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ICSE Class 10 Economics Question Paper 2012 Solved

Section – I (40 Marks)
(Attempt ALL Questions)

Question 1.
(a) Explain in brief the characteristics of land with respect to its supply and use. [2]
(b) Briefly explain the percentage method of calculating elasticity of demand. [2]
(c) State two differences between labour services provided by a surgeon and a farmer. [2]
(d) State two reasons for consumer exploitation in India. [2]
(e) How does use of money solve the problem of ‘lack of double coincidence of wants ‘that existed under the barter system ? [2]
Answer:
(a) Characteristics of Land :

  1. Land is Limited in Supply: The quantity of land is given limited. Its supply can neither be increased nor be decreased by any human effort. Hence economists remark that land has no supply price.
  2. Land has Multiple Uses : Land is used for variety of purposes like cultivation, dairy farming, sheep-rearing, building playground and so on. As it is demanded for multiple purposes its demand exceeds the supply, boosting its value to a very high level.

(b) Percentage Method of Calculating Elasticity of Demand: According to this method, elasticity of demand (Ed) is measured by the ratio of percentage change in quantity demanded to percentage change in price of the commodity.
ICSE 2012 Economics Question Paper Solved for Class 10 1
Where Q stands for quantity (initial)
P stands for price (initial)
ΔQ stands for change in quantity
ΔP stands for change in price.

(c)

  1. Labour service provided by a surgeon are highly skilled and technical whereas those provided by a farmer may be unskilled or semi-skilled.
  2. The services provided by a surgeon may sometimes be in emergency situations, but that normally does not apply to a farmer.

(d) Reasons for Consumer exploitation in India:

(i) Misleading Advertisements : Consumers become victims of false claims for products blatantly advertised. Misleading, false or deceptive advertisements are quite common in the industry. Misrepresentations, for example, about the quality of a product may lead to a wrong purchase decision by a consumer.
Fictitious bargains are another common form of deception. Many offers are used to hire buyers into believing that they are getting something for nothing or at a nominal value for their money.

(ii) Adulteration: Consumers in many cases are victims of adulteration in food articles.

(e) Lack of Double Coincidence of Wants: ‘Simultaneous fulfilment of mutual wants by buyers and sellers’ is known as double coincidence of wants. There is lack of double coincidence, in the wants of buyers and sellers in barter exchange. The producer of jute may want shoes in exchange for his jute. But he may find it difficult to get a shoemaker who is also willing to exchange his shoes for jute. Thus a seller has to find out a person who wants to buy seller’s goods and at the same time who must have what the seller wants. But in case of money as a medium of exchange, this problem is solved, because money by itself has no utility. It is only an intermediary and thus facilitates exchange with a freedom of choice to buy the wanted things.

ICSE 2012 Economics Question Paper Solved for Class 10

Question 2.
(a) Distinguish between stock of capital goods and capital formation using a suitable example. [2]
(b) State two circumstances under which the demand curve slopes upwards to the right. [2]
(c) How does the Central Bank act as a fiscal agent to the Government ? [2]
(d) A mild inflation is beneficial for economic growth. Justify the statement. [2]
(e) How can taxes be used for promoting economic growth? [2]
Answer:
(a) Difference between Stock of Capital Goods and Capital Formation:
Capital goods are those goods which help in production of more goods and have a long life. They are also known as durable-use producer goods such as machinery, equipments, plants, buildings etc. The accumulated stock of such goods is called stock of capital goods. On the other hand, Capital formation means, increase in physical capital stock of goods in an accounting year. According to Betham, “The amount of wealth a country adds to its capital during a period is known as the capital formation during that period.” Thus, capital formation implies the creation of real assets such as machines, factories, transport equipments, bridges, power projects, dams, irrigation systems, etc.

(b) The demand curve slopes downwards from left to right according to law of demand but there are cases where law of demand does not apply. In such cases, the demand curve slopes upwards to the right. We discuss below two of them.

(i) Articles of Snob Appeal: The law of demand does not apply to the commodities which serve as ‘status symbol’, increase social prestige or are a source of display of wealth and richness. These goods are demanded because of the enjoyment they give to their possessor from the feeling that other people envy him/her for possessing these high-priced items. Rich women would like to buy diamond simply because its price is very high. The higher price makes the possession of diamond more prestigious. When the price of diamond goes up, their prestige value will also go up. Therefore, at higher price the quantity demanded of diamond by rich consumers may increase.
ICSE 2012 Economics Question Paper Solved for Class 10 2

(ii) Emergencies : Law of demand may also not hold good during emergencies like war, famines, etc. At such times, consumers behave in an abnormal way. If they expect shortage of goods, they would buy and hoard goods even at high prices during such periods. On the other hand, during depression they will buy less even at low prices.

