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(vii) Picking the Odd one Out
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(Sep-2020, Aug-'21 & July-'22) and First & Second Revision Test - 2022 (FRT & SRT-'22)
questions are incorporated in the appropriate sections.
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Authors : preface
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Contents
1. Introduction to Macro Economics................................................� 1 - 18
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2. National Income..........................................................................19 - 38
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3. Theories of Employment and Income.............................................39 - 56
4. Consumption And Investment Functions........................................ 57 - 76
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5. Monetary Economics.................................................................�� 77 - 92
6. Banking..................................................................................�� 93 - 110
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7. International Economics..........................................................111 - 130
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8. International Economic Organisations.....................................131 - 144
9. Fiscal Economics....................................................................145 - 163

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10. Environmental Economics........................................................164 - 181

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11. Economics of Development and Planning...................................182 - 199

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12. Introduction to Statistical Methods and Econometrics.............200 - 220

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Instant Supplementary Exam July 2022 Question Paper with answers.........221 - 236
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1
Chapter
Introduction to
Macro Economics
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CHAPTER SNAPSHOT
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1.1 Introduction 1.8 Concepts of Macro Economics

1.2 Meaning of Macro Economics 1.8.1 Stock and flow variables
1.3 Importance of Macro Economics 1.9 Circular Flow of Income
1.4 Scope of Macro Economics 1.9.1 Circular Flow of income in a Two
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1.5 Limitations Sector Economy

1.6 Economy and its Types 1.9.2 Circular Flow of Income in a Three
1.7 Economic Systems Sector Economy
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1.7.1 Capitalistic Economy (Capitalism) 1.9.3 Circular Flow of Income in a Four

1.7.2 Socialistic Economy (Socialism) Sector Economy
1.7.3 Mixed Economy (Mixedism)
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[1]

w Concept Map
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Scope of Macro Importance of Meaning of
Introduction
Economics
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Macro Economics Macro Economics
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orders@surabooks.com
Economic Introduction to Limitations of
Systems Macro Economics
Sura’s - XII Std - Economics
Macro Economics
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2
Capitalistic
Economy
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Concept of Macro
Economics Circular Flow of Income
Socialistic
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Economy
Circular Flow of Income in a
Stock and flow Two Sector Economy
variables
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Mixed
Economy
. Circular Flow of Income in a
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Circular Flow of Income in a
Ph: 8124201000 / 8124301000

Four sector Economy
Chapter 1
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Introduction to Macro Economics Sura’s - XII Std - Economics
Important Terms
Macro Economics : Macro Economics deals with aggregates such as national income, employment
and output.
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Business Cycle : All the economies face the problem of business fluctuations and business cycle.
Economic Systems : Economic system refers to the manner in which individuals and institutions are
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connected together to carry out economic activities in a particular area.
Globalism : Globalisation that connects nations together through international trade and
aiming at global development.
.
Capitalistic : Capitalist economy is where the role of the government is minimum and market
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Economy / Market determines the economic activities.
Economy / Free
Trade Economy oo
Socialistic Economy : Socialism refers to a system of total planning, public ownership and state control
/ Command on economic activities.
Economy / Socialism
Mixed Economy / : In a mixed economy system both private and public sectors co-exist and work
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Mixedism together towards economic development.

Economic Model : A model is a simplified representation of real situation.
Circular flow of : The circular flow of income is a model of an economy showing connections
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Income between different sectors of an economy.

Stock : Stock refers to a quantity of a commodity measured at a point of time.
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Definitions
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Macro Economics : According to - Dorn Busch, Fischer and Startz “ Macro Economics is very much
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about tying together facts and theories”.

Economy : The term economy has been defined by A.J. Brown as, “A system by which
people earn their living”.
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J.R. Hicks : J.R. Hicks defined as, “An economy is a cooperation of producers and workers to
Definition of make goods and services that satisfy the wants of the consumers”.
Economy
Capitalistic : According to “Adam Smith” capitalistic economy is also termed as a free economy
Economy (Laissez Faire, in Latin) or market economy where the role of government is
minimum and market determines the economic activities.
3
Sura’s - XII Std - Economics Chapter 1
Socialism : Socialism is defined as a way of organizing a society in which major industries

are owned and controlled by the government.
Mixed Economy : An economic system combining private and state enterprise.
Circular flow of : Circular flow of income is the flow of money made as payments in exchange for
income products and services between various sectors in the economy, balanced by the
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flow of payments made in exchange for goods and services.
Model Questions
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Part - A 7. A steady increase in general price level is
termed as _______.
Multiple Choice Questions (a) Wholesale price index
.
1. The branches of the subject Economics is (b) Business Cycle
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[PTA-6; FRT & May-'22] (c) Inflation
(a) Wealth and welfare (d) National Income [Ans. (c) Inflation]
(b) Production and consumption 8. Identify the necessity of Economic policies.
(c) Demand and supply (a) to solve the basic problems [PTA-5]
(d) Micro and macro
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(b) to overcome the obstacles
[Ans. (d) Micro and macro] (c) to achieve growth
2. Who coined the word ‘Macro’? [QY-'19] (d) all the above [Ans. (d) all the above]
(a) Adam Smith (b) J M Keynes 9. Indicate the fundamental economic activities
ab
(c) Ragnar Frisch (d) Karl Marx of an economy.

[Ans. (c) Ragnar Frisch] (a) Production and Distribution
3. Who is regarded as Father of Modern Macro (b) Production and Exchange
Economics? (c) Production and Consumption
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[Govt. MQP-'19; Mar & Sep-2020; FRT-'22] (d) Production and Marketing
[Ans. (c) Production and Consumption]
(a) Adam Smith (b) J M Keynes
10. An economy consists of [PTA-4; HY-'19]
(c) Ragnar Frisch (d) Karl Marx
(a) Consumption sector
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[Ans. (b) J M Keynes] (b) Production sector

4. Identify the other name for Macro Economics. (c) Government sector
[PTA-1; FRT, July-'22] (d) All the above
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(a) Price Theory (b) Income Theory [Ans. (d) All the above]
(c) Market Theory (d) Micro Theory 11. Identify the economic system where only
[Ans. (b) Income Theory] private ownership of production exists.
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5. Macro economics is a study of _______. (a) Capitalistic Economy

[PTA-2 Mar-2020] (b) Socialistic Economy
(a) individuals (b) firms (c) Globalisic Economy
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(c) a nation (d) aggregates (d) Mixed Economy

[Ans. (d) aggregates] [Ans. (a) Capitalistic Economy]
6. Indicate the contribution of J M Keynes to 12. Economic system representing equality in
economics. [May-'22]
distribution is _______.
(a) Capitalism (b) Globalism
(a) Wealth of Nations (b) General Theory
(c) Mixedism (d) Socialism
(c) Capital (d) Public Finance
[Ans. (d) Socialism]
[Ans. (b) General Theory]
4

13. Who is referred as ‘Father of Capitalism’? (ii) In other words macro economics deals
[FRT-'22] with aggregates such as national income,
(a) Adam Smith (b) Karl Marx employment and output. Macro Economics
(c) Thackeray (d) J M Keynes is also known as “Income theory”.
[Ans. (a) Adam Smith]
14. The country following Capitalism is _______. 22. Define the term Inflation.
[PTA-3; Aug-'21] [Govt. MQP - '19; QY-'19; Mar-2020; July-'22]
(a) Russia (b) America
Ans. (i)
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Inflation refers to steady increase in
(c) India (d) China
[Ans. (b) America] general price level.
15. Identify The Father of Socialism. (ii) Estimating the general price level by
[PTA-1; HY-'19; Aug-'21] constructing various price index numbers
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(a) J M Keynes (b) Karl Marx such as wholesale price Index, Consumer
(c) Adam Smith (d) Samuelson Price Index etc, are needed.
[Ans. (b) Karl Marx]
16. An economic system where the economic 23. What is meant by an ‘Economy’?
.
activities of a nation are done both by the [PTA-1, 5; HY-'19]
private and public together is termed as
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Ans. J.R. Hicks defined as, “An economy is a
_______. [PTA-6; July-'22]
cooperation of producers and workers to make
(a) Capitalistic Economy goods and services that satisfy the wants of the
(b) Socialistic Economy
(c) Globalisic Economy consumers”.
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(d) Mixed Economy[Ans. (d) Mixed Economy] 24. Classify the economies based on status of
17. Quantity of a commodity accumulated at a development.
point of time is termed as _______. Ans. (i) Developed economies
(a) production (b) stock
(c) variable (d) flow (ii) Under developed economies
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[Ans. (b) stock] (iii) Undeveloped economies

18. Identify the flow variable. [QY-'19; Sep-2020] (iv) Developing economies
(a) money supply (b) assests
(c) income 25. What do you mean by Capitalism?
(d) foreign exchange reserves [HY-'19; FRT-'22]
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[Ans. (c) income] Ans. Adam Smith is the ‘Father of Capitalism’.

19. Identify the sectors of a Two Sector Model. Capitalistic economy is also termed as a free
(a) Households and Firms [PTA-4; FRT-'22] economy (Laissez faire, in Latin) or market
(b) Private and Public economy where the role of the government is
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(c) Internal and External minimum and market determines the economic
(d) Firms and Government activities.
[Ans. (a) Households and Firms]
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20. The Circular Flow Model that represents an 26. Define ‘Economic Model’. [PTA-6]
open Economy. [PTA-2] Ans. (i) A Model is a simplified representation of
(a) Two Sector Model real situation.
(b) Three Sector Model
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(ii) Economists use models to describe

(c) Four Sector Model economic activities, their relationships
(d) All the above[Ans. (c) Four Sector Model] and their behaviour.
Part - B
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27. ‘Circular Flow of Income’ - Define. [PTA-2]

Answer the following questions in
Ans. (i) The circular flow of income is a model of
one or two sentences
an economy showing connections between
21. Define Macro Economics. different sectors of an economy.
[PTA-4; QY-'19; FRT-'22; May-'22]
(ii) It shows flows of income, goods and services
Ans. (i) The word ‘Macro’ is derived from the
and factors of production between economic
Greek word ‘Makros’ meaning ‘large’ -
agents such as firms, households, government
Hence, Macro Economics is the study of
and nations.
the economy as a whole.
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Part - C (v) Higher Rates of Capital Formation :

Increase in saving and investment leads
Answer the following questions in
to higher rates of capital formation.
about a paragraph 31. Indicate the demerits of socialism. [PTA-1]
28. State the importance of Macro Economics. Ans. (i) Red Tapism and Bureaucracy :
[PTA-5; Mar-2020; FRT-'22] As decision are taken by government agencies,
Ans. The importance and the need for introducing a approval of many officials and movement
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macro outlook of an economy are given below. of files from one table to other takes time
(i) There is a need to understand the functions and leads to red tapism.
of an economy at the aggregate level to (ii) Absence of Incentive :
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evolve suitable strategies and to solve the The major limitation of socialism is that
basic problems prevailing in an economy. this system does not provide any incentive
(ii) Understanding the future problems, needs for efficiency.
and challenges of an economy as a whole. (iii) Limited Freedom of choice :
(iii) Macro economics provides ample opportunities Consumers do not enjoy freedom of choice
.
to use scientific investigation to understand over the consumption of goods and services.
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the reality. (iv) Concentration of Power :
(iv) Macro economics helps to make meaningful The State takes all major decisions.
comparison and analysis of economic indicators. 32. Enumerate the features of mixed economy.
(v) Macro economics helps for better prediction [PTA-2; HY-'19; Sep-2020; FRT-'22]
about future.
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29. Describe the different types of economic systems.
1. Ownership of Property and Means of
[QY-'19; FRT & May-'22]
Production : The means of production and
Ans. There are three major types of economic systems.
properties are owned by both private and
They are,
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public. Public and Private have the right to

(i) Capitalistic Economy (Capitalism) : purchase, use or transfer their resources.
Capitalistic economy is also termed as a free
2. Coexistence of Public and Private Sectors :
economy or market economy where the role
In mixed economies, both private and public
of the government is minimum and market
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sectors coexist. Private industries undertake

determines the economic activities.
(ii) Socialistic Economy (Socialism) : activities primarily for profit. Public sector
Socialism refers to a system of total planning, firms are owned by the government with a
public ownership and state control on economic view to maximize social welfare.
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activities. 3. Economic Planning : The central planning

(iii) Mixed Economy (Mixedism) : authority prepares the economic plans. National
In a mixed economy system both private and plans are drawn up by the Government and
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public sectors co-exist and work together both private and public sectors abide. In
towards economic development. general, all sectors of the economy function
30. Outline the major merits of capitalism. according to the objectives, priorities and
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[PTA-6; Aug-'21; July-'22] targets laid down in the plan.

