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 ANSWERS
SAMPLE PAPER 12
SECTION - A
(Macro Economics)
1. (c) Both Statements 1 and 2 are true
Explanation: Mostly income-consumption
curve slopes upward to the right because
demand for normal goods increases as the
income of the consumer rises. There is a direct
relationship between income of the consumer
and consumption of that normal good
whereas AD, which includes both investment
and consumption, is parallel to and above the
consumption curve.
2. (b) Income
Explanation: Flow variable refers to the
quantity of a variable that can be measured
over a period of time. For example, income,
expenditure of money, interest on capital etc.
3. (a) Investment multiplier
Explanation: Investment multiplier is defined
as the ratio of change in income to change in
investment. Symbolically,
∆Y
Multiplier (k) = .
∆I
Related Theory
 Marginal Propensity to Consume is the ratio of
change in consumption to change in income.
4. (a) debit; capital
Explanation: Capital account of Balance of
Payment records receipts and payments of
foreign exchange which impact the asset-
liability status of a country in relation to rest
of the world. It will be recorded on the debit
side because there is outward flow of capital
from India to Britain.
Related Theory
 Balance of Payment is a statement of account
showing all monetary transactions (or economic
transactions) of a country with rest of the world
during a given period of time.
5. (c) Medium of exchange
Explanation: Medium of exchange function
of money has solved the problem of ‘double
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coincidence of wants’, found in the barter
system. The buyer can now pay money to the
seller and the seller, in turn, can buy whatever
he wants to buy. Thus, money facilitates the
transactions of goods and services.
6. (a) 320, 10000, 2000, 8000
Explanation: Let’s assume that the bank
requires to maintain a CRR of 20 percent.
(1) If a person (person A) deposits ` 2,000 with
the bank, then the bank keeps only ` 400
in cash reserve and lends the remaining
` 1600 to another person (person B).
(2) Similarly, the bank keeps 20 percent
of ` 1600 (i.e. ` 320) and advances the
remaining ` 1280
This process continues until the initial
primary deposit of ` 2,000 and the initial
additional reserves of ` 1600 lead to
additional or derivative deposits of ` 8,000
(1600+1280+….). Adding the initial deposits,
we get total deposits of ` 10,000. In this
case, the credit multiplier is 5 (reciprocal
of the CRR) and the credit creation is five
times the initial excess reserves of ` 1600.
7. (d) equal; zero
Explanation: MPS represents the ratio between
change in savings to change in income. Its
value ranges between 0 and 1. If the whole of
the income is spend on consumption or change
in income is equal to change in consumption,
then MPS is zero.
8. (c) (I) and (III)
Explanation:
(1) Supply of foreign exchange comes through
exports of goods and services.
(2) Foreign Investment in rest of the world is
an important business activity. We need
foreign exchange in which investment is to
be made.
(3) Supply of foreign exchange increases in the
form of gifts and other remittances from
abroad.
Sample Paper 12 1
 (4) We need foreign exchange because
payments for import are made in foreign
exchange only.
9. (a) 1120
Explanation: Given that,
C= 80 + 0.75Y and I = ` 200 crores
We know that,
Y =C+I
Y = 80 + 0.75 Y + 200
Y – 0.75 Y = 80 + 200
280
Y=
0.25
= ` 1120 crores
10. (c) A – Export of goods, B – Net non-factor
income, C – Gifts, remittances and grants
Related Theory
 Current account of balance of payments account
records receipts and payment of foreign exchange
which do no impact the asset-liability status of a
country in relation to rest of the world. The principal
components of current account are import and
export of goods and services and current transfers.
11. (A) Change in Stock = NVAFC + Intermediate
Consumption + Depreciation
– Subsidies – Sales
= 200 + 100 + 40 – 10 – 400
= (–) ` 70 crores
OR
(B) (i) Real GDP is the market value of the final
goods and services produced within the
domestic territory of a country, during
an accounting year, as estimated at the
base year prices.
(ii) Intermediate consumption refers to the
expenditure incurred by a production
unit on purchasing those goods and
services from other production units
which are meant for resale or for using
up completely during the same year.
(iii) When a good is purchased for resale or
for using it completely in the production
during the year, it is classified as
intermediate good, such as raw material
purchased for producing a good.
12. The given statement is refuted as the Current
Account Deficit (CAD) is a broader concept.
CAD occurs when the foreign exchange
payments on account of visibles, invisibles and
current transfers are in excess over the receipts
of visibles, invisibles and current transfers. A
country may face a situation of CAD, even if
the country has trade surplus, with greater
negative balances on account of services and
unilateral transfers.
2 Economics Class XII
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13. Given, MPC = 0.75, ΔY = ₹ 2,000 Crore
1
k=
1 − MPC
1
=
1 − 0.75
1
=
0 .25
According to the question,
∆Y
K=
∆I
2000
\ 4=
∆I
2000
Or, ΔI =
4
= ₹ 500 crore
Therefore, to achieve the targeted increase in
income, the increase in investment (ΔI) required
will be ₹ 500 Crore
14. (A) Open Market Operations: These deal with
the Central Bank's (RBI) open market sales
and purchases of government securities.
The Central Bank absorbs liquidity from the
economy when it sells these securities, and
it releases liquidity when it buys government
securities. This is a crucial strategy for
controlling the market's liquidity (money
supply).
(B) Margin Requirement: The difference
between the current value of the security
given and the loan amount is referred to
as the margin requirement of the loan.
Borrowers can obtain higher sums of
money from the banks when the Central
Bank lowers the margin requirement,
which will boost the quantity of money
available in the economy. A rise in margin
requirements, on the other hand, will
reduce the amount of credit available in
the economy.
15. (A) In the economy, if AD is less than AS,
it implies that the buyers are planning
to purchase less than what sellers are
planning to produce. As a result, inventories
start piling up and rise above the desired
level. Thus, the producers reduce production
and workers are thrown out of jobs. This
leads to a fall in the income level, i.e., AS.
This downward trend continues till AD
once again becomes equal to A.S., i.e., the
economy reaches the stage of equilibrium,
i.e., AD = AS.
OR
(B) The steps taken by the Central Bank to
boost the falling demand in the economy
 are justified as the reduction in the repo
rate and reverse repo rate will increase the
availability of funds in the market through
the commercial banks.
Rationale: A decrease in Repo/Reverse
Repo Rate will push the commercial
banks to reduce the lending rate and will
eventually make the borrowings cheaper
for the general public. As a result, the
consumption demand in the economy may
increase.
16. (A) (i) Fees paid to a mechanic by a firm will
not be included in the estimation of
Gross Domestic Product at market price
because it is an intermediate expenditure
of the firm, which is not included, to
avoid the problem of double-counting
of the expenditure.
(ii) Interest paid by an individual on a car
loan taken by a bank is not included,
because the loan is taken to meet
the consumption expenditure of the
individual and thus, the interest paid on
such a loan is not treated as a factor
payment.
(B) No, we do not agree with the given
statement as intermediate goods are
generally non-durable in nature. They are
the goods used as raw material and they
lose their identity in the production process
for the creation of a new commodity,
during an accounting year.
17. (A) (i) Revenue Deficit = Revenue Expenditure
– Revenue Receipts
= 200 – 160 = ` 40 crore
SECTION - B
(Indian Economic Development)
18. (b) Change in composition of India’s foreign trade
Explanation: India’s foreign trade was largely
determined by the strategic needs of the British
colonial powers prior to its independence in
1947. It was only after independence that
India’s trade patterns began to change in view
of its developmental needs.
19. (a) NABARD
Explanation: NABARD stands for National
Bank for Agriculture and Rural Development.
It was established in 1982 to foster rural
prosperity and acts as the apex bank for rural
financing.
Related Theory
 NABARD has been authorised to provide credit
and other financial facilities to promote and
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(ii) Fiscal Deficit = Total budget Expenditure
– Total budget Non-Debt Receipts
= (RE + CE) – (CR + RR)
= (200 + 220) – (190 + 160)
= ` 70 crore
(B) Capital receipts are the government’s
receipts which either create liabilities
or lead to reduction in assets, whereas
revenue receipts are the government’s
receipts which neither create liabilities nor
lead to reduction in assets.
OR
(A) Government seeks to allocate resources
with a view to balance the goals of all
sections of the society. Production of
goods and services which are injurious
to health may be discouraged through
taxation policy. Similarly, production of
goods of socially beneficial nature may
be encouraged through subsidies. If the
private sector does not take initiative
in certain activities (Public Goods), the
government may directly control them like
water supply and sanitation etc.