(c) Central Bank as a Fiscal Agent: As a fiscal agent, the Central Bank performs the following functions:

  1. It manages the public borrowings for the government.
  2. It collects taxes and other payments on behalf of the government.
  3. It acts as the government agent to enforce foreign exchange control.

(d) Mild degree of inflation has a positive effect on the functioning of an economy. Increase in prices of goods and services generally leads to increase in the profit margin. This provides stimulus to the producers to undertake more investment. As a result, production and employment increases. That is why, it is said that a mild degree of inflation is not only desirable but is necessary for the healthy functioning of an economy. A mild inflation lubricates the wheels of trade and industry. However, galloping and hyper inflation have serious and harmful consequences for the economy.

(e) Use of Taxation for Promoting Economic Growth : Besides its other uses, the taxation policy can also be used in promoting economic development of a country. The revenue collected by the government can be used in promoting development of agriculture, industry and infrastructure such as transport and communication, power generation, etc.

ICSE 2012 Economics Question Paper Solved for Class 10

Question 3.
(a) Classify the following into Fixed capital and Circulating capital:

  1. building
  2. tailors
  3. sewing machines
  4. tailoring accessories. [2]

(b) State two examples of direct tax imposed by the Central Government in India. [2]
(c) What is meant by CRR? Briefly examine its role in credit control. [2]
(d) Using hypothetical data show a market demand schedule. [2]
(e) How does money act as a store of value? [2]
Answer:
(a) By definition, the fixed capital is durable-use producer goods which are used in the production process again and again. On the other hand, the capital (or goods) which are used only once in the production process is known as circulating capital. We classify the given items according to this definition as follows:

  1. Building – fixed capital
  2. Tailors – fixed capital
  3. Sewing Machines – fixed capital
  4. Tailoring accessories – Circulating capital

(b) Direct Tax: A direct tax is the tax whose burden is borne by the same person on whom it has been levied, i.e., its burden cannot be shifted to others. Direct taxes are levied on the income and property of persons. Income tax and corporate (profit) tax are most appropriate examples of direct taxes. Income tax is levied on the incomes of individual persons. Similarly corporate tax which is levied on the profit of a company is paid by the company itself which bears its burden also. Wealth tax, gift tax, interest tax, expenditure tax etc. are other examples of direct taxes,

(c) Cash Reserve Ratio (CRR) : A cash reserve ratio is the fraction of total deposits of the commercial banks which they must keep as cash reserve with the Central Bank. This minimum cash reserve ratio is fixed by the Reserve Bank of India. When the RBI wants to discourage credit or lending by commercial banks, it raises the CRR. With raised CRR, commercial banks have to keep greater proportion of their deposits with RBI and hence their lending power is reduced. On the other hand, when the RBI wants to encourage credit creation, it lowers the CRR.

(d) Market Demand Schedule: Demand schedule is a table, that shows different quantities of a commodity that would be demanded at different prices over a given period of time. It is of two types-Individual demand schedule and market demand schedule.

Market demand schedule is the table which shows various quantities of a commodity demanded by all the consumers at different prices, over a given period of time. It is obtained by adding up the individual demand schedules.
ICSE 2012 Economics Question Paper Solved for Class 10 3

(e) Money as a Store of Value : Money can store value of goods in liquid form. By spending it we can get any commodity in fixture. Holding money is equivalent to keeping a reserve of liquid assets because it can be easily converted into other things. People, therefore, normally wish to keep a part of their wealth in the form of money. This desire is known as liquidity preference. Thus it would seem that value can be stored by hoarding money. Wheat or any other product which will command a value cannot be stored for a long period.

Question 4.
(a) State the difference between redeemable debt and irredeemable debt. [2]
(b) State two ways through which an entrepreneur contributes towards economic development. [2]
(c) How does Proportional tax differ from Progressive tax? [2]
(d) Distinguish between a tax and a subsidy. [2]
(e) Explain two methods of accepting deposits by commercial banks. [2]
Answer:
(a) Redeemable and Irredeemable Debts : Redeemable public debt is the debt that the government promises to pay off at some predetermined fixture date. The government regularly pays interest on this debt. The principal amount is paid back on the expiry of the due date. Therefore, in case of redeemable debt, the government has to make some arrangement for its repayment. Public debts are normally redeemable. On the other hand, irredeemable public debt is that debt the principal amount of which is never returned. The government does not make any promise to pay it off at some future date. However, the government continues to pay interest on it regularly. Such type of public debt is rare.

