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Table of Contents
INTRODUCTORY MACRO ECONOMICS
Q.1 Read the following statements: Assertion (A) and Reason (R). Choose the correct option from those given below:
Assertion (A): The government can reduce the deflationary gap by purchasing government securities in the open market.
Reason (R): The Central Bank purchases government securities in the open market to increase the lending capacity of commercial banks.
Options:
A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
B. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
C. Assertion (A) is true, but Reason (R) is false.
D. Assertion (A) is false, but Reason (R) is true.
Ans: Option D is correct
Explanation: Assertion is wrong as government does not indulge in the sale and purchase of government securities. Rather, it is done by the Central Bank (RBI in case of India) on behalf of the government.
In India, as a monetary policy instrument, RBI uses Open Market Operations to undertake sale and purchase of the government securities. Commercial Banks, along with other entities like Financial institutions, Primary dealers, Corporate entities, Individuals, Foreign investors, Insurance companies, Co-operative banks, Regional Rural Banks and Provident Funds participate in RBI’s Open Market Operations.
When RBI purchases the government securities from Commercial Banks, it has to pay money to Commercial Banks which can increase availability of loanable funds/reserves with them. In this way, their lending capacity can increase. Now, Commercial Banks can use this increased lending capacity to infuse more liquidity in the economy by way of giving more loans to businesses and general public.
Q.4 Under the _______ exchange rate system, market forces automatically adjust the surplus and deficit in the Balance of Payments account.
(Choose the correct option to fill up the blank)
Ans: The correct answer is ‘flexible/floating’
Explanation: Under the Flexible/Floating Exchange Rate System, equilibrium Foreign Exchange Rate (FER) is determined by the market forces of demand and supply of foreign exchange. There is no government intervention in determining the FER. This system of determining FER automatically adjusts the surplus and deficit in the Balance of Payment in the following ways:
1. Adjustment in case of BoP Surplus: BoP surplus happens when a country’s all types of exports exceed its all types of imports. Other things remaining same, here we can say that it is a situation of Supply of Foreign Exchange (currency) being more than the Demand for Foreign Exchange. Consequently, Foreign currency may start to depreciate and local currency to appreciate. Appreciation of local currency will make exports costlier and imports cheaper. Resultantly, imports will increase and exports will decrease, bringing equilibrium between exports and imports. Hence, the imbalance in BoP, surplus in this case, will be corrected.
2. Adjustment in case of BoP Deficit: BoP deficit happens when a country’s all types of exports are less than its all types of imports. Other things remaining same, here we can say that it is a situation of Supply of Foreign Exchange (currency) being less than Demand for Foreign Exchange. Consequently, Foreign currency may start to appreciate and local currency to depreciate. Depreciation of local currency will make exports cheaper and imports costlier. This will now increase exports and decrease imports, bringing equilibrium between exports and imports. Hence, the imbalance in BoP, deficit in this case, will be corrected.
Q.5 Under the Keynesian theory, ‘Reference Line’ is a straight line passing through the origin drawn at an angle of _____.
(Choose the correct option to fill up the blank)
A. 25 B. 45 C. 55 D. 75
Ans: Option B is correct.
Explanation: In Keynesian Model determination of Income and Employment, a straight line of 45 degrees originating from the origin point O is called Reference line. This line makes an angle of 45 degree due to the assumption that aggregated supply is equal to National Income/GDP. Whenever National Income increases, Aggregate Supply increases proportionally. This is due the assumption of additional production capacity in the economy under the Keynesian Model.
A. revenue B. fiscal
Q.7 Read the following statements carefully:
Statement 1: The maximum value of Marginal Propensity to Consume (MPC) can be unity.
Statement 2: As the income of an economy increases, the proportionate increase in the level of consumption is always more than the increase in the level of income.
In light of the given statements, choose the correct option from the following:
A. Statement 1 is true and Statement 2 is false.
B. Statement 1 is false and Statement 2 is true.
C. Both Statements 1 and 2 are true.
D. Both Statements 1 and 2 are false.
Ans: Option A is correct.
Explanation: Statement 1 is true in case when all the additional income is consumed. However, statement 2 is incorrect as proportionate increase in consumption is never more than the increase in the level of income. We can understand this concept with the help of an example. Suppose, a person’s income is Rs. 2000 and his consumption is Rs. 1600. Now, income of the person increases by Rs. 1000/-. We know that MPC is proportion of additional/increased income that a household/person is likely to spend on consumption. Note that the focus is on proportion of increased income not on total income. So, the person can increase his consumption either equal to Rs. 1000/- or less than Rs.1000/-, not more than this amount in any case.