(B) The government is attempting to
achieve the financial goal of "reducing
inequality in incomes" by distributing
basic foodgrains nearly free to families
living below the poverty line. By
offering the aforementioned benefit to
the underprivileged, the government
is maximising welfare spending. The
government can attempt to reduce the
wealth gap between the rich and the poor
in this way.
develop agriculture, cottage industries, small-scale
industries, village industries, handicrafts, and more.
Its role includes the funding of any agricultural
activities with respect to rural development in India,
as the institution's primary goal is the nationwide
growth of India's rural community. There are three
sectors around which schemes of NABARD work’s:
development, supervision, and finance.
20. (a) (I) and (II)
Explanation: Lack of political stability and
increasing dependence on foreign loans were
the main reasons for the slowdown of the
Pakistan’s economy since independence.
21. (a) Inflationary pressure
Explanation: The 1991 Indian economic crisis
was an economic crisis in India resulting from
the balance of payments deficit due to excess
reliance on imports and other external factors.
Sample Paper 12 3
 Related Theory
 India's economic problems started worsening in
1985 as imports swelled, leaving the country in a
twin deficit: the Indian trade balance was in deficit at
a time when the government was running on a huge
fiscal deficit.
22. (d) Assertion (A) is false but Reason (R) is true
Explanation: In China, annual growth rates
varied dramatically fallling from 3.3% in 1963
to 1.2% in 1979 and registered a population
decline of 13.5 million in the famine years
1960/61, whereas due to stringent family
planning programmes, China has witnessed
an increase in the proportion of elderly people.
23. (c) Great Leap Forward
Explanation: In China, Great Leap Forward
(GLF) campaign initiated in 1958 aimed at
industrialising the country on a massive scale.
People were encouraged to set up industries in
their backyards.
24. (d) Only (IV)
Explanation: Thermal power plants emit large
quantities of carbon dioxide which may cause
land and water pollution. Hence, it is not a
strategy for sustainable development.
25. (c) G-7
Explanation: The Group of Seven (G7) is an
inter-governmental political forum consisting
of Canada, France, Germany, Italy, Japan,
the United Kingdom and the United States;
additionally, the European Union (EU) is a
“non-enumerated member”.
Caution
 Students must know that Formerly, G-7 was known
as G-8 before 2014. Russia was expelled from it
in 2014 due annexation of crimea, since then the
political forum have changed to G-7.
26. (c) Both statements 1 and 2 are true
Explanation: On-the-job training enhances
the skills of the employees and also helps
in bridging the gap between theoretical and
practical experiences.
27. (a) (A) – (I)
Explanation:
(1) RBI is the central bank of India.
(2) IMF facilitates lending for reconstruction
and development.
(2) IBRD provides short-term loans to Balance
of Payments problems.
28. The given statement is true. Disguised
unemployment is a situation where the
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marginal productivity of labour is zero. In India,
this situation is often witnessed, as farming is
more of a family affair in rural areas and most
of the members are generally engaged on
the farms without any direct contribution to
the production process. This problem persists
in rural India due to lesser availability of jobs
opportunities.
29. (A) The agricultural sector was adversely
affected by the reform process in the
following ways:
(1) Public investment in agriculture sector
especially in infrastructure like irrigation,
power etc. had been reduced in the
reform period.
(2) Reduction of fertiliser subsidy had
increased the cost of production
affecting thereby the small and
marginal farmers.
(3) Increased international competitiveness
due to liberalisation and reduction of
import duties.
(4) Shift from food crops to cash crops due
to export-oriented policy in agriculture
led to a rise in prices of food-grains.
(Any three)
OR
(B) The given statement is correct. In the
early years after independence, the
government's official goal was to lessen
its reliance on foreign nations for cash,
technology, goods, and services. As it was
anticipated that our reliance on imported
food supplies, foreign technology, and
foreign finance might enhance foreign
involvement in our country's politics,
it placed emphasis on using home
resources to prevent it. The major goal
of "Atmanirbhar Bharat" is to create an
economy in India that is independent and
self-sufficient.
30. (A) The given statement is not true to
perfection. These two may sound similar
but are not exactly same. Human capital
considers education and health as a means
to increase labour productivity, wheres
human development is based on the idea
that education and health are integral to
human well-being.
Related Theory
 Human development is a broader term as compared
to human capital because human capital is a means
to an end whereas human development is an end in
itself.
 (B) The given statement is not true. India has
a rich stock of scientific and technical
manpower in the world. Also, India has
taken a number of steps to improve it
qualitatively and ensure that they are
optimally utilised.
31. (A) Pakistan also follows the mixed economy
model like India.
(1) In the late 1950s and 1960s Pakistan
introduced a variety of regulated policy
framework (for import substitution
based industrialisation).
(2) The policy framed combined tariff
protection for manufacturing of
consumer goods along with direct
import controls.
(3) The introduction of Green Revolution
led to mechanisation.
(4) Increase in public investment in
infrastructure in selected areas, ultimately
resulted in a rise in the production
of food grains. This brought about a
change in the agrarian structure.
(5) In the late 1970s and 1980s Pakistan
shifted its policy orientation, when the
major thrust were denationalisation
and encouragment to private sector.
(6) Financial support was also received
by Pakistan from western nations and
remittances from increasing outflow
of emigrants to the Middle-East. This
helped the country to promote its
economic growth.
(7) Government also offered incentives to
the private sector.
(8) A conducive climate was thereby
created for new investments in the
country.
OR
(B) (i) In 1958, the Great Leap Forward (GLF)
movement was launched. People were
encouraged to establish businesses in
their backyards as part of its primary
goal to industrialise the nation on a
huge scale. In the rural areas, communes
were established, where people worked
together to cultivate land.
(ii) The Chinese reform approach included
the Dual Pricing System as well. This
suggests that the price was fixed in two
ways. First, industrial units and farmers
were forced to buy and sell a set amount
of inputs and output based on prices set
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by the government. The remaining items
were bought and sold at market rates.
32. The given image indicates towards the
environmental challenge of ‘global warming’.
Global warming is a gradual increase in the
average temperature of the earth’s lower
atmosphere as a result in the increase in
greenhouse gases.
The statement given, ‘we are running out of
time, act now before it’s too late’ represents
the urgency of actions to be taken to control
the situation. Various studies have shown that
global warming is causing rise in sea level, loss
of coastal land, increase risks of floods etc.
33. (A) As long as the demand for environment’s
functions is contained within the
environment's carrying capacity, the
environment is able to carry out its tasks
without interruption. This indicates that
resources are not depleted faster than
they can be replenished. When there is
an imbalance (demand exceeds supply),
the environment is unable to replenish
itself, which causes an environmental
crisis. Therefore, the carrying capacity of
the environment must be recognised and
respected in order to preserve a healthy
environment.
(B) Yes, more jobs must be created in the
formal sector since individuals employed in
the informal sector are not paid regularly
and do not have government protection.
Employees are let go without being paid.
They also do not keep any accounts, and
the technology they utilise is old. Many
workers live in substandard housing or
slums. On the other hand, people who work
in the formal sector make more money and
gain access to social benefits than those
who work in the informal sector. Therefore,
in order to increase job security in the
formal sector, more employment must be
created there.
OR
(A) The given statement is appropriate. Over
the years, India has not been able to raise
the educational standards to the desired
level. Education Commission of 1964-66
had recommended that at least 6% of
GDP should be spent on education so as
to make a noticeable rate of growth in
educational achievements. However, the
current expenditure level has been quite
inadequate. Thus, necessary steps must be
taken by the government in this direction.
Sample Paper 12 5
 (B) The given statement is refuted. In rural
areas, non-farm job opportunities are
limited. People generally do not show
preference to acquire skill and training
for non-farm occupation. They prefer to
stay on family farms and fields as self-
employed.
34. (A) Green revolution was implemented in
India to overcome the shortage of food
grain availability in the post-independence
period. Green revolution has increased
the production and productivity in the
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agriculture sector which was otherwise
very low. It helped in improving the income
of the farmers by creating marketable
surplus, increased employment and output.
(B) The given statement is appropriate as the
Green Revolution helped government to
procure and preserve more food grains
through agencies like Food Corporation
of India. Increase in food grain production
has been so substantial that India not only
started maintaining buffer stocks of food
grains but also became a dominant player
in food grain exports market.
 ANSWERS
SAMPLE PAPER - 13
SECTION - A
(Macro Economics)
1. (a) Statement 1 is true and statement 2 is false.
