Super 20 Economic Sample Papers Term 2 Class 12

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Prelims
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TERM - 2
12
2022
ECONOMICS
SAMPLE PAPERS
(Strictly Based on the Sample Paper issued by CBSE)
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Note from the Publishers
Economics-XII (Term-2) based on the latest Sample Question Paper

issued by CBSE on 14th January 2022 for 2022 (Term-2) Board Examination.
Each Practice Paper is developed by highly experienced subject experts as per the
level and the pattern followed by the CBSE. These Practice Papers will familiarise
the students with the questioning pattern.
This book contains 11 Practice Papers (3 Solved, 7 Unsolved and 1 issued by CBSE
with Marking Scheme). Undoubtedly, students will get some parameter to evaluate
their preparation for better performance.
Features of Sample Papers
• Designed exclusively to test the knowledge and preparation level of students.
• Latest CBSE Sample Question Paper have been given with Marking Scheme.
• Each Practice Paper covers the weightage of each unit/chapter as per the latest
syllabus issued by CBSE.
Any suggestions for further improvement of this book will be thankfully received
and incorporated in the next edition.
(iii)
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CONTENTS
SOLVED SAMPLE PAPERS
1. Practice Paper–1......................................................................................................................................................... 7
2. Practice Paper–2....................................................................................................................................................... 13
3. Practice Paper–3....................................................................................................................................................... 19
UNSOLVED SAMPLE PAPERS

4. Practice Paper–4....................................................................................................................................................... 27
5. Practice Paper–5....................................................................................................................................................... 29
6. Practice Paper–6....................................................................................................................................................... 31
7. Practice Paper–7....................................................................................................................................................... 33
8. Practice Paper–8....................................................................................................................................................... 35
9. Practice Paper–9....................................................................................................................................................... 37
10. Practice Paper–10..................................................................................................................................................... 39
11. Practice Paper – 11 [CBSE Sample Paper 2021-22 (Term-2) with Marking Scheme] �� 41
(iv)
ECO
NO
MIC
ECONOMICS
S
Practice Papers
3 3 Solved Practice Papers
3 7 Unsolved Practice Papers
3 CBSE Sample Question Paper 2021-22 (Term-2)

ECONOMICS
WEIGHTAGE
CLASS-XII (TERM-2)
TERM 2 – SUBJECTIVE QUESTION PAPER Marks Periods

Theory: 40 Marks Time: 2 Hours
Part A: Introductory Macroeconomics
• National Income and Related Aggregates 10 23
• Determination of Income and Employment 12 22
Sub Total 22 45
Part B: Indian Economic Development
• Current challenges facing Indian Economy 12 18
• Employment
• Infrastructure
• Sustainable Economic Development
• Development Experience of India – A Comparison with Neighbours- 06 12
• Comparative Development Experience of India and its Neighbours
Sub Total 18 30
Total 40 75
Project Work: 10 Marks
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Practice Paper– 1
Time Allowed: 2 Hours Maximum Marks: 40
General Instructions:
1. This is a Subjective Question Paper containing 13 questions.
2. This paper contains 5 questions of 2 marks each, 5 questions of 3 marks each and 3 questions of 5 marks each.
3. 2 marks questions are Short Answer Type Questions and are to be answered in 30-50 words.
5. 5 marks questions are Long Answer Type Questions and are to be answered in 80-120 words
6. This questions paper contains Case/Source Based Questions.
1. Categorise the following into stock and flow with reasons. 2

(a) Profits (b) Balance in bank account
OR
If real income is ` 400 and price index is 105, calculate nominal income.
Ans. (a) Profit is a flow as it is calculated during a period of time.
(b) Balance in bank account is a stock as it is calculated at a particular point of time.
OR
(i) Real Income = Price of base year × Quantity of Current Year
400 = 100 × Quantity of Current Year
Quantity of Current Year = 400/100 = 4
(ii) Nominal Income = Price of Current year × Quantity of Current Year = 105 × 4 = ` 420
2. Give the meaning of average propensity to save. What is its relation with average propensity to consume? 2
OR
Find national income from the following data:
Autonomous consumption = ` 100, Marginal propensity to consume = 0.80, Investment = ` 50
Ans. The ratio of aggregate saving to aggregate income is known as average propensity to save (APS). By dividing
aggregate saving by aggregate income, we get APS. Symbolically,
S
APS =
Y
The sum of APC and APS is equal to one. It can be proved as under:
We know, Y = C + S
Dividing both sides by Y, we get,
Y C S
= +
Y Y Y
 Y C S 
1 = APC + APS ∵ Y = 1; Y = APC; Y = APS
APC + APS = 1 because income is either used for consumption or for savings.
OR
As given in the examination problem,
Autonomous consumption or C = 100
Autonomous investment or I = ` 50
7
MPC or b = 0.80
So, AD = C + I = C + bY + I
= 100 + 0.8Y + 50 = 150 + 0.8Y
As we know that the equilibrium level of national income in two sector model is determined where,
AS = AD;
Y = 150 + 0.8Y
Y – 0.8Y = 150; Y(1 – 0.8) = 150
150
Y = = ` 750
0.2
3. What is marginal propensity to consume? How is it related to marginal propensity to save? 2
Ans. (i) The ratio of change in consumption (C) to change in income (Y) is known as marginal propensity to consume.
It indicates the proportion of additional income that is being spent on consumption.
∆C
MPC =
∆Y
(ii) The sum of MPC and MPS is equal to one. It can be proved as under:
We know: ΔY = ΔC + ΔS
Dividing both sides by ΔY, we get,
∆Y ∆C ∆S
= +
∆Y ∆Y ∆Y
 ∆Y ∆C ∆S 
1 = MPC + MPS ∵ ∆Y = 1; ∆Y = MPC; ∆Y = MPS
4. Name the major indicators of health care. 2
OR
Why is it not an easy thing for a country like India to maintain employment growth at 2%?
Ans. Following are the major indicators of health care:
(i) Infant mortality rate (ii) Maternal mortality rate
(iii) Life expectancy (iv) Nutrition levels
(v) Global burden of disease
OR
It is not an easy thing for a country like India to maintain employment growth at 2% because of:
(i) Huge Population: 2% jobs means 24 crores jobs per annum.
(ii) Craze for capital intensive techniques: Indian industrialists have a craze for capital intensive techniques.
(iii) Ignorance of cottage and small scale industries: In India, cottage and small scale industries are not being
given as much importance as required.
5. Differentiate between renewable and non-renewable resources. 2
Ans. Difference between renewable and non-renewable resources is summarised below:
Basis Renewable resources Non-renewable resources
Meaning Renewable resources are those which can be used Non-renewable resources are those which get
without the possibility of the resource becoming exhausted with extraction and use.
depleted or exhausted. i.e. a continuous supply
of the resource remains available.
Example Examples of renewable resources are the trees, Petroleum, coal etc.
water, sunlight, wind etc.
6. Are the following statements true or false? Give reasons. 3
(a) Capital formation is a flow
(b) Bread is always a consumer good
8 n Economics– XII
OR
Distinguish between domestic product and national product. When can domestic product be more than national
product?
Ans. Statement True or false Reason
(a) Capital formation is a flow. True Capital formation is measured over a period of time
(b) Bread is always a consumer False It depends on the use of bread. When it is purchased by a
good household, it is a consumer good. If it is purchased by a
restaurant, it is a producer good.
OR
Domestic Income Basis National Income
(i) It is a territorial concept Nature of Concept It is a national concept as it includes the value of final
as it includes the value of goods and services produced in the entire world.
final goods and services
produced within domestic
territory of a country.
(ii) It considers all producers Category of Producers It considers all producers who are normal residents
within the domestic of the country.
territory of the country.
(iii) It does not include NFIA. NFIA It includes NFIA.
7. Why are women paid fewer wages for the same work as compared to men? 3
Ans. Women are paid fewer wages for the same work as compared to men because:
(i) There are rules but these are not followed especially in informal sector.
(ii) There is a social prejudice which claims that males are more productive than females.
(iii) Males are more committed to their work life. Females have dual responsibility which reduces their commitment
to their wok life.
(iv) Since females do not have complete financial responsibility, they agree to work for lower wages.
(v) Males have better physical abilities as compared to females.
Read the following text carefully and answer question number 8 and 9 given below:
Population growth in India and China
In both China and India, the gap between births and deaths is narrowing, resulting in slower population growth
in both nations, as shown in Figure 2.7. Population growth rates are expected to be lower in China than in India
throughout the 2000–2035 period. India’s population growth rate has been declining since before 2000 and is
expected to do so at about the same rate throughout the period shown. By contrast, although China’s population
growth rate is considerably lower than India’s, China’s rate is quite flat between 2002 and 2011 but is expected to
fall somewhat more rapidly than India’s thereafter. Beginning in 2027, the number of deaths in China is expected
to exceed the number of births, resulting in natural population loss.
Age-Sex Structure of the Population
The trends in fertility and mortality discussed above affect the present and projected age distribution of a population.
Demographers typically use population pyramids to depict the age and sex structure of a population. Such figures
are called pyramids because, historically for most nations, particularly in those with persistently high fertility rates,
they resemble a pyramid, with a wide base representing large numbers of younger age groups and more narrow
bands near the top representing smaller numbers of older people near the end of their natural life span.
Women in the Economy
A significant determinant of future economic growth in both countries will be the degree to which women participate
in the formal economy (Apps and Rees, 2001; Bloom et al., 2009; Fortin, 2009). In both countries, women are
much less likely to participate in the formal labor force than men are, but the difference is much greater in India.
In 2006, 69 percent of women in China participated in the formal economy, while in India the rate was only 34
percent (Cook and Chen, 2007).
Practice Paper–1 n 9
Attitudes regarding women’s roles are presently more permissive in China than in India. For example, 87 percent
of Chinese respondents to the World Values Survey feel that a university education is as important for a girl as for a
boy, compared with 50 percent in India (World Values Survey Association, 2009; DaVanzo, Dogo, and Grammich,
forthcoming). As a consequence, China appears better positioned than India to welcome women into the formal
workforce.
8. What are implications of Age-sex structure of the population? 3
Ans. Implications of age sex structure for an economy:
(i) The trends in fertility and mortality affect the present and projected age distribution of a population.
(ii) They determine worker population ratio, youth population and the number of workers available to contribute
to GDP of the economy.
(iii) They also determine dependency ratio. Higher is the dependency ratio, worse it is for the economy.
9. How do you think China has better position in terms of role of woman in the economy? 3
Ans. China is better positioned when it goes ot role of women in the economy because
(i) In both countries, women are much less likely to participate in the formal labor force than men are, but the
difference is much greater in India. In 2006, 69 percent of women in China participated in the formal economy,
while in India the rate was only 34 percent.
(ii) Attitudes regarding women’s roles are presently more permissive in China than in India. For example, 87
percent of Chinese respondents to the World Values Survey feel that a university education is as important for
a girl as for a boy, compared with 50 percent in India.
(iii) Woman is considered as productive as a man in Chinese culture and no such stereotypes exist that woman
cannot handle certain professions.
As a consequence, China appears better positioned than India to welcome women into the formal workforce.
10. Explain the circular flow of income. 3
Ans. (i) It refers to flow of money, income or the flow of goods and services across different sectors of the economy
in a circular form.
(ii) So, in case of two sector economy, we derive the following:

(a) Total production of goods and services by firms = Total consumption of goods and services by household
sector.
(b) Factor payments by firms = Factor incomes of household sector.
(c) Consumption expenditure of household sector = Income of firm.
(d) Hence, Real flows of production and consumption of firms and households = Money flows of income and
expenditure of firms and households.
11. Define and represent inflationary gap on a diagram. Explain the role of ‘open market operations’ in removing it.  5
Ans. Inflationary gap is the gap showing excess of current aggregate demand over aggregate supply at the level of full
employment. It is called inflationary because it leads to inflation (continuous rise in prices).
A simple example will further clarify it. Let us suppose that an imaginary economy by employing all its available
resources can produce 10,000 quintals of rice. If aggregate demand of rice is say 12,000 quintals, this demand will be
called an excess demand, because aggregate supply at level of full employment of resources is only 10,000 quintals
as the result of the gap of 2000 quintals will be called as inflationary gap. In the below diagram Inflationary gap
is AB because at Full employment Y*, Aggregate demand (BY*) is greater than Aggregate Supply (AY*).
AD1
Inflationary
E
Gap B
Aggregate AD0
Demand
OY* =Full employment
A income
45°
O Y* Y1 National
Income
Open Market Operations (OMO) (Sale of securities)
Open market operation consists of buying and selling of government securities and bonds in the open market by
central bank.
In a situation of excess demand leading to inflation, central bank sells government securities and bonds to
commercial bank. With the sale of these securities, the power of commercial bank to give loans decreases, which
will control excess demand.
12. (a) Calculate ‘Sales’ from the following data: 3
Particulars
(`) in lakh
(i) Subsidies 200
(ii) Opening stock 100
(iii) Closing stock 600
(iv) Intermediate consumption 3,000
(v) Consumption of fixed capital 700
(vi) Profit 750
(vii) Net value added at factor cost 2,000
(b) If the real GDP is ` 400 and nominal GDP is ` 450, calculate the price index (base = 100). 2
OR
(a) Calculate the Net National Product at market price.
Items (in Crores)
(i) Mixed income of self-employed 8,000
(ii) Depreciation 200
(iii) Profit 1,000
(iv) Rent 600
(v) Interest 700
(vi) Compensation of employees 3,000
(vii) Net indirect taxes 500
(viii) Net factor income to abroad 60
(ix) Net exports (–)50
(x) Net Current Transfers from Abroad 20
(b) What are ‘subsidies’?
Ans. (a) GVAMP = Net value added at factor cost (NVAFC) + Depreciation (Consumption of
fixed capital) + Net indirect tax (Indirect tax – Subsidy)
= (vii) + (v) + [0 – (i)]
= 2,000 + 700 + [0 – 200]
= ` 2,500 Lakh
Gross Value Added (GVAMP) = Gross value of output (GVOMP) – Intermediate Consumption
= Sales + Change in stock (Closing stock – Opening Stock) – Intermediate
Consumption
2,500 = Sales + [(iii) – (ii)] – (iv)]
2,500 = Sales + (600 – 100) – 3,000
2,500 = Sales – 2,500
Sales = 2,500 + 2,500 = ` 5,000 Lakh
(b) (i) Real GDP = Price of base year × Quantity of Current Year
(ii) Nominal GDP = Price of Current year × Quantity of Current Year
450 = Price of Current year × 4
Price of Current year = 450/4 = 112.5
(iii) Price Index = (Price of Current year/Price of Base year) × 100
= (112.5/100) × 100 = 112.5
OR
(a) NDPFC = Compensation of Employees + Operating Surplus + Mixed Income
= (vi) + (iv) + (v) + (iii) + (i)
= 3,000 + 600 + 700 + 1,000 + 8,000
= ` 13,300 Crores
NNPMP = NDPFC + NFIA + NIT
= 13,300 + (–viii) + (vii)
= 13,300 – 60 + 500 = ` 13,740 Crores
(b) Subsidies are the cash grants given by the government to the enterprises to encourage production of certain
commodities, to promote exports or to sell goods at prices lower than the free market price.
13. (a) Compared to females, more males are found to be working. Why? 3
(b) Distinguish between social infrastructure and economic infrastructure. 2
Ans. (a) Compared to females, more males are found to be working because:
(i) Gender based social division of labour: It is assumed that men are meant to fulfill financial responsibilities
and females are meant to take care of domestic chores.
(ii) Many of the household activities that are done by women are not recognised as work.
(iii) Skill requirement is also a reason.
(b) Basis Social Infrastructure Economic Infrastructure
Meaning Social infrastructure is directly concerned with Economic infrastructure is directly concerned
the needs of such services which meet the basic with the needs of production sectors.
needs of a society.
Example Education, health, housing Transport, communication, energy etc.
Practice Paper– 2
General Instructions: Same as Practice Paper-1
1. If the real GDP is ` 300 and nominal GDP is ` 330, calculate price index (base = 100). 2
OR
Explain why subsidies are added to and indirect taxes deducted from domestic product at market price to arrive at
domestic product at factor cost.
Ans. (i) Real GDP = Price of base year × Quantity of Current Year
(ii) Nominal GDP = Price of Current year × Quantity of Current Year
330 = Price of Current year × 3
Price of Current year = 330/3 = 110
(iii) Price Index = (Price of Current year/Price of Base year) × 100 = (110/100) × 100 = 110
OR
Net Domestic Product at Factor Cost (NDPFC).
NDPFC refers to a total factor income earned by the factors of production within the domestic territory of a country
during an accounting year.
NDPFC = NDPMP – Net Indirect Taxes
Where,
(i) Indirect Taxes are the taxes which are levied by the government on production and sale of commodity. Sales
tax, excise duty, custom duty, etc are some of the indirect taxes. Due to this market price increases.
(ii) And subsidies are the cash grants given by the government to the enterprises to encourage production of
certain commodities, to promote exports or to sell goods at prices lower than the free market price. In India,
LPG cylinder is sold at subsidized rates. Due to this market price decreases.
FC = MP – NIT (Indirect Taxes – Subsidies)
2. In an economy, total savings are ` 2,000 crores and the ratio of average propensity to save and average propensity
to consume is 2 : 7. Calculate the level of income in the economy. 2
OR
An economy is in equilibrium. Calculate Marginal Propensity to Consume:
National Income = 1,000

Autonomous Consumption Expenditure = 200

Investment expenditure = 100
Ans. APS : APC = 2 : 7 [Given]
2 7

So, APS = and APS =
9 9
S 2 2000

We know that, APS = ; =
Y 9 Y
2Y = 18,000; Y = 9,000
13
OR
C = C + bY = 200 + 1,000b
I = 100
AD = C + I = 200 + 1,000b + 100
= 300 + 1,000b
At equilibrium, Y = AD
1,000 = 300 + 1,000b; b = 0.7
3. Explain the meaning of average propensity to consume. What is its relation with average propensity to save? 2
Ans. The ratio of aggregate consumption expenditure to aggregate income is known as average propensity to consume.
It indicates the percentage (or ratio) of income which is being spent on consumption. It is worked out by dividing
total consumption expenditure (C) by total income (Y).
C
APC =
Y
The sum of APC and APS is equal to one. It can be proved as under:

We know, Y = C + S

Dividing both sides by Y, we get,
Y C S
= +
Y Y Y
 Y C S 

1 = APC + APS ∵ Y = 1; Y = APC; Y = APS

APC + APS = 1 because income is either used for consumption or for savings.
4. How does economic growth contribute to the growth of infrastructure sector? 2
OR
What is the situation of women’s health in India?
Ans. Growth leads to increase in demand for infrastructure and whenever there is increase in demand of something.
There is also increase in its supply, if there is unused potential. It is shown with the help of a diagram.
OR
(i) Women have several disadvantages in the areas of health as compared to men.
(ii) Sex ratio is continuously declining and is an indicator of female foticide.
(iii) Close to 3, 00,000 girls under the age of 15 are married and have one child.
(iv) More than half of Indian women are anemic in the age group of 15-49.
5. Differentiate between biotic and abiotic elements of environment. 2
Ans. Basis Biotic elements Abiotic elements
Meaning Biotic elements include all living elements Abiotic elements include all non-living elements.
Example The birds, animals and plants, forests, fisheries abiotic elements include air, water, land rocks and
etc sunlight etc.
6. Give the meaning of factor income to abroad and factor income from abroad. Also give an example of each. 3
OR
Sale of petrol and diesel cars is rising particularly in big cities. Analyse its impact on gross domestic product and
welfare.
Ans. (i) The difference between national income and domestic income is Net Factor Income from abroad (NFIA),
which is included in National Income and excluded from Domestic Income.
(ii) Where NFIA is the difference between income earned by normal residents from rest of the world (factor
income from abroad) and similar payments made to Non residents within the domestic territory (factor income
to abroad).
(iii) For example, let Income earned by normal residents from rest of the world (factor income from abroad) is
` 10000 crore and payments made to Non residents within the domestic territory(factor income to abroad) is
` 8000 crore.
Then NFIA Will be factor income from abroad minus factor income to abroad
= ` 10,000 cr – ` 8,000 cr = ` 2,000 cr.
OR
(i) Increase in the sale of petrol and diesel cars raises the standard of living and consequently welfare. But it may
not necessarily always be so.
(ii) For example, manufacturing of such cars can raise output but at the same time lead to water and air pollution
also, that reduces welfare of the people.
(iii) Such a reduction in welfare may outweigh the increase in welfare and thus leads to overall reduction in welfare.
7. What will happen if there is no additional employment generated in the economy even though economy is able to
produce goods and services in the economy? How will jobless growth happen? 3
Ans. A jobless growth happens when production takes place using capital intensive methods. Such a jobless growth is
dangerous for the economy.
(i) Unless employment is generated in the economy, poverty can’t be eradicated.
(ii) Without employment, people will not have an income. Without an income, who will buy the goods and services?
It will lead to depression in the economy.
India and China command special attention, not just in Asia (for example, in the Asia-Pacific Economic Cooperation
[APEC] forum and the Council for Security Cooperation in the Asia Pacific [CSCAP]) but also in the global
economy and in the biennial, multi-country consultative summit meeting known as the G-20, which is acquiring
growing importance in the international arena. China and India are the world’s two most populous countries. They
have sustained the world’s highest annual gross domestic product (GDP) growth rates over the past decade—9
percent for China and 6 or 7 percent for India. The two countries have been among the world’s most successful
in weathering the challenges of the global economy’s Great Recession since 2008. China has accomplished this
through a combination of a large government stimulus program (as a share of its GDP twice as large as that of the
United States) and an effective infrastructure-building program. India’s similarly successful efforts in sustaining
rapid growth despite the global recession have been due to its lesser dependence on exports to drive its economy
and an expansion of domestic demand.
The two countries arguably have the greatest influence and leverage among the ten emerging-market countries in
the G-20. Their joint influence has been decisive in aborting the World Trade Organization’s Doha Development
Round of negotiations on trade liberalization, as well in the failure—whether for good or ill—of the 2009 UN
Climate Change Conference (also known as the Copenhagen Summit). China has become the world’s largest
source of net capital outflows (Wolf et al., forthcoming). India’s popularity as a destination for foreign capital
inflows is rapidly increasing, and India is the world’s largest recipient of foreign outsourcing of computer-based
services.1 China and India are both heavily dependent on imported oil: They are the world’s second- and fourth-
largest importers, respectively. Shifting to a very different realm, China is the most aggressive opponent of the
Dalai Lama and Tibetan autonomy, while India is their most vigorous supporter.
The prominence of India and China in all of these issues is indisputable. But the relevance of the four domains
to each of the above issues varies. The two countries’ demographics have some bearing on most of these issues.
China’s and India’s likely economic growth trajectories affect and are affected by most of them. Science and
technology in the two countries will affect their respective competitive positions in several of these issues, as will
their respective performance in the domain of defense spending and procurement.
8. Mention the strategies followed by India and China which helped them to maintain a high growth rate for a decade?
3
Ans. India and China have sustained the world’s highest annual gross domestic product (GDP) growth rates over the
past decade—9 percent for China and 6 or 7 percent for India. The two countries have been among the world’s
most successful in weathering the challenges of the global economy’s Great Recession since 2008.
China’s policy- China has accomplished this through a combination of a large government stimulus program and
an effective infrastructure-building program.
India’s similarly successful efforts in sustaining rapid growth despite the global recession have been due to its
lesser dependence on exports to drive its economy and an expansion of domestic demand.
9. Mention some of the domains which are relevant in context of two countries. 3
Ans. (i) The two countries’ demographics have some bearing on most of economic issues.
(ii) China’s and India’s likely economic growth trajectories affect and are affected by most of them.
(iii) Science and technology in the two countries will affect their respective competitive positions in several of
these issues, as will their respective performance in the domain of defence spending and procurement.
10. Distinguish between stocks and flows. Give two examples of each. 3
Ans. Stock Basis
Flow
Any economic variable which is calculated at a Any economic variable which is calculated
Meaning
particular point of time during a period of time.
Static Concept Nature Dynamic Concept
There is no time dimension. Time Dimension There is time dimension.
Distance, amount of money, water in tank, etc. Example Speed, spending of money, water in river,
etc.
11. Differentiate between inflationary gap and deflationary gap. Show deflationary gap on a diagram. Can this gap
exist at equilibrium level? Explain. 5
Ans. Inflationary Gap Basis Deflationary Gap
When in an economy aggregate demand exceeds Meaning When in an economy, aggregate demand falls
“aggregate supply at full employment level”, the short of aggregate supply at full employment level,
demand is said to be an excess demand and the the demand is said to be a deficient demand and
gap is called inflationary gap. the gap is called deflationary gap.
(i) Increase in household consumption demand Reasons (i) Decrease in household consumption demand
due to rise in propensity to consume. (ii) due to fall in propensity to consume. (ii) Decrease
Increase in private investment demand because in private investment demand because of fall
of rise in credit facilities. (iii) Increase in public in credit facilities. (iii) Decrease in public
(government) expenditure. (iv) Increase in export (Government) expenditure. (iv) Decrease in export
demand. (v) Increase in money supply or increase demand. (v) Decrease in money supply or decrease
in disposable income. in disposable income.
(i) Effect on General Price Level Impact (i) Effect on General Price Level
Excess demand gives a rise to general price level. Deficient demand causes the general price level
(ii) Effect on Output to fall.
Excess demand has no effect on the level of output (ii) Effect on Employment
because economy is at full employment level. Due to deficient demand, investment level is
(iii) Effect on Employment reduced, which causes involuntary unemployment
There will be no change in the level of employment in the economy due to fall in planned output.
also. The economy is operating at full employment (iii) Effect on Output
equilibrium already and hence there is no Low level of investment. An employment implies
unemployment. low level of output.
Yes, deflationary gap can exist at equilibrium level of income. In the below figure equilibrium is attained at a
equilibrium point E1, when deflationary gap is EB.
Full Employment AS
Equilibrium Deflationary
gap (EB)
Aggregate Demand
E AD0
E1 B AD1 (Current)
Under
Employment
45° Equilibrium
0 Y1 Y
National Income
12. (a) Calculate national income from the following. 3
Particulars (` In Crores)
(i) Private final consumption expenditure 500
(ii) Net domestic fixed capital formation 100
(iii) Net factor income from abroad 30
(iv) Change in stock 20
(v) Net exports 40
(vi) Net indirect taxes 50
(vii) Mixed income 300
(viii) Government final consumption expenditure 200
(ix) Consumption of fixed capital 60
(x) Net current transfers to abroad (–) 10
(b) What precautions should be taken while estimating national income by expenditure method? 2
OR
(a) From the following data calculate Gross domestic product at market price.
Particulars (` In crores)
(i) Gross national product at factor cost 6,150
(ii) Net export (–) 50
(iii) Compensation of employees 3,000
(iv) Rent 800
(v) Interest 900
(vi) Profits 1,300
(vii) Net direct taxes 300
(viii) Net domestic capital formation 800
(ix) Gross fixed capital formation 850
(x) Change in stock 50
(xi) Dividend 300
(xii) Factor income from abroad 80
(b) Calculate ‘Value of output’ from the following data:
(` In lakhs)
(i) Net value added at factor cost 100
(ii) Intermediate consumption 75
(iii) Excise duty 20
(iv) Subsidy 5
(v) Depreciation 10
Ans. (a) GDPMP = Government Final Consumption Expenditure + Private Final Consumption
Expenditure + Gross Domestic Capital Formation + Net Export
= (viii) + (i) + (ii) + (ix) + (iv) + (v)
= 200 + 500 + 100 + 60 + 20 + 40 = ` 920 crores
NNPFC = GDPMP – Depreciation + Net Factor Income from abroad – NIT
= 920 – (ix) + (iii) – (vi) = 920 – 60 + 30 – 50 = ` 840 crores
(b) (i) Avoid Intermediate Expenditure: By definition, the method includes only final expenditures, i.e.
expenditure on consumption and investment. Like in the value added method, inclusion of intermediate
expenditure like that on raw materials, etc. will mean double counting.
(ii) Do Not Include Expenditure on Second Hand Goods and Financial Assets: Buying secondhand goods
is not a fresh production activity. Buying financial assets is not a production activity because financial assets
are neither goods nor services. Therefore, they should not be included in estimation of national income.
(iii) Include the Self Use of Own Produced Final Products: For example, a house owner using the house
himself. Although explicitly he does not incur any expenditure, implicitly he is making payment of rent
to himself. Since the house is producing a service, the imputed value of this service must be included in
national income.
(iv) Avoid Transfer Expenditures: A transfer payment is a payment against which no services are rendered.
Therefore no production takes place. Since no production takes place in national income. Charities, donations,
gifts, scholarships, etc are some of its examples.
OR
(a) NDPFC = Compensation of Employees + [(Rent + Interest) + profit]
= 3,000 + [(800 + 900) + 1,300] = 2,000 + 3,000 = ` 6,000 crore
G
ross domestic capital formation = Gross fixed capital formation + Change in stock
N
et domestic capital formation + Depreciation = Gross fixed capital formation + Change in stock
800 + Depreciation = 850 + 50
Depreciation = 100
GDPFC = NPFFC + Depreciation = 6,000 + 100 = ` 6,100 crore
(b) GVAMP = NVAFC + Depreciation + Net Indirect Tax
= 100 + 10 + (20 – 5) = ` 125 lakhs
GVAMP = Value of output – Intermediate Consumption
125 = Value of output – 75
Value of output = 175 – 75 = ` 200 lakhs.
13. (a) Health care in India is suffering from urban-rural and rich-poor divide. Explain how? 2
(b) What is carrying capacity of the environment? How is it related to sustainable development? 3
Ans. (a) It is rightly said that health care in India suffers from urban-rural and rich-poor divide. 70% population is living
in rural areas while 20% of the hospitals are located in rural areas. It means 80% hospitals are serving 30%
population. Of 7 lakh beds only 11% are in rural areas. There are only 0.36 hospitals for one lakh people in
rural areas whereas it is 3.6 hospital per one lakh population in urban areas, i.e. number of hospitals in urban
areas is 10 times the number of hospitals in rural areas. In villages specialised medical care is completely
missing like paediatrics, gyecology, anesthesia and obstetrics. PHCs located in rural areas do not have even
X-ray or blood test facility. 20% of doctors passing leave the country for better prospects. Many others are
interested in urban areas, rare are the ones interested in rural areas. The poorest one fifth spends 12% of their
income on health while rich spend only 2% of their income on health.
(b) Carrying capacity of the environment implies that the resources extraction is not above the rate of regeneration
of the resources and the wastes generated are within the assimilating capacity of the environment.
It is related to sustainable development because development is sustainable as long as an economy is operating
within carrying capacity of the environment. As soon as we cross carrying capacity, we start facing the problem
of environment degradation and development is not sustainable anymore. If these two conditions are not
fulfilled, then environment fails to perform its vital functions of life sustenance and it leads to the situations
of environmental crises.
Practice Paper– 3
1. During a given year the nominal national income increased by 14 per cent while the real national income increased
by only 6 per cent. Population increased by 2 per cent. What has caused the difference between nominal income
and real income? What is real per capital income? 2
OR
Give reasons and categories the following in stock and flow
(a) Losses (b) Production
Ans. (i) Change in nominal income over a year is on account of (a) change in quantity of goods and services and
(b) change in price level. However, change in real income refers to change in quantity of goods and services
only.
(ii) Therefore, a change of 14 per cent in nominal income over the year is partly on account of 6 percent change in
quantity of goods and services and the remaining 8 per cent must be on account of rise in general price level.
(iii) Real per capita income rise = Rise in real national income – Rise in population = 6 – 2 = 4 per cent.
OR
(a) Losses is a flow as it is calculated during a period of time.
(b) Production is a flow as it is measured over a period of time.
2. As a result of increase in investment by ` 125 crore, national income increases by ` 500 crore. Calculate marginal
propensity to consume. 2
OR
“Economists are generally concerned about the rising Marginal Propensity to Save (MPS) in an economy”. Explain
why.
Ans. Multiplier,
Change in Income (∆Y) 500
K = = =4
Change in Investment (∆I) 125
We also know that Multiplier
1 1
(K) = ;4=
1 − MPC 1 − MPC
4 – 4MPC = 1;
3
MPC = = 0.75
4
OR
(i) As we know, the sum of MPC and MPS is unity. Any increase in marginal Propensity to Save (MPS) would
lead to decrease in Marginal Propensity to Consume (MPC).
(ii) It means, with the increase in income, lesser and lesser proportion of income is spent on consumption.
(iii) As consumption is an important component of Aggregate Demand. If consumption falls, Aggregate Demand/
Expenditure Fall, which will further leads to fall in Equilibrium level of Income in the economy.
3. Given that national income is ` 80 crore and consumption expenditure ` 64 crore, find out average propensity
to save. When income rises to ` 100 crore and consumption expenditure to ` 78 crore, what will be the average
propensity to consume and the marginal propensity to consume?
19
Savings (S) 80 − 64 16
Ans. Average Propensity to Save =
= = = 0.2
Income (Y) 80 80

