You are on page 1of 90

ACKNOWLEDGEMENTS

Chief Patron SHRI RANGLAL JAMUDA IAS


Commissioner
KVS, New Delhi.

Patron Smt. Pragya Richa Srivastava IPS


Joint Commissioner (Adm & Vigilance)
KVS, New Delhi. &
DR. U.N. SINGH
Joint Commissioner (Acad.),
KVS, New Delhi.

Advisor SHRI V.K. Srivastava


Assistant Commissioner
KVS, BHOPAL REGION

Supervisor SHRI S N Sharma


Principal
KV,No. 2, BHOPAL
RESOURCE PERSONS

1 Dr.M.AMARNATH REDDY,
PGT Economics,
Kendriya Vidyalaya
Barkuhi, M.P..
2 Smt. SARBASREE MAJUMDAR
PGT Economics,
Kendriya Vidyalaya, No.2
Bhopal..

3 Smt. MAMTA JHA


PGT Economics,
Kendriya Vidyalaya, No.1
Bhopal..

INDEX

1. Weight age of Marks


2. Model Question Papers with solutions
a. Mock Question Paper 2009 – Set 1 - Solved
b. Mock Question Paper 2009 – Set 2 – Solved
c. CBSE sample papers 2009 - Solved
d. Model Question Paper - Unsolved
e. Model Question Paper – - Unsolved
3. Higher Order Thinking Skills Questions
I. Micro Economics
f. Unit 1- Introduction
g. Unit 2 – Theory of Consumer Behavior & Demand
h. Unit 3 – Theory of Producer's behavior & Supply
i. Unit 4 – Forms of Market and Price determination
j. Unit 5 –Market Equilibrium
II. Macro-Economics
a. Unit 6 - National Income and related aggregates
b. Unit 7 - Determination of Income and Employment
c. Unit 8 - Money and Banking
d. Unit 9 - Government Budget and the Economy
e. Unit 10 - Balance of payments
4. Note for the user of the material
5. Common Errors committed by the students.
6. Tips for High Scoring.
1.If any answer ( diagrams) is not finding / not getting you may visit Site of

KVS, Bhopal, RO (www.kvsrobhopal.org.in)

You may visit Think.com of Dr.M.A.Reddy, Kendriya Vidyalaya, Barkuhi,

Chhindwara district, Madhya Pradesh.

2. For CBSE Outside Delhi, March 2008, 2007 and 2009 sample papers. Both

question papers and expected answers are also available in this site.

WEIGHTAGE OF MARKS
S.NO CONTENT MARKS
1. Part – A Introductory Micro Economics 50
UNIT a. Introduction 04
b. Theory of Consumer Behaviour & Demand 13
c. Producer's Behaviour & supply 23
d. Firms of Market and Price Determination 10
e. Simple application of tools of demand and supply curves **
2. Part – B Introductory Macro Economics 50
UNIT a. National Income Accounting & related aggregates 15
b. Determination of Income and Employment 12
c. Money & Banking 08
d. The government budget and the Economy 08
e. Balance of Payment 07
TOTAL 100
Design of sample Question Paper

Objectives Percentage of Marks

Knowledge 30 %
Understanding 50 %
Application 20 %
Time Management:-
Form of Questions No . of. Mark for Total Marks Estimated Time
questions each (in minutes)
Question
Long answer (L.A) 6 6 36 66 Mins
Short answer (S.A.I) 6 4 24 42Mins
Short answer (S.A.II) 10 3 30 50 Mins
Very Short answer 10 1 10 10 Mins
Total 32 100 (Four parts each)
168 + 12
minutes for
revision

MOCK PAPER FOR MARCH 2009 - I


ECONOMICS
Time : 3 Hrs. Max. Marks - 100
Note :
i. All questions in both the sections are compulsory.
ii. Marks for questions are indicated against each.
iii. Question Nos. 1-5 and 17-21 are very short-answer questions carrying
1 mark each. They are required to be answered in one sentence each.
iv. Question Nos. 6-10 and 22-26 are short-answer questions carrying 3
marks each. Answer to them should not normally exceed 60 words each.
v. Question Nos. 11-13 and 27-29 are also short-answer questions carrying
4 marks each. Answer to them should not normally exceed 70 words each.
vi. Question Nos. 14-16 and 30-32 are long-answer questions carrying 6
marks each. Answer to them should not normally exceed 100 words each.
vii. Answers should be brief and to the point and the above word limit be
adhered to as for as possible.

SECTION :A (50 Marks)


1. Why do an economic problem arise? 1M
2. What is meant Consumer’s equilibrium? 1M
3. What do you meant by MU? 1M
4. ) What is a conditions of producer’s equilibrium? 1M
5. In which market both AR and MR equal. 1M
6. Explain why a production possibilities curve is concave. (3)
7. What are the factors affecting demand ? (3)
8.Explain the relationship between TR and MR . (3)
9. Difference between Change in Quantity demand and Change/Shift in demand: (3)
Difference between Change in Quantity supply and Change/Shift in supply.
10.Explain any three important features of Monopoly Market. 3M
11. A consumer buys 160 units of a good at a price of Rs 8 per unit. Price falls to Rs
6 per unit. How much quantity will the consumer buy at the new price if price
elasticity of demand is (-)2) ? 4M
12. Why demand curve slopes down wards? (or)
13.Calculate Total Variable Cost and Marginal Cost from the following cost schedule
of a firm whose Total Fixed Costs are Rs. 12 : 4M

Output Total Cost


(Unit) (Rs.)
1 20
2 26
3 31
4 38
14. Explain the likely behaviour of Total Product and Marginal
Product when
only one input is increased while all other inputs are kept
unchanged. 6M
(or)
Explain the reasons for : (i) increasing returns to a factor and (ii)
increasing returns
to scale.
15. There is a simultaneous decrease in demand and supply of a
commodity.
When will it result in :
(a) No change in equilibrium price. , (b) A fall in equilibrium
price. ,Use Diagram.
16. What are the determinants of market the supply . (USE DIAGRAMS). ?
SECTION : B
17. . What do you meant by Deficient demand /Excess demand? 1M
18. What do you meant by Barter System:
19. Show Inflationary gap? 1M
20. Define APC/APS? 1m / Give the relationship between APC and APS.

21.. What do you meant by Primary Deficit ? / Revenue deficit. 1M

22. Calculate Personal Income from the following data : 3


(Rs. crores)
(i) Undistributed profits of corporations 20
(ii) Net domestic product accruing to the private sector 500
(iii) Corporation tax 55
(iv) Net factor income from abroad (—) 10
(v) Net current transfers from government 15
(vi) National debt interest 40
(vii) Net current transfers from the rest of the world 15
OR
Calculate Gross Value Added at MP from the following data. 3M
Sl.No Items Rs. In lakhs
1 CFC/ Depreciation 15
2 Sales in domestic market 250
3 Exports 50
4 Opening stock 20
5 Purchase of raw material 150
6 Closing stock 30
7 Import of raw material 25

23. What are the ( ANY THREE) Functions of Money:- I (or)


What are the drawbacks of BARTER SYSTEM . ( ANY THREE) 3M
24.. . What is the basis of classifying government expenditure into :
(a) Plan expenditure and non-plan expenditure
(b) Developmental expenditure and non-developmental
expenditure. (3)

25. A Rs. 200 crore increase in investment leads to a rise in national income by
Rs. 1000 crores. Find out marginal propensity to consume. 3m
26. What are causes for disequilibrium of balance of payments /
What are the components of current account
27. State any two merits and demerits of fixed exchange rate
system. (4)/
Explain how foreign exchange rate is determined in a foreign exchange market ?
28.Distinguish between ‘revenue receipt’ and ‘capital receipt’ and give two
examples of each. (4)
29. What are the FUNCTIONS OF COMMERCIAL BANKS: (4)
RBI functions Issue of Currency: / Bankers to Government/ Lender of Last Resort
30. How will you treat the following while estimating domestic
product of India?
(i) Rent received by a resident Indian from his property in
Singapore.
(ii) Salaries to Indians working in Japanese Embassy in India.
(iii) Profits earned by a branch of an American Bank in India.
(iv) Salaries paid to Koreans working in Indian embassy in Korea.
OR
Explain any two precautions that should be taken while estimating
national
income by (a) value added method, and (b) income method. (6)
31. Can an economy be in a state of under employment equilibrium?
Explain
with the help of a diagram. (6) / Equilibrium of income under Agg.D
and Agg.S

32. Calculate GD) P at MP by a) Expenditure method, b) Income method (Rs. In


Crores)
Ans: a) 205 Crores, b) 205 Crores
1) Net domestic fixed capital formation 50
2) Operating Surplus 50
3) Subsidies 5
4) Mixed income 60
5) Pvt. Final consumption expenditure 120
6) Social security contributions by employees 10
7) Net factor income from abroad (-)10
8) Indirect tax 30
9) Addition to stocks 5
10) Compensation of employees 70
11) Govt. final consumption expenditure 25
12) Net exports 5
Model ANSWERS FOR EXPECTED QUESTIONS FOR 2009EXAMS

1.An economic problem is basically the problem of choice, which arises because of
scarcity of resources. Human wants are unlimited but resources to satisfy them are
limited. In such a situation every individual and society have to make a choice as to
which wants should be satisfied by making use of scarce resources which have
alternative uses.

2) Consumer equilibrium:-It refers to a situation when he spends his given


income on purchase of a commodity ( or commodities) in such a way that yields him
maximum satisfaction

b) Marginal utility of a product = Price Marginal Utility of product = M.U. of a Rupee


Its Price
Marginal Utility of Rupee
3. Marginal utility is the satisfaction derived from consumption of additional
commodity, MU= TUn –TUn-1
4.) A producer (a firm) is said to be in equilibrium when it earns maximum profits.-
The two conditions are : ) MC = MR, (ii) MC curve must be the rising at the point of
equilibrium
5.Perfect competition market
6.Shape of PPC:- Normally, the PPC is concave to the origin and slopes downwards,
because of increasing marginal rate of substitution.
Downward sloping concave PP curve shows increasing Marginal Rate of
Transformation (MRT) as more quantity of one good is produced by reducing
quantity of the other good. This behaviour of the MRT is based on the assumption that
all resources are not equally efficient in production of all goods. As more of one good
is produced, less and less efficient resources have to be transferred to the production
of the other good which raises marginal cost i.e. MRT.

7. a. Price of a commodity: With the fall in the price of a commodity, its demand
extends. b. Price of other related goods: Demand for a commodity is also
influenced by
the change in the price of other related goods.
(i) Substitute goods: Increase in the price of one causes increase in
demand for the other and decrease in the price of one causes decrease in
demand for the other.
(ii) Complementary goods: A fall in price of one causes increase in the
demand of the other and a rise in the price of one causes decrease in the
demand for the other.
c. Income of the consumer: Change in the income of the consumer also
influences his demand for different goods. The demand for normal goods
tends to increase with increase in income, and vice-versa. On the other hand,
the demand for inferior goods like coarse grain tends to decrease with increase
in income and vice-versa.

8.

Outp Price MR TR When TR increases MR IS POSITIVE


ut (Rs.) (Rs.) (Rs.)
(unit When TR is constant/ maximum MR is zero
s) When TR is decreases MR is negative
1 10 10 10
2 9 8 18
3 8 6 24
4 7 -4 20
9. Change in Quantity: The change in the price of
commodity leads, there will be change in quantity of demand for the commodity
.Expansion due to fall in price, and Contraction due to rise in price. (diagram – A)

Change/Shift in demand: A change or shift of demand curve is due to a


change the other factors(Income of the consumer iii) Price of related goods and iv)
Tastes and preferences of the individual/ consumer) than price of the commodity.
Rightward shift of ‘DD’curve means increase quantity, while leftward shift
‘DD’curve means decrease quantity.

CHANGE IN QUANTITY SUPPLIED:- It is caused by a rise/fall


in the price of a commodity. It is expressed either in form of an expansion
in supply or contraction in supply. Expansion and contraction in supply
are represented diagrammatically in the form of a movement along a
given supply curve. Contraction is due to fall in price .(see fig.(A))

CHANGE IN SUPPLY:- A change in supply of a commodity caused by factors other than (Income of the
consumer ii) Price of related goods and iii) Tastes and preferences of the individual/ consumer) the price of a
commodity. Change in supply is represented graphically by a rightward or leftward shift. Decrease is due to fall
in other factors than the price. Leftward shift shifting of supply curve leads to decrease the supply. .(see fig.(B))

10. MONOPOLY: 1) Monopoly means single seller/firm, where buyers are many 2)
There is no close substitute available, The goods sold by the monopolist does not face
any competition. 3) Entry is rigid; There are some restrictions on the entry of new
firm into monopoly industry. 4) Price maker, a monopolist has full control over he
supply of commodity. He can fix the price, which maximizes its profits.5) The ‘DD’
slopes down ward because price of the good has to reduce if the monopolist wants to
sell more
DQ P 8 X − 160 X − 140
11. Ed = x , −2 = x = , X = 160 = +80 , X = +80
DP Q 160 −2 − 40
+ 160 = 240 The Consumer will buy 240 units

12. The demand curve slopes downward because of :- i) Law of


diminishing marginal utility : According to this law, as a consumer in a given time,
increases the consumption of a thing, the utility from each successive unit goes on
diminishing A Consumer gets maximum satisfaction. When the price of a
commodity is equal he its marginal utility. As more units are bought, their marginal
utility diminishes. Thus, a consumer will boy more units of a commodity, with fall in
its price.
ii)Income effect : Change in the price of a commodity causes a change in the real
income of the consumer. With fall in price, real income increases. The increased
real income is used to boy more units of the commodity.
iii)Substitution effect : When the price of community X falls it becomes cheaper in
relation to commodity. Accordingly X is substituted for the commodity. A
consumer in order to get more satisfaction, will boy more units of the commodity
whose price has fallen in relation to the commodity.
iv) Uses of commodity : If a commodity has diverse uses, with the fall in the
price of product consumer will buy more.

Factors determining elasticity of supply:-1. Nature of commodity:- Perishable and


agricultural goods –inelastic and durable goods – elastic. 2. Cost of Production:- If
the production is subject to diminishing costs supply will be more elastic. In case of
increasing costs, supply will be less elastic. 3.Time period:- During short period,
supply will be less elastic and in the long period, supply will be more elastic.4.
Technique of production:- Goods using simple technique of production –elastic
supply in case of complex goods, less elastic. 5) Risk Bearing Capacity:- the goods
will have elastic supply if risk bearing capacity of the firm is large. If producers are
unable to bear risk, they will produce less elastic goods.
Q TC TFC TVC MC
1 20 12 8 8 13.
2 26 12 14 6
3 31 12 19 15
4 38 12 26 7 LAB 1 2 3 4 5 6 7 8 9 10
TPP
(TP) 3 7 12 16 19 21 22 22 21 19
APP
(AP) 3 3.5 4 4 3.8 3.5 3.14 2.75 2.33 1.9
) Law of Variable Proportions- The law states that if we go on
14 MPP
-1 -2
using more and more units of a variable factor (Labour) with a fixed (MP) 3 4 5 4 3 2 1 0
factor( land , Capital) the total output initially increases at an increasing rate but
beyond certain point, it increases at a diminishing rate and finally it falls.
This can be studied in three stages (I, II, and III) Total Physical Product (TPP) :- The
total output of commodity at a particular level of employment of an input(Labour),
Average Physical Product (APP):- Dividing the TPP by the number of inputs.
Marginal Physical Product (MPP):- An addition made to the TPP by employing an
additional unit of a variable input
TPP & MPP Relationship:- a) When MPP is positive, TPP increases at increasing rate
(I stage) b) When MPP is zero, TPP is maximum,(II stage) c) When MPP is
negative, TPP is falling(III stage) ( or)
(i) It means that TPP increases at an increasing rate and consequently MPP rises. It is
due to (a) more efficient utilization of fixed input and (b) division of labour and
specialisation due to increase in the quantity of variable input. (3)
(ii) It means output increasing in greater proportion than the increase in all input
simultaneously and in the same proportion. It is due to (a) more division of labour
leading to specialisation that increases productivity and(b) use of specialized
machines
15. Equilibrium Price /Market equilibrium: - It is a price at which its quantity
demanded and quantity supplied are equal. It is also called market price.
(a) If .decrease. in demand is equal to decrease in supply, there will be no change
in the equilibrium price. In the figure, decrease in dd = decrease in SS = E1E2
Equilibrium price remains the same at OP. (1½)
(b) If .decrease. in demand is greater than decrease in supply,
the equilibrium price will fall. In the figure, decrease in dd =
AE, while decrease in supply is lower i.e. BE1 Therefore,
equilibrium price falls from OP1 to OP2