Explanation: Average Propensity to Consume,
is a fundamental economic concept that
refers to the ratio of aggregate consumption
expenditure (C) to aggregate income (Y) at a
particular level of income. In simpler terms,
APC indicates the proportion of total income
that is spent on consumption. The formula to
calculate APC is:
APC = C / Y
Hence, APC represents the fraction of total
income which is consumed.
1 ` 20,000 (4,000+3,200+2,560…….).
2. (a) Money Multiplier =
LRR
Explanation: The money multiplier is indeed
a process through which money is effectively
'Created' within an economy, and it resolves
around the fractional reserve banking system.
1 of Income and Employment," the aggregate
Money multiplier =
LRR
Where, LRR is Legal Reserve Ratio.
3. (b) inverse
Explanation: There is an inverse relationship
between investment multiplier and marginal
propensity to save which means if marginal
propensity to save increases, investment
multiplier decreases and vice-versa.
4. (a) credit, current
Explanation: This transaction would be
recorded on the credit side of the current
account because the rent received by an Indian
company from Google which is in New York is
an income received from abroad
5. (a) The total value of all goods and services
produced within a country's borders.
Explanation: National income refers to the
total monetary value of all goods and services
produced within a country's geographic borders
during a specific time period. It encompasses
various sectors of the economy, including
agriculture, manufacturing, services, and more.
6. (d) 3,200, 25,000, 20,000, 5,000
Explanation: Let’s assume that the bank
requires to maintain a CRR of 20%.
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(1) If a person deposits ` 5,000 with the
bank, then the bank keeps only ` 1,000 in
the cash reserve and lends the remaining
` 4,000 to another person (Loans). They
open a credit account in the borrower’s
name for the same.
(2) Similarly, the bank keeps 20% of ` 4,000
(i.e. 800) and advances the remaining
` 3,200 to another person (Loans).
This process continues until the initial
primary deposit of ` 5,000 and the
initial additional reserves of ` 4,000 lead
to additional or derivative deposits of
Adding the initial deposits, we get total
deposits of 25,000. In this case, the credit
multiplier is 5 (reciprocal of the CRR).
7. (b) aggregate supply, produce.
Explanation: In the context of the "Theory
supply curve represents the relationship
between the total output (or supply) that firms
are willing to produce at different levels of
aggregate output. This curve is often upward-
sloping, indicating that as the overall level of
output increases, firms are more inclined to
produce more goods and services.
8. (a) (I) and (II)
Explanation:
(1) The balance of payments is a
comprehensive record of a country's
economic interactions, including trade,
investments, and transfers, with other
nations within a specific timeframe.
(2) A current account surplus means that
a country's total earnings from exports
of goods, services, and transfers exceed
its total expenditures on imports and
payments to foreign entities.
Related Theory
 A capital account deficit relates to the transfer of
financial assets between a country and the rest of
the world, while a trade surplus is about the balance
between exports and imports of goods and services.
These are distinct components of the balance of
payments.
Sample Paper 13 7
 The balance of payments includes both trade-related
transactions (current account) and financial flows
(capital and financial accounts). It's a comprehensive
measure of a country's economic relationships with
other nations, not limited to trade alone.
9. (a) 5
Explanation: Investment Multiplier (K) = 1/1 −
MPC
Here, MPC is given = 0.8
Now,
Investment Multiplier (K) = 1/1 − 0.8
Investment Multiplier (K) = 1/0.2
Investment Multiplier (K) = 5
10. (b) Unilateral Transfers
Explanation: Unilateral transfers, in the
context of the Balance of Payments (BOP),
represent transactions where one party
provides economic value to another party
without receiving anything in return.
11. Yes, I agree with the statement that borrowings
from abroad should be categorized under the
capital and financial account in the Balance
of Payments Accounts. This categorization is
appropriate for several reasons:
Financial Nature: Borrowings from abroad
involve the movement of financial resources
across borders. Placing them in the capital and
financial account aligns with the purpose of this
account, which is to track capital transactions,
investments, and changes in financial assets
and liabilities.
External Liabilities: Borrowings from abroad
represent external liabilities for a country.
These liabilities arise from funds borrowed
from foreign lenders, which need to be repaid
in the future. The capital and financial account
focuses on capturing these external financial
obligations.
Related Theory
 Impact on Balance of Payments: Borrowings from
abroad directly influence a country's balance of
payments. Inflows of funds through borrowings
contribute to a surplus in the capital and financial
account, while outflows due to repayments result
in a deficit. This impact on the overall balance of
payments highlights the significance of placing such
transactions in this specific account.
12. (A)
National Income = NNPFC = 20,000 crores
NDPFC = NNPFC – Net factor Income from abroad
= 20,000 – 200 = ` 19,800 crores
Compensation of Employees
= Wages and salaries + Retirement pension
= 4,000 + 600 = ` 4,600 crores
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NDPFC = Compensation of Employees
+ Operating Surplus + Mixed income of self
– employed
19,800 = 4,600 + Operating Surplus + 2,800
19,800 = 7,400 + Operating Surplus
19,800 – 7,400 = Operating Surplus
Operating Surplus = 12,400 crores
OR
(B) (i) Externalities: Externalities are the
unintended consequences, either
positive or negative, of an economic
activity that affect others who are
not directly involved in that activity.
People or businesses often don't pay
for these impacts, and they can include
things like environmental pollution
or increased property values due to
nearby developments, as in the case of
the Gurugram Metro project.
(ii) Domestic Income: Domestic income,
symbolized as NDPFC (Net Domestic
Product at Factor Cost), represents the
total factor income earned by both
normal residents and non-residents
within the domestic boundaries of a
country during a specific accounting
year. This income includes various
sources like wages, profits, rents, and
interest.
(iii) Capital Formation: It is also known as
investment, is the process of adding
capital goods, such as machinery and
equipment, to an economy. It represents
a flow of resources directed towards
increasing a country's capacity to
produce goods and services. Capital
formation is crucial for economic growth
and development.
13. Given,
National income (Y) = ` 2,000
Investment expenditure (I) = ` 400
Marginal Propensity to Save (MPS) = 0.40
First we have to calculate,
Marginal Propensity to Consume (MPC):
MPC = 1 – Marginal Propensity to Save(MPS)
= 1 – 0.40 = 0.60
Also, Y = C + bY + I ……..(i)
where, b = Marginal Properity to Consume (MPC)
On substituting the given variables in equation
(i), we get
2,000 = C + (0.60 × 2,000) + 400
2,000 = C + 1,200 + 400
2,000 = C + 1,600
C or Autonomous expenditure = 2,000 – 1,600
= ` 400
 14. (A) The arguments for Fixed Exchange Rate are
as follows:
(1) Encouragement to international
trade: Under, fixed exchange rate
both importer and exporter know
about the amount they will have
to pay and how much they will
receive. Thus, in fixed exchange rate
international trade develops in a
balanced way. Here, there is a less
risk.
(2) Encouragement to foreign capital:
If the exchange rate is stable,
foreign exchange can easily flow
into the country because investor is
not scared of getting less amount
than what is fixed. There is no fear
of risk of loss if the rate of exchange
declines.
(3) Capital formation: If the foreign
exchange rate is fixed there is
a favourable effect on internal
condition of the country. There
is no fear of inflation. In industry,
demand of capital is increased,
savings is also increased. Thus, rate
of capital formation increases. It
gives rise to the development of the
country.
(4) Exchange system: If the exchange
rate is fixed, it does not give
encouragement to the tendency of
gambling. Thus, government can
control the exchange system in
proper way.
(B) An inflationary gap in an economy emerges
when the actual gross domestic product
surpasses the potential GDP achievable
at full employment. It represents one
category of the output gap, contrasting
with the recessionary gap.
Two strategies aimed at diminishing this
gap include:
(1) Fiscal Policy: Fiscal policy pertains
to a government's management of
expenditures and revenue (taxation)
with specific objectives in mind. When
there is an excessive demand—where
the current demand outpaces the
aggregate supply at full employment—
the fiscal policy's objective is to curtail
aggregate demand.