Q.9 Read the following statements carefully:
Statement 1: Foreign grants-in-aid receipts do not lead to any claim on the government.
Statement 2: Disposal of equity by the Public Sector Undertakings in the market may lead to a decrease in the assets of the government.
In light of the given statements, choose the correct option from the following:
A. Statement 1 is true and Statement 2 is false.
B. Statement 1 is false and Statement 2 is true.
C. Both Statements 1 and 2 are true.
D. Both Statements 1 and 2 are false.
Ans: Option C is correct.
Explanation: Foreign Grants in aid are given for specific projects. They do not create any repayment liability upon the government. However, the grantor can require the recipient government to furnish progress report of the program/project for which grant in aid has been provided.
Public Sector Undertaking are assets to the government. Whenever, equity (ownership) of PSU is disposed off in the market, government assets decrease.
Q.10________ indicates the situation of Current Account Deficit in the Balance of Payments Account.
A. Receipts > Payments on current account
B. Receipts = Payments on current account
C. Receipts < Payments on current account
D. Receipts < Payments on capital account
Ans: Option C is correct.
Explanation: Deficit in Current Account of Balance of Payments Account occurs when Payments on Current Account are greater than the Receipts on Current Account. Suppose, Receipts on Current Account are USD 100 billion and Payments on Current Account are USD 120 billion, then, there would be a deficit of USD 20 billion in Current Account.
Q.11 On the basis of the given data, estimate the value of Domestic Income (NDP at FC):
Answer:
Domestic Income (NDP at FC) = i + iv + ii + iii + vii + vi – v – x – viii = 800+170+150+120+500+140–20 – 40 – 70 = ₹ 1,750 crore
Explanation: From the above dataset, it is clear that we should use Expenditure Method for calculating NDP at FC.
In the expenditure method, we add all the components of final expenditure in an economy to get GDP at Market Price. Then, we can calculate other National Income aggregates.
Final Expenditure Components as below:
1. Private Final Consumption Expenditure (Household Consumption Expenditure in the above question)
2. Government Final Consumption Expenditure
3. Gross Domestic Capital Formation/Investment Expenditure
A. Gross Domestic Fixed Capital Formation/Fixed Investment – it includes –
a. Gross Business Fixed Capital Formation
b. Gross Residential Construction Investment
c.Gross Public/Government Fixed Investment (Gross Public Investment in above question)
B. Inventory Investment or Change in Stock = Closing Stock minus Opening Stock
4. Net Export = (Export – Import) – In the above question Import is greater than Export, then we will take it as (-20) while solving the sum as sign of minus is not added in the question.
Now, based on our component of Expenditure Method we first calculate GDP at Market Prices.
Q.11 State the steps pertaining to the estimation of National Income under the income method.
Answer: Income method is one the three methods of calculating National Income. In this method, we add the earned income/factor income by all the residents/factors of production within domestic territory of a country.
The steps involved in this method are as below:
1. In the first steps, we identify the sector of production into Primary, Secondary and Tertiary Sector.
2. Next, we classify income earned in these sectors as:
a. Compensation to Employees
b. Operating Surplus (Rent + Interest + Profit)
c. Mixed Income
By adding all types of earned income, we get NDP at FC. To further calculate National Income (NNP at FC), we have to add Net Factor Income From Abroad in NDP at FC.
Q.12 “Tax revenue collection of the government may be categorized under two heads.”
State and explain the two heads of tax revenue.
Answer: Tax revenue collection of the government may be categorized under following two heads:
1. Direct Taxes: These taxes are such taxes whose impact and incidence lie upon the same person/organization on which these are levied. Burden of such types of taxes cannot be shifted upon another person/organization. Example – Income Tax –burden of this tax is born by the person on whom it is levied.
2. Indirect Taxes : These taxes are such taxes whose impact and incidence fall upon different persons/organisations. Burden of such taxes can be shifted to another person/organization. Example- Goods and Value Added Taxed – Though it is levied on each stage of value addition in the supply chain, the whole burden of tax is born by the final consumer not by the producer or supplier of the goods & services in the supply chain.
Q.13 (I)‘Foreign Portfolio Investment (FPI) witnessed a sharp turnaround during 2023-24 with net FPI inflows of US$ 32.4 billion.’
In which sub-account and on which side of the Balance of Payments account the above transaction will be recorded? Give reasons in support of your answer.