Ans. (i) Automatic Working : 4. Solution to Economic Problems : The
Without any government intervention the
basic problems of what to produce, how
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economy works automatically.

(ii) Efficient use of Resources : to produce, for whom to produce and how
All resources are put into optimum use. to distribute are solved through the price
(iii) Incentives for Hard work : mechanism as well as state intervention.
Hard work is encouraged and entrepreneurs 5. Freedom and Control : Though private has
get more profit for more efficiency. freedom to own resources, produce goods
(iv) Consumers Sovereignty : and services and distribute the same, the
All production activities are aimed at satisfying overall control on the economic activities
the consumers. rests with the government.
6
Additional Questions and Answers

Part - A 10. Market forces are _______.
Multiple Choice Questions 1 Mark (a) Supply and price
(i) Choose the Correct Option. (b) Demand and price
1. A steady fall in general price level is termed as (c) Prices of commodity
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_______. (d) Supply and demand
(a) Deflation (b) Inflation [Ans. (d) Supply and demand]
(c) Trade 11. The right to property exists largely in _______.
(a) Traditional society (b) Capitalism
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(d) To achieve growth [Ans. (a) Deflation]
2. Micro means _______. (c) Socialism (d) Mixed economy
(a) Large (b) Big [Ans. (b) Capitalism]
12. Absence of Price Mechanism is a characteristic
(c) Small (d) Both ‘a’ and ‘b’
feature of the _______.
.
[Ans. (c) Small]
(a) Socialist economy
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3. Macro means _______. (b) Capitalist economy
(a) Large (b) Aggregate (c) Traditional economy
(c) Economy as a whole (d) Mixed economy
(d) All the above [Ans. (d) All the above] [Ans. (a) Socialist economy]
4.
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Macro economics is also known as _______. 13. Non-interference of the state is a characteristic
(a) Price theory (b) Income theory features of the _______.
(c) Business cycle (a) Socialist Economy
(d) Poverty and unemployment (b) Capitalist Economy
ab
[Ans. (b) Income theory] (c) Traditional Economy

5. Planned economy is also known as _______. (d) Command Economy
(a) Capitalist Economy [Ans. (b) Capitalist Economy]
(b) Socialist Economy 14. _______ sector sells the entire output to house
holds.
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(c) Mixed Economy

(d) All the above[Ans. (b) Socialist Economy] (a) Firm (b) House hold
6. Father of socialism _______. (c) Government (d) Foreign trade
(a) Adamsmith (b) J.M. Keynes [Ans. (a) Firm]
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(c) Karl Marx (d) J.R. Hicks 15. In addition to household and firms, inclusion
[Ans. (c) Karl Marx] of the government sector make this model a
7. Example for Mixed Economy _______. _______ model.
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(a) India (b) France (a) Single sector model

(c) China (d) Both ‘a’ and ‘b’ (b) Two sector model
[Ans. (d) Both ‘a’ and ‘b’] (c) Three sector model
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(d) Four sector model

8. Combination of both capitalism and socialism
_______. [Ans. (c) Three sector model]
(a) Capitalist Economy 16. _______ is a combination of both capitalism
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and socialism.
(b) Traditional Economy (c) Mixed Economy
(a) Socialistic economy
(d) Socialist Economy
(b) Capitalistic economy
[Ans. (c) Mixed Economy]
(c) Traditional economy
9. Socialist Economy promote _______.
(d) Mixed economy[Ans. (d) Mixed economy]
(a) Social welfare motive
17. Identify the Father of Scientific Socialism.
(b) Collective welfare motive
(a) Adamsmith (b) J.M. Keynes
(c) Profit motive
(c) Karl Marx (d) Marshall
(d) Both ‘a’ and ‘b’ [Ans. (d) Both ‘a’ and ‘b’]
[Ans. (c) Karl Marx]
11
18. Identify the stock variable. 3. (A) Socialist (i) Free Trade
(a) Wealth (b) Income Economy Economy
(c) Foreign exchange (d) Money (B) Traditional (ii) Command
[Ans. (a) Wealth] Economy Economy
19. Identify the economic system where only (C) Mixed Economy (iii) Subsistence
public ownership of production exists. Economy
(a) Capitalistic economy (D) Capitalistic (iv) Co-existence of
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(b) Socialistic economy Economy both public and
private
(c) Globalistic economy (d) Mixed economy
Codes :
[Ans. (b) Socialistic economy]
(a) A - (ii), B - (iii), C - (iv), D - (i)
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20. Identify the economic system where all decision
(b) A - (iv), B - (iii), C - (ii), D - (i)
are under taken by the central planning authority.
(a) Socialist economy (c) A - (i), B - (iv), C - (iii), D - (ii)
(b) Globalistic economy (c) Mixed economy (d) A - (ii), B - (iii), C - (i), D - (iv)
Ans. (a) [A - (ii), B - (iii), C - (iv), D - (i)]
.
(d) Capitalistic economy
[Ans. (a) Socialist economy]
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4. (A) Role of (i) Mixed Economy
21. Capitalism leads to _______. Government
(a) Central planning (b) Class struggle (B) Customs and (ii) Capitalistic
(c) Welfare Tradition Economy
(d) All the above [Ans. (b) Class struggle] (C) Profit Motive (iii) Socialistic
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(ii) Match the following and choose the correct (D) Co-existence of (iv) Traditional
answer by using codes given below. public and private Economy
1. (A) Father of Macro (i) J.M. Keynes Codes :
Economics
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(B) Father of Socialist (ii) Karl Marx (a) A - (ii), B - (iii), C - (iv), D - (i)
Economy (b) A - (iii), B - (iv), C - (ii), D - (i)
(C) Micro (iii) Small (c) A - (iii), B - (i), C - (iv), D - (ii)
(D) Macro (iv) Large (d) A - (iv), B - (iii), C - (i), D - (ii)
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Codes : Ans. (b) [A - (iii), B - (iv), C - (ii), D - (i)]

(a) A - (i), B - (ii), C - (iii), D - (iv) 5. (A) Market force (i) Socialism
(b) A - (ii), B - (i), C - (iii), D - (iv) (B) Bureaucratic (ii) Inefficiency of
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(c) A - (iv), B - (iii), C - (ii), D - (i) expansion production

(d) A - (i), B - (iv), C - (ii), D - (iii) (C) Private property (iii) Supply, demand
Ans. (a) [A - (i), B - (ii), C - (iii), D - (iv)] and price
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2. (A) The General Theory of (i) Income (D) Red tapism and (iv) Laissez Faire
employment interest Theory corruption economy
and money Codes :
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(B) Macro (ii) Inflation (a) A - (iii), B - (i), C - (iv), D - (ii)

(C) Aggregate Economics (iii) 1936 (b) A - (iv), B - (iii), C - (ii), D - (i)
(D) Steady increase in (iv) Greek (c) A - (ii), B - (iv), C - (i), D - (iii)
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general price (d) A - (ii), B - (iii), C - (iv), D - (i)

Codes : Ans. (a) [A - (iii), B - (i), C - (iv), D - (ii)]
(a) A - (iv), B - (iii), C - (ii), D - (i) 6. (A) Planned Economy (i) West Germany
(b) A - (ii), B - (i), C - (iv), D - (iii) (B) Capitalist Country (ii) Cuba
(c) A - (iii), B - (iv), C - (i), D - (ii) (C) Socialist Country (iii) India
(d) A - (iv), B - (i), C - (ii), D - (iii) (D) Mixed Economy (iv) Socialistic
Ans. (c) [A - (iii), B - (iv), C - (i), D - (ii)] Economy
12
2
Chapter
National Income
m
. co
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CHAPTER SNAPSHOT
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2.1 Introduction 2.6 Importance of National Income Analysis
2.2 Meaning of National Income 2.7 Difficulties in Measuring National Income
2.3 Definitions 2.7.1 Transfer payments
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2.4 Basic Concepts of National Income 2.7.2 Difficulties in assessing depreciation

2.4.1 Gross Domestic Product (GDP) allowance
2.4.2 Gross National Product (GNP) 2.7.3 Unpaid services
2.4.3 Net National Product (NNP) 2.7.4 Income from illegal activities
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2.4.4 NNP at Factor Cost 2.7.5 Production for self - consumption

2.4.5 Personal Income and changing price
2.4.6 Disposable Income 2.7.6 Capital Gains
.s
2.4.7 Per Capita Income 2.7.7 Statistical problems

2.4.8 Real Income 2.8 National Income and Social Accounting
2.4.9 GDP deflator 2.8.1 Social Accounting and Sector
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2.5 Methods of Measuring National Income 2.8.2 National Income and Welfare
2.5.1 Product Method 2.8.3 National Income & Erosion of
2.5.2 Income Method (Factor Earning
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National Wealth
Method) 2.8.4 National income interms of US$
2.5.3 The Expenditure Method (Outlay 2.8.5 Social and Environmental Cost
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method)
[19]

w Concept Map
NNP of Net National
Factor Cost
w Product (NNP)
Per Capital
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Personal
Meaning of
National Income
Income Income
Basic Concepts of
National Income
.s
Definitions
Disposable Gross National
Income Product (GNP)
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Real Gross Domestic Introduction
Income Products (GDP)
20
NATIONAL INCOME
ab
National Income and
Methods of Measuring Social Accounting
National Income
Statistical Problems Summary

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Importance of
National Income
Product Analysis
Method Production for Self
Consumption and Income from
Illegal Activities
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Changing Price
Difficulties in
Income Method Measuring

Factor Earning Method
.
National Income Difficulties in Transfer
Assessing Payments
Depreciation
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The Expenditure
Ph: 8124201000 / 8124301000

Method
Chapter 2
Capital Gains
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Unpaid Services
National Income Sura’s - XII Std - Economics
Important Terms
GNP : Total money value of final goods and services produced in a country during a
particular year (one year) including depreciation and net exports.
Total money value of final goods and services produced in a country during a
m
NNP :
particular year excluding depreciation including net exports.
NNP at factor cost : The total of income payment made to factors of production.
co
Personal Income : Total income received by the individuals of a country before payment of direct
taxes.
Disposable Income : It is the sum of the consumption and saving of individuals after the payment
of income tax.
.
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Per capital Income : Annual average income of a person.
Social Accounts : The accounts of national income considering the social cost generated by
economic activities.
Rendering useful services like preparation of meals, washing, learning bringing
Unpaid Services :
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up children, services to their friends and relatives without payment.
Capital Sector : It includes saving and investment activities.
Transfer Payments : Government makes payments in the form of pensions unemployment
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allowance, subsidies, etc.