(2) Monetary Policy (Elevating Bank Rate
and CRR): The central bank implements
monetary policy to regulate the money
supply and credit in the economy. This
policy is also referred to as the Central
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Bank's Credit Control Policy. The term
"money" encompasses currency notes
and coins, while "credit" generally
denotes loans extended to others at
an interest rate. Through monetary
tools (instruments), this policy affects
the cost of credit (i.e., interest rate) and
the availability of credit. It acts as a
means to counter excessive demand
by constricting credit availability and
increasing credit costs
15. The Central Bank is also known as banker's
bank and also plays a supervisory role in an
economy. It has almost the same relation with
other bank in the country as a commercial
bank has with its customers. It accepts
deposits from the commercial bank and offer
them loans. In other words, in its role as the
“banker’s bank” the Central Bank assumes the
responsibility of being a last resort. This role
become particularly significant during the time
of financial liquidity crises when commercial
banks encounter difficulties in meeting their
immediate obligation. The Central bank is
authorised statutorily to required scheduled
commercial bank to deposit with it a stipulated
ratio of their total liabilities. According to
Banking Regulation act 1949, all banking
companies having paidup capital of the RBI or
Central Bank does serve as the common fund
out of which the Central bank can and does
make advance to banks in temporary need
of funds. As a supervisor the Central bank is
responsible for establishing and enforcing
regulations, a guidelines and standards that
govern the activities of financial institution
operating within its jurisdiction.
16. (A) (i) Revenue Deficit = Revenue Expenditure
– Revenue Receipts
80 = Revenue Exp. – (Tax receipts
+ Non-tax receipts)
80 = Revenue Exp. – ( 60 + 90)
80 = Revenue Exp. – 150
Revenue Expenditure = 150 +80
Revenue Expenditure = ` 230 crores
(ii) Interest Payments = 10% of Capital Exp.
= 10% x 240 = ` 24 crores
Fiscal Deficit = (Capital Expenditure
+ Revenue Expenditure)
– (Non debt capital Receipts
+ Revenue Receipts)
= (240 + 190)
– (220 + 150)
= 430 – 370
= ` 60 crores
Sample Paper 13 9
 Primary Deficit = Fiscal Deficit
– Interest Payments
= 60 –24 = ` 36 crores
(B) Capital expenditure refers to the funds of
a company or organisation allocates for
investments in long-term assets or projects
that are expected to provide benefits over
an extended period of time, typically beyond
one fiscal year. These expenditures are not
meant for day-to-day operational expenses
but rather for acquiring, upgrading, or
maintaining assets that can enhance the
company's overall productivity, efficiency,
or revenue generation.
OR
(A) The government plays a very important
role in increasing the welfare of the
people. In under to do that the government
intervenes in the economy in the following
ways:
(1) Government uses fiscal instruments of
taxation and subsidies.
(2) Government redistributes income in
favour of poor sections of the society
by imposing taxes on rich and giving
subsidies to the poor.
(3) Government distribute food grain
through fair-price to BPL (Below Poverty
Line) population.
(B) Fiscal deficit is the difference between the
total income of the government and its
total expenditure. A recurring high fiscal
deficit means that the government has
been spending beyond its means. The
implications of higher fiscal deficit are as
follows:
(1) Higher inflation: An important
component of government borrowings
includes borrowings from the Reserve
Bank of India (RBI). This invariably leads
to increase the money supply in the
economy resulting in higher inflation.
(2) Increased debt for future generations:
Recurring borrowing leads to the
accumulated debt for the future
generations. Future generations inherit
a laggard economy where GDP growth
remains persistently low. This is because
the repayment of loans consumes the
bulk of surplus and investment remains
at the bottom.
SECTION - B
(Indian Economic Development)
18. (c) (III), (II), (I), (IV)
Explanation :
Pradhan Mantri Gram Sadak Yojna – 2000
10 Economics Class XII
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(3) Increased foreign dependence: The
government also borrows from foreign
countries. This increases dependence
on foreign countries which often lead to
economic interference.
(4) Retards future growth: The entire
amount of fiscal deficit i.e., whole
borrowed amount is not available for
growth and development of economy
because a part of it is used for interest
payment.
17. (A) (i) The services of chartered accountant
hired by the firm should not be included
in the estimation of national income. This
is because it forms a part of the firm’s
intermediate consumption.
(ii) Payment of corporate tax is not included in
the national income as it is a mere transfer
payment from the firm to the government.
It is a part of corporate profits which
already form part of national income,
therefore, it should not be separately
included in national income (in addition to
corporate profits).
(B) The statement claiming that a "Higher
Gross Domestic Product (GDP) means
greater per capita availability of goods
in the economy" is not entirely accurate.
Several factors come into play that make
this correlation more complex than implied.
(1) Population Factor: The relationship
between GDP and per capita availability
of goods hinges on the country's
population. Even with a higher GDP, if
the population is equally substantial,
the per capita allocation of goods
and services could remain low. This is
because the resources would need to be
distributed among a larger number of
people.
(2) Income Distribution: The assertion also
hinges on the distribution of income.
If income is distributed equally, each
individual would have a fair share of
goods and services. However, if income
distribution is skewed, with a larger
proportion held by the affluent, they
would command a disproportionate
share of the goods and services
compared to those with lower income.
MNREGA – 2005
Make in india – 2014
Pradhan Mantri MUDRA Yojna - 2015
 19. (a) Deng Xiaoping
Explanation: One-child policy was introduced
by Deng Xiaoping. It was an off icial
programme initiated in the late 1970s and
early ’80s by the central government of China,
the purpose of which was to limit the great
majority of family units in the country to one
child each.
Related Theory

There are some other programmes introduced in
China:
(1) Great Leap Forward (1958-1962)
(2) Great Proletarian Cultural Revolution (1966-1976)
(3) SEZs established (1980-1984)
20. (a) (I) and (II)
Explanation: Indian agriculture exhibits a
considerable amount of under employment
and disguised unemployment.
21. (c) Micro Credit Programme
Explanation: It is a micro credit programme
through Self- Help Groups (SHGs) in which
people mobilises their small savings and gives
loans to their members. It is a kind of self-
employment programme.
22. (a) Both Assertion (A) and Reason (R) are true
and Reason (R) is the correct explanation of
Assertion (A)
Explanation: One of the major aims of financial
sector reforms of Economic Policy is to reduce
the role of RBI from regulator to facilitator of
financial sector.
23. (d) China
Explanation: China is moving ahead of both
India and Pakistan in terms of indicators of
human Development
24. (d) 1st–China, 2nd–India, 3rd–Pakistan.
Explanation: The rankings are presented to the
countries as per their HDI. China ranked 8th.
India 128th and Pakistan 136th
25. (c) Great Leap Forward
Explanation: The Great Leap Forward (GLF)
was a campaign initiated in 1958 in China
by Mao's, which was aimed to modernise the
China's economy. The campaign was initiated
towards the large scale industrialisation in the
country not concentrated only in the urban
areas.
26. (d) Statement 1 is false and statement 2 is
true.
Explanation: Monocropping refers to the
practice of growing a single crop on a large
scale a significant area. it does not necessarily
relaease to a shift of workforce from agriculture
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to other allied activities. Diversification relates
to a shift of workforce from agriculture to other
allied activities.
27. (b) B– (II)
Explanation: Land reforms is a purposive
change in the way in which agricultural land is
held or owned, the methods of cultivation that
are employed, or the relation of agriculture to
the rest of the economy.
(1) Marketed surplus is the portion of a harvest
that a farmer can sell in the market to earn
a profit.
(2) Land ceiling is the maximum amount of
agriculture land that a family can keep in
its name.
(3) Pradhanmantri Jan Dhan Yojan (PMJDY)
envisages universal access to banking
facilities with at least one basic banking
account for every household, financial
literacy, access to credit, insurance and
pension.
28. (A) Labour force:
(1) It refers to the number of persons
actually working or willing to work.
(2) Represents a broader concept
applicable to a population or region.
(3) Because it is measured in terms of
the number of persons (not in terms
of person-days), size of labour force
increases or decreases only when the
number of persons actually working or
willing to work increases or decreases.
Work force:
(1) It refers to the number of persons
actually working and does not account
for those who are willing to work.
(2) Typically applies within the context of
a particular organisation, industry or
setting.
(3) The difference between work force and
labour force is called unemployment.
Numerically, it is expressed as:
Unemployment = Work force
– Labour force.
OR
(2) Regular salaried employees are those
hired workers who are on the permanent
payrolls of their employers. They are
usually skilled workers and are entitled to
all types of social security benefits.
The concentration of these workers is
higher in the urban areas as compared
to the rural areas because such jobs
require skilled and specialised workers
and these skills are acquired through the
Sample Paper 13 11
 process of training and education that
cannot be accessed in the rural areas due
to the lack of investment, infrastructure
and low literacy level of rural people. The
opportunities to acquire and enhance such
skills are available more in the urban areas.
Further, large MNC’s are concentrated only
in the urban areas due to the presence
of infrastructure and availability of
modern facilities like banks, transport and
communication, etc. Therefore, the bulk of
the jobs for the regular salaried employees
are concentrated more in the urban areas
resulting in the increase in number of
regular salaried employees.