Answer: Net inflow of Foreign Portfolio Investment is an item of Capital Account of Balance of Payment Account because it affects ownership of financial assets. Moreover, it will be recorded under the Credit Side of Capital Account as all the inflows in a country are recorded on credit side of an account in Balance of Payment Account of that country.
Q.13 (II) State the meaning of ‘Balance of Payments Deficit’.
Answer: Balance of Payments Deficit occurs when inflow receipts into a country are less than the outflow payments to rest of the world. The receipts and payment are autonomous in nature.
Q. 14 (A) “Saving curve can be derived from the consumption curve” Justify the statement, citing valid steps with the help of a well-labelled diagram.
Answer: Given consumption curve (C) intersecting 45 degree line at B (Break-even level of income). Steps for derivation of saving curve from the consumption curve are as follows:
1. We first take OA on the negative intercept on Y-axis which is equal to OC (Autonomous consumption) the positive intercept on Y-axis.
2. Then we get point B’ on OX axis which comes as a result of perpendicular from point B. On this point, Consumption is equal to National Income and saving is Zero.
3. After that, we join the point A to point B’ extending the line further till point S to get the saving curve.
OR
Q. 14 (B) For two hypothetical economies A and B, the value of Marginal Propensity to Consume (MPC) stands at 0.6 and 0.8 respectively. Assuming for both the economies, Autonomous Consumption (c¯) to be Rs 40 crore and Investment Expenditure (I) to be Rs. 100 crore.
Calculate:
(I) Break-even level of income for Economy A
(II) Equilibrium level of income for Economy B
Answer:
Given that-
Autonomous Consumption = Rs. 40 Crore
Investment expenditure (I) = Rs. 100 crore
For economy A, Marginal Propensity to Consume (MPC) = 0.6
For economy B, Marginal Propensity to Consume (MPC) = 0.8
We know that
C = c¯ + bY
C = 40 +0.6Y
Now based on above data-
1.Break-even level for economy A is when
Y = C
then
Y= 40 + 0.6Y
0.4Y = 40
Y= Rs. 100 crore
2. Equilibrium level of income for economy B
At equilibrium
Y= C + I
Then
Y= c ̅ + (MPC) x Y + I
Y= 40 + 0.8Y + 100
(c ¯ = 40, and I = 100)
Y-0.8Y = 140
0.2Y = 140
Y = 140/0.2
Y= Rs. 700 crore
Q. 15 Read the following text carefully:
“Union Finance Minister stated, that investments in infrastructure and productive capacity have a large multiplier impact on growth and employment and in view of this, capital investment outlay is being proposed to increase steeply in the Budget 2023-24 by 1,000 crore.”
Based on the given text and common understanding, explain the working process of the increase in investment on the National Income, assuming the Marginal Propensity to Save (MPS) as 20%.
Answer: The investment multiplier effect increases the National Income manifolds. However, working of Investment Multiplier effect depends upon Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS). Moreover, this effect is based on the assumption that expenditure of one person is income of another person. In view of this, we can understand the working process of the increase in investment on the National Income through the table given below:
In the above table, the initial investment is Rs. 1000 crores which automatically increases Income by Rs. 1000 crores. Now, since the MPS is 20% and MPC is 80%, Rs. 200 crores will be saved and Expenditure on Consumption would be Rs. 800 crores. As we know that somebody’s expenditure is somebody’s income, in the next round, increase/change in Income will be Rs. 800 crores of which Rs. 640 will be expenditure on consumption and Rs. 160 would be save. Again in the next round, expenditure on consumption will stimulate change in income by Rs. 640 crore of which Rs. 512 will be expended and 128 would be saved. This process will go one until total change in Income is Rs. 5000 crores that is five times the change in investment. This is because the value of Investment Multiplier is 5 which can be calculated as below:
k = 1/MPS = 1/20% = 5
or
k = 1/1-MPC = 1/1-0.8 – 1/0.2 = 5.
Q.16 Read the following text carefully:
As societies developed from hunters and gatherers, the material needs of human beings increased – to build a house, wear clothes, make weapons and implements etc. Since these needs could not be produced individually, people had to purchase them from others. These purchases, for example, were paid initially by barter – a leather skin cloak for a spear. As barter had its limits – how many cloaks for a spear – barter got standardized in terms of metals or cowrie shells. Now people knew the value of both the cloak and the spear in terms of bronze or cowrie shells. This was still barter, as both bronze and shells had intrinsic value (shells were desired for their beauty). This system evolved over time into metal currencies. Gold and silver coinage were the offshoot of this system where they had features of barter (both gold and silver had intrinsic value) as well as money (they were standardized representation of value).