When income rises to ` 100 crore and consumption expenditure to ` 78 crore
Consumption (C) 78
Average Propensity to Consume = = = 0.78
Income (Y) 100
Change in Consumption (∆C)
Marginal Propensity to Consume =
Change in Income (∆Y)
78 − 64 14
= = = 0.7
100 − 80 20
4. Highlight the prerequisites for private investment in the infrastructure sector in India. 2
OR
What are the challenges in health sector?
Ans. Commercialisation in infrastructure will allow private entrepreneurs to enter the market.
(i) The policy of subsidies needs to be replaced by pricing policies based on market forces for private sector.
(ii) Paying proper attention on the existing infrastructure and the anticipated demand is required because
privatisation will necessitate a demand-oriented approach.
(iii) There is a proper need of allocating it amongst different stakeholders.
(iv) A transparent framework is needed so that there is neither direct regulation requirement nor pricing becomes
inefficient.
OR
(i) Public health refers to the health of the community as a whole. We need to improve public health of Indian
community.
(ii) If health services are decentralized, public health can be improved.
(iii) IT sector and telecommunication along with transport can play a major role in accessibility of health services.
Eradication of poverty is essential for affordability of health services.
(iv) We also need to reduce rural-urban divide and rich-poor divide to make health care system more effective.
5. Name two diseases caused by air pollution, water pollution and noise pollution each. 2
Ans. Air Pollution: Asthma and lung cancer
Water Pollution: Diarrhea and cholera

Noise Pollution: Hearing problems and hypertension

6. What is real GDP? State three limitations of GDP as an index of economic welfare. 3
OR
Giving reasons, explain how the following are treated in estimating national income by the income method:
(a) Interest on a car loan paid by an individual.
(b) Interest on a car loan paid by a government – owned company.
Ans. When gross domestic product (GDP) of a given year is estimated on the basis of price of the base year, it is called
real GDP.

Three limitations of GDP as an index of economic welfare are as follow:
(i) Many goods and services contributing economic welfare are not included in GDP Or non-monetary exchanges.
(ii) Externalities.
(iii) Non-monetary exchanges.
OR
(a) Interest on a car loan paid by an individual is not included in the national income because it is taken for
consumption purpose.
(b) Interest on a car loan paid by a government is not included in the national income because it is taken for
consumption purpose.
7. Can you give some evidence to prove that health infrastructure has improved in India? 3
Ans. There is no doubt about it that health infrastructure in India has improved. It can be proved from the statistics given
below:
Public Health Infrastructure in India
Item 1951 1981 2000
Hospitals 2694 6805 15888
Hospital/Dispensary Bed 117000 504538 719861
Dispensaries 6600 16745 23065
PHCs 725 9115 22842
Subcenters 84736 137311
CHCs 761 3043
It is absolutely clear that number of hospitals, dispensaries, PHCs, CHCs all have increased many times during
1951-2000.
Introduction
China, with its military might and strong economic presence, is considered one of the most influential states
on today’s world stage by many experts. India, on the other hand, with its constant growth since the 1990s, is
regarded as a rising power. The rise of these two states brings a change to the existing world order which makes
it essential to examine their policies and actions since they affect not just the Asian subcontinent, but the majority
of the world. One method to do the same can be through the exploration of their foreign policies and diplomacy.
A state’s Foreign policy and diplomacy dictate the state’s politics, power and position in the global order.
Defining Soft Power
Power in diplomacy refers to the ability to influence or direct other states to act in ways that might be beneficial
to one’s national interest [i]. This definition helps understand the role of diplomacy in influencing foreign policies
and the nature of power in international relations. Based on this definition of power, it can be further divided into
three entities, hard, soft and smart power. However, in this paper, the focus will be on soft power, which also forms
a part of smart power.
American political scientist Joseph Nye discussed the need for a shift from the prevailing hard power policies in
the contemporary world due to the rise of transnational actors, globalisation-driven interdependent economies,
changing nature of military technology and resurgence of nationalism, among other political problems [ii] [iii].
He introduced an alternative in the form of soft power. He defined it as “the ability to get what one wants through
persuasion or attraction rather than coercion” [ii]. It is based on the belief that on occasions, mutual understanding,
growth and harmony makes a state’s power seem more legitimate and less threatening compared to the use of hard
power, thus the state is likely to encounter less resistance against its demands or wishes [ii]. A state’s soft power
usually rests on three resources- its cultural attractiveness, its political values, and its foreign policy, all of which
legitimises the state as a trustworthy and capable partner [iv].
India and China’s Soft Power
Records of ancient India’s engagement with other states through trade and other forms of cultural exchange,
similar to the ancient Chinese civilisation, can be presented as an early example of the long existence of soft power
diplomacy in human societies. This is perhaps why the influence of Indian civilisation and culture can often be found
in Southeast Asian states, while some of the other states in the region carry the influence of Chinese civilisation
and culture [iv]. The ties of ancient cultural roots provide a useful tool for soft power. The cultural similarities
and shared colonial experiences create a bond based on faith and understanding among the general citizens and
sometimes governments as well. China realising this potential promotes the exchange of research, arts, growth in
trade, business and more. India, however, has failed to strengthen their cultural ties and roots with its South-East
Asian counterparts other than the Non-Alignment movement started by Nehru right after independence. Some
attempts were made through the Look East and subsequently the Act East policies by Narsimha Rao and Narendra
Modi respectively. But a noticeable change has been seen through the projection of India as the birthplace of
Buddhism. India has used this to its advantage to build stronger ties with states in South-East and East Asia. An
example of the same is the extensive restoration of the Mahabodhi temple and the rebuilding of Nalanda University.
The latter was a successful project as a symbol of historical-cultural ties in Asia and saw financial contributions
from Japan, China, Thailand, Singapore, South Korea and several other Asian states [v].

Compared to its neighbour China, the Indian state, since its independence, has consistently made use of soft power
diplomacy. Past policies show that India, since its independence, has shown more inclination towards soft power,
unlike China. Even though the state shifted focus to soft power diplomacy much later, the concept rapidly rose to
popularity in the mid-2000s and now acts as an integral part of Chinese foreign policy [vi]. The state wanted to
use the popularity of Chinese art, culture, cuisine, architecture and history to promote Chinese cinema, literature,
businesses and education, and soften its image abroad [vii]. Some of their efforts for the same can be seen through
the construction of several hundred Confucius Institutes around the world to teach their language and culture, and
the promotion of the Xinhua News Agency- the official state news service to counter ‘western propaganda’ [vii].
These efforts have proved to be only partially successful as they did not do much to soften their public image.
Similarly, Indian culture also enjoys significant popularity around the world, which empowers the state’s soft
power diplomacy. Indian cuisine, fashion, sports, classical music, classical dances, cinema, academics, books,
healthcare, spirituality and more enjoy popularity globally, which positively impacts the state’s image [iv]. But
the key difference here lies in the fact that the Indian cultural centres are far few in number and the popularity of
Indian culture and its attributes have seen popularity naturally and through Indian immigrants rather than through
a mixture of immigration and government effort. The Indian government fails to make use of the potential through
state promotions.

The current administration instead has chosen to promote India’s soft power through different avenues. The
administration continues to depict India’s affinity for soft power through consistent foreign state visits where
the prime minister makes concentrated efforts to project India’s culture, economic growth and development.
This projection of India’s soft power comes through strategic plans used to mitigate anxieties about India’s rise,
improve the state’s image, attract investment and tourists, and also overcome the weaknesses in their hard power
diplomacy [v]. The current administration’s key soft power resources include Buddhism, Yoga and the Indian
diaspora and businesses. The state has made use of these tools to increase foreign investment and consistently
improve the state’s image abroad [v]. Despite the attractiveness of India’s soft power assets, the state still falls
short due to overestimation of its soft power attraction, a serious dearth of infrastructure, and domestic investment,
and proper promotion of its plethora of assets [v]. This is where India seems to lag behind China, the most crucial
factor being the lack of capacity and monetary resources to match China’s investment into soft power. As a state
with a strong economy and the world’s largest holder of foreign exchange reserves, China’s strongest asset is its
expenditure of money. Estimates suggest that China spends nearly $10 billion annually on soft power diplomacy
[vii]. Their extensive expenditure on their soft power assets can be seen in the multiple new initiatives that the
current administration has introduced, such as the Asia-Pacific dream, the Twenty-First-Century Maritime Silk
Road, and more [vii].

While the two states start on similar footing when it comes to their existing resources of soft power, China’s
investment creates a massive difference. However, India’s democratic nature presents it with a benefit over its
neighbour in the East. India’s democratic values and openness makes it a more trustworthy and dependable partner.
But for China, despite huge investments, the success of Chinese businesses, and the popularity of Chinese culture,
the state still lags in terms of soft power diplomacy primarily due to its undemocratic nature [vi]. The excessive
control of Chinese authorities, their censorship, clamping down on freedom of speech and expression, and growing
human rights abuses in Xinjiang, makes their soft power diplomacy seem inconsistent with domestic realities [vii].
China hopes to solve issues such as the South China Sea dispute through soft power to become a preferred partner
to Taiwan, Malaysia, the Philippines, and Vietnam [viii]. But, they fail to realise that its inconsistent domestic
policies and secretive nature of functioning make them a hard partner to trust and depend on in terms of security
issues among others, despite having strong economic ties [vii]. Soft power cannot be bought, it needs to be earned
without unnatural interference from the state. For China, this would mean “loosening restrictions at home and
reducing attempts to control opinion abroad” [vii]. On the other hand, India, as the world’s largest democracy, and a
representative of democratic values, gained the trust and respect of other states but, India’s poor human development
indicators, increasing human rights violations, along with increasing tensions in Kashmir have become reasons of
concern. This causes loss of trust from other states and therefore loss of trust in its soft power assets.
Source: https://www.claws.in/comparative-analysis-of-india-and-chinas-soft-power-diplomacy/
8. Give three recommendation to India on the basis of your reading on how it can get a better soft power. 3
Ans. (i) India needs to invest further in its soft power resources by restoring heritage buildings and Buddhist monasteries.
(ii) The Act East policy needs to be backed by stronger engagement with the states in South-East Asia by promoting
their similar roots and tapping into their shared colonial experiences.
(iii) The government needs to take a more active role in promoting Indian literature, research, cuisine, music, arts
and cinema that have seen global popularity.
(iv) As Robert Cooper has said before, a state cannot solely depend on soft power, which is why India needs to
maintain its reputation as a strong democracy and follow democratic values at home to continue winning the
support of its allies.
9. What strategies has India adopted for increasing its soft power? Mention any three. 3
Ans. (i) Popularizing Indian Culture
(ii) Foreign visits by our Prime Minister
(iii) Democratic set up and pre-existent image
10. Distinguish between consumer goods and capital goods. Which of these are final goods? 3
Ans. Consumption Goods Basis Capital Goods
Consumption goods are those which Meaning Capital Goods are defined as all goods produced
satisfy the wants of the consumers for use in future productive processes.
directly.
These goods do not help to promote Addition to Production These goods help in adding the production
production capacity. Capacity capacity.
These goods have a short expected Expected Life These goods are used for several years i.e. they
life (except durable goods) have an expected life of more than one year.
11. Explain the concept of ‘inflationary gap’. Also explain the role of ‘legal reserves’ in reducing it. 5
Ans. (i) Inflationary gap is the gap showing excess of current
AD1
aggregate demand over ‘aggregate supply at the level of Inflationary
E
Gap B
full employment’. It is called inflationary because it leads to
Aggregate AD0
inflation (continuous rise in prices). Demand
OY* =Full employment
(ii) A simple example will further clarify it. Let us suppose A income
that an imaginary economy by employing all its available
resources can produce 10,000 quintals of rice. If aggregate 45°
demand of rice is say 12,000 quintals, this demand will be O Y* Y1 National
called an excess demand, because aggregate supply at level of Income
full employment of resources is only 10,000 quintals as the result of the gap of 2000 quintals will be called as
inflationary gap. In the above diagram Inflationary gap is AB because at Full employment Y*, Aggregate
demand (BY*) is greater than Aggregate Supply(AY*).
Increase in Varying Reserve Requirements or Legal Reserve Ratio