29. Non-farm activities can lead to rise in income
of people in rural sector in the following ways.
(1) Animal husbandry: It is that branch of
agriculture which is concerned with the
breeding, rearing and caring for farm
animals. Sheep rearing is an important
income augmenting activity in rural areas.
Livestock production provides increased
stability in income, food security, transport,
fuel and nutrition. A significant number
of women’s also find employment in the
livestock sector.
(2) Horticulture: It refers to the science or art
of cultivation of fruits, vegetables, tuber
crops, flowers, medicinal and aromatic
plants and plantation crops. India has
adopted horticulture as it is blessed with
a varying climate and soil conditions.
It is an important sector for potential
diversification and value addition in
agriculture.
(3) Fisheries: It refers to the occupation
devoted to the catching, processing or
selling of fish and other aquatic animals.
Current Challenges Facing Indian Economy
In India, after progressive increase in
budgetary allocations and introduction
of new technologies in fisheries and
aquaculture. In India: West Bengal, Andhra
Pradesh, Kerala, Gujarat, Maharashtra and
Tamil Nadu are major fish producing states.
30. (1) In the initial phase in China, several reforms
were introduced in agriculture, investment
sectors and foreign trade. In agriculture,
communal lands were divided into small
plots, which were allotted to individual
households for cultivation.
(2) In the later phase, reforms were initiated
and expanded to industrial sector.
Private firms in general township and
village enterprises i.e., those enterprises
which were owned and operated
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by local collectives, were allowed to
setup manufacturing units to produce
goods. At this stage, enterprises owned
by the Government (known as state
owned enterprises), were made to face
competition.
(3) This reform process also brings dual
pricing. This means fixing the prices in two
ways, farmers and industrial units were
required to buy and sell fixed quantities of
inputs and outputs on the basis of prices
fixed by the Government and the rest were
purchased and sold at market prices.
(4) Over the years, as production increased,
the material transacted through the open
market was also increased. In order to
attract foreign investors, Special Economic
Zones were setup.
31. (i) Statement 1: "Economic reforms in India
led to increased foreign investment."
True: Economic reforms in India, especially
the liberalization policies of the early
1990s, opened up various sectors to foreign
investment. The introduction of foreign
direct investment (FDI) and the removal of
many restrictions on foreign capital inflows
attracted increased foreign investment
into the country. This trend has continued
over the years, contributing significantly to
India's economic growth and development.
(ii) Statement 2: "Privatisation aimed
to reduce government control over
industries."
True: Privatisation was a key component
of India's economic reforms. It aimed to
reduce government control and ownership
of industries and encourage private sector
participation. By selling or disinvesting in
state-owned enterprises, the government
intended to improve efficiency, increase
competition, and enhance the overall
performance of industries. This transition
from public to private ownership was part
of the broader strategy to liberalise and
revitalise the Indian economy.
OR
In order to improve efficiency, infuse
professionalism and enable them to
compete more effectively in the liberalised
world, the government identified PSEs and
declared them as maharatnas, navratnas
and miniratnas. They were given greater
managerial and operational autonomy, in
taking various decisions to run the company
effiiciently and thus increase their profits.
There are some designated companies which
are classified as maharatnas, navratnas and
miniratnas like,
 (1)
Indian Oil Corporation Limited and
Steel Authority of India Limited are
maharatnas.
(2)
Hindustan Aeronautics Limited is
classified as navratnas.
(3) Bharat Sanchar Nigam Limited and
Indian Railway Catering and Tourism
Corporation Limited are miniratnas.
These companies were set up with the
intention of providing infrastructure and
direct employment to the public so that
quality end-product reaches the masses
at a nominal cost and the companies
themselves were made accountable to all
stakeholders.
Thus, the granting of status resulted in
better performance of these companies.
32. The depicted situation in the given image
highlights the critical issue of child labour in
the Indian economy. Child labour refers to
the employment of children in work that is
harmful to their physical, mental, or emotional
well-being, depriving them of their right to
education and a childhood.
The slogan mentioned in the image, "A child
is meant to learn, not to earn," underscores
the importance of providing children with
access to education and nurturing their overall
development rather than exploiting them for
economic gains. Child labour is a grave concern
in India, with a significant number of children
engaged in hazardous and exploitative work,
such as in factories, agriculture, domestic work,
and informal sectors.
The prevalence of child labour indicates
underlying challenges such as poverty, lack
of social protections, inadequate enforcement
of labour laws, and limited access to quality
education. Addressing the problem requires
comprehensive efforts, including strengthening
child labour laws, promoting education for
all children, poverty alleviation measures,
and raising awareness about the detrimental
consequences of child labour.
33. (A) (1) Abolition of Zamindari System: The
government's decision to abolish the
Zamindari system was a significant
reform. Under this system, large
landowners (zamindars) collected rent
from tenant farmers, often leading to
exploitation and inefficiencies. The
abolition of this system transferred
ownership rights to the actual tillers
of the land, allowing them to have
direct ownership and pay land revenue
to the government, eliminating
intermediaries.
(2) Consolidation of Land Holdings: Land
consolidation involves rearranging
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fragmented land holdings into larger,
more contiguous plots. This reform
aimed to reduce the inefficiencies
caused by having scattered land
parcels. Consolidation not only
increased the ease of cultivation but
also helped in the efficient use of
resources and reduced the cost of
production.
(3) Ceiling on Land Holdings: The
imposition of a maximum limit on land
holdings was a land reform measure,
aimed at addressing land inequality.
Large landowners were limited in the
amount of land they could own, and
surplus land was redistributed among
small and landless farmers. This
policy was designed to promote more
equitable land distribution and provide
opportunities for landless farmers to
become landowners.
(B) Pre-reforms period is also known as
License-Permit–Quota Raj because of
following reasons:
(1) Industries in the private sector could
be set up only after taking license from
government.
(2) License was not only necessary for
setting up a new enterprise, but also for
expanding the production capacity of
the existing firm.
(3) It gave rise to red tapism and corruption
in the Public sector undertakings. Big
industrial houses could easily take
license but it was not so easy for small
enterprises.
(4) Secondary sector needs industrial
goods which could be imported from
other countries. And quotas were
fixed by the government for import of
different goods from abroad.
(5) License and Quota system jeopardised
the growth of Private sector and
process of Industrialisation in the
country.
OR
(A) Trade and Investment Reform under NEP
1991:
(1) Abolition of Import Licensing:
One of the key reforms was the
removal of import licensing, except
for certain categories like chemicals
and hazardous products. This change
simplified and expedited the process
of importing goods, particularly capital
goods required for industrial production.
It eliminated the need for businesses to
Sample Paper 13 13
 obtain licenses for most imports, saving
both time and money.
(2) Reduction in Tariffs: Tariffs, which
are taxes on imports, were reduced.
Lowering tariffs had the effect of
reducing the prices of imported
goods, especially capital goods
used in industries. This reduction
in import duties benefitedimport-
dependent industries by making their
raw materials and machinery more
affordable.
(3) Abolition of Export Duty: The shift
from import substitution to export
promotion led to the removal of
export duties. This move aimed to
enhance the competitiveness of Indian
products in international markets by
eliminating export taxes. Consequently,
it encouraged Indian businesses
to explore international trade
opportunities and boosted exports from
India to other countries.
(B) Outsourcing is an outcome of
Globalisation.
Following are the reasons:
(1) It refers to hiring services from rest of
the world. For. E.g. consultancy, BPO,
call centers, Software, coaching etc.
(2) Globalisation means to integrate
the economy with rest of world. It
encourages using the world resources
rather than the country’s resources.
(3) Indian Economy opened the doors for
rest of the world in 1991. And India
became an outsourcing hub for other
countries.
(4) Now, Developed countries like UK,
USA hire services from India because
of cheap labour as compared to other
countries.
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(5) Growth in IT sector also enabled the
youth to outsource their services.
34. (A) Diversification can be regarded as
the reallocation of some of the farm’s
productive resources, such as land, capital,
farm equipment and labour to other
products. Diversification in agriculture
includes two aspects one relates to change
in cropping pattern to shift from subsistence
farming commercial farming (by shifting
from single cropping system to multi-
cropping system) and the other relates to a
shift of workforce from agriculture to other
allied activities (livestock, poultry, fisheries,
etc.)
(B) The need and importance of diversification
of such activities in rural sector are:
(1) There is a greater risk in depending
exclusively on farming for livelihood.
(2) It is essential and useful to provide
productive sustainable livelihood
options to rural people in India.
(3) In India, much of agricultural
employment activities are concentrated
in the Kharif season, whereas, in Rabi
season it becomes quite difficult to find
gainful employment.
