Solving ICSE Class 10 Economic Applications Previous Year Question Papers ICSE Class 10 Economic Applications Question Paper 2022 Semester 2 is the best way to boost your preparation for the board exams.
ICSE Class 10 Economic Applications Question Paper 2022 Solved Semester 2
Time : 1 1/2 hour
Maximum Marks: 50
General Instructions :
- Answers to this Paper must be written on the paper provided separately.
- You will not be allowed to write during the first 10 minutes.
- This time is to be spent in reading the question paper.
- The time given at the head of this Paper is the time allowed for writing the answers.
- Attempt all questions from Section A and any four questions from Section B.
- The marks intended for questions are given in brackets [ ].
Section – A
(Attempt all questions)
Question 1.
Choose the correct answers to the questions from the given options. (Do not copy the question. Write the correct answer only.) [10]
(i) Which of these is the primary function of money?
(a) Store of value
(b) Standard of deferred payment
(c) Measure of value
(d) Transfer of value
Answer:
(c) Measure of value
Explanation :
Measurement of value of a commodity is the primary function of money.
(ii) Overdraft facility is usually availed by:
(a) Savings deposit holders
(b) Current account holders
(c) Fixed deposit holders
(d) Recurring deposit holders
Answer:
(b) Current account holders
Explanation :
Overdraft facility is generally provided to the current account holders.
(iii) “A policy under which the government uses its expenditure and revenue programmes to produce desirable effect and avoid undesirable effects on the national income production and employment” – This defines’.
(a) Monetary Policy
(b) Wage Policy
(c) Price Policy
(d) Fiscal Policy
Answer:
(d) Fiscal policy
Explanation:
Fiscal policy refers to the revenue and expenditure policy of the government to carry out her responsibilities.
(iv) Identify the tax which is most likely to foster civic consciousness:
(a) Property tax
(b) Entertainment tax
(c) Goods and Services tax
(d) Customs duty
Answer:
(a) Property tax
Explanation :
Property tax is a direct tax and direct taxes are considered to develop civic sense among the taxpayers.
(v) When money is used to settle debts or make payment in future, it is said to perform the function of:
(a) Standard of deferred payment
(b) Medium of exchange
(c) Transfer of value
(d) Store of value
Answer:
(a) Standard of deferred payments
Explanation :
When money is used to settle debts or make payments in future, it is said to perform the function of Standard of deferred payments.
(vi) Which of the following sections of the society is most adversely affected by inflation?
(a) Government
(b) Producers
(c) High income group
(d) Fixed income groups
Answer:
(d) Fixed income groups
Explanation :
Fixed income group people are the most adversely affected group in the case of inflation because their real income or the purchasing power gets eroded due to inflation.
(vii) Which of these are known as term/ time deposits?
(a) Fixed deposits and current accounts
(b) Current account and savings account
(c) Recurring deposits and fixed deposits
(d) Recurring deposits and savings account
Answer:
(c) Recurring deposits and fixed deposits
Explanation :
Recurring deposits and fixed deposits are considered to be term/ time deposits.
(viii) Purchasing power of money falls when:
(a) Prices decrease
(b) Prices increase
(c) Income increases
(d) Supply of money falls
Answer:
(A) Prices increase
Explanation :
Purchasing power of money falls when the prices increase. Sustained rise in prices is known as inflation.
(ix) The following table indicates:
| Tax Base in | Rate of tax in % |
| 10,000 | 8 |
| 20,000 | 8 |
| 30,000 | 8 |
| 40,000 | 8 |
(a) Progressive taxation
(b) Regressive taxation
(c) Proportional taxation
(d) Degressive taxation
Answer:
(c) Proportional taxation
Explanation :
Taxes in which the rate of tax remains constant, though the tax base changes, are called proportional taxes.
(x) Which of these banks formulates the credit control tools?
(a) Canara Bank
(b) Industrial Development Bank of India
(c) State Bank of India
(d) Reserve Bank of India
Answer:
(d) Reserve Bank of India
Explanation :
Reserve Bank of India is the Central Bank of the country which formulates the credit control policies.
Section – B
(Attempt any four questions from this Section)
Question 2.
(i) Why do producers gain in the short run during inflation? [2]
Answer:
During inflation, the producers and businessmen gain in the short-period. This happens because the cost of production, generally, does not match the pace with the rise in the price of the product during inflationary period. So, the producers earn an artificial margin of profit in the short period.
(ii) Give two reasons why the Government imposes tax. [2]
Answer:
Following are the two reasons of why government imposes taxes:
- Government carries out many types of welfare activities for which it has to incur huge expenditure. The government raises fund through taxes for such expenditure.
- There are many types of goods and services which are not desirable from the social point of view such as liquor, cigarettes, gambling etc. The government intends to discourage the consumption of such goods and services by imposing huge tax on them.
(iii) Explain the transfer of value function of money. [3]
Answer:
Money also acts as a means to transfer of value. As the money has the quality of general acceptability as a medium of exchange, it can be used in any purpose and at any place. Hence, value can be transferred from one person to another with the help of money. For example, when we pay the price of any commodity to its seller, we transfer the value to the seller.