Real Income : Nominal income is national income expressed in term of a general price level
of a particular year in the other words, real income is the buying power of
nominal income.
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Outlay Method : The total expenditure incurred by the society in a particular year is called total
expenditure of a society.
Factor Cost : There are number of inputs that are included into a production process when
.s
producing goods and services. These inputs are commonly known as factors
of production.
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Market Price (MP) : The market price is the price that consumer will pay for the product when they
purchase it from the sellers.
Capital Gains : Capital gains are the difference between a higher selling price and a lower
w
purchase price.
Social Accounting : “Social accounting is the process of measuring and reporting to stakeholders
the social and environmental effects of an organisation’s actions”.
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21
Definitions
National Income by : Alfred Marshal defined National Income as “The labour and capital of country
Alfred Marshall acting on its natural resources produce annually a certain net aggregate of
commodities, material and immaterial including services of all kinds. This is
m
the true net annual income or revenue of the country or national dividend”.
National Income by : According to Samuelson “The concept of national Income is an indispensable
Samuelson preparation for tackling the great issues of unemployment, inflation and
co
growth”.
GDP Deflator : The GDP deflator, also known as the implicit price deflator, measures the
impact of inflation on the gross domestic product during a specified period,
usually a year.
.
Per Capita Income : The average income of a person of a country in a particular year is called Per
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Capita Income. Per capita Income is obtained by dividing nation income by
population.
National Income by : “The net output of the commodities and services flowing during the year from
Simon Kuznets the country’s productive system into the hands of the ultimate consumers or
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into net addition to the country’s stock of capital goods”.
- Simon Kuznets.
Formulae
7.
Disposable Income = Personal income –
Direct tax.
ab
As the entire disposable income is not spent

on consumption,
1. Gross Domestic product (GDP) Disposal income = consumption + saving.
GDP by expenditure method at market prices 8. Percapita Income
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= C + I + G + (X –M)
National income
Percapita Income =
2. Net Domestic Product (NDP) Population
Net Domestic Product = GDP – Depreciation
.s
9. Real Income
3. GNP at market prices = GDP at market National Income at constant price
prices + Net factor income from abroad. P1
w
= National income at current price ÷

4. NNP = GNP – Depreciation allowance. P0
10. GDP deflator
5.
w
NNP at factor cost = NNP at market prices –

Indirect taxes + subsidies. National GDP
GDP deflator = × 100
Real GDP
6. Personal Income = National income – (Social
w
11. Method of measuring National Income

security contribution and
undistributed corporate Output = Income = Expenditure.
profits) + Transfer 12. Income method
payment.
Y = W + r + i + π F(R – P)
13. The expenditure method
GNP = C + I + G + (X – M)
22
Model Questions
9. Per capita income is obtained by dividing the
Part - A National income by _______.
Multiple Choice Questions [PTA-3; Aug-'21; May-'22]
(a) Production
m
1. Net National product at factor cost is also (b) Population of a country
known as [PTA-3] (c) Expenditure
(a) National Income (d) GNP [Ans. (b) Population of a country]
co
(b) Domestic Income
10. GNP = _______ + Net factor income from
(c) Per capita Income (d) Salary.
abroad.
[Ans. (a) National Income]
(a) NNP (b) NDP
2. Primary sector is _______. (c) GDP (d) Personal income
.
[PTA-6; HY-'19; Mar-2020] [Ans. (c) GDP]
ks
(a) Industry (b) Trade 11. NNP stands for _______.
(c) Agriculture (d) Construction. (a) Net National Product
[Ans. (c) Agriculture] (b) National Net product
3. National income is measured by using (c) National Net Provident
_______methods.
oo
[QY-'19; FRT, July-'22] (d) Net National Provident
(a) Two (b) Three [Ans. (a) Net National Product]
(c) Five (d) Four 12. _______ is deducted from gross value to get
[Ans. (b) Three] the net value. [Sep-2020]
ab
4. Income method is measured by summing up (a) Income (b) Depreciation

of all forms of _______. [FRT, July-'22] (c) Expenditure
(a) Revenue (b) Taxes (d) Value of final goods[Ans. (b) Depreciation]
(c) expenditure (d) Income 13. The financial year in India is _______.
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[Ans. (d) Income]

[Govt. MQP-'19; HY-'19]
5. Which is the largest figure? (a) April 1 to March 31
(a) Disposable income (b) Personal Income (b) March 1 to April 30
(c) NNP (d) GNP
.s
(c) March 1 to March 16

[Ans. (d) GNP]
(d) January 1 to December 31
6. Expenditure method is used to estimate
national income in _______. [Ans. (a) April 1 to March 31]
w
(a) Construction sector 14. When net factor income from abroad is
(b) Agricultural Sector deducted from NNP, the net value is _______.
(c) Service sector (d) Banking sector (a) Gross National Product [PTA-6]
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[Ans. (a) Construction sector] (b) Disposable Income

7. Tertiary sector is also called as _______ sector (c) Net Domestic Product
[PTA-1; Sep-2020] (d) Personal Income
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(a) Service (b) Income [Ans. (c) Net Domestic Product]

(c) Industrial (d) Production
[Ans. (a) Service] 15. The value of NNP at production point is called
_______. [PTA-5]
8. National income is a measure of the _______
(a) NNP at factor cost
performance of an economy. [PTA-5; FRT-'22]
(b) NNP at market cost
(a) Industrial (b) Agricultural
(c) GNP at factor cost
(c) Economic (d) Consumption
[Ans. (c) Economic] (d) Per capita income
[Ans. (a) NNP at factor cost]
23
16. The average income of the country is _______. Part - B

(a) Personal Income [PTA-4]
(b) Per capita income Answer the following questions in
(c) Inflation Rate (d) Disposal Income one or two sentences
[Ans. (b) Per capita income]
17. The value of national income adjusted for 21. Define National Income. [PTA-5; Mar-2020]
inflation is called _______. Ans. According to Alfred Marshall, “The labour
m
(a) Inflation Rate (b) Disposal Income and capital of a country acting on its natural
(c) GNP resources produce annually a certain net
(d) Real national income aggregate of commodities, material and
immaterial including services of all kinds. This
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[Ans. (d) Real national income]
18. Which is a flow concept ? is the true net annual income or revenue of the
(a) Number of shirts (b) Total wealth country or national dividend”.
(c) Monthly income (d) Money supply 22. Write the formula for calculating GNP.
[Ans. (c) Monthly income]
.
[QY-'19; Sep-2020; FRT & May-'22]
19. PQLI is the indicator of _______.
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(a) Economic growth Ans. GNP at market prices = GDP at market prices +
(b) Economic welfare Net factor income from Abroad.
(c) Economic progress GNP = C + I + G + ((X–M) + (R – P))
(d) Economic development C - Consumption Expenditure

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[Ans. (b) Economic welfare]
I - Investment Expenditure
20. The largest proportion of national income
comes from _______. [PTA-2] G - Government Expenditure
(a) Private sector X–M - Difference between value exports and
ab
(b) Local sector imports of goods.

(c) Public sector R–P - Net factor income from abroad
(d) None of the above[Ans. (a) Private sector]
ur
23. What is the difference between NNP and NDP?

Ans. S. No. NNP NDP
1. NNP refers to the market value of NDP is the value of net output of the economy during
output the year.
.s
2. NNP at factor cost is the total of income The country’s capital equipment wears out or becomes
payment made to factors of production. outdated each year during the production process.
w
3. Formula : NNP = GNP – depreciation Net Domestic Product = GDP – Depreciation.

allowance
24. Trace the relationship between GNP and NNP. [PTA-2]
w
Ans. S. No. GNP NNP

1. Gross National Product (GNP) is the Net National Product (NNP) refers to the value of
total measure of the flow of final goods the net output of the economy during the year.
w
and services at market value resulting NNP is obtained by deducting the value of
from current production in a country depreciation.
during a year, including net income
from abroad.
2. GNP at Market prices = GDP at NNP = GNP – depreciation allowance
market prices + Net Factor income
from Abroad.
24

Part - A 8. GDP calculate at market price is known as
_______.
Multiple Choice Questions 1 Mark (a) GDP at factor price
(i) Choose the Correct Option. (b) NDP at factor price
1. GNP stands for (c) GNP at factor price
m
(a) Net National Product (d) GDP at Market price
(b) Gross Net Product [Ans. (d) GDP at Market price]
(c) Gross Net Provident 9. GDP by expenditure at _______ price.
co
(d) Gross National Product (a) Factor price (b) Market price
[Ans. (d) Gross National Product] (c) Real price (d) All the above
2. GDP stands for [Ans. (b) Market price]
(a) Gross Domestic Product 10. Net Domestic = GDP – _______.
(b) Gross Direct Product (a) NNP (b) NDP
.
(c) Gross Domestic Provident (c) GNP (d) Depreciation
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(d) Gross Derived Product [Ans. (d) Depreciation]
[Ans. (a) Gross Domestic Product]
11. GNP is the total measure of the flow of _______
3. Formula for calculating NNP at factor cost. and services.
Nominal GDP (a) Semi goods (b) Semi finished good
(a) × 100
oo (c) Final goods (d) None of these
Real GDP
[Ans. (c) Final goods]
(b) NNP at Market Prices – Indirect taxes + 12. GNP includes _______ types of final goods
Subsidies. and services.
(c) GNP – Depreciation allowance
ab
(d) Output = Income = Expenditure (a) Two (b) Four

(c) Five (d) Three [Ans. (c) Five]
[Ans. (b)
NNP at Market Prices – Indirect
13. Goods and services produced in a year to
taxes + Subsidies.]
4. Value of output = satisfy immediate wants is known as _______.
(a) Sales + Change in stock (a) Production (b) Consumption
ur
(b) Sales – Change in stock (c) Distribution (d) Exchange

(c) Sales ÷ Change in stock [Ans. (b) Consumption]
(d) Sales × Change in stock 14. Inventories of finished and unfinished goods
[Ans. (a) Sales + Change in stock] are called _______.
.s
5. Percapita Income =
(a) Net Investment (b) Investment
(a) National Income – Population
(c) Gross Investment (d) Both ‘a’ and ‘b’
(b) National Income + Population
[Ans. (c) Gross Investment]
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(c) National Income ÷ Population

(d) National Income × Population 15. The difference between value of exports and
[Ans. (c) National Income ÷ Population] imports of goods and services is known as
_______.
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6. A country which has no economic relations (a) X–M (b) G+I (c) X × M
with other countries in termed as (d) All the above [Ans. (a) X–M]
(a) Open economy (b) Closed economy
16. GNP at Market prices = GDP at Market
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(c) Planned economy

