the increase in real national income of a country; naturally, the contribution of the educated person to economic growth is more than that of an illiterate person. If a healthy person could provide uninterrupted labour supply for a longer period of time, then health is also an important factor for economic growth.

Question 20.
Arrange the following events of China and Pakistan in chronological order and choose the correct alternative:
(I) Great Leap Forward
(II) Nationalisation of capital goods in Pakistan
(III) Introduction of reforms in China
(IV) Pakistan’s First five year plan Choose the correct alternative:
(a) (I), (II), (III), (IV)
(b) (II), (III), (IV), (I)
(c) (IV), (I), (II), (III)
(d) (IV), (III), (II), (I)
OR
Which of the following countries has the highest infant mortality rate per 1000 live births?
(a) India
(b) China
(c) Pakistan
(d) None of these
Answer:
(c) (IV), (I), (II), (III)
Explanation:
(I) The Great Leap Forward (GLF) campaign initiated in 1958 aimed at industrialising the country on a massive scale.
(II) In the 1970s nationalisation of capital goods industries took place in Pakistan.
(III) Introduction of reforms in China took place in 1978. China introduced reforms in phases. In the initial phase, reforms were initiated in agriculture, foreign trade and investment sectors.
(IV) Pakistan announced its first five year plan, now called the Medium Term Development Plan, in 1956.

Question 21.
____ adopted “One Child Policy” as a measure to control population.
(a) India
(b) China
(c) Pakistan
(d) Russia [1]
Answer:
(b) China
Explanation: The one-child policy was a program in China that was implemented nationwide by the Chinese government in 1980 in order to limit most Chinese families to one child each. The policy was enacted to address the growth rate of the country’s population, which the government viewed as being too rapid.

Related Theory
The Great Leap Forward was a five-year economic plan executed by Mao Zedong and the Chinese Communist Party, begun in 1958 and abandoned in 1961.

Question 22.
Read the following statements Assession (A) and Reason (R) choose of the correct alternative given below:
Assertion (A): NABARD do not provide direct loan to farmers.
Reason (R): National Bank for Agriculture and Rural Development is an apex regulatory body for overall regulation and licensing of regional rural banks and apex cooperative banks in India.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) reason (R) are true, but 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. [1]
Answer:
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
Explanation: NABARD provides long-term and medium-term refinance to the following institutions to supplement their resources for providing adequate credit for supporting investment activities of farmers and rural artisans, etc.

Related Theory
Short-term Refinance (ST) NABARD provides Cooperative Banks and Regional Rural Banks loans and advances, repayable on demand or on the expiry of fixed periods not exceeding 12 months, by way of refinance for production, marketing and procurement activities.

Question 23.
Read the following statements Assession (A) and Reason (R) choose of the correct alternative given below:
Assertion (A): Basic education and basic health are important in themselves, irrespective of their contribution to labour productivity.
Reason (R): Human welfare should be increased through investment in education and health even if such investments do not result in higher labour productivity.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) reason (R) are true, but 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. [1]
Answer:
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
Explanation: Every individual has a right to get basic education and basic health care, that is, every individual has a right to be literate and lead a healthy life. Thus, human welfare should be increased through investments in education and health even if such investments do not result in higher labour productivity.

Question 24.
____ is not the reason for the stagnation in the agricultural sector ?
(a) Use of fertilisers
(b) Lack of irrigation facilities
(c) Low levels of technology
(d) Various systems of land settlement [1]
Answer:
(d) Various systems of land settlement
Explanation: Under the colonial rule, India was basically an agrarian economy, employing nearly 85% of its population. Nevertheless, the growth of the agriculture sector was meager. The main reasons for stagnation were : Lack of irrigation facilities, Forceful commercialization, Use of fertilizers etc.

Question 25.
Choose the correct alternative.
(I) A the time of independence, old and outdated methods of farming were used in the agriculture sector.
(II) At the time of independnce, there was insufficient use of fertilisers and other machines.
(III) Level of productivity i.e. output per heactare of land was extremely low.
(IV) The tillers of the soil (farmers) were given very large share for subsistence.
(a) (I), (III), (IV)
(b) (II), (III), (IV)
(c) (I), (II), (III)
(d) (I), (II), (IV) [1]
Answer:
(c) (I), (II), (III)

Question 26.
Read the following statements carefully and choose the correct alternative from the following:
Statement 1: Poverty in an economy is the result of rapidly rising population.
Statement 2: Creation of income generating assets does not address the problem of poverty.
Alternatives:
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and statement 2 is false.
(d) Statement 2 is true and statement 1 is false. [1]
Answer:
(c) Statement 1 is true and statement 2 is false. Explanation: Poverty in an economy is a result of
(I) rapidly rising population;
(II) low productivity in agriculture;
(III) under utilized resources;
(IV) low rate of economic development:
(V) price rise Creation of income generating assets generate employment, which serve as a foundation for earning a livelihood, thereby addressing the problem of poverty.

