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GUESS PAPER 2
Class 12 - Economics
Time Allowed: 3 hours Maximum Marks: 80

General Instructions:

1. This question paper contains two sections:

Section A – Macro Economics

Section B – Indian Economic Development

2. This paper contains 20 Multiple Choice Questions type questions of 1 mark each.

3. This paper contains 4 Short Answer Questions type questions of 3 marks each to be answered in 60 to 80 words.

4. This paper contains 6 Short Answer Questions type questions of 4 marks each to be answered in 80 to 100 words.

5. This paper contains 4 Long Answer Questions type questions of 6 marks each to be answered in 100 to 150 words.

SECTION A – MACRO ECONOMICS

1. Statement I: Any international transaction which leads to inflow of foreign exchange is recorded on the credit [1]
side in the balance of payments accounts (the current account or the capital account).
Statement II: While FDI involves foreign investors taking a controlling and lasting stake in productive
enterprises, portfolio investments represent holdings of minor equity (without management control) or debt
through the stock markets by foreign investors for the purpose of earning return on investment.

a) Statement II is true and statement I is false. b) Statement I is true and statement II is false.

c) Both the statements are true. d) Both the statements are false.
2. In the terminology of economics and money demand, the terms M1 and M2 are also known as : [1]

a) Long money b) Short money

c) Narrow money d) Broad money

3. Consumption function is the functional relationship between ________ and ________. [1]

a) Consumption, National Income b) Aggregate Demand, Aggregate Supply

c) Consumption, Aggregate demand d) National Income, Private Income

4. If $ 1= ₹ 80⋅ 50, then $ (approximately) would be needed to exchange ₹ 2,00,000. [1]
(Fill in the blank by choosing the correct alternative)

a) 2,844 b) 2,448

c) 2,484 d) 2,882
5. If MPC is 0.5, what will be change in consumption, if income increases by ₹100 crore? [1]

a) ₹60 crore b) ₹40 crore

c) ₹50 crore d) ₹70 crore

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 6. Which of the following is not the reason for excess demand? [1]

a) Fall in the propensity to consume b) Increase in investments

c) Deficit Financing d) Reduction in taxes

7. Aggregate demand is equal to ________. [1]

a) C + S b) C - S

c) C - I d) C + I
8. Final Goods are used by: [1]

a) Households b) Firms

c) Government d) All of these

9. Apart from currency notes and coins, the balance in ________, held by the public in commercial banks is also [1]
considered money since the amount in these accounts can be used to settle transactions. Such deposits are called
demand deposits because they are payable by the bank on demand from the account-holder.

a) Current account deposits b) savings and current account deposits

c) Recurring deposit account d) Saving account deposits

10. The upward-sloping supply curve for foreign exchange reflects: [1]

a) Direct relationship b) Inverse relationship

c) Exponential relationship d) Indirect relationship

11. State giving reasons whether the following statements are True or False: [3]
a. Capital goods are used up to produce other goods.
b. Machine purchased is always a final good.
12. What is Balance of Payments? Give meanings of Trade balance and Current Account balance. [3]
OR
Recently Government of India has doubled the import duty on gold. What impact is it likely to have on foreign
exchange rate and how?
13. As per the following news published in The Economic Times on 26th December, 2021: Reserve Bank of India [4]
has sold government securities worth ₹ 8,710 crore in the secondary market, over the last four weeks, to drain
out excessive liquidity.
Identify the likely cause and the consequences behind this type of action plan of the Reserve Bank.
14. C = 100 + 0.75 Y is a consumption function (where C = consumption expenditure and Y = national income) and [4]
investment expenditure is 800. On the basis of this information calculate:
i. The equilibrium level of national income.
ii. Saving at the equilibrium level of national income.