Price + _______.
(d) Command economy
(a) Net Market Income
[Ans. (b) Closed economy]
(b) Net Factor Income from abroad
7. National Income provides a comprehensive
measure of _______ activities of a nation. (c) Both ‘a’ and ‘b’ (d) Personal Income
(a) Economic activity (b) Production activity [Ans. (b) Net Factor Income from abroad]
(c) Consumption activity 17. NNP = _______ – Depreciation.
(d) Industrial activity (a) GNP (b) GDP
[Ans. (a) Economic activity] (c) NDP (d) All of these [Ans. (a) GNP]
31
18. NNP at factor cost = NNP at Market Price – 29. Under social accounting method the economy
_______ + Subsidies. is divided into _______ sectors.
(a) Direct taxes (b) Canons of taxes (a) four (b) two
(c) Indirect taxes (d) None of these (c) several (d) three [Ans. (c) several]
[Ans. (c) Indirect taxes] 30. _______ provides the social goods like public
19. _______ income is never equal to the national health and education etc.
income. (a) Private (b) Government
(a) Disposal Income (b) Percapita Income (c) Unorganised sector (d) None of these
m
(c) Personal Income (d) GDP Deflater [Ans. (b) Government]
[Ans. (c) Personal Income] 31. The growth of an economy is indicated by an
________.
20. _______ Income is the buying power of (a) Increase in general prices
co
nominal income. (b) Increase in national income
(a) Gross Income (b) Real Income (c) Increase in savings
(c) Percapita Income (d) National Income (d) Increase in investment
[Ans. (b) Real Income] [Ans : (b) Increase in national income]
21. National Income expressed in terms of money 32. The per capita income of an economy can be
.
at _______ prices. calculated by ________.
ks
(a) Constant Price (b) Market Price (a) Dividing GDP by population
(c) Current Price (d) All the above (b) Dividing GNP by population
[Ans. (c) Current Price] (c) Multiplying GNP by population
22. Output = Income = _______. (d) Dividing GNP by number of people
(a) Price
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(b) Expenditure employed
(c) Income (d) None of these [Ans : (b) Dividing GNP by population]
[Ans. (b) Expenditure] 33. The total money value of final goods and
23. Output = _______ = Expenditure. services produced in the country excluding
(a) Output (b) Expenditure depreciation is called ________.
ab
(c) Price (d) Income [Ans. (d) Income] (a) NDP (b) GDP
24. _______ reflects the economic welfare of the (c) NNP (d) GNP [Ans : (a) NDP]
country. 34. The difference between NNP and NDP is ____.
(a) Personal Income (b) Percapita Income (a) Depreciation
(b) Current transfers from rest of the world
ur
(c) Disposal Income (d) All of these

[Ans. (b) Percapita Income] (c) Indirect tax
25. Income earned through illegal activities are (d) Net factor income from abroad
_______. [Ans : (d) Net factor income from abroad)
35. National income as commonly understood by
.s
(a) gambling and smuggling every one refers to ________.

(b) illicit extraction of liquor (a) GNP (b) NNP
(c) gambling (d) All of these (c) GDP (d) NDP [Ans : (b) NNP]
[Ans. (d) All of these] 36. National income per person is used as an
w
26. _______ are excluded from national income. indicator of _______.

(a) Capital Gains (a) standard of living of people
(b) Social Accounting (b) poverty of the people
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(c) Statistical Problems (c) the richness of people

(d) None of these [Ans. (a) Capital Gains] (d) growth of industrialisation
27. Great care is required to calculate _______. [Ans : (a) standard of living of people]
37. National income was called ‘national dividend’
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(a) Capital Gains

(b) Social Accounting by _______.
(c) Double Counting (a) Irving Fisher (b) Alfred Marshall
(d) Statistical Problems (c) Samuelson (d) J.M. Keynes
[Ans : (b) Alfred Marshall]
[Ans. (c) Double Counting] 38. _______ is a measure of the total value of the
28. _______ Framework is useful for economists goods and services produced in an economy
as well as policy makers. for a year.
(a) Social Accounting (b) Statistics (a) GNP (b) GDP
(c) Capital Gains (d) None of these (c) National income (d) Per capita income
[Ans. (a) Social Accounting] [Ans : (c) National income]
32

39. GDP = _______. 48. Transfer earnings is referred to ________.
(a) GNP + Depreciation (a) Pension payments to retired persons
(b) GNP – Net income earned from abroad (b) Income paid as rent to landlord
(c) GNP – Depreciation (c) An interest payments to a capitalist
(d) NNP – Depreciation (d) Medical payments made to an employee of
[Ans : (b)
GNP – Net income earned from a company
abroad] [Ans : (a) Pension payments to retired persons]
40. _______is the total value of output produced 49. The value of net national product will be more
m
and income received in a year by domestic than the value of net domestic product, if
residence of a country. ________.
(a) GDP (b) NNP (a) imports exceed exports
co
(c) NDP (d) GNP (b) exports exceed imports
[Ans : (d) GNP] (c) exports equal imports
41. The income method of calculating national
(d) none of the above
income includes the income of the
____________. [Ans : (b) exports exceed imports]
50. Parallel economy refers to ________.
.
(a) farmers only
(a) agricultural economy
ks
(b) businessmen only
(c) service sector only (b) industries
(d) factors of production (c) banking activities
[Ans : (d) factors of production] (d) black money in circulation
42. _________ employ factors of production to [Ans : (d) black money in circulation]
produce the goods and services.
oo 51. _______ is measured by using three method.
(a) Consumer (b) Business sectors (a) National Income
(c) House holds (d) Farmers (b) Domestic Income
[Ans : (b) Business sectors] (c) Per capita Income (d) Personal Income
[Ans. (a) National Income]
ab
43. ________ is not the correct indicator for the

52. Secondary sector is _______
living standards of the people.
(a) Industry (b) Trade
(a) Per capita income
(c) Agriculture (d) Manufacture
(b) National income [Ans. (a) Industry]
(c) Both
ur
53. Tertiary sector is _______

(d) None of the above [Ans : (c) Both] (a) Industry (b) Banking
44. According to the year 2001, Indian per capita (c) Agriculture
income is _______dollar. (d) Import and Export [Ans. (b) Banking]
.s
(a) 520 (b) 460 (c) 240 (d) 900

[Ans : (b) 460] 54. GDP = _______
45. In _______ method, the measures of GDP are (a) GDP at Market Price + Net factor income
calculated for adding total value of output from abroad
w
produced by all activities during a year. Nominal GDP

(b) GDP = × 100
(a) Expenditure (b) Income Real GDP
(c) Product (d) All the above
w
(c) GDP = GNP + Net factor income from

[Ans : (c) Product] abroad
46. In ___________ method, the measures of GDP (d) All the above
are calculated by adding all the expenditures [Ans. (c) GDP = GNP + Net factor income
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made in the economy. from abroad]

(a) Income (b) Expenditure 55. Disposable income = _______.
(c) Product (d) All the above
[Ans : (b) Expenditure] Nominal GDP
(a) GDP deflater = × 100
47. GDP indicates productive capacity for an Real GDP
_______. (b) GNP – Depreciation allowance
(a) economy (b) employment (c) GDP – Depreciation
(c) income (d) population (d) Gross National Product
[Ans : (a) economy] [Ans. (d) Gross National Product]
33
Part - D (iv) Care must be taken to avoid double counting.

(v) The value of the final product is derived by
Answer the following questions in the summation of all the values added in
one page 5 Marks the productive process.
(vi) To avoid double counting either the value
1. Discuss the method measuring the National of the final output should be taken in to the
Income by Income Method. estimate of GNP.
Ans. (i) Income method approaches National (vii) In India the gross value of the farm output
m
Income from the distribution side. is obtained as follows.
(ii) National income is calculated by adding (1) The output of each crop is measured
up all the incomes generated in the course by multiplying the area shown by the
average yield per hectare.
co
of producing national product.
Steps involved : (2) The total output of each commodity
(1) Factor incomes are grouped under is valued at market prices.
labour income, capital income and (3) The net value of the agricultural output
mixed income. is measured by making deductions
for the cost of seed, manures and
.
(2) National income is calculated as
fertilisers etc.,
ks
domestic factor income plus net factor (4) Net value of the output in these sectors
incomes from abroad. In short, is derived by making deductions for
Y = w + r + i + π + (R–P) cost of materials used in the process
w = wages r = rent of production and depreciation
allowances etc., from gross value of
i = interest
oo
π = profits
output.
R = Exports P = Imports (5) For example, value of cotton enters
(3) This method is adopted for estimating value of yarn as cost and value of yarn
the contributions of the remaining in cloth and that of cloth in garments
sector, viz. at every stage value added only should
ab
(4) Data on income from abroad (the rest be calculated.

of the world sector or foreign sector) 3. Discuss the limitations of National Income as
are obtained from the account of the
an index of economic welfare.
balance of payments of the country.
Items not to be included : Ans. (i) The economic welfare depends upon
ur
(1) Transfer payments are not to be included the composition of a goods and services
in estimation of national income. provided.
(2) The receipts from the sale of second hand (ii) Higher GDP with greater environmental
goods should not be treated as part of national hazards such as air, water and soil
.s
income. pollution will be little economic welfare.

Items to be included : (iii) The production of war goods will show
(1) Imputed value of rent for self occupied house the increase in national output but not
w
or offices is to be included. welfare.

(2) Imputed value of services provided by owners
of production unit (family labour) is to be (iv) An increase in per capita income may
included. be due to employment of women and
w
2. Discuss the methods of measuring the child0ren or forcing workers to work

National Income by Product Method. for long hours. But it will not promote
Ans. Product Method : economic welfare.
w
(i) Product method measures the output of the (v) Therefore the physical quality of life index
country. It is also called inventory method. (PQLI) is considered a better indicator of
(ii) It is obtained for the entire economy during economic welfare.
a year. (vi) It includes standard of living, life
(iii) The value obtained is actually the GNP at expectancy at birth and literacy.
market prices.

38
7
Chapter
International
Economics
m
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CHAPTER SNAPSHOT
.
7.1 Introduction 7.8 Balance of Trade Vs Balance of Payments
ks
7.2 Meaning of International Economics 7.8.1 Balance of Trade (BOT)
7.3 Subject matter of International Economics 7.8.2 Balance of Payments (BOP)
7.4 Meaning of Trade 7.8.3 Components of BOPs
7.4.1 Internal Trade 7.8.4 Balance of Payments Disequilibrium
7.4.2 International Trade
oo 7.8.5 Types of BOP Disequilibrium
7.4.3 Differences between ‘Internal 7.8.6 Causes for BOP Disequilibrium
Trade’ and International Trade. 7.8.7 Measures to correct BOP
7.5 Theories of International Trade Disequilibrium
ab
7.5.1 The Classical Theory of 7.9 Exchange Rate

International Trade 7.9.1 Meaning of Foreign Exchange
7.5.2 Adam Smith’s Theory of Absolute (FOREX)
Cost Advantage. 7.9.2 Definition of FOREX
ur
7.5.3 Ricardo’s Theory of Comparative 7.9.3 Rate of Exchange

7.9.4 Definition of Equilibrium Exchange
Cost Advantage.
Rate
7.5.4 Modern Theory of International
.s
7.9.5 Determination of Equilibrium

Trade
Exchange Rate
7.5.5 Comparison of Classical Theory
7.9.6 Types of Exchange Rate Systems
w
and Modern Theory.