16. The factors affecting market supply are : . The factors affecting market supply are
1. Technological changes : Technological advancement in the field of production
lower the marginal cost of production Since, MC curve is essentially the
supply curve, technological progress shifts supply curve to the right.
2. Input price changes :- Increase in the price of factor inputs leads to an decrease
in supply & the supply curve shifts to the left conversely, if the price of factor
factor inputs decreases, the supply increases and the supply curve shifts to the
right.
3. Change in the excise tax rate : If product the marginal cost, which curve to the
left. If the ensue duty decreases, the Mc would decrease and the supply
curve would shift to the right.
Changes in the prices of related goods : An increase in the price of a substitute good
in predictor shifts the supply curve of a good to the right, white a decrease in the price
of a substitute good, would shift the supply curve of a good to the left
4. No. of suppliers.:- When suppliers more, the supply will be more of any
commodity other wise less.
Diagrams may be used.
17. Deficient demand:- Deficient demand refers to the situation when AD is
less than AS at full employment.
18.. Barter System: The direct exchange of goods for goods without the use of money
called barter system.
19. Excess demand leads to inflationary gap, it is the situation when AD is more
than AS at full employment

20.The sum of average propensity to consume and average propensity to save is equal
to one because
Y=C+S
Dividing both sides by Y we get
Y C S
= +
Y Y Y
1 = APC + APS
i.e. APC = 1-APS
APS = 1-APC and K = 2 when MPC and MPS is same.
21. Primary Deficit – Difference between fiscal deficit and interest payments.
(PD=FD-Interest payments
. Revenue Deficit = Difference between revenue expenditure and revenue recipts

22. Calculate Personal Income from the following data : 3


= ii+iv+v+vi+vii
(Rs. crores)
= 500+(- 10)+15+40+15
(i) Undistributed profits of corporations 20
=560
(ii) Net domestic product accruing to the private sector 500
= 560-iii-I
(iii) Corporation tax 55
=560-55-20 =485
(iv) Net factor income from abroad (—) 10
(v) Net current transfers from government 15
(vi) National debt interest 40
(vii) Net current transfers from the rest of the world 15
OR

Calculate Gross Value Added at MP from the following data. 3M


Sl.NoItems Rs. In lakhs
1 CFC/ Depreciation 15
2 Sales in domestic market 250
3 Exports 50
4 Opening stock 20
5 Purchase of raw material 150
6 Closing stock 30
7 Import of raw material 25
ANS = 2+3 –(6-4) = (250+50)- (30-20) = 290

23. Functions of Money:- I) A unit of value – The values of different goods can be
expressed through money. ii) A medium of exchange – People can exchange goods
and services through the medium of exchange. iii) Standard deferred payments-
Future truncations can be carried on in terms of money. iv) A store of value – Value
of goods can be stored in the form of money. (or)
:Lack of double coincidence of wants – it is very difficulties to get the same persons
who can be exchanged each other with their goods
Lack of a common measure of value – no proper counting system possible in the
absence of common measure of value .
Lack of standard of deferred payments, - Future payments by goods create many
problems, they have to be stated in specific goods or services which may
involve disagreement over the quality of goods etc., and
Lack of store of value- storing commodities leads deterioration or appreciation in the
value of goods. Only durable goods can be stored others cannot be done or
stored in the same way.
24. Plan Expenditure – which is incurred for current development and
investment outlays due to plans proposals: Non plan expenditure –which is
incurred on routine functions of the govt. like interest payments, defence services.
Development Expenditure – which is incurred on provision of economic and
social services(development of agriculture ad industries, transport, road,
communication, health and education, medical etc.
Non-development expenditure – which is incurred on the provision of general
services like police, defence, administration, grants to state govts . etc (or)

PUBLIC EXPENDITURE:a) Revenue Expenditure – incurred for the normal


running of govt administration deptt. Eg .interest payments, subsidies, and defence
expenditure, Grants given to state Govt. etc. Which are neither create assets nor
reduce the liability b) Capital expenditure consists of expenditure on acquisition
of assets like land, Construction of any buildings, machinery equipment,
investment in shares, Re-Payment of loans, etc. , Which creates assets or reduce
liability

25. . MULTIPLIER:- The investment multiplier is the ratio of change in income


to change in investment. Symbolically, multiplier (K) = ∆Y/∆I. The value of he
multiplier (K) depends upon the value of marginal propensity to consume(MPC).
There is a direct relationship between K and MPC i.e., MPC increases K also
increases and vice verse. Ans.K= 5 ( ∆I. Rs. 200, ∆Y=Rs. 1000 and MPC
=0.8, )

26. DISEQUILIBRIUM IN BOP: It is a state of either deficit BOP status or surplus


BOP status. Equilibrium in BOP is achieved when the net balance of all receipts &
payments is zero.
CAUSES OF DISEQUILIBRIUM: Disequilibrium in BOP is caused by a number
of factors, broadly categorized as (a) economic factors (b) political factors (c) social
factors. Following are the details:
ECONOMIC FACTORS: -Huge development expenditure: Huge development
expenditure by the government owing to which there are large scales imports. It may
cause a deficit BOP dis equilibrium.
Business cycle: Business cycles in terms of recession, depression, recovery & boom.
A period of boom may witness a large scale export of a country. Accordingly a
‘surplus BOP disequilibrium’ may occur.
High rate of inflation: High rate of inflation in domestic market, compelling large
scale imports of essential goods. This drives the economy towards deficit BOP
disequilibrium ( or)
Current account: It is that a /c which records imports & exports of goods & services
& unilateral transfers. It records the following transactions :
i. Exports & imports of goods (or of visible items).
ii. Export & import of services (or of invisible items).
iii. Unilateral transfers from one country to the other.

27. FOREIGN EXCHANGE RATE: It is a rate at which the currency of one


country I exchanged with the currency of other country eg., $1 = Rs.48 or one Indian
rupee 1/48 th $.
Determination of the FER – The rate is determined in the foreign exchange market by
the interaction of the demand for and supply of foreign exchange currencies
Demand for Foreign exchange comes from a) domestic resident to purchase goods
and services from other countries b)for sending gifts to foreigners c) by the domestic
residents to purchase financial assets in a particular country d) Speculation purpose
Supply of Foreign exchange comes from a) the foreigner’s purchasing home
currency goods and services through exports b) the foreigners who invest in home
country through joint ventures
A:The following are advantages of fixed exchange rate system.:- ( MERITS )
Stability : It ensures stability, in the international money market/exchange market.
Encourages International Trade: Fixed exchange rate system implies low risk
and low uncertainty of future payments. It encourages international trade.
Co-ordination of Macroeconomics Policies: Fixed exchange rate helps co-
ordination of macroeconomics policies across different countries of the world.

DEMERITS :-
Huge International Reserves: Fixed exchange rate system is often supported with
huge international reserves of gold. This is because different currencies are directly
or indirectly convertible into gold.
Restricted Movement of Capital: Fixed exchange rate (owing to huge back-up of
international reserves) restricts the movement of capital across different parts of the
world.:
Discourages ventures Capital: Fixed exchange rate discourages venture capital in
the international money market.
28. Revenue Receipts:- It refer to the receipts of the govt. which don’t create any
liability and cause any reduction in the assets of the govt. It may be divided into two,
tax revenue ( direct tax, e.g. income tax and indirect tax, e.g. excise duty) and non-tax
revenue( eg. Fees,fines and penalties)
CAPITAL RECEIPTS:- It refers to those receipts of the govt. which create a liability /
cause reduction in its assets. Loans raised by the govt. from the public( market loans)
b) borrowing’s by the govt. from the central bank and other parties through the sale of
treasury bills. C) Loans received from foreign govt and international financial
institutions(world bank / IMF) D) Recoveries of loans granted to state and UT govts.
And other parties E) small savings and deposits in PPF F)PSU disinvestment – selling
shares /securities of PSU..
Give reasons, categorise the following into revenue receipts and capital receipts ?
( 4M )
i) Recovery of Loans., Capital receipts as it decrease assets
ii) Income tax. Revenue receipts as neither increase liability nor reduce
assets
iii) Dividends on Investments made by Government.
evenue receipts as neither increase liability nor reduce assets
iv) Sale of public sector undertaking. Capital receipts as it decrease assets
29. . Commercial banks are those financial institutions which accept deposits from
the general public, and make advances( or offer loans) to he consumers and investors
with a view to earn profits.
FUNCTIONS OF COMMERCIAL BANKS:
1. Accepting of deposits – accept money in the form of deposits from the public.
People can deposit their cash balances with bank in either of the following accounts:
a) Fixed Deposits Account, b) Current Deposits Account, No interest is paid by banks
on the money kept in current account c) Saving Deposits Account d) Recurring
Deposits Accounts etc.
2. Advancing of Loans: Commercial banks provide various types of loans to the
borrowers in either of the following forms: a) Cash Credit b) Term Loans/ Demand
Loans c) Overdraft, d) discounting of Bills of Exchange and e) Investment of Funds
in govt. securities.
3. Agency functions:- Transfer of funds through cheques, drafts etc ii) Collection and
payments of cheques, bills of exchange on behalf of their customers, iii) Sale and
purchase of shares, securities etc., iv Purchase and sale of foreign exchange , Locker
facility, Gift cheques, Traveller’s Cheques etc. ( or)
Issue of Currency: The Central Bank is given the monopoly of issuing currency in
order to secure control over volume currency and credit. These notes are circulated
through out due country as legal tender money. It has to keep a reserve in the form if
gold and foreign securities as per the statutory rules against the notes issued by it. It
issues notes above Rs.2/-. One Rupee coins and other small coins are issued by the
mints of Government.
Bankers to Government: Central Bank acts as the bank of Central and State
governments. It carries out al banking business of Government. Government keep
their cash balances in the current account with Central Bank. Similarly central bank
accepts receipts and makes the payment on behalf of the Government. Also Central
bank carries out exchange, remittances and other banking operation on behalf of
Government. Central Bank gives the loans and advances for a short period to the
Governments. It also manages the public debt of the country.
Bankers Bank & Supervisor: All the scheduled banks are controlled and
supervised by the Central Bank. These banks are required to keep certain percentage
of their deposits with Central Bank. They can take loans from the Central Bank.
Controller of Credit & Money Supply: Central Bank regulates the supply of
money and credit according to the interest of the country. It follows various
instruments like (i) Bank rate, (ii) Open Market operations (iii) Cash reserve ratio, (iv)
Moral suasion (v) Marginal requirements. They are the instruments of Monitory
policy
.Exchange Control: It maintains the external value of currency. Every citizen
should deposit foreign currency they earn with RBI and they can get foreign currency
from RBI with application.
Lender of Last Resort: Scheduled banks can take the loans by rediscounting
first class bills or short term approved securities, whenever they do not get funds from
any other sources.
Custodian of Foreign Exchange Balance: Central Bank maintains the balance of
foreign exchange gold and bullions.
Clearing house function: Central Bank clears the cheques received by a bank
belongs to other banks issued by the customers without delay.
Collection and publication of data: It collects, completes the data regarding the
other banks and publishes this information
30. i) Income is creating in the domestic territory of Singapore and
not in India .
(ii) No, It is a part of domestic territory of Japan not in India .
(iii) Yes, Income is creating in the domestic territory in India .
(iv) Yes, (Indian embassy )It is a part of domestic territory of in
India .
Product method / Value added method:- . Precautions:
1) Sale and purchase of second hand goods are not included. Because it is not a part
of current production.
2) The value of intermediate goods should not be included. Because it will
lead to the problem of double counting.
3) Production for self consumption should be included. Because it is a part of
national income. Hence its imputed value should be included.
4) Services of owner occupied houses / imputed rent should be included in
national income because these are part of the current years production.
5) Own account production of fixed capital should be included; it is a part of
final investment expenditure.
Income method:- Precautions:
1. Transfer Incomes: These should not be included in national income.
Because these are not part of factor incomes.
2. Income from illegal activities: It is not included in national income.
Because these activities are not part of productive activities.
3. Income from sale of Second hand goods: It is not included in national
income. Because it is not part of current productions.
4. Windfall gains: These are not included in national income. Because
there is no corresponding increase in production.
5. Income received from sale of shares/bonds: It should not be included in
national income. Because they are financial transactions.
31. DETERMNATION OF EQUI. LEVEL OF INCOME & Employmnt:
There are two approaches a) Consumption and Investment(C+I) b) Investment and
Saving approach Determination of Income and EMPLOYEMENT: Full employment
equilibrium is a situation, where all the resources of the country get employment.
Graphically at this level of national income AD and AS. It implies that the volume of
AD is just sufficient for the full utilization of country’s available resources and the
production is being done to the maximum possible resources and the production is
being done to the maximum possible limit. It means AD is neither in excess nor
deficient. This is an ideal situation. Hence there is no gap(neither inflationary and
deflationary gap) . Equilibrium:- At equilibrium , the total output of goods and
services produced equals the total demand for those goods and services.( Agg.’D’ =
Agg.’S’) The particular price level at which equilibrium occurs is known as the
equilibrium price level, The level of agg. Employment corresponding to the
equilibrium level of agg. Supply is the equilibrium level of employment.
Yes, there can be a state of under employment equilibrium. In the below given
diagram it is shown at OM output/income .

Income Consumption Investment AD = AS =


Remarks
(Y) (C) (I) C+I Y
0 50 100 150 0
100 100 100 200 100 AD>AS
200 150 100 250 200 Employment
AD=AS
300 200 100 300 300
(Full employment)
400 250 100 350 400 AD<AS
500 300 100 400 500 Employment

A brief explanation about the schedule along with a diagram and its explanation

31. The equilibrium level of income and output is that level at which planned saving
and planned investment are equal. (1)
SS. is the saving curve that shows planned saving at different levels of
income. I I. shows fixed level of investment as it is assumed that investment
is given and is constant, OQ is the equilibrium level of income and output as
at this level, planned saving and investment are equal If planned expenditure
is less than planned output inventories will Y (C) (S) (I) Remarks
increase. So output will be reduced till planned
expenditure and planned output are equal. (see
schedule in the next paragraph).. 0 50 -50 10
What happens if savings exceed planned 0
investment? In the diagram, at ON level of
income (output), RN amount of saving exceeds 10 100 0 10
SN amount of investment by an amount equal 0 0 S<I
to RS. This shows households are consuming 20 150 50 10
lesser than the investment of firms ( i.e, level of 0 0
30 200 10 10 S=I
0 0 0
40 250 15 10 S>I
0 0 0
output). As a result firm’s stock of unsold goods will pill up, i.e., there will be
undesired and unplanned build-up of inventories, firms will cut back production and
reduce employment leading to fall in income. The tendency of reducing out put and
income to fall will continue until it reaches the OQ equilibrium level of income
(output) at which planned saving EQ is exactly equal EQ planned investment EQ.
32. a) 205 Crores b) 205 Crores

MOCK PAPER FOR MARCH 2009 II


ECONOMICS
Time : 3 Hrs. Max. Marks - 100
Note :
i. All questions in both the sections are compulsory.
ii. Marks for questions are indicated against each.
iii. Question Nos. 1-5 and 17-21 are very short-answer questions carrying
1 mark each. They are required to be answered in one sentence each.
iv. Question Nos. 6-10 and 22-26 are short-answer questions carrying 3
marks each. Answer to them should not normally exceed 60 words each.
v. Question Nos. 11-13 and 27-29 are also short-answer questions carrying
4 marks each. Answer to them should not normally exceed 70 words each.
vi. Question Nos. 14-16 and 30-32 are long-answer questions carrying 6
marks each. Answer to them should not normally exceed 100 words each.
vii. Answers should be brief and to the point and the above word limit be
adhered to as for as possible.
SECTION :A
1. Define opportunity cost ?. 1M
2. A rise in the price of a good , results in an increase in expenditure on it.
Is its
demand elastic or inelastic? 1M
3. What do you meant by MU/MP/MR/MC?:- 1M
4. a)Define Fixed cost , b)Variable cost. 1M
5. Define market price/ equilibrium quantity . 1M
6. State the problems relating to allocation of resources in an
economy. (3)
7. Define marginal revenue. State the relation between marginal revenue
and average (3)
revenue when a firm :
(i) is able to sell more quantity of output at the same price.
(ii) is able to sell more quantity of output only by lowering the price.
8 Given below is the utility schedule of a consumer for commodity X.
The price of the commodity is Rs. 6 per unit. How many units should
the consumer purchase to maximize satisfaction? (Assume that
utility
is expressed in utils and 1 util = Re. 1). Give reasons for your
answer.
Consumption Total utility
Marginal utility
(units) (utils)
(utils)
1 10
10
2 18
8
3 25
7
4 31
6
5 34
3
6 34
0 (3)M
9. . Explain the implication of the feature .product differentiation.
under
Monopolistic Competition. (3)
OR
Explain the implication of the feature .Freedom of entry and exit of
firms.. (3)
10. Explain the relationship between AC (AVC) and MC (3)
11. A consumer buys 100 units of a good at a price of Rs. 5 per unit. When
price changes
he buys 140 units. What is the new price if price elasticity of demand is - 2
? (4)

12. Explain the effect of rise in the prices of related goods on the
demand
for a good X. Use diagrams.
OR
Explain the effects of rise in income on demand for a good. Use
diagram. (4)

13. Complete the following table : 4M


Output Price Marginal Revenue
Total Revenue
(units) (Rs.) (Rs.)
(Rs.)
1 -- 10
--
2 9 --
--
3 -- --
24
4 -- 4
--
14. Explain the effects of .increase. in supply of a good on its equilibrium
price and (4)
equilibrium quantity with the help of a schedule.

