Kendriya Vidyalaya Sangathan: (Inclusive of MCQ's As Per CBSE Guidelines)

KENDRIYA VIDYALAYA SANGATHAN
AGRA REGION
SUBJECT: ECONOMICS
CLASS: XII
STUDY SUPPORT MATERIAL
TERM- I
(inclusive of MCQ’s as per CBSE Guidelines)
TERM – I, 2021-22 STUDY SUPPORT MATERIAL- ECONOMICS TEAM ECONOMICS, KVS RO AGRA
FOREWORD
This study material in Economics pertaining to Class XII is rooted in the In-House
Training through Content Enrichment Workshop for PGTs Economics organised by Kendriya
Vidyalaya Sangathan Agra Region. Under the patronage of highly esteemed Deputy
Commissioner and the expert guidance of the eminent Course Director Principal Kendriya
Vidyalaya Moradabad , experienced PGTs of the region conferred with one another and came
together to study, design, and test Multiple Choice Questions in conformity with the latest
pattern of Questions for Board Examination 2022 as provided by CBSE.This book includes a
wide variety of Multiple Choice questions inclusive of assertion-reasoning based, case based
and others with the answer key. The questions are all encompassing and provide a clear
gradation in terms of difficulty level.
The students are advised to familiarize themselves with the latest CBSE pattern prior to
attempting these questions. These questions shall furnish the much-needed exposure, practice
and propositions for students to delve into. All in all the book will serve as a great resource for
both the teacher and the taught.
Team Economics
KVS RO Agra
ECONOMICS (Code No. 030)
(2021-22)
CLASS XII - TERM- I CURRICULUM
TERM 1 - MCQ BASED QUESTION PAPER Marks

Theory: 40 Marks Time: 90 minutes
Part A: Introductory Macroeconomics
▪ Money and Banking 6
▪ Government Budget and the Economy 6
▪ Balance of Payments 6
Sub Total 18
Part B: Indian Economic Development
▪ Development Experience (1947-90) and Economic Reforms since 1991: 12

● Indian Economy on the eve of Independence
● Indian Economy (1950-90)
● Liberalisation, Privatisation and Globalisation : An Appraisal
▪ Current challenges facing Indian Economy 10

● Poverty
● Human Capital Formation
● Rural development
Sub Total 22
Total 40
Chapter - Money & Banking
Introduction and evolution of Money – Its definition, meaning & importance: -A thing which is
commonly accepted as a medium of exchange is known as money.
Money supply and its components: - It is defined as the total stock of all the forms of money
which are held by the public at a point of time. The two components of Money supply are (a)
Currency with the public
Demands deposits of the Commercial banks.
C.-The measures of Money supply: -The Reserve Bank of India uses four alternatives measures
of Money supply known as M1, M2, M3 and M4. Among these measures M1 is the most
commonly used measure of Money supply. M1 = C+DD+OD
Money creation by the Commercial Banking System
Meaning and features of Commercial Banks- It is a financial institution which accepts the
deposits from the public and advance or gives loans for the purpose of consumption and
investment.
Primary Deposits-Primary deposits refer to the amount which people deposit in cash with the
commercial bank.
Secondary Deposits-It refers to those demand deposits which comes to the banks through their
lending operations and it is also known a derivative deposit.
Meaning of Credit creation-The power of commercial banks which enables them to expand their
deposits through loans is called credit creation.
Concept of Legal Reserve Ratio -It is the minimum reserve that a commercial bank must
maintain in a liquid form as per the instructions of the Central banks.
Components of LRR -There are two components(i) Cash Reserve Ratio (CRR)-It is the fraction
of net total demand and time deposits that commercial banks must keep as cash reserves with
Central bank. (ii) Statutory liquidity ratio (SLR) – it is the fraction of net total demand and time
deposits that commercial banks must keep themselves in the form of specified liquid assets.
Assumptions of Credit creation-(i)There is a single banking system in the economy. (ii) All
transactions are outed through the banks
Need for Credit Creation-Commercial banks are called the factories of credit. They advance
much more than what they collect from the people in the form of deposits. Through the process
of credit creation, the commercial banks provide finance to all the sectors of economy.
Money Multiplier: -Money Multiplier is the ratio of total money supply to the amount of cash
reserves. It is the inverse of legal reserve ratio.
Relationship between Money Multiplier and Credit creation- There is a direct relationship
between the money Multiplier and the total credit creation by the commercial banks.
J. Numerical Practice-Calculation of credit multiplier, total money created, primary deposit and
legal reserve ration.
Central Bank and its functions (Reserve Bank of India): It is an apex body in the banking and
financial structure of a country.
Bank of issue: The Central bank enjoys the sole monopoly of issuing currency. Government
Bank: Central bank acts as a banker, agent and advisor to the government.
Banker’s Bank: The Central bank has the same relation with the commercial banks as the later
has with the general public.
Controller of Credit through bank rate: The Central bank controls the credit by decreasing or
increasing the bank rateCRR: Cash Reserve Ratio is a powerful instrument to control credit.
SLR: It refers to the minimum percentage of time and demand deposits required to be kept with
the commercial banks themselves.
Repo rate and Reverse Repo rate: The rate of interest at which RBI gives short terms loans to the
commercial banks is Repo rate whereas the rate of interest which is entitled to a commercial
bank its surplus lending money to RBI is known as Reverse Repo rate.
Money
Case Study Type Question
Q.1-5 Money is the commonly accepted medium of exchange. In an economy which consists of
only one individual there cannot be any exchange of commodities and hence there is no role for
money. Even if there is more than one individual but these individuals do not take part in market
transactions, example: family living on an isolated island, money has no function for them.
However, as soon as there is more than one economic agent who engage themselves in
transactions through the market, money becomes an important instrument for facilitating these
exchanges. Economic exchanges without the mediation of money are referred to as barter
exchanges. However, they presume the rather improbable double coincidence of wants.
Consider, for example, an individual who has a surplus of rice which she wishes to exchange for
clothing. If she is not lucky enough she may not be able to find another person who has the
diametrically opposite demand for rice with a surplus of clothing to offer in exchange.
Q.1 What is the important work of money?
(A) Store of Value (B) Medium of exchange
(C) Transfer of Value (D) Standard of deferred Payments
Q.2 Where is not role of money?

(A) Cannot be any exchange (B) Family living on an isolated island
(C) (A) and (B) Both (D) None of the above
Q.3 What is Barter System?

(A) Exchange of commodity for money (B) Exchange of commodity for commodity
(C) Transfer of Value (D) None of the above
Q.4 Who satisfy double coincidence of wants?

(A) Exchange of commodity for money (B) Exchange of commodity for commodity
(C) Transfer of Value (D) None of the above
Q.5 As soon as there is ---------------------- one economic agent who engage themselves
in transactions through the market. Fill in the Blank from following option.
(A) More than
(B) Less than
(C) Equal to
(D) None of the above
Q.6-10 Some countries have made an attempt to move towards an economy which use less of
cash and more of digital transactions. A cashless society describes an economic state whereby
financial transactions are not connected with money in the form of physical bank notes or coins
but rather through the transfer of digital information (usually an electronic representation of
money) between the transacting parties. In India government has been consistently investing in
various reforms for greater financial inclusion. During the last few years’ initiatives such as Jan
Dhan accounts, Aadhar enabled payment systems, e –Wallets, National financial Switch (NFS)
and others have strengthened the government resolve to go cashless. Today, financial inclusion
is seen as a realistic dream because of mobile and smart phone penetration across the country.
Q.6 What is the correct sentence in the following option?
(A) India attempt to move towards an economy which use less of cash with Broad aspects.
(B) India attempt to move towards an economy which use less of cash with Narrow aspects.
(C) India not attempt to move towards an economy which use less of cash.
Q.7 What is the meaning of cashless society?

(A) Financial transactions are not connected with money in the form of physical bank notes or
coins
(B) an electronic representation of money
(C) (A) and (B) Both
Q.8 Which of the following is Money proper?
(A) Bonds (B) Time Deposits
(C) Government Securities (D) Currency Notes and Demand Deposits
Q.9 Which is forms of digital money in the following option?

(A) Jan Dhan accounts (B) Aadhar enabled payment systems
(C) E –Wallets (D) All of the above
Q.10In India government has been consistently investing in various reforms for greater -----------
-----------. Fill in the Blank from following option.
(A) Financial inclusion (B) Financial transactions
Q.11-15 The demand for money tells us what makes people desire a certain amount of money.
Since money is required to conduct transactions, the value of transactions will determine the
money people will want to keep: the larger is the quantum of transactions to be made, the larger
is the quantity of money demanded. Since the quantum of transactions to be made depends on
income, it should be clear that a rise in income will lead to rise in demand for money. Also,
when people keep their savings in the form of money rather than putting it in a bank which gives
them interest, how much money people keep also depends on rate of interest. Specifically, when
interest rates go up, people become less interested in holding money since holding money
amounts to holding less of interest-earning deposits, and thus less interest received. Therefore, at
higher interest rates, money demanded comes down.
Q.11 Money enables People to save. Which function of money does this describe?
(A) Store of value (B) Unit of account
(C) Medium of exchange (D) All of the above
Q.12 Money is most liquid of all assets because?

(A) It has portability (B) It can be easily stored
(C) It is readily convertible into other assets (D) It is generally acceptable
Q.13 Demand of money depends on?

(A) Saving (B) Income
(C) Investment (D) All of the above
Q.14 At -------------- interest rates, money demanded comes down. Fill in the Blank from
following option.
(A) Higher (B) Lower
(C) Grater (D) All of the above
Q.15 it should be clear that a -----------in income will lead to ----------- in demand for money. Fill
in the Blanks from following option.
(A) Rise, Decrease (B) Decrease, Rise
(C) Rise, Rise (D) None of the above
Assertion and Reason type Question
Q. 16 Read the following statements - Assertion (i) and Reason (ii). Choose one of the correct
alternatives given below:
Assertion (i): Money also acts as a convenient unit of account.
Reason (ii): The value of all goods and services can be expressed in monetary units.
(A) Both Assertion (i) and Reason (ii) are true and Reason (ii) is the correct explanation of
Assertion (i)
(B) Both Assertion (i) and Reason (ii) are true and Reason (ii) is not the correct explanation of
Assertion (i)
(C) Assertion (i) is true but Reason (ii) is false.
(D) Assertion (i) is false but Reason (ii) is true.
Assertion (i): Money is not perishable and its storage costs are also considerably lower.
Reason (ii): A rising price level may erode the purchasing power of money.
Assertion (i)
Assertion (i)
Assertion (i): Barter exchanges become extremely difficult in a large economy
Reason (ii): the high costs people would have to incur looking for suitable persons to exchange their
surpluses.
Assertion (i)
Assertion (i)
(D) Assertion (i) is false but Reason (ii) is true
Assertion (i): Economic exchanges without the mediation of money are referred to as barter
exchanges.
Reason (ii): Demand Deposits is not the part of money
Assertion (i)
Assertion (i)
Assertion (i): “Save suffer as inflation rises to 10%”
Reason (ii): Store of value function of money is most involved in the statement (i)
Assertion (i)
Assertion (i)
Assertion (i): Money which is currently in practice in a country is called actual money.
Reason (ii): it is not perfectly liquid as actual money. Example bonds, debentures etc.
Assertion (i)
Assertion (i)
Assertion (i): In India government has been consistently investing in various reforms for greater
financial inclusion.
Reason (ii): Financial inclusion is seen as a realistic dream because of mobile and smart phone
penetration across the country.
Assertion (i)
Assertion (i)
Assertion (i): The demand for money tells us what makes people desire a certain amount of
money
Reason (ii): At lower interest rates, money demanded comes down.
Assertion (i)
Assertion (i)
Assertion (i): Total quantity or stock of money available in the economy at particular point of
time is known as money supply.
Reason (ii): Demand deposit is not the part of money supply.
Assertion (i)
Assertion (i)
Assertion (i): Lack of double coincidence of wants is not drawbacks of barter exchange.
Reason (ii): Exchange of commodity for commodity is known as barter system.
Assertion (i)
Assertion (i)
Assertion (i): Unit of account is primary function of money.
Reason (ii): Transfer of value is also primary function of money.
Assertion (i)
Assertion (i)
Assertion (i): M4 least liquid of money supply.
Reason (ii): M3 = C + DD + OD + POSD
Assertion (i)
Assertion (i)
Assertion (i): M1 is Most liquid of money supply.
Reason (ii): M1 = C + DD + OD
Assertion (i)
Assertion (i)
Assertion (i): M1 is Narrow Money and M3 is Broad Money.
Reason (ii): M1 is Broad Money and M3 is Narrow Money.
Assertion (i)
Assertion (i)
Assertion (i): The currency is created by the RBI and is called ‘High Powered Money’
Reason (ii): It (High Powered Money) consists coins and paper currency.
Assertion (i)
Assertion (i)
Banking
Case Study Type Question
Q. 31-35 Central bank has several important functions. It issues the currency of the country. It
controls money supply of the country through various methods, like bank rate, open market
operations and variations in reserve ratios. It acts as a banker to the government. It is the
custodian of the foreign exchange reserves of the economy. It also acts as a bank to the banking
system, which is discussed in detail later.
Q. 31 What is the name of Indian central bank?
(A) Reserve Bank of India (B) Federal Reserve
(C) State Bank of India (D) None of the above
Q. 32 Who determine the Case Reserve Ratio?
(A) Central Bank (B) Federal Reserve
(C) Commercial Bank (D) Government
Q. 33 Who is the official ‘Lender of the Last Resort’ in India?

(A) PNB (B) RBI (C) SBI (D) CBI
Q. 34 In order to discourage credit in the economy, the central bank may

(A) Increase Bank rate (B) Decrease Bank rate
(C) Buy securities in the open market (D) Decrease CRR
Q. 35 RBI issue all currency in India except:

(A) One-rupee note (B) Two-rupee note
(C) Five-rupee note (D) Ten-rupee note
Q. 36-40 Once there was a goldsmith named Lala in a village. In this village, people used gold
and other precious metals in order to buy goods and services. In other words, these metals were
acting as money. People in the village started keeping their gold with Lala for safe keeping. In
return for keeping their gold, Lala issued paper receipts to people of the village and charged a
small fee from them. Slowly, over time, the paper receipts issued by Lala began to circulate as
money. This means that instead of giving gold for purchasing wheat, someone would pay for
wheat or shoes or any other good by giving the paper receipts issued by Lala.
Q. 36 In the modern context, given cheques and debit cards are example of (from above
paragraph)
(A) Gold (B) Metals
(C) Paper receipts issued by Lala (D) None of the above
Q.37 What is the aim of a commercial Bank?

(A) To act as banker to the govt. (B) To make a profit
(C) To manage the national debt (D) To issue bank notes
Q.38 Which type of commodity were acting as money in the village?

(A) Gold (B) Precious Metals
(C) Paper receipts issued by Lala (D) (A) and (B) Both
Q.39 Commercial banks are the other type of institutions which are a part of the -------------------
---------------- system of the economy.
(A) Money-creating (B) Money-issuing
Q.40 What is the main objective of above paragraph.

(A) Explain work of commercial Bank (B) Explain work of R.B.I.
Assertion and Reason type Question

Assertion (i): currency issued by the central bank can be held by the public Known as Monetary
base.
Reason (ii): It consists coins and paper currency.
Assertion (i)
Assertion (i)
Assertion (i): Banks can create money
Reason (ii): Banks can lend simply because they do not expect all the depositors to withdraw
what they have deposited at the same time.
Assertion (i)
Assertion (i)
Assertion (i): India got its central bank in 1935
Reason (ii): Its name is the ‘Federal Reserve of India’.
Assertion (i)
Assertion (i)
Assertion (i): From the point of view of money supply, we need to focus on its function of
issuing currency.
Reason (ii): This currency issued by the central bank can be held by the public or by the
commercial banks,
Assertion (i)
Assertion (i)
Assertion (i): The RBI controls the money supply in the economy in various ways.
Reason (ii): The tools used by the Central bank to control money supply can be quantitative or
qualitative
Assertion (i)
Assertion (i)
Assertion (i): Commercial Bank acts as a banker to the Government
Reason (ii): Reserve Bank is the only institution which can issue currency
Assertion (i)
Assertion (i)
Assertion (i): Commercial banks is the bank of central clearance and transfer.
Reason (ii): The Commercial banks can borrow from central bank against their eligible
securities.
Assertion (i)
Assertion (i)
Assertion (i): Money creation is the main function of Commercial banks.
Reason (ii): How many times the total deposit would be of the initial deposit is known as Money
Multiplier.
Assertion (i)
Assertion (i)
1
Assertion (i): Money Multiplier = 𝐿𝑅𝑅
Reason (ii): Lower the LRR higher the value of Money Multiplier and vice-versa.
Assertion (i)
Assertion (i)
Assertion (i): Central Bank primary aim general public welfare
Reason (ii): Commercial Bank primary aim profit making.
Assertion (i)
Assertion (i)
(Other Multiple Choice Question)

Q. 51 What is the defect of the barter system?
(A) Lack of double coincidence of wants (B) Difficulty in the measurement of value
(C) Difficulty in store of value (D) All of these
Q. 52 Which among the following is the near money?

(A) Bonds (B) Insurance policy
(C) Securities (D) All of these
Q. 53 Which of the following is the function of a commercial bank?

(A) Accepting deposits (B) Credit creation
(C) Agency function (D) All of these
Q. 54 Which is the most liquid measure of the money supply?
(A) M4 (B) M3 (C) M2 (D) M1
Q. 55 High Powered Money includes:

(A) C + DD + OD (B) C + R + OD (C) C + R + TD (D) C + DD + TD
Q. 56 Indian Monetary System is based on ________

(A) Paper Standard (B) Metallic Standard
(C) Gold Standard (D) Credit Money Standard
Q. 57 Demand deposits include

(A) Saving account deposits and fixed deposits
(B) Saving account deposits and current account deposits
(C) Current account deposits and fixed deposits
(D) All type of deposits
Q. 58 What are the advantages of the Barter System?

(a) Simple System (b) More Mutual Co-operation
(c) No Economic Disparities (d) All the above
Q. 59 Which one is included in the primary function of money?
(a) Medium of Exchange (b) Measure of Value (c) Both (a) and (b) (d) Store of Value
Q. 60 Money is a matter which is:

(a) a measure of value (b) accepted as a means of exchange
(c) used to store wealth (d) All of these
Q. 61 By supply of money we mean :

(a) Money deposited in the bank (b) Money available with the public
(c) Deposits with post office savings bank (d) All of these
Q. 62 Which of the following is not a function of money?

(a) Medium of exchange (b) Price stability
(c) Store of value (d) Unit of account
Q.63 Which one is the Bank of the Public?

(a) Commercial Bank (b) Central Bank
(c) Both (a) and (b) (d) None of the above
Q.64 The primary function of Commercial Bank is?
(a) Accepting Deposits (b) Advancing Loans
(c) Credit Creation (d) All of these
Q.65 Deposits accepted by the Commercial Banks:

(a) Current Deposits (b) Saving Deposits
(c) Time Deposits (d) All of these
Q.66 The full form of ATM is:

(a) Any Time Money (b) All Time Money
(c) Automated Teller Machine (d) Both (a) and (b)
Q.67 What is true for the Central Bank?

(a) Apex Bank of the Country (b) Ownership of the Government
(c) Regulates the entire banking system in the country (d) All the above
Q.68 Reserve Bank of India was established in :

(a) 1947 (b) 1935 (c) 1937 (d) 1945
Q.69 Who regulates the money supply?

(a) Govt, of India (b) Reserve Bank of India
(c) Commercial Bank (d) Planning Commission
Q.70 14 big scheduled commercial banks in India were nationalised in:

(a) 1949 (b) 1955 (c) 1969 (d) 2000
Answer Sheet
Ans.1 (B) Ans.2 (C) Ans.53 (D)
Ans.3 (B) Ans.4 (A) Ans.54 (D)
Ans.5 (A) Ans.6 (B) Ans.55 (B)
Ans.7 (C) Ans.8 (D) Ans.56 (A)
Ans.9 (D) Ans.10 (A) Ans.57 (B)
Ans.11 (A) Ans.12 (D) Ans.58 (D)
Ans.13 (B) Ans.14 (A) Ans.59 (C)
Ans.15 (C) Ans.16 (A) Ans.60 (D)
Ans.17 (B) Ans.18 (A) Ans.61 (D)
Ans.19 (C) Ans.20 (A) Ans.62 (B)
Ans.21 (B) Ans.22 (A) Ans.63 (A)
Ans.23 (C) Ans.24 (C) Ans.64 (D)
Ans.25 (D) Ans.26 (C) Ans.65 (D)
Ans.27 (C) Ans.28 (A) Ans.66 (C)
Ans.29 (C) Ans.30 (A) Ans.67 (D)
Ans.31 (A) Ans.32 (A) Ans.68 (B)
Ans.33 (B) Ans.34 (A) Ans.69 (B)
Ans.35 (A) Ans.36 (C) Ans.70 (C)
Ans.37 (B) Ans.38 (C)
Ans.39 (A) Ans.40 (A)
Ans.41 (A) Ans.42 (B)
Ans.43 (C) Ans.44 (A)
Ans.45 (A) Ans.46 (D)
Ans.47 (C) Ans.48 (B)
Ans.49 (A) Ans.50 (B)
Ans.51 (D) Ans.52 (D)
Chapter - Government Budget and the Economy
There are many ways in which the government influences economic life. In this chapter, we will
limit ourselves to the functions which are carried on through the government budget. This
chapter proceeds as follows. We present the components of the government budget to bring out
the sources of government revenue and avenues of government spending. We discuss the topic
of balanced, surplus or deficit budget to account for the difference between expenditures and
revenue collection. It specifically deals with the meaning of different kinds of budget deficits,
their implications and the measures to contain them.
Read the e-lesson Government budget and the Economy from the textbook. Thereafter
follow the instructions and do the given assignment in the ECONOMICS Notebook
Link to the chapter:- https://ncert.nic.in/ncerts/l/leec105.pdf
BUDGET
Budget is a financial statement showing the expected receipt and expenditure of Govt. for the
coming fiscal or financial year.
Main objectives of budget are:
(i) Reallocation of resources.
(ii) Redistribution of income and wealth
(iii) Economic Stability
(iv) Management of public enterprises.
(v) Economic Growth
(vi) Generation of employment
There are two components of budget:
(a) Revenue budget
(b) Capital budget
Revenue Budget consists of revenue receipts of govt. and expenditure met from such revenue.
Capital budget consists of capital receipts and capital expenditure.
BUDGET RECEIPTS:
1. Revenue Receipts
(i) Neither creates liabilities for Govt.
(ii) Nor causes any reduction in assets.
A. Tax
a. Direct Tax - A direct tax is one whose burden cannot be shifted to others I.e. the impact and
incidence of the tax is on the same person.ex- income tax, wealth tax, gift tax.
b. Indirect Tax -An indirect tax is one whose burden can be shifted to others or the impact and
incidence of an indirect tax falls on different people. ex- excise duty, VAT, service tax.
B. Non-Tax
a. Commercial Revenue
b. Interest
c. Dividend, Profits
d. External Grants
e. Administrative Revenues
f. Fees
g. License Fee
h. Fines, Penalties
i. Cash grants-in-aid from foreign countries and international org.
2. Capital Receipts
(i) It creates liabilities or
(ii) It reduces financial assets. Example:
A. Borrowing and Other liabilities
B. Recovery of Loans
C. Other receipts(Disinvestments)
1. Revenue Expenditure
(i) Neither creates assets
(ii) Nor reduces liabilities.
e.g., Interest Payment, subsidies etc.
2.Capital Expenditure:
(i) It creates assets
(ii) It reduces liabilities.
e.g., Construction of school building Repayment of loans etc.
Budget Deficit
It refers to a situation when budget expenditure of a govt. are greater than the govt. receipts.
Budgetary Deficit: Total Expenditure > Total Receipts.
Revenue deficit: It is the excess of govt. revenue expenditure over revenue receipts.
Revenue Deficit: Total revenue expenditure > Total revenue receipts
Implications of Revenue Deficit are:

(i) A high revenue deficit shows fiscal indiscipline.
(ii) It shows wasteful expenditures of Govt. on administration.
(iii) It implies that government is dissaving, i.e. government is using up savings of other sectors
of the economy to finance its consumption expenditure.
(iv) It reduces the assets of the govt. due to disinvestment.
(v) A high revenue deficit gives a warning signal to the government to either curtail its
expenditure or increase its revenue.
Fiscal Deficit: When total expenditure exceeds total receipts excluding borrowing.
Fiscal Deficit: Total expenditures > Total Receipts excluding borrowing.
Implications of Fiscal Deficits are:
(i) It leads to inflationary pressure.
(ii) A country has to face debt trap.
(iii) It reduces future growth and development.
(iv) It increases liability of the government.
(v) It increases foreign dependence.
Primary Deficit: By deducting Interest payment from fiscal deficit we get primary deficit.
Primary Deficit: Fiscal deficit – Interest payments.
Implications of Primary Deficits are:
It indicates, how much of the government borrowings are going to meet expenses other than the
interest payments.
Measures to correct different deficits:-
(i) Monetary expansion or deficit financing.
(ii) Borrowing from public.
(iii) Disinvestment
(iv) Borrowing from international monetary institution and other countries.
(v) Lowering govt. expenditure.
(vi) Increasing govt. revenue.
Assertion reason based MCQ
Q1. Read the following statements Assertion (A) and Reason (R). Choose one of the correct
alternatives given below.
ASSERTION (A)-Government budget is an annual estimated statement of revenue and

expenditure during the coming fiscal year.
REASON (R)- Through the government budget it tries to reduce the regional variations.
A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
b. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of
Assertion (A)
C. Assertion (A) is true, but Reason (R) is false.
D. Assertion (A) is false, but Reason (R) is true.
Ans. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
Q2. Assertion (A) : Fiscal deficit is greater than budgetary deficit.