7.9.7 Types of Exchange Rates
7.6 Gains from International Trade
7.9.8 Determinants of Exchange Rates
7.7 Terms of Trade
7.10 Foreign Direct Investment (FDI) and Trade
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7.7.1 Meaning 7.10.1 Meaning of FDI

7.7.2 Types of Terms of Trade 7.10.2 Objectives of FDI
7.7.3 Terms of Trade related to the
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7.10.3 Advantages of FDI

Interchange between Productive 7.10.4 Disadvantages of FDI
Resources 7.10.5 FDI in India
[111]

w Concept Map
w Adam Smith’s Theory of
Absolute Cost Advantages
Types of Terms of Trade
Gains from International Trade
Ricardo Theory of Comparative
w Cost Advantage Terms of Trade to the
Internal Trade Related Interchange
The Classical Theory of Between Production
Difference & between Internal International Trade Resources
.s
Terms of Trade
Trade and International Trade
Comparison Between Classical
Theory And Modern Theory Meaning
International Trade
Theories of International Trade

Modern Theory of
ur
Meaning of Trade International Trade Subject Matter of International Trade
112
Meaning of International Economics 7. International economics Balance of Trade Vs Balance of Payments
ab
Foreign Direct Investment (FDI)
and Trade
Definition of FOREX
oo
Determination of Equilibrium Exchange Rate
Definition of Equilibrium Exchange Rate

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Determinants of Exchange Rate
.
Rate of Exchange
Introduction
Types of Exchange Rate
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Ph: 8124201000 / 8124301000

FDI in India
Disadvantages of FDI
Advantages of FDI
Objectives of FDI
Meaning of FDI
Balance of Trade
Balance of Payments (Bop)
Balance of Payments Disequilibrium
Component of BoPs
Types of Bop Disequilibrium
Causes for Bop Disequilibrium
Measures to Correct Bop Disequilibrium
Chapter 7
Types of Exchange Rate Systems

Meaning of Foreign Exchange (FOREX) m
International Economics Sura’s - XII Std - Economics
Important Terms
Interntional : A special branch of economics which primarily deals with the basics of
Economics international trade.
m
Internal Trade : A trade within the geographical boundary of a particular nation.
International Trade : A trade between two or more countries and it is a trade beyond the geographical
co
and political boundaries.
Absolute Cost : The difference in the actual costs of production of a commodities between two
Differences nations.
.
Factor Endowment : Abundance in the availability of a factor in a country.
ks
Terms of Trade : The rate at which goods of one country are exchanged for that of another
country ie ratio of export price and import price.
Balance of Trade : The balance between the values of goods exchanged between two countries.
oo
Balance of Payments : The balance between the values of goods and services exchanged between two
countries.
Devaluation : It means official reduction in the value of a currency in terms of gold or other
ab
currencies.
Foreign Exchange : The currency of another country.
Exchange Rate : The rate at which one currency is exchanged for another currency.
ur
Fixed Exchange : An exchange rate that is held within a narrow band by the monetary authorities.
Rates
.s
Flexible Exchange : Flexible exchange rates are freely determined in an open market primarily by
Rates private dealings, and they like other market prices, vary from day by day.
w
Foreign Direct : The investment made by a multinational enterprise in a foreign country and
Investment an investment in a foreign country that involves some degree of control and
participation in management.
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Foreign Institutional : Foreign Institutional Investment is an investment in hedge funds, insurance

Investment (FII) companies, Pension funds and mutual funds.
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Foreign Portfolio : Foreign Portfolio Investment means the entry of funds into a nation.
Investment (FPI)
113
Definitions
International : “According to Dornbusch, Fischer and Startz defined as, Economies are linked
Economics internationally through trade in goods and through financial markets”.
m
Absolute Cost : According to Adam Smith, the basis of international trade was absolute cost
Advantage advantage. In Economics, the principle of absolute cost advantage refers to
the ability of a business to produce more, sell more of goods or services than
co
competitors, using the same amount of resource.
Ricardo’s Theory of : According to Ricardo, a country can gain from trade when it produces at
Comparative Cost relatively lower costs. Even when a country enjoys absolute advantage in both
goods, the country would specialize in the production and export of those
.
Advantage
goods, which are relatively more advantageous.
ks
International Trade : A capital abundant country will export capital intensive goods. While the labour
abundant country will export the labour intensive goods.
oo
FOREX : FOREX is the System or process of converting one national currency into another,
and of transferring money from one country to another.
Equilibrium Exchange : According to Ragnar Nurkse, “The equilibrium exchange rate is that rate, which
rate over a certain period of time, keeps the balance of payments in equilibrium.
ab
Foreign Direct : An investment in a foreign country that involves some degree of control and
Investment participation in management. It corresponds to the investment made by a
multinational enterprise in a foreign country.
ur
Formulae
.s
S.
TO CALCULATE FORMULA
NO.
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1. Net Barter Terms of Trade Tn = (Px / Pm) × 100

2. Gross Barter Terms of Trade Tg = (Qm / Qx) × 100
w
3. Income Terms of Trade Ty = (Px / Pm) Qx

4. Single Factoral Terms of Trade Tf = (Px / Pm) Fx
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5. Double Factoral Terms of Trade T = (Px / Pm) (Fx/ Fm)

ff
6. Balance of Payment (BoP) Account Chart (Credit (Receipts) – Debit(Payment) = Balance

[Deficit (–), Surplus (+)]
Deficit if Debit > Credit
7. Balance of Payments Disequilibrium R/P=I
114
8. Favourable BoP R/P>I

9. Unfavourable BoP R/P<I
10. Real Exchange Rate
ePf
Real Exchange rate =
P
m
Model Questions
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Part - A 6. Exchange rates are determined in
[Govt. MQP & QY - '19; Mar-2020; SRT-'22]
Multiple Choice Questions (a) money market
1. Trade between two countries is known as (b) foreign exchange market
.
(c) stock market (d) capital market
_______ trade [PTA-3; Aug-'21; SRT & May-'22]
ks
(a) External (b) Internal [Ans. (b) foreign exchange market]
(c) Inter-regional (d) Home 7. Exchange rate for currencies is determined by
[Ans. (a) External] supply and demand under the system of
[SRT-'22]
2.
oo
Which of the following factors influence (a) Fixed exchange rate
trade?
(b) Flexible exchange rate
(a) The stage of development of a product (c) Constant
(b) The relative price of factors of productions. (d) Government regulated
(c) Government. [Ans. (b) Flexible exchange rate]
ab
(d) All of the above.[Ans. (d) All of the above.]

8. Net export equals _______.
3. International trade differs from domestic [PTA-4; QY-'19; HY-'19]
trade because of [PTA-5] (a) Export × Import (b) Export + Import
(a) Trade restrictions (c) Export – Import
ur
(b) Immobility of factors (d) Exports of services only

(c) Different government policies [Ans. (c) Export – Import]
(d) All the above [Ans. (d) All the above] 9. Who among the following enunciated the
.s
4. In general, a primary reason why nations concept of single factoral terms of trade?
conduct international trade is because (a) Jacob Viner (b) G.S.Donens
(a) Some nations prefer to produce one thing (c) Taussig (d) J.S.Mill
while others produce another [Ans. (a) Jacob Viner]
w
(b) Resources are not equally distributed among 10. Terms of Trade of a country show _______.
all trading nations
[PTA-6; SRT, July-'22]
(c) Trade enhances opportunities to accumulate
w
profits (a) Ratio of goods exported and imported

(d) Interest rates are not identical in all trading (b) Ratio of import duties
nations (c) Ratio of prices of exports and imports
(d) Both (a) and (c)
w
[Ans. (b) Resources are not equally distributed

among all trading nations] [Ans. (c)
Ratio of prices of exports and
5. Which of the following is a modern theory of imports]
international trade? 11. Favourable trade means value of exports are
(a) absolute cost _______ Than that of imports.
(b) comparative cost [PTA-2; [HY-'19; May-'22]
(c) Factor endowment theory (a) More (b) Less
(d) none of these (c) More or Less (d) Not more than
[Ans. (c) Factor endowment theory] [Ans. (a) More]
115
12. If there is an imbalance in the trade balance 20. Benefits of FDI include, theoretically
(more imports than exports), it can be reduced (a) Boost in Economic Growth
by [PTA-5] (b) Increase in the import and export of goods
(a) decreasing customs duties and services
(b) increasing export duties
(c) stimulating exports (c) Increased employment and skill levels
(d) stimulating imports (d) All of these [Ans. (d) All of these]
[Ans. (c) stimulating exports]
Part - B
m
13. BOP includes [PTA-1; Mar-2020; Sep-2020]
(a) visible items only Answer the following questions.
(b) invisible items only
(c) both visible and invisible items each question carries 2 marks.
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(d) merchandise trade only 21. What is International Economics?
[Ans. (c) both visible and invisible items]
14. Components of balance of payments of a [PTA-6; SRT, July-'22]
country includes [SRT-'22] Ans. International Economics is that branch of
(a) Current account (b) Official account economics which is concerned with the
.
(c) Capital account (d) All of above exchange of goods and services between two
ks
[Ans. (d) All of above] or more countries. Hence the subject matter is
15. In the case of BOT,
(a) Transactions of goods are recorded. mainly related to foreign trade.
(b) Transactions of both goods and services are 22. Define International trade. [PTA-4]
recorded. Ans. (i) International trade refers to the trade or
oo
(c) Both capital and financial accounts are exchange of goods and services between
included. two or more countries.
(d) All of these (ii) In other words, it is a trade among
[Ans. (a) Transactions of goods are recorded.]
16. Tourism and travel are classified in which of different countries or trade across political
balance of payments accounts? boundaries.
ab
(a) merchandise trade account (iii) It is also called as ‘external trade’ or

(b) services account ‘foreign trade’ or ‘inter-regional trade’.
(c) unilateral transfers account 23. State any two merits of trade.
(d) capital account [Ans. (b) services account] Ans. (i) Trade is one of the powerful forces of
17. Cyclical disequilibrium in BOP occurs economic integration.
ur
because of (ii) The term ‘trade’ means exchange of goods,

(a) Different paths of business cycle.
(b) The income elasticity of demand or price wares or merchandise among people.
elasticity of demand is different. 24. What is the main difference between Adam
(c) long-run changes in an economy
.s
Smith and Ricardo with regard to the

(d) Both (a) and (b). emergence of foreign trade?
[Ans. (d) Both (a) and (b)] Ans.
18. Which of the following is not an example of
w
foreign direct investment? S. Adam Smith Ricardo Foreign

(a) the construction of a new auto assembly No. Foreign Trade Trade
plant overseas
(b) the acquisition of an existing steel mill 1. According to Adam Ricardo demonstrates
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overseas Smith the basis of that the basis of trade

(c) the purchase of bonds or stock issued by a International trade is the comparative
textile company overseas
(d) the creation of a wholly owned business was absolute cost cost difference.
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firm overseas advantage.

[Ans. (c) the purchase of bonds or stock issued 2. Trade between Trade can take place
by a textile company overseas] two countries even if the absolute
19. Foreign direct investments not permitted in would be mutually cost difference is
India [Aug-'21; July-'22] beneficial when one absent but there is
(a) Banking country produces comparative cost
(b) Automic energy a commodity at difference.
(c) Pharmaceutical an absolute cost
(d) Insurance [Ans. (b) Automic energy] advantage.
116

25. Define Terms of Trade. foreign aid, external borrowings and foreign direct
investment, measures of correcting disequilibrium
Ans. The gains from international trade depend upon
in the balance of payments etc are covered.
the terms of trade which refers to the ratio of
export prices to import prices. (iii) International Cartels and Trade Blocs :
Terms of Trade (TOT) = This part deals with the economic integration in
the form of international cartels, customs unions,
Index of Export Prices
m
× 100 monetary unions, trade blocs, economic unions
Index of Import Prices and the like. It also discusses the operation of
26. What do you mean by Balance of Payments? Multi National Corporations (MNCs).
[Govt. MQP - '19]
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(iv) International Financial and Trade
Ans. (i) Balance of Payments (BoP) is a systematic Regulatory Institutions :
record of a country’s economic and
financial transactions with the rest of the The financial institutions like International
world over a period of time. Monetary Fund IMF, IBRD, WTO etc which
.
(ii) When a payment is received from a influence international economic transactions
and relations shall also be the part of international
ks
foreign country, it is a credit ransaction
while a payment to a foreign country is a economics.
debit transaction. 29. Compare the Classical Theory of international
27. What is meant by Exchange Rate? trade with Modern Theory of International

oo
[PTA-2 ; Aug-'21; SRT-'22] trade.
Ans. FOREX refers to foreign currencies. The Ans.
mechanism through which payments are S. Classical Theory of Modern Theory of
effected between two countries having different No. International Trade International Trade
currency systems is called FOREX system.
ab
It covers methods of payment, rules and 1. The Classical The Modern

regulations of payment and the institutions theory explains the theory explains the
facilitating such payments phenomenon of phenomenon of
International Trade international trade on
Part - C on the basis of labour the basis of general
ur
theory of value. theory of value.

