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Class 12 - Economics
Term-2 Sample Paper - 09

Maximum Marks: 40
Time Allowed: 2 hours

General Instructions:

This is a Subjective Question Paper containing 13 questions including two sub-parts of Q. No. 8.
This paper contains 5 questions of 2 marks each, 5 questions of 3 marks each and 3 questions of 5
marks each.
2 marks questions are Short Answer Type Questions and are to be answered in 30-50 words.
3 marks questions are Short Answer Type Questions and are to be answered in 50-80 words.
5 marks questions are Long Answer Type Questions and are to be answered in 80-120 words.
This question paper contains Case/Source Based Questions.

Section A
1. Money flows are opposite to real flows. How?

OR

Distinguish between final goods and intermediate goods. Give an example of each.
2. If planned saving is less than planned investment, what changes will bring an economy in equilibrium?
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OR

Does an excess of AD over AS always imply a situation of inflationary gap? Explain.

3. Calculate Marginal Propensity to Consume from the following:
Equilibrium income = Rs. 350
Consumption expenditure at zero income = Rs. 20
Investment = Rs. 50.
4. Compared to females, more males are found to be working. Why?

OR

What is unemployment? What are the most common types of unemployment found in India?
5. How are the rates of consumption of energy and economic growth connected?
6. Find Gross Value Added at Factor Cost.
S.no. Contents Rs. (in Crores)

(i) Units of Output Sold 2,000

(ii) Price Per Unit of Output 20

(iii) Depreciation 2,000

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(iv) Change in Stock (-) 500

(v) Intermediate Cost 15,000

(vi) Subsidy 3,000

OR

Find Net National Product at Market Price.

S.no. Contents (Rs. in Crores)

(i) Personal Taxes 200

(ii) Wages and Salaries 1,200

(iii) Undistributed Profit 50

(iv) Rent 300

(v) Corporate Tax 200

(vi) Personal Income 2,000

(vii) Interest 400

(viii) Net Indirect Tax 300

(ix) Net Factor Income from Abroad 20

(x) Profit 500

(xi) Social Security Contribution by Employers 250

7. What is meant by economic infrastructure? Explain its importance in economic development.
8. Read the following text carefully and answer the questions given below:

Pakistan Faces a Long Road to Sustainable Growth

At the turn of the century, Pakistan had the highest GDP per capita when compared with India,
Bangladesh, and Vietnam. Twenty years later, it is at the bottom of the group. Political upheaval, a
violent insurgency fed by the war in Afghanistan, and the inability of successive governments to carry
out reforms are to blame for this decline. Today, a polarized political environment and elite intrigue
among civilian, judicial, and military institutions have made sustainable economic growth and reforms
that much more unlikely. The COVID-19 pandemic has further sharpened the challenge.
Inflation is still the biggest issue facing the government today. Headline inflation climbed to 9 percent
in September 2020 and double-digit food inflation continues to erode citizens’ purchasing power. This
has worsened the situation for millions of households who have seen a decline in their purchasing
power since 2016, according to data from the Pakistan Bureau of Statistics. In its most recent monetary
policy statement, the State Bank of Pakistan raised its concerns as well, warning that while “core
inflation has been relatively stable,” food inflation remains a risk, “especially in the wake of recent
flood-related damages and potential locust attacks.” With households spending a larger share of their
incomes on food—an emerging wheat crisis is compounding problems—consumption spending on
other items will remain subdued, leading to a lack of economic growth in a country where consumer
spending drives more than 80 percent of the economy.
At the same time, a weak economic recovery around the world, particularly in the European Union and

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the United States, will subdue demand for Pakistan’s exports. After declining by 20 percent on a year-
on-year basis in August, exports grew by 6 percent in September. The outlook, however, remains bleak
due to a weak global economic recovery. The issue has been further exacerbated by chronic structural
inefficiencies — exporters who received additional orders in recent weeks are facing gas and cotton
shortages. This means export growth is unlikely to drive a significant uptick in economic activity and
employment. As a result, the structural issue with Pakistan’s economy, i.e., its inability to earn
sufficient foreign income to pay for its import and debt servicing needs, remains its Achilles’ heel.
Questions:

i. Discuss the underlying problem with Pakistan's sustainable growth?