(b) Entrepreneurs can contribute towards the economic development of a country in the following ways :

  1. Increasing Production : Entrepreneurship results in harnessing the various factors of production such as land, labour, capital and technology to the fullest extent. Entrepreneurs take up production of goods and services for meeting the demand of consumers, import substitution and exports.
  2. Employment Generation: Entrepreneurship creates job opportunities in an economy. When economies are into recession large business units retrench their labour force and workers search for job in small business units.
  3. Innovation : Entrepreneurship results in new technologies and products that displace older methods and products. It results in higher income and wealth.
  4. Increasing Competition : Entrepreneurship results in innovation which leads to the development of new products, services and methods of production. Consequently competition increases in the industry as a whole leading to better products and lower prices.

(c) Proportional Tax : A tax is called proportional when the rate of taxation remains constant as the income of the tax-payer increases. In this tax system, all incomes are taxed at a single uniform rate irrespective of whether tax-payer’s income is high or low. For example, if the rate of income-tax is 10 per cent, every person – will be taxed at the same rate of 10 per cent, whether he earns ₹ 1 lakh per year or ₹ 20 lakh per year.

Progressive Tax: A tax is called progressive when the rate of taxation increases as the tax-payer’s income increases. In this tax system the rate of tax goes on increasing with every increase in income. In other words, lower income is taxed at a lower rate whereas higher income is taxed at a higher rate. For example, income upto ₹ 1 lakh a year may be taxed at a rate of 10 per cent, and income between ₹ 1 lakh and ₹ 2 lakh a year may be taxed at a rate of 20 per cent and so on.

(d) Difference between a Tax and Subsidy :

  1. Taxes increase the price of commodities, whereas subsidies lower their prices.
  2. Taxes reduce the purchasing power of the people, whereas subsidies increase the same.
  3. Taxes increase the burden of the poor people, whereas subsidies provide them a relief.
  4. Taxes feed the inflationary forces whereas subsidies reduce them.

(e) Methods of Accepting Deposits of Commercial Banks:
The primary function of a commercial bank is to accept deposits from people who have surplus funds with them. People deposit money with banks for safekeeping, convenience or to earn interest income. Commercial banks accept deposits in many ways. We discuss below two of them.

(i) Demand Deposits : Deposits in these accounts are payable on demand. These deposits can be withdrawn by the depositor at any time by means of cheques. There is no restriction on the amount and number of withdrawals. These accounts are mostly held by traders, businessmen and industrialists who uso these accounts for making business payments. Banks do not pay any interest on these deposits. Rather, the depositors have to pay something to the bank for the services rendered by it.

(ii) Savings Deposits : These deposits are also payable on demand and money can be withdrawn by cheques. However, the bank imposes a limit on the amount and number of withdrawals during a particular period. For example, a bank may allow its saving depositors only five cheques a month. These accounts are normally held by households who have idle cash for a short period. Saving accounts earn interest at nominal rates.

Section – II (40 Marks)
(Attempt any FOUR Questions)

Question 5.
(a) Discuss five characteristics of Capital as a factor of production. [5]
(b) State the Law of demand. Briefly explain any three determinants for the negative slope of the demand curve. [5]
Answer:
(a) Characteristics of Capital as a Factor of Production :

  1. Passive Factor of Production : Like land, capital is also a passive factor of production. It cannot produce on its own. It becomes effective only when it is used by ‘labour’.
  2. Man-made : Capital is man-made. It is the result of savings made by man. Capital items are generated when, human labour is applied to natural resources. Thus, its supply is increased or decreased by the efforts of man.
  3. Mobility : It has the highest mobility amongst all the factors of production. It has both- place as well as occupational mobility, i.e., it is easily transferable from one place to another and also from one occupation to another. On the other hand, land is immobile, while labour has low mobility.
  4. Elastic Supply : The supply of capital is elastic and can be adjusted easily and quickly according to demand. On the other hand, the supply of land is fixed and supply of labour can be increased or decreased easily and quickly.
  5. Depreciation : Capital like plant and machinery, gradually depreciates over a period of time and requires repairs and replacement. Producers maintain a depreciation fund for this purpose.
  6. Productive : Capital adds value in the production process. Production can be increased or decreased to a large extent if workers work with capital.
  7. Involves Cost: Like land, capital is not a free gift of nature. Production of capital involves cost. Capital formation is possible only when present consumption is sacrificed.