(i) Banks are obliged to maintain reserves with the central bank, which is known as legal reserve ratio. It has two
components. One is the Cash Reserve Ratio or CRR and the other is the SLR or Statutory Liquidity Ratio.
(ii) Cash Reserve Ratio (Increase in CRR):
• It refers to the minimum percentage of a bank’s total deposits, which it is required to keep with the central
bank. Commercial banks have to keep with the central bank a certain percentage of their deposits in the
form of cash reserves as a matter of law.
• For example, if the minimum reserve ratio is 10% and total deposits of a certain bank is ` 100 crore, it will
have to keep ` 10 crore with the central bank.
• In a situation of excess demand leading to inflation, cash reserve ratio (CRR) is raised to 20 per cent, the
bank will have to keep ` 20 crore with the central bank, which will reduce the cash resources of commercial
bank and reducing credit availability in the economy, which will control excess demand.
(iii) Statutory Liquidity Ratio (Increase SLR):
• It refers to minimum percentage of net total demand and time liabilities, which commercial banks are
required to maintain with themselves.
• In a situation of excess demand leading to inflation, the central bank increases statutory liquidity ratio (SLR),
which will reduce the cash resources of commercial banks and reducing credit availability in the economy.
12. (a) Calculate National Income from the following data: 3
Particulars (` in crores)
(ii) Profit 100
(iii) Government final consumption expenditure 400
(iv) Net indirect taxes 100
(v) Gross domestic capital formation 250
(vi) Change in stock 50
(vii) Net factor income from abroad (–) 40
(viii) Consumption of fixed capital 20
(ix) Net Imports 30
(b) Explain how ‘externalities’ are a limitation of taking gross domestic product as an index of welfare. 2
OR
(a) Calculate Gross National Product at factor cost. 3
Particulars (` in crores)
(i) Compensation of employees 3,000
(ii) Profit 800
(iii) Opening stock 200
(iv) Closing stock 150
(v) Indirect taxes 700
(vi) Rent 600
(vii) Interest 900
(viii) Subsidies 100
(x) Net exports (–) 250
(xi) Net factor income to abroad 300
(xii) Net current transfers from rest of the world 400
(xiii) Mixed income of self-employed 5,000
(b) Describe the expenditure method of calculating Gross Domestic Product at market price. 2
Ans. (a) GDPMP = Government Final Consumption Expenditure + Private Final Consumption
Expenditure + Gross Domestic Capital Formation + Net Export
= (iii) + (i) + (v) + (–ix)
= 400 + 900 + 250 – 30
= ` 1,520 crores
NNPFC = GDPMP – Depreciation + Net Factor Income from abroad – NIT
= 1,520 – (viii) + (vii) – (iv)
= 1,520 – 20 + (–40) – 100
= ` 1,360 crores
(b) (i) When the activities of somebody result in benefits or harms to others with no payment received for the
benefit and no payment made for the harm done, such benefits and harms are called externalities.
(ii) Activities resulting in benefits to others are positive externalities and increase welfare; and those resulting
in harm to others are called negative externalities, and thus decrease welfare.
(iii) GDP does not take into account these externalities.
(iv) For example, construction of a flyover or a highway reduces transport cost and journey time of its users
who have not contributed anything towards its cost. Expenditure on construction is included in GDP but not
the positive externalities flowing from it. GDP and positive externalities both increase welfare. Therefore,
taking only GDP as an index of welfare understates welfare. It means that welfare is much more than it is
indicated by GDP.
(v) Similarly, GDP also does not take into account negative externalities. For example, factories produce goods
but at the same time create pollution of water and air. River Yamuna, now a drain, is a living example.
The pollution harms people. The factories are not required to pay anything for harming people. Producing
goods increases welfare but creating pollution reduces welfare. Therefore, taking only GDP as an index of
welfare overstates welfare. In this case, welfare is much less than indicated by GDP.
OR
(a) NDPFC = Compensation of Employees + Operating Surplus + Mixed Income

= (i) + (vi) + (vii) + (ii) + (xii)

= 3,000 + 600 + 900 + 800 + 5,000

=
` 10,300 crores
GNPFC = NDPFC + Depreciation + Net Factor Income from abroad
= 10,300 + (ix) + (–xi)
= 10,300 + 850 + (–300)
= ` 10,850 crores
(b) Step 1: Identification of economic units incurring final expenditure like household or consuming sector, firms
or producing sector and government sector.
Step 2: Classification of final expenditure into following category:

(i) Government final consumption expenditure (GFCE)
(ii) Private final consumption expenditure (PFCE)
(iii) Gross domestic capital formation (GCF)
(iv) Net exports (NX)
Step 3: Measurement of final expenditure on components of GDP. Their sum total gives us value of GDPMP.

GDPMP = GFCE + PFCE + GCF + NX
Step 4: Deduction of depreciation and NIT and addition of NFIA in GDP to get NY, i.e., NNPFC.

NNPFC = GDPMP – Depreciation + NFIA – NIT
13. (a) Why has water become an economic commodity? 2
(b) How are economic growth and infrastructure development related to each other? 3
Ans. (a) An economic commodity is one which is sold and purchased in the market. A commodity becomes economic
when it is not so abundant that it can be made freely available to one and all. Water has become an economic
commodity because:
(i) Due to water pollution, drinking water has become scarce.
(ii) Rising population has increased demand for drinking water.
(iii) 97% of the earth’s surface is covered with water but only 1% of the total water is fit for consumption.
(b) Sufficient availability of the power, water transport, etc may result in optimal utilisation of assets. Infrastructure
developments such as transport, power, finance, etc expand the size of markets and improve productivity
significantly. Infrastructure brings modern technology in all sectors. There is a close association between
infrastructure spending on and GDP growth. Around 6.5 % of the total value added is contributed by
infrastructure services in UDCs, 9 % in developing countries and 11 % in developed countries. Infrastructural
development is important not only for economic growth, globalisation and technological innovation in
manufacturing but also for poverty reduction.
Practice Paper– 4
1. How depreciation helps to differentiate between gross investment and net investment? 2
OR
What points should be taken care of while deciding a good as intermediate or final?
2. What is aggregate demand? Explain its component consumption. 2
OR
What can be the minimum and maximum value of average propensity to save? Explain.
3. Calculate autonomous consumption expenditure from the following data about an economy which is in equilibrium.
National income = 1,200
Marginal propensity to save = 0.20
Investment expenditure = 100
4. What is the difference between formal sector and informal sector? 2
OR
What is the difference between social infrastructure and economic infrastructure?
5. How are environment and economy interdependent? 2
6. Will the following item be included or not in the National Income of India? Give reasons for your answer. 3
Payment of fees to a lawyer engaged in a firm.
OR
Explain the problem of double counting in estimating National Income with the help of an example. Also explain
two alternative ways of avoiding the problems.
7. What do you mean by informalisation of Indian workforce? Explain. 3
Human Development Indicators
Human development index (HDI) is an important indicator to study human development. Higher value of HDI shows
higher level of growth and development of a country. In 2003, HDI for India, China and Pakistan was estimated
to be 0.602, 0.755 and 0.527 respectively. Some selected indicators of HDI for comparison are as follows:
• Life Expectancy at Birth: Life expectancy to the average number of years for which people are expected to
live. China has the highest life expectancy of 71.6 years. India and Pakistan have the life expectancy of 63.3
and 63 years respectively.
• Infant Mortality Rate (IMR): Infant Mortality Rate refers to number of infants dying before reaching one
year of age per 1,000 live births in a year. IMR is lowest in China with 30 infants and highest in Pakistan with
81 infants. IMR in India is 63.
• Adult Literacy Rate: Adult literacy rate refers to the ratio of literate adult population to the total adult
population in a country. It is 90.0 % in China, 61 % in India and 48.7 % in Pakistan.
• People Below Poverty Line: In Pakistan and China, people below poverty line are 13.4 % and 16.6 %
respectively whereas in India it is 26 % in 2000.
• Maternal Mortality Rate: In China, for one lakh births, only 50 women die, whereas in India and Pakistan,
maternal mortality rate is 540 and 500 respectively.
• GDP per Capita: In 2003, China’s GDP per capita was estimated to be US $5003, while it was just US $2892
for India and US $2097 for Pakistan.
27
8. What are the reasons of highest life expectancy in China? 3

9. Why India has highest percentage of people below poverty line? 3
10. What do you mean by operating surplus? Explain. 3
11. Derive a straight line saving curve using the following consumption function: C = 200 + 0.6Y presuming the
income levels to be ` 100, ` 200 and ` 300 crores. Also calculate that level of income where consumption is equal
to income. 5
12. (a) Calculate Net National Product At Market Price and. 3
Items (` in Crores)
(i) Gross domestic fixed capital formation 400
(ii) Private final consumption expenditure 8,000
(iii) Government final consumption expenditure 3,000
(iv) Change in stock 50
(vi) Net indirect taxes 100
(vii) Net exports (–)60
(viii) Net factor income to abroad (–)80
(ix) Net current transfers from abroad 100
(x) Dividend 100
(b) Explain real flow in an economy of two sectors. 2
OR
(a) Find the Gross National Product at Market Price.
Particulars (` in Crores)
(ii) Net current transfers to abroad 20
(iii) Net factor income to abroad (–)10
(iv) Government final consumption expenditure 300
(v) Net indirect tax 150
(vi) Net domestic capital formation 200
(b) How a refrigerator can be consumption good or capital good?
13. (a) How does global warming affect us? Explain. 2
(b) Name the principal indicators of health care. Explain any one. 3
Practice Paper– 5
1. What is macroeconomics? Explain. 2