Diversification of agricultural activities
is important because it helps to
generate supple-mentary and gainful
employment.
(1) It reduces the risk of agriculture
sector.
(2) It helps to provide ecological
balance.
(3) It provides sustainable livelihood
options to farmer.
 ANSWERS
SAMPLE PAPER - 14
SECTION - A
(Macro Economics)
1. (c) Both the statements 1 and 2 are true
Explanation: M1 and M2 are the narrow
concepts of money as they include only liquid
assets. This is so because money is a highly
liquid asset which can be accepted as medium
of exchange very easily.
2. (a) M2 = M1 + Post Office Saving Deposits
Explanation: M2 is a broader measure of
money supply that includes savings deposits
with the post office savings along with M1. It
is expressed as follows.
M2 = M1 + Post Office Saving Deposits.
3. (c) AD < AS
Explanation: Deficient demand arises when
AD is short of AS corresponding to full
employment in the economy.
4. (c) national income, propensity to consume
Explanation: The consumption demand
depends on the two factors national income
and the propensity to consume.
Thus, C = a + bY
5. (b) Balance of payments
Explanation: Balance of payments is a
statement which records all monetary
transactions made between residents of a
country and rest of the world. It includes all
external visible and invisible transactions of a
country.
Related Theory
 Balance of trade is the difference of exports and
imports of a country with the rest of the world. It
includes only visible items.
 Government budget is the statement of government
expenditures and income during a year.
6. (c) 60; (-) 30; (-)3
Explanation:
(i) Y = C +S
0 = C + (–) 60
0 = C – 60
60 = C
(ii) Y = C + S
10 = 40 + S
10 – 40 = S
(–) 30 = S
(iii) APS = S/ Y = (–) 30 / 10 = (–) 3
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7. (a) Flexible, free
Explanation: The exchange rate that is
determined by supply and demand forces in
the foreign exchange market and can fluctuate
freely is known as a flexible or free exchange
rate. This type of exchange rate is not pegged
to a fixed value and can change based on
market conditions.
8. (c) (II) and (III)
Explanation: When exports increases, there is a
inflow of foreign currency which increases the
foreign exchange reserves of a country. When
a country's imports remain at the same level, it
does not directly impact the foreign exchange
resources in the same way as exports do.
9. (b) – 800
Explanation: In the given equation, 800 is
the autonomous consumption. Autonomous
consumption is required at the zero level
of income and saving at that point will be
negative. Hence, autonomous saving will be
– 800.
10. (b) Household
Explanation: Households holds a pivot rate
as the owners of factors of production. These
fators in compass all the factors of production
which are fundamental for the production of
goods and services.
11. Trade surplus refers to excess of value of export
of visible items over value of import of visible
items in the balance of payment account of a
country while current account surplus refers
to excess of receipts from value of exports of
visible items and invisible items. Trade account
surplus is different from current account
surplus in following manners:
(1) Trade surplus is a narrow concept as it
includes only a part of the current account.
The current account balance is a wider
concept, and it includes trade surplus.
(2) Trade surplus includes a favorable balance
of only visible items. Current account
surplus includes the favorable balance of
both visible and invisible items.
Effects of Current account surplus: There
are no definiteness about the effects of a
Sample Paper 14 15
 current account surplus on the economy. It
depends on the size of the current account
and the reasons for the current account
surplus.
(1) High exports (X) leads to increased
employment in the export sector. a
current account surplus (X-M) to boost
employment because it is indicative of
higher domestic demand.
(2) Lower import spending may mean
people are spending more on domestic
goods rather than buying foreign goods.
Greater demand for domestic goods
helps domestic employment.
12. (A) By Income method:
NDPFC = Compensation of employees +
Operating surplus + Mixed income
= Wages and salaries + Employer’s contri-
bution to social security + Profit + Rent +
Interest + Mixed income
= 1400 + 200 + 200 + 100 + 100 + 200
= ` 2,200 crores.
GDPFC = NDPFC + Depreciation
= 2,200 + 40
= ` 2,240 crores.
(B) (i) Construction of a residential building
will be included in national income
as it is a part of investment by the
household.
(ii) Vegetables grown in kitchen garden will
not be included in national income as it
is grown for self use and in leisure time.
(iii) Stock of raw material left last year will
be included in national income as it is
expected to be used into final good in a
span of one year.
(iv) Seeds purchased by farmer will not be
included in national income as it is used
as a intermediate good by the farmer
and will not be considered as final good.
13. C = C + bY
Where, C is Consumption expenditure
C is Autonomous consumption
b is Marginal Propensity to Consume (MPC)
Y is Income
Substituting the variables in the equation, we get
14,000 = 2,000 + (b × 20,000)
– 20,000b = 2000 – 14,000
20,000b = 12,000
12, 000
b = = 0.6
20, 000
\ MPC = 0.6
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Marginal Propensity to Save (MPS) = 1 – MPC
= 1 – 0.6
\ MPS = 0.4.
14. (A) "I concur with the provided statement for
the following reasons:
(1) The Investment multiplier's effectiveness
is closely tied to the Marginal Propensity
to Consume (MPC), where a higher MPC
leads to a larger multiplier effect.
(2) The multiplier effect hinges on a chain
reaction: a change in investment
results in a change in income, which
subsequently triggers changes in
consumption. Each individual's spending
becomes another individual's income,
perpetuating the cycle.
(3) This process persists until the
additional consumption smaller to
zero. Consequently, when the MPC
reaches zero, this cascading process
ceases to function, supporting the
assertion made in the statement."
(B) Yes, I agree with the statement. Average
propensity to consume (APC) indicates
the portion of income that is used for
consumption expenditure. Marginal
propensity to consume (MPC) is the
proportion of change in consumption
expenditure due to change in income.
Average propensity to consume can be
more than one at zero level of income
because at even at zero level of income
there is minimum consumption required
for survival. Hence, Average propensity to
consume can never be zero.
Marginal propensity to consume can never
be more than one as change in consumption
expenditure cannot exceed change in
income under normal circumstances. It can
be zero if there is no change in consumption
expenditure even with change in income.
15. (1) It means that if a commercial bank
becomes insolvent and fails to get any
financial help from anywhere, it finally
approaches RBI and RBI acts a last hope for
commercial bank.
(2) Central bank provides loan to commercial
bank against approved securities.
(3) While doing so, RBI takes care of all the
stakeholders of bank, for e.g., depositors of
the bank.
It also ensures that it does not create panic
among depositors of other commercial banks
and tries to maintain trust of people in the
banking system.
 16. (A) (a) Fiscal Deficit = Borrowings Interest Payments = 25% of Revenue Deficit
= 15,000 crores = 25 /100 × 20,000
(b) Revenue Deficit = Revenue Expenditure = 5,000 crores
– Revenue Receipts Primary Deficit = Fiscal Deficit
– Interest Payments
= 70,000 – 50,000
= 15,000 – 5,000
= 20,000 crores = 10,000 crores
(B) Following are the differences between Private Goods and Public Goods:

Basis of Difference Private Goods Public Goods

Meaning These goods are meant for These goods are meant for
Individual use having rivalry and collective use having Non-rivalry
Excludability feature. and non-Excludability feature.

Example Bread, Clothes, Mobile Street lights, Defense, Law and

order.

(A) (i) Capital Receipt of the Government:
This refers to a type of loan acquired
by the government from the general
public, wherein individuals deposit their
funds. The government is obligated to
repay this loan in the future, thereby
creating a liability.
(ii) Revenue Receipt of the Government:
This constitutes a tax revenue source
for the government. As such, it doesn't
generate any government liability nor
diminish its assets.
(B) It is the tax slab of Income tax, which is
progressive tax in nature.
Implication:
(2) Income distribution is another critical
factor. Even if a country has a high
GDP, if income is unequally distributed,
a significant portion of the population
may not have access to an adequate
share of goods and services, while a
wealthy minority may have access to a
disproportionately large share.
(B) (i) The payment of interest by a firm
to a bank is considered as part of
the national income. This inclusion
is justified because the firm likely
borrowed funds from the bank for
productive purposes, such as financing
business operations, investments etc.

Rich people will pay high tax and people
having less income will pay less tax and
poor people who do not come under tax
net are exempted from tax. Tax collections
are spent on welfare projects especially
meant for poor. It will reduce the income
equalities between rich and poor.
17. (A) I disagree with the given statement because
the per capita availability of goods and
services is influenced by several factors, and
GDP alone does not necessarily guarantee
greater availability on a per capita basis.