Answer the following questions.
2. It presents a one It presents a multi-
Each question carries 3 marks. factor (labour) factor (Labour and
.s
28. Describe the subject matter of International model. Capital) model.

Economics. [PTA-1; QY-'19; SRT, July-'22] 3. It attributes the It attributes the
Ans. The subject matter of International Economics are, differences in the differences in
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comparative costs comparative costs

(i) Pure Theory of Trade : to differences in the to the differences in
productive efficiency factor endowments in
This component explains the causes for foreign
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of workers in the two two countries.

trade, composition, direction and volume of trade, countries.
determination of the terms of trade and exchange
rate, issues related to balance of trade and balance 30. Explain the Net Barter Terms of Trade and
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of payments. Gross Barter Terms of Trade.

(ii) Policy Issues : Ans. (I) Net Barter Term of Trade :
(i) This type was developed by Taussig
Under this part, policy issues such as free trade vs. in 1927.
protection, methods of regulating trade, capital
(ii) The ratio between the prices of
and technology flows, use of taxation, subsidies
exports and of imports is called the
and dumping, exchange control and convertibility,
“net barter terms of trade’.
117

Part - A 10. Trade is of _______ types
(a) One (b) Two
Multiple Choice Questions 1 Mark (c) Three (d) Four
(i) Choose the Correct Option. [Ans. (b) Two]
1. IMF stands for 11. The official reserve assets of a country include
m
(a) Indian Managing Fund its _______.
(b) Indian’s Marketing Fund (a) Gold stock (b) Shares
(c) International Monetary Fund (c) Debenture (d) General reserve
[Ans. (a) Gold stock]
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(d) International Marketing Fund
12. _______ is one of the types of BoP
[Ans. (c) International Monetary Fund] disequilibrium.
2. Absolute Cost Advantage was developed by (a) Income terms of trade
(a) Adam Smith (b) Ricardo (b) Devaluation
(c) J.R.Hicks (d) Doltan (c) Structural (d) FDI
.
[Ans. (a) Adam Smith] [Ans. (c) Structural]
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3. Comparative cost advantage was developed by 13. _______ investment may also help increase
(a) Adam Smith (b) Ricardo competition.
(c) J.S.Mill (d) J.R.Hicks (a) Gold (b) Foreign
[Ans. (b) Ricardo] (c) Inter Country (d) Money
International trade was developed by [Ans. (b) Foreign]
4.
oo 14. There are _______ major exchange rate system.
(a) Adam Smith and Ricardo
(b) Eli Heckscher and Bertil Ohlin (a) two (b) three
(c) four (d) five
(c) Ricardo and A.C. Pigou [Ans. (a) two]
(d) Adam Smith and Ohlin 15. _______ refers to foreign currencies.
ab
[Ans. (b) Eli Heckscher and Bertil Ohlin] (a) BOT (b) FOREX
5. _______ includes both visible and invisible (c) BOP (d) FUND
items. [Ans. (b) FOREX]
(a) Balance of payment (b) Balance of Trade 16. High _______ level is responsible for high
(c) Foreign Trade (d) None of these. imports and low exports
ur
[Ans. (a) Balance of payment] (a) Domestic price

6. _______ equals Export – Import (b) Domestic expenses
(a) Gross Import (b) Gross Export (c) Domestic profit
(c) Net Import (d) Net Export (d) Domestic earnings
.s
[Ans. (d) Net Export] [Ans. (a) Domestic price]

7. _______ are determined in foreign exchange 17. A country’s _______ also determines the
exchange rate.
rate.
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(a) Terms of trade (b) Trade

(a) Rate of interest (b) Exchange rate. (c) Policy issue (d) Internal trade
(c) Net Exports (d) All the above. [Ans. (a) Terms of trade]
[Ans. (b) Exchange rate.] 18. The modern theory explains the phenomenon
w
8. _______ means value of exports is more than of international trade on the basis of _______.
that of imports. (a) Labour theory of value
(a) Unfavorable trade (b) Factor endowment theory
w
(b) International trade (c) General theory of value

(c) Favorable trade (d) External trade (d) Ricardo theory
[Ans. (c) Favorable trade] [Ans. (c) General theory of value]
9. _______ refers to the exchange of goods and 19. Viner has devised another concept called
services with the political and geographical _______.
(a) The single factoral terms of trade
boundaries of a nation.
(b) Net Barter terms of trade
(a) Internal Trade (b) External Trade (c) Gross Barter terms of trade
(c) Foreign Trade (d) Global trade (d) Internal trade
[Ans. (a) Internal Trade] [Ans. (a) The single factoral terms of trade]
124

(ii) Match the following and choose the 4. (A) Balance of Payments (i) R/P <1
correct answer by using codes given Disequilibrium
below.
(B) Balance of Payment (ii) R/P > 1
1. (A) Internal Trade (i) Trade between Equilibrium
two countries
(C) Unfavorable Balance of (iii) R/P ≠ 1
(B) External Trade (ii) Taussig & payment
Haberler
m
(D) Favorable Balance of (iv) R/P = 1
(C) Subject Matter (iii) IMF, IBRD & payment
of International WTO
Trade Codes:
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(D) Financial (iv) Trade within (a) A - (iv), B - (iii), C - (ii), D - (i)
Intuitions the nation
(b) A - (iii), B - (iv), C - (i), D - (ii)
Codes :
(a) A – (iv), B – (i), C – (ii), D – (iii) (c) A - (ii), B - (i), C - (iv), D - (iii)
.
(b) A – (iii), B – (iv), C – (ii), D – (i) (d) A - (ii), B - (i), C - (iv), D - (iii)
ks
(c) A – (ii), B – (iii), C – (iv), D – (i) Ans. (b) [A - (iii) B - (iv) C - (i) D - (ii)]
(b) A – (iv), B – (iii), C – (ii), D – (i)
Ans. (a) [A – (iv) B – (i) C – (ii) D – (iii)] 5. (A) FDI (i) IBRD
(B) International (ii) Foreign Direct
2. (A) Absolute Cost (i) Visible Trade
Economic Investment
Advantage
oo
Organisation
(B) Comparative (ii) Adam Smith
cost advantage (1776) (C) FOREX (iii) ePf /P
(C) Modern theory (iii) Ricardo – 1817 (D) Real Exchange (iv) Foreign
ab
of International rate Currency

trade
Codes :
(D) Balance of (iv) Eli Heckscher
Trade and Bertil Ohlin (a) A - (ii), B - (i), C - (iv), D - (iii)
ur
Codes : (b) A - (iv), B - (i), C - (iv), D - (ii)

(a) A - (ii), B - (i), C - (iv), D - (iii) (c) A - (iii), B - (iv), C - (i), D - (ii)
(b) A - (iii), B - (iv), C - (i), D - (ii)
(d) A - (iii), B - (i), C - (iv), D - (ii)
(c) A - (ii), B - (iii), C - (iv), D - (i)
.s
(d) A - (iv), B - (iii), C - (ii), D - (iv) Ans. (a) [A - (ii) B- (i) C - (iv) D - (iii)]
Ans. (c) [A - (ii) B - (iii) C - (iv) D - (i)]
6. (A) Subject matter (i) International
3. (A) Net Barter Terms (i) G.S.Dorrance
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of international financial
of trade economics institution
(B) Gross Barter (ii) Tn = (Px / Pm) (B) WTO (ii) Cartels
Terms of Trade × 100
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(C) Powerful forces (iii) Trade

(C) Income Terms of (iii) Viner
trade (D) Economic (iv) Pure theory of
integration trade
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(D) The single (iv) Taussig

Factoral Terms
of Trade Codes :
Codes : (a) A-(i), B - (ii), C - (iii), D - (iv)
(a) A - (ii), B - (iv), C - (i), D - (iii) (b) A-(ii), B - (iii), C - (iv), D - (i)
(b) A - (iv), B - (iii), C - (i), D - (iii) (c) A-(iv), B - (i), C - (iii), D - (ii)
(c) A - (iii), B - (i), C - (iv), D - (ii)
(d) A - (ii), B - (i), C - (iv), D - (iii) (d) A-(iii), B - (iv), C - (ii), D - (i)
Ans. (a) [A - (ii) B - (iv) C - (i) D - (iii)] Ans. (c) [A-(iv), B - (i), C - (iii), D - (ii)]
125
7. (A) Policy Issues (i) Goods and 10. (A) Labour Cost (i) One factor
services within a (labour)
country
(B) Modern Theory (ii) Endowments
(B) Internal (ii) 1776
(C) Factor (iii) Unrealistic
Trade
(D) Classical Theory (iv) International
(C) Inter Regional (iii) Geographical
of International Trade
Trade boundaries
m
Trade
(D) Adam Smith (iv) Free Trade
Codes :
Codes : (a) A-(iv), B - (ii), C - (i), D - (iii)
co
(a) A-(iv), B - (iii), C - (i), D - (ii) (b) A-(ii), B - (iii), C - (iv), D - (i)
(b) A-(ii), B - (i), C - (iii), D - (iv)
(c) A-(iii), B - (iv), C - (ii), D - (i)
(c) A-(iii), B - (iv), C - (iii), D - (i)
(d) A-(i), B - (ii), C - (iii), D - (iv) (d) A-(i), B - (ii), C - (iii), D - (iv)
.
Ans. (c) [A-(iii), B - (iv), C - (ii), D - (i)]
Ans. (a) [A-(iv), B - (iii), C - (i), D - (ii)]
ks
8. (A) Foreign Trade (i)
Production of (iii) State whether the Statements are true or
cloth false.
(B) China (ii) 1817 1. Exchange Control:
(i) Exchange control means the state
(C) Theory of
oo
(iii) Trade between intervention in the forex market.
comparative cost two or more (ii) It is popular method employed to influence
countries the balance of payments position of a
(D) Taxation (iv) Ricardo country.
ab
published (a) Both (i) and (ii) are true

Codes : (b) Both (i) and (ii) are false
(a) A-(iv), B - (iii), C - (ii), D - (i) (c) (i) is true but (ii) is false
(b) A-(iii), B - (iv), C - (i), D - (ii) (d) (i) is false but (ii) is true
ur
(c) A-(i), B - (ii), C - (iii), D - (iv) [Ans. (a) Both (i) and (ii) are true]
(d) A-(ii), B - (iv), C - (i), D - (iii) 2. Gains from International Trade
Ans. (b) [A-(iii), B - (iv), C - (i), D - (ii)] (i) Improvement in the techniques of
production
.s
9. (A) Factor (i) Imports (ii) Decreased Production.

endowment (a) Both (i) and (ii) are true
theory
w
(b) Both (i) and (ii) are false

(B) Export embody (ii)
Modern (c) (i) is true but (ii) is false
theory
(d) (i) is false but (ii) is true
w
(C) Scarce factor (iii) Abundant [Ans. (c) (i) is true but (ii) is false]
factor
3. (i) Internal trade refers to the exchange of
(D) Based on (iv) Heckscher and goods and services within political and
w
Ricardian Theory Ohlin geographical boundaries of a nation.