In respect of money two facts emerge historically:
• Money has taken the form of either commodities (which have intrinsic value) or in terms of debt instruments
• Money is usually issued by a sovereign (or a Central Bank as its representative).
In modern economies, currency is a form of money that is issued exclusively by some competent authority (Central Bank). It is a liability of the issuing Central Bank and an asset of the holding public. Currency is usually issued in paper (or polymer) form, but the form of currency is not its defining characteristic.
In the recent past, the Reserve Bank of India, issued Central Bank Digital Currency (CBDC). A CBDC is the currency issued by a central bank in a digital form. It serves all the purposes of a paper currency in a different form. The introduction of CBDC has the potential to provide significant benefits, such as reduced dependency on cash, lower transaction costs, reduced settlement risk. Introduction of CBDC would possibly lead to a more robust, efficient, trusted, regulated payments option. There are associated risks such as cyber-attacks and technology preparedness, but they need to be carefully evaluated against the potential benefits.
On the basis of the given text and common understanding, answer the following questions:
(I) “Over the centuries, money has evolved in various forms.”
In the light of the given statement, state and discuss briefly any two forms of money.
Answer: Over the centuries, two main forms of money are as below:
1. Metal Money: Metals like Gold and Silver have been used for millennia as a form of money. In the form of money, coins of these metals were used. They have features of barter system as they have intrinsic value. Moreover, they acted as money being a standardized representation of value.
2. Paper Currency: It is issued by the Central Bank of a country, RBI in case of India. In modern times, we can make transactions of goods and services by using paper currency as a medium of exchange. No one can deny accepting payment in currency as they are issued by the government/central bank. It is a liability of the issuing Central Bank and an asset of the holding public.
(II) “Various economists have formed a strong opinion that, in the modern times digital currency (like CBDC) is quite essential. However, it comes with its own benefits and potential risks.”
Do you agree with the given statement, giving valid arguments in support of your answer.
Answer: Yes, I agree with the given statement. Digital currency like CBDC has its own benefits and risks as given below:
Benefits: Digital currency like Central Bank Digital Currency (CBDC) may lead to reduced dependency on cash, lower transaction costs, reduced settlement risk. Introduction of CBDC would possibly lead to a more robust, efficient, trusted, regulated payments option.
Risk: Digital Currency may face risks of cyber-attacks.
Q.17 (A) (I) On the basis of the following hypothetical data and Calculate the percentage change in Real Gross Domestic Product in the year 2023 using 2020 as the base year.
(all figures in Rs. crore)
Answer:
Percentage change in Real GDP = Change in Real GDP X 100 /Real GDP of 2020
= (4,500 – 4,000) x 100 / 4,000 = 5000/4000
= 12.5 %
(II) “The public investment on the construction of a multi-lane flyover may reduce traffic congestion.”
On the basis of the above statement, discuss its likely impact on Gross Domestic Product (GDP) and welfare in an economy.
Answer: Investment in construction will impact GDP and welfare in followings way:
1. Investment will have a positive impact on GDP. Investment will stimulate increase in GDP. The investment multiplier effect may increase GDP many folds.
2. Due to construction of flyover, different types of workers would get employment. Thus employment will increase which will further increase GDP.
3. An alternate and smooth mode of transport may reduce cost of transportation which may increase production and sales of vehicles in that area.
4. An alternate mode of transport may reduce problem of jams, reduce travel time and transportation cost. In this way, it will increase welfare of people.
OR
Q.17 (B) (I) “Basis of classification of final goods into consumption and capital goods depend on the economic nature of its use.”
Defend or refute the statement, with the help of a suitable example.
Answer: It is true that basis of classification of final goods into consumption and capital goods depends on the economic nature of its use. We can understand this with the help of an example of a sewing machine.
If a sewing machine is in a household, it will be called a consumption good as the machine is not used to make profit by sewing cloths for other persons. Basically, it is not used for producing goods (sewed cloths) for the purpose of sale in the market for earning profit.
However, on the other hand, if the sewing machine is with a tailor, it will be called a capital good. This is because the tailor is using this machine for sewing cloths of others and earning profit out of its use.
So, the machines which are used for producing goods with purpose of selling them in the market to make profit are called capital goods while machines with the households are simply consumption goods.
(II) ‘Natural calamities in the hill states of India have led to massive destruction of capital assets.’ Identify the type of loss (depreciation or capital loss) indicated in the aforesaid statement. Give valid reasons in support of your answer.