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 OR
i. If National Income is Rs. 50 crore and saving Rs. 5 crore, find out Average Propensity to Consume.
ii. When income rises to Rs. 60 crore and saving to Rs.9 crore, what will be the Average Propensity to Consume and
the Marginal Propensity to Save?
15. Explain the role of reverse repo rate in controlling money supply. [4]
16. Answer the following questions: [6]
(a) i. Calculate National Income. [3]

S.no. Contents (Rs. in crores)

(i) Net Current Transfer from Rest of the World 30

(ii) Private Final Consumption Expenditure 400

(iii) Net Domestic Capita! Formation 100

(iv) Change in Stock 50

(v) Depreciation 20

(vi) Government Final Consumption Expenditure 200

(vii) Net Exports 40

(viii) Net Indirect Taxes 80

(ix) Net Factor Income paid to Abroad 10

ii. Are the following a part of country Net Domestic Product at market price? Explain. [3]
(i) Net Indirect taxes
(ii) Net exports
(iii) Net factor income from abroad
(iv) Consumption of fixed capital
(b) OR
i. Will the following be included in the domestic product of India? Give reasons for your answer. [3]
a. Profits earned by foreign companies in India.
b. Salaries of Indians working in the Russian Embassy in India.
c. Profits earned by a branch of State Bank of India in Japan.
ii. Calculate Gross National Product at market price and Net National Disposable Income from [3]
the following data.

Particulars (Rs. in Crore)

Net current transfers to abroad (-)5

Profits 70

Consumption of fixed capital 30

Rent 40

Indirect tax 20

Indirect tax 100

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 Royalty 10

Compensation of employees 600

Subsidy 5

Net factor income from abroad (-)25

17. Answer the following questions: [6]

(a) Explain the concept of capital expenditure in a government budget with the examples. [3]
(b) Explain the capital receipts in a government budget with appropriate examples. [3]
SECTION B – INDIAN ECONOMIC DEVELOPMENT
18. Total employment in India in1950 was [1]

a) 33 Lakh b) 30 Lakh

c) 32 Lakh d) 35 Lakh
19. Which of the following country is growing mainly due to tertiary sector? [1]

a) Pakistan b) None.

c) China d) India
20. In 1955, Karve committee was constituted for aiming the ________. [1]

a) Modernisation b) Development of small scale industries

c) Self-reliance d) Industrial development

21. Study the following picture and answer the given question: Women in rural households take up bee-keeping as [1]
an entrepreneurial activity. Such kind of activities may be envisaged under ________ as diversification activity.

a) Fisheries b) Animal husbandry

c) Poultry d) Horticulture
22. Assertion (A): GATT was established in 1948 with 23 countries as the global trade organisation. [1]
Reason (R): To administer all multilateral trade agreements by providing equal opportunities to all countries in
the international market for trading purposes.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

23. Skill India programme launched by the Government is not an attempt to increase ________ in India. [1]
(Choose the correct alternative to fill up the blank)

a) efficient utilisation of inputs b) inadequate spread of vocational education

c) human capital formation d) increase in GDP growth

24. China has the ______ largest GDP. [1]

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 a) third b) second

c) fourth d) first
25. The _______ emphasises on protecting the future generation. [1]

a) Herman Daly Commission b) Brundtland Commission

c) Kothari Commission d) UNCED Commission

26. Statement I: The introduction of railways in India in 1850 fostered the commericialisation of India agriculture [1]
and the volume of India’s exports expanded.
Statement II: Along with the development of roads and railways, the colonial dispensation also took measures
for developing the inland trade and sea lanes. And, these measures were highly satisfactory.

a) Statement II is true, but statement I is false b) Both the statements are true.

c) Statement I is true, but statement II is false. d) Both the statements are false.
27. Which of the following are not matched correctly? [1]

Column I Column II

(A) Marketed Surplus (I) Large increase in production of food grains resulting from use of HYV seeds

(B) Green Revolution (II) Portion of agricultural produce which is sold in the market by the farmers

(C) HYV Seeds (III) Raised agricultural yield per acre to incredible heights

(D) Land Reforms (IV) Change in the ownership of landholdings

a) (I) and (II) b) (I), (II) and (IV)

c) (III) and (IV) d) (II) and (IV)