Reason (R) : Fiscal deficit is the borrowing from the Reserve Bank of India plus other liabilities
of the Government to meet its expenditure.
(a) Both A and R are true and R is the correct explanation of A
(b) Both A and R are true but R is not a correct explanation of A
(c) A is true but R is false
(d) A is false but R is true
Ans. (A)
Assertion (A) : Fines and penalties are source of non tax revenue of the government.
Reason (R) : A fine of Rs. 500 was imposed on not wearing a mask.
Ans. A
Assertion (A) : Income tax is the great source of revenue of the government.
Reason (R) : It is a direct tax as it's burden can't be shifted.
Ans. A
Assertion (A) : Highway and road work announced in Kerla, Tamilnadu, West Bengal and
Assam in budget 2021.
Reason (R) : Such announcements will increase the revenue expenditure of the government.
Ans. C
Weather the following statement is true or false?
Q1.The government budget is for uncertain time period.
And. False
Q2. Government budget is a statement of actual receipts and payments of the government.
Ans. True.
Q3. Which of the following statements is true?
A. Fiscal deficit= Revenue receipts + Capital receipts – Total Expenditure.

B. Fiscal deficit= Total Expenditure-Total Receipts other than borrowings
C. Both A and B are true.
D. Both A and B are false.
Ans. B
Q4. Those incomes of the government which neither create liabilities nor reduce assets of the
government are called revenue receipts.
Ans. True
Q5. Disinvestment means to purchase the assets of private enterprises by the government.
Ans. False
Q6. Which of the following statements is true?
A. Government’s expenditure on essential services like administration, justice, defense are
called non-development expenditure.
B. Government’s expenditure on constructions of roads, hospitals, buildings are called
development expenditure.
C. Both A and B are true
D. Both A and B are false
Ans. C
Q7. One-year period start from 1 April to 31 March of next year is called a financial year.
Ans. True
Q8. Budget deficit is the difference between total receipts and total expenditure.
Ans. True
Q9. Payment of interest is revenue expenditure.
Ans. False
Q10. Borrowing in government budget is fiscal deficit.
Ans. True
Q11. Direct tax is called direct because it is collected directly from the buyers of goods.
Ans. False
Q12. Which of the following statement is true or false?

A fiscal deficit:
(a) represents the borrowing of the government.
(b) is the difference between total expenditure and total receipts of the government.
the government is the difference between total expenditure and total receipts other than
borrowing.
(d) increases the future liability of the government
Ans. C
Q13. Which of the following statement is true or false?

(a) Loans from IMF is a Revenue Receipt.
(b) Higher revenue deficit necessarily leads to higher fiscal deficit.
the government Borrowing by a government represents a situation of fiscal deficit.
(d) Revenue deficit is the excess of capital receipts over the revenue receipts.
Ans. C
Q14. Primary deficit is the difference between capital deficit and interest payments
Ans. True.
Q15. Government budget is a statement of actual receipts and payments of the government.
Ans. False
Simple MCQ
Q1. An annual statement of the estimated receipts and expenditure of the government over the
fiscal year is known as
(A) Budget (B) Income estimates
(C) The Government Account (D) Expenditure
Ans. A
Q2. Which of the following is an example of direct tax?

(A) VAT (B) Excise duty
(C) Entertainment tax (D) Wealth tax
Ans. D
Q3. When government spends more than it collects by way of revenue, it incurs ______
(A) Budget surplus (B) Budget deficit
(C) Capital expenditure (D) Revenue expenditure
Ans. B
Q4. Which of the following is the component of a budget?

(A) Fiscal budget (B) Capital budget
(C) Both of these (D) None of these
Ans. C
Q5. The amount collected by the government as taxes and duties is known as _______
(A) Capital receipts (B) Tax revenue receipts
(C) Non-tax revenue receipts (D) All of these
Ans, B
Q6. The amount collected by the government in the form of interest, fees, and dividends is
known as ________
(A) Tax-revenue receipts (B) Capital receipts
(C) Non-tax revenue receipts (D) None of these
Ans. C
Q7. Borrowing in the government budget is:

(A) Revenue deficit (B) Fiscal deficit
(C) Primary deficit (D) Deficit in taxes
Ans, B
Q8. The primary deficit in a government budget will be zero, when _______
(A) Revenue deficit is zero (B) Net interest payments are zero
(C) Fiscal deficit is zero (D) Fiscal deficit is equal to interest
payment
Ans. C
Q9. Which objectives government attempts to obtain by Budget

(a) To Promote Economic Development (b) Balanced Regional Development
(c) Redistribution of Income and Wealth (d) All the above
Ans. D
Q10. The expenditures which do not create assets for the government is called:
(a) Revenue Expenditure (b) Capital Expenditure
Ans. A
Q11. Which type of expenditure is made in bridge construction?

(a) Capital Expenditure (b) Revenue Expenditure
Ans. A
Q12. Which of the following budget is suitable for developing economies?

(a) Deficit Budget (b) Balanced Budget
(c) Surplus Budget (d) None of these
Ans. A
Q13. Which of the following is not a revenue receipt?

(a) Recovery of Loans (b) Foreign Grants
(c) Profits of Public Enterprise (d) Wealth Tax
Ans. A
Q14. Which of the following is a correct measure of the primary deficit?

(a) Fiscal deficit minus revenue deficit
(b) Revenue deficit minus interest payments
(c) Fiscal deficit minus interest payments
(d) Capital expenditure minus revenue expenditure
Ans. C
Q15. Which of the following are the capital receipts of the government Borrowings?
A. Borrowings B. Recovery of loans
B. C. Disinvestment D. All of these
Ans. D
Q16. One of the Implication of Fiscal deficit is

A. It increases the supply of money in the economy
B. It decreases the supply of money in the economy
C. It maintains the supply of money in the economy
D. It does not affect the supply of money in the economy
Ans. A
Q17.Another Implication of Fiscal deficit is

A. it does not affect financial burden for future generation.
B. it decreases financial burden for future generation
C. it increases financial burden for future generation
D. it maintains financial burden for future generation
Ans. C
Q18. Direct tax is a tax whose

A. The liability to pay lies on one and incidence lies on the other person
B. The liability to pay and incidence do not lie on the same person
C. The liability to pay and incidence do lie on the government
D. The liability to pay and incidence do lie on the same person
Ans.D
Q19. Indirect tax is a tax whose

A. The liability to pay and incidence do lie on the same person
B. The liability to pay lies on one and incidence lies on the other person
C. The liability to pay and incidence do lie on the government
D. The liability to pay and incidence do not lie on the same person
Ans.B
Q20. A deficit budget is one where

A. Estimated revenues> estimated expenditure
B. Estimated revenues< estimated Receipts of the govt.
C. Estimated revenues= estimated expenditure
D. Estimated revenues< estimated expenditure
Ans.D
CASE BASED QUESTIONS

1.Read the following case study carefully and answer the question given below.
One of the most distressing years by far, 2020 marked the year of a deadly pandemic that
drastically impacted health, businesses, and communities across the globe. The Indian economy
also got battered due to the subsequent lockdown which exposed gaps in the supply chain and
delays in working around the social distancing norms. Critical indicators such as de-growth in
the economy, contraction in GDP, widening of fiscal deficit, and high inflation have highlighted
the severe strike on the economy in the past year.
But as it is said, ‘There is hope after despair and many suns after darkness’, similarly, the Indian
economy has started showing signs of recovery. Faced with the daunting twin tasks of pulling
back the economy from the clutches of de-growth, a slew of fiscal and non-fiscal measures were
taken during the year to rebound the economy from the aftermath of the pandemic. This is
evidenced by the pre-budget Economic Survey’s projection of 11% growth in real GDP for
2021.
Laying a vision for AtmaNirbhar Bharat, the Hon’ble Finance Minister has rested the budget
proposals on six pillars – health and wellbeing, physical and financial capital and infrastructure,
inclusive development for aspirational India, reinvigorating human capital, innovation and
R&D, and minimum government – maximum governance.
Overall, against the backdrop of the fiscal constraints within which the Finance Minister had to
operate, the measures announced seem to be in the right direction. These measures may
accelerate overall growth along with healthcare development, consumption surge, and provide
support to infrastructure developments, if implemented in the time to come.
Q1. The substantial rise in prices are called:

A. Inflation B. Deflation
B. C. Both A and B D.None of these
Ans. A
Q2. ‘Atmanirbhar Bharat Abhiyaan’ support Indian Economy to fight against
A. COVID-19 B. Terrorism
B. C. Both A and B D. None of these
Ans. A
Q3. Fiscal deficit is shows:

A. Excess of expenditure over receipts B. Excess of receipts over expenditure
C. Expenditure equal to receipts D. None of these
Ans. A
Q4. The difference between real GDP and nominal GDP is the adjustment for
A. Deflation B. Inflation
C. Both A and B D. None of these
Ans. B
Read the following case study carefully and answer the question numbers given below.
There is a constitutional requirement in India (Article 112) to present before the Parliament a
statement of estimated receipts and expenditures of the government in respect of every financial
year which runs from 1 April to 31 March. This ‘Annual Financial Statement’ constitutes the
main budget document of the government.
Although the budget document relates to the receiptsand expenditure of the government for a
particular financial year, the impact of it will be there in subsequent years. There is a need
therefore to have two accounts- those that relate to the current financial year only are included in
the revenue account (also called revenue budget) and those that concern the assets and liabilities
of the government into the capital account (also called capital budget). In order to understand the
accounts, it is important to first understand the objectives of the government budget.
Q1. Revenue budget do not affects:
A. Assets and liabilities B. Only assetsC.
Ans. A
Q2. Capital expenditure:

A. Either create assets or reduce liabilities
B. Either create liabilities or reduce assets
C. Both A and B
D. None of these
Ans. A
Q3. Which of the following is indirect tax?

A. Income tax B. Corporate tax
C. Wealth tax D. None of these
Ans. D
Q4. Who present the Union Budget in Parliament?

A. Defence minister B. Finance minister
C. Home minister D. Commerce and textile minister
Ans. B
Comprehensive Questions
Externalities refer to the harms (or benefits) a firm or an individual causes to another for which
they are not penalised (or paid for). Externalities may be positive or negative. For example,
increase in government’s expenditure on education of individuals can lead to broader society
benefits in the form of greater economic productivity, lower unemployment rate, greater
household mobility and higher rate of political participation.
Q1. Positive Externalities refer to the:

A. Benefits of a firm or individual B. Harms of a firm or individual
Ans. A
Q2. Government’s Expenditure on Education lead to:

A. Create Employment Opportunities B. Reduce Poverty
C. Economic Productivity D. All of these
Ans. D
Chapter - Balance of Payments
This chapter is of great importance in understanding the complex relationship
between closed economy and Open Economy which in fact can be clear by knowing
the concepts and components of Balance of payments.
An open economy is one which interacts with other countries through various
channels. There are three ways in which these linkages are established-
1. Output Market
2. Financial Market
3. Labour Market
Meaning of Balance of Payments (BOP):
The balance of payments (BOP) record the transactions in goods, services and
assets between residents of a country with the rest of the world for a specified time
period typically a year.
It is the statement of accounts of a country’s inflows and outflows of foreign
exchange in a fiscal year
BOP is prepared on the principles of Double Entry System. (Debit side and credit side)
In BOP any transactions resulting in payments to foreigners is entered as a debit (-).i.e. All
spending and Lendingof foreign exchange (outflow of foreign exchange) are recorded as
debit items
In BOP any transactions resulting in a receipt from foreigners is entered as a Credit (+).i.e.
all earnings and Borrowings of foreign exchange (inflow of foreign exchange) are recorded
as credit items.
BOP is always balance .BOP is a schedule of debit and credit transactions which must
necessarily be equal in accounting sense.
Current Account of BOP: Current Account is the record of business in commodities, transfer
payments and services.
1. Balance of Trade (Trade balance)
2. Balance on Invisibles
Balance of Trade (BOT): It is the difference between theValue of Exports of goods and Value of Imports
of goods during a year.
BOT is said to be in Balance when Value of Exports of goods are equal to Value of Imports of goods.
It may also Surplus BOT (Trade surplus) or Deficit BOT (Trade deficit).
Balance on Invisibles: It is the difference between theValue of Exports o and Value of Imports of invisibles
of a country in a given period of time. Invisible includes services, transfers and flows of income.
Overall Current Account Balance:

Current account is in balance when receipts on current account are equal to the payments on the current
account.
Current account surplus (CAS) refers to excess of receipts from value of exports of visible items, invisible
items and unilateral transfers over payments for value of imports of visible items, invisible items and
unilateral transfers. (CAS signifies that the nation is a lender to the rest of the world)
Current Account Deficit (CAD) arises when the value of exports of visible items, invisible items and
unilateral transfers is less than the value of imports of visible items, invisible items and unilateral transfers.
(CAD signifies that the nation is a borrower from the rest of the world)
Capital Account of BOP

Capital Account records all international transactions of assets. An asset is any one of the types in which
wealth can be held, for example stocks, bonds, Government debt, money, etc.
Capital Outflows such as repayments of loans, Purchase of assets or shares in foreign countries etc debit
on the capital account. If an Indian purchases a UK Car Company, it enters capital account undertakings as
a debit (as foreign exchange is going out of India). Capital Inflows such as receipt of loans from abroad,
sale of assets like sale of the share of an Indian company to a Japanese customer is a credit on the capital
account.
Balance on Capital Account:
Capital account is in balance when capital inflows (like receipt of loans from abroad, sale of assets or
shares in foreign companies) are equal to capital outflows (like repayment of loans, purchase of assets or
shares in foreign countries).
Surplus in capital account arises when capital inflows than capital outflows.
Deficit in capital account arises when capital inflows are lesser than capital outflows.
Assertion (A) and Reason (R) Based Question

1. Assertion (A): (A): Managed Floating Exchange Rate is decided by market forces but remains within a specific
range as decided by central banks.
Reason (R) : Exchange rate is determined by the forces of demand and suppl of foreign exchange, but the Central
Bank intervenes to buy or sell foreign currency to moderate the exchange rate fluctuations.
Read the following statements-Assertion (A) and Reason (R), and select the correct alternative in each cases.
(a) Both Assertion (A) and Reason (R) are true and Reason. (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true but Reason (RI is riot the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) false.
(d) Assertion (A) is false but Reason (R) is true.
2. Assertion (A): Under a managed floating exchange rate system, the Government directly controls the exchange
rate
Reason (R): Managed floating exchange rate is decided by market forces (the float part) but remains within a
specific range as decided by central bank (the managed part).
3. Assertion (A) When there is a trade deficit and current account deficit, there will always be BoP deficit.
Reason (R) When there is a trade deficit and current account deficit but a capital account surplus (i.e., net capital
inflow), there may he Balanced BoP or BoP surplus.
4. Assertion (A), Managed floating exchange rate system.is a mixture of a flexible exchange rate system and a fixed
rate systems.
Reason (R): Under managed floating exchange rate system, the exchange rate is determined by the market forces of
demand and supply of foreign exchange (the float part) but the central banks need to intervene to buy and sell
foreign currencies in an attempt to moderate exchange rate movements.
5. Assertion (A). Difference between value of exports and imports of goods and services is called trade balance.
Reason (R), Trade balance is the difference between value of exports of goods and imports of goods only, It does
not include exports and imports of services.
6. Assertion (A) In balance of payments, repayment of loans by Indian Government to US Government will be
recorded on the credit side of current accounts.
Reason (R)1 Repayment of loans by Indian government to US Government will be recorded in the capital account
on the debit side as it will lead to outflow of foreign exchange.
7. Assertion (A). Profits received from investments abroad is recorded in capital Account.
Reason (R): Profits received from investments abroad is recorded in the current account since it is an investment
income (factor income), It will be recorded on the credit side of the current account since it leads to inflow of
foreign exchange.
8. Assertion (A) Import of machines is recorded in current account.

Reason (R) All imports and exports of goods are recorded in the current account, because it is simply import/ export
of a good.
9. Assertion (A) `Foreign investment in India’ will be recorded on the credit side of the Capital account in the
Balance of Payment account.
Reason (R). 'Foreign investment in India! is of capital nature (increasing the assets of the country), It leads to inflow
of foreign currency of the co any.
10. Assertion (A): Current account in Balance of Payments records only the exports and imports of goods and
services.
Reason (R): Current Account of Balance of Payment records unilateral transfers along with exports and imports of
goods and services.
11. Assertion (A) : Borrowings from abroad are recorded in the Capital Account of the Balance of Payments on the
debit side.
Reason (R): Borrowings from abroad are recorded in the Capital Account of Balance of Payments on the credit side
as it results in an inflow of foreign currency in the economy.
12. Assertion (A): country may face a situation of CAD, even if the country has trade surplus, with greater negative
balances on account of services and unilateral transfers.
Reason (R). Trade Deficit must exist if a country is facing a situation of Current Account Deficit.
13. Assertion (A) : Trade deficit is always a great cause of worry for an economy,
Reason (R) : Trade deficit is a lesser cause of worry if it reflects a rise in investment which will build the capital
stock and increase the future output in an economy.
14. Assertion (A). 'Indians Investing in assets abroad will be recorded under debit side of capital account in Balance
of Payments.
Reason (R). Indians investing in assets abroad will lead to an outflow of foreign currency, it will be recorded under
debit side of capital account in balance of payments.
15. Assertion (A). Demand for domestic goods and services' and 'Domestic demand for goods and services' are one
and the same thing .
Reason (R.). The demand for domestic goods and services is the sum total of demand for goods and services by
both the domestic and foreign countries, whereas, domestic demand for goods and services is the sum total of
domestic demand for domestic as well as foreign goods.
16. Assertion (A): A country with trade deficit cannot have current account surplus in its Balance of Payments.
Reason (R): Trade deficit occurs when value of goods / visibles imported is more than the value of goods / visibles
exported. Current Account Surplus in this situation will arise when the deficit on trade account is less than the
surplus on account of invisibles.
17. Assertion (A); Profits received from investments abroad on the credit side of the current account of Balance of
Payments,
Reason (R) : It is recorded in the current account since it is an investment income (factor income). It will be
recorded. on the credit side of the au-rent account since it leads to inflow of foreign exchange.
18. Assertion (A). 'Make in India' Programme will have favourable effect on Balance of Payments position of India.
Reason (11). 'Make in India' will increase supply (inflow) of foreign exchange in India., causing improvement in the
balance of payment position.
19. Assertion (A) : ‘Import of Pulses’ will have favourable effect on Balance of Payments position of India.
Reason (R): Import of pulses will lead to outflow of foreign exchange from the country, causing adverse effect on
balance of payment position.
20. Assertion (A): An increase in foreign income improves the trade balance.
Reason (R) :An increase in foreign income leads to increased export. Thus, trade balance (= exports of goods —
imports of goods) increases.
CASE STUDY-1:
India's current account balance posted a marginal surplus of USD 0.6 billion (0.1% of GDP) in the Jan-Mar quarter
2020, as against a deficit of USD 4.7 billion in Jan-Mar 2019 and USD 2.6 billion in the previous quarter. It is
noteworthy that this is the first quarterly current account surplus since the Jan-Mar quarter of 2007. It is primarily on
account of lower trade deficit at USD 35 billion and a rise in net invisible receipts (which includes services, primary
and secondary income) at USD 35.6 billion. The lower trade deficit is a result of the sharp decline in demand at both
the national and international levels following the implementation of COVID-19 lockdowns and a fall in global crude
oil prices since the beginning of this year. In the financial account, net foreign direct investment at USD 12 billion was
higher than USD 6.4 billion in Jan-March quarter 2019. On the portfolio investment side, there was a net outflow of
USD 13.7 billion compared to USD 9.4 billion inflow the same quarter last year on account of money being pulled out
from both debt and equity markets. A surplus at both current and capital account has resulted in a forex reserve
accretion of USD 18.8 billion in the Jan-Mar quarter 2020.
Questions:
1. Current Account of BOP account records only exports and imports of Goods and Services. (True/ False)
2. Current Account Surplus arises when credit items are____________ debit items
(a) Less than (b) Equal to
(c) More than (d) All the above
3. Foreign Direct Investment from abroad are recorded on the:

(a)Credit side of Current Account (b) Debit side of Current Account
(c)Credit side of Capital Account (d) Debit side of Capital Account
4. Current Account is a ____________(Stock/ Flow) concept.
CASE STUDY-2:
Madhavi Arora, lead economist at Edelweiss Securities, said FY21 may see CAD improve to 0% as crude prices fall.
'We expect exports growth to remain fragile amid demand shock . Import growth may remain sluggish as well amid
weak domestic demand. Capital account may worsen in FY21 as dollar funding could be a concern. BOP could
remain in surplus of -$32-35 billion, helped by lower current account despite weak FPI (Foreign Portfolio Investments)
hot money appetite,' she added.
Questions:
1. Export and Import of goods is also known as :
(a)Indivisible trade (b) Visible trade
(c) One-sided transactions (d)Unrequited transfers
2.Exports of goods and services raises the of foreign exchange__________ (Supply/ Demand)
CASE STUDY-3:
Foreign trade influences Indian aggregate demand in two ways. First, when Indians buy foreign goods, this spending
i.e. imports escape as a leakage from the circular flow of income decreasing aggregate demand. Second, our exports to
foreigners enter as an injection into the circular flow, increasing aggregate demand for goods produced within the
domestic economy. Balance of Payment record the transactions in goods, services and financial assets between
residents of a country with the rest of the world. There are two main accounts in the BOP - the Current Account and
Capital Account. Current account is the record of trade in goods and services and transfer payments. Capital account
records all International transactions of assets, Eg. Money, stocks, bonds, government debt, etc.
Questions:
1. Which of the following is not a component of the current account of Balance of Payment ?
(a). Export and import of goods and services

(b) Remittances given by private citizens living abroad
(c) Net International income from compensation of employees
(d) None of the above
2. Which of the following is not recorded in the Capital Account of Balance of Payments ?
(a) Equity capital (b) Gifts, remittances and grants
(c) Government aid (d) Offshore funds
3. Which of the following items are included in current account BOP ?