ii. Anticipate the outcome of Pakistan’s foreign income vis-à-vis its export growth.
9. Explain the role of Bank rate in influencing the availability of credit in an economy.
10. Distinguish between excess demand and deficient demand.
11. Answer (i) & (ii) OR (iii) & (iv) of the following questions. (3+2 = 5 Marks)
a. Calculate Gross National Product at Market Price from the given details.
S.no. Contents (₹ in Crores)

(i) Rent 100

(ii) Net Current Transfers to Rest of the World 30

(iii) Social Security Contributions by Employers 47

(iv) Mixed-Income 600

(v) Gross Domestic Capital Formation 140

(vi) Royalty 20

(vii) Interest 110

(viii) Compensation of Employees 500

(ix) Net Domestic Capital Formation 120

(x) Net Factor Income from Abroad (-) 10

(xi) Net Indirect Tax 150

(xii) Profit 200

b. How is net export different from net factor income from abroad?
c. Find Net Value Added at Market Price.
S.no. Contents Rs. (in (Crores)

(i) Output Sold (units) 800

(ii) Price Per Unit of Output 20

(iii) Net Change in Stock (-) 500

(iv) Depreciation 1,000

(v) Intermediate Cost 8,000

d. Should the following be treated as a normal resident of India? Give a reason for your answer.
i. Foreigner working in the Indian embassy in Taiwan.

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ii. Indian working in Asian Development Bank in Philippines.

iii. Indian student in USA who has been living there for five years.
12. Answer the following questions. (2+3 = 5 Marks)
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a. Environmental problems arise due to overuse and misuse of environmental resources. Explain.
b. One of the important aspects of the unemployment problem in India is that there are fewer
employment opportunities for women. You have been asked to suggest measures for increased
employment opportunities for women.

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Class 12 - Economics
Term-2 Sample Paper - 09

Solution

Section A
1. Money flows are opposite to real flows. Because money flows are in response to the real flows
Example: There is a real flow of goods and services from the producers to the households. It is in
response to it, that the households make payments to the producers. So, money flows from households
to producers in terms of consumption expenditure. Likewise, there is a real flow of factor services from
households to producers. It is in response to it, that the producers make payments to the households.
So, money flows from producers to the households in term factor payments.

OR

Differences between intermediate goods and final goods are (any three)
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Basis Intermediate goods Final goods

Intermediate goods refer to those goods which Final goods refer to those goods which
Meaning are used either for resale or for further are used either for consumption or for
production in the same year. investment.

These goods are not resold by the firms

These goods may be resold by the firm s to
Purpose to make profits during an accounting
make profits during an accounting year.
year.

These goods remain within the boundary line These goods are outside the boundary
Production
of production and are not ready for use by line of production and are ready for
boundary
their final users. use by their final users.

They have a derived demand as their demand They have a direct demand as they
Demand
depends on the demand for final goods. satisfy the wants directly.

i. A microwave oven sold to

i. Steel used in the production of cars.
Examples consumers.
ii. Milk purchased by a dairy shop
ii. Milk purchased by households
2. AD = AS
C + I = C + S
I = C + S -C = S
i. when planned saving is less than planned investment, then national income will decrease as
shown in the below diagram.

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ii. When, investment > saving [at Y1], then production will have to be increased to meet the excess
demand. Consequently, national income will increase leading to rise in saving until saving
becomes equal to investment. It is here that equilibrium level of income is established because
what the savers intend to save becomes equal to what the investors intend to invest.

OR

Yes, Inflationary gap is a consequence of excess demand. Excess demand is a situation in which actual
AD is more than the AD required at full employment level of equilibrium.
(AD is more than AS corresponding to full employment level of equilibrium.)
3. Given National Income Y = Rs. 350, Investment, I = Rs. 50; = Rs. 20
Now, Y = C + bY + I
350 = 20+ b(350) + 50
350 = 70+ b (350)
350 -70 = b (350)
280 = b (350),
MPC = b = 0.8. Therefore Marginal Propensity to Consume is equal to 0.8
4. Compared to females, more males are found to be working because:
(a) 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.
(b) Many of the household activities that are done by women are not recognised as work.
(c) Skill requirement is also a reason.