Answer: Destruction of Capital Assets in natural calamities comes under the category of capital loss not the depreciation. Depreciation is a process of gradual decline in value of an asset over time during its lifespan. It happens due to normal wear & tear, accidental damage and expected obsolescence.
On the other hand, Capital Loss indicates sudden and significant loss of value of an asset due to external factors like economic depression and natural calamities. As the decline of loss of value is not expected, it is called unexpected obsolescence also.
In the end, we can say that destruction of capital assets in natural calamities like earthquake, floods etc. causes capital loss with sudden and unexpected loss of value of the asset.
INDIAN ECONOMIC DEVELOPMENT
Q.18 Read the given image carefully:
B. (ii) and (iii)
D. (i) and (iii)
Ans: Option A is correct.
Explanation: Environment performs many important functions like assimilation of waste, providing resources (both renewable and non-renewable), sustenance of life and providing aesthetic services.
Q.19 Read the following statements carefully:
Statement 1: The British policies led to the collapse of India’s world-famous handicraft industries.
Statement 2: During the colonial rule in India, the contribution of the industrial sector to Gross Value Added (GVA) increased significantly.
In light of the given statements, choose the correct option from the following:
A. Statement 1 is true and Statement 2 is false.
B. Statement 1 is false and Statement 2 is true.
C. Both Statements 1 and 2 are true.
D. Both Statements 1 and 2 are false.
Ans: Option A is correct.
Explanation: British Rule wanted to make India a net exporter of raw material for the factories in Britain while making India an importer of Britain made finished goods. To achieve this purpose, they first destroyed the world famous Indian Handicraft Industries by way of discriminatory tariff policies. Moreover, development of modern industries like steel, cement etc. was also not sufficient.
The effect of above policies was that India’s industrial growth remained low during British period. Hence, contribution of Industrial sector in GVA was also very low.
Q.20 Read the following statements: Assertion (A) and Reason (R). Choose the correct option from those given below:
Assertion (A): The Education Commission (1964–66) had recommended that at least 4 % of Gross Domestic Product (GDP) be spent on education.
Reason (R): The Union and State Governments, have been stepping up expenditures in the education sector over the years to fulfil the objective of attaining cent per cent literacy.
Options:
A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
B. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
C. Assertion (A) is true, but Reason (R) is false.
D. Assertion (A) is false, but Reason (R) is true.
Ans: Option C is correct.
Explanation: The Education Commission (1964-64), also known as Kothari Commission had recommended that 6%, not 4%, of the GDP should be spent on Education.
It is true that both the Union and State Governments have been stepping up expenditures in the education sector over the years to fulfil the objective of attaining cent per cent literacy.
C. public and private sector D. private and foreign sector
Ans: Option C is correct.
Explanation: After the independence, India adopted system of Mixed Economy which allowed coexistence of both the Public Sector and Private Sector. Till 1991, the focus was more on Public Sector. However, after adoption of New Economic Policy in 1991, focus was shifted to development of a robust private sector.
Q.23 Identify, which of the following statement is incorrect about the financial sector reform introduced in 1991? (Choose the correct option)
A. Enabled the establishment of private sector banks, Indian as well as foreign
B. Foreign investment limit in banks was raised to around 74%
C. Foreign Institutional Investors were allowed to invest in Indian financial markets
D. Change in the role of the Reserve Bank of India from facilitator to regulator
Ans: Option D is correct answer.
Explanation: After adoption of New Economic Policy in 1991, India did some notable financial sector reforms as below:
A. Banking Reforms:
1. RBI role:
RBI role was changed from regulator to facilitator of financial sector.
Now banks could fix their interest rates on the basis of market forces in contrast to pre-1991 when RBI would fix such rates.
2.Private Banks:
Domestic and International Private Sector banks were given permission to operate. Example-HDFC (domestic private bank) and Citibank (Foreign Bank).
3. Raising Foreign Investment Limit
Foreign Investment limit in private banks (both domestic and international banks) has been raised to 74 percent. This limit for Public Sector Banks is 20 percent.
4.Expansion of operations:
Banks were allowed to set up new branches without approval of RBI upon fulfilling certain conditions.
B. Stock Exchange Market Reforms: To regulate stock market, Securities and Exchange Board of India was established as a statuary body to oversee the stock market operations.
Foreign Institutional Investors were allowed to invest in India’s stock market.
C. Foreign Exchange Reforms: India gradually shifted from fixed exchange rate system to flexible (floating) exchange rate system in which foreign exchange rate is determined by market forces. However, India also adopts Managed Floating Rate System in which RBI may intervene in the foreign exchange market to keep the foreign exchange rate within the desired limits.