(a) Foreign investment (b) External borrowing
(c) External assistance (d) Non factor Income
CASE STUDY-4:
Each nation has its own currency when monetary transactions are conducted within the national borders, payments are
made in the the currency of that country for example Indian currency is called rupee. To be more exact it is called
Indian rupee payments within the national borders Of India are made in Indian rupees. Similarly each other nation has
its own currency for example Pakistan currency is called Pakistani rupee USA currency US dollar Kuwait currency
Kuwaiti Dinar UAE currency dirham and so on payments within the national borders of Pakistan are made in Pakistani
rupees payment within the national border of USA is USA dollars, etc. When transactions are conducted across
National borders one currency must be converted into another. Conversion rate between two currencies is decided by
by two ways first fixed exchange rate second floating or flexible exchange rate.
Questions:
1. Exchange rates refer to the rate at which the following is exchanged:
(a) Goods (b) Services
(c) Currencies (d) All the above
2. Who fixed the flexible exchange rate:

(a) Market force (b) Government
(c ) Both a and b (d) None of these
3. ___________________ refers to a system in which exchange rate for a currency is fixed by the government. (fixed
exchange rate/flexible exchanged rate)
CASE STUDY-5:
Foreign Exchange Rate is the price of one currency in terms of another. It links the currencies of different countries
and enables comparison of international costs and prices. People demand foreign exchange because: (i) They want to
purchase goods and services, (ii) They want to send gifts abroad (iii) They want to purchase financial assets Rise in
price of foreign exchange will increase the cost(in terms of rupees) of purchasing a foreign good. This reduces demand
for imports and hence demand for foreign exchange also decreases, other things remaining constant.
Questions:
1. Which of the following is not a source of demand of foreign exchange?
(i) Export of goods and services (ii) Import of goods and services
(iii) Foreign travel (iv) Higher studies abroad
2. Increase in exchange rate implies that the price of foreign currency in terms of domestic currency has increased.
This is called ______________(Depreciation/Appreciation) of domestic currency.
3. (Fixed/Floating)________________ exchange rate is determined by the market forces of demand and supply.
4. Flexible Exchange Rate System is also known as:

(i) Pegged Exchange Rate System (ii) Dirty Floating
(iii) Floating Exchange Rate (iv) Both (ii) and (iii)
CASE STUDY-6:
India's foreign exchange reserves have jumped by $100 billion in 10 months to a record high of $534.5 billion. The rise
has been led by strong foreign fund inflows recently and decline in import bill due to dip in crude oil prices and trade
impact following COVID-19 pandemic. Reduced imports of gold also cut down India's import bill.
Questions:
1 . Import of Petroleum from Iran will be mentioned :

(a) Credit side of Capital Account (b) Debit side of Capital Account
(c) Credit side of Current Account (d) Debit side of Current Account
2. Increase in import duty of gold will lead to :

(a) Reduction in import of gold (b) Import of gold will increase
(c) No effect on import of gold (d) Outflow of foreign exchange
3. India's foreign exchange reserves has jumped high . The reason may be
(a) Inflow of foreign exchange (b) Outflow of Foreign Exchange
(c) autonomous payment over autonomous receipt (d) All of the Above
Multiple Choice Questions

1.BoP is measured as:
(a) difference betwee n visible items of exports and imports
(b) difference between invisible items of exports and imports
(c) difference between external and internal flow of gold
(d) difference between all receipts of foreign exchange and payments of foreign exchange
2. Balance of trade is measured as:
(a) difference between import and export of goods
(b) difference between import and export of services
(c) difference between import and export of capital
(d) difference between all exports and all imports
3. In which of the following categories are the transactions of balance of trade recorded?
(a) Visible items (b) Invisible items
(c) Capital transfers (d) All of these
4. Current account records transactions relating to:

(a) export and import of goods (b) non-factor and factor income
(c) current transfers (d) all of these
5. Which of the following items relate to BoP on capital account?

(a) Foreign investment (b) Loans
c) NRI remittances (d) All of these
6. Which of the following are not included in balance of trade?

(a) Payment of interest and dividend (b) Expenditure by the tourists
(c) Borrowing from rest of the world (d) All of these
7. If the value of visible exports exceeds the value of visible imports, the balance relates to:
(a) current account BoP (b) capital account BoP
(c) balance of trade (d) none of these
8. Unilateral transfers are:

(a) one-sided payments (b) receipts < payments
(c) factor incomes (d) both (a) and (c)
9. Surplus in BoP occurs when:
(a) receipts = payments (b) reciprocal payments
(c) receipts > payments (d) all of these
10. Balance of payments is in disequilibrium when:

(a) current account balance + capital account balance is not equal to z ro
(b) current account balance + capital account balance is some positive number
(c) current account balance + capital account balance is some negative number
(d) all of these
11. Direct foreign investment is a source of:

(a) demand for foreign exchange (b) supply of foreign exchange
(c) both (a) and (b) (d) none of these
12. When the exchange rate rises due to managed floating, it is called:
(a) devaluation (b) appreciation
(c) depreciation (d) revaluation
13. Which of the following functions are performed in a foreign exchange market?
(a) Transfer function (b) Credit function
(c) Hedging function (d) All of these
14. Hedging is possible in:

(a) spot market (b) forward market
(c) managed floating system (d) none of these
15. Spot market is that market w here:

(a) only current transactions are hand led (b) forward rate of exchange is determined
(c) instant rate of exchange is determined d) both (a) and (c)
16. Forward market is that market which:

(a) hand les transactions of foreign exchange meant for future delivery
(b) hand les current transactions
(c) hand les current as well as future transactions
(d) none of these
17. If Rs. 120 are required to buy $ 1, instead Rs. 100 earlier:
(a) domestic currency has appreciated (b) domestic currency has depreciated
(c) rupee value of import bill will increase (d) both (b) and (c)
18. Equilibrium exchange rate occurs when:

(a) supply of foreign exchange > demand for foreign exchange
(b) supply of foreign exchange = demand for foreign exchange
(c) supply of foreign exchange < demand for foreign exchange
(d) both (a) and (b)
19. Dirty floating is related to:

(a) fixed system of exchange rate (b) flexible system of exchange rate
(c) both of these (d) none of these
20. Invisibles balance refers to:

(a) Exports - Imports
(b) Trade balance + Balance of non-factor services
(c) Balance of non-factor services + Balance of income + Balance of transfers
(d) Exports - Imports + Balance of factor services
Fill in the Blanks
Choose appropriate word and fill in the blank:
1.____________________ records imports and exports of goods only. (Balance of trade/Balance of payments)
2. _______________account transactions do not give rise to 'future claims'. (Current/Capital)
3. There is a flow of foreign exchange into the country when we _____________goods and services. (export/import).
4. _____________= Compensation of employees + Investment income. (Factor Incomes /Transfer Incomes)
5. Export and import of all types of goods is recorded in the _____________account of BoP. (current/capital)
6. ________________is an exercise of sale and purchase of foreign currency by the central bank. (Managed
floating/floating exchange rate)
7. Demand for foreign exchange is ____________related to the rate of foreign exchange . (positively/negatively)
8. ________________of domestic currency is a situation of a rise in exchange rate. (
Appreciation/Depreciation)
9. ____________________leads to a rise in supply of foreign currency. (Devaluation/Revaluation)
10. Direct purchases by rest of the world is an important source of ____________exchange. of/for foreign
(supply/demand)
State whether the following statements are True or False
1. Financial transactions re late to international sale and purchase of real assets. (True/False)
2. Balance of payments records transactions related to goods only. (True/False)
3. Accommodating items are meant to restore BoP balance. (True/False)
4. Increase in the official reserves is indicated by a negative sign in the BoP accounts. (True/False)
5. Unilateral transfers made by way of gifts, grants and remittances are treated as current transfers. (True/False)
6. In case of depreciation of the domestic currency, exports are likely to rise. (True/False)
7. Bretton woods system of exchange rate was replaced by a dirty floating system of exchange rate. (True/False)
8. When foreign currency becomes cheaper (in relation to domestic currency), less rupees are available for a US dollar.
(True/False)
9. Spot market is of daily nature. (True/False)
10. Managed floating comprises only the element of fixed exchange rate system. (True/False)
Matching the Correct Statements I. From the set of statements given in Column I and Column II, choose the
correct pair of statements:
1.
Column I Column II
(a) External commercial borrowing (i) Available at the concessional rate of interest
(b) Real assets (ii) Stocks and bonds
(c) Autonomous items (iii) Classified as 'below the line' items of BoP
(d) Exports of goods and services (iv) Recorded as positive items in BoP accounts
(e) Deposits held by NRls (v) A component of current account
2.
Column I Column II
(a) Supply curve of foreign exchange (i) Downward sloping curve
(b) Depreciation of the domestic currency (ii) Value of the domestic currency is deliberately reduced by the
government
(c) Repayment of international loans (iii) A source of supply of foreign exchange
(d) Exports from India to US (iv) Demand for foreign exchange from India
(e) Appreciation of domestic currency (v) Government plays no role whatsoever
Assertion (A) and Reason (R) Based Question

Answer Key
1.(a) 2. (d) 3. (d) 4.. (a) 5. (d)
6. (d) 7. (d) 8. (a) 9. (a) 10. (d)
11. (d) 12. (c) 13. (d) 14. (a) 15. (d)
16. (d) 17. (a) 18. (a) 19. (d) 20. (a)
CASE STUDY BASED QUESTION

CASE STUDY-1
Answers:
1. False: It also records unilateral receipts and payments 2. (C) More than
3. (C) Credit side of Capital Account 4. Flow
CASE STUDY-2
Answers:
1. (b) Visible trade 2. Supply
CASE STUDY-3
Answers:
1. (d) None of the above 2. (b) Gifts, remittances and grants 3. (d) Non-factor income
CASE STUDY-4
Answers:
1. (c) Currencies 2. (a) Market force 3. Fixed exchange rate
CASE STUDY-5
Answers:
1. (i) Export of goods and services 2. Depreciation 3. Floating 4. (iii) Floating Exchange
Rate
CASE STUDY-6
Answers:
1. (d) 2. (a) 3. (a)
Multiple Choice Questions
Answers
1. (d) 2. (a) 3. (a) 4. (d) 5. (d)
6. (d) 7. (c) 8. (a) 9.(c) 10. (d)
11. (b) 12. (c) 13. (d) 14. (b) 15. (d)
16. (a) 17. (d) 18. (b) 19. (b) 20.(c)
Fill in the Blank
Answers
1. Balance of trade 2. Current 3. export 4. Factor Incomes
5. current 6. Managed floating its value in (loses/gains) 7. negatively
8. Depreciation 9. Devaluation 10. supply
True & False
1. False 2. False 3. True 4. True 5. True
6. True 7. False 8. True 9. True 10. False
Matching the Correct Statements I. From the set of statements given in Column I and Column II,
choose the correct pair of statements:
1. Answer
(d) Exports of goods and services- (iv) Recorded as positive items in BoP accounts
2. Answer
(e) Appreciation of domestic currency (v) Government plays no role whatsoever
Chapter- Foreign Exchange Rate
Foreign Exchange Rate: - It refers to the rate at which one unit of currency of a country is exchanged for the
currency of other country. In other words, it is the price of one currency in terms of another country
currency.
Flexible Exchange Rate: -Flexible Exchange Rate System refers to such a rate of exchange which is
determined by the demand for & supply of the foreign exchange in the foreign exchange market. Under
this system, the govt. or central bank does not intervene in the determination of exchange rates.
Components of demand for foreign exchange:
(1) Imports
(2) Repayment of international loans
(3) Grants and donations
(4) Investment in rest of the world
(5) Direct purchases abroad
(6) Payment of income
Components of supply of foreign exchange:
(1) Exports
(2) Loans from rest of the world
(3) Direct purchases by rest of the world
(4) Grants and donations from rest of the world
(5) Investment from rest of the world
(6) Income receipts.
Merits of flexible exchange rate system
1. It eliminates the problem of overvaluation or undervaluation of currencies, Deficit or surplus in balance of

payments is automatically connected under this system.
2. It frees the government from problem of balance of payments.
3. There is no need for the government to hold any reserves.
4. It enhances the efficiency in the economy by achieving optimum resource allocation.
Demerits of flexible exchange rate system
l. It creates situations of instability and uncertainty. Wide fluctuations in exchange rate are possible. This
hampers foreign trade and capital movements between countries.
2. It encourages speculation which may lead to larger uncertainties and fluctuations.
3. The uncertainty caused by currency fluctuations can discourage international trade and investment.
Fixed exchange rate: -Fixed Exchange Rate System refers to the system in which the rate of exchange is
determined by govt. Or monetary authorities. It can be classified into Gold Standard System or Mint Parity
of Exchange & Adjustable Peg System.
Gold standard system exchange rate (Fixed exchange rate system):- According to this system gold was taken
as a common unit of parity between currencies of different countries. Each country was to define value of its
currency in terms of gold. Value of one currency in terms of the other currency was fixed considering gold
value of each currency.
Bretton Woods System of Exchange Rate:- Bretton woods system (Fixed system of exchange) allowed some
adjustments: (i) Deferent currencies were related to one currency, that is US dollar. (ii) US dollar was
assigned gold value at a fixed price. (iii) Value of one currency in terms of US dollar ultimately implied
value of the currency in terms of gold. (iv) Gold currency to be the ultimate unit of parity between any two
currencies.
Merits of fixed exchange rate:
1. It ensures stability in exchange rate. The exporters and importers have not to operate under uncertainty
about the exchange rate. Thus it promotes foreign trade.
2. It promotes capital movements. Fixed exchange rate system attracts foreign capital because a stable
currency does not involve any uncertainties about exchange rate that may cause capital loss,
3.Stable exchange rate prevents capital outflow
4. It prevents speculation in foreign exchange market
5. It forces the government to keep inflation in check. In case of fixed exchange rate system, inflation causes
balance of payments deficit resulting in depletion of foreign exchange reserves.
Demerits of fixed exchange rate:
1. It contradicts the objective of having free markets

2. Under this system, countries with deficits in balance of payment run down this stock of gold and
foreign currencies. This can create serious problem for them. They may be forced to devalue their currency.
On the other hand countries with surplus in balance of payments will face the problem of inflation.
3. There may be under valuation or over valuation of currency. If the fixed exchange rate is at a level which
is lower than the market level i.e. at which demand for foreign currency far exceeds its supply, its will
result in deficit in balance of payment. If it is higher than the market level i.e. at which the supply exceeds
demand then it may create inflationary pressure because of balance of payments surplus. It is difficult
to fix a rate that may prove to be equilibrium rate.
MANAGED FLOATING
‘Managed floating exchange rate is the floating (flexible) exchange rate which can be influenced by the
intervention of central bank in the foreign exchange market' .
Manage Float: Managed floating is a tool employed by the central bank to restore the value of the country's
currency (in relation to other currencies) within the desired limits, even when exchange rate is determined by
the market force of demand and supply. It is also called ' dirty floating'.
Assertion & Reason

Q1. ASSERTION (A): Buying foreign goods is expenditure from our country and it becomes the income of
that foreign country.
REASON (R): The purchase of foreign goods or imports decreases the domestic demand for goods and
services in our country.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Asse1t ion (A) and Reason (R) are true but Reason (R) is not the correct explanation of
Assertion(A)
(c) Assertion (A) is true but Reason (R) is false.
Q2. ASSERTION (A): Managed Floating exchange rate system is also called as 'Dirty Floating' REASON
(R): Clean Floating rate is influenced by the intervention of the Central Bank in the Foreign Exchange
Market.
Alternatives:
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A)
Q3. ASSERTION (A): Repayment of international loans is component of foreign exchange demand
REASON (R): Fixed Exchange Rate System refers to the system in which the rate of exchange is determined
by govt.
Alternatives:
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A)
4. There is relationship between exchange rate and supply of foreign exchange.

(A) a direct (B) an inverse
(C) no (D) both (i) and (ii)
5. Which of the following are not Sources of supply of foreign exchange:

(A) Exports of Goods and Services: (B) Tourism
(C) Remittances (unilateral transfers) from Abroad (D) Purchase of Assets in Foreign Countries.
6. The component of demand for foreign exchange are: -

(A) Imports (B) Exports
(C) Remittances from abroad (D) International borrowing
7. Which of the following is a source of demand for foreign currency?

(A) Foreign tourists visiting India (B) Exports of goods and services
(C) Imports of goods (D) All of these
8. Under flexible exchange rate system, exchange rate is determined

(A) by the government (B) by market forces of demand and sup ply
(C) by Central Bank of a country (D) none of these
9. Export of goods and services raises the ………... of foreign exchange.
(A) demand (B) supply
(C) both (I) and (ii) (D) neither (I) nor (ii)
10. From the following statements given in column I and column II choose the correct pair of statements:
Column I Column II
A. Depreciation of currency 1. Positively related to exchange rate
B. Appreciation of currency 2. Inversely related to exchange rate
C. Demand for foreign currency 3. Rise in exports, fall in imports
D. Supply for foreign currency 4. Fall in exports, rise in imports
A B C D
a 3 4 2 1
b 4 3 2 1
c 1 2 3 4
d 2 4 3 1
11. From the following statements given in column I and column II, choose the correct pair of statements:
Column I Column II
A. Fixed exchange rate 1. Foreign exchange rate
B. Flexible exchange rate 2. Fixed by the government
C. Managed floating exchange rate 3. Determined by market forces
D. $1= Rs. 75 4. Hybrid of fixed and floating
A B C D
a 3 4 1 2
b 1 2 3 4
c 2 3 4 1
d 4 2 1 3
12. From the following statements given in column I and column II, choose the correct pair of statements:
Column I Column II
A. Demand for foreign exchange 1. Inflow of foreign exchange
B. Supply for foreign exchange 2. Outflow of foreign exchange
C. Foreign currencies are bought and sold 3. Revaluation
D. Rise in price of domestic currency with 4. Foreign exchange market
respect to foreign currencies by government
A B C D
a 1 2 3 4
b 2 1 4 3
c 3 1 4 2
d 4 3 2 1
13. From the following statements given column I and column II, choose the correct pair of statements:
Column I Column II
A. Incredible India or Atulya Bharat 1. Outflow of foreign currency
B. Indians going to japan to visit Mario kingdom 2. Inflow of foreign currency

C. Related to fixed exchange rate system 3. Depreciation of currency
D. Related to flexible exchange rate system 4. Devaluation of currency
A B C D
a 1 3 4 2
b 2 1 4 3
c 2 4 3 1
d 4 3 2 1
Column I Column II
A. Investments made by Indians abroad 1. Supply of foreign exchange
B. Rise in exports, fall in imports 2. Decrease in national income
C. Fall in exports, rise in imports 3. Increase in national income
D. Remittances from abroad 4. Demand for foreign exchange
A B C D
a 1 4 3 2
b 4 2 1 3
c 4 3 2 1
d 1 2 3 4
Column I Column II
A. All currencies other than home currency 1. Flexible exchange rate
B. Rate at which currencies are exchanged 2. Foreign exchange
C. Hybrid of fixed and flexible exchange rate 3. Foreign exchange rate
D. Free exchange rate 4. Managed floating exchange rate
A B C D
a 1 2 3 4
b 3 1 4 2
c 4 1 2 3
d 2 3 4 1
PART-A
ANSWER KEY
1 a 2 a 3 b 4 A 5 D
6 A 7 C 8 B 9 B 10 a
11 c 12 b 13 b 14 c 15 d
PART-B
1. The operation of future delivery in the foreign exchange market is known as ________
(A) Spot market (B) Current market
(C) Forward market (D) Domestic market
2. The price of one currency in terms of another is known as _________

(A) Foreign exchange rate (B) Trade rate
(C) Interest rate (D) Balance of Payment
3. Increase in the value of foreign currency is known as _________

(A) Appreciation (B) Devaluation
(C) Inflation (D) None of these
4. The market where the national currencies are traded for one another is known as ________
(A) Domestic exchange market (B) Foreign exchange market
(C) Bazaar (D) Shop
5. Decrease in the value the foreign currency is known as _________
(A) Revaluation (B) Devaluation
(C) Deflation (D) All of these
6. What is the cause of the devaluation of any country’s currency?

(A) Increase in the domestic inflation rate
(B) Domestic real interest rates are less than foreign interest rates
(C) Much increase in the income
(D) All of these
7. The operation of daily nature in the foreign exchange market is known as ________
(A) Spot market (B) Forward market
(C) Domestic market (D) International market
8. Hybrid in management of fixed and flexible exchange rate is known as ________

(A) Managed to float (B) Crawling Peg
(C) Wider Bands (D) None of these
9. Other things remaining unchanged, when in a country the price of foreign currency rises, national income
is:
(A) Likely to rise (B) Likely to fall
(C) Likely to rise and fall both (D) Not affected
10. Other things remaining the same, when in a country the market price of foreign currency falls, national
income is likely:
(A) To rise (B) To fall
(C) To rise or to fall (D) To remain affected
11. Which of the following is true?

(a) Fixed exchange rate is determined by the government
(b) Flexible exchange rate is determined by market forces (demand and supply of foreign exchange)
(c) Both (a) and (b)
12. Which one is a merit of the fixed exchange rate?
(a) Promotes Foreign Trade (b) Induces Foreign Capital
(c) Increases Capital Formation (d) All the above
13. Which one is a demerit of the fixed exchange rate?
(a) Ignores National Interests (b) Restricted Movement of Capital
(c) Sudden Fluctuations in Exchange Rates (d) All the above
14. Which one is a merit of the flexible exchange rate?

(a) Simple System (b) Continuous Adjustments
(c) Improves Balance of Payments (d) All the above
15. Which one is a demerit of the flexible exchange rate?

(a) Bad Results of Low Rate (b) Uncertainty
(c) Instability in Foreign Exchange (d) All the above
16. Which one is a source of the demand for foreign exchange?

(a) Imports of Goods and Services from Abroad
(b) Investment in Foreign Nations
(c) Gift Scheme to Foreign Nations
(d) All the above
17. Which among the following is a source of supply of foreign exchange?

a. Donations given b. Imports
c. Exports d. Gifts
18. Which among the following is a source of demand for foreign exchange?
a. Brokerage of goods and services b. Smuggle of goods and services
c. Export of goods and services d. Import of goods and services
19. By exchange rate we mean:

(a) How much local currency we have to pay for a foreign currency
(b) How much of a foreign currency we have to pay for another foreign currency
(c) The rate at which foreign currency is bought and sold
(d) All of these
20. Foreign exchange is determined by:

(a) Demand for foreign currency
(b) Supply of foreign currency
(c) Demand and supply in the foreign exchange market
Case study1: Read the below paragraph answer the questions 21 & 22
The foreign exchange reserves stood at USD 433.71 billion as at End-September 2019. During the half-year
period under review, reserves followed an increasing trend from USD 445.11 billion as at End-October 2019
to USD 481.26 billion as at end-February 2020. Thereafter, reserves decreased to USD 477.81 billion as at
End-March 2020 (Table 1 and Chart 1).
Although both US dollar and Euro are intervention currencies and the Foreign Currency Assets (FCA) are
maintained in major currencies, the foreign exchange reserves are denominated and expressed in US dollar
terms. Movements in the FCA occur mainly on account of purchase and sale of foreign exchange by the RBI,
income arising out of the deployment of the foreign exchange reserves, external aid receipts of the Central
Government and changes on account of revaluation of the asset.
(Source: Half Yearly Report on Management of Foreign Exchange Reserves October 2019-March 2020-RBI)
21. Read the following statements - Assertion (A) and Reason (R). Choose one of the correct alternatives
given below:
Assertion (A) : The foreign exchange reserves stood at USD 433.71 billion as at end-September 2019
Reason (R) : Foreign Currency Assets (FCA) are maintained by RBI in India .
Alternatives :
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion
(A).
22. Read the following statements - Assertion (A) and Reason (R). Choose one of the correct alternatives
given below :
Assertion (A) : US dollar and Euro are foreign exchange for India .
Reason (R) : Foreign exchange refers to all the currencies of the rest of the world other than the domestic
currency of the country.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion
(A).
(d) Assertion (A) is false but Reason (R) is true
CASE STUDY-2:
Each nation has its own currency when monetary transactions are conducted within the national borders,
payments are made in the currency of that country for example Indian currency is called rupee. To be more
exact it is called Indian rupee payments within the national borders Of India are made in Indian rupees.
Similarly each other nation has its own currency for example Pakistan currency is called Pakistani rupee
USA currency US dollar Kuwait currency Kuwaiti Dinar UAE currency dirham and so on payments within
the national borders of Pakistan are made in Pakistani rupees payment with in the national b order of USA is
USA dollars, etc. When transactions are con ducted ac ross National borders one currency must be converted
into another. Conversion rate between two currencies is decided by two ways first fixed exchange rate
second floating or flexible exchange rate.
Questions:
23. Exchange rates refer to the rate at which the following is exchanged:
(a) Goods (b) Services
(c) Currencies (d) All the above
24. Who fixed the flexible exchange rate:
(a) Market forces (b) Government
(c ) Both a and b (d) None of these
25. …………refers to a system in which exchange rate for a currency is fixed by the government.
(a) flexible exchanged rate (b) Currencies
(c) Market force (d) Fixed exchange rate
CASE STUDY-3:
Foreign Exchange Rate is the price of one currency in terms of another. It links the currencies of different
countries and enables comparison of international costs and prices. People demand foreign exchange
because:
i) They want to purchase goods and services,
(ii) They want to send gifts abroad
(iii) They want to purchase financial assets
Rise in price of foreign exchange will increase the cost (in terms of rupees) of purchasing a foreign good.
This reduces demand for imports and hence demand for foreign exchange also decreases, other things
remaining constant.
Questions:
26. Which of the following is not a source of demand of foreign exchange?
(a) Export of goods and services (b) Import of goods and services
(c) Foreign travel (d) Higher studies abroad
27. Increase in exchange rate implies that the price of foreign currency in terms of domestic currency has
increased. This is called ………. of domestic currency.
(a) Depreciation (b) Appreciation
(c) Devaluation (d) Pegged Exchange Rate
28. ……..exchange rate is determined by the market forces of demand and supply.
(a) Flexible exchange rate (b) Fixed exchange rate
(c) Export of goods and services (d) Pegged Exchange Rate
29. Flexible Exchange Rate System is also known as:
(a) Pegged Exchange Rate System (b) Export of goods and services
(c) Dirty Floating (d) Floating Exchange Rate
The questions from 30 to 37 are in statement .State the following whether true or False
30. Foreign exchange rate is the value of all currencies including the domestic currencies.
31. Depreciation of domestic currency is the decrease in value of domestic currency in relation to foreign
currency.
32. Appreciation of foreign exchange is done intentionally by the government.
33. Devaluation and revaluation of foreign currency is done intentionally by the government.
34. Fixed exchange rate is fixed by the government in terms of gold reserves.
35. Fixed exchange rate is also called managed floating.
36. Increase in demand for foreign exchange is caused due to import of goods.
37. Hedging function helps to reduce the risk of fluctuation due to change in foreign exchange rate.
1 c 2 a 3 a 4 b 5 b 6 d 7 a 8 a
9 a 10 b 11 c 12 d 13 d 14 d 15 d 16 d
17 c 18 d 19 d 20 c 21 b 22 a 23 c 24 a
25 d 26 a 27 a 28 a 29 d 30 F 31 T 32 F
33 T 34 T 35 F 36 T 37 T - - - - - -
Chapter- Development Experience-(1947-1950)
Economy of a country includes all production, distribution or economic activities that relates with people and
determines the standard of living. On the eve of independence Indian economy was in a very bad shape due to
the presence of British colonial rule.
The Britishers generally framed policies ‘that favoured England. The only purpose of Britishers was to
unjustly enrich themselves at the cost of India’s economic development. Thus, in 1947, when British
transferred power back to India, we inherited a crippled economy.
India’s National and Per Capital Income under Colonial Rule There were no efforts from the part of the
colonial government to measure the national and per capital income of India. Some individual attempts were
made to measure such incomes but produced conflicting and inconsistent results. The contribution of VKRV
Rao and Dadabhai Naoroji are considered very significant in this context.
Low Economic Growth under Colonial Rule