15 Define producer's equilibrium. Explain the conditions of


producer's
equilibrium in terms of Total Cost and Total Revenue. Use
diagram.. 6m ( OR )

What is consumer's equilibrium? Explain the conditions of consumer's


equilibrium
assuming that the consumer consumes only two goods.
16. Explain the law of variable proportions with suitable diagram

SECTION : B
17. What do you meant by Excess demand? 1M
18. Define APC and APS./ consumption function / saving function. 1M
19. What do you meant by SLR / Cash Reserve Ratio(CRR) / BANK RATE .1M
20. What do you meant by . Revenue Deficit ? 1M
21.Define macroeconomics ? 1M
22. From the following data relating to a firm, calculate its net value added
at factor cost :
(Rs. in Crores)
(i) Subsidy 40
NVAfc=ii+(v-vi)-vii-iii+i
(ii) Sales 800
=800+(20-50)-500-30-(-
(iii) Depreciation 30
(iv) Exports
40)
100
=280
(v) Closing stock Note=
20 NIT(Ind.Tax_Sub)
(vi) Opening stock Sales
50 included exports.
(vii) Intermediate purchases 500
23. Categorise the following government receipts into revenue and capital
receipts Give
reasons for your answer.
(a) Receipts from sale of shares of a public sector undertaking.
(b) Borrowings from public.
(c) Profits of public sector undertaking (3)
24. List three sources each of demand and supply of foreign exchange (3)
25. Account any three types of deposits in commercial banks. ( 3)
26. Explain the deflationary gap through diagram. ( 3)
27. Describe the following functions of money :- 4M
(a) Medium of exchange
(b) Standard of deferred payment

28. Distinguish between current account and capital account of balance of payments
accounts mention two items of each of these accounts? 4M

Give the difference between Direct Tax & Indirect Tax /


29.
Difference between capital receipts and revenue receipts. 4M

30..Explain
the steps involved in estimation of national income by
income and expenditure methods . ( 6M)
31.Calculate Personal Disposable Income (or) GNP at MP from the
following data
(Rs. crores)
1. Net factor income from abroad (.) 60
2. Gross national disposable income 1050
PDI=13-7-4-3-12
3. Personal Tax 110
=700-90-40-110-30=430
4. Savings of private corporations 40
5. National income 900at MP=5+6+(2-8)
GNP
6. Indirect tax 100
=900+100+50 =1050
7. Corporation tax 90
8. Net national disposable income 1000
9. National debt interest 30
10. Net current transfers from abroad 20
11. Current transfers from government 50
12. Miscellaneous receipts of the
government administrative departments. 30
13. Private income 700

32. Explain the meaning of equilibrium level of income and output with the
help of
saving and investment curves. If planned expenditure is less than planned
output,
what changes will take place in the economy? (or)

30. Will the following be included in Gross National Product? Give reasons for your
answer:
1. Profits earned by a foreign company in India. No, it is factor income to abroad
2. Money received from sale of shares. No, It is a financial tractions / money claims
3. Salary paid to Americans working in Indian embassy in America.,
Yes, it is a part of domestic territory of India,
4. Money received from sale of old house., No it makes double counting
5. Scholarships received by a student., No, it is a transfer income
6. Remittances from abroad. No , It is also transfer income to India

Expected Answers
1. The Opportunity cost of a given activity is defined as the value of next best activity.
2. When there is a direct relation between price and expenditure, there should be
inelastic in demand.
3. An additional Utility/Product/Revenue/cost to the total
Utility/Product/Revenue /Cost by consumption of extra good/employing extra labour/
selling extra good/making extra output.
4. The cost which does not change according to output e.g Rent, Minimum telephone
bill, wages to permanent staff, interest on capital and b) The cost which varies /
changes according to output E.g. Labour costs and raw material costs, power etc.
5. Equilibrium Price /Market equilibrium: - It is a price at which its quantity
demanded and quantity supplied are equal.
6. 1. What to produce:-If refers to which goods and services will be produced and
in what quantities with the limited resources i.e. consumption goods or capital goods.
2. How to produce :- It refers to the choice of methods of production of goods &
services i.e. whether labour intensive or capital intensive technique is to be adopted
taking into consideration the proportion of capital and labour in an economy.
3. For whom to produce.:- It concerns with the distribution of income & wealth
which refers to who earns how much or who has more assets than others.
7. Marginal revenue is the addition to total revenue from producing one more unit of
output (1),
(i) MR = AR at all the output levels (1)
(ii) MR will be less than AR at all the output levels (1)
8. The consumer will purchase 4 units because at this consumption level
marginal utility equals price. (1)
At consumption level of less than 4 units MU is greater than price. Therefore there is
scope of increasing gain by purchasing more. (1)
If he buys more than 4 units MU becomes less than the price. Therefore, there is
scope of increasing gain by purchasing less. (1)

9. . Product differentiation means that buyers differentiate between the products


produced by different firms. Therefore, they are willing to pay different prices for the
products of different firms. Different groups of buyers prefer products of different
firms. This gives an individual firm some monopoly power, i.e. power to influence the
demand for its product by changing price. (3) OR
The freedom ensures that firms earn just the normal profits in the long run. If
the existing firms earn .above-normal. profits, new firms enter the industry, raise
supply, which brings down the price. The profits fall till each firm is once again
earning only the normal profits. If the existing firms are having losses, the firms start
leaving, supply falls and price goes up. The price continues to rise till the losses are
wiped out and firms are just earning normal profits. (3)
10.Relationship between AVC & MC (AC and MC):-When AVC is falling,
MC lies below the AC curve ( MC<AVC),When AVC minimum and constant, AVC=MC,
MC curve must cut the AVC curve at the minimum point of AVC, When AVC is rising, MC
lies above AVC Curve (MC>AVC)

11. The new price is 4

12. INCOME EFFECT:-Generally as income of a consumer increases, the


consumer may buy more or less of a product. If he/she buys more product
means it is a Normal good, its demand curve shifts right wards and less product
means it is Inferior goods its demand curveshits left wards.

(or)
RELATED GOODS: (Both Substitute goods and Complementary goods)
Substitute goods are those goods, which can be used in place of each other. E.g
coffee and tea, and gur and sugar. An increase in the price of a substitute good
(Coffee) causes an increase in the demand for the commodity (Tea) Its demand curve
shifts to rightward,
Complementary goods are those goods, which jointly satisfy
a given want. E.g. car and petrol; pen and ink. Etc., In case of complementary goods ,
the demand for a commodity rises wit the fall in the price of other commodities. Cars
and petrol are Complementary goods. If the price of the petrol falls its demand will
rise, also will raise the demand for cars..
13.
Output Price MR TR
(Units) (Rs.) (Rs.) (Rs)
1 10 10 10
2 9 8 18
3 8 6 24
4 7 4 28
14. Increase in supply means more quantity supplied at the given price. Supply
curve shifts to the right from S1 to S2. This creates excess supply (=E, A) at price
OP. Since the firms are not able to sell what they produce, Competition among
firms lead to fall in price. Fall in price leads to rise in demand and fall in supply.
These changes continue till price falls to OP2 OP2 is the new equilibrium price
and OQ2. equilibrum quantity. See equilibrium price diagram.

15. . The producer of a good is in equilibrium at that level of output of the good at
which he earns maximum profit. (1)
There are two conditions of producer.s equilibrium :
(i) The difference between TR and TC is maximum.
(ii.) Total profit falls if one more unit of output is produced. (2)
In the diagram, OQ is the equilibrium output with profit equal to AB = AQ . BQ.
AB is the maximum vertical distance between TR and TC. If more than OQ output is
produced total profits fall.
Total cost and total revenue schedule
Output TR TC Profit
(Units The producer will
) produce 2 units because
1 10 15 5 his profits are maximum
2 18 12 6 at this
3 24 21 3 level of output.
4 28 32 4

(OR)

Consumer’s equilibrium means allocation of income by a consumer on goods and


services in a manner that gives him maximum satisfaction.
The two conditions of Consumer’s equilibrium are :- (i) Ratio of marginal utility to
price in case of each good is the same i.e.
MUx / Px ; MUy / Py = (2)
(ii) MU of a good decreases as more of it is consumed. (2)
16. (i) It means that TPP increases at an increasing rate and consequently MPP rises.
It is due to (a) more efficient utilization of fixed input and (b) division of labour and
specialisation due to increase in the quantity of variable input. (3)
(ii) It means output increasing in greater proportion than the increase in all input
simultaneously and in the same proportion. It is due to (a) more division of labour
leading to specialisation that increases productivity and(b) use of specialized
machines ( SEE Previous paper).

SECTION : B
17. EXCESS demand:- EXCESS demand refers to the situation when AD is
greater than AS at full employment.

18. The relationship between consumption / saving and income.


19.. Cash Reserve Ratio(CRR) A % age of the banks deposits are required to deposit
with the RBI
BANK RATE: the bank rate is the minimum rate at which the central bank of
a country is prepared to give credit to the commercial banks
20... Revenue Deficit = Difference between revenue expenditure and revenue receipts

21. Study of aggregates


22. Ans. See in the question paper.
23/29Revenue Receipts:- It refer to the receipts of the govt Which don’t/neither
create any liability and cause/ nor any reduction in the assets of the govt. It may be
divided into two, tax revenue ( direct tax, e.g. income tax and indirect tax, e.g. excise
duty) and non-tax revenue( eg. Fees,fines and penalties)
23.CAPITAL RECEIPTS:- It refers to those receipts of the govt. which create a
liability / cause reduction in its assets. Loans raised by the govt. from the
public( market loans) b) borrowing’s by the govt. from the central bank and other
parties through the sale of treasury bills. C) Loans received from foreign govt and
international financial institutions(world bank / IMF) D) Recoveries of loans granted
to state and UT govts. And other parties E) small savings and deposits in PPF F)PSU
disinvestments – selling shares /securities of PSU..
24. Sources of demand for foreign exchange : (i) Importers, (ii) Tourists going
,abroad, (iii) Investors who want to make investments in other countries. (½x3)
Sources of supply of foreign exchange.:- (i) Exporters, (ii) Foreign tourists, (iii)
Remittances from abroad, etc. (½x3)
25. Accepting of deposits – accept money in the form of deposits from the public.
People can deposit their cash balances with bank in either of the following accounts:
a) Fixed Deposits Account, b) Current Deposits Account, No interest is paid by banks
on the money kept in current account c) Saving Deposits Account d) Recurring
Deposits Accounts etc.
26. Marginal revenue is the addition to total revenue from producing one more unit of
output (1), (i) MR = AR at all the output levels (1)
(ii) MR will be less than AR at all the output levels (1)
27. Ans is given in the previous mock paper.

28. Current account: It is that a /c which records imports & exports of goods &
services & unilateral transfers. It records the following transactions :
Exports & imports of goods (or of visible items).b) Export & import of services
(or of invisible items).c) Unilateral transfers from one country to the other.
CAPITAL ACCOUNT: It is that a /c which records all such transactions
between residents of a country & rest of the world which cause a change in the
asset or liability status of the residents of a country or its government. When
balance of payment is not balanced by current account, it has to be balanced by
capital account. It includes short term as well as the long-term international
borrowing and lending gold transactions, it any, also forms part of the capital
account.
29. Tax Revenue:- A tax is a legally compulsory payment by the people to govt.
( Direct Tax and Indirect Tax). The taxes are classified according / on the basis of
incidence and impact of a tax.. For example
Direct Tax– When the incidence and impact of a tax is on the same person .
(or)Those taxes levied immediately on the property and income of persons, and that
are paid directly by the consumer to the govt. Which are not shiftable, Eg. Income
tax, Corporation tax, wealth tax etc. Indirect Tax – When the incidence and impact
of a tax is on the different persons. (or) When liability to pay a tax is on one person
and the burden of that tax falls on some other person, which are shiftable to others
Eg. Custom duties, excise duties, sales tax, service tax etc.
30. Steps of income method:The following steps are involved in the estimation of
national income by using income method.
1. Identification and classification of producing enterprises.
2. Classification of factor income.
3. Estimation of factor income.( CE, OP, MI )
4. Estimation of domestic factor income ( SUM OF above three)
5. Estimation of national income (i.e. NNP at FC) by adding NFIA
Expenditure method:-
Under this method national income is estimated by aggregating all the final
expenditure in an economy during a year. This expenditure method is also
known as consumption and investment method, or income disposable method.
Steps of expenditure method:- To identify economic units incurring final
expenditure.
1. Classification expenditure: -
a) Private final consumption expenditure
b) Government final consumption expenditure
c) Gross fixed capital formation (or) Gross fixed investment
expenditure
d) Change in stock or change in inventories or inventory
investment.
e) Net acquisition of valuables
f) Net exports.
2. Measurement of final expenditure on domestic product.
3. Estimation of net factor income from abroad. AND Estimation of
national income.
31. Ans is given in the question paper : 32.. Ans is given in the previous
mock paper.
.

KENDRIYA VIDYALAYA SANGATHAN


MODEL PAPER
SUB:-ECONOMICS Max.Marks:100
Time : 3 Hours
General Instructions:
i. All questions in both the sections are compulsory.
ii. Marks for questions are indicated against each.
iii. Question Nos. 1-5 and 17-21 are very short-answer questions carrying
1 mark each. They are required to be answered in one sentence each.
iv. Question Nos. 6-10 and 22-26 are short-answer questions carrying 3
marks each. Answer to them should not normally exceed 60 words each.
v. Question Nos. 11-13 and 27-29 are also short-answer questions carrying
4 marks each. Answer to them should not normally exceed 70 words each.
vi. Question Nos. 14-16 and 30-32 are long-answer questions carrying 6
marks each. Answer to them should not normally exceed 100 words each.
vii. Answers should be brief and to the point and the above word limit be
adhered to as for as possible.

SECTION –A (INTRODUCTORY MICRO ECONOMIC THEORY)

1.Define Marginal Revenue 1m


2.What does a point below production possibility curve indicate? 1m
3. Which cost may there when output is even zero. 1m
4. State the condition of producer’s equilibrium. 1m
5. Draw unitary elasticity of supply. 1m
6.Explain any two central problems facing our economy. 3

7. Define law of demand? Draw a unitary elasticity of demand with the help of a
demand schedule. 1,1,1 =3
8. Draw the supply curves showing a) elasticity of supply equal to1 b) elasticity of
supply greater than 1 c) elasticity of supply lessthan 1. 1,1,1 =3

9. . State any three causes of a leftward shift of supply curve. 3

10. Explain the relationship between average variable cost and marginal cost with he
help of diagram. 3M (or)
What is the relationship between Total revenue and Marginal revenue with diagram?
11.. The total fixed cost of a firm is Rs. 12. given below is its marginal cost schedule.
Calculate total cost and average variable cost for each given level of output. 2,2 =4
Output(units) 1 2 3 4
Marginal Cost (Rs.) 9 7 2 4
12.The quantity demanded of a commodity at a price of Rs. 10 per unit is 40 units. Its
price elasticity of demand is (-2). Its price falls by Rs. per unit. Calculate its
quantity demanded at the new price. 4M
13. . What is equilibrium price? What happens to equilibrium price of a commodity
when its demand increases? 4M

14. Explain the main features of monopolistic competition. 6M


15. Explain the law of variable proportion. (6M)
16. Explain the factors that affect the market demand of a commodity. (or)
Distinguish between increase in demand and expansion of demand (rise in
quantity demanded). Use diagram. (6)
SECTION –B (INTRODUCTOR MACRO ECONOMIC THEORY)

17. Define macro economics. 1M


18. Give one point of difference between macro and micro economics. 1M
19. When is there a deficit in the balance of trade? 1M
20. What is meant by a surplus budget?. 1M
21. What is SLR/CRR. 1M
22..Find out (a) Personal disposable Income, b) Personal Income and c) private
Income from the following data.
(Rs. In crores)
i) Payments of direct taxes by the households 650
ii) Corporation tax 150
iii) Household final consumption expenditure 2450
iv) Savings of the a private corporate sector 350
v) Interest on national debt 200
vi) Saving of the households 750

24. ExplainBriefly the meaning inflationary gap and deflationary ? (3M)


25.. As a result of increase in investment by Rs 75 crores, national income rises by Rs.
300 crores. Calculate a marginal propensity to save (MPS)?

26. . Define (a) Fiscal deficit (b) Budget deficit (c) Revenue deficit ?
27. . Give any four functions of a Central Bank (RBI)?

28.. Give reasons, categorise the following into revenue receipts and capital receipts ?
( 4M )
i) Recovery of Loans. , ii) Income tax.
iii) Dividends on Investments made by Government.,
iv) Sale of public sector undertaking.