OR

Unemployment is a situation in which the people who are willing to work at the prevailing wages are
unable to find jobs. The most common types of unemployment found in India are:
i. Seasonal Unemployment: This type of unemployment takes place when people are not able to
find jobs during some months of the year. The situation of seasonal unemployment arises mainly
in the agricultural sector people are busy during sowing, harvesting, weeding and threshing.
However, there are certain months in which they do not get much work.
ii. Disguised Unemployment: In disguised unemployment, more than required persons are
engaged in a job. This type of unemployment usually happens among family members engaged in
agricultural activity.
5. Electricity is one of the most critical infrastructure that determines economic development of a
country. Rate of consumption of energy is directly related to the rate of economic growth. The growth
rate of demand for power is generally higher than GDP growth rate. As studies have revealed that in

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order to have 8% GDP growth rate per annum, power supply needs to grow at around 12% annually.
This reveals that the rates of consumption of energy and economic growth are correlated.
6. Gross Value Added at Factor cost
Sales= Output×Price
=2,000×20
=40000.
Value of Output=Sales+Change In Stock
= 40,000+(-500)
= 39500.
GVAmp= Value of output- Intermediate Cost.
= 39500-15,000
= 24,500.
NVAmp=GVAmp-Depreciation.
= 24,500-2000
= 22,500.
NVAfc= NVAmp-Net Indirect Taxes.
= 22,500-(-3000)
= 25,500 crores.

OR

Net National Product at Market Price is calculated as:

NNPmp= Wages and Salaries + Social Security Contribution by Employers + Rent + Interest + Profit + Net
Factor Income from Abroad + Net Indirect Tax.
= 1,200 + 250 + 300 + 400 + 500 + 20 + 300
= Rs. 2,970 crores.
To get a national product, we add net factor income from abroad and to get the national product at
market prices we add net indirect taxes.
7. Economic infrastructure refers to economic facilities and services which support an economic system
to work efficiently. The following items are included in the economic infrastructure: (i) Transport (ii)
Communication (iii) Energy (iv) Irrigation.
The importance of economic infrastructure in economic development is great. Economic infrastructure
facilitates the functioning of the economy. For example, transport moves men, machines, and materials
from place to place for production, as also for consumption and investment. Larger the infrastructural
facilities, the bigger the opportunities for producers to produce more and invest more.
Economic infrastructure promotes development. Infrastructure is itself a component of the capital
stock of society. Infrastructure helps production by linking the production-points with input supplies
including labour. Trade also gets expanded thereby raising the national output.
The economy needs a reliable infrastructure to connect supply chains and efficiently move goods and
services across borders. Infrastructure connects households across metropolitan areas to higher
quality opportunities for employment, healthcare and education. Clean energy and public transit can
reduce greenhouse gases.
8. i. Scholars opine that political instability, over-dependence on remittances, and foreign aid along
with the volatile performance of the agriculture sector are the reasons for the slowdown of the
Pakistan economy. Besides, the COVID-19 pandemic and restrained exports have been
instrumental in abating the sustainable growth of the country. Inflation is still the biggest issue

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that the government faces even today. This has worsened the situation for millions of households
who have seen a decline in their purchasing power. Other issues caused due to natural
phenomenon like flood-related damages and potential locust attacks further exacerbates the
situation.
ii. If a country can build up its foreign exchange earnings by sustainable export of manufactured
goods, it need not worry. In Pakistan, most foreign exchange earnings came from remittances from
Pakistani workers in the Middle-east and the exports of highly volatile agricultural products.
Moreover, the economy has been suffering instability due to various reasons.
a. Weak Economic Recovery: There was a growing dependence on foreign loans on the one
hand and increasing difficulty in paying back the loans on the other. The weak economic
recovery around the world, particularly in the European Union and the United States, has
subdued demand for Pakistan’s exports. The outlook, however, remains bleak due to a weak
global economic recovery. After declining by 20 percent on a year-on-year basis in
August, exports grew by 6 percent in September.
b. Structural inefficiencies: The chronic structural inefficiencies have worsened the
condition. The exporters who received additional orders in recent weeks were facing input
(gas and cotton ) shortages. This means export growth is unlikely to show an upward trend in
economic activity and employment. As a result, the structural issue with Pakistan’s economy,
i.e., its inability to earn sufficient foreign income to pay for its import and debt servicing needs,
remains its shortcoming.
9. 1. Bank rate is the rate at which central bank lend money to commercial banks to meet their long
term needs.
2. RBI actively uses bank rate to control credit creations.
3. EFFECT:
4. In case of inflation, Central Bank increases Bank Rate.
5. This results in increased rate of interest recovered by commercial banks, which discourages
borrowing.
6. As a result Consumption and AD falls and there is reduction in inflationary gap.
7. In case of deflation, Central Bank decreases Bank Rate.
8. This results in decrease in rate of interest, which encourages borrowing.
9. As a result Consumption and then AD rises and there is reduction in deflationary gap.
10. Deficient demand and excess demand can be distinguished from each other in the following manner:
(i) Deficient demand is a situation, which occurs due to excess of aggregate supply of output over the
aggregate demand for output at the level of full employment. On the other hand, excess demand is a
situation, which occurs due to the excess of aggregate demand for output over the supply of output at
the level of full employment.
(ii) Deficient demand generates a deflationary gap. But excess demand generates an inflationary gap.
(iii) Deficient demand leads to a fall in output, employment, and price level. But excess demand leads
only to an increase in the price level. Between the two – excess demand and deficient demand, the
latter is worse.
11. Answer (i) & (ii) OR (iii) & (iv) of the following questions. (3+2 = 5 Marks)
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a. By income method:
NDP at FC= compensation of employees+ operating surplus+ mixed income