Codes : (ii) International trade also known as
domestic ‘trade’.
(a) A-(iv), B - (iii), C - (i), D - (ii)
(a) Both (i) and (ii) are true
(b) A-(i), B - (ii), C - (iii), D - (iv) (b) Both (i) and (ii) are false
(c) A-(iii), B - (i), C - (ii), D - (iv) (c) (i) is true but (ii) is false
(d) A-(ii), B - (iv), C - (iii), D - (i) (d) (i) is false but (ii) is true
Ans. (a) [A-(iv), B - (iii), C - (i), D - (ii)] [Ans. (a) Both (i) and (ii) are true]
126
(i) Nominal Exchange Rate : Then it could be said that the USD and
75 Indian rupee are at purchasing power
Nominal Exchange Rate = = 75
1 parity.
This is the bilateral nominal exchange rate.
3. Explain the disadvantages of FDI.
(ii) Real Exchange Rate : Ans. (i) Private foreign capital tends to flow to the
high profit areas rather than to the priority
(1) Real Exchange Rate = ePf sectors.
m
P
(ii) The technologies brought in by the foreign
P = Price level in India investor may not be appropriate to the
Pf = Price levels in abroad (say US) consumption needs, size of the domestic
market etc.
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e = Nominal Exchange Rate
(iii) Foreign investment, sometimes, have
(2) If a pen costs `50 in India and it unfavorable effect on the Balance of
costs 5 USD in the US. Payments of a country because when
the drain of foreign exchange by way of
75 × 5 royalty, dividend , etc. is more than the
.
∴ Real Exchange Rate= =7.5
50 investment made by the foreign concerns.
ks
(iv) Foreign capital sometimes interferes in
(3) If real exchange rate is equal to 1, the national politics.
the currencies are at purchasing (v) Foreign investors sometimes engage in
power parity. unfair and unethical trade practices.
(4)
oo
If the price of the pen in US is 0.66 (vi) Often, there are several costs associated
USD, then the real exchange rate with encouraging foreign investment.
0.33 3 (vii) Foreign investment in some cases leads to
0.66 × 75 the destruction or weakening of small and
= = 0.99
50 2 medium enterprises.
ab
4. Draw the flow chart for correction of Balance Payment Disequilibrium.

Ans.
Correction of Balance of Payment Disequilibrium
ur
I. Automatic Correction II. Deliberate Measures

1. Price adjustments
.s
2. Interst rate of adjustments

3. Income adjustments
3. Capital flows Monetary Measures Miscellaneous Measures
w
1. Monetary Contraction 1. Foreign Loans

2. Devaluation / revaluation 2. Incentives for Foreign Investment
3. Exchange control 3. Tourism Development
w
4. Incentives for Foreign remittances

5. Import Substitution
III. Trade Measures
w
Export Promotion Import Control

1. Abolition / Reduction of Duties 1. Import Duties
2. Export Subsidies 2. Import Quotas
3. Export Incentives 3. Import Prohibition

130
8
Chapter
International Economic
Organisations
m
. co
ks
CHAPTER SNAPSHOT
oo
8.1 Introduction 8.4.3 Achievements of WTO
8.2 International Monetary Fund. 8.4.4 WTO and India
8.2.1 Objectives of IMF 8.5 Trade Blocks
ab
8.2.2 Functions of IMF 8.6

South Asian Association for Regional
8.2.3 Facilities offered by IMF Co-operation (SAARC)
8.2.4 Achievements of IMF 8.6.1 Objectives of SAARC
8.2.5 India and IMF 8.6.2 Functions of SAARC
ur
8.3 International Bank for Reconstruction and 8.6.3 Achievements of SAARC

Development (IBRD) or World Bank. 8.7
Association of South East Asian Nations
8.3.1 Objectives of IBRD (ASEAN)
.s
8.3.2 Functions of IBRD 8.7.1 Objectives of ASEAN

8.3.3 Achievements of World Bank 8.7.2 Functions of the ASEAN
8.3.4 India and World Bank 8.8 BRICS
w
8.4 World Trade Organization 8.8.1 Objectives of BRICS

8.4.1 Objectives of WTO 8.8.2 Functions of BRICS
8.4.2 Functions of WTO 8.8.3 Achievements of BRICS
w
w
[131]

w Concept Map
w
Objectives of IBRD
w Objectives of IMF
Functions of IBRD Functions of IMF Objectives of WTO
Achievements of World Bank Achievements of IMF Functions of WTO

.s
India and World Bank Facilities offered by IMF Achievements of WTO
International Bank India and IMF WTO and India
for Reconstruction
ur
and Development International World Trade
of the World Bank Monetary Fund Organisation
132
ab
Trade Blocks international economic organisation Introduction
oo
BRICS Association of South Asian
Southeast Asian Association for
Objective of BRICS Nations (ASEAN) Regional
Cooperation
ks
Functions of BRICS Objective of ASEAN (SAARC)
Achievements of BRICS Functions of ASEAN

. Objectives of SAARC
Functions of SAARC
co
Achievements of SAARC
Ph: 8124201000 / 8124301000

Chapter 8
m
International Economic Organisations Sura’s - XII Std - Economics
Important Terms
International : The IMF was established to assist the member nations to tide over the Balance
Monetary Fund of Payments disequilibrium in the short term.
m
SARRC : The South Asian Association for Regional Co-operation (SAARC)
is an organisation of South Asian nations, which was established on
8 December 1985 for the promotion of economic and social progress, cultural
development within the South Asia region and also for friendship and
co
co-operation with other developing countries.
ASEAN : ASEAN was established on 8 August 1967 in Bangkok by the five original
member countries: Indonesia, Malaysia, Philippines, Singapore and Thailand.
BRICS : BRICS is the acronym for an Association of five major emerging national
.
economies : Brazil, Russia, India, China and South Africa.
ks
Multi Fibre : The Multi fibre agreement governed the world trade in textiles and garments
Agreement since 1974.
Structural : Providing additional balance of payments assistance on concessional terms
Adjustment facility
oo
to the poorer member nations to undertake strong macro economic and
structural programmes.
Special Drawing : International Monetary reserve currency created by IMF.
Rights
ab
Trade related : TRIPs include copyright, trade mark, patents geographical indications,
Intellectual property industrial designs and invention of microbial plants.
Rights (TRIP)
Trade Related : TRIMs are related to conditions or restrictions imposed in respect of foreign
ur
Investment Rights investment in the country.

(TRIMs)
Multilateral trade : It is a multinational, legal or trade agreements between countries. It is an
.s
agreement agreement between more than two countries but not many.
Trade Blocks : They are a set of countries which engage in international trade together and are
usually related through a free trade agreement or other associations.
w
Free trade Area : A region encompassing a trade bloc whose member countries have signed a
Free Trade Agreement (FTA)
Customs union : Free trade area (zero tariffs among members) with a common external tariff.
w
Common market : A group formed by countries within geographical area to promote duty free
trade and free movement of labour and capital among its members.
w
Definitions
International Bank : IBRD is an International financial institution that offers loans to middle –
for Reconstruction income developing countries. The IBRD is the first of five member institution
and Development that is otherwise called the World Bank and headquartered in Washington, D.C
United States.
133
Model Questions
Part - A 9. The first ministerial meeting of WTO was held
at
Multiple Choice Questions (a) Singapore (b) Geneva
1. International Monetary Fund was an outcome (c) Seattle (d) Doha
of [PTA-5; Aug-'21; SRT-'22] [Ans. (a) Singapore]
m
(a) Pandung Conference 10. ASEAN meetings are held once in every
(b) Dunkel Draft _______ years
(c) Bretton Woods Conference (a) 2 (b) 3 (c) 4 (d) 5
co
(d) Doha Conference [Ans. (b) 3]
[Ans. (c) Bretton Woods Conference] 11. Which of the following is not the member of
2. International Monetary Fund is having its SAARC? [QY-'19]
headquarters at (a) Pakistan (b) Sri Lanka
(c) Bhutan (d) China
.
[Govt. MQP & QY - '19; Sep-2020; SRT-'22]
(a) Washington D.C. (b) New York [Ans. (d) China]
ks
12. SAARC meets once in _______ years.[SRT-'22]
(c) Vienna (d) Geneva
(a) 2 (b) 3 (c) 4 (d) 5
[Ans. (a) Washington D.C.]
[Ans. (a) 2]
3. IBRD is otherwise called 13. The headquarters of ASEAN is
(a) IMF [Govt. MQP & HY-'19; SRT-'22] (a) Jaharta (b) New Delhi
(b) World Bank
oo (c) Colombo (d) Tokyo
(c) ASEAN [Ans. (a) Jaharta]
(d) International Finance Corporation 14. The term BRIC was coined in [Sep-2020]
[Ans. (b) World Bank] (a) 2001 (b) 2005
ab
4. The other name for Special Drawing Rights is (c) 2008 (d) 2010 [Ans. (a) 2001]
(a) Paper gold [PTA-4; HY-'19; July-'22] 15. ASEAN was created in [PTA-6]
(b) Quotas (a) 1965 (b) 1967
(c) Voluntary Export Restrictions (c) 1972 (d) 1997 [Ans. (b) 1967]
(d) None of these [Ans. (a) Paper gold] 16. The Tenth BRICS Summit was held in July
ur
5. The organization which provides long term 2018 at

loan is [PTA-3]
(a) Beijing (b) Moscow
(c) Johannesburg (d) Brasilia
(a) World Bank
[Ans. (c) Johannesburg]
.s
(b) International Monetary Fund

17. New Development Bank is associated with
(c) World Trade Organisation [PTA-5; May-'22]
(d) BRICS [Ans. (a) World Bank] (a) BRICS (b) WTO
6. Which of the following countries is not a
w
(c) SAARC (d) ASEAN [Ans. (a) BRICS]

member of SAARC? 18. Which of the following does not come under
(a) Sri Lanka (b) Japan ‘Six dialogue partners’ of ASEAN? [SRT-'22]
(c) Bangladesh (d) Afghanistan (a) China (b) Japan
w
[Ans. (b) Japan] (c) India (d) North Korea

7. International Development Association is an [Ans. (d) North Korea]
affiliate of 19. SAARC Agricultural Information Centre
w
(a) IMF (b) World Bank (SAIC) works as a central information

(c) SAARC (d) ASEAN institution for agriculture related resources
[Ans. (b) World Bank] was founded on
8. _______ relates to patents, copyrights, trade (a) 1985 (b) 1988 (c) 1992 (d)1998
secrets, etc., [PTA-2] [Ans. (b) 1988]
(a) TRIPS (b) TRIMS 20. BENELUX is a form of [PTA-1]
(c) GATS (d) NAMA (a) Free trade area (b) Economic Union
[Ans. (a) TRIPS] (c) Common market (d) Customs union
[Ans. (d) Customs union]
134
International Economic Organisations Sura’s - XII Std - Economics

Part - B Part - C
Answer the following questions Answer the following questions
(2 Marks) (3 Marks)
21. Write the meaning of Special Drawing rights. 28. Mention the various forms of economic integration.
[Govt. MQP - '19; Sep-2020; Aug-'21] Ans. (i) Economic integration takes the form of
Ans. (i) Special Drawing Rights are a form of Free Trade Area, Customs Union, Common
international reserves created by the IMF Market and Economic Union.
m
in 1969 to solve the problem of international (ii) A free trade area is the region encompassing
liquidity. a trade bloc whose member countries have
(ii) They are allocated to the IMF members in signed a free-trade agreement (FTA). e.g.
proportion to their Fund quotas.
co
SAFTA, EFTA.
(iii) SDRs are used as a means of payment by (iii) A customs union is defined as a type of
Fund members to meet balance of payments trade block which is composed of a free
deficits and their total reserve position with trade area with no tariff among members
the Fund. and (zero tariffs among members) with a
.
(iv) Thus SDRs act both as an international unit common external tariff. e.g. BENELUX
of account and a means of payment.
ks
(iv) Common market is established through trade
(v) Special Drawing Rights (SDRs) is otherwise
pacts. A group formed by countries within
called as ‘Paper Gold’.
a geographicalfree movement of labour and
22. Mention any two objectives of ASEAN.
[PTA-5; Mar-2020] capital among its members. e.g. European
Ans. (i)
oo
To accelerate the economic growth, social Common Market (ECM)
progress and cultural development in the (v) An economic union is composed of a
region. common market with a customs union. The
(ii) To serve as a centre of information and as participant countries have both common
an ASEAN link with other international policies on product regulation, freedom of
ab
organizations. movement of goods, services and the factors