29. State the four function of Money. Describe any one of them ? ( 4M )

30. Explain how foreign exchange rate is determined in a foreign exchange market ?
( 4M )
OR
Distinguish between current account and capital account of balance of payments
accounts. mention two items of each of these accounts ?
31. Explain with the help of diagram the determination of equilibrium. Can the
economy be in equilibrium at less than full employment ?
32.. Distinguish between:
a) Value of output and value added
b) Factor income and transfer receipt
c) Intermediate goods and final goods
OR
Explain the components of factor income ( NDP at fc )
MARKING SCHEME
Q.No Distribution
EXPECTED ANSWERS / VALUE POINTS of Marks.
1-5 1)An additional revenue made to total revenue 1
by sale of an extra unit of output.
2) Underutilization of resources( see two points inside PPC) 1
3) MR=MC=P and MC is rising 1
4) Fixed cost 5) Diagram. 1M 1

6 a)What to produce :-e.g:-Type goods whether consumer goods or capital goods with in 1
available resources; b) How to produce :- e.g:Type of technique – Whether capital 1
intensive where capital more than labour and Labour intensive techniques where labour 1
is more than capital c) Whom to produce :-e.g. Distribution of income by way of
wages , interest , rent and profits ( any two ) brief explanations diagram see Q.No.1
7 a) Inverse relation between price and demand i.e., 1
when price increase and demand for (P) (D)
1,1
a commodity decreases and vice verse 1 100
b) Schedule :-Shows q. of demand at different 2 80
3 60
price c)Demand curve :- ‘DD’ curve 4 40
slopes downward from left to right. 5 20

8 a) Relatively elastic SUPPLY ( ‘SS’ Curve flatter)


b) Relatively inelastic SUPPLY( ‘SS ’Curve Steeper) 1
c) Unitary elasticity (‘SS’ curve Goes upward straight from
origin. ( OR) 1
A straight line which interests the X axis in its positive range
implies Es=>1 and negative range implies <1 and A straight line 1
supply curve which passing through the origin implies Es=1 irrespective of how steep or
flat it is. (Geometric Method Curves)

9 1.Cost consumption technology, which leads making cost is high and 1


in turn supply will be low 1
2.A rise in the price of inputs:-wages/material cost is high supply will
be low 1
3.A rise of excise duty/tax leads to making cost high then supply falls.
Note:- In the above cases the supply curve shifts left side.
In the opposite cases like cost saving technology, fall of input cost/factor cost and a
fall of excise duty/tax the supply curve shift right side and it shows supply increases.
11 TC 12 21 28 30 34 2
AVC 0 9 8 6 5.5 2
Output 0 1 2 3 4
Here, the condition we should apply that at zero output both TC and
TFC is equal and TVC always zero at this output.
12 Table 1mark, Formula 1m, Calculation 1m and correct answer 1m 1
P 10 6 Ed=(-2) and Formula 1
Q 40 ? Answer = 48 1,1
13
Equilibrium Price /Market equilibrium: - It is a price at 1
which its quantity demanded and quantity supplied is 1
equal. It is also called market price. 1,1

Excess demand pushes up the market price by causing


competition among the buyers. Deficient demand leads to
decrease the price due to competition among the sellers.

10 (AC and MC):- When AVC/AC is falling, MC lies below the


AC curve ( MC<AVC), 1
When AVC minimum and constant, AVC=MC,
MC curve must cut the AVC curve at the minimum point of AVC, 1
When AVC is rising, MC lies above AVC Curve (MC>AVC)
1
(OR)
When MR is positive (MR>0), TR rises 1
When MR is zero(MR=0), TR is maximum TR
When MR becomes negative (MR<0),TR falls 1
Diagram &Schedule 1
MR
MR
1
1
14 MONOPOLISTIC COMPETITION:-. A market situation in which competition 1
among the monopolies is seen for buying or selling differentiated product with freedom 1
of entry and exists is known as monopolistic competition. It is also known as imperfect 1
competition. Because both perfect competition and monopoly present. Main features:- 1
1. There are large number of buyers and sellers in the market. 2. There is product 1
differentiation. i.e., each firm produces a brand or variety of the same product and 3) 1
there is free entry or exit of firm in the long run.4) Downward slopes elastic demand
curve(AR and MR) and MR lies below AR 5) The equilibrium condition( profit
maximization) is MR= RC and MC is rising
6) Selling cost;- To attract customers from other brand of a product to their own brands
selling cost or advertisement cost incurred. 7) E.g. for monopolistic competition is
toothpaste, soaps, lipstick etc.
1) Large Number of sellers and sellers in imperfect competition.
2) There is a product differentiation
3) All the firms are price makers of their own product.
4) Factors of production are mobile. Not rigid
5) ) Price is greater than marginal cost
MR
6) ) ‘DD’ curve / AR and MR curves slopes down wards. (>1).
7) There is Selling costs(Brief explanation with diagram of DD curve.
15 Law of Variable Proportions- The law states that if we go on using more and more 1
units of a variable factor (Labour) with a fixed factor( land , Capital) the total output 1
initially increases at an increasing rate but beyond certain point, it increases at a 1
diminishing rate and finally it falls.
This can be studied in three stages (I, II, and III) Total Physical Product (TPP) :- The 1
total output of commodity at a particular level of employment of an input(Labour),
Average Physical Product (APP):- Dividing the TPP by the number of inputs. Marginal 1
Physical Product (MPP):- An addition made to the TPP by employing an additional unit 1
of a variable input
TPP & MPP Relationship:- a) When MPP is positive, TPP increases at increasing rate (I
stage) b) When MPP is zero, TPP is maximum,(II stage) c) When MPP is negative, TPP
is falling(III stage)
APP & MPP Relationship:- a) When APP rises, MPP >APP ( I stage) b) When APP is
maximum , APP = MPP (Stage II) and c) When APP decline, MPP<APP. (III
Stage) (use schedule and diagram).

16 Expansion demand due to price change and Increase in


demand is due to other than price change. Previous one 1
is movement along with same demand curve.
Later one is shifting ‘DD’. 1
Expansion due to price falls,
Expansion
Increase demand due to 2+2
Income rise.

OR
Determinants of market demand: i) Price of the commodities, ii) Income of the
consumers iii) Price of related goods and iv) Tastes and preferences of the market/ 2,2,2
consumers (Give a brief explanation for each points

17-21 17.Study of aggregates, (Ag.D, Ag.S, NI) 1


18.Price theory and income theory 1
19.When Imports are greater than exports. 1
20. The Govt. total revenue is greater than total expenditure. 1
21. Statutory reserve ratio/ Cash Reserve Ratio ( Monetary policy) 1
22 a) Personal Disposable income:- 2450 + 750 =3200( P.Exp. + P.Savings) 1
b) Personal income:- 3200+650=3850 ( PDI+ D.Tax) 1
c) Private Income:-3850+150+350 (Pers.I + C.T.+ Savings pvt.C.Sector 1
23
Meaning of deficient demand: 1
expenditure
Aggregate
demand/

When aggregate demand short


Y AS
fall than aggregate
supply AD1
at full employment 1
AD Excess
level Demand/
than a situation of deficient Inflationary 1
gap
demand exists. Deficient
Full employment
demand leads to deflationary
gap, and rise price, in the O M X
Output /employment/income
economy.
24 K= ∆Y/ ∆I = 300 / 75 = 4 1,1
K = 1 / MPS, Therefore MPS = 0.25 1,1
25 TYPES OF DEFICITS:- Budgetary Deficit – Excess of all expenditure on both revenue 1
and capital accounts(TE-TR ) A)Revenue Deficit – Excess of revenue expenditure over
revenue receipts. ( RE-RR) B) Fiscal Deficit – It is equal to the total borrowings and 1
other liabilities of the govt. It indicates the total amount of borrowings by the 1
government. It leads inflationary pressure (or)
Fiscal Deficit:- Total budget expenditure – Revenue Receipt – Non Debt Capital Receipts
(Borrowings)
Budget deficit:-Total budget expenditure – Total Budget Revenue
Revenue Deficit:-Revenue expenditure – Revenue Receipt

explanation of one item gets 2marks.


26 It is an apex institution that controls and regulates the monetary and banking system of
the country.

Each point gets ½ Marks and


Functions:- 1) Issuing currency notes:- The RBI has monopoly power to issue currency
notes in the country. Except one rupee note and coins other notes are issued time to time.
2) Banker to the Government: It act as banker, agent and financial adviser to the
government. 3) Banker to commercial Banks:- It performs the functions of a banker to all
other banks, giving advices as well as money to any commercial bank needed. 4) Lender
of the last resort:- It helps the commercial banks in times of financial difficulties. 5)
Custodian of nation’s stock of foreign exchange reserves:- It also functions as the
custodian of nation’s stock of foreign exchange reserves. 6) Clearing house function:- It
performs the functions of a clearing house in the banking system of a country. 7) Control
of credit:- It controls credit in a country. Credit control seeks to regulate money supply
(any one/ two explain).
27 a) Capital receipts because it leads to decline in the financial assets of the 1
Government.
b & c) It is revenue receipts because it neither creates liabilities nor it leads to 1
reduction in assets
d) It is capital receipts because it leads to reduction in assets held by the 1
Government.
28 a) MEDIUM OF EXCHANGE: Money by serving as a medium of exchange has reduced the 2
time and energy spent in Barter system. The major drawback of Barter system was double
coincidence of wants. But by acting as intermediary money has facilitated trade and thus
exchange between different group of people.
b) UNIT OF VALUE: Money serves as a unit of value in terms of which the value of all goods
and services are measured. This helps in measuring the exchange values of commodities. The
price of all the goods and services can be fixed in terms of money and the problem of
expressing of the value of each commodity in terms of quantities of other goods can be
avoided.
c) STANDARD OF DEFERRED PAYMENTS: The third major drawback of Barter system
is that it lacks any unit to be contracted for future payments. This problem is solved with
the help of money. The value of money is more stable in comparison to the value of other
commodities. Moreover, money has the quality of general acceptability. So money is
considered to be suitable standard of deferred payments. 2
d) STORE OF VALUE: Under barter system, storing of value is very difficult in terms of
goods. But money has completely solved this problem. Now, savings are done in terms of
money. Whereas the value of goods are frequently changing, the value of money is more
or less stable. Moreover, goods are perishable, money is not perishable in the same sense.
Money occupies less space for storage in comparison with goods. Hence money is the best
form of store of value.

29 Foreign Exchange Rate:– It is a rate at which the currency of one country is exchanged 1
with the currency of other country eg., $1 = Rs.48
or one Indian rupee 1/48 th $. 1
Determination of the FER – The rate is determined in the
foreign exchange market by the interaction of the demand for 1
and supply of foreign exchange currencies.
Demand for Foreign exchange comes from 1
a) domestic resident to purchase goods and services from
other countries b)for sending gifts to foreigners c) by the domestic residents to purchase
financial assets in a particular country d) Speculation purpose
Supply of Foreign exchange comes from a) the foreigner’s purchasing home currency
goods and services through exports b) the foreigners who invest in home country through
joint ventures
OR
Current account: It is that a /c which records imports & exports of goods & services &
unilateral transfers. It records the following transactions :
Exports & imports of goods (or of visible items).b) Export & import of services (or of
invisible items) like travel, transport, banking @insurance etc.c) Unilateral transfers from
one country to the other.
CAPITAL ACCOUNT: It is that a /c which records all such transactions between
residents of a country & rest of the world which cause a change in the asset or liability
status of the residents of a country or its government. When balance of payment is not
balanced by current account, it has to be balanced by capital account. It includes short
term as well as the long-term international borrowing and lending gold transactions, it
any, also forms part of the capital account.

30 Equilibrium level of income is determined at the point when


aggregate demand is equal to the aggregate supply.
Aggregate Demand:- Aggregate demand represents the total
expenditure on goods and services in an economy aggregate
demand consists of a) consumption expenditure (c) b)
Investment expenditure (I) Thus AD = C+I
Aggregate supply:- It refers to the total production of goods and services in an
economy. In other words, it refers to country’s national product or national income
Thus AS = Y
Determination of the equilibrium level of theme:The equilibrium level of theme is
determined at point where AD = AS. The following table and diagram illustrate the idea.
Schedule and diagram showing the determinations of equilibrium level of income (Rs in
Crores)
The above table and diagram show that the equilibrium level of income is Rs. 300
Crores. Because at this level of income AD (300) = AS (300).
Yes (Equilibrium can get Before full employment also)
Inco Consump Investm AD AS = Remarks
me tion ent = Y
C+I
(Y) (C) (I)
0 50 100 150 0
100 100 100 200 100 AD>AS
200 150 100 250 200 Employment
300 200 100 300 300 AD=AS(Full
employment)
400 250 100 350 400 AD<AS
500 300 100 400 500 Employment
31 Value of output:-The sum of sales and change in stock( closing stock –opening stock) 1
Value added is defined as the difference between total value of output of a firm and value
of inputs bought from other firms. Thus, value added = value of output – value of input 1
used ( intermediate cost)
Name of the Firm Value of output Value of I.C Value Added
1
Sales – 110, Purchase from ROW –
A Export –30, 30 45
Change in stock –(-) 15 Purchase from B -50 1
Sales –90
Purchases
B Change in stock 30
From A - 50
(-)10 1

Final goods:- Those goods which are meant for final use by consumers or firms. These
goods are not required to enter into further stages of production or no resale is required. 1
They are called finished goods. E.g., Bread, shirt or scooter etc.,
Intermediate goods:- Those goods that are used to produce other goods and therefore
they always move from one stage of production to another in the manufacturing of a final
product. It is required to resale to make final production. E.g., Wheat, flour, cotton, any
part for scooter etc.,
© Factor income are receipts received by factors of production with tendering/producing
any type of goods or services ,in the form of wages, rent, interest and profits etc.,. These
are bilateral receipts and are included in the national income
Transfer receipts are receipts received without tendering/producing any goods or
services, e.g., old age pension scholarships, gifts etc.,. These are unilateral receipts and
are not included in the national

OR
EMPLOYEE COMPESATION:- Compensation to employees in the form of wages,
salaries and benefits ( employers contribution to social security scheme) makes up the
largest single component of factor income. Wages and salaries are payable in cash , kind
or both.. It includes 1. wages & salaries, 2. Rent free quarter 3. Commissions, bonus,
D.A., Sick Leave Allowances, CPF, LTC ETC.,
operating surplus:-: Definition: It is the income from both property and
entrepreneurship.
Components of Operating Surplus:- Income from property, a) Rent, 2)Interest, 3)
Royalty and Income from entrepreneurship (Profits),Dividends, Undistributed profits,
Corporation Tax
Income of self-employed people is known as mixed income of self-employed such as
farmers, small shop keepers, and manufactures, doctors, lawyers and charted accountants
etc. Income of such self employed persons cannot be distinguished between wage
income and property income. A part of their income is related to wage income. While
the other part to property income. So we can call it a mixed income. It is because of this
problem, the separate concept of mixed income has been coined in the national income
accounting.
32 Income method : xiv+(ix-xii)+xvi+(iv+v+vii)+(viii-x)
20+(55-25)+450+(90+210+100)+(20-40) =880

Expenditure method : i+xv+(iii+xiv)+(xi-xiii)+(viii-x)


250+500+(150+20)+(20-40)+(20-40) =880
KENDRIYA VIDYALAYA SANGATHAN

MODEL PAPER
SUB:-ECONOMICS Max.Marks:100
Time : 3 Hours
General Instructions:
i. All questions in both the sections are compulsory.
ii. Marks for questions are indicated against each.
iii. Question Nos. 1-5 and 17-21 are very short-answer questions carrying
1 mark each. They are required to be answered in one sentence each.
iv. Question Nos. 6-10 and 22-26 are short-answer questions carrying 3
marks each. Answer to them should not normally exceed 60 words each.
v. Question Nos. 11-13 and 27-29 are also short-answer questions carrying
4 marks each. Answer to them should not normally exceed 70 words each.
vi. Question Nos. 14-16 and 30-32 are long-answer questions carrying 6
marks each. Answer to them should not normally exceed 100 words each.
vii. Answers should be brief and to the point and the above word limit be
adhered to as for as possible.