Q.24 China’s demographic problem of 4-2-1, resulted in a higher proportion of elderly individuals compared to the younger population. This was primarily due to the implementation of ______.
A. Great Leap Forward Campaign
B. Great Proletarian Cultural Revolution
C. One Child Norm
D. Special Economic Zones
Ans: Option C is correct.
Explanation: 4-2-1 problem is related to a demographic (related to population) problem in which 1 child is expected to support 2 parents and 4 grandparents. We can understand this with an example:
Suppose, one man and one woman are engaged in a marriage. They both are single child of their parents. Now they both have one child. In future, this child is expected to look after his 2 parents (Father and Mother) and 4 grandparents (2 from mother’s side and 2 from father’s side). This problem mainly arises due to tendency of having one child only.
In China, One Child Policy was adopted in 1979 to contain the growing population. However, overtime it resulted in 4-2-1 demographic problem as discussed above and percentage of elderly population greatly increased while that of young population decreased. At last, China revoked this policy in 2015, allowing two children. Again in 2021, China changed to three-child policy to address the demographic challenges.
Q.26 “Assuming in a hypothetical economy, Real Gross Domestic Product recorded a growth rate of 9% during a fiscal year. However, the economy faced a significant challenge in terms of creating an
adequate number of employment opportunities.”
Identify the situation indicated in the given statement and choose the correct option.
A. Casualisation of workforce
B. Informalisation of workforce
C. Formalisation of workforce
D. Jobless growth
Ans: Option D is correct.
Explanation: The first three options are just characteristics of workforce (total number of people actually engaged in work). There may be enough employment generations despite these characteristics of workforce when economy is growing.
However, in a situation of jobless growth, increase in employment rate may not be proportionate to increase in Real GDP. This may happen due to technological advancement in production process which may lead to automation of production process and requiring less number of people. Moreover, it often occurs when the dominant sector in the economy (the sector which contributed most in GDP growth) is less labour intensive. For example: Service Sector is less labour intensive than manufacturing sector. So, increase in contribution of service sector may lead to jobless growth as some economist perceive in case of India.
Q.28 (A) Critically appraise the disinvestment policy initiated by the government during the reforms of 1991.
Answer: After 1991, India adopted policy of disinvestment to modernize the Public Sector Undertakings and bring some fiscal disciple. It was expected as a tool to get rid of continuous loss making enterprises. However, the policy has its flaws as below:
1. One of the objectives to set up the PSUs was to bring social & economic change. Dilution of stake in PSUs might harm this policy of social and economic change.
2. Sometimes, assets of PSUs are undervalued and it causes huge losses to the government.
3. The receipts from disinvestment are used for covering the revenue deficit rather than investing in PSUs to make them form efficient and profitable.
OR
(B) ‘Globalisation is an essential outcome of liberalisation of an economy’.
Justify the given statement with a valid explanation.
Answer: Globalisation can be defined as a process of increasing interconnectedness and interdependence amongst the countries at larger scale through exchange of goods & services, technologies, ideas, culture etc.
In context of Indian Economy, liberalization of Indian economy especially after 1991 has been a main factor in globalization of Indian Economy. India removed many restrictions in the industrial sector, financial sector, trade and investment policy which increased economics interaction and opened our economy for the rest of the world. This can especially be seen in increased volume of foreign trade, outsourcing, increased foreign investment etc. Now, we can see many goods in our homes which have been imported from the different parts of the world.
So, we can say globalization has been an essential outcome of liberalization in India.
Q.29 ‘To measure the extent of development in an economy, liberty indicators should be considered along with other socio-economic parameters.’
Do you agree with the given statement? Give valid reasons in support of your answer.
Answer: Yes, I agree with the given statement due to following reasons:
1. In a democratic country like India, liberty indicators like political freedom, rule of law, civil liberties should be basis of overall development along with other socio economic parameters to develop a more democratic society.
2. These indicators measure the extent of democratic participation of people in social and political decision-making which is good for a democracy and democratic society.
3. With liberty indicators in development criteria, government or policymakers also have a more holistic understanding of a country’s development status.
In the end, it can be said that liberty indicators in present time are essential in order to have a holistic idea of development of a country.
Q.30 ‘The reform process implemented in the late 1970s, commonly known as China’s open door policy, encompassed a wide range of reforms across sectors like agriculture, investment, industry etc. These reforms played a pivotal role in driving the rapid growth of the Chinese economy over subsequent decades.’
In the light of the given text, discuss any two reforms responsible for the rapid economic growth of China.