India had an independent economy before the arrival of British rule. But the Britishers, dominated it for over a
period of 200 years. Britishers framed policies that protected and promoted the economic interests of their
own country. They transformed India into supplier of raw materials and consumer of finished goods from the
factories of Britain. Such policies affected Indian economy very adversely.
In this context, we will discuss the conditions of certain sectors that were badly affected by the presence of
colonial rule, i.e. on the eve of independence.
State of Agriculture Sector

Agriculture was the main source of livelihood for most of the people of India, and about 85% of the country’s
population lived mostly in villages and derived livelihood directly or indirectly from agriculture.
Inspite of such a large segment of the population being dependent of agriculture, either directly or indirectly,
this sector was facing stagnation and constant deterioration, as is brought forward through the following
points.
1. Low Level of Productivity
Productivity, i.e. output per hectare of land was very low. This led to a low level of output, inspite of a large
area under cultivation.
2. High ‘Degree of Vulnerability
Agriculture was vulnerable to climatic factors and mostly affected by erratic rainfall. Poor rainfall generally
led to a low level of output and also to crop failures. No effort was made by British Government to provide
permanent source of irrigation facilities for the farmers.
The reasons for stagnation of agricultural sector were
i) Land Revenue System
The Britishers introduced the zamindari system. The zamindars were recognised as permanent owners of the
soil. Zamindars were to pay a fixed sum to the government as land revenue and they were absolutely free to
extract as much from the tillers of the soil as they could.
Their main interest was in rent collection regardless of the economic conditions of cultivators and this caused
misery and social tension among the latter.
Apart from this there are two more systems namely, the Ryotwari and the Mahalwari were prevalent.
ii) Lacking of Resources

Because the tillers had to pay huge amount of rent, referred to as ‘Lagaan’, they were not left with any surplus
to be able to provide for resources needed in agriculture in the form of fertilisers or providing for irrigation
facilities. This further lowered the agricultural productivity.
iii) Commercialization of Agriculture

Commercialization of agriculture refers to shift from cultivation for self- consumption to cultivation for sale in
the market. It also refers to cultivation of cash-crops like cotton, indigo, etc.
Due to commercialization of agriculture, there was some evidences of a relatively higher yield of cash crops in
certain areas of the country. But this could not help in improving the conditions of Indian farmers.
Instead of producing food crops, farmers were producing cash crops, which were ultimately to be used by
British industries.
State of Industrial Sector

In the pre-British period, India was particularly well-known for its handicraft industries, in the fields of cotton
and silk textiles, metal and precious stone works, etc. These products enjoyed a worldwide market based on
the reputation of the fine quality of material used and the high standards of craftsmanship.
But the Britishers followed a policy of systematic de-industrialisation by creating circumstances conducive to
the decay of handicraft industry and not taking any steps to promote modern industry and reduced India to a
mere exporter of raw material and importer of finished goods.
The following points bring forward the state of the industrial sector at the eve of independence
3. Decay of Handicraft Industry

The traditional handicraft industry in India enjoyed worldwide reputation, but the British misrule in India led
to the decline of Indian handicraft industry. The Britishers adopted the following policies to systematically
destroy the handicraft industry.
i)Discriminatory Tariff Policy of the State

The Britishers followed a discriminatory tariff policy by allowing tariff free exports of raw material from
India (to provide for the requirements of their industries in Britain) and tariff free import of British Industrial
products (to promote British goods in India), but placed a heavy duty on the export of handicraft products. So,
Indian handicraft products started loosing their domestic as well as foreign markets.
ii)Competition from Machine-made Products

Machine-made products from Britain were cheap and better in quality than the handicraft products. This
competition forced many a handicrafts to shut down their business.
iii)Introduction of Railways in India

The Britishers introduced Railways in India, to expand the market of its low priced industrial products.
Consequently, the demand of high-priced handicraft products started to fall, thus leading to the downfall of
handicraft industry.
4. Slow Growth of Modem Industry

Under second half of 19th Century, modern industry showed slow growth.
This development was confined to the setting up of cotton and jute textile mills. Subsequently, the iron and
steel industries began coming up in the beginning of the 20th century.
In this context, the Tata Iron and Steel Company (TISCO) was incorporated in August, 1907 in India. It
established its first plant in Jamshedpur [Bihar, at present Jharkhand].
But, these industries were the result of private endeavour. The state participation in the process of modem
industrialization was very limited, as is evident from the following points
i) Limited Growth of Public Sector Enterprises

The public sector enterprises such as railways, power, post and telegraph were confined to areas which would
enlarge the size of market for British products in India.
ii) Lopsided Industrial Structure
The industrial growth was lopsided, in the sense that consumer goods industry was not adequately supported
by the capital goods industry.
iii) Lack of Basic and Heavy Industries

No priority was given for the development of basic and heavy industries. Tata Iron and Steel Mills was the
only basic industry in India.
Textile Industry in Bengal

Muslin is a type of cotton textile which had its origin in Bengal,particularly, places in and around Dhaka (now
the capital city of Bangladesh). Daccai Muslin had gained worldwide fame as an exquisite type of cotton
textile.
The finest variety of muslin was called malmal. Foreign travellers also used to refer to it as malmal
shahi or malmal khas meaning that it was worn by or fit for, the royalty.
State of Foreign Trade
India has been an important trading nation since ancient times.

But when the restrictive policies of commodity production, trade and tariff were imposed by the colonial
government, it adversely affected the structure, composition and volume of India’s foreign trade.
Following were the reasons behind the poor growth of foreign trade
1. Exporter of Primary Products and Importer of Finished Goods
Under the colonial rule, India became an exporter of primary products such as raw silk, cotton, wool, sugar,
indigo, jute, etc and an importer of finished consumer goods like cotton, silk and woollen clothes and capital
goods like light machinery produced in the factories of Britain.
2. Britain’s Monopoly Control

Britain maintained a monopoly control over India’s exports and imports. Due to this, more than half of India’s
foreign trade was restricted to Britain while the rest was allowed with a few other countries like; China,
Ceylon (Sri Lanka) and Persia (Iran). The opening of Suez Canal in 1869 further intensified British control
over India’s foreign trade.
3. Drain of India’s Wealth

An important characteristic of foreign trade throughout the colonial period was the generation of a large
export surplus. But this surplus came at a huge cost to the country’s economy. Several essential commodities
like food grains, kerosene, were scarcely available in the domestic market.
Also, this surplus was not used in any developmental activity of India. Rather, it was used to maintain the
administrative set-up of the Britishers or bear the expenses of war taught by Britain.
All of this, led to the drain of Indian wealth.
State of Occupational Structure
During the colonial period, the occupational structure of India exhibited its backwardness. The agricultural
sector accounted for the largest share of the work force which remained at a high of 70-75% of the work force
and the manufacturing and services sectors accounted for only 10 and 15- 20% respectively.
There existed a growing regional disparity with few states such as Orissa, Rajasthan and Punjab witnessing an
increase in agricultural workforce while the states which were the parts of Madras presidency. Bombay and
Bengal witnessed a decline in the percentage of work force dependent on agriculture.
State of Infrastructure
Infrastructure comprises of such industries which help in the growth of other industries. Under the colonial
period, basic infrastructure such as railways, port per transport, posts and telegraphs developed.
However, the real motive behind this development was not to provide basic amenities to the people but to sub
serve various colonial interests.
The state of infrastructure under the colonial rule can be understood with the help of following points
1. Roads
Roads constructed before independence were not fit for modern transport. It was very difficult to reach rural
areas during rainy season. The roads were built only to serve the purpose of mobilizing the army within India
and transporting raw materials from the countryside to the nearest railway station or the port for exporting it.
2. Railways
British rulers introduced railways in India in 1850 and it began its operation in 1853. It is considered as one of
the important contribution of Britishers.
The railways affected the structure of the Indian economy in the following two ways
(i) It enabled people to undertake long distance travel and thereby break geographical and cultural barriers.
(ii) It fostered commercialization of Indian agriculture which adversely affected the self-sufficiency of the
village economies in India.
So, the social .benefits provided by the Railways was outweighed by the country’s huge economic loss.
3. Water and Air Transport
The colonial rulers took measures for the development of water transport. The inland waterways, at times, also
proved uneconomical as in the case of the coast canal on the Orissa coast. The main purpose behind their
development was to serve Britain’s colonial interest.
The colonial government also showed way to the air transport in 1932 by establishing Tata Airlines. Thus, in
this way it inaugurated the aviation sector in India.
4. Communication
Modern postal system started in India in 1837. The first telegraphy line was opened in 1857. The introduction
of the expensive system of electric telegraph in India served the purpose of maintaining law and order.
Demographic Condition
Various details about the population of British India were first collected through a census in 1881. Before
1921, India was in the first stage of demographic transition. The second stage began after 1921. However
neither the total population of India nor the rate of population growth at this stage was very high. Though
suffering from certain limitations, it revealed the Unevenness in India’s population growth. The population
grew at a rate of 1.2% up to the year 1951.
On the eve of independence the demographic condition was as follows
(i) The overall literacy level was less than 16%.

(ii) The female literacy level was at a negligible low rate of about 7%.
(iii) Public health facilities were either unavailable to large chunks of population or when available, were
highly inadequate. Infant mortality rate was 218 per thousand in contrast to present infant mortality rate of 63
per thousand.
(iv) Life expectancy was very low 44 years in contrast to the present 66 years.
(v) Both birth rate and death rate were very high at 48 and 40 per thousand of persons respectively.
Q.NO MCQ/FILL UP/TRUE-FALSE/ASSERTION & REASON/CASE BASED QUESTIONS

1. What was the objective behind the development of means of transport during the British
period?
a. To industrialise the country
b. To serve the interests of Indian company
c. To transport finished goods from England to the interiors of colonial India
d. Development of infrastructure in India
2. Industrial Revolution first started in:

a. France b. Germany
c. England d. America
3. The Tata Iron and Steel Company was established in:

a. 1857 b. 1907
c. 1921 d. 1951
When was India's first official census undertaken?

4. a. 1853 b. 1881
c. 1901 d. 1921
5. Suez Canal was opened in:

a. 1907 b. 1869
c. 1921 d. 1901
6. In 1947, the growth rate of per capita income in India was approximately:
a. 6% b. 1.5%
c. 0.5% d. 2.5%
7. During the first half of the 20th Century, the growth rate of National Income was:
a. Less than 2% b. more than 2%
c. 2% d. None of these
8. Name the economist whose estimates on GDP and per capita income during the British rule
was considered very significant:
a. William Digby b. Dr.V.K.R.V. Rao
c. Dadabhai Naoroji d. Findlay Shirras
9. Which industry suffered a major setback during the British rule?

a. Cement b. Iron and steel
c. Handicraft d. Paper
10. What was the principal source of occupation during the British rule?
a. Agriculture b. Mining
c. Manufacturing d. Trade and Commerce
11. The literacy rate and the female literacy rate of India at the time of independence respectively
were
a. 16 per cent. 7 per cent b.12 per cent. 7 per cent
c. 32 per cent. 16 per cent d.16 per cent. 12 per cent
12. Which year is described as the "Year of Great Divide"?

a. 1881 b. 1921
c. 1907 d. 1931
13. The motive of British Government behind de-industrialization was

(i)To get raw material from India at cheap rate.
(ii)To sell British manufactured goods in Indian market at high prices.
(iii)To focus on development of agriculture.
(iv)To get finished products from India at cheap rate.
a. (i) and (ii) b. (ii) and (iv)
c. Only (iii) d. Only (iv)
14. The main reason for stagnation in agriculture during the British rule was:
a. Lack of technology b. Commercialization of agriculture
c. Land settlement d. De-industrialization
15. Which of the following statements is not true about the foreign trade in context of Indian
Economy during the British rule?
a. India became exporter of primary products and an importer of finished consumer goods
and capital goods from Britain
b. India traded with many countries of the world despite discriminatory tariff policy pursued
by the British Government
c. India generated huge export surplus
d. Britain had a monopoly control over India's Foreign Trade
16. Mortality rate is one of the indicators of ......... of an economy.
a. Occupational structure b. unemployment
c. Demographic profile d. Foreign trade
17. Which of the following social indicators contributed to the worsening of India's demographic
profile during the colonial period?
a. Low Infant Mortality rate b. High Life expectancy
c. Low Literacy rate d. Low Birth rate and Death rate
18. Decline of handicraft industries Led to:

a. Massive unemployment b. Import of Finished Goods
c. Export of Finished Goods d. Both a. and b.
19. Which industry was adversely affected due to partition?

a. Silk b. Cotton
c. Jute d. Nylon
20. In India the first passenger train ran between:

a. Bombay to Thane b. Thane to Bombay
c. Bombay to Surat d. None of these
21. Identify the option which is not true in the context demographic condition of India during
British rule?
a. High Birth Rate b. Low Death Rate
c. Low Infant Mortality Rate d. Both b. and c.
22. Life expectancy during the British India was

a. 66 Years b. 70 Years
c.44 Years d.50 Years
23. Indian economy on the eve of independence is characterised as

a. Stagnant economy b. Backward economy
c. Colonial economy d. All of the above
24. The main objective of zamindars during the land settlement system was to
a. Improve the economic conditions of the cultivators
b. Improve the crop yield by making significant contributions in technology and fertilizers
uses
c. Collection of rent with no interest in the economic condition of the cultivators
d. Cooperating with colonial government to improve the condition of agriculture.
25. Occupational structure refers to:

a. Distribution of working force among the different occupations
b. Nature of different occupations
c. Size of working force in a country
d. Number of people living in a country
26. The main reason for food shortage in India after partition was
a. Low productivity in Indian agriculture
b. Food surplus areas of west Punjab & Sindh went to Pakistan
c. Negligible use of fertilizers
d. All of the above
27. Arrange the following events in chronological order in context of Indian economy and choose
the correct alternative
i. Establishment of TISCO ii. First census data collected during British India
iii. Opening of the Suez canal iv. Introduction of the railway by the British
a. ii,iv.iii,i b. iv,ii,iii,i
c. iv,iii,ii,i d. i,ii,iii,iv
28. The main focus of industrial policy persuaded during colonial period was to:
a. Strengthen the Indian industrial base
b. Strengthen the flourishing industrial base of Britain
c. Strengthening the industrial base of India along with Britain
d. Cannot comment as the goals of the industrial policy during colonial period was not clear
29. Colonial government restricted India’s foreign trade with which of these nations?
a. Britain, China, America & Sri Lanka b. Britain, China, America & Iran
c. Britain ,America, Sri Lanka & Iran d. Britain, China, Sri Lanka & Iran
30. Which of the given statement is true regarding the condition of Infrastructure during colonial
government?
a. Balanced regional development in infrastructure in all the areas
b. Development in the areas of transport and communication
c. No development in the area of roads and railways
d. Barter system was still prevailing
31. From the Column I and Column II, choose the correct pair of statements:
olumn I Column II
A. Prior to 1921 1. Death rate
B. After 1921 2. Birth rate
C. The number of death per 1000 persons in a 3. First stage of demographic
year transition
D. The number of births per 1000 person in a 4. Second stage of demographic
year transition
A B C D
a. 4 1 3 2
b. 3 4 1 2
c. 1 3 2 4
d. 2 1 4 3
32. From the following statements given in Column I and Column II, choose the correct pair of
statements:
Column I Column II
A.First Official Census 1. 75%
B. Year of Great Divide 2. 25%
C. Share of workforce in manufacturing 3. 1921
and service sectors
D. Share of workforce in agricultural 4. 1881
sectors
A B C D
a. 3 4 2 1
b. 4 1 2 3
c. 4 3 2 1
d. 1 2 3 4
statements:
Column I Column II
A. Depleted 1. Largely depending on agriculture
B. Agrarian 2.Traditional work
C. Mortality Rate 3.Devoid all resources
D. Handicrafts 4.No. of those dying with reference to
those born
A B C D
a. 4 1 2 3
b. 3 1 4 2
c. 4 3 1 2
d. 2 1 4 3
statements:
Column I Column II
A. People were not getting two square meals a day 1. Iran
B. Semi feudal Economy 2. Sri Lanka
C. Ceylon 3. Rampant economy
D. Persia 4. Mixed economy
A B C D
a. 3 4 2 1
b 1 2 3 4
c. 2 4 1 3
d. 3 1 2 4
35. During the British colonial rule, the various social development indicators were not quite
encouraging. The female literacy level was at a negligible low of about……………(Fill up
the blanks with correct answers)
(a)7 percent (b) 8 percent
(c) 10 percent (d) 16 percent
36. Before 1921, India was in the first stage of………………….The second stage began after
1921. However, neither the total population of India nor the rate of population growth at this
stage was very high.(Fill up the blank with correct answer)
(a) Low literacy (b) Demographic transition
(c ) Death Rate (d) Mortality rate
37. During the colonial period, there was regional variation in the occupational structure. Parts of
the then Madras Presidency, Bombay and Bengal witnessed a decline in the dependence of
the workforce on the agricultural sector with a commensurate increase in the manufacturing
and the services sectors. However, there had been an increase in the share of workforce in
agriculture in states such as…………………(Fill up the blank with correct answer)
(a) Punjab, Tamilnadu, Kerala (b) Orissa, Rajasthan and Punjab
(c) Madhya Pradesh, Bihar, Punjab (d) Rajasthan, Kerala, Maharashtra
38. Under the colonial regime, the motive behind infrastructure development was to provide
basic amenities to the people. True/False
39. On the eve of independence, the social and economic challenges before the country were
enormous. True/False
40. The social benefits, which the Indian people gained owing to the introduction of the railways,
were out-weighted by the country’s huge economic loss. True/False
41. Read the following statements: Assertion (A) and Reason (R).Choose one of the correct
alternative.
Assertion
(A): On the eve of independence Indian economy was Stagnant economy.
Reason
(R): Largest section of Indian population depended on agricultural sector for sustenance.
Alternatives:
(a)Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
(b)Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation
of Assertion (A).
(c)Assertion (A) is true but Reason (R) is false.
(d)Assertion (A) is false but Reason (R) is true
42. Read the following statements: Assertion (A) and Reason (R). Choose one of the correct
alternative.
Assertion
(A): India became an exporter of primary products and an importer of finished consumer and
capital goods produced in Britain.
Reason
(R): Restrictive policies of commodity production, trade and tariff pursued by the colonial
government adversely affected the structure, composition and volume of India's Foreign
Trade
Alternatives:
Assertion (A).
of Assertion (A).
alternative.
Assertion
(A): Farmers were forced to produce cash crops like cotton or jute instead of conventional
crops Like rice and wheat during the British rule.
Reason
(R): Agriculture was exploited through Zamindari System under the Colonial rule
Alternatives:
Assertion (A).
of Assertion (A).
alternative.
Assertion
(A): The British introduced the railways in India in 1850 and it is considered as one of their
most important contributions.
Reason
(R): Along with the development of roads and railways, the colonial dispensation also took
measures for developing the inland trade and sea lanes.
Alternatives:
(a). Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b). Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c). Assertion (A) is true but Reason (R) is false.
(d). Assertion (A) is false but Reason (R) is true.
alternative.
Assertion
(A): India could not develop a sound industrial base under British Rule;
Reason
(R): The colonial government reduced India to the status of a mere exporter of raw materials
to be used by upcoming modern industries in Britain
Alternatives:
Assertion (A).
of Assertion (A).
alternative.
Assertion
(A): The two important industries which were adversely affected by partition were Cotton
textile and Jute industry.
Reason
(R): India faced problem of rehabilitation of large number of refugees from Pakistan.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion
47. CASE STUDY-1