SECTION –A (INTRODUCTORY MICRO ECONOMIC THEORY)

1.Define Marginal Revenue 1m


2.What does a point below production possibility curve indicate? 1m
3. Which cost may there when output is even zero. 1m
4. State the condition of producer’s equilibrium. 1m
5. Draw unitary elasticity of supply. 1m
6.Explain any two central problems facing our economy. 3
7. Define law of demand? Draw a unitary elasticity of demand with the help of a
demand schedule. 1,1,1 =3
8. Draw the supply curves showing a) elasticity of supply equal to1 b) elasticity of
supply greater than 1 c) elasticity of supply less than 1. 1,1,1 =3
9. State any three causes of a leftward shift of supply curve. 3
10. Explain the relationship between average variable cost and marginal cost with he
help of diagram. 3M (or)
What is the relationship between Total revenue and Marginal revenue with diagram?
11.. The total fixed cost of a firm is Rs. 12. given below is its marginal cost schedule.
Calculate total cost and average variable cost for each given level of output. 2,2 =4
Output(units) 1 2 3 4
Marginal Cost (Rs.) 9 7 2 4
12.The quantity demanded of a commodity at a price of Rs. 10 per unit is 40 units. Its
price elasticity of demand is (-2). Its price falls by Rs. per unit. Calculate its
quantity demanded at the new price. 4M
13. . What is equilibrium price? What happens to equilibrium price of a commodity
when its demand increases? 4M
14. Explain the main features of monopolistic competition. 6M
15. Explain the law of variable proportion. (6M)
16. Explain the factors that affect the market demand of a commodity. (or)
Distinguish between increase in demand and expansion of demand (rise in
quantity demanded). Use diagram. (6)
SECTION –B (INTRODUCTOR MACRO ECONOMIC THEORY)

17. Define macro economics. 1M


18. Give one point of difference between macro and micro economics. 1M
19. When is there a deficit in the balance of trade? 1M
20. What is meant by a surplus budget?. 1M
21. What is SLR/CRR. 1M
22..Find out (a) Personal disposable Income, b) Personal Income and c) private
Income from the following data.
(Rs. In crores)
i) Payments of direct taxes by the households 650
ii) Corporation tax 150
iii) Household final consumption expenditure 2450
iv) Savings of the a private corporate sector 350
v) Interest on national debt 200
vi) Saving of the households 750

24. Explain Briefly the meaning inflationary gap and deflationary ?(3M)
25.. As a result of increase in investment by Rs 75 crores, national income rises by Rs.
300 crores. Calculate a marginal propensity to save (MPS)?

26. . Define (a) Fiscal deficit (b) Budget deficit (c) Revenue deficit ?
27. . Give any four functions of a Central Bank (RBI)?

28.. Give reasons, categorise the following into revenue receipts and capital receipts ?
( 4M )
i) Recovery of Loans. , ii) Income tax.
iii) Dividends on Investments made by Government., iv) Sale of public sector
undertaking.

29. State the four function of Money. Describe any one of them ? ( 4M )

30. Explain how foreign exchange rate is determined in a foreign exchange market ?
( 4M )
OR
Distinguish between current account and capital account of balance of payments
accounts. mention two items of each of these accounts ?
31. Explain with the help of diagram the determination of equilibrium. Can the
economy be in equilibrium at less than full employment ?
32.. Distinguish between:
d) Value of output and value added
e) Factor income and transfer receipt
f) Intermediate goods and final goods
OR
Explain the components of factor income ( NDP at fc )
HIGH ORDER THINKING SKILLS
(BRAIN STORMING QUESTIONS)

Introduction
Q1) How can the central problem be solved with the help of PPC?
Q2) Why is PPC concave to the origin?
Q3) . Explain the problem of opportunity cost with an example?
Q 4) Draw a PPC and show the following on this curve. Give reasons of this shift. (i)
Q5) Q 5) Growth of Resource., (ii) Underutilization of resource.
(iii) Fuller utilization of resource. .
Q 6) Calculate marginal opportunity cost of good X.

Production Marginal
Production
Of Good Opportunity
of Good X
Y cost
0 100
1 90
2 70
3 40
4 0

Theory of Consumer Behaviour


Q1) A rise in the income of the consumer X leads to a fall in the demand for that good
by
that consumer. What is the good X called?
Q2) As you add together the identical demand curves of more and more people, the
market demand curve becomes flatter and flatter on the same scale. Thus this fact
indicate that the elasticity of demand is becoming larger and larger? Explain your
answer carefully?
Hint:- Elasticity of demand is responsiveness of change in demand due to change in
the price of the product. But here, the demand increases due to the changes in the
number of consumer’s in the market not due to change in price of the commodity.
Q3) When demand for good falls due to rise in its own price, what is the change in
demand called?
Hint:- Contraction of demand
Q4) Why do household buy more of a good at a lower price? Explain?
Hint:- Because of real income increase. See mock answer paper determinants of
DD
Q5) Suppose there are 20 consumer for a good and they have identical demand
function
d1(p) = 10 - 3p for any price <=10/3
=0 price > 10/3
What is the market Demand function?
Hint:- dm(p) = (10 – 3p)20 for p<=10/3
=0 p > 10/3
Q6) (a) Given Px = Rs 2, Py= Rs 1, income = Rs 12. Find how a consumer spends her
income in order to maximize total utility.
(b) Calculate TU receive by the consumer. Show that the equilibrium condition
for
the consumer are satisfied.
Ans) (a) Consumer will spend 1st and 2nd rupe to buy 1st and 2nd units of Y. This will
give
total of U units. If the 1st two rupees were spent on 1st unit of X then 16 units
would be received.
(b) TU = 93 units
(c) MUx/ Px = MUy/ Py subject to PxX + PyY = M
12/2 = 6/1…. subject to (2)(3) + (1) (6) = 12
Q7) Draw 3 demand curves showing the same value of price elasticity of demand at
all
points. Hint:-See KVS Web site Bhopal for all diagrams .
Q8 ) A consumer consumes goods x. Explain the effects of fall in prices of related goods on
the demand for x. use diagram showing demand for good x on the x-axis and its price on the
y-axis.
Hint:-See Mock Paper
Q9 ) State three causes each for a forward shift and a left ward shift of demand curve.
Hint:-See Mock Paper
Q 10) Why does the demand curve slop downwards? Explain
Note; See Mock Paper
Q 11). A consumer boys 160 units of a good at a price of Rs 8 per unit. Price falls
to Rs 6 per unit. How much quantity will the consumer buy at the new price
if price elasticity of demand is (-)2) ?
DQ P
A. Ed = x
DP Q

8 X − 160 X − 140
−2 = x =
160 −2 − 40
X = 160 = +80
X = +80 + 160 = 240
The Consumer will buy 240 units

Q.12. As a result of 5% fall in price of a good its demand rises by 12 % find out
elasticity of dd & say whether demand is elastic or inelastic & Why ?
A. Ed = % change in qly dd
% change in price
12%
= = 2.4
5%
Demand is elastic because percentage
Change in demand is greater than percentage
Change in price
Producer Behaviour & Supply

COST FUNCTION : Output – Cost Relationship of a firm is the cost function of that
firm. When Output increases it is IRS , when decreases it is DRS and when
production function remains unchanged it exhibits CRS.
TOTAL COST: The cost that a firm incurs to employ fixed input is called Total
Fixed Cost and the cost that a firm incurs to employ variable input is called
TVC. Addition of TVC and TFC is called Total Cost .
TFC = TC - TVC
TC = TVC + TFC TVC = TC - TFC

AVERAGE COST: Cost Incurred by a firm on per unit of production is known as


Average Cost
(AC) = TC , AVC = TVC .:, AFC = TFC
Q Q Q

AC = AFC + AVC AVC = AC - AFC AFC = AC - AVC


AVC + AFC is always equal to SAC

MARGINAL COST: Change in total cost due to change in MC = TCN – TCN-1


production of additional unit of output is known as Marginal Cost.

DIAGRAMS:- Production and cost

Q1) Complete the folloing table and identify the 3 phases of the law of variation
proportion variation.

Unit of Variation TPP APP MPP


1 10
2 22
3 30
4 30
5 25
Hint: Law of variable proportions and see Mock paper
Q2) Assuming 2 input L and K in producing a product> identify returns to scale on
the
basis of the following when producer moves from one input combination to
another.

Input Combination T Output


1K + 1L 60
2K + 2L 140
4K + 4L 280
8K + 8L 50
Hint: Law of Returns to scale
Q3) Complete the following table assuming that the law of diminishing returns is
operating throughout.
Variation Input MPP
1 10
2
3

Q4) Prepare a schedule of different combination of X and Y input assuming


(a) Increasing return to scale.
(b) Constant return to scale.
(c) Decreasing return to scale.
Q5) Explain the difference between MC and AVC. Why should AVC always look
like
MC? Why is MC the same when computed from VC as from TC?
Q6) why is MC curve in the short run U shape?
Q7) Why is AC curve in the short run U shaped?
Q8) How does the following effect the supply curve of a firm.
(a) Technological purpose., Imposition of a unit tax.
(b) Increasing in input price., Increasing in number of firms.
Ans. See Mock answers paper
Q9) Is it correct to say that profit of a producer under perfect competition is maximum
at
a level at which P= MC, but MC is decreasing?
Hint:- No, MC should be increasing along with P = MC.
Q10) At a particular level of output, a producer finds that MC > MR. What will a
Producer do to maximize his profit?
Hint:- If MC > MR the producer will reduce his production to increase his
porfit.
Q11) TC is not the sum total of marginal costs.
TC ≠ ∑ MC. Why?
Hint:- ∑ MC = TVC
∑ MC ≠ TVC
TC = FC + VC
Q12) Does MC include fixed cost? Why?
Hint:- No. Because MC is additional cost and additional cost can only be
variable
cost.
Q13) What change in total revenue will result in
(a) Decrease in marginal revenue.
(b) An increase in marginal revenue
Hint:- Relationship TRS/ MR
Q14) What change should take place in total revenue so that
(a) Marginal revenue is positive.
(b) Marginal revenue is falling.
( See Mock Paper)
Q 15) Distinguish between ‘Change in supply’ and ‘Change in quantity supply’ of a
commodity. ( see Mock Paper)
Q 16) Define market supply. State the law of supply and the assumption behind it
( See Mock Paper)
Q 17) Complete the following table:
Variable input TPP APP MPP
0 0 ---
1 --- 20
2 --- 26
3 66 ---
4 --- 19 10
5 --- 4
Q18) At the market price of Rs. 10 a firm supplies 4 units of output. The market price
increases to Rs. 30. The price elasticity of the firm’s supply is 1.25. What quantity
will the firm supply at the new price?
Q19. When the price of doll is Rs 4 per doll, a doll makes supplies 8 dolls per day.
It the price to Rs 5 per doll, he is writhing to supply 10 dolls.
∆Q P
Ans. ES = X
∆P Q
2 4
= x
1 8
The price elasticity of supply is 1

Q20) Given below is the cost schedule of a firm. Its total fixed cost is Rs. 100.
Calculate average variable cost and marginal cost at each given level of output.
Output (units) 1 2 3 4
Total cost (Rs.) 350 450 610 820

Q21Calculate total variable cost and marginal cost at each given level of output
from the following table.
Output (units) 0 1 2 3 4
Total cost (Rs.) 40 60 78 97 124

Q.22. Complete the following table:


Output (units) Price (Rs.) Total revenue (Rs.) Marginal revenue
(Rs.)
1 7 -- --
2 6 -- --
3 4 -- --
4 2 -- --

Q23. Calculate total cost and average variable cost of a firm at each given level of
output from its cost schedule given below:
Output (units) AFC (Rs.) MC (Rs.)
1 60 32
2 30 30
3 20 28
4 15 30
5 12 35
6 10 43
Explain why MC cuts AC and AVC at their minimum values
Q24. Explain the fallacies in each of the following:
(a) AC is minimized when MC is at its lowest point.
(b) Because fixed costs never change, AFC is constant for each level of output.
(c) AC is rising whenever MC is rising.
(d) The opportunity cost of drilling for oil is zero because no firm produces
anything there.
Q25. At the market price of Rs. 10 a firm supplies 4 units of output. The market
price increases to Rs. 30. The price elasticity of the firm’s supply is 1.25. What
quantity will the firm supply at the new price?
Q26. The price of a commodity is Rs. 12 per unit and its quantity supplied is 500
units. When its price rises to Rs 15 per unit, its quantity supplied rises to 650
units. Calculate its price elasticity of supply. Is supply elastic?
Q27. Due to a 10 per cent rise in the price of a commodity, its quantity supplied
rises from 400 units to 450 units. Calculate its price elasticity of supply. Is its
supply elastic?
Unit 4:Forms of Market and Price Determination
Q1) Why a firm under perfect competition will not lower the price to increase its
sales?
Hint:- (a) An individual firm - a small supplier in the market can not ever cater to
the
entire market demand for the commodity.
(b) Uniform price –
Q2) Perfect competition is no competition. How?
Hint:- (a) Uniform price
(b) No price war
(c) Homogeneous product
Q3) Both under monopoly and under monopolistic competition firms demand curve
slopes downwards. Is there any differences? Reasons.
Hint:- (a) No close substitutes
(b) Single seller
Q4) Does price never change under perfect competition, given the fact that a firm
under
perfect competition is a price taker?
Hint:- Industry will determine the price with the help of Demand and Supply
force
Q5) What is the reason for the long run equilibrium of a firm in monopolistic
competition
to be associated with zero profit?
Q6) What happens when demand and supply curve don’t intersect each other?
Hint:- Economically non-viable.
Q7. ‘what is the relationship between control price and equilibrium price ?

Hint :-Control price is less than equilibrium price


8. What is meant by abnormal profit
A. Abnormal profit are known as positive profit. It is the profit earned over and
above normal profit
9. What is the break – even price ?
A. Break-even price is the price at which firms make zero abnormal profit. It is
equal to average cost.
10. If the firms are earning abnormal profits, how will the number of firms in the
industry charge ?
A. When the firm enjoys the abnormal profits, many new firms gets attracted to
the industry and the number firms in the industry charge and also increases the
competition.
11. If the firm is making abnormal losses, how will the number of firms in the
change.
A. In the situation of abnormal losses, some of existing firms may leave the
industry. This process will condition till there is no losses.
12. Why does a competitive firm cannot earn abnormal profit in the long run?
A. Due to free entry and exit of firms, break even price is equal to average cost in
long run since
P = LAC = LMC, a competitive firm cannot earn abnormal profits.
13. What are patent rights ?
A. It is an exclusive license or right grouted to a company or an individual to
produce a particular product or use a particular technology.
15. What is cartel ?
A. Cartel is a group of firms which jointly sets output and price so as to exercise
monopoly power.
16. What is the relationship between price and marginal cost at the monopoly
equilibrium?
A. Price is greater than marginal cost i.e > MC, When MC = MR
17. What is profit maximizing rule for a monopoly firm.
A. The profit maximizing condition is MC = MR and on C is rising (P>MR; P>
MC)
18. Why does a monopoly firm earn abnormal profit in the Long run ?
A. Monopoly firm earns abnormal profits in the long run became of blacked free
entry of new firms in the market.
19. What are anti-trust legislations?
A. Anti-Trust legislations refers to these legislations which del with the issue of
market power of firms, in relation to their productive efficiency.
20. What is persuasive advertising ?
A. There is a need to maintain a perception in the mind of the potential
consumers that their respective brands are different / better as compared to
other bands. Expenses incurred for this is known as advertising costs or
persuasive advertisement.

IDENTIFY THE FORM OF MARKET FROM THE DAT GIVEN


BELOW:

Output sold (units) Price of A Price of B


20 2 4
30 2 3
40 2 2

6:National Income and Related Aggregates

Q1) What are leakages injections?