Question 27.
Read the following statements carefully and choose the correct alternative from the following:
Statement 1; Dadabhai Naoroji was the first to discuss the concept of a Poverty line.
Statement 2: Dadabhai Naoroji proposed the concept of ‘Jail cost of living’
Alternatives:
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and statement 2 is false.
(d) Statement 2 is true and statement 1 is
Answer:
(a) Both the statements are true.
Explanation: In pre independent India, Dadabhai Naoroji was the first to discuss the concept of Poverty line. He used the menu for a prisoner and appropriate prevailing prices to arrive at what may be called ‘jail cost of living’.

Question 28.
Interpret the figure given below.

OR
“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. [3]
Answer:
This figure shows the road side vending which is an increasing variety of informal sector employment.
Since the late 1970s, many developing countries, including India, started paying attention to enterprises and workers in the informal sector as employment in the formal sector is not growing. Workers and enterprises in the informal sector do not get regular income; they do not have any protection or regulation from the government. Workers are dismissed without any compensation. Technology used in the informal sector enterprises is outdated; they also do not maintain any accounts. Workers of this sector live in slums and are squatters.

The traditional practices can help in controlling contamination without the use of chemical fertilisers, as follows:

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.
Large variety of birds should be allowed to dwell around the agricultural areas, they can clear large varieties of pests including insects.

Question 29.
India has abundant natural resources Substantiate this statement. [3]
Answer:
Indian has abundant natural resources in terms of rich quality of soil, large number of rivers and tributaries, lush green forests, plenty of mineral deposits, vast stretch seas on its east and west sides along with the Indian ocean to its south and wide ranges of mountains across the country. The black soil of the Deccan Plateau is suitable for cultivation of cotton. The Indogangetic plains are the most fertile regions in the world. India’s forests provide green cover for its population and wild life. Large deposits of iron-ore, coal and natural gas are found in the country.

Question 30.
How is unemployment different from underemployment? How is unemployment measured in India?
OR
Is environmental crisis a recent phenome-non? if so why? [4]
Answer:

Unemployment is a situation in which people who are capable and willing to work do not get work or are unemployed in productive activities. Alternatively, underemployment is the under-use of a worker due to a job that does not use the worker’s skills, or is part time, or leaves the worker idle. Based on the 27th round of NSSO, there are three types of unemployment estimates:

(1) Usual status unemployment: It is measured as the number of persons who remained unemployed for a major part of the year.

(2) Weekly status unemployment. It is measured as the number of persons who did not find any work even for an hour during the week preceding the survey week.

(3) Daily status unemployment: It is measured as the number of man days a person did not get work in a day during the week preceding the survey week. Out of these three unemployment estimates. The daily status unemployment concept is most appropriate because it takes into consideration both open and undermployment. Unemployment rate is the percent of the labour force that is without work and calculated as : = Number of persons unemployment/Size of labour force *100.

Yes, the environment crisis is a recent phenomenon. The environment was able to perform its functions without any interruptions till the resource extraction was not above the rate of its regenerative capacity and wastes generated were within the assimilating capacity of the environment. However, in recent times, environment fails to perform its vital function of life sustenance resulting in an environmental crisis.

The rising population of the developing countries and the affluent consumption and production standards of the developed world have placed a huge stress on the ‘environment. Many resources have become extinct and the wastes generated are beyond the absorptive capacity of the environment. As a result, the world today is at the threshold of an environmental crisis.

Question 31.
Study the following information and compare the Economies of India and Singapore on the grounds of ‘investment in Infrastructure as a percentage of GDP’.
Some Infrastructure in India and Other Countries, 2018

Sources: World Development Indicators 2019, World Bank website: www.worldbank.org.:
BP Statistical Review of World Energy 2019. 69th Edition
Note: (*) refers to Gross Capital Formation.
Answer:
Though it is widely understood that infrastructure is the foundation of development, India is yet to wake up to the call. India invests only 30 percent of its GDP on infrastructure, which is far below that of China. So it can be concluded that India is investing in infrastructural facilities less than China and this gap is too large. Some economists have projected that India will become the third biggest economy in the world a few decades from now. Considering this fact, this is a relatively lower proportion in this direction. For that to happen, India will have to boost its infrastructure investment.

Question 32.
What according to you were the objectives of the Industrial Policy Resolution of 1956? [6]
Answer:
The objectives of Industrial Policy Resolution of 1956 are as follows:

To accelerate the rate of growth and to speed up industrialisation.
To develop heavy industries and machine making industries.
To expand public sector.
To reduce disparties in income and wealth.
To build up a large and growing cooperative sector.
To prevent monopolies and concentration of wealth and income in the hands of a small number of individuals.