ICSE 2012 Economics Question Paper Solved for Class 10

(b) Law of Demand : Law of demand expresses the functional relationship between price of the commodity and the quantity of the commodity demanded. It states that:
Other things‘ being equal (CETERIS PARIBUS,), if the price of the commodity falls the quantity demanded for it rises and if price rises, quantity demanded for it falls.
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Thus there is an inverse relationship between price of a commodity and its quantity demanded. Law of demand indicates only the direction of change and not the magnitude of change in demand, in response of change in price.

Price of Wheat(₹ per kg) Quantity (kg.)
30 5
25 10
20 15

Determinants for the Negative Slope of the Demand Curve : Demand curve slopes downward to the right because of an inverse relationship between price and quantity demanded of a commodity. This inverse relation is due to the following factors :

(i) Income Effect: Price effect can be divided into two parts-income effect and substitution effect. Change in demand due to change in consumer’s real income resulting from change in price of a commodity, is known as income effect. When the price of a commodity falls, automatically the real income of the consumers increases. This increased purchasing power can be used to buy more of that commodity.

(ii) Substitution Effect : Change in demand for a commodity due to change in relative price of its substitutes, is known as substitution effect. When the price of a commodity rises, automatically the relative price of its substitutes becomes cheaper. Thus consumers prefer to buy more quantity of its substitutes such that demand for that commodity declines.

(iii) Law of Diminishing Marginal Utility: Utility is the satisfaction a consumer gets from the consumptions of a commodity. According to the Law of diminishing marginal utility, with the consumption of every additional unit of a commodity, the marginal utility derived from it declines, a rational consumer would prefer to buy this additional unit only at a lower price. This causes an inverse relation between price and demand.

(iv) Several uses of a Commodity : Certain goods such as coal, milk, steel, electricity etc. have composite demand. When their prices rise, they are used only for more important uses. But when their prices fall, they can be put to various uses and hence their demand rises.

(v) Change in number of Consumers: When the price of a commodity falls, new consumers who could not afford this commodity earlier, can now buy it. Hence due to these additional consumers with fall in price quantity demanded rises.

Question 6.
(a) Define Inflation. Explain any two fiscal measures and two monetary measures to control it. [5]
(b) Distinguish between the following
(i) Extension and Increase in demand.
(ii) Normal goods and Inferior goods. [5]
Answer:
(a) Inflation : Inflation is defined as a process of persistent and appreciable increase in the overall price level. Its main features are as follows:

  1. Persistent price rise.
  2. Increase in overall price level.
  3. Appreciable or considerable rise in prices.
  4. expressed in terms of inflation rate.

Measures to Control Inflation : It is very necessary to control inflation before it assumes a serious proportion and threatens the very existence of the economic and socio-political life of the country. Various measures to control inflation are as follows:

(i) Monetary Measures: Monetary policy is the policy of the Central Bank to regulate the availability, cost and use of money and credit. In order to control demand-pull inflation, it is essential to adopt restrictive monetary policy. Restrictive monetary policy implies, reducing the supply of money and availability of credit. The Central Bank may adopt quantitative and qualitative measures to implement its anti-inflationary restrictive monetary policy. Quantitative measures such as open market operations, cash reserve ratio, statutory liquidity ratio and bank rate, influence the supply of money, availability of bank credit and its cost, i.e., interest rate.

Selective credit control measures aim at influencing the purpose for which bank credit is made available and thereby affect the direction of bank credit. For example, the Central Bank can sell government securities in the open market and thus reduce the excess purchasing power in the market.

(ii) Fiscal Measures : Fiscal policy is the policy of the government related to its revenue and expenditure. Contractionary fiscal policy is used to control demand- pull inflation. Contractionary fiscal policy implies reducing government expenditure and increasing government revenue. It can be implemented through the tools of public expenditure, taxation and public borrowing in the following ways:

(a) Reduction in public expenditure : Public expenditure is an important component of aggregate demand. Steps should be taken to reduce unproductive and non- developmental government expenditure which does not increase the productive capacity of the economy.
For example, expenditure on defence should be reduced. Such expenditure only increases the purchasing power in the hands of people without any corresponding increase in output.

(b) Increase in taxes: Increased direct taxes such as income tax, corporate tax, wealth tax, etc. reduce the disposable income of the tax-payers and hence their consumption expenditure. Increased indirect taxes such as sales tax, excise duty, etc. also reduce the aggregate demand by making die goods costlier. Also, the government should penalise the tax-evaders by imposing heavy fine.

(c) Public borrowings : Through public borrowings, the government takes away the excess purchasing power from public. This reduces aggregate demand and hence price level. Also, public borrowing enables the government to meet its expenditure and thereby reduce the need for deficit financing.

