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Class 12 - Economics
Term-2 Sample Paper - 02

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. What type of data is required to measure national income at each of the three phases of its circular
flow?

OR

What are the important features of a capitalist economy?

2. If Marginal Propensity to Save is one, what is the value of multiplier? What can you say about the
change in National Income, given change in investment.

OR

From the following data about an economy, calculate its equilibrium level of income:
Marginal propensity to consume = 0.75
Autonomous consumption = 200
Investment = 6000
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3. Explain the distinction between ‘autonomous investment’ and ‘induced investment’.
4. How will you know whether a worker is working in the informal sector?

OR

Some social scientists argue that housewives working at home without getting paid for that work must
also be regarded as contributing to the gross national product and therefore as workers. Do you agree?
Justify your answer.·
5. What changes are observed in the composition of infrastructure requirements as the economy
develops?
6. Find out:

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a. Net National Product at Market Price and

b. Gross National Disposable Income:
Items (Rs.in Crore)

Net current transfers from abroad (-) 10

Wages and salaries 1000

Net factor income abroad (-) 20

Social security contribution by employers 100

Net indirect tax 80

Rent 300

Consumption of fixed capital 120

Corporation tax 50

Dividend 200

Undistributed profits 60

Interest 400

OR

State any precautions that are taken while calculating national income by expenditure method.
7. Describe the meaning of public health. Discuss the major public health measures undertaken by the
state in recent years to control diseases.
8. Read the following text carefully and answer the questions given below:
Foreign direct investment
Unlike India, FDI makes China a global player. In 2000, in cumulative terms, China was world’s fifth-
largest recipient of FDI, after the United States (USD1.3 trillion), the United Kingdom (USD497 billion),
Benelux Economic Union states (USD482 billion) and Germany (USD480 billion). But for 2004, China
was to clock the second largest FDI inflow of USD62 billion―next only to the United States which makes
this FDI inflows the most critical as also most visible indicator of its sustained and rapid economic
development. Even India is expected to emerge as the next hot spot for FDI inflows. Amongst others,
the UNCTAD-DITE Global Investments Prospects Assessment 2004, estimates for 2004-2007 put China
and India at the top two ranks followed by the US as third. This, however, remains rather ambitious,
especially for India. Even for China, while it is expected to continue to leapfrog, it is likely to stay at its
second position and may not surpass the US for a very long time.

But there are indicators that FDI inflows to China (even India) will continue unhindered. For example,
China today accounts for over 10% of US foreign trade destinations and China owns USD167 billion of
US securities issued by the Federal Government. During the year 2000, the total US corporate revenue
generated from China was USD7.2 billion, compared to USD4.6 billion from Mexico, USD3.5 billion from
Singapore, and USD1.85 billion from Brazil. Though China faced some phases when FDI had gone down
yet it has gradually witnessed rise from USD2.7 billion for 1984 to USD62 billion by 2004, largely staying
within the range of USD45 to USD60 billion on an average year.

By comparison, India’s FDI has been generally sluggish and, for the early 1990s India’s contracted FDI

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stood at USD0.15 billion for 1991, USD0.23 billion for 1992, USD0.57 billion for 1993, USD0.95 billion for
1994, and USD1.96 billion for 1995. But from there, India’s FDI has experiences some acceleration and
rose to USD3.4 billon for 2002 and USD4.3 billion for 2003; and some experts also question calculation
methods and suspect underplaying of India’s FDI statistics. For year 2004, India’s FDI was estimated to
exceed a rather impressive USD8 billion. And, given this new enthusiasm of the United Progressive
Alliance, the government has been talking of absorbing an FDI of USD15 billion for 2005 and USD30
billion for 2007 to reach a total of USD150 billion of fresh FDI in next ten years.

Among the reasons cited to explain India lagging behind, is the argument that China had decided to
open up to FDI back in 1979 and created special economic zones (SEZs) in coastal regions that had the
clear advantage of geographical proximity to Hong Kong—the hub of capital investment in Asia —, and
that China had the added advantage of its political system, cheap labour and special incentives for
foreign investors as for its armed forces which were to become major players in China’s opening up
experiments. Also important is overseas Chinese contributions. Non-resident Indians and overseas
Chinese have been distinct categories in FDI inflows into their respective homelands. Beginning only
from the early 1990s, while non-resident Indians do contribute a little to India’s FDI, overseas Chinese
are known to present a unique example by contributing over two-thirds of the whopping inflows of FDI
into China.