Q2) Valued added – (see Numerical )
Double counting and how to avoid it.
Q3) Expenditure and Income Method (see Numerical )
Q4) NDI and Pvt. I - (see Numerical )
Q5) What is the difference between planned and unplanned inventory accumulation?
Write down the relation between charge in inventions and value added of a firm
Q6) Write down the 3 identities of calculating the GDP of a country by 3 methods.
Explain why each of these should give us the same value of GDP.
Q7) Why is net exports (X-H) a part of domestic income, and not a part of NFIA
Hint:- exports are goods produced within the domestic territory.
Q8) State the 2 major components each of final consumption expenditure and gross
domestic capitals formation.
Hint:- (a) Pvt final Consumption Exp.
(b) Government Final Consumption exp.
- Gross domestic fixed capital formats.
-Change in stock
Q9) NI included

10. What is factor market?


A. It consists of factors of production namely, land, labour, capital, raw material
and entrepreneur.
11. Define product market?
A. It consists of final goods and services.
12. What do you understand by real flow?
A. Real flow means the flow of factor services from households to firms and of
goods and services from firms to households.
13. What is the alternative name of micro economics?
A. ‘Price theory’
14. Why is change in stock is considered a part of final expenditure?
A: Unsold stocks left with producers are assumed as purchased by the producers
themselves. That is why it is treated as investment expenditure by the producers

From the following data calculate ‘gross value added at factor cost’:
(Rs. in lakhs)
(i ) Net indirect taxes 20
(ii) Purchase of intermediate products 120
(iii) Purchase of machines 300
(iv) Sales 250
(v) Consumption of fixed capital 20
(vi) Change in stock 30

From the following data calculate net national product at factor cost by
(a) income method, and (b) expenditure method.
(Rs. in
crores)
(i ) Current transfers from rest of the world 100
(ii) Government final consumption expenditure 1,000
(iii) Wages and salaries 3,800
(iv) Dividend 500
(v) Rent 200
(vi) Interest
150
(vii) Net domestic capital formation 500
(viii) Profits 800
(ix) Employers’ contribution to social security schemes 200
(x) Net exports (-) 50
(xi) Net factor income from abroad (-) 30
(xii) Consumption of fixed capital 40
(xiii) Private final consumption expenditure 4,000
(xiv) Net indirect tax 300

Calculate (a) private income, and (b) personal disposable income from the
following data:
(Rs. in
crores)
(i ) Income from property an entrepreneurship accruing to
government administrative department 500
(ii) Savings of the non-departmental public enterprises 100
(iii) Corporation tax 80
(iv) Income from domestic product accruing to private sector 4,500
(v) Current transfers from government administrative departments 200
(vi) Net factor income from abroad (-) 50
(vii) Direct personal taxes 150
(viii) Indirect taxes 220
(ix) Current transfers from rest of the world 80
(x) Savings of private corporate sector 500

15. Will the following factor income be a part of domestic factor income of India?
Give reasons for your answer.
(i) Profit earned by foreign banks from their branches in India.
(ii) Salary received by Indian residents, working in American embassy in
India.
(iii) Profits earned by an Indian company from its branch in Singapore.
(iv) Compensation of employees given to residents of China working in Indian
embassy in China.
16. What is double counting? How can it be avoided?
17. How the sum of net factor income is equal to the sum of factor income?
18. What is effective demand? How will you derive the autonomous
expenditure multiplier when price of final goods and the rate of interest are
given?
Calculate Gross National Disposal Income from the following data: Rs.
(Crores)
(i) National income. 2,000
(ii) Net current transfers from rest of the world. 200
(iii Consumption of fixed capital. 100
)
(iv) Net factor income from abroad. (-) 50
(v) Net indirect taxes. 250
(3
marks)
Ans. G.N.D.I. = GNPmp + NCT R/W
= (N.I. + CFC + NIT) + NCT R/W
= (2000 + 100 + 250) + 200
= 2350 + 200 = Rs. 2550.
Calculate Gross National Disposal Income from the following data:
Rs.
(Crores
)
(i) Net national product of factor cost. 3,000
(ii) Net factor income from abroad. (-) 50
(iii Consumption of fixed capital. 150
)
(iv) Net indirect taxes. 250
(v) Net current transfers from rest of the world. 300
(3
marks)
Ans. G.N.D.I. =(I + iii + iv) + (v)
= (GNPmp) + (NCT R/W)
= (3000 + 150 + 250) + (300)
= 3400 + 300 = Rs. 3700 crores.
Calculate Net National Disposal Income from the following data: Rs. crores)
(i) Gross national product at factor cost. 800
(ii) Net current transfers from rest of the world. 50
(iii Net indirect taxes. 70
)
(iv) Consumption of fixed capital. 60
(v) Net factor income from abroad. (-)10
(3 marks)
Ans. G.N.D.I. = GNPmp + NCT R/W
= (GNPFC + NIT) + NCT R/W
= ( i + iii) + ii
= (800 + 70) + 50
= Rs. 920 crores.
Calculate Net National Disposal Income from the following data:
Rs. (Crores)
(i) Gross domestic product at the market price. 1,000
(ii) Net factor income from abroad. (-)20
(iii Net indirect taxes. 120
)
(iv) Consumption of fixed capital. 100
(v) Net current transfers from rest of the world. 50
(3 marks)
Ans. NNDI = NNPMP + NCT R/W
= (GNPMP - CFC + NFIA) + NCT R/W
= i – iv + ii + v
= 1000 + 100 + (-20) + 50
= Rs. 930 crores.

Calculate Net National Disposal Income from the following data:


Rs. crores
(i) Gross domestic product at the market price. 1,500
(ii) Net factor income from abroad. (-)20
(iii Consumption of fixed capital. 100
)
(iv) Net current transfers from rest of the world. (-)30
(v) Net indirect taxes. 120
(3 marks)
Ans. NNDI = NNPmp + NCT R/W
= (GNPmp - CFC + NFIA) + NCT R/W
= i – iii + ii + iv: = 1500 + 100 + (-20) + (-30), = Rs. 1350
crores.
Calculate (a) private income, and (b) personal disposable income from the following
data: Rs.
(Crores)
(i) Income from property and entrepreneurship accruing to the 500
government administrative departments.
(ii) Savings of non-departmental enterprises. 100
(iii) Corporate tax. 80
(iv) Income from domestic product accruing to private sector. 4,500
(v) Current transfer form government administrative departments. 200
(vi) Net factor income from abroad. (-)50
(vii) Direct personal taxes. 150
(viii Indirect tax. 220
)
(ix) Current transfers from rest of the world. 80
(x) Savings of private corporate sector. 500

Ans: Pvt. Income = iv + v + ix + vi


= 4500 + 200 + 80 +(-50)
= 4500 + 200 +80 – 50 = Rs.4370 Crores,
PDI = Pvt. Income – iii – x – vii: = 4730 - 80 - 500 - 150 = Rs.4000 Crores.
Calculate (a) private income, and (b) personal disposable income from the following
data: Rs.
(Crores)
(i) Savings of private corporate sector. 500
(ii) Current transfers from rest of the world. 60
(iii) Corporate tax. 80
(iv) Current transfer form government administrative departments. 170
(v) Direct personal taxes. 150
(vi) Income from domestic product accruing to private sector. 4,500
(vii) Savings of non-departmental enterprises. 250
(viii Net factor income from abroad. (-)30
)
(ix) Net exports (-)50
Ans: Pvt. Income = vi + viii + iv + ii
= 4500 + (-30) + 170 + 60
= 4500 – 30 + 170 + 60 = Rs.4700 Crores
Explain briefly the distinction between:
(a) Gross domestic product at factor cost and Net national product at market
price.
(b) National income and Net Disposable Income.
Calculate (a) private income, and (b) personal disposable income from the following
data: Rs.
(Crores)
(i) Net Indirect tax. 90
(ii) Compensation of employees 400
(iii) Personal tax. 100
(iv) Operating surplus 200
(v) Corporate profit tax. 80
(vi) Mixed income of the self-employed. 500
(vii) National debt interest. 70
(viii Savings of non-departmental enterprises. 40
)
(ix) Current transfers from rest of the world. 60
(x) Income from property and entrepreneurship accruing to the 30
government administrative departments.
(xi) Net current transfers to the rest of the world. 20
(xii) Net factor income from abroad. (-)50
S .
Ans: (a)NNDI = ii + iv + vi + xii + i - xi
= 400 + 200 + 500 + (-50) + 90 – 20
= Rs.1120
(b) Private income = (ii + iv + vi) – viii – x + xii + vii + ix – xi
= (400 + 200 + 500) – 40 – 30 + (-50) + 70 + 60 – 20
= 100 – 40 – 30 – 50 + 70 + 60 – 20
= Rs. 1090 crores.
From the following data calculate national income by (a) income method and (b)
expenditure method. (6 marks)

Rs.
(Crores)
(i) Private final consumption expenditure 2,000
(ii) Net capital formation 400
(iii) Change in stock 50
(iv) Compensation of employees 1,900
(v) Rent 200
(vi) Interest 150
(vii) Operating surplus 720
(viii Net indirect tax 400
)
(ix) Employees’ contribution to social security schemes 100
(x) Net exports 20
(xi) Net factor income from abroad (-)20
(xii) Government final consumption expenditure 600
(xiii Consumption of fixed capital 100
)

Ans: N.I. (Income method) = iv + vii + xi


= 1900 + 720 + (-20) = 1900 + 720 – 20
= Rs. 2600 crores.
N.I. (Exp. Method) = i + xii + ii + x + viii + xi
= 2000 + 600 + 400 + 20 - 400 + (-20)
= 2000 + 600 + 400 + 20 – 400 - 20
= Rs. 2600 crores.

Will the following factor incomes be included in domestic factor income of


India? Give reasons for your answer. ( 6 marks)

(i) Compensation of employees to the residents of Japan working in Indian embassy


in Japan.
(ii) Profits earned by a branch of foreign bank in India.
(iii) Rent received by an Indian resident from Russian embassy in India.
Prod Profits earned by a branch of State Bank of Indian in England.
(iv)

Ans:
(i) It is a part of domestic factor income of India because the Indian
embassy in Japan is a part of domestic territory of India.
(ii) It is a part of domestic factor income of India because the foreign
bank is located in the domestic territory of India.
(iii) It is not a part of domestic income of India because Russian
embassy in India is not a part of domestic territory of India.

2. From the following data, calculate National Product at Market Price by (i) income
method and (ii) expenditure method: (6 marks) Rs. (Crores)
(i) Mixed income of self- employed 400
(ii) Compensation of employees 500
(iii) Private final consumption expenditure 900
(iv) Net factor income from abroad (-) 20
(v) Net indirect tax 100
(vi) Consumption of fixed capital 120
(vii) Net domestic capital formation 280
(viii Net exports (-)30
)
(ix) Profits 350
(x) Rent 100
(xi) Interest 150
(xii) Government final consumption expenditure 450

Ans: (i) GNPMP = COE + R + I + P + Mixed I + NFIA + CFC + NIT +


(Income method) = ii + x + xi + ix + i + iv + vi + v
= 500 + 100 + 150 + 350 + 400 + (-20) + 120 + 100
= Rs. 1700 crores.
GNPMP = PFCE + GFCE + GDCF + Net X + NFIA
(Exp. Method) = iii + xii + (vii + vi) + viii + iv
= 900 + 450 + (280 + 120) + (-30) + (-20) = Rs. 1700 crores.

3. Will the following be included in domestic factor income of India? Give


reasons for your answer. (6 marks)
(i) Profit earned by a foreign bank from its branches in India.
(ii) Scholarships given by Government of India.
(iii) Profits earned by a resident of India from his company in Singapore.
ssssS
(iv) Salaries received by Indians working in American Embassy in India.

Ans:
(i) Profit earned by a foreign bank is included in domestic product of India because
the bank’s branches are located in the Indian domestic territory.
(ii) Scholarships is a transfer payment because no service is provided in return. So, it
is not included in domestic income.
(iii) Profits earned by an Indian company in Singapore is not included in domestic
product of India because company is located outside the economic (domestic)
territory of India.
(iv) Salaries received by Indians working in American Embassy in India is not
ssssS
included because the embassy is treated as a part of American domestic territory
and not of India.

6: DETERMINATION OF INCOME AND EMPLOYMENT


Q1) What is the difference between ex- ante investment and ex-post investment?
Q2) What do you understand by parametric shift of a line? How does a line shift when
its slope decreases
(1) its intercept increases
Q3) Explain the paradox of thrift?
Q4) Bring out the relation between APC and MPC. The value of which of them can
be more than one and when?
Q5) Explain (a) inflationary gap (b) deflationary gap with the help of a diagram.
ANS: See Mock / sample papers marking scheme

Q6) Differentiate between full employment equilibrium and under employment


equilibrium with the help of diagram.
ANS: See Mock / sample papers marking scheme
Q7) Define marginal efficiency ofcapital. How is this concept in business decisions?
Q8) Numericals from K, MPC and APC etc.
Q9) In India, people spend a high percentage of their income so that APC and MPC
are high. Yet the value of multiplier is low. Why?
Hint:- India lack in production capacity. Whenever demand increases, there is
increasing pressure of demand on the existing output rather than the
increase in output or income.
Q10) What is multiplier? What determine its value?
Q11) Can output increases beyond full utilization of resources.
Q12) Will price level rise in a situation of increase in Agg demand
Hint:: No
Q13) Does over employment equilibrium imply a higher level of output compared to
full employment equilibrium?
Hint: No
Q14) What is the difference between monetary policy and fiscal policy.
Q15) State the components of fiscal policy
Hint:- SEE Mock paper

Q16. Define frictional un-employment?


A: Frictional unemployment is a temporary unemployment of people who are
shifting jobs since it takes time for a person to get another job. During this period of
leaving one job and getting/accepting another job, it is called frictional unemployment
Q17. What is induced investment?
A: Induced investment is that kind of investment, which is profit, motivated.
When national income increases induced investment also increases.
Q18. Define autonomous investment / public investment.
A: Autonomous investment is that kind of investment, which is not profit,
motivated. It is not affected by the change income, rate of interest, and rate of
profit.
Q19. Define linear consumption function.
A: If the consumption function is given on the basis of constant marginal
propensity to consume, it is called linear consumption.
C = C +by
C = Consumption; C = Autonomous consumption/minimum level of
consumption; b = Marginal propensity to consume; y = Level of income.
Q20. Explain the relationship between multiplier and MPC.
A. Relationship between multiplier and MPC:- The value of multiplier varies
directly with MPC. Higher the MPC, the larger will be the value of multiplier
and lower the MPC, the smaller will be the value of multiplier.
Q21.Distinguish between average propensity to consume and marginal propensity to
consume with the help of numerical examples.
ANS: See Mock / sample papers marking scheme
Q22.Define aggregate demand. State its components.
ANS: See Mock / sample papers marking scheme
Complete the Consumption Marginal Marginal
following table. Expenditure to Propensity to save Propensity
Income (Rs.) consume
1000 900 - -
1200 1060 - -
1400 1210 - -
1600 1350 - -

Q23. Isn an economy, investment expenditure is increased by Rs. 400 crores and
MPC is 0.8 calculate total increase in income and savings
Hints. : Increase income Rs. 2000 Crores, Increase saving Rs. 400 crores .
Q24. Find out MPC and MPS if an additional investment of Rs. 100 crores generates
and additional income of Rs. 500 crores .
Hints. : MPC = 0.8 and MPS=0.2
Money and Banking
Q1) What is high powered Money
(a) cash with people, B) cash reserve with
Q2) What is money multiplier? How do you determine its value? What ratios paly an
important role in the determination of the value of money multiplier?
ANS: See Mock / sample papers marking scheme
Q3) What are the instruments of monetary policy of RBI? How does RBI stabilize
money
supply giant exogenous shocks?
Q4) How does central bank perform the function of controller of credit?
ANS: See Mock / sample papers marking scheme
Q5) What is the difference between a commercial bank and central bank.
Q6) What is liquidity trap?
Q7) Why is speculative demand for money inversely related to the rate of interest.
Q8. What are the main functions of money? How does money over come the
shortcomings of a barter system?
ANS: See Mock / sample papers marking scheme
Q10. What are the alternative definitions of money supply in India?
ANS: See Mock / sample papers marking scheme

Government Budget and the Economy

Q1) Why are borrowing treated as capital receipts.


Q2) Why is the payment of interest treated as revenue expenditure
Q3) What is the basis of classifying govt. expenditure into
(a) Revenue expenditure and capital expenditure
(b) Plan expenditure and non-plan expenditure
Q4) What does fiscal deficit in a govt. budget mean? What are its implications?
Q5) A government budget shows a primary deficit of Rs. 4,400 crores. The revenue
expenditure on interest payment is Rs 400 crores. How much is the fiscal deficit?
Q6. . Define fiscal deficit.
Q7. . What is meant by revenue deficit?
See Mock paper for answer
Q8. . In a government budget revenue deficit is Rs 50000 crores and borrowings are
Rs 75000 crores. How much is the fiscal deficit?
See Mock paper for answer
Q9. In a government budget revenue deficit is Rs 50000 crores and borrowing are Rs
75000 crores. How much is the fiscal deficit?
See Mock paper for answer
Q10. Are fiscal deficits necessarily inflationary? Explain .
Q11. . Explain why the tax multiplier is smaller in absolute value than the
government expenditure multiplier .
Q. 12 OBJECTIVES OF BUDGET:-
a) Re-distribution of income and wealth.
b) Re-allocation of resources
c) Economic stability
Balance of payments

Q1) If inflation is higher in country a than in country B and the exchange rate between
the 2 countries is fixed, what is likely to happen to the trade balance between the
countries.
Q2) What is meant by visible and invisible items in the balance of payments account?
Give 2 examples of invisible items
Q3) Balance of Payment always balance : Does it mean a situation of zero net
financial
obligation for a country?
Hint:- It should not be interpreted as zero net financial obligation for a country.
A
-ve balance on the current account is equated with the balance in the
capital account. But +ve balance in capital account has to be achieved through loans
from ROW.
Q4) How is deficit or surplus on current account BOP restored?
Hint:- Through surplus on capital account, and surplus on current account is
restored
through deficit on capital account.
Q4. The Balance of trade shows a deficit of Rs.300 Crore. The Value of exports are
Rs.500 Crore. What is the value of imports? Hint: 800
COMMON ERRORS WHICH ARE GENERALLY SEEN
IN ECONOMICS ANSWER SCRIPTS

1. Owing to language problem, the students do not understand the questions


correctly.

2. Due to the same problem, they are unable to convey the answers suitably.

3. Poor application of Mathematical problems not practicing regularly

4. Inadequate skills in presenting the diagrams due to lack of practice. For eg.,
drawing of demand curve for supply curve and vice versa; drawing of cost
curves instead revenue curves and vice-versa.