Read the following case study and answer the given questions
India has seen a long and rich history of handicrafts. Years and years of evolution and
refinement have made it possible for India to retain a coveted spot in the handicrafts
landscape of the world. Where the ancients were exemplary in their craft, the contemporary
craftsmen are adept in using the knowledge of the ancients by adding modem craft techniques
to them. They have carefully preserved this age-old art that represents dignity, style and
beauty of the Indian culture.
Voyaging through the lanes of Indian handicrafts is a tempestuous affair. There are seen
striking ups and downs throughout the late 2000s, had a grave impact on handicrafts industry.
Despite the growth of handicraft industry in India and the measures taken by the government
to promote handicrafts, the average earning of a craftsman when compared to that of other
fields is very low. Hence, the younger generation is moving to other fields with only the elder
craftsmen being left behind. The country needs younger generation of craftsmen to carry on
the tradition of handicrafts, and this is only possible by ensuring the assistance of craftsmen
to improve their techniques, availability of quality raw materials, direct marketing channels,
credit and better wages and providing them with socio-economic benefits.
Q 1. India had a worldwide reputation of..........
a. Handicrafts b. Landscape
c. Labour d. None of these
Q.2.To preserve handicrafts industry and to promote it, the country should encourage
younger generation of craftsmen helping them with:
a. Availability of quality raw materials b. Better wages
c. Direct marketing channels d. All of the above
Q.3.During British rule, Indian handicrafts were discouraged by ..........of their exports.
a. Removal of Rajas b. Nawabs
c. Giving subsidies d. None of these
Q.4.Decay of indigenous handicrafts during British rule was due to:
a. Introduction of discriminatory tariff policy b. Industrial Revolution in Britain
c. Commercialisation of agriculture d. Both a. and b
48. CASE STUDY-2
India's economy under the British colonial rule remained fundamentally agrarian about 85 per
cent of the country’s population lived mostly in villages and derived livelihood directly or
indirectly from agriculture However despite such a major occupation, it experienced frequent
deterioration and stagnation. This stagnation in the agricultural sector was caused mainly
because of the various systems of land settlement that were introduced by the colonial
government.
Agricultural productivity was quite low in terms of production of food crops; however there
is a reliable evidence of relatively high yield in cash crops across different parts of the
country due to commercialisation of agriculture. But this could hardly help farmers in
improving their economic condition as, instead of producing food crops, now they were
producing cash crops which were to be ultimately used by British industries back home.
Despite some progress made in irrigation, India's agriculture was starved of investment in
terracing, Flood-control, drainage and desalinisation of soil.
Q1. Which of the following is the main reason explaining high dependence of the workforce
in the agricultural sector?
(a) Rampant illiteracy and poverty and also limited employment opportunity in other sectors.
(b) A vibrant agricultural sector which can engage a large amount of Indian diaspora
(c) Developing the agrarian base as there were limited employment opportunities in the
manufacturing and service sector
(d) All of the above
Q2. Agricultural sector in India is often characterised as having a disguised unemployment.
This implies
(a) More number of workers are engaged in agriculture than required
(b) Marginal productivity of each additional worker is close to zero
(c) Less number of workers are engaged in agriculture than required
(d) Can be explained by either (a) or (b)
Q3. Commercialisation improved the socio-economic status of farmers during the British
India
(a) True (b) False (c) Partially true
Q4. The main reason for stagnation of Indian agriculture during colonial rule was:
(a)Land Settlement & revenue settlement (b)Poor level of infrastructure
(c)Technological bottlenecks (d)Financial constraints
49. CASE STUDY-3
By the time India won its independence the impact of the the two century long British
colonial rule was already showing on all aspects of the Indian economy. The agricultural
sector was already saddled with surplus labour an extremely low productivity. The industrial
sector was crying for or modernization diversification, capacity building and increased public
investment. Foreign trade was oriented to feed the industrial revolution in Britain.
Q1. Mark the reason which is not true for stagnation in agriculture during British rule :
(a). Land settlement system (b). Industrialization
(c). Lack of technology (d). Commercialization of agriculture
Q2. Which industry received the major setback during the colonial rule?
(a). Cement (b). Handicraft
(c). Paper (d). Iron in steel
Q3. At the time of independence Indian industrial sector was crying for ------
(a). Modernisation
(b). Diversification
(c). Capacity building and increased public investment
(d). All of these
50. CASE STUDY-4
The restrictive policies of commodity production, trade and tariff pursued by the colonial
government adversely affected the structure, composition and volume of India's foreign trade.
Consequently, India became an exporter of primary products and an importer of finished
consumer and capital goods like light machinery produced in the factories of Britain. The
most important charactristic of India's foreign trade throughout the colonial period was the
generation of a large export surplus Due to its quality; Indian Indigo was in great demand in
Britain. In 1810, almost 95% of the indigo imported into Britain was from India. Indigo
production became a very profitable business and many Britishers became Indigo planters.
They advanced loans to peasants at high rate and forced them to cultivate indigo in 25% of
their land. They paid a low price for the Indigo. As the Indigo plant had deep roots, it
exhausted the soil fertility and the land became unfit for rice cultivation.
Q1. Production of Indigo brought huge surplus for the........
(a) Domestic cultivators (b) Indigo planters
(c) The colonial government (d) Zamindars
Q2. Indigo production increase the fertility of soil and brought huge revenues for the
domestic cultivators
(a) True (b) False (c) Partially True
Q3. Which sector was the second largest provider of employment during British India?
(a) Agriculture (b) Industry
(c ) Services (d) All sectors constituted equal proportion of the total work force
Q4. What was the treatment given by the Indigo planters to the peasants?
(a) They were paid low prices for growing Indigo
(b) They were given support measures on how to grow Indigo along with a piece of land
(c) Advancement of loans at a lower rate of interest
(d) Peasants voluntarily agreed with the Indigo planters to produce Indigo
Answer Key
Q.NO ANSWER
1. C- To transport finished goods from England to the interiors of colonial India
2 C- England
3 B- 1907
4 B- 1881
5 B- 1869
6 C- 0.5%
7 A-Less than 2%
8 B- Dr.V.K.R.V.Rao
9 C- Handicraft
10 A- Agriculture
11 A -16% 7%
12 B-1921
13 A- (i) and (ii)
14 C- Land settlement
15 B- India traded with many countries of the world despite discriminatory tariff policy
pursued by the British Government
16 C- Demographic profile
17 C- Low Literacy rate
18 D-Both A & B
19 C-Jute
20 A- Bombay to Thane
21 D- Both B & C
22 C-44 Years
23 D- All of the above
24 C- Collection of rent with no interest in the economic condition of the cultivators
25 A- Distribution of working force among the different occupations
26 D- All of the above
27 C- iv,iii,ii,i
28 B- Strengthen the flourishing industrial base of Britain
29 D- Britain,China,Sri Lanka & Iran
30 B- Development in the areas of transport and communication
31 B- 3 4 1 2
32 C- 4 3 2 1
33 B- 3 1 4 2
34 A- 3 4 2 1
35 A- 7 percent
36 B-Demographic transition
37 B-Orissa, Rajasthan and Punjab
38 False
39 True
40 True
41 B. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A).
42 A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
43 B. Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct
45 A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
47 1-A-Handicrafts 2-D-All of the above 3-A- Removal of Rajas 4-D-Both A & B
48 1-A- Rampant illiteracy and poverty
2-D- Can be explained by either (a) or (b)
3- B-False
4- A- Land Settlement & Revenue settlement
49 1-B- Indusrialisation
2-B- Handicraft
3-D- All of these
50 1-A- Indigo planters
2-B- False
3-B- Services
4-A- They were paid low prices for growing Indigo
Chapter- Indian Economy-1950-1990
INDIAN ECONOMY:1950-1990
Economy:An economy is an organization of economic activities which provide people with the means to work
and earn a living.
Economy (Types):
1. Capitalist
2. Socialist
3. Mixed
• Capitalist Economy: In which major economic decisions (what to produce, how to produce and for
whom to produce) are left to the free play of the market forces.
• Socialist Economy: In which major economic decisions are taken by the Govt. keeping in view the
collective interest of the society as a whole.
• Mixed Economy: In which major economic decisions are taken by the central Govt. authority as well as
are left to the free play of the market forces.
Economic Planning: Economic Planning means utilization of country’s resources in different development
activities in accordance with national priorities.
Economic Planning is a system under which a set of targets is defined by the Govt. and these targets are to
be achieved within a specified period of time, taking resources of the country in consideration.
Goals of Planning in India:
Short-term and Long-term Objectives/Goals: Short- term goals are plan specific and are to be achieved
over a period of 5 years. Long-term objectives are common to all plans and are to be achieved over a period of
20 years.
Long-term Goals of Planning in India:
• Modernization: Adoption of new technology.

• Self-reliance: Reducing dependence on imports.
• Economic Growth: Increase in the aggregate output of Goods & services.
• Equity: Reduction inequality of income or wealth.
• Full employment: Refers to a situation when all the people in the working age group are actually
engaged in some gainful employment.
Short-term Goals of Planning in India:
Short term objectives vary from plan to plan depending on current needs of the country. For example
first plan (1951-56) focused on higher agricultural production while in second plan (1956-61) shifted the
focus from agriculture to Industry. In India growth and equity are the objectives of all the five year plans.
The goal of current five year plan (11th, 2007-2012) is faster, broad-based and inclusive growth.
Conditions of Agriculture (1950-1990):
Main Features of Indian Agriculture:
1. Low productivity
2. Disguised unemployment.
3. Dependence on rainfall
4. Subsistence farming - objective of farmer is to secure subsistence for his family not to earn profit.
5. Traditional inputs
6. Small holdings
7. Backward technology.
8. Landlord tenant conflict.
Problems of Indian Agriculture:
Institutional Problems:
1. Small and scattered holdings.

2. Poor implementation of land reforms.
3. Lack of credit and marketing facilities.
Technical Problems:
1. Lack of irrigation facilities.
2. Wrong cropping pattern.
3. Outdated technique of production.
General Problems:
1. Pressure of population on land.
2. Land degradation.
3. Subsistence farming
4. Social environment.
5. Crop losses- by pest, insect, flood, draught etc.
Reforms in Indian Agriculture:

Institutional Reforms/ Land reforms:
1. Abolition of intermediaries.
2. Ceiling on land holdings.
3. Regulation of rent.
4. Consolidation of holdings.
General reforms:
1. Expansion of irrigation facilities.
2. Provision of credit.
3. Regulated markets and co-operative marketing societies.
4. Price support policy.
Technical Reforms/ Green Revolution:
1. Use of HYV seeds.
2. Use of domical fertilizers.
3. Use of insecticides and pesticides for crop protection.
4. Scientific rotation of crops.
5. Modernized means of cultivation.
Achievements of Green revolution:

1. rise in production and productivity.
2. Increase in income.
3. Rise in commercial farming.
4. Impact on social revolution - use of new technology HYV seeds, fertilizers etc.
5. Increase in employment.
Failures of green revolution:
1. Restricted to limited crops and areas such as two crops wheat & rice growing states like Punjab,
Haryana, U.P and Andhra Pradesh.
2. Partial removal of poverty.
3. Neglected land reforms.
4. Rise in unemployment.
5. Ecological degradation.
Q.NO MCQ/FILL UP/TRUE-FALSE/ASSERTION & REASON/CASE BASED QUESTIONS
1. Objectives of planning in India are.........
a. Growth b. Self-reliance
c. Modernisation d. All of these
2. Who is the Chairperson of the Planning Commission of India?
a. President b. Prime Minister
c. Finance Minister d. Leader of Opposition
3. After independence India opted for:
a. Capitalist economy b. Socialist economy
c. Both a. and b. . d. Mixed economy
Who among the following is considered as the chief architect of Indian Planning?
4. a. Pt.Jawaharlal Nehru b. Sir Benegal Rama Rau
c. Prasanta Chandra Mahalanobis d. Rajendra Prasad
5. The Twelth Five Year Plan covered the period:
a. 1997-02 b. 2002-07
c.2007-12 d. 2012-17
6. Mention the period of the Third Five Year Plan:
a. 1956-61 b. 1961-66
c. 1951-56 d. 1967-74
7. NITI Aayog is headed by:
a.Finance Minister b.President
c. Prime Minister d.Governor of RBI
8. Equity refers to
(a) Equitable distribution of GDP (b) Development of Backward regions
(c )Both A & B (d) None of the above
9. Post-independence, India has always focused to become a self-sufficient or a self-reliant
nation. This goal in the present Modi-era has been termed as
(a) Safal Bharat (b) Kaushal Bharat
(c) Atmanirbhar Bharat (d) Apna Bharat
10. Who is the originator of Green Revolution in India
(a) Shri Jawahar Lal Nehru (b) Shri M.S.Swaminathan
(c ) DR.Manmohan Singh (d) None of these
11. Green Revolution was introduced in India :
a. 1966 b. 1951
c.1995 d. 1991
12. The constant decline in average size of holding in India is caused by:
a. Law of inheritance b. Consolidation of holding
c. Mechanisation of agriculture d. Love for land
13. Green Revolution includes:
a. HYV b. Mechanisation of agriculture
c.Chemical fertilizer d. All of the above
14. Land reform measures were successful in which of the given states?
(a) Punjab and Haryana (b) Maharashtra and West Bengal
(c) Uttar Pradesh and Madhya Pradesh (d) Kerala and West Bengal
15. Indian agriculture is characterised by which of the following features? •
a. Dependence on monsoon b. Disguised unemployment
c. Sub-division and fragmentation of land holdings d. All of the above
16. Which one amongst these is not a part of Land Reforms in India?
a. Abolition of Tenancy b. Consolidation of Holdings
c. Land Redistribution d. Cooperative Farming
17. Which of the given statements explain the major hurdles faced by the land reform and the land
ceiling legislation?
(i) Big landlords registered their land in the name of close relatives, thus escaping from the
land ceiling legislation.
(ii) There have been cases in which tenants were evicted and landlords claimed to the actual
tillers.
(iii) Landlords used loopholes in the legislation to their comparative advantage to own large
areas of land.
(a)Only (i),& (iii) (b)Only (ii),& ( iii),
(c) Only (i),& (ii) (d) All (i),(ii) & (iii)
18. Which of the following alternative(s) explain the debate regarding the provision of subsidies
during 1960's and 70's?
(a) Substituting fertiliser subsidies with seed subsidies as the former was benefitting big
farmers than small farmers.
(b) Substituting fertiliser subsidies with agricultural subsidies as the former was benefitting
fertiliser industry and not the target group.
(c) Shifting agricultural subsidies from production to consumption and thus benefit the
prospective consumers
(d) All of the above are true
19. Industries Development Regulation Act was constituted in:
a. 1950 b. 1951
c. 1955 d. 1956
20. Karve committee was established in:
a. 1950 b. 1956
c. 1954 d. 1955
21. IPR 1956 laid emphasis on the role of:
a. Public sector b. Private sector
c. cooperative sector d.Large scale industries
22.. What was the investment limit for small-scale industries in 1950?
a. ₹5lakh b. ₹ 25 lakh
c. ₹01 crore d. ₹50 Lakh
23. Which particular trade policy India adopted during first-seven five-year plans?
(a)Inward looking trade policy (b)Partially inward looking trade policy
(c)Outward looking trade policy (d)Partially outward looking trade policy
24. How many industries have been reserved for the public sector under Industrial Policy
Resolution, 1956?
(a) 17 (b) 21
(c) 15 (d) 2
25. Public sector failed as it could not:
a. Keep costs low b. Produce new goods
c. Compete with imported goods d. All of the above
26. Which among the following were the major industrial concessions as provided by the
government in order to bring about balanced regional development?
(i) Tax holiday for the newly established units in backward regions.
(ii) Supply of power at concessional rates
(iii) Provision of cheap labour and technology
(iv) Support from the government towards using more capital intensive
Techniques
(a) (ii) and (iii) (b) (i) and (iv)
(c) (i) and (ii) (d)(iii) and (iv)
27. During 1950-90, India adopted:
a. export promotion policy b. free trade policy
c. policy of imports substitution d. None of the above
28. During 1950-90:
a. The share of agricultural products in country's exports increased
b. The share of manufactured goods in country's exports increased
c. The share of agricultural products increased while that of manufacturers decreased
d. None of the above
29. A strategy to earn foreign exchange by making domestic industries competitive in the
international market is called:
a. Export promotion b. Import substitution
c. Inward looking trade strategy d. Both B and C
30. The trade reforms were :
a. Removal of quotas b. Taking away control over foreign exchange use
c. Both A and B d. None of the above
31. Protection from foreign competition enabled the establishment of which particular indigenous
industry?
a. Electronics and Petrochemicals b. Electronics and Telecommunications
c. Electronics and Automobiles d. Electronics and Chemicals
32. Inward looking trade strategy is also known as a policy of
a. Import relaxation b. Import substitution
c. Import promotion d. None of these
statements:
COLUMN-I COLUMN-II
A. 1950 1.National Development Council
B. 1951 2.NITI Aayog
C.1952 3.First Five Year Plan
D.2015 4.Planning Commission
A B C D
a. 4 3 1 2
b. 3 4 2 1
c. 1 3 4 2
d. 2 1 3 4
statements:
COLUMN-I COLUMN-II
A. 1955 1.Settiing up of planning commission
B. Tariff 2.Protection from trade
C.Green revolution 3.Wheat & rice
D.1950 4. Committee for small scale industries
A B C D
a. 1 2 3 4
b. 4 2 3 1
c. 2 3 1 4
d. 4 2 1 3
statements:
COLUMN-I COLUMN-II
A. Subsistence farming 1.Zamindari system
B. Commercial farming 2.Work force engaged in different economic activities
C. Occupational structure 3.For self-consumption
D. Land tenure system 4. Cash crop
A B C D
a. 3 4 2 1
b. 1 3 2 4
c. 2 4 1 3
d. 1 3 4 2
statements:
COLUMN-I COLUMN-II
A. Green Revolution 1.Increase in production of food grain using high yielding
variety seeds
B. Land Ceiling 2.Portion of agricultural produced sold in the market
C. Land Reforms 3.Fixing the maximum limit of land holding for an
individual
D. Marketed Surplus 4. Change in the ownership of land
A B C D
a. 4 2 1 3
b. 1 3 4 2
c. 4 2 3 1
d. 3 4 1 2
37. From the following statements given in Column I and Column II, choose the correct pair
of statements:
COLUMN-I COLUMN-II
A. Small Scale Industries 1.Karve committee
B. Importance to Industries 2.Strategetic Importance
C. Commanding heights 3.Electronic Industries
D. Sunrise Industries 4. Second Five Year Plan
A B C D
a. 1 3 2 4
b. 1 4 2 3
c. 2 3 4 1
d. 4 2 1 3
of statements:
COLUMN-I COLUMN-II
A. Quantum of export and import 1.Direction of trade
B. Types of goods and services 2.Volume of trade
exported and imported
C. Countries to which India exports 3. Composition of trade.
and from which India imports
D. Benefits arising out of export 4.Gains of trade
and imports
A B C D
a. 2 3 1 4
b. 4 2 3 1
c. 1 3 2 4
d. 3 4 1 2
of statements:
COLUMN-I COLUMN-II
A. Agricultural sector 1. Drain of India’s wealth
B. Industrial sector 2.Lack of social infrastructure
C. Foreign trade 3.Low public investment
D. Low literacy rate of life expectancy 4.Surplus labour
A B C D
a. 4 1 2 3
b. 1 4 3 2
c. 4 3 1 2
d. 3 2 4 1
40. National Development Council was constituted in.............. (Fill up the blank with correct
answer)
a. 1992 b. 1948
c. 1952 d. 1950
41. ......... Policy followed in the first seven five year plans of India, aimed at substituting imports
with domestic production. (Fill up the blank with correct answer)
a. Inward looking trade b. Outward looking trade
c. Import substitution d. Both A and C
42. ..........refers to fixing the specified Limits of Land, which could be owned by an individual.
(Fill up the blank with correct answer)
a. Consolidation of holdings b. Cooperative farming
c. Tariff d. Land ceiling
43. In 1955, Karve committee was constituted for aiming the.......... (Fill up the blank with
correct answer)
a. Promotion of rural development using small scale industries
b. Promotion of agriculture using modern inputs
c. Promotion of banking services through higher infrastructural support
d. Promotion of land settlement system with modifications in the existing norms
44. The two well managed iron and steel firms during 1950-90's were located in…………………..
(Fill up the blank with correct answer)
a. Mumbai and Nagpur b. Kolkata and Jamshedpur
c. Mumbai and Jamshedpur d. Nagpur and Bhopal
45. The main issue(s) with protectionist or trade restrictive policies is/are......... (Fill up the blank
with correct answer)
a. There is very less incentive f or the domestic producers to improve the quality of their
products
b. Consumer sovereignty narrows down
c. Both A and B d. It result in huge amount of capital inflows
alternative.
Assertion
(A) Modernisation implies adoption of new technology along with a change in the social and
economic outlook.
Reason
(R) Over the years, there has been a reduction in the gender wage parity and in the female
labour force participation rate.
Alternatives:
Assertion (A).
(b)Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of
Assertion (A).
alternative.
Assertion
(A): The Green Revolution resulted in multiple rise in food production. It helped in recovering
the country from regular food shortages in the pre-revolution period. Green Revolution
resulted in Marketable or Marketed surplus.
Reason
(R): The use of High Yielding Variety (HYV) seeds, fertilizer and pesticide in the correct
quantities as well as regular supply of water caused Large increase in production and
productivity of food grains in India.
Alternatives:
Assertion (A).
Assertion (A).
alternative.
Assertion
(A): Domestic industries were protected from foreign competition through heavy duty on
imports to make these costlier in order to discourage imports and fixation of import quotas to
specify the quantity of goods which can be imported.
Reason
(R): Industries in India were not able to world competition and if these industries were given
protection they would be able to face world competition and foreign exchange could also be
saved
Alternatives:
Assertion (A).
Assertion (A).
alternative.
Assertion
(A) The major policy initiatives i.e. land reforms and green revolution helped India to become
self-sufficient in food grains production.
Reason
(R) The proportion of people depending on agriculture did not decline as expected.
Alternatives:
Assertion (A).
Assertion (A).
alternative.
Assertion:
(A) The price of food grains declined relative to other items of consumption.
Reason:
(B) A good proportion of the rice and wheat produced during the green revolution period
(Available as marketed surplus) was sold by the farmers in the market.
Alternatives:
Assertion (A).
Assertion (A).
alternative.
Assertion
(A): The policy of import substitution focuses on saving foreign exchange.
Reason
(R): Import substitution policy requires that we domestically produce such goods which we
are importing from rest of the world.
Alternatives:
Assertion (A).
Assertion (A).
alternative.
Assertion
(A): In 1955, the Village and Small -Scale Industries Committee, also called the Karve
Committee, noted the possibility of using small-scale industries for promoting rural
development.
Reason
(R): A small scale industry is defined with reference to the maximum investment allowed on
the assets of a unit.
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason (R) is true.
alternative
Assertion
(A) Import substitution industrialization (ISI) is a trade and economic policy that
advocates replacing foreign imports with domestic production.
Reason
(R) It is based on the premise that a country should attempt to reduce its foreign dependency
through the local production of industrialized products.
Alternatives:
Assertion (A).
of Assertion (A).
(c) Both Assertion (A) and Reason (R) is false.
alternative.
Assertion
(A) The progress of the Indian economy during the first seven plans was impressive indeed
(R) PSUs earn a huge profit during first five year plans.
Alternatives:
Assertion (A).
of Assertion (A).
(c) Both Assertion (A) and Reason (R) is false
55. CASE STUDY-1
Read the following case study and answer the given questions
The performance of Indian economy during the period of first seven five year plans
(1950-1990) was satisfactory if not very impressive. On the eve of independence, India was an
industrially backward country, but during this period of first seven plans our industries became
far more diversified, with the stress being laid on the public investments in the industrial
sector. The policy of import substitution led to protection of the domestic industries against the
foreign producers but we failed to promote a strong export surplus. Although public sector
expanded to a large extent but it could not bring desired level of improvement in the secondary
sector. Excessive government regulations prevented the natural trajectory of growth of
entrepreneurship as there was no competition, no innovation and no modernisation on the front
of the industrial sector. Many Public Sector Undertakings (PSUs) incurred huge losses due to
operational inefficiencies, red tapisril, poor technology and other similar reasons. These PSU's
even continued to function because it was difficult to close a government undertaking even if it
is a drain on country's limited resources. On the agricultural front, due to the measures taken
under the Green Revolution, India more or less became self-sufficient in the production of
food grains. So the need for reforms of economic policy was widely felt in the context of
changing global economic scenario to achieve desired growth in the country.
Questions:
Q1. Which of the following was not a reason for the public sector to play a major role in the
initial phase of Indian economic planning?
(a) Private entrepreneurs lacked sufficient capital for investment
(b) Government aimed for social welfare
(c) The market was big enough to encourage private industrialists for investment
(d) The government wanted to protect the indigenous producers from foreign competition
Q2. Inward looking trade policy aimed at
(a) Substituting imports with domestic production
(b) Substituting imports of consumer goods with capital goods
(c) Following an open economy model
(d) Restrictions on movement of currency flows
Q3. Mechanisation of the Indian agriculture was one of the cause of Green Revolution in
India. The given statement is
(a) True (b) False
(c) Partially true (d) Partially false
56. CASE STUDY-3
Read the following case study and answer the given questions:
Criticism on the effects of the green revolution includes the cost for many small farmers using
HYV seeds, with their associated demands of increased irrigation systems and pesticides. A
case study is found in India, where farmers are buying Monsanto BT cotton seeds—sold on the
idea that these seeds produced 'non-natural insecticides'. In reality, they need to still pay for
expensive pesticides and irrigation systems, which might lead to increased borrowing to
finance the change from traditional seed varieties. Many farmers have difficulty in paying for
the expensive technologies, especially if they have a bad harvest. These high costs of
cultivation push rural farmers to take out loans—typically at high interest rates. Over-
borrowing commonly entraps farmers into a cycle of debt.
On top of this, India's liberalized economy further exacerbates the farmers's economic
conditions. Indian environmentalist Vandana Shiva writes that this is the "second Green
Revolution". The first Green Revolution, she suggests, was mostly publicly funded (by the
Indian Government).
Farmer's financial issues have become especially apparent in Punjab, where its rural areas have
witnessed an alarming rise in suicide rates. Excluding the countless unreported cases, there has
been estimated to be a 51.97% increase in the number of suicides in Punjab in 1992–93,
compared to the recorded 5.11% increase in the country as a whole. According to a 2019
Indian news report, indebtedness continues to be a grave issue affecting Punjabi people today,
demonstrated by the more than 900 recorded farmer committed suicide in Punjab in the last
two years.
Questions:
Q1. The green revolution includes the cost for many small farmers using……………seeds,
with their associated demands of increased irrigation systems and pesticides. (Fill in the
Blank)
Q2. There has been estimated to be a 51.97% increase in the number of suicides in Punjab in
1992–93. (True or False)
Q3. According to a 2019 Indian news report, indebtedness continues to be a grave issue
affecting Punjabi people today, demonstrated by the more than…………..recorded farmer
committed suicide in Punjab in the last two years.
57. CASE STUDY-4
Usually the economy of the country is based on who shall answer the questions like what to
produce? How to produce? How to distribute what is produced? These questions when
answered by the market forces mean a capitalist economy, when answered by government then
a socialist economy and a mixed economy is where jointly these questions are answered. India
opted for socialism as Indian leaders were motivated by the success of Soviet Union’s
planning. Indian planners were well aware of the shortage of private capital and lack of
incentive for the private sector to function in the social sector. Comprehensive planning for the
country was made by the government with specific objectives of five-year plans. Hence,
planning was initiated to make the public sector to work within the basic economic framework,
and private sector firms were encouraged towards economic growth.
Questions:
Q1. Indian planners after independence were attracted to which Economy System?
(a). Socialist (b). Capitalist
(c). Market (d). None
Q2. India’s First Five Year Plan was launched in the year 1951 (True/ False)
Q3. India has a mixed economy with a _____________.
(a). Small public sector (b). Large public sector
(c). Large private sector (d). None of these
58. CASE STUDY-5
The Green Revolution started in 1965 with the first introduction of HYV seeds in Indian
agriculture. This was coupled with better and efficient irrigation and the correct use of
fertilizers to boost the crop. The end result of the Green Revolution was to make India self-
sufficient when it came to food grains.
After 1947 India had to rebuild its economy. Over three-quarters of the population depended
on agriculture in some way. But agriculture in India was faced with several problems. Firstly,
the productivity of grains was very low. And India was still monsoon dependent because of
lack of irrigation and other infrastructure.
There was also an absence of modern technology. And India had previously faced severe
famines during the British Raj, who had only promoted cash crops instead of food crops. The
idea was to never depend on any other country for food sufficiency.So in 1965, the
government with the help of Indian geneticists M.S.Swaminathan, known as the father of
Green Revolution, launched the Green Revolution. The movement lasted from 1967 to 1978
and was a great success.
Questions:
Q1. Green revolution is related with _____________.
(a). modern technology (b). better irrigation facilities
(c). HYV seeds (d). all of the above
Q2. _____________ known as the father of green revolution.(Fill in the blank )
Q3. Britishers encouraged Indian farmers to grow food crops. (True/False)
59. CASE STUDY-6
During the colonial rule, there was neither growth nor equity in the agricultural sector. The
policy makers of independent India had to address these issues which they did through land
reforms and promoting the use of 'High Yielding Variety' (HYV) seeds which ushered in a
revolution in Indian agriculture.
The stagnation in agriculture during the colonial rule was permanently broken by the green
revolution. This refers to the large increase in production of food grains resulting from the use
of high yielding variety (HYV) seeds especially for wheat and rice. The use of these seeds
required the use of fertiliser and pesticide in the correct quantities as well as regular supply of
water. Also, the application of these inputs in correct proportions is vital. The spread of green
revolution technology enabled India to achieve self-sufficiency in food grains and we no
longer had to be at the mercy of America, or any other nation, for meeting our nation's food
requirements.
Thus, land reform measures along with green revolution promoted equity in the agricultural
sector.
Questions:
Q1. Which among the following crops chiefly benefitted as a result of green revolution?
(a) Rice and Maize (b) Wheat and Sugarcane
(c) Wheat and Rice (d) Rice and Sugarcane
Q2. ......... refers to change in the ownership of land holdings.
(a) Land ceiling (b) Land reforms
(c) Land fragmentation (d) None of these
Q3. What do you mean by marketed surplus?
(a) Sale of consumer goods in the domestic market
(b) Portion of agricultural produce sold in the market by farmers
(c) Portion of industrial produce sold in the market
(d) A certain proportion of both industrial and domestic produce sold in the market
60. CASE STUDY-7
Prime Minister Narendra Modi in recent weeks has emphasises on the idea of an 'Atmanirbhar
Bharat' or a self-- reliant India. However, the government has faced a volley of questions since
then, about whether the aim is to drag India back to import substitution and isolationism. The
aim to make India self-reliant was outlined by the Prime Minister while announcing that his
government will help the Indian economy get back on its feet with ₹ 20 lakh crore economic
packages. March towards a self-reliant India should not be taken as a return to the licence-
permit raj and inspector raj of the socialist era. "Far from suggesting a centralised", top- down
model directed from the "commanding heights" of the Planning Commission, the Prime
Minister spoke of freeing Indian entrepreneurship and innovation from bureaucratic hurdles.
This is about decentralised localism that pride in local brands, emphasises resilence and
flexibility, and encourages local capacity-building.
Questions:
Q1. 'Atmanirbhar Bharat' emphasises the objective of.........
(a). Self-reliance (b). Isolationism
(c). Flexibility (d). None of these
Q2. The first seven five year plans gave importance to self- reliance which means avoiding
.........of goods to reduce our dependence on foreign countries.
(a). Exports ( b). Imports
(c). Manufacture (d). None of these
Q3. During 1950-90, import restrictions were desired to:
(a). Save foreign exchange (b). Protect domestic industries
(c). Independent India (d). Both A and B
Answer Key
Q.NO ANSWER
1. D. All of these
2 B. Prime Minister
3 D-Mixed Economy
4 C- Prasanta Chandra Mahalanobis
5 D-2012-17
6 B-1961-66
7 C-Prime Minister
8 C- Both A & B
9 C- Atmanirbhar Bharat
10 B- Shri M.S.Swaminathan
11 A-1966
12 A-Law of inheritance
13 D-All of the above
14 D- Kerala and West Bengal
15 B- All of the above
16 D-Cooperative farming
17 D-All (i),(ii) & (iii),
18 B- Substituting fertiliser subsidies with agricultural subsidies as the former was
benefitting fertiliser industry and not the target group.
19 B-1951
20 D-1955
21 A-Public Sector
22 A- 5 lakh
23 A- Inward looking trade policy
24 A-17
25 B- All of the above
26 C- (i) and (ii)
27 C- policy of imports substitution
28 B- The share of manufactured goods in country's exports increased
29 A- Export promotion
30 C-Both A & B
31 C-Electronics and Automobiles
32 B- Import substitution
33 A- 4 3 1 2
34 B- 4 2 3 1
35 A- 3 4 2 1
36 B- 1 3 4 2
37 B- 1 4 2 3
38 A- 2 3 1 4
39 C- 4 3 1 2
40 C-1952
41 D- Both (a) and (c)
42 D- Land ceiling
43 A- Promotion of rural development using small scale industries
44 B- Kolkata and Jamshedpur
45 C- Both (a) and (b)
46 C- Assertion (A) is true but Reason (R) is false
47 A- Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
49 B- Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct
54 C-Both Assertion (A) and Reason (R) is false
55 1-C-The market was big enough to encourage private industrialists for investment
2-A- Substituting imports with domestic production
3-A-True
56 1-HYV
2-True
3-900
57 1-A-Socialist
2-True
3-B-Large Public Sector
58 1-D- All of the above
2-M.S.Swaminathan
3-False
59 1-C- Wheat and Rice
2-B- Land reforms
3-B- Portion of agricultural produce sold in the market by farmers
60 1-A- Self-reliance
2-B- Imports
3- Both (a) and (b)
Chapter- Economic Reforms Since 1991
KEY CONCEPTS
1. Economic crisis: A situation wherein the expenditures are much more than the revenues
and there is no source (such as world Bank) to lend (as the borrower already has a large
outstanding loan to repay with interest)
2. Public sector undertakings (PSU’s): Government-owned enterprises that produce and sell
various goods in the market, to earn profit.
3. Remittances: These are foreign currencies transferred by those working outside the country
to their families and friends in their own countries.
4. Delicensing: Removal of controls,especially on industries.
5. Dereservation: Taking off certain industries from the sole domain of public sector by
allowing Private capital investment, such as in coal, medicine etc.
6. Devaluation: It is the fall in the value of domestic currency with respect to foreign
currency under the fixed exchange system (Presently, the synonymous term is
depreciation-under flexible exchange system).
7. Outsourcing: Contracting another agency to conduct a process during production of
services Foreg. Contract for maintaining software, customer services etc.
8. Quantitative restrictions: Restrictions in the form of total quantities or quotas imposed on
imports to reduce Balance of Payments (BoP)deficit and protect domestic industry.
9. Import Licensing: Permission required from the government to import goods into a
country.
10. Foreign Direct investment(FDI) : refers to the investment of foreign assets into domestic
structures, equipment and organizations. It does not include investment into the stock
markets.
Q.NO MCQ/FILL UP/TRUE-FALSE/ASSERTION & REASON/CASE BASED
QUESTIONS
1. Assertion (A): New set of economic policies were introduced in 1991, which changed the
course of economic development of India.
Reason (R): Foreign exchange reserve crisis, external debt crisis and rising prices of
essential good forced government led India to adopt new set of policies.
Alternatives:
a) Both the statements are true and reason (R) the correct explanation of assertion
(A)
b) Both the statements are true but reason (R) is not the correct explanation of
assertion (A)
c) Assertion (A) is true but reason (R) is false.
d) Assertion (A) is false but reason (R) is true.
2. Assertion (A): Origin of financial crisis can be traced back in early 1980’s
Reason (R): Inefficient management of Indian Economy, government’s expenditure on
development programs and administration, force government to overshoot its revenue.
Alternatives:
(A)
assertion (A)
3. Assertion (A): Foreign exchange reserves declined to a level that was not adequate to
finance imports.
Reason (R): Imports grew at a very large without matching the growth of exports.
(A)
assertion (A)
4. Which of the following was not the reason to adopt new economic policy?
a) Shortage of foreign exchange reserve.
b) High inflationary pressure
c) Debt burden on government
d) Sustained growth in agriculture.
5. Assertion (A): In the beginning rules and regulation which aimed at regulating economic
activities became major hindrance in growth and development of economy.
Reason (R): Removal of such barriers in form of rules and regulation is called
liberalisation.
Alternatives:
(A)
assertion (A)
6. For regulating industries, licensing was required for:

a) Opening the firm
b) Expansion of production
c) Close the firm
d) All of the above.
7. The development of small scale industry requires them to be shielded from the large
firms, for this purpose:
a) A number of products were reserved for SSI.
b) SSI were given concessions such as lower excise duty
c) Bank loans at lower interest rate to SSI.
8. Financial system in India is regulated by:

a) Government of India
b) SEBI
c) RBI
d) State government
9. Assertion (A): One of the major aims of financial sector reforms was to reduce the role
RBI from regulator to facilitator of financial sector.
Reason (R): deregulation of financial sector gave bank more autonomy which to give
loans to rising sector of economy which lead to growth of Indian economy.
Alternatives:
(A)
assertion (A)
10. Financial sector reforms do not include:

a) Allowing private banks to function.
b) Allowing foreign institutional investment in financial sector
c) Ending the role of RBI completely as a regulator of financial sector.
d) Giving certain managerial freedom to public sector banks.
11. Assertion (A): Since 1991, there has been continuous reduction in Direct Tax.
Reason (R): High taxes on individual lead to Tax evasion, while moderate taxes
encourage savings and disclosure of income.
Alternatives:
(A)
assertion (A)
12. Indian currency was devalued against foreign currency , what effect devaluation could
have caused:
a) Made import of crude oil costlier
b) Made Indian products cheaper for foreigners
c) Enhanced foreign investment
13. Which of the following is non price restriction or quantitative restrictions:

a) Import licensing
b) Tarrifs
c) Quota
d) Both a&c.
CASE STUDY -1:

Read the excerpt given and answer the question 14-17.
The case for privatisation is based on the belief that the private sector is more efficient,
and that public sector units do better when in private hands. But what does the evidence
tell us? These are issues to ponder as India embarks on a major sell-off.
India, it seems, is on the verge of its most ambitious privatisation drive ever. In the
Union Budget for 2021-22, Finance Minister Nirmala Sitharaman announced that outside
four strategic sectors, public sector units (PSUs) in the non-strategic sectors would be
privatised or closed. In the strategic sectors themselves a bare minimum of PSUs will be
present. The four sectors are atomic energy, space and defence; transport and
telecommunications; power, petroleum, coal and other minerals; and banking, insurance
and financial services.
We have not been told the time frame for implementation of this policy. The expression
being used is ‘privatisation’, not ‘disinvestment’, which is the sale of minority stakes in
PSUs. The change in lexicon has been widely noted. The government’s privatisation
programme has the support of much of the intellectual community. Several economists
have been urging the government for years to step up privatisation, most recently at a
meeting with the prime minister in early January. The ideological reason is the superior
efficiency that is said to be associated with the private sector relative to the public
sector.
The government has, however, not articulated the case for privatisation at any length.
The Economic Survey of 2019-20 highlighted the efficiency gains from privatisation. In
recent months, economists have said that the government needs to increase investment
in infrastructure and, in the present fiscal situation, the necessary resources can come
only from privatisation.
There you have the two principal reasons for privatisation. The ideological reason is the
superior efficiency that is said to be associated with the private sector relative to the
public sector. The practical reason is that the government’s finances are strained and it
looks to augment its resources by selling government assets, notably PSUs.
14. The Government in recent drive to privatization plans to privatize its CPSE’S leaving bare
minimum presence in 4 sectors, Which of the following is not the strategic sector as
given in the article ?
a) Coal and mineral
b) Power and petroleum
c) Textile and handloom
d) Energy space and defence.
15. Assertion (A): Privatization of the PSU’s by selling of part of the equity of PSU’s to the
public is known as disinvestment.
Reason (R): The purpose was to improve financial discipline, modernization and
improved performance the PSU’s.
Alternatives:
(A)
assertion (A)
16. Assertion (A): Privatisation can be done by Disinvestment and strategic sales of
shares of Central Public Sector Enterprises (CPSE’s.)
Reason: Sale of part of shares but retaining the control over management is known
as disinvestment.
Alternatives:
(A)
assertion (A)
17. During reforms how did government made attempts improving the performance of PSU’s.
a) Giving PSU’s Financial support.
b) Giving them greater autonomy in managerial and operational decision making.
c) Providing technological support.
18. ……………. Is a complex phenomenon, aiming at transforming the world towards

greater interdependence and integration.
a) Foreign trade
b) Privatisation
c) Liberalisation
d) Globalisation.
19. In …………………… a company hires regular service from external source which was
previously provided internally.
a) Privatisation
b) Liberalisation
c) Outsourcing
d) Foreign direct investment
20. Outsourcing in recent times have intensified because of ……………
a) Growth of transportation.
b) Growth of Information technology industry.
c) Government’s initiative
d) None of the above
21. Which of the following services does India majorly outsources:

a) Voice based services
b) Record keeping
c) Clinical advices
22. ………………… have made India destination of global outsourcing.

a) Low wage, skilled labour.
b) Presence of adequate infrastructure.
c) Highly skilled labour
d) None of the above.
23. WTO is ……………..based organization, rather than GATT , trade under which was
based on bilateral and multilateral agreements.
a) Rule
b) Agreement
c) International
d) Both a&b.
24. Assertion (A): Some scholars question the usefulness of India being part of WTO.
Reason (R): Major volume of Trade happens between developed nations and developed
nations are against subsidies given in developing nations specially in agriculture.
Alternatives:
(A)
assertion (A)
Study the table and answer the questions from 25 to 27:

Growth of GDP and major sector (in %)
Sector 1980-91 1992- 2002-07 2007-12 2012-13 2013-14 2014-
2001 15
Agriculture 3.6 3.3 2.3 3.2 1.5 4.2 -0.2
industry 7.1 6.5 9.4 7.4 3.6 5 5.9
service 6.7 8.2 7.8 10 8.1 7.8 10.3
total 5.6 6.4 7.8 8.2 5.6 6.6 7.2
25. Which sector has faced declined growth during reform period:
a) Service
b) Industrial
c) Agriculture
d) Agriculture and service.
26. ………………… sector became the major driver of growth after reforms.
a) Service
b) Industrial
c) Agriculture
d) Both a&c
27. ………… sector witnessed steep decline in 2012-13.
a) Service
b) Industrial
c) Agriculture
d) All of the above
28. ) in post reform period India has become a major exporter of ………….
a) Auto parts
b) Engineering goods
c) IT software
d) All of the above
29. Assertion (A): Reforms have not been able to benefit agriculture sector.
Reason (R): Public investment in agriculture sector especially in infrastructure which
includes irrigation, power, roads etc. has fallen.
Alternatives:
(A)
assertion (A)
30. Which of the following was not a positive impact of economic reforms?
a) Rise in Foreign Direct Investment and foreign Institutional investment.
b) Rise in export.
c) Rise in employment
d) Growth of service sector.
31. In post reform era industrial growth recorded slowdown, which of the following reason
caused such a slowdown.
a) Cheaper import.
b) Inadequate investment in infrastructure
c) High tariff barriers in developed nations.
32. Assertion (A): Economic reforms lead to the problem of fiscal management.
Reason (R): During reform Public expenditure declined and revenues also declined as
reduction in taxes did not increase tax revenues and reduced tariff also curtailed the scope
for raising revenues.
Alternatives:
(A)
assertion (A)
33. Integrated Good & Services Tax (IGST) is levied by ?
a) Central government
b) State government
c) Union territory
d) Both and b.
34. What kind of tax is GST?

a) Direct tax
b) Indirect tax
c) Depend on good and services
Read the given excerpt and answer question 35-38.

As Goods & Services Tax completes four years of its implementation, the words of our
former Finance Minister, Arun Jaitley, in the Parliament’s Central Hall on the midnight of
30 June 2017 still reverberates afresh in our ears “The goods and service tax may be a
destination tax, but for India it will begin an altogether new journey…”. Indeed, for India,
a completely new journey commenced on July 1, 2017 with goods and services tax, being
touted as one of the biggest economic reforms of independent India, which set sail in the
country after a decade of deliberations. The voyage of four years has been a roller-coaster
ride for all stakeholders with equitable share of hits, misses and expectations.
Besides removing the cascading effect of taxation, one of the biggest hits in the journey
of GST has been the pursuit towards achieving an automated indirect tax ecosystem.
From electronic compliances, generation of e-invoices to tracking movement of goods
through e-waybill, everything is sought to be run online. E-invoicing system is not only
aimed at weeding out the rampant menace of fake invoicing, but would also usher the
taxpayers into a fully automated compliance regime wherein the computation of tax
liabilities and matching of input tax credit would become very simple. This is no mean
feat and not many countries in the world have attempted or been able to achieve the
implementation of such a large scale and complex digital tax transformation project.
35. Goods and Services Tax Act, 2016, which came into effect from July 2017, is expected
to: (Choose the correct alternative)
a) generate additional revenue for the government.
b) reduce tax evasion.
c) create ‘one nation, one tax and one market’
d) All of the above
36. GST is a ………………… based tax structure.

a) Destination based/ consumption based
b) Production based
c) Both a&b.
37. Under GST How many standard rates are there.
a) One
b) Five
c) Four
d) Two
38. How did GST remove ‘Cascading effect of taxation’?

a) By providing e way bill
b) By providing input tax credit.
c) By reducing tax
39. Which of the products are exempted from GST?
a) Petroleum
b) Alcohol
c) Fruits and vegetables
40. Which state taxes have been subsumed under GST.
a) VAT
b) Octroi
c) Custom duty
d) Both a&b.
41. When was demonetization introduced:
a) 8 November 2016
b) 9 November 2016
c) 8 November 2018
d) 8nnovember 2017
Read the excerpt from article given below and answer the question 42-44
On November 8, 2016, Prime Minister Narendra Modi in a surprise announcement said
the existing higher denomination currency (Rs 500 and Rs 1000) will cease to be legal
tenders. PM said this is government’s biggest push to fight black money and end
corruption. The opposition, however, criticised the government for poor implementation
of the scheme and said a lot of people have died standing in queues trying to get their
hands on the new currency.
The government also introduced new Rs 500 and Rs 2000 notes and urged people to move
towards cash-less economy. But the opposition has been protesting the government’s
decision, even stalling Parliament. A ‘Jan Aakrosh Diwas’ was observed by Left and
other major parties.
This is not the first time that demonetisation has been implemented in India. In 1936, Rs
10,000, which was the highest denomination note, was introduced but was demonetised in
1946. Though, it was re-introduced in 1954 but later, in 1978, the then Prime Minister
Morarji Desai in his intensive move to counter the black money, introduced The High
Denomination Banks Act (Demonetisation) and declared Rs 500 , Rs 1000 and Rs 10,000
notes illegal.
42. ……………… id the highest denomination note which has been demonetized.
a) 10000
b) 500
c) 1000
d) 2000
43. Which of the following was the objective of demonetization?
a) To eliminate fake currency
b) To prevent terrorism financing
c) Take away black money from economy
d) All of the above
44. Before 2016 how many times demonetization has been done earlier:
a) One
b) Two
c) Four
45. How did demonetisation impacted demand deposit with banks?
a) It increased demand deposit
b) It reduced demand deposit
c) Did not affected
d) Can’t be determined
46. Which of the following is not the benefit of GST:
a) It has created the common market
b) Reduced cascading effect of taxation
c) Made tax compliance easier
d) Reduced inflation rate.
47. Privatisation done by selling a part of government equity stake is known as :
a) Disinvestment
b) Strategic sales
c) Investment
48. Flow of foreign investment in India was a result of:
a) Liberalisation
b) Privatisation
c) Globalisation
49. ………….. has been removed to increase the competitive position of Indian goods in
international markets.
a) Import duties
b) Export duties
c) Tariffs
d) quota
50. Which of the following stands true for Foreign exchange market reforms:
a) Devaluation of currency
b) Free determination of rupee value
c) It was to correct balance of payment crisis
Answer
Q A Q A Q A
1 a 18 d 35 d
2 a 19 c 36 a
3 a 20 b 37 b
4 d 21 d 38 b
5 b 22 a 39 d
6 d 23 a 40 d
7 d 24 a 41 a
8 c 25 c 42 a
9 b 26 a 43 d
10 c 27 b 44 b
11 a 28 d 45 a
12 d 29 a 46 d
13 d 30 c 47 a
14 c 31 d 48 d
15 a 32 a 49 b
16 a 33 d 50 d
17 b 34 b
POVERTY
Poverty: It is inability to fulfill the minimum requirements of life.
Relative Poverty It refers to poverty in relation to different classes, regions or countries.
Absolute Poverty In India, concept of poverty line is used as a measure of absolute
poverty.
Poverty Line
It is that line which expresses per capita average monthly expenditure by which people can satisfy their
minimum needs.
Relative poverty and absolute poverty are the two variants of poverty.
Poverty line is fixed in India in the estimation of consumption cut off in private consumption
expenditure. Frequencies are recorded against each class-interval. Each frequency counts the number of
heads belonging to a particular consumption class.
Categorizing Poverty
Category 1 Chronic poor Those who are always poor and those who are usually poor e.g., Landless
workers.
Category 2 Transient Poor Those who are moving in and out of poverty and occasionally poor.
Category 3 Never Poor These are categorized as non-poor people.
Rural Poor:These include landless agricultural work marginal holders and tenants-at-will.
These include migrants from the rural areas in search of employment, casual factory workers and self-
employed serving largely as street vendors.
Urban poor are largely the spillover of the rural poor who are forded to migrate in search of jobs.
Causes of Poverty
• Low level of national product
• Low rate of growth
• Heavy pressure of population
• Inflationary pressures
• Chronic unemployment and under employment
• Capital deficiency
• Outdated social institutions
• Lack of infrastructure
• Measures to Remove Poverty
Combating poverty by accelerating the pace of economic growth. Combating inequality of income
through fiscal and legislative measures. Combating poverty through population control. Other measures
enhancing quality of life of the poor.
Poverty Alleviation Programmes

• Some of the principle measures adopted by the government to remove poverty are given below
• Samaranjayanti Gram SwarozgarYojana (SGSY)
• SampoornaGraminRozgarYojana (SGRY)
• PradanmantriGramodayYojana (PGY)
• Jai PrakashRozgar Guarantee Yojana (JPRGY)
• The SwaranJayantiShahriRozgarYojana (SJSRY)
• Prime Minister’s RozgarYojana
• Development of Small and Cottage Industries Minimum Needs Programme
• Twenty Point Programme
• Mahatma Gandhi National Rural Employment Guarantee
Q1. Who was the first person to discuss the concept of poverty in India?
A. Shahen Rafi Khan B. Dadabhai Naoroji
C. Amartya Sen D. Damian Killen
Q2. Based on calorie consumption in 2011-12 poverty line was defined for rural area as consumption
worth.
A. Rs 816 B. Rs 878
C.Rs 660 D.Rs 637
Q3. Intend to improve the food and nutritional status of the poor.
A. Midday meal scheme B. Public distribution system
C. Integrated child development scheme D. All of the these
Q4. The minimum calorie intake in rural area needs __________in defining poverty line.
A. 2600 calories B. 2100 calories
C. 2400 calories D. 2000 calories
Q5. Poverty line divide the population as poor and___________

A. Rich B. Very poor
C. Non poor D. All of these
Q6. Poor are the one who regularly move in and out of the poverty.
A. Chronic poor B. Churning poor
C. Occasionally poor D. None of these
Q7 Self-employment program include

A. Prime Minister Rozgar Yojana B. Samporna Grameen Rozgar Yojana
C. Swarna Jayanti Sahahari Rozgar Yojana D. All of these
Q8. When was National social assistance program initiated?