(1) The population of the country plays a
crucial role. If a country has a high GDP
but also a large population, the per
capita availability of goods and services
may still be relatively low because the
resources must be distributed among a
larger number of people.
(ii) The payment of interest by a bank to
an individual is included in the National
Income. This is because, the bank would
have used the savings of individuals
for various productive purposes,
including lending to other individuals
or businesses, which generates interest
income.
(iii) Conversely, the payment of interest
by an individual to the bank is not
considered in the estimation of national
income. This omission is based on the
assumption that the individual likely
borrowed the money for consumption
purposes rather than for productive
purposes like investing in business
activities or assets. Therefore, it is
not counted as a contribution to the
national income.

Sample Paper 14 17

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 SECTION - B
(Indian Economic Development)
18. (c) Cycle-rickshaw puller.
Explanation: The Cycle Rickshaw puller is the
odd one among the options because he is
working in an unorganised sector.
19. (c) Population is quiet small
Explanation: China is the largest populated
country in the world followed by India. Hence,
the statement.
China’s population is quite small is incorrect.
20. (c) (D) and (C)
Explanation: Organic Farming discards the use
of chemical fertilizers and pesticides. It is eco-
friendly farming and high nutritional value. But
shorter shelf-life and High cost are constraints
in organic farming.
21. (c) Contract Farming
Explanation: Contract farming refers to that
channel in which farmers enter in to contract
with companies. Companies advance them
cash and technical support to produce a
particular Crop(s) and later on, purchase these
crops from farmers at a pre determined price.
It reduces the market risk of price fluctuations
and enhances the size of market.
22. (a) Both Assertion (A) and Reason (R) are true
and Reason (R) is the correct explanation of
Assertion (A).
Explanation: Roads were developed to
mobilise the British Army within India. Roads
were developed to facilitate the transportation
of raw materials from different parts of the
country to the nearest railway station or to
the port to send it to Britain. Today, roads are
develop according to high infrastructure for
vehicles.
23. (b) The green revolution was the main reason
for the rise in food grain production in
Pakistan
Explanation: The green revolution,
implemented in the 1960s and 1970s, aimed
to boost agriculture productivity and ensure
food security. The introduction of high-yielding
varieties of crops, as wheat and rice, doubled
with the adoption of modern agricultural
techniques, resulted in substantial increase in
agricultural output and productivity in Pakistan.
24. (a) Only (i)
Explanation: In October 2015, the Chinese
news agency Xinhua announced plans of the
government to abolish the one-child policy,
allowing all families to have two children, "to
18 Economics Class XII
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improve the balanced of elderly and young
population."
25. (b) Pakistan
Explanation: Pakistan adopted economic
stabilization and structural reforms policy in
1988 in an effort to reduce domestic financial
imbalances and external deficits.
26. (c) Both the statement 1 and 2 are true.
Explanation: Both economic and social
infrastructures are interdependent and
complementary to each other. While economic
infrastructure fosters economic growth, social
infrastructure enhances the quality of standard
of living and thereby leads to the welfare of
the economy as a whole.
27. (a) (A)-(I)
Explanation: On July, 2017 GST laws were
implemented, replacing a complex web of
Central and state taxes.
28. (A) Two major environmental issues faced by
the world today are global warming and
ozone depletion.
(1) Global warming: Global warming
refers to the phenomenon of sustained
increase in global temperature due
to environmental pollution and
deforestation. It is a gradual increase
in the average temperature of Earth’s
lower atmosphere as a result of the
increase in green house gases since
the industrial revolution. The increase
in the temperature of the earth
surface acclerates the melting of polar
ice leading to rise in sea level. Thus, the
disturbed ecological balance leads to
increasing natural calamities posing a
threat to human survival.
(2) Ozone depletion: Ozone depletion
refers to the phenomenon of
reductions in the amount of ozone in
the stratosphere. The problem of ozone
depletion is caused by high levels
of chlorine and bromine products in
the stratosphere. The origins of these
compounds are chlorofluorocarbons
(CFC), used as a cooling substance in
air conditioners and refrigerators. As a
result of depletion of ozone layer, more
Ultraviolet (UV) radiations comes to
earth and causes damage to living
organisms.
OR
 (B) Self Help Groups (SHGS) are small groups
of people, especially from rural areas, who
pool their resources and individual savings
together. It is from this pool that loans are
given to those members who are in urgent
need of money. The loans provided by self
help groups are at very nominal rates. The
well functioning SHGs are also eligible
for loans from banks, which are used for
creating self employment opportunities
for the poor, thereby increasing their
standard of living. Self help groups have
greatly helped in taking out poor farmers
from debt traps and helping them lead
a life of diginity. Thus, with the help of
SHGs, the rural poor become economically
upgraded, and need not to be dependent
on moneylenders anymore.
29. 'Brain-Drain' is one of the main issues India is
having with the formation of human capital.
Brain drain refers to the exodus of educated,
skilled, and trained individuals from India
to other nations around the world in quest
of better education, better employment
prospects, and a high standard of living that
they cannot find in India.
(i) These skilled workers help other nations
grow and prosper, just as they could in
India.
(ii) It hinders India's growth and the
development of its human capital.
30. China is moving ahead of India .and Pakistan.
This is true for many indicators—income
indicator such as GDP per capita, or proportion
of population below poverty line or health
indicators such as mortality rates, access
to sanitation, literacy, life expectancy or
malnourishment. China and Pakistan are
ahead of India in reducing proportion of
people below the poverty line and also their
performance in sanitation.
But India and Pakistan have not been able
to save women from maternal mortality. In
China, for one lakh births, only 29 women
die whereas in India and Pakistan, about 133
and 140 women die respectively. Surprisingly
all the three countries report providing
improved drinking water sources for most of
its population. China has the smallest share of
poor among the three countries.
31. (A) (i) True
The three fuels being targeted under
the Ujjawala Yojna which are proved to
be a game changer for rural India are as
follows:
(1) Coal,
(2) Oil resources
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(3) Fuel wood
(4) Petroleum.
(ii) True
In 1952, we were spending meager
0.6% of India’s GDP on education that
rose to only 4% in 2014. This has fallen
well short of 6% target as proposed
by the Education Commission in 1964.
Moreover throughout this period the
increase in education expenditure has
not been uniform and there has been
irregular rise and fall.
This shows the apathy of government
towards investment in the education
system. If the recommended 6% p.a.
of the GDP would have been spent
properly the present education system
would have reached unforseen heights
(B) Before the New Economic Policy, 1991
regulatory mechanisms were enforced in Indian
industries in various ways:
(1) Industrial licensing under which every
entrepreneur had to get permission from
government offiicials to start or close to
firm.
(2) Private sector was not allowed in many
industries; and
(3) Some goods could be produced only in
small scale industries.
(4) Industries were required to obtain
government licenses for establishment,
expansion, on diversification, limited the
number of firms in various sectors.
32. The picture shows the situation "Unemployment
growth". And I agree with that.
An increase in the number of unemployed
means an increase in the country's GDP
without creating many job opportunities.
This leads to unemployment situation in the
country.
Reason:
(1) After the economic reforms implemented
in 1991, foreign investments lead to
the large-scale establishment of many
international companies in our country.
(2) These companies are mainly from
developed countries and are very
technologically efficient
(3) It reduces production cost. But India is a
densely populated country and they find
no interest in using labour that increases
the cost of production.
(4) Indian companies follow suit for fear of
competition and backwardness. That is
why India's economy is growing without
creating jobs.
Sample Paper 14 19
 33. (A) Technical Reforms introduced during
Green Revolution:
(1) Introduction of HYV Technology: High
yielding variety seeds were used rather
than traditional seeds for food crops
like wheat and rice. It gave rise to their
productivity and led to a substantial rise
in production of these crops.
(2) Use of pesticides and insecticides:
Pesticides and Insecticides were used
on very large scale to kill pests and
insects. It was done to protect the crops
from various diseases.
(3) Irrigation Facility: Irrigational facilities
like canals and well were expanded
which led to increase in area under
cultivation. Without irrigational facilities,
there was no use of HYV seeds and
chemical fertilizers.
(B) Gains of Privatisation:
(1) Many domestic private companies came
into existence in different sectors of the
economy. For e.g. telecom, insurance,
consumer goods and capital goods. It
gave rise to GDP and employment to a
large extent in the country.
(2) It increased the competition among
public sector and private sector
which is good for improving quality of
products and make prices competitive.
Ultimately, consumer is benefitted from
competition.
(3) Consumers enjoyed sovereignty i.e. they
could choose the goods and services
as per likes and prices among a wide
variety of choices available in the
market.
