CBSE Sample Papers for Class 12 Economics Term 2 Set 5 with Solutions

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CBSE Sample Papers for Class 12 Economics Standard Term 2 Set 5 with Solutions

Time Allowed: 2 Hours
Maximum Marks: 40

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.

Question 1.
Distinguish between Ex-ante investment and Ex-post investment.
OR
Distinguish between Full Employment Equilibrium and Under-employment Equilibrium.
Answer:

Ex-ante Investment	Ex-post Investment
It refers to the planned or intended investment during a particular period of time.	It refers to the actual level of investment during a particular period of time.
It is imaginary (intended), in which a firm assumes the level of investment on its own.	It is factual or original that signifies the existing investment of a particular time.
It is planned on the basis of future expectations.	It is the actual result of variables.

OR

Basis	Full Employment Equilibrium	Underemployment Equilibrium
Meaning	It refers to a situation when AD=AS and all those who are willing and able to work at the existing wage rate, get work without any undue difficulty.	It refers to a situation when AD=AS, but all those who are willing and able to work at the existing wage rate, do not get work.
Impact on Real Output	At this equilibrium level, real output reaches its maximum point.	At this equilibrium level, real output does not reach its maximum point.
Inflationary Gap	Any excess of AD over AS corresponding to full employment equilibrium leads to inflationary gap	Any excess of AD over AS beyond underemployment equilibrium does not lead to inflationary gap.

Question 2.
In an economy, every time income rises, 75% of the rise in income is spent on consumption. Now, suppose in the same economy, investment rises by ₹7,500 crores. Calculate the following:
(a) Change in income.
(b) MPS.
OR
Suppose Marginal Propensity to Consume is 0.8. How much increase in investment is required to increase National Income by ₹2,000 crores? Calculate.
Answer:
(a) Spending 75% income on consumption means MPC = 75%
MPC = \(\frac{75}{100}\) =.75
Now, K = \(\frac{1}{1-\mathrm{MPC}}\)
∴ K = \(\frac{1}{1-0.75}=\frac{1}{0.25}\) = 4
Again K = \(\frac{\Delta \mathrm{Y}}{\Delta \mathrm{I}}\)
or
4 = \(\frac{\Delta \mathrm{Y}}{7,500}\)
ΔY = 7,500 × 4
AY = 30,000 crores

(b) MPS = 1 – MPC = 1 – 0.75 = 0.25
OR
Given, Marginal Propensity to Consume (MPC) = 0.8
Change in National income (ΔY) = ₹2,000 crores
We know that,
Investment Multiplier (K) = \(\frac{1}{1-\mathrm{MPC}}\)
= \(\frac{1}{1-0.8}\) = 5
Also, Investment Multiplier (K) = \(\frac{\text { Change in Income }(\Delta Y)}{\text { Change in Investment }(\Delta I)}\)
So 5 = \(\frac{2,000}{\Delta \mathrm{I}}\)
or ΔI = 400
i.e., investment should be increase by ₹400 crores, in order to increase income by ₹2,000 crores.

Question 3.
“Gross Domestic Product (GDP) does not give us a clear indication of economic welfare of a country.” Justify the given statement.
Answer:
The given statement is completely true that GDP does not give us a clear indication of economic welfare of a country. GDP is a measure of economy’s production or it can be considered a component of welfare. A higher GDP means more production of goods and services in an economy during a given year. Therefore, a higher GDP also means that more goods and services were available to the people of the country during the year. But it does not indicate that the people were better off during the year. In other words, a higher GDP may not necessarily mean higher welfare of the people.

Question 4.
How will you know whether a worker is working in the informal sector?
OR
Analyse the change in occupational structure of the country on the basis of the following table:

Answer:
From the following points, we can know whether a worker is working in the informal sector:
(a) The number of workers employed is less than 10.
(b) The workers are not entitled to social security schemes.
(c) The workers are not allowed to form trade unions and are not protected by labour laws.
OR
From the above table, it is clear that percentage of workforce engaged in primary sector has reduced from 72.72% to 43.8%. In secondary sector, it has increased from 10.02% to 24.7%. Likewise, workforce has increased from 17.26% to 31.5% in tertiary sector. However, the shift from primary to secondary and tertiary sector is noticeable but not significant. The Indian economy is still known as agricultural economy.