23. Point out any two ways in which IBRD lends to of production and a common external trade
member countries. [PTA-1; SRT-'22] policy. (e.g. European Economic Union)
Ans. The Bank advances loans to member in three ways.
(i) Loans out of its own fund. EU > CM > CU > FTA
ur
(ii) Loans out of borrowed capital. 29. What are trade blocks? [PTA-1] [QY-'19]
(iii) Loans through Bank’s guarantee. Ans. (i) Some Countries create business opportunities
24. Define Common Market. [PTA-3; QY-'19] for themselves by integrating their economies
Ans. Common market is established through trade packs.
.s
in order to avoid unnecessary competition

A group formed by countries within a geographical
among them.
area to promote duty free trade and free movement
(ii) Trade block covers different kinds of arrangements
of labour and capital among its members.
w
25. What is Free trade area? [PTA-6; HY-'19] between countries for mutual benefits.
Ans. (i) A free trade area is the region encompassing (iii) Economic integration takes the form of Free
a trade bloc whose member countries have Trade Area, Customs union, Common Market
and Economic union.
w
signed a free trade agreement (FTA).

(ii) Such agreements involve cooperation between 30. Mention any three lending programmes of IMF.
at least two countries to reduce trade barriers. [PTA-4; SRT, July-'22]
E.g. SAFTA, EFTA. Ans. (i) Basic Credit Facility : The IMF provides
w
26. When and where was SAARC Secretariat Financial assistance to its member nations
established? [SRT-'22] to overcome their temporary difficulties
Ans. The SAARC Secretariat was established in relating to balance of payment.
Kathmandu (Nepal) on 16th January 1987. (ii) Extended Fund Facility : Under this
27. Specify any two affiliates of World Bank arrangement, the IMF provides additional
Group. [July-'22] borrowing facility up to 140% of the member’s
Ans. (i) International Development Association. quota, over and above the basic credit facility.
(IDA). (iii) Buffer Stock Facility : The Buffer Stock
(ii) International Finance corporation. (IFC) financing facility was started in 1969. The
135
12th
STD
INSTANT SUPPLEMENTARY EXAM - JULY 2022
PART - III ECONOMICS
Reg. No.
Time Allowed : 3.00 Hours] (with Answers) [Maximum Marks : 90
Instructions : 7. The sum of the MPC and MPS is ________.
m
(1) Check the question paper for fairness of
printing. If there is any lack of fairness, (a) 1 (b) 2
inform the Hall Supervisor immediately. (c) 0.1 (d) 1.1
co
2) Use Blue or Black ink to write and underline 8. Arrange the following plans in correct
and pencil to draw diagrams. chronological order :
PART - I (i) Jawaharlal Nehru Plan
(ii) People's Plan
Note : (i) Answer all the questions. [20 × 1 = 20]
.
(iii) Vishveshwarya Plan
(ii)
Choose the most appropriate answer
ks
from the given four alternatives and write (iv) Bombay Plan
the option code and the corresponding (a) (iv), (iii), (ii), (i)
answer. (b) (iii), (i), (iv), (ii)
1. The other name for Macro economics: (c) (i), (iv), (iii), (ii)
oo
(a) Price Theory (b) Income Theory
(c) Market Theory (d) Micro Theory (d) (ii), (i), (iv), (iii)
2. An economic system where the economic 9. Inflation means:

activities of a nation are done both by the private (a) Prices are rising
ab
and public together is termed as _______. (b) Prices are falling

(a) Capitalistic Economy (c) Value of money is increasing
(b) Socialistic Economy (d) Prices are remaining the same
(c) Globalisitc Economy
ur
(d) Mixed Economy 10. During depression the level of economic activity
becomes extremely:
3. National income is measured by using ______
methods. (a) high (b) bad
(c) low (d) good
.s
(a) Two (b) Three

(c) Five (d) Four 11. The Chairperson of NITI Aayog is ______.
4. Income Method is measured by summing up of (a) Prime Minister (b) President
w
all forms of ________. (c) Vice-President (d) Finance Minister

(a) Revenue (b) Taxes 12. Expansion of ATM:
(c) Expenditure (d) Income (a) Automated Teller Machine
w
5. Aggregate supply = (b) Adjustment Teller Machine

(a) C + I + G (c) Automatic Teller Mechanism
(d) Any Time Money
w
(b) C + S + G + (X - M)
(c) C + S + T + (X - M) 13. Foreign direct investments which is not
(d) C + S + T + Rf permitted in India is ________.
6. In disguised unemployment, the marginal (a) Banking
productivity of Labour is _______. (b) Atomic energy
(a) Zero (b) One (c) Pharmaceutical
(c) Two (d) Positive (d) Insurance
221

222
Sura’s ➠ 12th Std - Economics  Instant Supplementary Exam - July 2022 Question Paper with Answers
14. Terms of Trade of a country show _______. PART - III

(a) Ratio of goods exported and imported Note : Answer any 7 questions. Question No. 40 is
(b) Ratio of import duties Compulsory. 7 × 3 = 21
(c) Ratio of price of exports and imports
(d) Both (a) and (c) 31. Outline the major merits of capitalism.
15. The other name for Special Drawing Rights is 32. Write a short note on Expenditure method.
m
_____. 33. What do you mean by aggregate demand?
(a) Paper gold Mention its components.
(b) Quotas 34. Differentiate autonomous and induced
(c) Voluntary Export Restrictions
co
investment.
(d) None of these
35. What is money supply?
16. GST is equivalence of : 36. Describe the subject matter of International
(a) Sales Tax (b) Corporation tax Economics.
.
(c) Income Tax (d) Local Tax
37. Explain any three lending programmes of IMF.
ks
17. Ecosystems are the foundation of __________. 38. Explain the types of Air Pollution.
(a) Ionosphere (b) Lithosphere 39. Explain any three functions of NITI Aayog.
(c) Biosphere (d) Mesosphere
40. Explain the two kinds of measures of dispersions.
18. As income increases, consumption will ______.
oo PART - IV
(a) fall (b) not change
(c) fluctuate (d) increase Note : Answer all the questions. 7 × 5 = 35
19. Central Bank is ______ authority of any country. 41. (a) Illustrate the functioning of an economy
ab
(a) Monetary (b) Fiscal based on its activities.

(c) Wage (d) National income (OR)
20. The word 'Statistics' is used as _______. (b) Explain the role of Commercial Banks in
(a) Singular (b) Plural economic development.
ur
(c) Singular and Plural

42. (a) Discuss the various methods of estimating
(d) None of the above
the national income of a country.
PART - II (OR)
.s
Note : Answer any 7 questions. Question No. 30 is (b) Explain the scope of public finance.
Compulsory. 7 × 2 = 14
43. (a) Critically examine the Say's Law of Market.
w
21. Define full employment. (OR)

22. What is Public Revenue? (b) Explain the importance of sustainable
development and its goals.
w
23. Define inflation.

24. What is credit creation? 44. (a) Describe the different phases of Trade cycle.
25. What is International Economics? (OR)
w
(b) Describe the functions of Reserve Bank of

26. Specify any two affiliates of World Bank Group.
India.
27. Define Average propensity to consume.
45. (a)
Discuss the differences between Internal
28. Define Multiplier.
trade and International trade.
29. Define economic planning. (OR)
30. How are economies classified? (b) Explain the functions of WTO and its role
in India's Socio-economic development.

12th STD Economics em 2023 24

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4. Consumption And Investment Functions........................................ 57 - 76

8. International Economic Organisations.....................................131 - 144

9. Fiscal Economics....................................................................145 - 163

10. Environmental Economics........................................................164 - 181

11. Economics of Development and Planning...................................182 - 199

12. Introduction to Statistical Methods and Econometrics.............200 - 220

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1.1 Introduction 1.8 Concepts of Macro Economics

1.5 Limitations Sector Economy

1.7.1 Capitalistic Economy (Capitalism) 1.9.3 Circular Flow of Income in a Four

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Circular Flow of Income in a

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Introduction to Macro Economics Sura’s - XII Std - Economics

Mixedism together towards economic development.

Income between different sectors of an economy.

about tying together facts and theories”.

Sura’s - XII Std - Economics Chapter 1

Socialism : Socialism is defined as a way of organizing a society in which major industries

(c) Ragnar Frisch (d) Karl Marx of an economy.

 [Ans. (b) J M Keynes] (b) Production sector

5. Macro economics is a study of _______. (a) Capitalistic Economy

(c) a nation (d) aggregates (d) Mixed Economy

Introduction to Macro Economics Sura’s - XII Std - Economics

 [Ans. (b) stock] (iii) Undeveloped economies

 [Ans. (c) income] Ans. Adam Smith is the ‘Father of Capitalism’.

(ii) Economists use models to describe

27. ‘Circular Flow of Income’ - Define. [PTA-2]

Sura’s - XII Std - Economics Chapter 1

Part - C (v) Higher Rates of Capital Formation :

public. Public and Private have the right to

sectors coexist. Private industries undertake

activities. 3. Economic Planning : The central planning

 [PTA-6; Aug-'21; July-'22] targets laid down in the plan.

economy works automatically.

Introduction to Macro Economics Sura’s - XII Std - Economics

Additional Questions and Answers

 [Ans. (b) Income theory] (c) Traditional Economy

(c) Mixed Economy

(a) India (b) France (a) Single sector model

(d) Four sector model

Sura’s - XII Std - Economics Chapter 1

8. International Economic Organisations.....................................131 - 144

9. Fiscal Economics....................................................................145 - 163

10. Environmental Economics........................................................164 - 181

12. Introduction to Statistical Methods and Econometrics.............200 - 220

1.7.1 Capitalistic Economy (Capitalism) 1.9.3 Circular Flow of Income in a Four

[Ans. (b) J M Keynes] (b) Production sector

5. Macro economics is a study of _______. (a) Capitalistic Economy

[Ans. (b) stock] (iii) Undeveloped economies

[Ans. (c) income] Ans. Adam Smith is the ‘Father of Capitalism’.

27. ‘Circular Flow of Income’ - Define. [PTA-2]

[PTA-6; Aug-'21; July-'22] targets laid down in the plan.

[Ans. (b) Income theory] (c) Traditional Economy

Codes : Ans. (b) [A - (iii), B - (iv), C - (ii), D - (i)]

2.4 Basic Concepts of National Income 2.7.2 Difficulties in assessing depreciation

2.4.4 NNP at Factor Cost 2.7.5 Production for self - consumption

[Ans. (d) Income]

[Ans. (a) Construction sector] (b) Disposable Income

(a) Service (b) Income [Ans. (c) Net Domestic Product]

(c) Disposal Income (d) All of these

26. _ are excluded from national income. indicator of _.

(a) 520 (b) 460 (c) 240 (d) 900

made in the economy. from abroad]

7.5.1 The Classical Theory of 7.9 Exchange Rate

7.5.3 Ricardo’s Theory of Comparative 7.9.3 Rate of Exchange

7.9.5 Determination of Equilibrium