(b) (i) Difference between Extension and increase in Demand:

(a) Meaning : Extension of demand refers to the situation when quantity demanded of a commodity rises due to fall in its price, other things remaining the same. Increase in demand refers to the situation when there is more of demand at the same price or the same demand at a higher price.

(b) Cause : Extension of demand takes place due to fall in price. Increase in demand takes place due to change in factors other than price, such as increase in consumer’s income, rise in price of substitute commodity, fall in price of complimentary commodity, change in taste in favour of that commodity, increase in number of consumers or when price rise is expected in near future.

(c) Demand Curve: Extension of demand is shown through a downward movement along the same demand curve.
ICSE 2012 Economics Question Paper Solved for Class 10 5
Increase in demand is shown through a rightward or upward shift of the demand curve.
ICSE 2012 Economics Question Paper Solved for Class 10 6

(ii) Difference between Normal Goods and Inferior Goods : On the basis of nature, goods can be classified into two types:
(a) Normal Goods (Superior Goods).
(b) Inferior Goods.

(a) Normal Goods refer to those goods whose income effect is positive – i.e., all other factors remaining the same, as income increases, demand also increases and vice-versa. For example, cheese, butter, chocolates, biscuits, etc.
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The above demand curve shows change in demand due to increase in income, keeping other factors unchanged, for normal goods. When income of a consumer increases, his/her demand curve shifts to the right from D0 to D1 for normal goods.

(b) Inferior goods refer to those goods whose income effect is negative – i.e., all other factors remaining the same, as income increases, demand decreases and vice-versa. For example, some cheap shoes, coarse cloth, leftover food etc.

If the demand for a good rises when income falls, the good is called an inferior good. An example of an inferior good might be bus rides. As your income falls, you are less likely to buy a car or take a cab and more likely to ride the bus. If income increases the demand for inferior goods decreases.
ICSE 2012 Economics Question Paper Solved for Class 10 8
The above graph shows the effect of increase in income on demand of inferior goods, assuming other factors unchanged. Consumption of the inferior good decreases from D0 to D1 due to increase in income of a consumer.

The reason for the fall in the demand for inferior goods due to increase in income is that previously the consumer was not able to afford superior goods. When the income of consumer rises, he/she shifts from inferior to superior goods. As a result, demand for inferior goods falls.

ICSE 2012 Economics Question Paper Solved for Class 10

Question 7.
(a) With respect to division of labour state the following :
(i) An example each of vertical and horizontal division of labour.
(ii) Two advantages to the producer.
(iii) Two disadvantages to the worker. [5]
(b) Discuss five causes of the low rate of capital formation in India. [5]
Answer:
(a) Division of Labour :

(i) Horizontal and Vertical division of labour :
They are forms of process-based division of labour. In Horizontal division of labour, the production process is so organised that the different parts of the process can run simultaneously. For example, in case of automobiles, different parts are manufactured simultaneously and then assembled together at the end. In Vertical division of labour, the production process is so organised that there are successive stages in the production of a commodity. For example, in cotton textile industries, raw cotton is first transformed into yarn by spinning. Only then can the yam be woven into cloth. Thus, weaving depends upon spinning and dying depends upon weaving.

(ii) Advantages to the Producer :

  1. Increase in labour efficiency: Division of labour permits worker to repeat the same task again and
    again. This gives him specialisation, proficiency and perfection in that task. This makes him expert in the job and improves his efficiency in terms of quantity, quality and time.
  2. Saving of time : As the worker is required to carry out only one type of job, he is not required to move frequently from one job to another. Also he need not to change the tool or machine now and then. This saves time and increases output.
  3. Economies of large scale production: Division of labour facilitates economics of large scale production, both internal and external. This results in higher profits for the producers as well as reasonable prices.

(iii) Disadvantages to the Worker :

1. Monotony of work : Under the division of labour, the worker is required to perform the same type of job again and again. The job becomes monotonous and the worker gradually loses interest in it. Work causes a kind of mental fatigue, which in turn deteriorates the work quality.

2. Lack of mobility : A worker is trained only in a particular part of total work. Thus, he cannot easily shift to other jobs and when employed, he may find difficulty in finding the same job in another factory.

3. Retards development of personality : Since the worker does the same type of job over and over again, either by using his hands or legs or both, his muscles and mind remain active only in that particular direction repeatedly. This hampers his mental and physical development in other directions. His outlook becomes narrow and it retards his overall personality development.

4. Lack of skill, craftsmanship and creativity : As the worker is required to perform only a part of total work, he does not get a chance to show his creativity and craftsmanship. For example, a worker in a shoe factory knows either making of sole or simple finishing the job of the shoe.