Question 5.
Infrastructure contributes to the economic development of a country. Justify the statement with a valid reason.
Answer:
Infrastructure and economic development go hand-in-hand. Infrastructure contributes to the economic development of a country in the following ways:
(a) Impact on productivity: Infrastructure plays a major role in the raising productivity of all the three sectors, viz, primary, secondary and the tertiary sector.

(b) Induces investment: Infrastructure induces investment. A well-developed infrastructure attracts foreign investors which opens new investment avenues and give birth to profitable ventures.

(c) Generates linkages in production: Better means of transport and communication and a robust system of banking and finance generates better inter-industrial linkages. It is a situation when expansion of one industry facilitates the expansion of the other.

(d) Enhances size of the market: Infrastructure enhances the size of the market by providing better transportation and warehousing facilities. These facilities enable large scale production of goods and services which further help a business to capture more market.

(e) Enhance ability to work : Social infrastructure improves the quality of life of workers, thereby increasing their efficiency. Healthcare centres, educational institutions and other such facilities develop the skills of the worker, which increases their ability and efficiency to work.

Question 6.
Giving the valid reason explain which of the following will not be included in estimation of National Income of India.
(a) School examination fee paid by a student.
(b) Free medicine provided by the government.
(c) Subsidised lunch provided to workers by their employers.
OR
Assuming real income to be ₹200 crores and price index to be 135, calculate nominal income.
Answer:
(a) It is included in estimation of National Income of India as it is a part of private final consumption expenditure.
(b) It is included in estimation of National Income of India as it is a part of government final consumption expenditure.
(c) It is included in estimation of National Income of India as it is the compensation to the employee.
OR
Real income = ₹200 crores
Price index = 135 crores
Let the base year’s price index be 100
Nominal Income = ?
Real income = (Nominal income + Price index of current year) x Price index of base year.
200 = (Nominal income = 135) × 100
Nominal Income = (200 x 135) ÷ 100
= 27,000 ÷ 100
= ₹270 crores.

Question 7.
In the table given below, the population and worker population ratio is shown. Find the workforce for India from the given data.

Region	Estimate of Population (in crore)	Workers Population Ratio
Rural	71.88	41.9
Urban	28.52	33.7
Total	100.40	75.6

Source: Key indicators for Asia and Pacific 2016, Asia Development Bank, Philippines; World Development.
Read the text carefully and answer the question number 8 and 9 given below:

China’s Soft Power

Soft power is getting others to do what you want by persuasion. Soft-power theorists suggest that the
ability to persuade rests on the power of attraction. We in India may think we are more attractive than China.

Joseph Nye, the political scientist who gave us the notion of soft power, suggests that it consists of foreign policy, cultural and political influence. Foreign policy influence comes from the legitimacy and morality of one’s dealings with other countries. Cultural influence is based on others’ respect for one’s culture. Political influence is how much others are inspired by one’s political values. Soft power is difficult to measure. Fortunately, the Lowy Institute in Australia has produced various measures which correspond roughly to foreign policy influence, cultural influence and political influence.

In diplomatic influence, overall, India ranks sixth and China ranks first among 25 Asian powers, which include the US (given the US’s huge diplomatic, military, and economic presence in Asia). Lowy further distinguishes between diplomatic networks, multilateral power, and perceived foreign policy leadership, ambition and effectiveness. On networks, India nearly matches China in the number of regional embassies it has but is considerably behind in the number of embassies worldwide (176 to 126). Multilaterally, India matches China in terms of regional memberships, but, crucially, its contributions to the UN capital budget are completely dwarfed by Chinese contributions (11.7 per cent to 0.8 per cent of the total). In surveys of foreign policy leadership, ambition, and effectiveness, China ranks first or fourth on four measures while India ranks between fourth and sixth in Asia.