Answer: In 1978, China initiated many economic reforms to increase its economic growth and open its economy for rest of the world. Two of the major reforms are as below:
1. Special Economic Zones: In a bid to attract foreign Investment, China set up special economic zones. In these zones, foreign investors were provided all the basic facilities and some tax concession. This moves greatly benefitted China as it strengthen China’s economic interaction with rest of the world.
2. Increased Competition: In order to increase competition among domestic producers, China allowed private sector enterprises to undertake production of goods & services. Due to this move, State Owned Enterprises got some completion and private investment increased in the country.
Q.31(A) ‘Under the Delhi Declaration, the G-20 nations pledged to reach global net zero emissions approximately by mid-century and to triple global renewable energy capacity by 2030.’
Discuss briefly the rationale behind the commitment by G-20 nations in the direction of achieving sustainable development.
Answer: The commitment made G-20 nations in Delhi points to urgent need to adopt sustainable strategies for development. They want to reduce greenhouse gases emission to net zero by 2030 to address the problem of global warming.
Moreover, they want to triple the global renewable energy capacity by 2030 in a bid to transition from traditional/non-renewable sources of energy to renewable sources of energy. These resources like wind energy, solar energy, hydropower etc. are more sustainable and less polluting sources of energy which help in addressing the problem of global warming.
In brief, rationale behind commitment of G-20 nations under Delhi Declaration to put more focus on addressing the problem of global warming so that goal of sustainable development can be achieved.
OR
(B) ‘It would be unclear to say that, the growth of human capital lays the ground for economic growth of a nation.’
Do you agree with the given statement? Support your answer with valid illustrations.
Answer: Yes, I agree with given statement because the relationship between growth of human capital and economic growth is very complex. There is no guarantee that growth in human capital will certainly increase economic growth. Main problem pertains to the quantifiable relation between the two. We can understand this with the following illustrations:
1. Educational indicators like gross enrollment ratio, teacher-pupil ratio, years of schooling may not reflect quality of education and skills. The educated person may not be suitable for jobs as per their education qualifications.
2. Human Capital indicators may suggest that both developing and developed nations are converging and improving overtime. However, there is no empirical evidence to prove their income per capita convergence. Moreover, real income may also not show similar progress across countries.
In the end, we can say that exact relationship between the growth of human capital and economic growth is unclear and undetermined.
Q.32 (I) Interpret the given picture based on the Saansad Adarsh Gram Yojana (SAGY) initiated by the Government of India.
Answer: Under the Saansad Adarsh Gram Yojana (SAGY), Members of Parliament (MPs) need to identify and develop villages from their constituencies. MPs were to develop three villages by 2019 as model villages. Thereafter 5 villages were to be developed by 2024, one village per year. MPs were expected to facilitate a village development plan, motivate villagers to take up activities and build infrastructure in the areas of health, nutrition, and education. The Scheme places equal stress on nurturing values of national pride, patriotism, community spirit, self-confidence and on developing infrastructure
(II) State any two examples of allied activities.
Answer:
1. Sericulture
2. Apiculture
Q.33 Read the following text carefully:
Employment generation has remained one of the top challenges of Indian policymakers, and over the years, this has only become more complex. India has experienced more or less consistent growth in the structure of the output of the economy, especially after the economic reforms which is measured by gross value added. However, the trend in employment did not reveal a consistent and clear pattern.
These complexities have led to a wide variation in the conclusions drawn by experts and various studies on workforce and employment.
Two major sources of data on the workforce and employment have been the
(i) decennial population census and
(ii) nationwide quinquennial surveys on employment and unemployment by the erstwhile NSSO under the Ministry of Statistics and Programme Implementation (MoSPI), Government of India.
The nationwide Employment and Unemployment (E&U) surveys have been replaced by the Periodic Labour Force Survey (PLFS) conducted by the
National Statistical Office (NSO) of MoSPI, which started in the year 2017–18.
According to NSO, the PLFS data measure the dynamics in labour force participation, workers to population ratio and the employment status along with related, important parameters for both rural and urban areas.
Labour force includes persons who were either working (or employed) or those available for work (or unemployed). Some persons in the labour force are abstained from work for various reasons. Deducting that number from the labour force gives the number of actual workers. These workers are further categorised as persons who are engaged in any economic activity as selfemployed or regular wage/salaried and casual labour. The difference between the labour force and the workforce gives the number of unemployed persons.