(b) Causes of Low Rate of Capital Formation in India : It is true that the rate of capital formation in India has increased during the plan period. Yet this rate is very low as compared to advanced countries such as USA, Japan, UK, etc., where it ranges from 30 to 35%. Important reasons for lower rate of capital formation are as follows:

(i) Low Saving Ability : People of India possess all the factors which motivate the ‘will’ and ‘desire’ to save such as old age considerations, family affection, social and political influence. But their ability to save is low. This is because of low per capita income. Per capita income is low because of low productivity-both in the agriculture and industrial sectors and rising population.

(ii) Agriculture Economy: Majority of people in India are agriculturists who follow old methods and have uneconomic agricultural holdings. These factors leave very little or no surplus with them.

(iii) Habit of Hoarding: Most of the illiterate people are in the habit of hoarding their savings in their houses. Such savings are of no use as far as capital formation is concerned as these hoardings are not put to any productive purpose.

(iv) Demographic Reasons : The growth rate of population is very high in India which keeps the rate of capital formation at a low level. Most part of income is spent on bringing up the new family members. Thus, there is little scope for saving.

(v) Failures of Public Sector: Most of the public sector enterprises have been running into losses. This has adversely affected the level of investment.

(vi) Inflation : Due to inflationary trend, middle class finds it very difficult to save and thus is contributing very little to capital formation.

(vii) Inadequate Investment Channels : The banking and financial facilities are inadequate in India. Even though after nationalisation, a large number of branches of nationalised banks have been opened in remote areas and villages, still a very wide gap exists.

(viii) Insecurity : The law and order condition in many parts of the country is not normal. There is no adequate security of life and property in some of the regions and this has discouraged the opening of new industries and investment in those areas.

Question 8.
(a) Discuss the Junctions of the Central Bank as a ‘Banker to Banks ’and ‘Banker to the Government ’. [5]
(b) Differentiate between the following:
(i) Limited legal tender and Unlimited legal tender.
(ii) Standard money and Bank money. [5]
Answer:
(a) Functions of the Central Bank :

(i) As ‘Banker to Banks’: There are usually hundreds of banks in a country. There should be some agency to regulate and supervise their proper functioning. This duty is discharged by the Central Bank. Central Bank acts as Banker’s Bank in three capacities :

  1. it is custodian of their cash resources. Banks of the country are required to keep a certain percentage of their deposits with the Central Bank and in this way the Central Bank is the ultimate holder of the cash reserves of commercial banks,
  2. Central Bank is lender of last resort. Whenever banks are short of funds, they can’ take loans from the Central Bank. Thus Central Bank is a source of great strength to the banking system.
  3. It acts as a bank of central clearance, settlements and transfers. Its moral persuasion is usually very effective, so far as commercial banks are concerned.

(ii) As ‘Banker to Government’: Central Bank functions as a banker to the government – both central and state governments. It carries out all banking business of the government. Government keeps their cash balances in the current account with the Central Bank. Similarly Central Bank accepts receipts and makes payment on behalf of the governments. Also Central Bank carries out exchange, remittance and other banking operations on behalf of the government. Central Bank gives loans and advances to governments for temporary periods, as and when necessary, and it also manages the public debt of the country.

(b) (i) Difference between Limited and Unlimited Legal Tender: According to the legal definition of money, “money is what the law says it is.” Anything will be called money if the law proclaims it money. It will have general acceptability. Thus it is a legal tender money since it has legal sanction by the government as a medium of exchange.

On the basis of legal recognition, money is of two kinds,

  1. Legal tender money, and
  2. Optional money (or non-legal money).

Legal Tender Money: It means money under law of land. It is money issued by monetary authority or the government which cannot be refused by any person in payment for transactions. Everybody is bound to accept it in exchange for goods and services and in discharge of debts. Currency (coins and notes) is legal tender money which cannot be refused in payment for transactions. Currency is also called Fixed Money because it serves as money on the fiat (order) of the government. (But demand deposit of commercial Banks is not legal tender because its acceptance is optional.) The legal tender status given by the government to money may be limited or unlimited.

  • Limited legal tender is that money which no person can be forced to accept beyond a certain maximum limit fixed by law. For instance in India coins of 5,10,20 and 25 paise can be accepted upto maximum sum of ₹ 25. One can refuse payments in these small coins beyond a sum ₹ 25.
  • Unlimited legal tender is the money which a person has to accept up to any limit. There is no limit to quantity of money offered in payment. For example in India, all currency notes and coins of one rupee are unlimited legal tender money.

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(ii) Difference between Standard Money and Bank Money : Modem money can be classified into two broad categories:
1. Standard money
2. Bank money.