A. 15th August 1996 B. 15th August 1998
C. 15 August 1997 D. 15 August 1995
Q9. Push- cart vender, Street cobbler, women who string flowers, rag pickers, vender and beggar are some
examples of the poor and vulnerable group in ---------- area (rural / urban)
Q10. Dadabhai Naoroji used the menu for a prisoner and use appropriate prevailing price to arrive at what
may be called _____________?
Q11.The Government uses ____________ as proxy for income of household to identify the poor.
Q12. Amartya Sen noted Nobel laureate has developed an index to estimate poverty known a
___________?
Q13.The proportion of poverty in India during 1973 to 2012 has come down from ________ to_________?
Q14. Since the 1990s those who wish to benefit from the self-employment program are encouraged to
form_______?
Q15. Which organization collect data on poverty in India.

A. Planning commission B. NSSO
C CSO D None of these
Q16. Pradhan Mantri Bharat Jodo Pariyojana is related to________.
A. Communication B. Social education
C. Linking of river D. Development of Highway
Q17.The Tendulkar committee uses ____________ as the basis for determining poverty.
A. Monthly per capita income B. Calorie intake
C. Human development D None of these
Q 18. _________ refers to the poverty of people in comparison to other people region on relation
A. Absolute poverty B. Relative poverty
C. both A and b D. Neither a nor b
Q19.From 2014 a scheme called ___________is available in which people in India are encouraged to Open
bank accounts.
Q20. Economist identify poor on the basis of their _____________________and ownership of assets.
Direction (question number 21 to 30) Read the following statements:

Assertion (A) and Reason(R) choose the correct alternatives.
Q. 21. Assertion: (A) In India the concept of poverty line is used to measure absolute poverty
Reason: It is a poverty in which a person or a group of persons living below poverty line.
(A) Both assertion and reason are true but the reason is the correct explanation of assertion.
(B) Both assertion and reason are true but reason is not the correct explanation of assertion
(C) Assertion is true but reason is false
(D) Assertion is false but reason is true
Q 22. Assertion: SGSY stands for Swarna Jayanti gram swarozgar Yojana
Reason: This replaced earlier program like IRDP (Integrated rural development programme) and
TRYSEM (training of rural youth for self-employed)
Q 23. Assertion: NRLM stand for National rural livelihood mission
Reason: This scheme is known as Aajeejivika. NRLM is now renamed as Deen Danyal antodaya
Yojana.
Q. 24. Assertion: Poverty can be reduced by using labour intensive technique of production.
Reason: India is a country of large population Dr Gunnar Myrdal suggested that if India want to
solve the problem of poverty then it should follow labour intensive technology of production this will
create employment opportunity in the country.
Q.25. Assertion: Poverty alleviation program failed to deliver the desired result.
Reason: The in charge of the program favour the rich and educated person in a state of poor person,
corruption, self-interest and in charge of their ill motivated efforts lead to wastage of resources
rather than uses of the resources.
Q 26. Assertion: While determining the poverty line higher calorie intake is fixed for rural area.
Reason: People in rural area have to do greater physical work as compared to urban people
Q 27. Assertion: Growth oriented approach to remove poverty proved to be quite effective.
Reason: Population growth resulted in a very low growth in per capita income.
(D) Assertion is false but reason is true.
Q 28. Assertion: Although there is a steady decline in poverty over the last two decades but total
number of the poor people have remained constant.
Reason: There has been a considerable growth in population.
Q 29. The poverty alleviation programme has been found unsatisfactory.

Reason: Huge amount of resource has been allocated for poverty alleviation programme found
unsatisfactory.
Reason: population growth resulted in a very low growth in per capita income
Q.30 Assertion: Most of small farmer are in deb-trap.

Reason: They borrow money from money lenders who charge high rate of interest that push them in
to chronic indebtedness.
Q.31 Match the column from the following statement given in column I and column ii choose the
correct pair of the statement.
Column I Column II
A. people who are always poor 1. relative poverty
B. compare the income with the minimum consumption requirement 2.churning poor
C. Compare the income of different people for identifying poverty 3. chronic poor
D. People who regularly move in and out the poverty line 4. absolute poverty
Options
A B C D
A. 3 4 1 2
B. 2 3 4 1
C. 1 3 2 4
D. 1 2 3 4
Q32. From the following statement given in column I and column ll choose the correct pair of
statement.
Column I Column II
A. SGSY 1.Building all weather roads
B. MNREGA 2. 100 days employment
C.SGRY 3. Aajeevika
D. Pradhan Mantri gram sadak yojana 4.Replaced IRDP and TRYSM
Options
A B C D
A. 4 2 3 1
B. 3 2 1 4
C. 1 2 3 4
D. 2 3 4 1
Q.33 from the following statement given in column 1 and column ii. Choose the correct pair of the
statement
Column I Column II
A. 2011-12 poverty rate 1. Started by the Central government
B. Calories in rural areas 2. 2100 calories
C. Calories in urban areas 3. 2400 calories
D. NSAP. 4.21.9 %
Options
A B C D
A. 4 3 2 1
B. 1 2 3 4
C. 3 2 1 4
D. 2 3 4 1
Q.34 From the following statement given in column 1 and column ll choose the correct pair of
statement:
Column I Column II
A. Study group formed by the planning commission to measure poverty 1.2005
B. Task force on the projection of the minimum needs and effective 2. 1962
consumption demand
C. Mahatma Gandhi National rural employment guarantee act 3.2014
D. Jan -Dhan Yojana 4.1979
Options
A B C D
A. 3 1 4 2
B. 4 1 2 3
C. 2 4 1 3
D. 2 3 4 1
Q35. From the following the statement given in column 1 and column 2 Choose the correct pair of
the statement.
Column I Column II
A. National food for work programme 1.refers to the total number of people living below
B. Relative poverty poverty line
C Absolute poverty 2. Self-employment program
D. Prime minister Rogar Yojana 3. Wage employment program
4. Refer to poverty of people in comparison to other
people region or nations
Options
A B C D
A. 3 4 1 2
B. 1 3 4 2
C. 4 3 2 1
D. 1 2 3 4
Q.36. From the following statement given in column 1 and column ll, choose the correct pair of the
statement
Column I Column II
A. Transient poor 1. It includes landless agriculture worker, marginal holder etc
B. Chronic poor 2. They may be classified as churning poor and occasionally
C. Rural poor 3. People who remained rich most of the time and sometime become
D. Occasionally poor poor
4. It include people who are always poor and those are usually poor.
Options
A B C D
A. 2 4 1 3
B. 3 2 1 4
C. 3 2 1 2
D. 1 2 3 4
Q 37. From the following statement given in column 1 and ll choose the correct pair of statement
Column I Column II
A. Mahatma Gandhi National rural employment guarantee act 1. 2014
B. Pradhan Mantri Jan Dhan Yojana. 2. 2005
C Launch of national food for work programme 3. 1989
D. Formation of expert group to identify number of the year in India 4. 2004
Options
A B C D
A 4 1 2 3
B. 4 2 1 3
C 4 3 1 2
D. 2 1 4 3
Q. 38 From the following statement given in column 1 and column ll choose the correct pair of a
statement:
Column I Column II
A. Relative poverty 1.Jawahar Rogar Yojana
B. PAP 2. 100 days of guarantee employment
C. Trickle effect 3. Automatic percolation of the growth
D.MANREGA 4. Comparison of different groups
Options
A B C D
A. 4 1 2 3
B. 1 3 2 4
C. 4 1 3 2
D. 2 4 3 1
Q 39. from the following statement given in column 1 and column ll, choose the correct pair of
statement
Column I Column II
A. Index of poverty 1. Having income or consumption below poverty line
B. Poverty line 2. Difference in actual income and poverty line
C. Absolute poor 3. Human capital and human poverty index
D. Poverty gap 4. minimum calorie requirement per person per day
Options
A B C D
A. 4 1 2 3
B. 3 4 1 2
C. 4 2 1 3
D. 3 4 2 1
Q.40 From the following statement given in column 1 and column ll choose the correct pair of
statement.
Column I Column II
A. PMGSY 1.Providing free electricity to rural and poor household
B. PMJDY 2.Provide all weather connectivity between habitations
C. SAUBHAGYA 3 Financial inclusions of all household.
D HRIDAY 4. To preserve and rejuvenate cultural heritage
Options
A B C D
A. 4 1 2 3
B. 1 3 2 4
C. 4 2 1 3
D. 2 3 1 4
Case study 1
Read the following passage and answer question no 41 to 44.
The poverty line refers to a cut-off point that divide people of a region as poor and non-poor. Poverty line
cut off may be determined in terms of income or in terms of consumption. The percentage of the population
below the poverty line is called headcount ratio. The poverty incidence ratio is the same as the headcount
ratio. Headcount ratio refers to the measurement of poverty in terms of number of numbers of person below
the poverty line, where the poverty line means some cut-off point with respect to individual consumption
expenditure per month. The poverty line usually measured in terms of per capita expenditure. Consumption
reflects the actual use of the goods and services by individual as well as a type of words actually used while
income only shows the capacity to purchase.
Q41. A cut-off point dividing the people as poor and non indicates the number of those who are____
A. Absolutely poverty B. Poverty line
Q42. The absolute poverty in India is measured with reference to __________.

A. Absolute poverty B. Relative poverty
C. Poverty line D. None of these
Q 43. Poverty line cut- off be determined in term of ______________ consumption/ investment.
Q 44. Poverty line is measured normally in terms of _________ per capita expenditure/ per capita Income.
Case study 2
Read the following passage and answer question no 45 to 48.
This paragraph talks about economic inequalities in India that have been driven by the employment pattern
and changes in labour market, which in turn have been affected by the macroeconomic policies and process
as well as forms of social discrimination and exclusion. While many Asian economies have shown
indications of rising inequalities in recent decades, the Indian experience is particularly remarkable in the
way inequalities have intertwined with economic growth process. structural change and the persistence of
the low productivity employment in India are strongly related to following wage shares of national income
and growing wage inequality and the close relationship between formal and informal sectors is the sharpest
exemplar of this. patterns of social discrimination along with gender and caste line have reinforced
tendency to create segmented labour market that offer little incentives for the employers to focus on
productivity improvement.
Q45. Why did the government shift its strategy from long term to short term programs to remove
unemployment?
A. Short term policies are more effective B. Long term policy do not give appropriate
response
C. It is easy to check the progress D. All of the above
Q 46. Increase in the proportion of casual worker as the proportion of the total work force is known
as ________________ (informalization/casualization)
Q47. __________is used to measure the concept of relative poverty.
Q48.Women participation in rural areas is found to be higher in rural areas as compared with area
in India due to which the following reason.
A. Widespread poverty B. Male member do not earn sufficient income
C. Wages level are low in rural areas D. all the above
Case study 3
Read the following passage and answer the question from 49 to 50
Poverty can effetely be eradicated only when the poor start contributing to growth by their active
involvement in the growth process This is possible through a process of social mobilization, encouraging
poor people to participate and get them empowered. This will also help tin creating employment
opportunity which may lead to increase in level of income skill development, health and literacy.
Q49. Which one of the following are categorized as most poor?

A. Chronic poor B. Occasionally poor
C. Both A and B D. Neither A nor B
Q50. Poverty can effectively eradicate only when the _________ start contributing to growth process.
ANSWERS
Q1 B. Dadabhai Naroji Q2. A .816 Q3.D. All of the these
Q4.C 2400 calories Q5.C Non poor Q6.B. churning poor
Q7. D All of theses Q8. D.15th August 1995 Q9. Urban
Q10. Jail cost of living Q11.MPCE Q12. Sen index
Q13. 55% to 22% Q14. Self-help group Q.15.B. NSSO
Q.16.D. Development of Highway Q17.A. Monthly per capita income Q18.B Relative poverty
Q19. Jan dhan Yojana Q20. Occupation Q21 (A)
Q22 A) Q23(A) Q24(A)
Q25(A) Q26(A) Q.27(D)
Q28(A) Q29(C) Q30(A)
Q31(A) Q32(A) Q33(A)
Q34(C) Q35(A) Q36(A)
Q37(D) Q38(C) Q39(B)
Q40(D) Q41. Absolute poverty Q42 Poverty line
Q43.Consumption Q44.Per capita expenditure Q45 All of the above
Q46. Casualization Q47 Gini Coefficient Q48. all the above
Q49. Chronic poor Q50.Poor

CHAPTER – HUMAN CAPITAL FORMATION
Human capital refers to skills, knowledge, efficiency, experience etc which improves productive
efficiency and earning capacity of a person.
Features of human capital:-
1 it is intengible and endogenously build in a
person. 2 it can not be separated from its
owner(worker).
3 it can be improved through training.
Human capital formation:- it is the process of acquiring and increasing no of persons with skills,
knowledge, Caliber, experience which improves productive efficiency and earning capacity of a person.
Sources of human capital formation:-
1 Investment in education: - it stimulates innovation and facilitates adoption of new technology.
2 Investment in health: - good health means more working hours and working more efficiently.
3 On the job training:- it enhances labour productivity which is more than cost of providing training.
4 Migration: - rural-urban migration and migration from one country to another avails better job
opportunities and better chances of earning .
5 Expenditure on acquiring information:- information about labour market and other markets
enables a person to make better job choices which offers him / her better remuneration.
Difference between physical capital and human capital:-
1 Physical capital is tangible where as human capital is intangible

2 Physical capital includes machines, equipment, instruments, etc. used in production process
whereas human capital includes skills, abilities, knowledge etc which enhance productive capacity of a
person.
3 Working efficiency of physical capital cannot be improved by training etc whereas working efficiency
of human capital can be improved by training.
Human development and human capital:-

Human development:-It refers to the process of enlarging people's choices which allow him to lead a
long and healthy life, to enjoy a decent standard of living.
Human development is based on the idea that health and education are integral to the human wellbeing
because an educated and healthy person can lead a good life and it leads to widening people's choices.it
regards human wellbeing as an end . Investment in health and education is regarded as desirable it it
improves human wellbeing even if it doesn't increase labour productivity. Man capital refers to the
abilities, skills, knowledge, experience etc which improves capacity to produce more goods. The human
capital regards human beings as a means to achieve the end goal of more labour productivity any
investment in health and education is desirable only if it leads to increase in output of goods and
services.
Role of human capital in economic growth:-

Economic growth means sustained rise in real per capita income over a long period of time.it requires
rise in production of goods and services in the economy.
Following points high lights the importance of human capital in economic growth:-
1 Increase in labour productivity
2 It facilitates innovation and invention of new technology for production process
3 It facilitates adoption of new technology
4 It ensures better utilisation of physical capital.
5 It leads to desirable social changes in the attitude of the people.
Though the relationship between human capital and qrowth is nebulous in nature .moreover there is
dual relationship between human capital and economic growth.that is economic growth is directly
related with human capital as clear from following schedule.
It is clear from the schedule that when human capital increases in the form of increase in literacy rate,
increase in Life expectancy etc ,the real per capita income also increases.
Problems facing human capital formation

(i) Rising population
(ii) High regional and gender inequality.
(iii) Brain drain
(iv) Insufficient man power planning.
(v) Insufficient on the job training in agriculture
(vi) High poverty levels
(vii) Low academic standards.
Education: - In India the expenditure on education has increased from 7.9percent to 15.7 percentage of
total govt.ecpenditure from the year 1952 to 2014. In terms of percentage of GDP it has increased from
0.64 percent to 4.23 percent of GDP In the same period.
The govt expenditure on education is inadequate because the education commission recommended that
atleast 6 percent of GDP should be allocated for education sector.
Tapas Majumdar Committee in 1999 recommend Rs 1.37 lakh Crore for 10 yearsto cover the entire
population of children between the 6 to 14 years of age.
QN MCQ Each question carries one mark.
1 Following is the source of human capital formation.
a. Investment in education
b. Investment in health
c. Expenditure on the job training
d. All the above
2 The development of human capital formation requires.

a. Discipline
b. Honesty
c. Education
d. Mortality
3 What is the meaning of social medicine?

a) Spread of health literacy
b) Ensuring medicine to society
c) Opening medicine shops in society
d) All the above
4 Which of the following organisations functions as an apex organisation to provide quality

school education?
a. University Grants Commission
b. All India Council of Technical education
c. National Council of Educational Research and Training
d. Ministry of Education at the central level
5 What is Preventive medicine?

a) Vaccination
b) Providing proper medical facilities
c) Removing shortage of medicine in hospital
d) None of these.
6 What is curative medicine?

a) Vaccination
b) Medical intervention during illness
c) Spread of health literacy.
d) None of these
7 In India, Expenditure on education and health is the responsibility:

a. Union Government
b. State Government
c. Local Governments
d. All the above
8 One of the most urgent reasons for rural-urban migration in India is

a) Unemployment
b) Lack of education facilities
c) Lack of medical facilities
d) None of these
9 Economic growth means

a) The increase in real national income
b) The increase in nominal national income
c) The increase in infrastructural facilities
d) The increase in employment opportunities.
10 Human capital treats human beings as

a) means
b) an end
c) both a and b
d) None of these
11 Human Development treats human beings as

a) Means
b) An end
c) Both a and b
d) None of these
12 ------------- represents enhanced labour productivity which is an acquired ability and an

outcome of deliberate investment decisions with an expectation that it will increase future
income sources.
a) Physical capital
b) Human capital
c) Working capital
d) All the above
13 ---------------- is the outcome of investment in education, health, on the job training, migration
and information.
a) Human Capital Formation
b) Physical Capital Formation
c) Working Capital Formation
d) None of these
14 The two major sources of human capital in a country are-------

a) Investment in Education and health
b) Investment in Education and on the job training
c) Investment in Education and migration
d) Investment in education and information
15 --------- five-year plan recognised the importance of human capital

a) Seventh
b) Third
c) Eight
d) Sixth
16 Which of the following is an example of Physical capital?

a) Machinery
b) Health of people
c) information
d) Education and Knowledge in people
17 In India, which of the following organisations regulate the health sector?

a) ICMR
b) UGC
c) AICTE
d) None of these
18 Which of the following is a reason for poor human capital formation in India?
a) Brain Drain
b) Low growth of population
c) Insufficient resources
d) All of these
19 ------------- refers to stock of skill, ability, expertise, education and knowledge embodied in
the people.
a) Human Resource
b) Physical Capital
c) Human Capital
d) None of these
20 Which of the following is a source of human capital formation?

a) Expenditure on transportation
b) Expenditure on infrastructure
c) Expenditure on Education
d) All of these
21 What is the full form of ICMR?

a) International Council of Medical Research
b) Indian Council of Medical Resources
c) International council of Medical Resources
d) Indian Council of Medical Research
22 From the following statements given in column I and Column II, choose the correct pair of
statements:
COLUMN I COLUMN II
A. ON THE JOB TRAINING 1. TANGIBLE THINGS
B. MIGRATION 2. EDUCATION AND TRAINING
C. PHYSICAL CAPITAL 3. MORE EARNINGS AT NEW PLACE
D. HUMAN CAPITAL 4. INCREASE IN PRODUCTIVITY OF LOBOUR
A B C D
a. 4 3 1 2
b. 2 4 3 1
c. 1 2 3 4
23 From the following statements given in column I and Column II, choose the correct pair of
statements:
COLUMN I COLUMN II
A. MIGRATION 1. PHYSICAL CAPITAL
B. KNOWLEDGE RESOURCE 2. GETTING INFORMATION REGARDING

JOBS
C. EMPLOYMENT EXCHANGE 3. LABOUR
D. PROPERTY 4. WORKING IN ANOTHER CITY.
A B C D
a. 1 2 3 4
b. 2 4 1 3
c. 2 1 4 3
d. 4 3 2 1
24 Read the following Assertion(A) and Reason (R) and choose the correct alternatives given
below:
Assertion (A): Education contributes to economic growth.
Reason (R): Education confers higher earning capacity on people.
(A) Both Assertion (A) and Reason (R) are true and R is the correct explanation of Assertion
(A.)
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is NOT the correct
(C) Assertion (A) is true but Reason (R) is false.
(D) Assertion (A) is false but Reason (R) is true
below
Assertion(A): Expenditure on migration is a source of human capital formation.
Reason (R): Migration to other countries involves cost of transportation from one place
to another and higher cost of living in the migrated places.
(A)
below
Assertion (A): On the job training is a source of human capital formation.
Reason (R): After on the job training of employees, firm insist that the workers should
work for specified period of time.
(A.)
27 Read the following Assertion (A) and Reason (R) and choose the correct alternatives given
below
Assertion (A): The facilities for the formation of human capital have remained
adequate.
Reason (R): The resources allocated to human capital formation have been much less
than the resources required.
(A.)
below.
Assertion (A): ICMR regulates health sector in India
Reason (R): The full form of ICMR is international council of medical research.
(A.)
below
Assertion (A): Spread of education is necessary to control the population growth rate.
Reason (R): Human capital formation decreases quality of life.
(A.)
30 Read the following Assertion(A) and Reason (R) and choose the correct alternatives
Assertion (A): Human capital formation is required for effective use of physical capital.
Reason (R): Formation of human capital raises life expectancy of the people.
(A.)
below
Assertion (A): We need good human capital to produce other human capital (say,
doctors, engineers etc.). It means that we need investment in human capital to produce
more human capital out of human resources.
Reason (R): Investment in education, in health, on the job training, migration and
information are the sources of human capital formation as this expenditure increases
efficiency of human resources.
(A.)
below
Assertion (A): Educated person is able to generate more income
Reason (R): The labour skill of an educated person is more than that of an uneducated
person.
(A.)
below
Assertion (A): Economists have stressed the need for expanding educational
opportunities in a nation as it accelerates the development process.
Reason (R): The availability of educated labour force facilitates adaptation of new
technologies.
(A.)
below
Assertion (A): Expenditure on health is an important source of human capital
formation.
Reason (R): A sick labourer without access to medical facilities is compelled to abstain
from work and there is loss of productivity.
(A.)
below
Assertion (A) : Health is an important factor for economic growth.
Reason (R): Healthy person can provide uninterrupted labour supply for a longer
period of time.
(A.)
36 Read the following Assertion(A) and Reason (R) and choose the correct alternatives
Assertion (A): Education facilitates inventions and innovations.
Reason (R): Education provides knowledge to understand changes in society and
scientific advancements.
(A.)
Assertion (A) is false but Reason (R) is true

37 Read the following statements Assertion(A) and Reason (R) and choose the correct
Assertion (A): Physical capital cannot be separated from its owner.
Reason (R): Physical capital can be separated from its owner.
(A.)
Assertion (A): Both education and health increase the income generating capacity of an
individual.
Reason (R): Contribution of an educated and healthy person to the economic growth is
more than that of an illiterate and unhealthy person.
(A.)
Assertion (A): The Apex body in the field of Medical Research is AICTE.
Reason (R): The Apex body in the field of Medical is Indian council of Medical
Research (ICMR).
(A.)
Assertion (A): Spread of education is necessary to control the population growth rate.
Reason (R): Human Capital Formation decreases quality of life.
(A.)
Assertion (A) :Human Capital Formation is required for effective use of physical capital
Reason (R): Formation of human capital raises life expectancy of the people.
(A.)
Case based questions:-
On the basis of following case answer the questions from question no 42 to 45.
42 South Asian governments would benefit from focusing more on the development of ------
-capital.
a) Human
b) Fixed
c) Physical
d) None of these
43 The economic consequences of covid -19 on South Asia are proving to be even --------
than health care challenges in the region.
a) Smaller
b) Equal
c) Greater
d) None of these
44 Which is more important?

a) Physical capital
b) Human capital
c) Fixed capital
d) None of these
45 Different South Asian countries have dealt with the pandemic in various ways, but the
economic costs overall seem to be -----------than the healthcare consequences.
a) Higher
b) Smaller
c) Equal
d) None of these
Case based questions:-

Answer question from 46 to 50 on the basis of following case.
46 Which among the following is tangible?
a) Human capital
b) Physical capital
c) Both a and b
d) None of these
47 It is necessary that the owner of the human capital be present in the place of production
because-------------
a) Human capital is intangible
b) Human capital cannot be sold
c) Both a and b
d) None of these
48 Which of the following capital cannot be separated from their owner?