5. Over all presentation of answers is not as expected confused answers.

6. Formulae in National Income Accounting and Micro Economics are not leant
thoroughly.

7. Omission of some answers is commonly seen among the students. One should
attempt all the questions.

8. Inadequate practice to present the answers to the point.

9. Writing question number wrongly.


PRECAUTIONS TO ENSURE MAXIMUM SCORING IN
ECONOMICS

(FOR THE TEACHERS & THE STUDENTS)

1. Motivation and encouragement of the students are the best tonic for higher or
better scoring.

2. Conceptual formation should be very clear to the students.

3. While writing the answers, students must be trained to write only the value
points.

4. Conceptual errors should be avoided.

5. Schedules should be learnt thoroughly and diagrams should be practiced


regularly.

6. More number of numerical are to be solved.

7. Frequently asked questions in the Board examinations, should be revised


thoroughly.

8. Minimum Level of Learning should be ensured for slow learners through


intensive and regular remedial coaching, from the inception of the academic
year.

9. The teacher has to pay more attention in rectifying the common errors which
are being normally made by the students, while writing. Hence, the teacher
can discuss these points, in the class room with the help of corrected answer
scripts of the students after every test.

10. Xerox copy of the best students’ answer papers can be distributed to other
students after discussion

11. Parental care should be obtained periodically by the teacher.

12. Avoid splitting of answers and writing in different places.


QUESTION PAPER CODE 58/1/1 2007

ECONOMICS
Time allowed : 3 hours Maximum marks: 100
Note:
(i) All questions in both the sections are compulsory.
(ii) Marks for questions are indicated against each.
(iii) Question Nos. 1 and 13 are very short-answer questions carrying 1 mark for
each
part. They are required to be answered in one sentence each.
(iv) Question Nos. 2-5 and 14-17 are short-answer questions carrying 3 marks each.
Answer to them should not normally exceed 60 words each.
(v) Question Nos. 6-9 and 18-21 are also short-answer questions carrying 4 marks
each. Answer to them should not normally exceed 70 words each.
(vi) Question Nos. 10-12 and 22-24 are long-answer questions carrying 6 marks
each. Answer to them should not normally exceed 100 words each.
(vii) Answers should be brief and to the point and the above word limits be adhered
to as far as possible.
(viii) All parts of a question should be answered at one place.

Section A
1. Answer the following questions :
(i) Why does an economic problem arise ?
(ii) Define opportunity cost.
(iii) What does a rightward shift of production possibility curve indicate ?
(iv) Define microeconomics. 1×4=4

2. Explain the effect of increase in income of the consumer on the demand for a
good. 3

3. State three causes of increase in supply. 3

4. Explain the relation between marginal cost and average cost. 3

5. Explain producer’s equilibrium with the help of a diagram. 3

6. A consumer buys 40 units of a good at a price of Rs. 3 per unit. When price
rises to Rs. 4 per unit he buys 30 units. Calculate price elasticity of demand by
the total expenditure method. 4 OR

A consumer buys 80 units of a good at a price of Rs. 5 per unit. Suppose price
elasticity of demand is (-)2. At what price will he buy 64 units ?

7. Give meaning of: 4


(i) production function (ii) Supply (iii) revenue, and (iv) cost
8. Calculate ‘total variable cost’ and ‘total cost’ from the following cost schedule
of a firm whose fixed costs are Rs. 10. 4M
Output (units) : Marginal cost (Rs.):
1 6
2 5
3 4
4, 6
9. At a given price there is excess demand for a good. Explain how the equilibrium
price will be reached. Use diagram. 4
10. Distinguish between :
(a) Individual demand and market demand.
(b) ‘Change in demand’ and ‘change in quantity demanded’ 6
11. State the phases of the law of variable proportions in terms of total physical
product. Use diagram. 6
12. Explain the following features of perfect competition : 6
(i) Large number of buyers and sellers
(ii) Homogeneous products OR
Explain the following :
(i) ‘Free entry and exit’ feature of perfect competition,
(ii) ‘Differentiated products’ feature of monopolistic competition.

Section :B
13. Answer the following questions : 1×4
(i) Define macroeconomics.
(ii) Give two examples of macroeconomic studies,
(iii) What does balance of payments account of a country record ?
(iv) Name the items included in balance of trade account.

14. Calculate ‘private income’ from the following data : 3M


(Rs. crores)
(i) National debt interest 30
(ii) Gross national product at market price 400
(iii) Current transfers from government 20
(iv) Net indirect taxes 40
(v) Net current transfers from the rest of the world (-) 10
(vi) Net domestic product at factor cost accruing to government 50
(vii) Consumption of fixed capital 70
15. A Rs. 200 crore increase in investment leads to a rise in national income by
Rs. 1000 crores. Find out marginal propensity to consume. 3M

16. Give meanings of: 3M


(i) involuntary unemployment
(ii) full employment, and
(iii) under employment equilibrium
17. Give three sources each of demand and supply of foreign exchange. 3M

18. Give meaning of money. Explain the ‘store of value’ function of money. 4 M OR
What is ‘barter’? Explain ‘standard of deferred payment’ function of money.

19. Explain the’acceptance of deposits’function of commercial banks. 4M


20. Distinguish between ‘revenue receipt’ and ‘capital receipt’ and give two examples
of each. 4M
21. What is ‘fiscal deficit’ ? What are its implications ? 4M
22. Calculate national income and gross national disposable income from the
following data:
(Rs. crores)
(i) Current transfers by government 15
(ii) Private final consumption expenditure . 400
(iii) Net current transfers from the rest of the world 20
(iv) Government final consumption expenditure 100
(v) Net factor income from abroad (-) 10
(vi) Net domestic capital formation 80
(vii) Consumption of fixed capital 50
(viii) Net exports 40
(ix) Net indirect taxes 60 4+2

23. Explain the production method of estimating national income. 6 OR


Explain the income method of estimating national income.

24. Explain the problem of ‘excess demand’ in an economy with the help of a
diagram. Explain the role of bank rate in correcting it. 6
.
EXPECTED ANSWERS M: Section – A
1. (i) Economic problem arises because of unlimited wants and scarcity of resources
having alternative uses. 1
(ii) Opportunity cost is the value of the next best alternative foregone. 1
(iii) It indicates growth of resources. 1 OR Advancement of technology.
(iv) A study of the single economic unit of the economic system / economy. 1

2. Explanation of the effect in case of normal good. 1½


Explanation of the effect in case of an inferior good. 1½
3. Cause of increase in supply :
(i) Technological improvements, (ii) Fall in prices of inputs
(iii) Fall in taxes on production., (iv) Fall in prices of other goods
(v) Any other relevant cause.

4. When MC < AC : AC falls, When MC = AC : AC is constant


When MC > AC : AC rises 3m
5. Note : If the diagram is drawn with straight line TR curve, it may be treated as
correct. A producer is in equilibrium at that level of output at which the difference
between
Total Revenue and Total Cost is maximum.
In the diagram OQ is the equilibrium output at which total profit equals RC = RQ –
CQ.

6. Price (Rs.) demand (Units) Total Expenditure (Rs.)


3 40 120
4 30 120

Since with change in price total expenditure remains the same, EP = 1 OR


Price at which 64 units are bought 1
7. (i) Production function shows relation between physical inputs and the physical
output . 1
(ii) Supply means the quantity of a good a producer is willing to supply at a price
during a period of time. 1
(iii) Revenue means receipts from the sale of output. 1
(iv) Cost means expenditure incurred on producing a good including the estimated
value of the inputs supplied by the owner. 1

8. Output (Units) MC (Rs.) TVC (Rs.) TFC (Rs.) TC (Rs.)


1 6 6 10 16
2 5 11 10 21
3 4 15 10 25
4 6 21 10 31
½×8

9. In the diagram excess demand at price OP1 is AB.


Since consumers will not be able to buy what all they want, they will offer a higher
price. When price rises supply rises and demand falls.
These changes continue till price reaches a level at which quantity demanded equals
quantity supplied. This price is OP. 3

10. (a) Quantity demanded of a commodity by a buyer at a given price during a


given period is called individual demand. Quantity demanded of a commodity
by all the buyers is called market demand. 3
(b) Change in demand due to change in own price of the given good is called
change in quantity demanded. Change in demand of a good due to any factor
other than the own price of the good is called ‘change in demand’ 3

11. Statement of three phases of law of variable proportion in terms of total physical
product using the diagram. 3
12. (i) Explanation 3, (ii) Explanation 3
SECTION – B

13. (i) Macro economics is a study of the aggregates of the economic system. 1
(ii) Study of aggregate demand, aggregate supply, unemployment, inflation , etc.
(any two)
(iii) BOP records transactions between residents of the given country and the
residents of the foreign countries. 1
(iv) (a) Exports of goods (b) Imports of goods. 1

14. Pvt. Income = ii – vii – iv – vi + iii + v + i 1


= 400 – 70 – 40 – 50 + 20 + (-10) + 30 1½, = Rs 280 crores. ½
15. 1.
16. (i) Involuntary unemployment is a situation where all those who are able and
willing to work at the going wage rate do not get work. 1
(ii) Full employment means a situation when all resources in an economy are
fully utilized. 1
(iii) Under employment equilibrium means aggregate demand equals aggregate
supply when resources are not fully employed. 1

17. Sources for demand for foreign exchange (any three) ½×3
Sources of supply of foreign exchange (any three) ½×3
18. Meaning of money 1
Explanation of the function 3, OR
Meaning of barter 1
Explanation of the function 3

19. Explanation of the function.


(To be marked as a whole) 4

20. The receipts which neither create any liability nor lead to any reduction in assets
are called revenue receipts while the receipts which lead to either increase in
liability or to reduction in assets are called capital receipts 2
Examples (two each) ½×4

21. Meaning of fiscal deficit 2


Implications of fiscal deficit 2
22. N. I.= ii + iv + vi + viii – ix + v 1
= 400 + 100 + 80 + 40 – 60 + (-10) 2½
= Rs. 550 crores ½
GNDI = (N. I. + ix + vii) + iii 1
= (550 + 60 + 50) + 20 ½
= Rs. 680 crores. ½

23. Steps of estimating national income in production method


(i) Classify the production units into industrial sectors. 1
(ii) Estimate value added by each industrial sector : 2
GVAmp = value of output – intermediale cost.
(iii) Take the sum of value added by all the industrial sectors to get GDPmp. 1
(iv) Deduct consumption of fixed capital and net indirect tax to arrive at NDPfc. 1
(v) Add. Net Factor Income from abroad to NDPfc to get NNPfc / national income.
OR
Steps in income method.
(i) Classify the production units into industrial sectors. 1
(ii) Estimate factor payments – COE, rent, interest and profit – by each industrial
sector to arrive at NVAfc. 2
(iii) Take the sum of NVAfc to arrive at NDPfc. 2
(iv) Add. NFIA to NDPfc to get NNPfc / national income. 1

24. Excess demand : AD greater than AS at full employment 1


Excess demand = AB. at the full employment level OF.
CBSE, MARCH 2008, ALL INDIA, ( THREE SETS )

Section –A

1. Define 'marginal rate of transformation'.

2. What is demand Schedule?

3. Define production function.

4. What is market supply?

5. Define equilibrium price.

6. Explain the central problem of choice of technique.

7. Price elasticity of demand of a good is 9-01. At a given price the consumer buys 60
units of the good. How many units will the consumer buy if the price falls by 10
percent?

8. Given the market price of a good, how does a consumer decide as to how many
units of that good to buy? Explain.

9. What is the likely effect on the supply of a good if the prices of the inputs used in
the production of that good fall? Explain.

10. Explain what happens to the profit in the long run if the firms are free to enter the
industry.
OR
Explain what happens to looses in the long run if the firms are free to leave the
industry.

11. Explain producer's equilibrium using a schedule. Use total cost and total revenue
approach.
OR
Distinguish between (I) Fix cost and variable cost giving examples and
(II) Revenge cost and marginal cost giving an example.

12. Draw supply curves with price elasticity of supply throughout equal to
(I) zero , (II) one
(II) infinity, (IV)less than one
13.
Price (Rs) Output(units) Total revenue(Rs) Marginal Cost(Rs)
- 1 6 -
4 - - 2
- 3 6 -
1 - - -2
14. Explain with the help of numerical example, the effect on total output of a good
when all the inputs used in production of that good are increased simultaneously and
in the same proportion.

15. Given market equilibrium of a good what are the effects of simultaneous increase
in both demand and supply of that good on the equilibrium price and quantity?

OR
Explain the implication of the following
1) The feature differentiated product under monopolistic competition.
2) The feature large numbers of buyers and sellers under perfect competition.

16. Explain the effect of the following on demand for a good


1) Rise in income, s2) Rise in price of related good

SECTION B
17. Define aggregate supply. 1
18. Give meaning of deficient demand. 1
19. What is commercial bank? 1
20. Define Government Budget. 1
21. What is fixed exchange rate system? 1
22. Calculate net value added at factor cost from the following
data. 3
a) Depreciation 20
b) Intermediate cost 90
c) Subsidy 05
d)Sales 140
e) Export 07
f) Change in stock -10
g) Import of raw material 03

23 When exchange rate of foreign currency fall its demand rises.


Explain how. 3
24 Distinguish between BOT and Balance of current account. 3
25 Explain the medium of exchange function of money 3
OR
Explain the evolution of money .
26 Give meaning of Capital expenditure and revenue expenditure in
A government budget and an example ofeach. 3
27 In an economy an increase in investment leads to increase in national income
which is three times more than the increase in investment.Calculate
MPC . 4
28 Explain the lending function of commercial banks. 4
OR
Explain Bankers to the government function of Central Bank..
29 What is revenue deficit ?What are its implications? 4
30 Calculate national income and private income::- 6

a) Net current transfer to ROW 10


b) Private final Consumption expenditure 600
c) National debt interest 15
d) Net export -20
e) Current transfers from Govt. 5
f) Net domestic product at factor cost 25
accruing to Govt.
g) Govt. final consumption expenditure 100
h) Net indirect tax 30
i) Net domestic Capital formation 70
j) NFIA 10

31 Explain consumption function with the help of a schedule


and diagram. 6
OR
Explain saving function with the help of a schedule and diagram.
32 Give reasons explain how the following are treated in estimating
national income.
a) Wheat grown by a farmer but used entirely for family consumption.
2
b) Earning of the share holder from the sale of shares.
2
c) Expenditure by Govt. on providing free education.
2
Uncommon questions to Set I

6. Price elasticity of demand foa a good is 9-) 2. The consumer buys a certain
Quantity of this goode at a price of Rs. 8 per unit. When price falls he buys 50% more
quantity. What is the new price.? 3M
8. What is the likely effect on the supply of a good if a unit tax imposed on that good?
Explain.
10.. Explain the central problems of choice of products to be produced. 3M
11.
Price (Rs.) Output (Units) TR(Rs.) MR (Rs.)
10 1 -- --
-- 2 14 --
-- 3 -- 1
-- 4 12 --

SECTION : B
26. Calculate Gross Value Added at MP from the following data. 3M
Sl.No Items Rs. In lakhs
1 CFC/ Deprecfition 15
2 Sales in domestic market 250
3 Exports 50
4 Opening stock 20
5 Purchase of raw material 150
6 Closing stock 30
7 Import of raw material 25

27. What is fiscal deficit? What are its implications?


28.If MPS is 0.2 , how much new investment is required to make the
national income rise by Rs. 600 crores? Calculate . 4M

31. Calculate 'Gross National Product at MP' and Personal Income" from
The following data. 3,3 M
Sl.No Items Rs. In Crores
1 Corporation tax 35
2 Wages and salaries 200
3 National debt interest 25
4 Operating surplus 400
5 Net current transfers from abroad 152
6 Net factor income from abroad (-)10
7 Consumption of fixed capital 20
8 Social security contributions by employers 30
9 Net indirect tax 40
10 NDP at FC accruing to the private sector 500
11 Current transfers from govt.s 5

Uncommon questions to Set I & II Section A

7. What is the likely effect of technological progress on the supply of a good? Explain.
9. Explain the central problem of distribution of income 3M
10 Price elasticity of demand of a good is (-) 3. If the price rises from Rs. 10 per
unit to Rs. 12 per unit, what is the percentage change in demand. 3M
12. Complete the following table:
Price (Rs.) Output (Units) TR(Rs.) MR (Rs.)
7 -- 7 --
-- 2 10 --
-- 3 -- (-)1
1 -- -- (- ) 5

SECTION : B
26. Calculate Gross Value Added at FC from the following data. 3M
Sl.No Items Rs. In lakhs
7 CFC/ Deprecfition 9
2 Sales 400
4 Excise duty 30
1 Sales tax 20
3 Purchase of raw material 250
5 Change in stock (-) 40
6 Import of raw material 12

28. Distinguish between: i) Balanced budget and surplus budget


ii) developmental expenditure and non- developmental expenditure.4M
29. Given MPS equal to 0.25, what will be the increase in national income if investment
increases by rs.125 crores. Calculate. 4M

32. Calculate 'Net National Product at MP' and Private Income" from
The following data. 3,3 M
Sl.No
Items Rs. In Crores
1 Net factor income from abroad (-)5
2 Private final consumption expenditure 100
3 Personal tax 20
4 Gross domestic capital formation 170
5 Govt final consumption expenditure 20
6 Corporation tax 15
7 Gross domestic capital formation 30
8 Personal Disposable Income 70
9 Net exports (-) 10
10 Saving of pvt corporate sector 5
11 Net national disposable income 145

1 / B 2 / B3

MARCH – 2008 MARKING SCHEME – ECONOMICS

Expected Answers / Value Points

Questions with mark are higher order thinking questions.