Questions:

i. Discuss the reason for India's FDI being sluggish compared to that of China.
ii. Analyse the growth of the Chinese Economy focusing on the role of SEZs towards boosting FDI.
9. Explain two fiscal measures by which excess demand in an economy can be reduced.
10. Explain the role of the following in correcting Excess Demand in an Economy.
1. Bank Rate
2. Open Market Operation
11. Answer (i) & (ii) OR (iii) & (iv) of the following questions. (3+2 = 5 Marks)
a. a. Calculate the value of Change in Stock from the following data:
S.No. Items Amount (in Rs Crores)

(i) Sales 400

(ii) Net Value Added at Factor Cost (NVAFC) 200

(iii) Subsidies 10

(iv) Change in Stock ?

(v) Depreciation 40

(vi) Intermediate Consumption 100

b. Define Real Gross Domestic Product.
b. What is Personal Disposable Income?
c. Calculate Net Domestic Product at Factor Cost from the given details.
S.no. Contents (Rs. In Crores)

(i) Private Final Consumption Expenditure 8,000

(ii) Government Final Consumption Expenditure 1,000

(iii) Exports 70

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(iv) Imports 120

(v) Consumption of Fixed Capital 60

(vi) Gross Domestic Fixed Capital Formation 500

(vii) Change in Stock 100

(viii) Factor Income to Abroad 40

(ix) Factor Income from Abroad 90

(x) Indirect Taxes 700

(xi) Subsidies 50

(xii) Net Current Transfers to Abroad (-) 30

d. State whether the following statements are true or false. Give reasons for your answer:
i. Nominal GDP can never be less than Real GDP.
ii. Gross domestic capital formation is always greater than gross fixed capital formation.
12. Answer the following questions. (2+3 = 5 Marks)
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a. How do the Global warming factor contribute to the environmental crisis in India? What problem
do they pose for the government?
b. Compared to urban women more rural women are found working. Why?

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Class 12 - Economics
Term-2 Sample Paper - 02

Solution

Section A
1. i. Production Phase: The data relating to net value added at factor cost in primary, secondary and
tertiary sectors and net factor income from abroad.
ii. Income Phase: The data relating to net interest, net rent, net royalty, net profit and net wages i.e
compensation of employees, net factor income from abroad and mixed-income of self-employed.
iii. Expenditure phase: The data relating to private consumption expenditure, government final
consumption expenditure, gross domestic capital formation(i.e Gross domestic fixed capital formation
and change in stocks), net exports, consumption of fixed capital, net indirect taxes and net factor
income from abroad.

OR

i. Private Property: This is one of the most important characteristics of capitalism, where private
property like factories, machines, and equipment can be owned by private individuals or companies.
ii. Freedom of enterprise: Under this system in capitalism, every individual has the right to make their
own economic decisions without any interference. This is applicable to both consumers and producers.
iii. Profit Motive: The motive of earning profit is one of the most important drivers of a capitalist
economy. In this system, all the companies are looking to produce and sell their products to consumers
for earning maximum profit.
iv. Price Mechanism: Under this system, the demand and supply in the market will determine the
production level and correspondingly the price set for the products without any kind of government
involvement.
v. Consumer Sovereignty: In this, the market is controlled by the demands of the consumer. It
regulates the level of production undertaken by the companies and the consumer is free to decide
which products to purchase.
2. Given, Marginal Propensity to Save (MPS) = 1
So, Multiplier
Now, suppose change in investment is given Rs.100 crore
so,K = Change in Income(ΔY)/Change in Investment(ΔI)
or
or Change in National Income .
So it follows that the National Income will change in that quantum only with which investment changes.

OR

= 200
MPC(b) = 0.75
I = 6,000
C = + b(Y)
But Y = C + I
Y = + b(Y) + 1

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Y = 200 + 0.75Y + 6000

Y - 0.75 Y = 6200
0.25 Y = 6200
Y
Y = Rs.24800
3. Differences between autonomous investment and induced investment
Basis Autonomous Investment Induced Investment

Autonomous investment is In simple language, when an increase

that investment which is independent of the in investment is due to the increase in
Meaning
level of income or profit. Thus, it is not the current level of income and production, it
induced by any changes in the income. is known as induced investment.

Motive It is done to promote social welfare. It is driven by a profit motive.

It is generally undertaken by the government

Sector It is generally done by the private sector.
sector.

Income It is not affected by the changes in income

It is affected by the change in the income level.
elasticity level.
4. We can know whether a worker is working in the informal sector from the following points:
i. The number of workers employed is less than 10.
ii. The workers are not allowed to form trade unions and are not protected by labour laws.
iii. The workers are not entitled to social security schemes.