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Net Domestic Product at Factor Cost (NDPFC)

= Rent + Mixed Income + Royalty + Interest + Compensation of Employees + Profit

= 100 + 600 + 20 + 110 + 500 + 200
= ₹ 1,530 crores
Gross Domestic Product at Market Price (GDPmp)

= NDPFC + Depreciation + Net Indirect Tax

= 1,530 + 20 + 150
= ₹ 1,700 crores
Gross National Product at Market Price (GNPmp)
= GDPmp + Net Factor Income from Abroad
= 1,700 + (-10)
= ₹ 1,690 crores
*NOTE:
Depreciation = Gross Domestic Capital Formation - Net Domestic Capital Formation i.e, 20 (140 -
120)
b. Net export refers to the difference between exports and imports during an accounting year.
Net Exports = Exports - Imports
Net factor income from abroad refers to:
Factor income earned by our residents from the rest of the world - Factor income earned by non-
residents from the domestic territory of our country.
c. Sales = Output Sold ( units) Price Per Unit of Output
Sales = 800 20
= Rs. 16,000 crores
Now, Value of Output = Sales + Net Change in Stock
Value of output = 16,000 + (- 500)
= Rs. 15,500 crores
Now, Gross Value Added at Market Price
(GVAmp) = Value of Output - Intermediate Cost
(GVAmp) = 15,500 - 8,000
= Rs. 7,500 crores
Hence, Net Value Added at Market Price is given by:
(NVAmp) = GVAmp - Depreciation
= 7,500 - 1,000 crores
= Rs. 6,500 crores
d. i. Foreigner working in the Indian embassy in Taiwan is not a normal resident of India.
Reason: He is not normally residing in India, and his centre of interest does not lie in.
ii. Indian working in Asian Development Bank in the Philippines is a normal resident of India.
Reason: His centre of interest lies in India.
iii. Indian student in the USA who has been living there for five years is a normal resident of India
Reason: His centre of interest lies in India. Also, as a rule of thumb, students studying abroad
(no matter for how long) are treated as normal residents of the country they belong to.
12. Answer the following questions. (2+3 = 5 Marks)
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use Examin8 App to create similar papers with their own name and logo.
a. a. Overuse of Environmental Resources- Environmental problems have arisen due to the
excessive exploitation of natural resources. Following are the examples :
i. Extraction of groundwater recklessly.
ii. Use of land for housing, factories, etc. leading to deforestation.
iii. Excessive exploitation of fossil fuels
b. Misuse of Environmental Resources- Environmental problems have arisen due to the misuse of
natural resources. Following are the examples:
i. Use of chemical fertilisers, pesticides, etc.
ii. Industrial waste streaming into the rivers.
iii. Use of wood as a household fuel
b. Though the gaps in higher education and gender pay are shrinking, the number
of women in employment is still waning. I shall suggest the following for increased employment
opportunities for women:
i. Removal of Bias against Women- There persists a bias in the minds of employers against
the employment of women. Employers should be induced and encouraged to overcome this
type of bias.
ii. Educational Opportunities- Education and training opportunities for women should be
made more easily accessible. The government and NGOs should make serious efforts in this
direction.
iii. Facilities- There should be much more facilities of creches and childcare during the working
hours of mothers. Residential accommodation for working women should be increased.
iv. Public Opinion- There should be large scale publicity and building of public opinion in
favour of the employment of women. People should be educated to shed the traditional bias
against female education, training and work away from home.

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