28. The Government of India is taking several steps to improve the public transport system. The Metro rail network [3]
is one such endeavour. The basic motive behind this strategy is to reduce environmental degradation. What are
your views on this strategy?
OR
Explain absorptive capacity of environment with examples.
29. Bring out the importance of employment. [3]
30. What are different types of growth strategies? [4]
31. What was the impact of reforms on growth and employment in India? [4]
OR
Was it necessary to introduce economic reforms at the behest of World Bank and International Monetary Fund? Was
there no alternative to solve the problem of balance of payment crisis? Suggest any other alternative.
32. State the main problems concerning the development of education in India. [4]
33. Answer the following questions: [6]
(a) i. Use of chemical fertilizers, to compensate food shortage, gives good dividends at one time in [3]
the form of increased production, but becomes a disaster later in the form of adverse effects on
health:' How can we overcome this problem?
ii. Discuss briefly, why agricultural diversification is essential for sustainable livelihoods. [3]
(b) OR
i. Information technology plays a very significant role in achieving sustainable development and [3]

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 food security. Comment.
ii. Explain the importance of self help groups (SHGS) in rural areas. [3]
34. Read the following text carefully and answer the questions given below: [6]
Foreign direct investment
Unlike India, FDI makes China a global player. In 2000, in cumulative terms, China was world’s fifth-largest
recipient of FDI, after the United States (USD1.3 trillion), the United Kingdom (USD497 billion), Benelux
Economic Union states (USD482 billion) and Germany (USD480 billion). But for 2004, China was to clock the
second largest FDI inflow of USD62 billion―next only to the United States which makes this FDI inflows the
most critical as also most visible indicator of its sustained and rapid economic development. Even India is
expected to emerge as the next hot spot for FDI inflows. Amongst others, the UNCTAD-DITE Global
Investments Prospects Assessment 2004, estimates for 2004-2007 put China and India at the top two ranks
followed by the US as third. This, however, remains rather ambitious, especially for India. Even for China, while
it is expected to continue to leapfrog, it is likely to stay at its second position and may not surpass the US for a
very long time.
But there are indicators that FDI inflows to China (even India) will continue unhindered. For example, China
today accounts for over 10% of US foreign trade destinations and China owns USD167 billion of US securities
issued by the Federal Government. During the year 2000, the total US corporate revenue generated from China
was USD7.2 billion, compared to USD4.6 billion from Mexico, USD3.5 billion from Singapore, and USD1.85
billion from Brazil. Though China faced some phases when FDI had gone down yet it has gradually witnessed
rise from USD2.7 billion for 1984 to USD62 billion by 2004, largely staying within the range of USD45 to
USD60 billion on an average year.
By comparison, India’s FDI has been generally sluggish and, for the early 1990s India’s contracted FDI stood at
USD0.15 billion for 1991, USD0.23 billion for 1992, USD0.57 billion for 1993, USD0.95 billion for 1994, and
USD1.96 billion for 1995. But from there, India’s FDI has experiences some acceleration and rose to USD3.4
billon for 2002 and USD4.3 billion for 2003; and some experts also question calculation methods and suspect
underplaying of India’s FDI statistics. For year 2004, India’s FDI was estimated to exceed a rather impressive
USD8 billion. And, given this new enthusiasm of the United Progressive Alliance, the government has been
talking of absorbing an FDI of USD15 billion for 2005 and USD30 billion for 2007 to reach a total of USD150
billion of fresh FDI in next ten years.
Among the reasons cited to explain India lagging behind, is the argument that China had decided to open up to
FDI back in 1979 and created special economic zones (SEZs) in coastal regions that had the clear advantage of
geographical proximity to Hong Kong—the hub of capital investment in Asia —, and that China had the added
advantage of its political system, cheap labour and special incentives for foreign investors as for its armed forces
which were to become major players in China’s opening up experiments. Also important is overseas Chinese
contributions. Non-resident Indians and overseas Chinese have been distinct categories in FDI inflows into their
respective homelands. Beginning only from the early 1990s, while non-resident Indians do contribute a little to
India’s FDI, overseas Chinese are known to present a unique example by contributing over two-thirds of the
whopping inflows of FDI into China.
Questions:
i. Discuss the reason for India's FDI being sluggish compared to that of China.
ii. Analyse the growth of the Chinese Economy focusing on the role of SEZs towards boosting FDI.

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