OR

Yes, I agree. It is the real flow of goods and services which is considered important in estimation of national
income and not money flow. Therefore, even if housewives are not paid for their services, they must be
considered as workers. According to a non government survey, if we find the opportunity cost of services of
a housewife, will be Rs. 12,000 on an average. It can be explained with the help of a funny story. A man fell
in love with the maid of his house. They married each other. What will be the impact on national income?
Answer is national income will decrease by the amount of maid's salary. She still does all domestic chores
but is not compensated for it anymore and the work which was productive before they married became
unproductive after their marriage. It sounds senseless. Therefore, we must consider services of a housewife
as productive as we consider of a paid employee. Calculation may be a problem but opportunity principle
can be used.
5. As income rises, the composition of infrastructure requirements changes. For low income countries, basic
infrastructure services like irrigation, transport and power are most important. As economies develop,
most of their basic consumption demands are met. The share of agriculture in the economy shrink and
more service-related infrastructure is required.
6. INCOME METHOD
a. Net National Product at Market Price
NDP​FC = Compensation of employees (Wages and salaries + Social security contributions by employers) +
Operating Surplus {Rent+ Interest + Profit (Corporation tax + Dividend + Undistributed profits)} + Mixed
income
= (1000 + 100) + [300 + 400 + (50 + 200 + 60)] + 0
= Rs.2110 crore

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NNP​MP = NDP​FC + Net indirect taxes + Net factor income from abroad
= 2110 + 80 - (-20)
= 2210 crore
b.Gross National Disposable Income
= NNPMP + Consumption of fixed capital + Net current transfers from abroad
= 2210 + 120 + (-10)
= Rs.2320 crore

OR

While using the expenditure method, the following precautions are required to be taken, related to the
calculation of National Income:
i. Only final expenditure is to be taken into account to avoid the error of double counting of
expenditures,
ii. Expenditure on second-hand goods is not to be included, because such expenditure has already been
included when they are originally purchased. However, any commission or brokerage on such goods is
included as it is a payment made for productive service.
iii. Expenditure on the purchase of financial assets such as shares and bonds is not to be included in total
expenditure, as these are mere paper claims and are not related to the production of final goods and
services.
iv. Expenditure on transfer payments by the government is not to be included as such payments are not
connected with any productive activity and there is no value addition.
v. Imputed value/estimated value of expenditure on goods produced for self-consumption should be
taken into account, as these goods are reflected in the estimation of Gross Domestic Product (GDP).
7. The science and practice of protecting and improving the health of a community, as by preventive
medicine, health education, control of communicable diseases, application of sanitary measures and
monitoring of environmental hazards, is called public health.
The following measures have been initiated by the state in recent years to promote public health:
i. Establishing healthcare institutions
ii. Expanding the health facilities
iii. Expanding the facilities for medical education.
iv. Promoting preventing medicine.
8. i. Unlike India, China is a global player in the FDI market. Whereas India’s FDI has been generally
sluggish till the early 1990s but later in the 21st century improved. In 2000, China was the world’s fifth-
largest recipient of FDI. The possible reasons for this difference are:
a. The Chinese reform process began more strongly and comprehensively during the 1980s when
India was in a mid-stream of a rather slow growth process.
b. The global exposure of the Chinese economy had been far wider than the Indian economy.
ii. China had been introducing economic reforms in phases. In the initial phase, reforms were initiated in
the agriculture, foreign trade, and investment sectors. In the later phase, reforms were initiated in the
industrial sector. To attract foreign investors, special economic zones (SEZs) were set up. These SEZs
were judiciously set up in coastal regions for its advantage of geographical proximity to Hong Kong—
the hub of capital investment in Asia. China also has an upper hand in its political system, cheap
labour, and special incentives for foreign investors. Besides, the overseas Chinese contribute over two-
thirds of the inflows of FDI into the Chinese economy.
9. Excess demand refers to a situation in which aggregate demand exceeds aggregate supply corresponding to
full employment. This gives rise to an inflationary gap which causes a rise in the price level leading to