1. Standard money : It consists of Paper notes and coins. Paper notes and coins are together called currency. Coins refer to the metallic money and paper money refers to the currency notes.

2. Bank money: Bank money refers to bank deposits which can be withdrawn by means of bank cheques and bank drafts. Cheques and bank drafts are widely accepted these days because they are easy to use for large transactions and are relatively safe. Chequable bank deposits and bank drafts are not legal tender. A person can legally refuse to accept payment through cheques and can insist on cash payment. This is because there is no guarantee that a cheque will be honoured by the bank in case of insufficient deposit with it.

Main points of Difference:

  1. Standard money consists of coins and currency notes while bank money consists of cheques, bank drafts and credit cards.
  2. Standard money is legal tender money while bank money is optional.
  3. Standard money is issued by the Central Bank of the country while bank money is issued by the commercial banks.

Question 9.
(a) Using graphs distinguish between change in supply and change in
(b) Briefly explain any five rights stated in the Consumer Protection Act.
Answer:
(a) Distinguish between Change in Supply and Change in Quantity Supplied:

1. Shift in the supply curve (or change in supply) : If more or less quantity of a commodity is supplied at every alternative price due to changes in factors other than the price of the commodity concerned, it is known as shift in the supply curve or change in supply. In this situation, supply curve itself shifts either to right or to the left. Rightward shift to supply curve indicates increase in supply, while leftward shift indicates, decrease in supply.
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2. Movement along a supply curve (or change in quantity supplied): Other things being equal, if the quantity supplied increases or decreases due to rise or fall in the prices of the commodity alone, it is known as movement along a supply curve or change in quantity supplied. In this, we move along the same supply curve either upwards or downwards. Upward movement along the supply curve is extension of supply (that is, more quantity supplied at a higher prices) while the downward movement is contraction of supply (that is, less quantity supplied at a lower prices).
ICSE 2012 Economics Question Paper Solved for Class 10 10
Thus, change in quantity supplied is caused by a change in the commodity’s own price. In this situation, supply curve remains the same. On the other hand, a change in supply is caused by a change in something other than the commodity’s own price. A shift in the supply curve may be caused by change in the prices of other goods, change in the prices of factory of production, change in technique of production or change in the goals of the producer.

(b) Consumer Protection Act : The Consumer Protection Act provides for six rights of consumers. The consumer protection councils set up under the Act are intended to promote and protect the various rights of consumers. These rights include the following:

1. Right to Safety : The consumer has a right to be protected against goods and services which are hazardous to life and health. For instance, electrical appliances which are manufactured with substandard products or do not conform to the safety norms might cause serious injury. Thus, consumers are educated that they should use electrical appliances which are 1ST marked as this would be an assurance of such products meeting quality specifications.

2. Right to be Informed : The consumer has a right to have complete information about the product he intends to buy including its ingredients, price, quantity, directions for use etc. It is because of this reason that the legal frame work in India requires the manufacturers to provide such information on the package and label of the product.

3. Right to Choose : The consumer has the freedom to choose from a variety of products at competitive prices. This implies that the marketers should offer a wide variety of products in terms of quality, brand, prices, size, etc. and allow the consumer to make a choice from amongst these.

4. Right to be Heard : The consumer has a right to file a complaint and to be heard in case of dissatisfaction with a good or a service. It is because of this reason that many enlightened business firms have set up their own consumer service and grievance cells.

5. Right to seek Redressal : The consumer has a right to get relief in case the product or service falls short of his expectations. The Consumer Protection Act provides a number of reliefs to the consumers including replacement of the product, removal of defect in the product compensation paid for any loss or injury suffered by the consumer, etc.

6. Right to Consumer Education: The Consumer has a right to acquire knowledge and to be a well informed consumer throughout life. He should be aware about his rights and the reliefs available to him in case of a product or service falling short of his expectations. The Consumer Protection Act by conferring these rights on the consumers empowers them to fight against any unscrupulous, exploitative and unfair trade practices adopted by sellers.

Question 10.
(a) Discuss the Reason for the Growth of Public Expenditure in India. [5]
(b) Explain three merits and two demerits of indirect taxes.
Answer:
(a) Reasons for the Growth of Public Expenditure in India:

(i) Defence : An important factor responsible for increase in public expenditure is the large defence expenditure. The political situation all over the world is uncertain and insecure. The arms race between countries and development of sophisticated armaments and nuclear weapons have resulted in massive defence expenditure. In India, the defence expenditure has increased substantially in view of continued aggression by Pakistan and the urgency of national security.