Lowy’s overall measure of cultural influence ranks India in fourth place and China in second place in Asia. Lowy then divides cultural influence into three elements, of which “cultural projection” and “information flows” are the most important.

In cultural projection, India scores better on Google searches abroad of its newspapers and its television/ radio broadcasts. It also exports more of its “cultural services” (defined as “services aimed at satisfying cultural interests or needs”). China does better on several other indicators. For instance, India has only nine brands in the list of the top 500 global brands whereas China lists 73. On the number of UNESCO World Heritage sites, India has 37 while China has 53. If very tall skyscrapers are a measure of prestige, then China has 156 in its main financial centre, India has only 44. Respect for the Indian passport also lags. Chinese citizens can travel visa-free to 74 countries while Indians can only do so to 60.

In terms of information flows, in 2016-17, India hosted a mere 24,000 Asian students in tertiary education institutions whereas China hosted 2,25,000. As for tourist arrivals, in 2017 India clocked 5 million arrivals from Asia whereas China clocked 41 million and ranked first among 25 Asian countries. On total tourist arrivals from all over the world, India received 17 million, while China received 63 million.

Finally, in 2017 the two were not ranked that far apart in political influence. The governance effectiveness index shows India scoring in the top 43 per cent countries worldwide and ranked 12th and China scoring in the top 32 per cent and ranked 10th. If influence rests on “political stability and absence of violence/ terrorism”, India ranked 21st, with 79 per cent of countries worldwide doing better, and China ranked 15th with 63 per cent doing better. (Sources-Economic times)
Answer:
The number of workers estimated in Rura’ area will be area will be = (Estimate of population in rural area)/100 x worker population ratio of rural area
\(\frac{71.88}{100}\) × 41.9 = 30.12 crores
area will be = (Estimate of population in urban area)/100 × worker population ratio of urban area
\(\frac{28.52}{100}\) × 33.7 = 9.611 crores
The total workforce of India will be = Estimate of total/100 × worker population ratio of total population
\(\frac{100.40}{100}\) x× 75.6 = 75.90 crores 100

Question 8.
What led to make China more soft power, even India and China together adopted the strategy of economic reform?
Answer:
China has became soft power globally in various ways:
(a) Beijing’s Belt and Road Initiative (BRI) has emerged as the most crucial instrument in China’s soft power diplomacy.

(b) Influx of FDI (through SEZs (special economic zones)) and hundred percent equity of the foreign investment and free flow of FDI in the retail sector has played the most vital role in accelerating the growth in China. In fact, it is due to this factor that China has emerged a global hub of manufacturing activity which increases its image as a soft power globally.

Question 9.
What are the development strategies India needs to follow to have soft power among the world?
Answer:
India will emerge as a Soft power through various ways:
(a) Economic cooperation with other countries
(b) People-to-people relation
(c) Students exchange and scholarship programme
(d) Initiative of ‘International Solar Alliance

Question 10.
What is marginal propensity to consume? How is it related to marginal propensity to save?
Answer:
MPC or Marginal Propensity to Consume is a vital component of the Keynesian theory of macroeconomics and it is defined as the increase in consumer spending due to increase in income. It is expressed as AC/AY which shows change in consumption with change in income.
Where ΔC = Change in consumption
ΔY = Change in income
MPC and MPS (Marginal propensity to save) are related as follows:
MPC + MPS = 1
or MPS = 1 – MPC
or MPC = 1 – MPS
For example, If a person gets ₹1000 extra as bonus, and if he spends around ₹700 and saves 300, then his MPC will be 0.7 and MPS will be 300 or (1 – 0.7) = 0.3.

Question 11.
Effective demand can be restored, if ex-ante aggregate demand (AD) is more than ex-ante aggregate supply (AS). State and discuss the reason to justify the given statement.
Answer:
Effective demand is a representation of the actual amount of goods or services that buyer are purchasing in a given market.
When aggregate demand is more than aggregate supply in an economy, it will lead to inflationary pressure in the economy when price level and wage rate tend to rise. The inflationary gap encourages producers to increase their output to meet the excess demand. It will lead to gradual increase in income and output and ultimately aggregate supply will also increase to the point to be equal to aggregate demand.