OR
Describe circular flow of income in the economy of two sectors.
2. Explain average propensity to consume and marginal propensity to consume. 2
OR
What can be minimum and maximum value of marginal propensity to save? Explain.
3. As the income increases, people tend to consume more. Justify the given statement. 2
4. What is the participation of male and female and urban and rural in employment. 2
OR
Explain sustainable economic development.
5. ‘Over the years, India has built up a strong health infrastructure’. Justify the given statement. 2
6. Will the following item be included or not in the National Income of India? Give reasons for your answer. 3
Expenditure by a firm on payment of fees to a chartered accountant.
OR
Write down some of the limitations of using GDP as an index of welfare of a country.
7. Explain primary health care centres, secondary health care centers and tertiary health care centers. 3
Growth Rate of Gross Domestic Product (GDP)
China with second largest GDP, as measured purchasing power parity (PPP), is estimated to be of $7.2 trillion.
India’s GDP at (PPP) is $ 3.3 trillion and Pakistan’s GDP is roughly about 10 % of India’s GDP. In 1980s, China
was having double-digit growth rate of 10.3%, while for Pakistan’s and India; the corresponding figures were
6.3% and 5.7%. In 1990s, China was having growth rate of 9.7%, while for Pakistan and India; the corresponding
figures were 3.6% and 5.8%.
Growth of GDP in per cent during 1980-2003
Country 1980-90 1990-2003
India 5.7 5.8
China 10.3 9.7
Pakistan 6.3 3.6
8. Why growth rate of China has been highest among India, China and Pakistan? 3
9. Why growth rate of Pakistan decreased heavily in 1990-2003 in comparison of 1980-1990? 3
10. Explain value of output and intermediate consumption. 3
11. Distinguish between propensity to consume and propensity to save, with the help of numerical examples. 5
29
12. (a) Calculate National Income. 3

Items (` in Crores)
(i) Net factor income to abroad (–)50
(ii) Net Indirect taxes 800
(iii) Net current transfers from rest of the world 100
(iv) Net Imports 200
(v) Private final consumption expenditure 5,000
(vi) Government final consumption expenditure 3,000
(vii) Gross domestic capital formation 1,000
(viii) Consumption for fixed capital 150
(ix) Change in stock (–)50
(x) Mixed income 4,000
(xi) Scholarship to students 80
(b) How consumption good is different from capital good? 2
OR
(a) Find net national product at market price.
(i) Personal taxes 200
(ii) Wages and salaries 1200
(iii) Undistributed profit 50
(iv) Rent 300
(v) Corporation tax 200
(vi) Private income 2000
(vii) Interest 400
(viii) Net indirect tax 300
(ix) Net factor income to abroad 20
(x) Profit 500
(xi) Social security contributions by employees 250
(b) Explain depreciation and its causes.
13. (a) What is the significance of public sector in health care system in India? 2
(b) Explain any two causes of environmental degradation. 3
Practice Paper– 6
1. Describe real flow and money flow. 2

OR
Describe factor income and transfer income.
2. Explain average propensity save and marginal propensity to save. 2
OR
What can be minimum and maximum value of marginal propensity to consume? Explain.
3. ‘Consumption does not increase in the rate of increase in income’. Explain the statement. 2
4. What is the contribution of different sectors in employment? 2
OR
Explain Indian system of medicine.
5. How health care in India is suffering from urban-rural divide? 2
6. Will the following items be included or not in National Income of India? Give reasons for your answer. 3
Payment of interest on borrowings by general government.
OR
Write down some of the limitations of using GDP as an index of welfare of a country.
7. What are the causes of environmental crisis? 3
Sectoral Contribution
The sectoral contribution in GDP in all the three countries in 2003 were as follows:
Share of three sectors in GDP in India, China and Pakistan in 2003
Sector Contribution to GDP (2003)
India China Pakistan
Agriculture 23 15 23
Industry 26 53 23
Service 51 32 54
Total 100 100 100
8. What has been impact of service sector on economy of service sector as highest contribution in GDP in case of
India. 3
9. How industry as highest contribution in GDP helped China? How did China achieve this? 3
10. Explain the steps of calculating national income by income method. 3
11. Explain ‘saving function’ with the help of a schedule and diagram. 5
31
12. (a) Calculate the Net Domestic Product at factor cost. 3

Items (` in Crores)
(i) Private final consumption expenditure 8,000
(ii) Government final consumption expenditure 1,000
(iii) Exports 70
(iv) Imports 120
(vi) Gross domestic fixed capital formation 500
(vii) Change in stock 100
(viii) Factor income to abroad 40
(ix) Factor income from abroadq 90
(x) Indirect taxes 700
(xi) Subsidies 50
(xii) Net current transfers to abroad (–)30
(b) How can we differentiate between stock flow and flow? 2
OR
(a) Find National Income.
(i) Wages and salaries 1.000
(ii) Net current transfers to abroad 20
(iii) Net factor income paid to abroad 10
(iv) Profit 400
(v) National debt interest 120
(vi) Social security contributions by employers 100
(vii) Current transfers from government 60
(viii) National income accruing to government 150
(ix) Rent 200
(x) Interest 300
(xi) Royalty 50
(b) Differentiate between gross investment and net investment.
13. (a) How unemployment in rural areas is different from unemployment in urban areas for India? 2
(b) How inadequate infrastructure can have multiple adverse effects on health? 3
Practice Paper– 7
1. What are the economic problems which are studied in macroeconomics? 2

OR
Explain stock and flow.
2. Explain aggregate demand and its components. 2
OR
Why consumption curve starts from the origin on Y-axis?
3. Why MPC of rich is less than that of poor?
4. Explain how government helped to generate employment opportunities. 2
OR
What is the state of women’s health in India?
5. How health care in India is suffering from poor-rich divide? 2
Payment of interest by a bank to an individual.
OR
Distinguish between domestic product and national product. When can domestic product be more than national
product?
7. What is the state of India’s environment? 3
Demographic Indicators:
• Population: China is the most populated country in the world with 1,303.7 million people and India is the second
most populated country with 1,103.6 million people. As compared to China and India, population of Pakistan is
very less (162.4 million people)
• Growth Rate of Population: Though China is the most populated country, but its annual growth rate of population
is lowest (1%) as compared to India (1.7%) and Pakistan (2.5%)
• Density of Population: Density of population of China is the lowest (138 persons per sq. km) as compared to
India (358 persons per sq. km) and Pakistan (193 persons per sq. km).
• Sex Ratio: Due to preference of son, sex ratio is low and biased against females in all the three countries. Sex ratio
is lowest in Pakistan with 922 females per 1,000 males. In India and China, the corresponding figures are 933 and
937.
• Fertility Rate: Fertility rate is calculated as the number of children borne by a woman in the reproductive age (15-45
years) on an average. The fertility rate in China has fallen from over 3 births per women in 1980 to approximately
1.8 births. Fertility rate is highest in Pakistan at 5.1 births per women and India comes second with 3 births per
women.
• Urbanisation: Urbanisaion is high in both Pakistan (33.4%) and China (36.1%). In India, only 28% of its people
live in urban areas.
33
Selected Demographic Indicators 2000-01

Country Estimated Annul Growth Density Sex Ratio Fertility Rate Urbanisation
Population (in of Population (per Sq.
Million) (1990-2003) Km. )
Pakistan 162.4 2.5 193 922 5.1 33.4
China 1303.7 1.0 138 937 1.8 36.1
India 1103.6 1.7 358 933 3.0 27.8
8. Even China being most populated country how it managed to have lowest annual growth rate of population among
India, China and Pakistan? 3
9. Mention the causes of lowest rate of Urbanisation in India. 3
10. What precautions to be taken while calculating national income by income method? 3
11. Briefly state the concept of consumption function. Explain with schedule and diagram.
12. (a) Calculate Gross National Product at market price. 3
Items (` in Crores)
(ii) Profit 700
(iii) Mixed income of self-employed 7,500
(iv) Government final consumption expenditure 3,000
(v) Rent 400
(vi) Interest 350
(vii) Net factor income from abroad 50
(viii) Net current transfer to abroad 100
(ix) Net indirect taxes 150
(x) Depreciation 70
(xi) Net exports 40
(b) What is the difference between market price and factor cost? Explain. 2
OR
(a) From the following data calculate Gross national product at market price. 3
(i) Dividends 300
(ii) Compensation of employees 3,000
(iii) Rent 500
(iv) Depreciation 200
(v) Interest 800
(vi) Net factor income to abroad 100
(vii) Mixed income 5,000
(viii) Net indirect taxes 400
(ix) Profit 1,500
(x) Net current transfers to abroad (–) 50
(b) ‘All products may not contribute equally to economic welfare’? Explain the statement. 2
13. (a) How can you prove that health infrastructure has improved in India? 2
(b) Explain workforce and labour force. 3
Practice Paper– 8
1. Explain how inflation is the subject matter of Macroeconomics? 2

OR
Explain normal resident of a country.
2. Why saving curve starts from below the origin on Y-axis? 2
OR
Explain investment multiplier.
3. What do you mean by autonomous consumption?
4. Explain any two types of unemployment. 2
OR
India is a labour abundant country using capital intensive methods. Why?
5. Explain infrastructure briefly. 2
Earnings of shareholders from the sale of shares.
OR
Explain how ‘externalities’ are a limitation of taking gross domestic product as an index of welfare.
7. What are the ways of sustainable development? 3
Share of three sectors in GDP in India, China and Pakistan in 2003
Sector Contribution to GDP (2003)
India China Pakistan
Agriculture 23 15 23
Industry 26 53 23
Service 51 32 54
Total 100 100 100
8. Why literacy rate has been highet in China and lowest in Pakistan? 3
9. What is MMR? Why there is huge difference in MMR between China and India? 3
10. Explain the steps for calculating national income by expenditure method. 3
11. Draw on a diagram a straight line savings curve for an economy. From it derive the consumption curve, explaining
the method of derivation. Show a point on the consumption curve at which APC = 1.
12. (a) Calculate National Income. 3
Particulars (` In Crores)
(i) Corporation tax 100
(ii) Private final consumption expenditure 900
(iii) Personal Income tax 120
(v) Undistributed profit 50
35
(vi) Change in stocks (–) 20

(vii) Net domestic fixed capital formation 120
(viii) Net imports 10
(ix) Net indirect tax 150
(x) Net factor income from abroad (–) 10
(xi) Private income 1000
(b) ‘Contribution of some products may be negative in economic welfare’. Explain the statement. 2
OR
(a) Calculate Net National Product at factor cost. 3
Particulars (` In arab)
(i) Social security contributions by employees 90
(ii) Wages and salaries 800
(iii) Net current transfers to abroad (–) 30
(iv) Rent and royalty 300
(v) Net factor income to abroad 50
(vi) Social security contributions by employers 100
(vii) Profit 500
(viii) Interest 400
(x) Net indirect tax 250
(b) Explain the problem of double counting in product method. 2
13. (a) What is the difference between economic development and sustainable development? 2
(b) Explain AYUSH which contain five systems of health. 3
Practice Paper– 9
1. How employment problem is related to macroeconomics? 2