a) Human capital
b) Physical capital
c) Working capital
d) All the above
49 Depreciation in human capital can be reduced by--------

a) Investment in education
b) Investment in health
c) Investment in on the job training
d) All the above.
50 Which of the following capital creates both private and social benefits?
a) Physical capital
b) Human capital
c) Both a and b
d) None of these.
ANSWER KEY
1 d 16 .a 31 A 46 .b
2 C 17 .a 32 A 47 .c
3 a 18 .a 33 A 48 .a
4 C 19 .c 34 A 49 .d
5 a 20 .c 35 A 50 .b
6 b 21 .d 36 A
7 d 22 .a 37 D
8 a 23 .a 38 A
9 a 24 A 39 D
10 a 25 B 40 C
11 .b 26 B 41 B
12 .b 27 D 42 .a
13 .a 28 C 43 .c
14 .a 29 C 44 .b
15 .a 30 B 45 .a
CHAPTER –RURAL DEVELOPMENT
• Rural Development: lt means an action-plan for the economic and social growth of the rural areas.
• Challenges of Rural Development:
1. Lingering Challenges of Rural Development:
(i)Challenge of rural credit, and (ii) Challenge of rural marketing.
2. Emerging Challenges of Rural Development:
(i)Diversification of productive activities, and (ii) Organic farming.
• Sources of Rural Credit:

▪ Non-institutional credit sources: Landlords, village traders and moneylenders.
▪ institutional Credit Sources: Cooperative Credit Societies, State Bank of India and Other
Commercial
Banks, Regional Rural Banks and Land Development Banks, NABARD.
• Agricultural Marketing: lt includes gathering the produce after harvesting, processing the produce,
grading the produce according to its quality, packaging the produce according to buyers' preferences,
storing the produce for future sale, and selling the produce when price is lucrative.
• Measures initiated by the Government to improve Marketing System:
1. Regulated market
2. Provision of physical infrastructure,
3. Cooperative agricultural marketing societies,
4. Policy Corporation of India, and Minimum Support Price (MSP)
5. maintenance of buffer stock of wheat and rice by Food Corporation of India , and distribution of
food grains through Public Distribution System (PDS).
• Alternative Marketing Channels:
1. Direct sale by the farmers to the consumers,
2. Contract sale to the MNCs and corporate retails
• Diversification of Productive Activities:
It implies a shift from crop farming to non-farming areas of employment. Non-farm areas of
employment include:
1. Animal husbandry,
2. Fisheries
3. Horticulture,
4. Information technology.
• Organic Farming and Sustainable Development: Organic farming is basically a system of farming
that relies upon the use of organic inputs for cultivation. It discards the use of chemical inputs.
• Merits of Organic Farming:
1. Discards the use of non-renewable resources,
2. Environment - friendly
3. Sustains soil fertility,
4. Healthier and tastier food,
5. inexpensive technology for the small and marginal farmers.
• India has Comparative Advantage in Organic Farming:
Because it involves labour- intensive process production, and India has abundance of labour.
• 'Low Yield and High Cost per Unit of Output' is the principal constraint in switching over from
conventional farming to organic farming
Q.N. MULIPLE CHOICE QUESTIONS

(CHOOSE THE CORRECT ALTERNATIVE)
1 What was the growth rate of agricultural output during 2007-12?
(A) 3.2% per annum
(B) 6% per annum
(C) 1.5% per annum
(D) 5% per annum
2 When was the National Bank for Agricultural and Rural Development set up?
(A) 1962
(B) 1972
(C) 1982
(D) 1992
3 Which of the following is an institutional source of rural credit?
(A) Moneylenders
(B) Regional Rural Banks
(C) Traders
(D) Landlords
4 Which source of credit had emerged to fully integrate the formal credit system into the
overall rural social and community development?
(A) Self-help Groups
(B) Regional Rural Banks
(C) Commercial Banks
(D) Land Development Banks
5 Which among the following is a process that involves the assembling, storage, processing,
transportation, packaging, grading, and distribution of different agricultural
commodities across the country?
(A) Agricultural Management
(B) Agricultural Banking
(C) Agricultural Diversification
(D) Agricultural Marketing
6 Which Indian state has been held as a success story in the efficient implementation of
milk cooperatives?
(A) Punjab
(B) Gujarat
(C) Uttar Pradesh
(D) West Bengal
7 What is the name of the vegetable and fruit market in Andhra Pradesh?
(A) Apni Mandi
(B) Hadaspar Mandi
(C) Rythu Bazars
(D) Uzhavar Sandies
8 How much do the “inland sources” contribute to the total fish production in India?
(A) 64 percent
(B) 39 percent
(C) 50 percent
(D) 75 percent
9 Which status has been accorded to the retail chains and supermarkets for selling organic
food?
(A) Eco Status
(B) Sustainable Status
(C) Nutritional Status
(D) Green Status
10 The problems faced in Rural banking are:
(A) insufficient rural credit
(B) growing overdue
(C) inadequate amount of sanction
(D) all of these
11 The Apex body which coordinates The functioning of different Financial Institutions
working for the expansion of rural credit
(A) NABARD
(B) self-help groups
(C) regional rural bank.
(D) Commercial bank
12 The scheme of microfinance is extended through -------------
(A) self-help groups
(B)Land Development Banks
(C) NABARD
(D) regional rural banks
13 Why is the minimum support price fixed by the government.
(A) for the government’s own benefit
(B) to safeguard the interests of farmers
(C) to save the interest of interest of off consumers
(D) none of these
14 Which of the following is under unorganized sector
(A) Gramin Bank
(B)Cooperative Bank
(C) Money lenders and traders
(D)Land Development Banks
15 14 major commercial banks were Nationalized in______
(A) 1969
(B) 1980
(C) 1975
(D) 1991
16 -------------comes under horticulture.
(A) fish farming
(B) poultry farming
(C) flower cultivation
(D) animal husbandry
17 Agriculture Marketing does not comprise of
(A) transportation of product to the marketing place for sale
(B) grading of products according to the quality
(C) storage of the produce for sale in future
(D) credit is taken to meet expenditure on agriculture
18 Which of the following accounts for the largest share in the livestock sector in India
(A) poultry
(B) cattle
(C) goats
(D) ponies and mules
19 Name the state which is held as a success story in the efficient implementation of
Cooperative system in India.
(A) Maharashtra
(B) Jammu and Kashmir
(C) Gujarat
(D) Uttar Pradesh
20 Blue revolution is associated with
(A)Indigo cultivation
(B) for tree farming
(C) fisheries
(D) availability of drinking water
21 The action plan for rural development focuses on
(A) Lingering challenges
(B) Emerging challenges
(C) Both a and b
(D) None of these
22 Emerging Challenges of rural development includes:
(A) Diversification of production activities
(B) Organic farming
(C) Both a and b
(D) None of these
23 Rural credit is required for farming because-
(A) Most farming families have small land holdings.
(B) They produce only for self- consumption
(C) They need funds for further investment in agriculture
(D) All of these
24 The duration of short-term credit
(A) 6 to 12 months
(B) 2 to 5 years
(C) 5 to 20 years
(D) 12 months to 5 years
II. Fill in the Blanks
25 ________ once said that the real progress of India did not mean simply the growth and
expansion of industrial urban centres but mainly the development of the villages. (Mahatma
Gandhi/Jawahar lal Nehru)
26 During 2007-12, agriculture output has grown at ________. (4.2% /3.2%/2.2%)
27 At the time of independence, moneylenders and traders _________ small and marginal farmers
and landless labourers. (Exploited/rewarded)
28 The _______ was a harbinger of major changes in the credit system. (Green
Revolution/White Revolution)
29 By March 2003, _______ SHGs had been provided credit by the banking system.
(7 lakhs/10lakhs)
30 More than 10 per cent of goods produced in farms are wasted due to lack of _______
(storage/transportation facilities)
31 The alternate marketing channels in Punjab, Haryana, and Rajasthan are known as
________.(Apni mandi/Rythu Bazar)
32 Much of the agricultural employment activities are concentrated in the ________ season.
(Kharif season/Rabi season)
III. State whether the following statements are true or false.
33 Rural development mostly depends upon the development of agriculture.
(A) True
(B) False
34 Farmers borrow from various sources to meet their initial investment on seeds, fertilizers,
implements, and other family expenses.
(A) True
(B) False
35 Institutional sources of credit include moneylenders, traders, employers, relatives, and friends.
(A) True
(B) False
36 The major achievement of rural banking over the years has been the effective recovery of
loans.
(A) True
(B) False
37 Self-help groups have helped in the empowerment of women.
(A) True
(B) False
38 The current infrastructure facilities are sufficient to meet the growing demand in rural
agricultural marketing.
(A) True
(B) False
39 At present, the livestock sector provides alternate livelihood options to over 70 million small
and marginal farmers and landless labourers.
(A) True
(B) False
40 Horticulture is a branch of agriculture-related to the management and care of farm animals
such as cattle, sheep, pigs, and goats.
(A) True
(B) False
41 Match the following
Column-I Column-II
1. Green revolution (A) 1982

2. NABARD (B) 1967-68
(C) Conversion of scattered holdings
3. Land Reform
into unified holdings
4. Consolidation of holding (D) Institutional reforms
5. Ceiling of landholding (E) Maximum holding size
42 Match the following
Column-I Column-II
1) Institutional sources of credit a) Rythu Bazar
2) Non –institutional sources b) April 2004
3) A vegetable and fruit market in Andhra c) World's biggest Dairy development
Pradesh program
4) A farmers market in Tamil nadu d) Regional rural bank
5) Green revolution e) Uzhavar Sanhtai
6) Golden revolution f) Help attain self – sufficiency in food
grains
7) Operation Flood g) Moneylenders
8) NABARD was set up h) 1982
9) Launch of Kisan credit card (KKC) i) 1998-99
scheme
10) Launch of Vishesh Krishi upaj Yojana j) Planned investment in Horticulture
became highly productive
Case Studies
43 Read the following passage and answer Questions - on the basis of the same
Case study 1
In agriculture due to long time gap between crop sowing and realisation of income ,farmers are
in strong need for credit .Farmers need money to meet initial investment on seeds ,fertilizers,
implements and other family expenses of marriage, death, religious ceremonies, etc. So credit
is one of the important factors which contribute to Agricultural production an efficient and
effective rural credit delivery system is crucial for raising agricultural productivity and
incomes.
Questions
1. which one of the following is not a non- institutional sources of credit--–
(a) money lenders
(b) Co-operative credit
(c) traders and commission agents
(d) Land Development Banks
2. --------------(NABARD/ RBI )is the Apex bank which co-ordinates The functioning of
different Financial Institutions, working for expansion of rural credit.
3 .Regulated markets were organized to protect the farmers from the malpractices of
consumers.
( true / false)
44 Case study 2
Prior to Independence, farmers, while selling their produce to traders, suffered from faulty
weighing and manipulation of accounts. Farmers who did not have the required information on
prices prevailing in markets were often forced to sell at low prices. They also did not have
proper storage facilities to keep back their produce for selling later at a better price. Measures
that were initiated to improve the marketing aspects.
1 Government improve agricultural marketing System through ------------ (control/ regulate)
2 Agricultural marketing is a process that involves the------------

(a) transportation
(b) packaging
(c) grading
(d) all of these
3 .The first steps was regulation of markets to create orderly and transparent marketing
conditions. ( true/ false)
45 Case study 3
As the time of independence, money lenders and traders exploited small and marginal farmers
and landless labourers by lending to them on high interest rates and by manipulating the
accounts to keep them in a debt -trap. A major change occurred after 1969 when India adopted
social banking and multi-agency approach to adequately e-meet the needs of rural credit. The
institutional structure of Rural banking today consists of a set of multi-agency institutions,
namely commercial banks, regional rural banks, cooperative and Land Development Banks
.They are expected to dispense adequate credit at cheaper rates. Recently, self-help groups
have emerged to fill the gap in the formal Credit System. The SHGs is promoter thrift in small
proportions by a minimum contribution from each member. From the pooled money, credit is
given to the needy members to be repayable in small instalments at reasonable interest rates.
By May 2019 ,nearly 6 crore women in India have become member in 54 lakhs women SHGs
. About Rs.10 to 15000 per SHG as a community investment support fund are provided as part
of renovating fund to take up self-employment for income generation.
1 _____________was set up in 1982 as an Apex body to co-ordinate the activities of all

Institutions involved in the rural financing system.( RBI/ NABARD)
2. The ---------- was a harbinger of major changes in the Credit System as it led to the
diversification of the portfolio of rural credit towards production oriented lending.
(a) Green revolution
(b) Golden revolution
(c) White Revolution
(d) none of these
3. Recently, SHGs have emerged to fill the gap in the formal Credit System. Such credit
provisions are generally referred to as --------------
(a) macro credit programs
( b) micro credit programs
( c ) both a and b
(d) none of these
4. Which of the following part is not a part of the institutional structure of Rural banking
today?
( a) commercial banks
(b) regional rural banks
(c ) non-Banking Finance Companies
(d) Land Development Bank
46 Case study 4
Rural development is the key issue with the government .Without the development of rural
areas India cannot increase its growth to desired level. Rural development does not mean only
to develop its agriculture marketing and credit but also to develop education , training and
infrastructure in rural areas. The government has launched many programs especially of
provision of credit and marketing facilities. The farmers often have shortage of funds .Farmers
generally go to non- institutional sources for their short term and long term loans, but farmers
are generally exploited .To help them government started provided loan through commercial
banks and also an Apex Bank named NABARD was established in in 1982. Government is
also making efforts to improve agricultural marketing by removing the role of intermediaries
where farmers can directly sell their produce to seller without involving any commission agent
or middleman.
Questions
1. Name the Non- institutional sources of credit
(a) landlords
(b) money lenders
(c) traders and commission agents
(d) all of the above
2. NABARD is established in the year --------( 1982/ 1992)
3. Non-farm activities are promoted by government for

(a) regular income to farmer
(b) addressing the problem of disguised unemployment
(c) reducing pressure on land
(d) all of the above
47 Case study 5
Diversification includes two aspects- one relates to change in cropping pattern and the other
relates to shift of workforce from agriculture to other allied activities like livestock, poultry,
fisheries ,etc. and non -agriculture sector. The need for diversification arises from the fact that
there is greater risk in depending exclusively on farming for livelihood. Diversification
towards new areas is necessary not only to reduce the risk from agriculture sector but also to
provide sustainable livelihood options to rural people. Much of agricultural employment
activities are concentrated in the kharif season. But during the Rabi season, in areas where
there are inadequate irrigation facilities, it becomes difficult to find gainful employment.
Therefore, expansion into other sectors is essential to provide supplementary gainful
employment and in realising higher levels of income for rural people to overcome poverty and
other tribulations.
Questions
1 .----------relates to shift of workforce from agriculture to two other allied activities .

(a) micro cropping
(b) diversification
(c) both A and B
(d) none of these
2. Livestock comes under the category of -------- activities.

(a) diversification
(b) allied
(c) agriculture
(d) commercial
3 .Diversification provides – ----------- options to rural people.( Livelihood / irrigation).

ASSERTIONS AND REASONS
48 Assertion (A) : The divarication has a positive impact on the agriculture sector.
Reason (R) : As it can disseminate formation regarding emerging Technologies and its
applications, prizes ,weather and soil conditions for growing different crops etc.
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) are is the correct explanation
of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason (R ) is not correct explanation of
Assertion (A)
c. Assertion (A) is true but Reason (R) is false
49 Assertion (A): In India the farming community uses the mixed crop - livestock farming
system.
Reason (R ) : Cattle, goats, fowl are the widely held species. Livestock production
provides increased stability in income, food security, transport, fuel and nutrition for the
family.
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) are is the correct explanation of
Assertion (A)
Assertion (A)
50 Assertion (A) : The yields from organic farming are more than modern agricultural
farming.
Reason (R ) :The yields from organic farming are less than modern agricultural farming
in the initial years.
Alternatives:
of Assertion (A)
Assertion (A)
51 Assertion (A) : The idea of Village Development being at the center of the overall
development of the nation is relevant even today, when we see around us fast growing
cities with large industries and modern Information Technology hubs.
Reason(R): More than two third of India's population depends on agriculture that is yet
to become productive; one third of rural India still lives in abject poverty.
Alternatives:
of Assertion (A)
Assertion (A)
52 Assertion (A) : After the initiation of reforms the growth rate of Agricultural sector
decelerated to about 3% per annum during 1991 -2012 ,which was lower than the earlier
years.
Reason (R ) : Decline in public investment since 1991 .
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) are is the correct explanation of
Assertion (A)
Assertion (A)
53 Assertion (A): Even today more than 10% of goods produced in farms are wasted.
Reason (R): The current storage facilities are quite inadequate to meet the growing
demands.
Alternatives:
of Assertion (A)
Assertion (A)
54 Assertion (A): agriculture loan default rate have been chronically high.
Reason (R) : It is alleged that farmers are deliberately refusing to pay back loans.
Alternatives:
of Assertion (A)
Assertion (A)
55 Assertion (A) : Rural development is necessary.
Reason (R ) : Inadequate infrastructure, lack of alternate employment opportunities in
the industry or service sector , increasing casualization of employment impaled rural
development .
Alternatives:
of Assertion (A)
Assertion (A)
56 Assertion (A) : The fishing community regards the water body as mother or provider.
Reason (R ) : Because the water bodies (sea, Ocean, rivers, lakes, natural aquatic ponds
etc.) are integral and life- giving source for the fishing community .
Alternatives:
of Assertion (A)
Assertion (A)
57 Assertion (A): Small and marginal farmers find it difficult to adapt to organic farming.
Reason (R) : Organic farming may have a shorter shelf life then sprayed produce.
Alternatives:
of Assertion (A)
Assertion (A)
58 Assertion (A): Rural development is an action plan for complete and comprehensive
development of rural area.
Reason (R): Its required to increase the standard of living of Indians as two third of
the population of India lives in rural areas .
Alternatives:
of Assertion (A)
Assertion (A)
59 Assertion (A): Rapid expansion of the banking system had a positive effect on rural farm
and non-farm output, income and employment.
Reason (R ) : The institutional credit arrangement it continues to be inadequate as,
they have failed to cover the entire rural farmers of the country .
Alternatives:
of Assertion (A)
Assertion (A)
60 Assertion (A) : National bank for Agriculture and Rural Development (NABARD )was
set up in 1980.
Reason (R ) : National bank for Agriculture and Rural Development is an Apex body
to co-ordinate the activities of all institutions involved in the rural financing system.
Alternatives:
of Assertion (A)
Assertion (A)
61 Assertion (A): Rural people not only face problems with regard to finance, but also
encounter difficulties in marketing their goods.
Reason (R) : Agriculture marketing needs urgent attention in the scheme of securing
Rapid rural development .
Alternatives:
of Assertion (A)
Assertion (A)
62 Assertion (A) : India has adopted growing of diverse Horticulture crops such as fruits
vegetables, rubber crops, flowers ,medicinal and aromatic plants, spices and plantation
crops
Reason (R ) : Investment in Horticulture sector it has been termed as a Operation Flood
Agriculture Marketing needs urgent attention in the scheme of securing Rapid rural
development.
Alternatives:
of Assertion (A)
Assertion (A)
63 Assertion (A) : SHG has emerged as the major micro finance program in the country in
recent years .
Reason (R ) : SHG have also help in the empowerment of women.
Alternatives:
of Assertion (A)
Assertion (A)
64 Assertion (A) : Rural development means an action plan for the social and economic
growth of the rural areas.
Reason (R ) : The Action Plan focus on the lingering and emerging challenges in in
rural areas .
Alternatives:
of Assertion (A)
Assertion (A)
65 Assertion (A) : A major change occurred after 1969 when India adopted social banking
and multi-agency approach to adequately meet the needs of rural credit.
Reason (R ) : self-help groups have emerged to not fill the gap in the formal Credit
System.
Alternatives:
of Assertion (A)
Assertion (A)
Answer Key
Q
MCQ
N.
1 (A) 3.2% per annum
2 (C) 1982
3 (B) Regional Rural Banks
4 (A) Self-help Groups
5 (D) Agricultural Marketing
6 (B) Gujarat
7 (C) Rythu Bazars
8 C-64 percent
9 (D) Green Status
10 D All of these
11 A) NABARD
12 A) self help group
13 B) to safeguard the interest of farmers
14 C) money lender
15 A) 1969
16 C) flawer cultivation
17 (D) credit is taken to meet expenditure on agriculture
18 A-poultry
19 C-Gujrat
20 C-fisheries
21 C-both a and b
22 C-both a and b
23 D-all of these
24 (A) 6 to 12 months
25 Mahatma Gandhi
26 3.2%
27 Exploited
28 Green revolution
29 7 lakhs
30 Storage
31 Apni mandi
32 Kharif
33 True
34 True
35 False
36 False
37 True
38 False
39 False
40 False
IV. Match the following.
41
1-B,2-A,3-D,4-C,5-E
42 1-d,2-g,3-a,4-e,5-f,6-j,7-c,8-h,9-I,10-b.
Case study 1
1-d
43
2-NABARD
3-true
Case study 2
1-regulate
44
2-d- all of these
3-true
Case study 3
1- NABARD
45 2- Green revolution
3- Micro credit programme
4- Non- banking finance companies
Case study 4
1-all of these
46 2-1982
3-all of the above
C1ase study 5
1-1diversification
47
2-allied
3-livelihood
48
of Assertion (A)
49
of Assertion (A)
50 d. Assertion (A) is false but Reason (R) is true.
51
of Assertion (A)
52
of Assertion (A)
53
Assertion (A)
54
of Assertion (A)
55
of Assertion (A)
56
of Assertion (A)
57
Assertion (A)
58
of Assertion (A)
59
Assertion (A)
60 d. Assertion (A) is false but Reason (R) is true.
61
of Assertion (A)
62 c. Assertion (A) is true but Reason (R) is false
63
Assertion (A)
64
Assertion (A)
65
Assertion (A)
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KENDRIYA VIDYALAYA SANGATHAN

STUDY SUPPORT MATERIAL

(inclusive of MCQ’s as per CBSE Guidelines)

gradation in terms of difficulty level.

both the teacher and the taught.

CLASS XII - TERM- I CURRICULUM

TERM 1 - MCQ BASED QUESTION PAPER Marks

Part A: Introductory Macroeconomics

▪ Money and Banking 6

▪ Government Budget and the Economy 6

Part B: Indian Economic Development

▪ Development Experience (1947-90) and Economic Reforms since 1991: 12

▪ Current challenges facing Indian Economy 10

Q.2 Where is not role of money?

Q.3 What is Barter System?

Q.4 Who satisfy double coincidence of wants?

Q.7 What is the meaning of cashless society?

Q.9 Which is forms of digital money in the following option?

Q.12 Money is most liquid of all assets because?

Q.13 Demand of money depends on?

Assertion and Reason type Question

Q. 33 Who is the official ‘Lender of the Last Resort’ in India?

Q. 34 In order to discourage credit in the economy, the central bank may

Q. 35 RBI issue all currency in India except:

Q.37 What is the aim of a commercial Bank?

Q.38 Which type of commodity were acting as money in the village?

Q.40 What is the main objective of above paragraph.

Assertion and Reason type Question

(Other Multiple Choice Question)

Q. 52 Which among the following is the near money?

Q. 53 Which of the following is the function of a commercial bank?

Q. 55 High Powered Money includes:

Q. 56 Indian Monetary System is based on ________

Q. 57 Demand deposits include

Q. 58 What are the advantages of the Barter System?

Q. 60 Money is a matter which is:

Q. 61 By supply of money we mean :

Q. 62 Which of the following is not a function of money?

Q.63 Which one is the Bank of the Public?

Q.65 Deposits accepted by the Commercial Banks:

Q.66 The full form of ATM is:

Q.67 What is true for the Central Bank?

Q.68 Reserve Bank of India was established in :

Q.69 Who regulates the money supply?

Q.70 14 big scheduled commercial banks in India were nationalised in:

Main objectives of budget are:

(i) Reallocation of resources.

(ii) Redistribution of income and wealth

(iii) Economic Stability

(iv) Management of public enterprises.

(v) Economic Growth

(vi) Generation of employment

There are two components of budget:

(b) Capital budget

Capital budget consists of capital receipts and capital expenditure.

(i) Neither creates liabilities for Govt.

(ii) Nor causes any reduction in assets.

i. Cash grants-in-aid from foreign countries and international org.

(i) It creates liabilities or

(ii) It reduces financial assets. Example:

A. Borrowing and Other liabilities

(i) Neither creates assets

e.g., Interest Payment, subsidies etc.