Question 12.
(a) Calculate Net National Product at Factor Cost.

Items	(₹ in crores)
(i) Net current transfers to rest of the world	10
(ii) Savings of non- departmental enterprises	60
(iii) Net indirect tax	90
(iv) Income from property and entrepreneurship accruing to the government administrative departments	80
(v) Consumption of fixed capital	70
(vi) Personal tax	100
(vii) Corporation tax	40
(viii) National debt interest	30
(ix) Current transfer payments by government	50
(x) Retained earnings of private corporate sector	10
(xi) Personal disposable income	1100

(b) Distinguish between Depreciation and Depreciation reserve fund.
OR
(a) Find the Net Value added at Market Price.

Items	(₹ in lakh)
(i) Fixed capital good with a life span of 5 years	15
(ii) Raw materials	6
(iii) Sales	25
(iv) Net change in stock	(-)2
(v) Taxes on production	1

(b) Explain why subsidies are added to and indirect taxes deducted from domestic product at market price to arrive at domestic product at factor cost?
Answer:
(a) Net National Product at Factor Cost (NNPFC)
= Personal Disposable Income + Personal Tax + Corporation Tax + Retained Earnings of Private Corporate Sector – Current Transfers Payments by Government – National Debt Interest + Net Current Transfers to the Rest of the World + Savings of Non departmental Enterprises + Income from Property and Entrepreneurship Accruing to the Government Administrative Departments = 1100 + 100 + 40 + 10-50-30 + 10 + 60 + 80
= ₹1320 crore

Basis	Depreciation	Depreciation Reserve Fund
Concept	It is the loss of value of fixed assets in use on account of normal wear and tear.	It is a provision of funds created by producer to cope up with depreciation loss.
Effect	It leads to correct computation of profit.	These funds are used for the replacement of fixed assets when these are worn out.
Reason	Expected or foreseen obsolescence, normal wear and tear.	Obsolete/ outdated assets need to be replaced.

OR
(a) Value of Output = Sales + Change in Stock
Value of Output = (iii) + (iv) = 25 + (- 2) = 23
Gross Value Added at MP = Value of Output – Intermediate Consumption
GVA at MP = ₹23 – ₹6 = ₹17
Net Value Added at MP = GVA at MP – Consumption of fixed capital
Consumption of Fixed Capital = Total value of fixed capital/life span = 15/5 = ₹3 lakh
NVA at MP = ₹17 – ₹3 = ₹14

(b) Subsidies by government are grants that decrease the price of a commodity, whereas indirect taxes are paid by a firm and households that increase the final price of a commodity. Hence, to derive Gross Domestic Product at Factor Cost from Gross Domestic Product at Market Price, we deduct indirect taxes and add subsidies. Also subsidies are the income received while indirect taxes are paid.

Question 13.
(a) India has abundant natural resources. Substantiate the statement.
(b) Some infrastructural facilities have a direct impact on production of goods and services while others
give indirect support by building the social sector of the economy. Using the above information,
differentiate between social and economic infrastructure.
Answer:
(a) India has abundant natural resources in the terms of rich quality of soil, hundreds of rivers and tributaries, lush green forests, plenty of mineral deposits, vast stretch of Indian Ocean, ranges of mountains, etc. The black soil of the Deccan Plateau is suitable for cultivation of cotton. The Indo- gangetic 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.

Social Infrastructure	Economic Infrastructure
Social Infrastructure helps the economic system from outside. (i.e, indirectly)	Economic infrastructure helps the economic system from inside, (i.e., directly)
Social infrastructure improves the quality of human resources.	Economic infrastructure improves the quality of economic resources.
Expenditure on it will raise the stock of human capital over time. Social infrastructure leads to economic infrastructure.	Expenditure on it will raise the stock of physical capital over time. Economic infrastructure leads to social infrastructure.
For example: health, education and housing.	For example: energy, transport and communication.