OR
How a car can be consumption good or capital good?
2. Why consumption curve and aggregate demand curve remains parallel to each other? 2
OR
Explain the relationship between MPS and multiplier.
3. What can be the minimum and maximum value of multiplier and why?
4. Explain any two steps taken by the government to solve the problem of umployment in rural areas. 2
OR
Explain any two causes of unemployment in India.
5. Discuss the role of infrastructure in economic development. 2
Capital gains to Indian residents from sale of shares of a foreign company.
OR
Give the meaning of factor income to abroad and factor income from abroad. Also give an example of each.
7. What measures were adopted by India for environmental conservation? 3
Similarities of Development Path of Indo- Pak- China
• All the three nations started their development path at the same time. India and Pakistan got independence in 1947
and People’s Republic of China was established in 1949.
• All the three countries had started planning their development strategies in similar ways. India announced its First
Five Year Plan in 1951, Pakistan announced in 1956 and China in 1953.
• India and Pakistan adopted similar strategies, such as creating a large public sector and raising public expenditure
on social development.
• Till 1980s, all the three countries had similar growth rates and per capita income.
Dissimilarities of Development Path of Indo- Pak- China
• Three countries have had more than five decades of development planning. The results have been different for all of
them. They had almost similar level of development till the late 70’s. But during the last three decades, the results
have been quite different. India is a democratic country with very strong institutional organs. Its performance can
be called moderate.
• So far as Pakistan is concerned, scholars point out various problems like political instability, dependence on foreign
remittances and huge foreign aid, particularly from USA. Agriculture sector does not perform consistently. All
these reasons account for the slow-down of the Pakistan economy.
• China is widely seen as a country without political freedom. Its human rights record is not that straight. But in the last
three decades, it has adapted itself to the market economy without much compromising its political standpoint. It has
succeeded in raising the level of growth and removing poverty. Whereas India and Pakistan have tried to privatise
their public sector enterprises, China has gone in its own way to create more social and economic opportunities.
It tried to provide social security in the villages. It has focused on providing social infrastructure before initiating
reforms. This approach has shown positive results which are also reflected in the human development indicators.
37
8. Even having similar level of development till the late 70’s, the development results have been quite different for
each country. Why? 3
9. What has been three similarities among India, China and Pakistan? 3
10. Explain the steps for calculating national income by product method. 3
11. Explain the consumption function and saving function.
12. (a) Compute National Income. 3
Items (` in Crores)
(ii) Rent 400
(iii) Profit 900
(iv) Dividend 100
(v) Interest 500
(vi) Mixed income of self-employed 7,000
(vii) Net factor income to abroad 50
(viii) Net exports 60
(ix) Net indirect taxes 300
(x) Depreciation 150
(xi) Net Current Transfers from Abroad 150
(b) Explain externalities. Give an example of positive externality. 2
OR
(a) Calculate National Income from the following: 3
(i) Net current transfers to abroad (–) 15
(iii) Subsidies 20
(v) Indirect tax 120
(vi) Net imports 20
(vii) Consumption of fixed capital 35
(viii) Net change in stocks (–) 10
(ix) Net factor income to abroad 5
(x) Net domestic capital formation 110
(b) Explain any two limitations of GDP as index of economy. 2
13. (a) What is the significance of private sector in health care system in India? 2
(b) Why growth should not take place at the cost of environment? 3
Practice Paper– 10
1. Explain intermediate goods and final goods? 2

OR
‘All producer goods are not capital goods’. Explain.
2. Why rising MPC is good for an economy? 2
OR
Derive saving function from the Consumption function: C = 100 + 0.6Y
3. Why AD curve starts from above the origin on Y-axis?
4. How rate of unemployment is calculated? Explain. 2
OR
Explain any two indicators of health and health infrastructure.
5. Explain carrying capacity of the environment. 2
Wheat grown by a farmer but used entirely for family’s consumption.
OR
Distinguish between ‘ nominal income and real income? Explain why due to the presence of non monetary
production, real national income on its own cannot be treated as a three index of welfare.
7. How does supply demand reversal occur? Explain its impact on environment. 3
Important Facts, Figures and Years
• India and Pakistan got independence in 1947 while People’s Republic of China was established in 1949.
• India introduced its First Five Year plan in 1951, China in 1953 and Pakistan undertook its first mid-term plan in
1956.
• India and Pakistan followed mixed economy approach while China followed socialist pattern.
• China initiated Great Leap forward in 1958.
• In 1965, Mao introduced Great Proletarian Cultural Revolution.
• China was the first of three to introduce reforms in 1978, followed by Pakistan in 1988 and then India in 1991.
• Reforms were introduced by China on its own initiative while these were forced on India and Pakistan by World
Bank and IMF.
• China’s industrial sector has maintained a high growth rate while in India and Pakistan, service sector showed a
better performance.
• China is ahead of India and Pakistan in almost all human development indices.
• India is ahead of Pakistan in fertility rate, IMR, availability of water and sanitation facilities, growth rates and HDI
ranking. While Pakistan is ahead of India in population, density of population, MMR, urbanization and poverty
reduction.
8. What is Great Leap Forward? How it helped China? 3
9. Explain any one similarity and two dissimilarities among India, China and Pakistan. 3
10. What precautions should be taken while using expenditure method for calculation of national income? 3
39
11. An increase of ` 250 crore in investment in an economy resulted in total increase in income of ` 1,000 crore.
Calculate the following: (a) Marginal propensity to consume (MPC), (b) Change in saving, (c) Change in
consumption expenditure, (d) Value of multiplier.
12. (a) Calculate ‘Net National Product at Market Price’. 3
(i) Net current transfers to abroad 10
(iii) Current transfers from government 30
(iv) Net factor income to abroad 20

(v) Net exports (–) 20
(vi) Net indirect tax 120
(vii) National debt interest 70
(viii) Net domestic capital formation 80
(ix) Income accruing to government 60
(x) Government final consumption expenditure 100
(b) Give any two examples of negative externalities. 2
OR
(a) Find out National Income. 3
(i) Net imports (–) 10
(ii) Net domestic fixed capital formation 100
(iii) Private final consumption expenditure 600
(iv) Consumption of fixed capital 60
(v) Change in stocks (–) 50
(vi) Government final consumption expenditure 200
(vii) Net factor income to abroad 20
(viii) Net current transfer to abroad 30
(ix) Net indirect tax 70
(x) Factor income from abroad 10
(b) Is retirement pension included in national income? Why? 2
13. (a) Why formal sector is better than informal sector for employment? 2
(b) Explain any two challenges in health sector in India. 3
Practice Paper– 11
[CBSE SAMPLE QUESTION PAPER–2021-22]
MM: 40 Time: 2 Hours
General Instructions:
1. This is a Subjective Question Paper containing 12 questions.
2. This paper contains 5 questions of 2 marks each, 5 questions of 3 marks each and 3 questions of 5 marks each.
5. 5 marks questions are Long Answer Type Questions and are to be answered in 80-120 words
6. This questions paper contains Case/Source Based Questions.
1. Distinguish between Final Goods and Intermediate Goods. 2

OR
Distinguish between positive externalities and negative externalities.
2. Calculate equilibrium level of income for a hypothetical economy, for which it is given that: 2
(a) Autonomous Investments = ` 500 crores, and
(b) Consumption function, C = 100 + 0.80Y
OR
Calculate Change in Income (DY) for a hypothetical economy. Given that:
(a) Marginal Propensity to Consume (MPC) = 0.8, and
(b) Change in Investment (DI) = ` 1,000 crores
3. ‘As the income increases, people tend to save more’. Justify the given statement.
4. State and discuss any two indicators that help in measuring the health status of a country. 2
OR
Compare and analyze the ‘Women Worker Population Ratio’ in Rural and Urban areas based on following
information:
Worker-Population Ratio in India, 2017-2018
Sex
Worker-Population Ratio
Total Rural Urban
Men 52.1 51.7 53.0
Women 16.5 17.5 14.2
Total 34.7 35.0 33.9
5. ‘Investment in infrastructure contributes to the economic development of a country.’ Justify the given statement
with a valid argument. 2
6. Giving valid reasons explain which of the following will not be included in estimation of National Income of
India? 3
(a) Purchase of shares of X. Ltd. by an investor in the National Stock Exchange.
(b) Salaries paid by the French housekeeping department.
(c) Compensation paid by the Government of India to the victims of floods.
OR
Estimate the value of Nominal Gross Domestic Product for a hypothetical economy, the value of Real Gross
Domestic Product and Price Index are given as respectively.
41
7. Study the following information and compare the Economies of India and Singapore on the grounds of ‘Investment
in infrastructure as a percentage of GDP’ 3
Some Infrastructure in India and other Countries, 2018
Country Investment* in
Percentage of people using safely Mobile Consumption
Infrastructure as managed Subscribers/100 of energy (ml.
a % GDP
Drinking Water Sanitation people tonnes of oil
Sources Services equivalent)
China 44 96 72 115 3274
Hong Kong 22 100 22 259 31
India 30 94 40 87 809
South Korea 31 98 100 130 301
Pakistan 16 35 64 73 85
Singapore 28 100 100 146 88
Indonesia 34 87 61 120 186
Sources: World Development Indicators 2019. World Bank website: www.worldbank.org; BP Statistical Review
of World Energy 2019. 69th Edition.
Note: (*) refers to Gross Capital Formation.
SINO-PAK FRIENDSHIP CORRIDOR
The China-Pakistan Economic Corridor (CPEC) has deepened the decades-long strategic relationship between the
two nations. But it has also sparked criticism for burdening Pakistan with mountains of debt and allowing China
to use its debt-trap diplomacy to gain access to strategic assets of Pakistan.
The foundations of CPEC, part of China’s Belt and Road Initiative, were laid in May 2013. At the time, Pakistan
was reeling under weak economic growth. China committed to play an integral role in supporting Pakistan’s
economy.
Pakistan and China have a strategic relationship that goes back decades. Pakistan turned to China at a time when it
needed a rapid increase in external financing to meet critical investments in hard infrastructure, particularly power
plants and highways. CPEC’s early harvest projects met this need, leading to a dramatic increase in Pakistan’s
power generation capacity, bringing an end to supply-side constraints that had made rolling blackouts a regular
occurrence across the country.
Pakistan leaned into CPEC, leveraging Chinese financing and technical assistance in an attempt to end power
shortages that had paralyzed its country’s economy. Years later, China’s influence in Pakistan has increased at an
unimaginable pace.
China As Pakistan’s Largest Bilateral Creditor: China’s ability to exert influence on Pakistan’s economy
has grown substantially in recent years, mainly due to the fact that Beijing is now Islamabad’s largest creditor.
According to documents released by Pakistan’s finance ministry, Pakistan’s total public and publicly guaranteed
external debt stood at $44.35 billion in June 2013, just 9.3 percent of which was owed to China. By April 2021,
this external debt had ballooned to $90.12 billion, with Pakistan owing 27.4 percent —$24.7 billion — of its total
external debt to China, according to the International Monetary Fund (IMF).
Additionally, China provided financial and technical expertise to help Pakistan build its road infrastructure,
expanding north-south connectivity to improve the efficiency of moving goods from Karachi all the way to Gilgit-
Baltistan (POK). These investments were critical in better integrating the country’s ports, especially Karachi, with
urban centers in Punjab and Khyber- Pakhtunkhwa provinces.
Despite power asymmetries between China and Pakistan, the latter still has tremendous agency in determining
its own policies, even if such policies come at the expense of the longterm socioeconomic welfare of Pakistani
citizens.
(https://www.usip.org/publications/2021/05/pakistans-growing-problem-its-china-economic-corridor - Modified)
8. Outline and discuss any two economic advantages of China Pakistan Economic Corridor (CPEC) accruing to the
economy of Pakistan. 3
9. Analyse the implication of bilateral ‘debt-trap’ situation of Pakistan vis-à-vis the Chinese Economy. 3
10. Explain how ‘Non-Monetary Exchanges’ impact the use of Gross Domestic Product as an index of economic
welfare. 3
11. ‘Monetary measures offer a valid solution to the problem of Inflationary gap in an economy’. State and discuss
any two monetary measures to justify the given statement.
12. (a) From the following data calculate the value of Domestic Income: 3
S.No. Items Amount (in ` crores)
(i) Compensation of Employees 2,000
(ii) Rent and Interest 800
(iii) Indirect Taxes 120
(iv) Corporate Tax 460
(v) Consumption of Fixed Capital 100
(vi) Subsidies 20
(vii) Dividend 940
(viii) Undistributed Profits 300
(ix) Net Factor Income from Abroad 150
(x) Mixed Income of Self Employed 200
(b) Distinguish between ‘Value of Output’ and ‘Value Added’. 2
OR
(a) Given the following data, find Net Value Added at Factor Cost by Sambhav (a farmer) producing Wheat: 3
Items (` in crore)
(i) Sale of wheat by the farmer in the local market 6800
(ii) Purchase of Tractor 5000
(iii) Procurement of wheat by the Government from the farmer 200
(iv) Consumption of wheat by the farming family during the Year 50
(v) Expenditure on the maintenance of existing capital stock 100
(vi) Subsidy 20
(b) State any two components of ‘Net Factor Income from Abroad’. 2
13. (a) ‘Pesticides are chemical compounds designed to kill pests. Many pesticides can also pose health risks to people
even if exposed to nominal quantities. ‘ In the light of the above statement, suggest any two traditional methods
for replacement of the chemical pesticides. 2
(b) ‘In recent times the Indian Economy has experienced the problem of Casualisation of the workforce. This
problem has only been aggravated by the outbreak of COVID-19.’ Do you agree with the given statement?
Discuss any two disadvantages of casualisation of the workforce in the light of the above statement. 3
Marking Scheme of CBSE Sample Question Paper 2021-22