Similarly, money is a quick and efficient means of transferring value from one place to another. For example, when we pay to online sellers from Chennai for any good or service, wre transfer the value from one place to another place. Similarly, money can be transferred from one use to another. Suppose a businessman has kept some fund for buying raw material but his machine breaks down. He may use that money for the repairing of the machine.
(iv) Explain how banks can advance loans through cash credit. [3]
Answer:
Cash credit is a loan arrangement in which a bank advances a ‘cash loan’ up to a specified limit to the customer against some security. The borrower needs to open a current account and the bank allows the borrower,to withdraw up to the full amount of the loan. The interest is chaiged only on the amount actually utilised by the borrower and not on the loan sanctioned. The bank takes into consideration the credit score of the borrower before extending cash credit to him.
Question 3.
(i) Define privatisation. [2]
Answer:
Privatisation also known as disinvestment. It refers to the process of transferring the ownership of a public sector or government enterprise to the private individual or enterprise by the way of sale of shares or the asset.
(ii) State one important difference between fiscal and monetary policy. [2]
Answer:
The most important difference between the fiscal policy and monetary policy is that the fiscal policy are exercised by the government directly while the monetary policy is exercised by a country’s Central Bank on behalf of the government.
(iii) Explain how indirect taxes can be inflationary. [3]
Answer:
Indirect taxes tend to be highly inflationary. The imposition of indirect taxes on commodities increases their market price, this further tends to raise the cost of living, which leads to demand for rise in the wages of the workers. This increase in the cost of production compels the producer to raise the prices in the market. Thus indirect taxes generate a spiral of higher price, higher costs, higher wages and again higher price.
(iv) Why is the Central Bank called the ‘lender of the last resort”? [3]
Answer:
The Central Bank is the apex bank of the country. Alongwith being the banker to the bankers, the Central Bank also acts as the lender of the last resort for the banks. Hence, the Central Bank provides financial help to the Commercial Banks in times of emergency.
This financial emergency may emerge when due to shortage of funds with the commercial bank it is not able to arrange funds from other sources. Under such circumstances, the ‘Central Bank’ either grants loan or purchases the securities of that commercial bank to help it out. Thus, the ‘Central Bank’ of the country acts as a ‘lender of the last resort’ for the commercial banks.
Question 4.
(i) State any two differences between current deposits and fixed deposits. [2]
Answer:
Following are the differences between current deposit and fixed deposit:
| Current Deposit | Fixed Deposit |
| 1. There is no fixed period of deposit on this account. | 1. The deposit in this account is made for a fixed period. |
| 2. The bank does not give any interest on this account. | 2. The bank provides highest interest on this account. |
(ii) What is the impact of an increase in Cash Reserve Ratio on loanable funds? [2]
Answer:
Cash Reserve Ratio refers to a certain percentage of the total deposits of a commercial bank which it has to keep as reserve with the Central Bank. All the commercial banks have to maintain statutory cash reserve with the Central Bank.
The loanable capacity of a commercial bank gets reduced by the amount of cash reserve ratio. By increasing the cash reserve ratio, the excess reserve of the commercial bank is reduced which restricts the credit granting capacity of the commercial bank.
(iii) What do you understand by shifting of tax burden? Under which type of tax is this possible? [3]
Answer:
Shifting of tax burden refers to the transferring of final burden of paying the tax on someone else. It means that shifting of the tax burden involves impact of the tax on one person but the incidence of the tax on someone else. Under indirect tax system such as Goods and Services Tax, the shifting of tax burden can takes place.
For example, when a customer buys some commodity from a seller, the seller has to pay GST. The impact of GST is upon the seller of goods. But the seller does not pay the amount of the tax from his own pocket. He easily shifts the tax on to the customer, therefore, the incidence is upon the ultimate consumer.
(iv) What is creeping inflation? Explain its impact on the economy. [3]
Answer:
Creeping inflation occurs when there is a sustained rise in prices at a mild rate over a period of time, say around 2 to 3 percent per year. It is also known as ‘mild inflation’. This type of inflation is not much of a problem. This rate of inflation is considered to be conducive to economic progress and growth as it provides a kind of motivation to producers to expand their production which helps in creating the employment and raising the income further. In this form the prices rise gradually over a long period.
Question 5.
(i) Explain how Public Sector Enterprises can remove regional imbalance. [2]
Answer:
One of the objectives of establishing public sector undertakings was to remove the regional disparities. While some of the regions in India are highly developed, others are still backward. Private entrepreneurs are not generally interested in establishing industries in the backward regions as they are guided by profit motive and not by any societal motive. The public undertakings are therefore set up in the backward regions to have balanced development of the country.
(ii) Identify the following Credit Control measures undertaken by the Central Bank during inflation: [2]
(a) The Central Bank sells government approved securities to the public.
(b) The Central Bank increases the rate at which it lends to the Commercial bank.
Answer:
(a) This refers to the Open Market Operations of the Central Bank. Open market Operations involve the purchases or sale of government securities in an open market by the Central Bank for credit control.