(ii) Population Growth : Another factor responsible for the increase in public expenditure is the growth in population. In India the population has increased at an alarming rate. Growth in population on this scale has increased the demand for various government services like education, public health, transport, administration and maintenance of law and order. It has also increased the demand for various developmental activities of the government.

(iii) Urbanisation : The spread of urbanisation is another factor for the increase in public expenditure. Urbanisation calls for greater public expenditure on various economic, social, civil and administrative services. With more people concentrating in the cities, law and order machinery like police and judiciary has to be strengthened, more of public health services have to be provided, educational facilities have to be expanded, transport and communication system has to be improved and housing facilities have to be provided. All these activities involve heavy expenditure.

(iv) Expansion of Administrative Machinery : There has been a large expansion in the administrative machinery in the country since independence. This has resulted in increase in government expenditure. Moreover, expenditure on administration has increased sharply due to revision of pay scales of the government employees.

(v) Activities of a Welfare State : A welfare state is one which provides various social security schemes for the welfare of its citizens. In view of this, the modem governments have to incur large expenditure on various social security and welfare measures, such as old age pensions, unemployment allowances, sickness benefits, etc. The government is also required to undertake many other welfare functions like education, public health, etc.

(vi) Development Functions : The most important factor in developing countries like India that has led to a spectacular increase in public expenditure is the developmental functions undertaken by the governments. The government has to spend a huge amount for the development of the rural sector. It has to undertake large amount of investment in promoting industrial development. The government is also required to spend heavily on the development of transport and communications to cater to the needs of economics development. All these development activities of the government have resulted in a phenomenal increase in public expenditure.

(vii) Building up Infrastructural Base : Public expenditure in the country has increased also because of the need of building up strong infrastructural base. The government has to spend heavily in the expansion of economic and social infrastructural facilities like transport arid communications, power generation, irrigation projects, banking facilities, education institutions, etc.

(viii) Maintaining Economic Stability : Maintenance of economic stability has called for large expenditure by the government. The government is undertaking social security and welfare schemes on a permanent and comprehensive basis, requiring large government expenditure partly with the objective of maintaining economic stability. In particular, the government has to incur a huge expenditure during the period of recession or depression so as to overcome such situations of low level of economic activity.

(ix) Servicing of Public Debt: The government in India has been borrowing heavily from within the country and from abroad to finance its development plans. This has created a large burden of interest payments, leading to a high increase in public expenditure.

(b) Merits of Indirect Taxes : The important advantages of indirect taxes are as follows:

  1. Convenience: Indirect taxes have the great merit of convenience. They are paid in small amounts and at intervals instead of one lumpsum amount. Moreover, the amount of tax is included in the price of the commodity, and hence, the burden of these taxes is not felt very much by the tax-payers.
  2. Elastic : Indirect taxes can be made elastic and productive, particularly when they are imposed on essential goods and services like edible oils, flour, sugar, etc. whose demand is inelastic. The government can get adequate tax revenue by increasing the tax rate on these commodities.
  3. Less Chances of Tax-evasion : Another merit of indirect taxes is that with proper administration, the chances of tax-evasion in their case are less. They are difficult to be evaded as they are included in the price of the commodity.
  4. Wide Coverage : Indirect taxes can be imposed on a large variety of goods so that most of the persons contribute something to the revenue of the government. Hence, indirect taxes help in making the tax system broad-based.
  5. Equity : Indirect taxes can be made equitable by imposing heavy taxes on luxury goods consumed by the wealthy consumers and low taxes on the essential commodities.

ICSE 2012 Economics Question Paper Solved for Class 10

Demerits of Indirect Taxes: Following are the important disadvantages of indirect taxes:

  1. Regressive and Unjust : The main drawback of indirect taxes is that they are regressive and, therefore, unjust. Indirect taxes are generally imposed on the consumption of goods. They are indiscriminately in the sense that poor people have to pay as much as rich people.
  2. Inflationary Impacts : Another weakness of indirect taxes is that they feed inflationary forces. The imposition of an indirect tax on a commodity increases its price. This may lead to rise in the cost of living as a result of which trade unions demand higher wages to maintain the real income of the workers.
  3. Uneconomical: The administrative cost of collecting indirect taxes is generally heavy because they have to be collected from a large number of persons.
  4. Uncertainty : The revenue from indirect taxes cannot be estimated accurately. An indirect tax on a commodity leads to rise in the market price of the commodity. Consequently, its demand falls, but it is difficult to know the extent to which the demand for the commodity will fall as a result of imposition of tax. Thus, there is always an element of uncertainty of revenue from the indirect taxes.