The size of the labour force in the country has increased from 485.3 million in the year 2017–18 to 497.4 million in the year 2018–19. The next year, the labour force increased by 8 per cent and reached 537.9 million. This increase was witnessed across male and female populations as well as rural and urban households.
On the basis of the given text and common understanding, answer the following questions:
(I) State any two major sources of data on the workforce and employment.
Answer: 1. Decennial (after every ten years) population census and
2. Nationwide quinquennial (after every five years) surveys by NSSO
(II) ‘The labour force encompasses a broader category than the workforce.’ Defend or refute the statement, giving valid reasons in support of your answer.
Answer: The statement is defended. Labour forces can be defined as number of labourers who are working or available for work. However, Workforce only measures the actual numbers of workers who are engaged in some work. So, Labour Force is a broader concept that the Workforce.
(III) ‘Workers can be categorized into different types depending on their status.’
In the light of the given statement, state any one type of employment.
Answer:
Self-employment: In this types of employment workers run their own business or work to earn their livelihood. Ex-shopkeeper, farmers, fruit-seller etc.
Q.34 (A) (I) ‘Under the Industrial Policy Resolution (IPR) 1956 in India, the system of industrial licensing was introduced to promote regional equality.’ Justify the given statement with valid arguments.
Answer: Under the Industrial Policy Resolution (IPR) 1956, India introduced system of Industrial licensing. One of the main objectives of this policy was to promote regional equality. Under the IPR 1956, some industries were allowed to be operated by the private sector. However, private producers needed industrial licensing for doing production activities. Generally, getting a license was a difficult task. But, getting a license was made easier for those who wanted to set up industries in the economically backward region of the country. Such industries were also given some additional benefits like tax holidays and subsidized electricity. So, we can say that the government wanted to have a more balanced and inclusive economic growth in the country.
(II) Discuss briefly the estimates made by notable scholars regarding the national income and per capita income during the colonial rule in India.
Answer: During the colonial era, many scholars such as Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao, and R.C. Desai, made efforts to estimate national income and per capita income. Dada Bhai Naoroji was the first person to do the same. Among all these scholars, estimates of V.K.R.V. Rao are considered very important. However, the majority of these studies found that India’s overall real output per capita income growth during the first half of the 20th century remained low. Real output growth was below 2% while per capital income increased at a meagre annual rate of just 0.5%. OR
(B)
(I) ‘During the colonial period, India’s foreign trade was characterized by a large export surplus, however, this did not result in any flow of gold or silver into India.’
Justify the given statement with valid arguments.
Answer: It is true that India witnessed large export surplus during colonial period. However, it did not result in any flow of gold and silver into India as was case before the colonial rule. This statement can be justified with following arguments.
1. The surplus was not used for India’s economic development. Rather, it helped Britishers to hold their grip on India.
2. Colonial Rulers used this surplus to fund wars,
3. Surplus was used to cover the expenses of an office in Britain which was set-up to manage India’s affairs.
4. Moreover, the export surplus was used to import invisible items like paying military servicemen, giving profit on British investment in India etc.
(II) Explain the rationale behind choosing ‘Self-reliance’ as a central planning objective in India’s development strategy.
Answer: After independence, India chose central planning as its development strategy. Under this strategy, self-reliance was chosen as one of the main objectives of planning due to following reasons:
1. To reduce dependence: Government wanted to use domestic resources for production and wanted to reduce dependence on imports from other countries.
2. Fear of Foreign Interference: India was newly independent country and it did not want to depend upon foreign goods, technology and foreign capital due to fear of foreign interference in country’s matters.
FREQUENTLY ASKED QUESTIONS (FAQs)
Q. 1 How many types of Open Market Operations are there?
Ans: There are two types of Open Market Operations (OMOs) namely:
1. Outright OMOs – Outright sell and purchase of Government Securities without any repurchase agreement between RBI and participants in OMOs.
2. Repo OMOs – It involves repurchase agreement between RBI and Participants in OMOs. Securities are repurchased by the seller on a specific date as per the agreement.
Q. 2 When was Pradhan Mantri Garib Kalyan Anna Yozna launched.
Ans: In April 2020 during Covid -19.
Q. 3 What is Fixed Exchange Rate System?
Ans: It is a system in which exchange rate of domestic currency with respect to foreign currencies is determined by the Government.
Q. 4 What is Revenue Deficit?
Ans: It is excess of Revenue Expenditure over Revenue Receipts during a budgetary year.
Q. 5 What is Primary Deficit?
Ans: It is difference of Fiscal Deficit and Interest Payment during a budgetary year.
Classification of Goods in Economics Class 12 – Latest Notes