Q.NO. ANSWERS Marks
1. Final goods refer to those goods which are used either for final consumption or for investment
purposes. Whereas Intermediate goods refer to those goods which are used either for resale or for 2
further production purposes.
OR
Positive externalities refer to benefits caused by one entity to another, without being paid for it.
Whereas Negative externalities refer to the harms caused by one entity to another without being 2
penalized for it.
2. Given Consumption function is,

C = 100 + 0.8 Y
Autonomous investments = 500 crores
We know, at equilibrium level
Y = C + I
Y = 100 + 0.8 Y + 500 ½
Y – 0.8Y = 600 ½
0.2 Y = 600 ½
Y = ` 3,000 crores ½
OR
Given Δ I = ` 1,000 crores

MPC = 0.8
As we know, Multiplier (K) =

1
=
1
=
1
= 5 times ½
1 − MPC 1 − 0.8 0.2
∆Y ½
We know K =
∆I
∆ ½
5 =
1000
DY = ` 5,000 crores ½
3. At a lower level of income, a consumer spends a larger proportion of his/her income on consumption
expenditure (basic survival requirements). As the income increases, owing to the psychological 2
behavior of a consumer (rational), people tend to consume less and save more for future uncertainty.
4. Two indicators that help to measure the health status of a country are:
(a) Infant Mortality Rate: Infant Mortality Rate (or IMR) indicates the number of children that 1
survive first year of their life.
(b) Literacy Rate: Literacy rate measures the proportion of literate population in the age group
1
of seven years or above.
OR
The data in the given table reveals that:
(a) Women constitute 16.5% of the total worker population in the economy.
(b) The number of women workers in rural areas (17.5%) are relatively higher than the women 2
workers in urban areas (14.2%). Due to the abject poverty in rural areas, rural women are
compelled to work more than their urban counterparts.
5. The given statement is true; infrastructural development in an economy increases productivity, induces
higher investment, facilitates employment, and generates more income. With the rise in income the
2
quality of life of the people improves. Thus, conclusively we may say that infrastructure contributes
to the economic development of a country.
6. Following will not be included in estimation of National Income of India:
(a) As such transactions are mere paper claims and do not lead to any value addition. 1½
(b) Compensation paid by the Government of India is mere transfer payment and does not lead to
1½
any flow of goods and services in an economy.
OR
Price index
Nominal GDP = Real GDP × 1
100
125
= 500 × 1
100
= ` 625 crores 1
7. ‘Investment in infrastructure as a percentage of GDP’ is that proportion of Gross Domestic Product
which is invested for the development of infrastructural facilities in a country.
According to the given data it is evident that India is contributing 30% of its total GDP on
infrastructural progress, which is just a notch above the corresponding figure of 28% for Singapore. 3
Considering the vast geography of India this is a relatively lower proportion in this direction. If India
wants to grow at a faster rate, she must concentrate on higher judicious investment on development
of infrastructure.
8. Economic advantages of China Pakistan Economic Corridor (CPEC) to the economy of Pakistan are:
(i) China provided financial and technical expertise to help Pakistan build its road infrastructure,
1½
supporting employment and income in the economy.
(ii) CPCE has led to a massive increase in power generation capacity of Pakistan. It has brought an
end to supply-side constraints in the nation, which had made blackouts a regular phenomenon 1½
across the country.
9. China has become famous for its ‘Debt Trap Diplomacy’ in recent times. Under this China provides
financial and technical expertise/assistance to help various nations to bring them under its direct or
indirect influence.
The first and the foremost implication of the diplomacy is that Beijing has now become Islamabad’s
3
largest creditor. According to documents released by Pakistan’s finance ministry, its total public
external debt stood at $44.35 billion in June 2013, just 9.3 percent of which was owed to China.
By April 2021, this external debt had ballooned to $90.12 billion, with Pakistan owing 27.4 percent
—$24.7 billion — of its total external debt to China, according to the IMF.
10. Non-monetary exchange transactions are not included in the estimation of Gross Domestic Product
on account of practical difficulties like non-availability of reliable data. Although these activities
3
enhance public welfare which may lead to underestimation of GDP.
For example: kitchen gardening, services of homemaker etc.
11. Two measures which may be used to solve the problem of inflation are:
(a) An increase in Cash Reserve Ratio (CRR) may reduce the credit creation capacity of the
commercial banks in the economy. This may lead to a fall in the borrowings from banks causing
2½
a fall in Aggregate Demand in the economy, and helps to correct the inflationary gap in the
economy.
(b) Sale of Government Securities in the open market by the Central Bank will adversely affect
the ability of the Commercial Banks to create credit in the economy. As a result Aggregate 2½
Demand in the economy may fall and correct the inflationary gap in the economy.
12. (a) Domestic Income (NDP@fc) = (i) + (ii) + (iv) + (vii) + (viii) + (x) 1
= ` 2000 + ` 800 + ` 460 + ` 940 + ` 300 + ` 200 1
= ` 4,700 crore 1
(b) Value of output is the estimated money value of all the goods and services, inclusive of change
in stock and production for self-consumption. Whereas, Value added is the excess of value of 2
output over the value of intermediate consumption.
OR
(a) Net Value Added at Factor Cost (NVA @ FC) = (i) + (iii) + (iv) + (vi) – (v) 1
= ` 6800 + ` 200 + ` 50 + ` 20 – ` 100 1
= ` 6,970 crore 1
(b) Component of net factor income from abroad are:
(i) Net compensation of employees
2
(ii) Net income from property and entrepreneurship
(iii) Net retained earnings of resident companies abroad (any two)
13. (a) The traditional practices can help in controlling contamination without the use of chemical
fertilizers, as follows:
(i) Neem trees and its by products are a natural pest-controller, which has been used since
ages in India. Recently, the government promoted the sale Neem coated urea as a measure 2
of natural pest control.
(ii) Large variety of birds should be allowed to dwell around the agricultural areas, they can
clear large varieties of pests including insects
(b) The given statement is quite appropriate with reference to the ‘casualisation of labour’ in India.
(i) For casual workers, the rights of the labour are not properly protected by labour laws.
Particularly, during pandemic times, as demand for goods and services fell the casual
workers were left jobless, without any compensation or support.
3
(ii) During the COVID-19 lockdown millions of casual workers lost their jobs, raising the
question of their survival. Also, additional health expenditure added to their troubles. Had
such workers been working under the formal sector, it would have given them some respite
in their difficult times.
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Economics-XII (Term-2) based on the latest Sample Question Paper

Features of Sample Papers

• Designed exclusively to test the knowledge and preparation level of students.

UNSOLVED SAMPLE PAPERS

3 7 Unsolved Practice Papers

3 CBSE Sample Question Paper 2021-22 (Term-2)

TERM 2 – SUBJECTIVE QUESTION PAPER Marks Periods

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1. Categorise the following into stock and flow with reasons. 2

(ii) So, in case of two sector economy, we derive the following:

General Instructions: Same as Practice Paper-1

General Instructions: Same as Practice Paper-1

Increase in Varying Reserve Requirements or Legal Reserve Ratio

General Instructions: Same as Practice Paper-1

8. What are the reasons of highest life expectancy in China? 3

General Instructions: Same as Practice Paper-1

1. What is macroeconomics? Explain. 2

12. (a) Calculate National Income. 3

General Instructions: Same as Practice Paper-1

1. Describe real flow and money flow. 2

12. (a) Calculate the Net Domestic Product at factor cost. 3

General Instructions: Same as Practice Paper-1

1. What are the economic problems which are studied in macroeconomics? 2

Selected Demographic Indicators 2000-01

General Instructions: Same as Practice Paper-1

1. Explain how inflation is the subject matter of Macroeconomics? 2

(vi) Change in stocks (–) 20

General Instructions: Same as Practice Paper-1

1. How employment problem is related to macroeconomics? 2

General Instructions: Same as Practice Paper-1

1. Explain intermediate goods and final goods? 2

(iv) Net factor income to abroad 20

1. Distinguish between Final Goods and Intermediate Goods. 2

Marking Scheme of CBSE Sample Question Paper 2021-22

2. Given Consumption function is,

Y = 100 + 0.8 Y + 500 ½

Given Δ I = ` 1,000 crores

As we know, Multiplier (K) =

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1. Categorise the following into stock and flow with reasons. 2

8. What are the reasons of highest life expectancy in China? 3

1. What is macroeconomics? Explain. 2

12. (a) Calculate National Income. 3

1. Describe real flow and money flow. 2

12. (a) Calculate the Net Domestic Product at factor cost. 3

1. What are the economic problems which are studied in macroeconomics? 2

1. Explain how inflation is the subject matter of Macroeconomics? 2

1. How employment problem is related to macroeconomics? 2

1. Explain intermediate goods and final goods? 2

1. Distinguish between Final Goods and Intermediate Goods. 2