Question 33.
Why is agricultural diversification essential for sustainable livelihoods?
OR
Explain how opportunity costs of negative environmental impact are high. [6]
Answer:
Diversification of agriculture can be regarded as reallocation some of a farm’s productive resources such as land, capital, farm equipment and labour to either of the following:

within agriculture from less profitable crop to more profitable crop or enterprise;
from farm to other non-farming activities. This requires the use of resources in diverse but complimentary activities. Diversification of crops is important because of the following reasons.
1. It minimises the risk occurring due to failure of monsoon.
2. It minimises the market risk arising due to price fluctuations.
3. It improves crop productivity by improving soil fertility, controlling for pests and diseases and facilitating yield stability, nutrition diversity and health.

Diversification into productive or nonfarm activities is important because of the following reasons:

It absorbs unproductive workforce during slack season in agriculture and provides a sustainable livelihood option to people living in villages.
It reduces the risks from agricultural sector.
It creates a ecological balance.

Opportunity costs are the costs of the opportunities foregone. By choosing harmful environmental practices, the possible positive effect on environment that can be created by favourable environmental practices are forgone. The negative environmental impact has high opportunity costs as explained below:

Industrial development has polluted and dried up rivers and other aquifers, making water an economic good. Cleaning up these polluted rivers and aquifers and replenishing water resources require huge investments.
Intensive and extensive excavation of both renewable and non-renewable resources has exhausted some of the vital resources. Huge amounts of money are required to spend on technology and research to explore new resources.
Decline in air and water quality has resulted in increased number of respiratory and waterborne diseases with the consequence that the expenditure on healthcare is also rising.
Global environmental issues such as global warming and ozone depletion also contribute to increased financial commitments for the government.

The above consequences of environmental crisis have increased the opportunity costs of negative environmental impact.

Question 34.
Read the following text carefully and answer questions given below.

India vs Pakistan: A tale of two economies

NEW DELHI: India and Pakistan — two of the biggest South Asian nations — started their economic journey around the same time after gaining Independence. Not many know that there was a point in the 1960s when Pakistan’s per capita GDP used to be higher than that of India’s. However, over the years, India has not only surpassed Pakistan’s per capita GDP but taken a commanding lead on almost every economic front.

Pakistan today is facing global criticism for failing to rein in homegrown terror groups even as it grapples with an ailing economy and mounting global debt. India, on the other hand, has become a global front runner which recently surpassed the UK to become the fifth largest economy in the world. The stark economic contrast between the two neighbours shows that Pakistan’s unstable government, conflicting power centres, covert support to terror groups, and involvement in global terror strikes such as the 26/11 Mumbai attacks, have bled its economy. From a higher per capita GDP of $83.33 in 1960, Pakistan’s today lags much behind India which witnessed multi-fold rise its per capita GDP over the years. From 2007, India’s per capita GDP has consistently stayed higher than that of Pakistan’s.

India is today the fastest growing trillion-dollar economy in the, world and the fifth largest overall, according to data compiled by IMF’s World Economic Outlook. It jumped from the 9th spot in 2010 to the 5th spot in a span of just 9 years. The GDP of India is almost 10 times that of Pakistan, which is placed at the 45th position.

India’s rise has been even more dramatic across the past couple of years. Since 2008, India’s GDP has risen almost 140 per cent as against an increase of about 63 per cent for Pakistan.

https://timesofindia.indiatimes.com/business/india-business/india-vs-pakistan-a-tale-of-two-economies/articleshow/79450051.cms

(A) “India and Pakistan started their economic journey at the same time but now India is far ahead of Pakistan.” In the light of above statement, give any two reasons.
Answer:
Following have affected Pakistan’s economy:

(1) Unstable Government: In 1950, Pakistan’s per person GDP was US$1268, which was almost 50 per cent greater than India that year. However, in the backdrop of sustained political uncertainty and upheaval, Pakistan stagnated throughout the 1950s while a politically stable India grew. As a result, by 1960, India had almost caught up with Pakistan in per capita GDP terms with the per capita income gap having shrunk to 15 percent.

(2) Homegrown Terror Groups or Ailing Economy: Pakistan’s economy has suffered a direct and indirect cost linked to terrorist activities of almost $126.79 billion, which is equal to ₹10762.14 billion. Pakistan today is facing global criticism for failing to rein in homegrown terror groups even as it grapples with an ailing economy and mounting global debt.

(B) Compare and analyze India and Pakistan economy in the terms of GDP growth. [6]
Answer:
India has surpassed Pakistan’s per capita GDP over the years. From 2007, India’s per capita GDP has consistently stayed higher than that of Pakistan’s. India is today the fastest growing trillion-dollar economy in the world and the fifth largest overall, according to data compiled by IMF’s World Economic Outlook. It jumped from the 9th spot in 2010 to the 5th spot in a span of just 9 years. The GDP of India is almost 10 times that of Pakistan, which is placed at the 45th position. Since 2008, India’s GDP has risen almost 140 percent as against an increase of about 63 percent for Pakistan.