Q. No. Expected Answer / Value Points Distribution
Set
of Marks
B1 B2 B3

Section – A
1 5 4 1
MRT is the ratio of units of one good sacrificed to produce one more unit
of the other good.
2 1 5 Demand schedule is a table showing prices and the quantities demanded at 1
each price.

3 2 1 A production function is an expression of quantitative relation between 1


change in inputs and the resulting change in output.

4 3 2 Market supply refers to the sum of outputs of all the producers of a good at 1
a price during a given period of time.
5 4 3 Equilibrium price is the price at which market demand equals market 1
supply.

6 10 9 1
Meaning of the problem
2
Explanation of the problem

7 - - E = Percent change in demand 1


Percent change in price

- 1 = Percent change in demand 1


-10%

Percent change in demand = 10% ½

New demand = Q + 10% of Q


= 60 + 10% of 60 ½
= 66

- 6 - E = Percent change in demand 1


Percent change in price
50%_______ 1
-2 = Percent change in price
Percentage change in price = 50 = -25%
-2 ½
New price = P + % change in P
= 8 + (-25% of 8)
= 8 - 2 = Rs 6 ½

- - 10 E = % Change in demand 1
% Change in price

Percentage change in price = 2 × 100 = 20% ½


10
1
-3 = % change in demand
20% ½
% change in demand = -60% i.e. falls by 60%

8 7 6 Consumer, compares price with marginal utility (MU). He continues to buy 3


so long as MU is greater than price. As he buys more MU falls and
becomes equal to price at a certain quantity. He stops buying when MU=P.
This maximizes utility. Buying more will make MU less than price, and
reduces utility. (To be marked as whole)
9 - - Fall in price of inputs reduces cost. This raises profits which induces the 3
producers to supply more (Explanation)

- 8 - Imposition of a unit tax raises cost. This reduces profit which results in 3
producer supplying less (Explanation)

- - 7 Technological progress raises productivity and thus reduces cost. This 3


raises profits and induces the producers to supply more (Explanation)

10 9 8 When existing firms are earning profit, freedom of entry induces new firms 3
to enter the industry. This raises market supply which in turn leads to fall in
market price. Profits fall and continue to fall till each firm is earning zero
economic profit / normal profit / Zero profit.

OR
When existing firms are incurring losses, the firms start leaving the
industry. This reduces the number of firms. The market supply is reduced
which in turn leads to rise in market price. Losses fall and continue to fall
till they are wiped out and each firm left in the industry is earning zero
economic profit / normal profit / Zero profit.

11 12 13 Schedule 2
Explanation in terms conditions of equilibrium based on TR/TC approach. 2
OR
(i) FC vs VC Distinction
Examples ½ × 2 1
1
(ii) AC vs MC Distinction
Numerical example ½ × 2 1
1
12 13 11 Supply curve, elasticity of supply – degrees diagrams

(No explanation required)


For blind candidates
(i) Distinction in terms of numerical value
(ii) Distinction in terms of numerical value

13 - - Price Output TR MR ½×8


(Rs) (unit) (Rs) (Rs)
6 1 6 6
4 2 8 2
2 3 6 -2
1 4 4 -2

- 11 - Price Output TR MR ½×8


(Rs) (unit) (Rs) (Rs)
10 1 10 10
7 2 14 4
5 3 15 1
3 4 12 (-) 3
- - 12 Price Output TR MR ½×8
(Rs) (unit) (Rs) (Rs)
7 1 7 7
5 2 10 3
3 3 9 (-) 1
1 4 4 (-) 5

14 16 15 (i) Normal good case 1½


Inferior good case 1½

(ii) Substitute goods 1½


Complementary goods 1½

15 14 16 C. R. S. Meaning 1
Numerical Example 1
I. R. S. Meaning 1
Numerical Example 1
D. R. S. Meaning 1
Numerical Example 1

16 15 14 3 possibilities : Price may rise, remain same, may fall 2×


(with explanation) 3=6
(Diagram not required)

OR
(i) Meaning 1
Implication : in terms of power to influence price by a firm. 2

(ii) Meaning 1
Implication : in terms of on individual firm having no
influence over the market price. 2

1
Section – B
17 21 20
Aggregate supply refers to the value of final products planned to be
produced in an economy during a given year.

18 17 21 Deficient demand refers to the aggregate demand falling short of aggregate 1


supply at full employment level.
19 18 17 A commercial bank is a financial institution which accepts checkable 1
deposits and lends money to public.

20 19 18 Government budget is a statement of expected receipts and expenditures 1


during a given year.

21 20 19 A system in which exchange rate is fixed by the government/ monetary 1


authorities and not determined by the market.

22 - - NVA fc = iv + vi – ii – i + ii 1
= 140 + (-10) -90-20 + 5 1½
= 25 (Rs. lakhs) ½

- 26 - GVA mp = ii + iii + vi – iv - v 1
= 250 + 50 + 30 – 20 - 150 1½
= Rs 160 lakhs. ½

- - 25 GAV fc = ii + v – iii – i - iv 1
= 400 + (-40) – 250 – 20 - 30 1½
= Rs 60 lakhs ½

23 22 26 When exchange rate falls imports become cheaper. Demand for imports 3
rises and so rises the demand for foreign exchange to purchase more
imports.

24 23 22 Balance of trade = Exports of goods – Imports of goods 1


Balance on current account is the difference between receipts and
payments of foreign exchange on account of goods, services, incomes and
transfers. 2

25 24 23 Medium of exchange function including how it solves the problem of 3


double coincidence of wants.

OR 3
Evaluation of money in terms of commodity money, metallic money paper
money, bank money.
26 25 24 Capital expenditure is the expenditure by government that either creates 1
an asset or reduces a liability.
Example : construction, repayment of loan, etc. ½
any one
Revenue expenditure is the expenditure by government that neither
creates an asset nor reduces a liability 1
Example: interest payment, subsidy, etc. ½
any one

27 - - Since increase in Y is 3 times more than increase in I, total increase in Y is 1


4 times. Therefore, the value of multiplier is 4.
1
Multiplier = 1__
1 - MPC
1
4= 1__
1 - MPC
1
4 – 4 MPC = 1
4 MPC = 3
MPC = 0.75

- 28 - ∆ Y = ∆ I 1__ 2
MPS
600 = ∆ I 1_
0.2 1
∆ I = 600 × 0.2
= 1200 1

- - 29 2
∆ Y = ∆ I 1__
MPS
∆ Y = 125 1_
0.25 1
= 125 × 4
= Rs 500 crores 1

28 29 27 Explanation in terms of direct loans, cash credit, overdrafts, discounting 2×


bills of exchange. 2=4
(Explanation of any two forms is sufficient to attract full credit).
OR
Explanation in terms of undertaking banking transactions of government,
managing public debt, advising on financial matters.
4
29 - - Revenue deficit is the excess of government’s total revenue expenditure 1
over the total revenue receipts.

The deficit is to be covered through borrowings, disinvestment, etc. The


borrowing in turn leads to the payment of interest and repayment of loans
in future which may mean more deficit in future. 3

- 27 - Fiscal deficit is the excess of government’s total expenditure (revenue and 1


capital both) over the receipts excluding borrowing / borrowing
requirements of the government.

Borrowing requires interest payments and repayment of loans in future 3


leading to more deficit.

- - 28 (i) When revenue receipts equal revenue expenditure, it is called ‘balanced


budget’. When revenue receipts exceed revenue expenditure, it called 2
surplus budget.
(Note: No mark be deducted if the word revenue is not mentioned)

(ii) Expenditure on developmental activities by government on different


sectors of the economy is called developmental expenditure while
expenditure on the essential services of routine nature is called non-
developmental expenditure. 2

30 - - N.I = ii + vii + ix + iv – viii + × 1


= 600 + 100 + 70 + (-20) – 30 +10 1
= Rs 730 crores ½

Pvt. Income = N.I – vi – i + iii + v ½


= 730 – 25 – 10 + 15 + 5
= Rs 715 crores 1
1
½

½
- 31 - G. N. Pmp = (ii + viii) + iv + vii + ix + vi 1
= 200 + 30 + 400 + 20 + 40 (-10) 1
= Rs. 680 crores ½

Personal Income = x + vi + iii + v + xi – i ½


= 500 + (-10) + 25 +15 + 5 – 35
= Rs. 500 crores 1
1
½

- - 32 N N Pmp = ii + v + vii + ix – (iv – xi) + i 1


= 10 +20 + 30 + (-10) – (170-145) + (-5) 1
= 100 + 20 +30 – 10 – 25 – 5 ½
= Rs. 110 crores
Pvt. Income = viii + iii + vi + x ½
= 70 + 20 + 15 + 5
= Rs. 110 crores 1
1
½

½
31 32 30 Schedule
Explanation based on schedule 2

Diagram (need not necessarily be according to schedule)

OR 2
Schedule 2
Explanation based on schedule 2

Diagram (need not necessarily be according to schedule) 2

For blind candidate


Schedule 2
Explanation based on schedule 2
MPC in schedule 2

OR
2
Schedule 2
Explanation based on schedule 2
MPS in schedule
32 30 31 (i) Self consumed output is a part of total output and therefore,
accounted for through the production method. 2

(ii) Earning from the sale and purchase of financial assets is


not accounted in national income estimation because it is
not production.
2
(iii) It is a final consumption expenditure of the government
and therefore, accounted in national income through the
expenditure method.
(No marks if reasons not given) 2
SAMPLE PAPER II
ECONOMICS
Class - XII
Maximum Marks 100 Time : 3 hrs.
Time : 3 Hrs. Max. Marks - 100
Note :
i. All questions in both the sections are compulsory.
ii. Marks for questions are indicated against each.
iii. Question Nos. 1-5 and 17-21 are very short-answer questions carrying
1 mark each. They are required to be answered in one sentence each.
iv. Question Nos. 6-10 and 22-26 are short-answer questions carrying 3
marks each. Answer to them should not normally exceed 60 words each.
v. Question Nos. 11-13 and 27-29 are also short-answer questions carrying
4 marks each. Answer to them should not normally exceed 70 words each.
vi. Question Nos. 14-16 and 30-32 are long-answer questions carrying 6
marks each. Answer to them should not normally exceed 100 words each.
vii. Answers should be brief and to the point and the above word limit be
adhered to as for as possible.
Section - A
Introductory Microeconomics
1. Define .opportunity cost.. (1)
2. Define .change in demand.. (1)
3. A rise in the price of a good results in an increase in expenditure on it.
Is its
demand elastic or inelastic? (1)
4. What is meant by the term .price taker. in the context of a firm? (1)
5. What is the price elasticity of supply of a commodity whose straight line
supply
curve passes through the origin forming an angle of 75º? (1)
6. Given below is the utility schedule of a consumer for commodity
X.
The price of the commodity is Rs. 6 per unit. How many units should
the consumer purchase to maximize satisfaction? (Assume that
utility
is expressed in utils and 1 util = Re. 1). Give reasons for your
answer.
Con. TU MU
(units) (utils) (utils)
1 10 10
2 18 8
3 25 7
4 31 6
5 34 3
6 34 0 (3)
7. State the .law of supply.. What is meant by the assumption .other
things
remaining the same. on which the law is based? (3)
8. A firm.s Average Fixed Cost of producing 2 units of a good is Rs.
9. and given
below is its total cost schedule. Calculate its Average Variable Cost
and Marginal
Cost for each of the given level of output :
Output TC
(units)
1 23
2 27
3 30

9. Explain the implication of the feature .product differentiation.


under
Monopolistic Competition.
OR
Explain the implication of the feature .Freedom of entry and exit of
firms.. (3)
10. State the problems relating to allocation of resources in an
economy. (3)
11. Explain the effect of rise in the prices of .related goods. on the
demand
for a good X. Use diagrams.
OR
Explain the effects of rise in income on demand for a good. Use
diagram. (4)
For Blind Candidates only in lieu of Q. No. 11
Explain the effects of change in the prices of .related goods. on
demand
for good X.
OR
Explain the effects of change in income on demand for a good. (4)
12. When price of a good falls from Rs. 5 to Rs. 3 per unit, its
demand rises
by 40 percent. Calculate its price elasticity of demand. (4)
13. Complete the following table :
Output Price Marginal Revenue Total Revenue
(units) (Rs.) (Rs.) (Rs.)
1 -- 10 --
2 9 -- --
3 -- -- 24
4 -- 4 -- (4)
14. Explain the likely behaviour of Total Product and Marginal
Product when
only one input is increased while all other inputs are kept
unchanged.
OR
All the inputs used in production of a good are increased
simultaneously
and in the same proportion. What are its possible effects on Total
Product?
Explain with the help of a numerical example. (6)
15. There is a simultaneous .decrease. in demand and supply of a
commodity.
When will it result in :
(a) No change in equilibrium price.
(b) A fall in equilibrium price.
Use Diagram.
For Blind candidates : In lieu of Q.N0. 15.
There is a simultaneous .decrease. in demand and supply of a
commodity .
Explain its effect on equilibrium price. (6)
16. Define .producer.s equilibrium.. Explain the conditions of
producer.s
equilibrium in terms of Total Cost and Total Revenue. Use diagram.
For Blind Candidates only in lieu of Q.No.16.
Define .producer.s equilibrium.. Explain the conditions of producer.s
equilibrium in terms of Total Cost and Total Revenue with the help
of a
schedule. (6)
Section - B
Introductory Macroeconomics
17. If MPC and MPS are equal, what is the value of the multiplier? (1)
18. What is meant by Statutory Liquidity Ratio? (1)
19. How is primary deficit calculated? (1)
20. What will be the effect of a rise in bank rate on money supply? (1)
21. If planned savings are greater than planned investment, what will be
its effect on
inventories? (1)
22. State the nature of transactions that are recorded in current account
of the
Balance of Payments account. (3)
23. From the following data calculate national income :
Rs.(Crores)
(i) Compensation of employees 800
(ii) Rent 200
(iii) Wages and salaries 750
(iv) Net exports (-30)
(v) Net Factor income from abroad (-20)
(vi) Profit 300
(vii) Interest 100
(viii) Depreciation 50
OR
Calculate .gross domestic product of factor cost. from the following data.
(Rs.Crores)
(i) Private final consumption expenditure. 800
(ii) Net domestic capital formation 150
(iii) Change in stock 30
(iv) Net factor income from abroad (.) 20
(v) Net indirect tax 120
(vi) Government final consumption expenditure 450
(vii) Net exports (.) 30
(viii) Consumption of fixed capital 50 (3)
24. How does money solve the problem of double coincidence of wants ?
(3)
25. What are open market operations ? What is their effect on availibility
of credit ? (3)
26. What is the basis of classifying government expenditure into :
(a) Plan expenditure and non-plan expenditure
(b) Developmental expenditure and non-developmental
expenditure. (3)
27. What are the implications of a large revenue deficit? Give two
measures to
reduce this deficit. (4 )
28. Give two reasons for a rise in demand for a foreign currency
when its
price falls.
OR
State any two merits and demerits of flexible exchange rate system.
(4)
29. Can an economy be in a state of under employment equilibrium?
Explain
with the help of a diagram.
For Blind Candidates only in lieu of Q.No.29.
Can an economy be in a state of under employment equilibrium?
Explain. (4)
30. How will you treat the following while estimating domestic
product of India?
(i) Rent received by a resident Indian from his property in
Singapore.
(ii) Salaries to Indians working in Japanies Embassy in India.
(iii) Profits earned by a branch of an American Bank in India.
(iv) Salaries paid to Koreans working in Indian embassy in Korea.
OR
Explain any two precautions that should be taken while estimating
national
income by (a) value added method, and (b) income method. (6)
31. Given below is the consumption function in an economy :
C= 100 + 0.5Y
With the help of a numerical example show that in this economy as
income
increases APC will decrease. (6)
32. Calculate Gross National Product at Market Price and Personal
Disposable Income
from the following data
(Rs. crores)
(i) Subsidy 20
(ii) Net factor income from abroad (.) 60
(iii) Gross national disposable income 1050
(iv) Personal Tax 110
(v) Savings of private corporations 40
(vi) National income 900
(vii) Indirect tax 100
(viii) Corporation tax 90
(ix) Net national disposable income 1000
(x) National debt interest 30
(xi) Net current transfers from abroad 20
(xii) Current transfers from government 50
(xiii) Miscellaneous receipts of the government administrative 30
departments.
(xiv) Private income 700 (6)