(b) This action refers to the Bank Rate. The bank rate is the rate at which the Central Bank gives loans to the commercial banks or re-discounts the approved bills of exchange and securities held by the commercial banks.
(iii) What are progressive and regressive taxation? Which one is better and why? [3]
Answer:
Progressive tax refers to a tax system in which the rate of tax increases with the rise in tax payer’s income. Thus, in a progressive tax, the amount of tax will increase at a higher rate than the increase in tax base or income while the regressive tax refers to a tax system in which the rate of tax decreases as the payer’s income rise.
Progressive tax system is a better system because it is equitable, as a larger part of tax is on higher incomes. It is just as the law of diminishing marginal utility operates in the case of money. Hence, the disutility of paying a high tax by rich is not as much as that of poor in paying even a low tax.
(iv) Mention three arguments against privatisation. [3]
Answer:
Following are the three arguments against privatisation:
- Public sector was established by the government with the objective of the general welfare. The private sector operates with the sole objective of profits and not general welfare.
- Privatisation increases the economic inequality in the society. Privatisation creates big business conglomerates in the society which may spoil the businesses of small firms. This encourages economic concentration.
- The social resources are utilised for the personal wealth creation and for this purpose they resort to false reporting which is harmful for the economy.
Question 6.
(i) Who normally keep their deposits in the Central bank? [2]
Answer:
The Central Bank acts as the banker to the government and the commercial banks of the country. As a banker to the government, the Central Bank makes and receives payments on behalf of the government and provides loans to the government. Similarly, as banker’s bank, the Central Bank accepts the reserves from the banks and provides loans to them in case of need.
(ii) State two drawbacks of direct taxes. [2]
Answer:
Following are the two drawbacks of direct taxes:
- Inconvenient: The greatest drawback of direct taxes is that they put the tax-payer to a lot of botheration and inconvenience. For example, the taxpayers have to maintain elaborate accounts for the enumeration of tax liability.
- Disincentive: Direct taxes reduce the desire to work and save. As a part of hard earned income is taken away by the tax authorities without any corresponding benefits, it discourages the people to go on higher levels of income.
(iii) Mention any three features of a savings bank account. [3]
Answer:
Following are the three features of savings bank account:
- This account provides the features of both the current account and the fixed deposit account. For example, it provides the withdrawal facility as available in current account and also provides the interest on deposits as is available with fixed deposit account.
- This kind of account is opened by banks with the objective of collecting small savings from the people and households. Commercial organisations are not allowed to open this account.
- The cheque facility is also available with this account.
(iv) Name the three types of Public Sector in India. |3]
Answer:
Following are the three types of public sector in India:
1. Departmental undertaking:
This type of public enterprises is formed as a department under some ministry of the government. It is generally formed to provide some essential goods or services to the public. Examples of departmental undertakings are Indian railways, postal department etc.
2. Statutory corporation:
Also known as public corporation, such kind of corporations are formed by the special acts passed by Parliament or assemblies. Examples of such organisations are Life Insurance Corporation of India, State Trading Corporation etc.
3. Government companies:
Government Company refers to an organisation registered under the Companies Act. The majority shares, i.e., 51 percent or more of the total shares are owned by the government.
Question 7.
(i) Why is money called legal tender? [2]
Answer:
A currency is considered to be a legal tender when it receives the government recognition and approval to be accepted as a medium of exchange in expediting the sale, purchase and debt transactions.
(ii) An indirect tax can be made progressive by imposing higher tax rates on luxuries. Justify the above statement. [2]
Answer:
The statement is absolutely true. The higher indirect tax such as Goods and Services Tax can be imposed on the luxury goods. It acts as progressive tax because the marginal utility of money for the rich people is very low in comparison to that of the low income people. Hence, higher indirect tax on luxuries gives rich people less disutility.
(iii) List three ways in which the Government can undertake privatisation. [3|
Answer:
Following are the three ways in which government can undertake privatisation:
- Sale of shares: The majority of the shares of public sector enterprises are sold to the private sector entities. This gives them the ownership and management rights to carry out the activities of the organisation.
- Sale of assets: The government sell the assets of the public sector to private sector to promote privatisation.
- Displacement: Under displacement, the private enterprises are allowed to enter the market which was earlier reserved for public sector.
(iv) What do you understand by qualitative methods of credit control? Name two qualitative tools of credit control. [3]
Answer:
The qualitative measures include those actions which are concerned with the regulation, allocation and distribution of credit in the economy or make available concessional credit to specified classes of people. The two qualitative credit control measures are :
1. Moral Suasion : Suasion means to persuade, so it is a method of request and advice to the commercial banks by the Central Bank. Under certain circumstances, the Central Bank requests and persuades the commercial banks to grant or not to grant credits to certain sectors. Since, the Central Bank is the symbol of financial authority and sovereignty, the commercial banks honor such requests.
2. Direct Action: The method of direct action is used, sometimes, by Central Bank to implement its credit policies. Direct action refers to the actions involving punishment against the erring banks which do not follow the Central Bank’s directions.