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inflation. The two fiscal measures to reduce excess demand are as follows :
1. Reduction in Government Expenditure : It is the principal component of fiscal policy. When there is
excess demand government expenditure on public works, education, defence, maintenance on law and
order should be reduced. A reduction by government will reduce a pressure on aggregate demand and
it will shift downward. The fall in govt expenditure should be equal to the inflationary gap.
2. Increase in taxes : The Government should levy new taxes and enhance the rate of the existing ones.
This will reduce disposable income of the people and will result in reduction in aggregate demand.
10. (i) Bank rate
Bank rate is the rate at which central bank lends money to commercial banks to meet their long
term needs.
RBI actively uses bank rate to control credit creations.
In case of inflation or excess demand, Central Bank increases Bank Rate.
This results in an increased rate of interest recovered by commercial banks, which discourages
borrowing.
As a result Consumption and AD falls and there is a reduction in the inflationary gap or excess
demand.
(ii) Open market operations
Open market operations mean buying and selling of government securities by the central bank in
an open market.
Selling:
Central bank sells the Government Securities to commercial banks and reduces their lending
capacity or it sells Government Bonds to General Public to reduce their capacity to spend on
consumer goods.
Buying :
Central bank buys the securities back from commercial banks and increases their lending capacity
(liquidity) or and it purchases its securities back from the public to increase their capacity to
spend.
In case of Inflation or excess demand, Central Bank starts selling government securities in the open
market.
This reduces the money supply in the economy
As a result Consumption, AD falls and there is a reduction in Inflationary Gap or excess demand.
11. Answer (i) & (ii) OR (iii) & (iv) of the following questions. (3+2 = 5 Marks)
a. i. Change in stock = (ii) + (vi) + (v) - (iii) - (i)
= 200 + 100 + 40 - 10 - 400
= (-) ₹ 70 Crores. ( Note: While the calculating change in-stock first we have to calculate GVA at Mp,
then use Output Method)
ii. Real Gross Domestic Product is the sum total of the money value of all final goods and services
produced in an economy during the year estimated at some given base year’s prices.
b. It is the personal income remaining with individuals after deduction of all taxes levied against their
income and their property as well as payment of miscellaneous fees and fines.
In simple words, Disposable income=Personal income* - Personal income taxes - Property taxes - fines.
*Personal income= National income +income received but not earned - income earned but not
received.
c. Gross Domestic Product at Market Price (GDPmp )

= Private Final Consumption + Expenditure + Government Final Consumption Expenditure + Gross

Domestic Fixed Capital Formation + Change m Stock + (Exports - Imports)

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= 8,000 + 1,000 + 500 + 100 + (70 - 120)

= Rs. 9,550 crores.
Now,
Net Domestic Product at Factor Cost (NDPFC)

= GDPmp - Consumption of Fixed Capital - Net Indirect Taxes = 9,550 - 60 - (700 - 50)
= Rs. 8,840 crore.
d. i. The statement is false. Nominal GDP can be less than real GDP when the price of goods and services
prevailing during the base year is greater than the price of goods and services prevailing during
the current year.
ii. The statement is false. We know that Gross Domestic Capital Formation = Gross fixed capital
formation + Change in stock. Accordingly, the gross domestic capital formation can be less than
gross fixed capital formation when a change in stock (closing stock - opening stock) is negative.
12. Answer the following questions. (2+3 = 5 Marks)
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study material for CBSE, NCERT, JEE (main), NEET-UG and NDA exams. Teachers can use Examin8 App to
create similar papers with their own name and logo.
a. Global Warming : It refers to a gradual increase in the shortage temperature of the earth’s lower
atmosphere as a result of increase in green-house gases since the Industrial Revolution much of The
recent observed and projected global warming is human induced.
It is caused by man made increases in carbon dioxide and other green-house gases through the burning
of fossil fuels and deforestation.
A UN Conference on Climate Change, held in Kyoto, Japan in 1997, resulted in an inter¬national
agreement to fight global warming which called for reductions in emissions of green-house gases by
industrialized nations.
b. The difference in participation rates is very high between urban and rural women. In urban areas, for
every 100 urban females, only about 14 are engaged in some economic activities. In rural areas, for
every 100 rural women, about 26 participate in the employment market.
It is common to find that where men are able to earn high incomes, families discourage female
members from taking up jobs. Earnings of urban male workers are generally higher than rural males
and so urban families do not want females to work.
Apart from this, many activities of the household in which urban women are engaged, are not
recognised as productive work, while women working on farms in the rural areas are considered a
part of the workforce if they are being paid wages in cash or in the form of foodgrains.
It is because of poverty that women in rural areas compelled to avoid education and seek employment.
Without education, people in rural areas find only less productive jobs and get low wages. On the other
hand, women belonging to affluent families in urban areas generally do not work.
In agriculture and allied activities, high skill and expertise are not required, hence women work to
support their families. Also in the rural area, the size of the families is large so the women work to feed
their large families.

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