(4) Objective of private sector is profit
maximisation. So they worked with full
dedication and enthusiasm. It led to
increase in efficiency and productivity
of private enterprises which made them
competitive with MNCs in the country
and at international level as well.
OR
(A) Arguments in favor of given statement:
(1) As the country opened doors for rest
of the world, many multinational
companies were set up. It contributed
to economic growth and employment
in the country.
(2) Greater job opportunities led to increase
in income of people and hence, increase
in demand is quite obvious.
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(3) Global brands were now available in
the country and people choose them
over indigenous products.
(4) Not only products, western culture like
clothing styles, food products, language
and even festivals attracted the Indian
youth. It badly impacted the Indian
culture.
(5) Saving was a common practice among
Indians. And now, people spend beyond
their pockets and even borrow to look
rich and modern.
(B) Features of Mixed Economic System:
(1) An Economic System in which both
private and public sector exists.
(2) Private sector produces those goods
and services which it finds profitable
and uses such technology which it cost
effective as objective of private sector is
profit maximisation.
(3) Public sector produces those goods and
services which it finds socially desirable
like schools, hospitals and uses such
technology which benefits the society
as objective of public sector is social
welfare.
(4) Government also performs traditional
functions like law and order, defence
etc., pensions, subsidies etc.
(5) Price in private sector is left to the free
play of market forces like demand and
supply while prices in public sector is
fixed by Government considering the
social needs.
(6) Government performs the function
of regulator for private sector. For e.g.
TRAI for telecom sector, SEBI for capital
market, RBI for money market so
that private sector doesn’t exploit the
interest of consumers.
34. (A) He will be considered as marginal worker.
Those who did not work for atleast 183
days in the preceding 12 months to the
census taking are considered marginal
worker.
(B) The nature of employment in India is multi-
faceted. Some get employment throughout
the year; some other get employed for
only a few months in a year. Many workers
do not get fair wages for their work. While
estimating the number of workers all these
who are engaged in economic activities are
included as employed.
 ANSWERS
SAMPLE PAPER - 15
SECTION - A
(Macro Economics)
1. (b) (I) and (III) 4. (b) surplus of ₹ 150 crore
Explanation: Balance of Payment Account of a Explanation:
country comprises of two accounts, i.e., current Balance of Trade = Export of Goods – Import
account, and capital account. of Good
Related Theory = 600 – 450
 Current Account records transactions related to = 150 crores
export and import of goods and services, unilateral 5. (b) 1200
transfers received and paid to and from rest of the
world, whereas Capital Account records transactions Explanation: Given,
related to borrowings and loans given, investment C = 200 + 0.50Y and
made to and from rest of the world, and change in I = ` 400 crores
foreign exchange reserves.
At equilibrium level,
2. (a) 320, 10000, 2000, 8000 AD = AS
Explanation: Let’s assume that the bank or, Y=C+I
requires to maintain a CRR of 20 percent. Thus, Y = 200 + 0.50 Y + 400
(1) If a person (person A) deposits ` 2,000 Y – 0.50 Y = 200 + 400
rupees with the bank, then the bank keeps
only ` 400 rupees in the cash reserve and 600
Y=
lends the remaining ` 1600 to another 0.50
person (person B). = ` 1200 crore
(2) Similarly, the bank keeps 20 percent of
6. (c) Output, Disposition
` 1600 (i.e. ` 320) and advances the
remaining ` 1280 Explanation: Production (Output) of goods
and services causes generation of income;
This process continues until the initial
income causes expenditure (or disposition); by
primary deposit of ` 2,000 and the
generating demand, expenditure once again
initial additional reserves of ` 1600 lead
causes production.
to additional or derivative deposits of
` 8,000 (1600+1280+….). Adding the Related Theory
initial deposits, we get total deposits of
 The circular flow means the unending flow of
` 10,000. In this case, the credit multiplier production of goods and services, income, and
is 5 (reciprocal of the CRR) and the credit expenditure in an economy. It shows the redistribution
creation is five times the initial excess of income in a circular manner between the
reserves of ` 1600. production unit and households.

Caution 7. (a) Statement 1 is true and statement 2 is

 Students must know that the value of money
multiplier is inversely related to Legal Reserve Ratio
(LRR).
3. (a) Goods and Services tax
Explanation: Non-tax revenue receipts are
revenue receipts that are not generated by
public taxation. This is the money earned by
the government as profits and dividends from
profiting through state enterprises. The interest
earned by the government on funds borrowed
from internal or foreign borrowers.
false.
Explanation: Tax is a sum of money that a
government makes people to pay based on
their income, the value of their property, and
so on, and which is used to pay for government
services.
Related Theory
 Revenue receipts are defined as those receipts
that neither generate a liability nor reduce the
government's assets. For example, service tax, excise
duty, sales tax, goods and services tax, entertainment
tax etc.

Sample Paper 15 21

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 Caution
 Students should know that Indirect taxes are levied
on the purchase of goods and services. It is not levied
directly on a person's income. Instead, he or she must
pay the tax in addition to the price of the products or
services purchased by the seller.
8. (d) Standard of deferred payment
Explanation: Deferred payments refer to those
payments which are to be made at some time
in the future.
Related Theory
 Money as a standard of deferred payment signifies
that the payment is scheduled to be made at a
later period. This is achievable because the value of
money remains relatively stable and has the
advantage of being widely accepted. This money
function has facilitated borrowing and lending.
9. (b) Managed floating
Explanation: The floating rate influenced by
buying and selling of foreign exchange by the
central bank in the foreign exchange market is
known as “Managed Floating Exchange Rate”.
Related Theory
 Managed Floating Exchange Rate is called ‘managed’
because the central bank tries to influence the rate
by entering the market as a bulk buyer or seller.
10. (a) Deflationary gap
Explanation: Deflationary gap is the amount
by which actual aggregate demand falls short
of aggregate supply at full employment level
of income. It is called deflationary because it
causes the price level to fall. The deflationary
gap generates deflation and lowers the
economy's wage and price levels.
Related Theory
 Inflationary gap, also known as excess demand, is
the amount of excess of aggregate demand above
the level required to maintain full employment in the
economy.
Caution
 Students must understand that Inflation is caused
by an inflationary gap, which raises wages and
prices in the economy, whereas the deflationary gap
generates deflation and lowers the economy's wage
and price levels.
11. The three precautions that should be taken
while estimating national income by production
method are:
(1) Value of intermediate goods should not
be included in the estimation of National
Income, to avoid the problem of double
counting (as their value has already been
included in the value of final goods)
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(2) Imputed value of goods for self-
consumption should be taken into
consideration while estimating National
Income, as it adds to the current flow of
goods and services.
(3) Sale and purchase of financial assets
should not be included in the estimation
of National Income, as such transactions
are mere paper claims and do not lead to
value addition. (Or any other valid point)
12. (A) When Foreign Institutional Investors (FIIs)
remained net seller in the Indian capital
market, it will lead to an outflow of the
foreign currency in the country leading
to a fall in the supply of foreign exchange
reserve in the economy. Not only this, since
they are selling the securities, that means
the demand for the foreign currency is
increasing and leading to the creation
of excess demand of foreign currency at
the prevailing exchange rate. The new
equilibrium will be determined at the
point where the new demand and supply
coincide raising the exchange rate and
leading to the depreciation of domestic
currency.
OR
(B) The given condition indicates to the
situation of depreciation of home currency
(₹) vis-a-vis foreign currency (US $). This
implies that more units of Indian currency
(₹) is to be paid to buy one unit of foreign
currency (US $). This may lead to sorrows
for importers, as they have to pay higher
amount for their imports. Also, this may
bring smiles for exporters, as they would
be getting higher earnings for their exports.
13. Revenue Deficit = (v) – [(i) + (iii)]
= 160 – (94 + 20)
= ₹ 46 crore
Primary Deficit = (iv) – (vi)
= 64 – 40
= ₹ 24 crore
14. (A) When at the level of full employment,
aggregate demand exceeds aggregate
supply, it leads to “excess demand” in
the economy. Excess demand leads to
inflation in the economy which culminates
in an ‘inflationary gap’ at the level of full
employment.
The ‘open market operation’ instrument
can be used efficiently to correct excess
demand in the economy. The Central Bank
sells securities to the public, and the public
withdraws funds from its commercial bank
deposits to pay the Central Bank for the
 securities purchased. Money transfers from
commercial banks to the Central Bank in
this manner. This reduces people’s deposits
with commercial banks and has a negative
impact on their lending capacity for
consumption and investment, ultimately
correcting excess demand.
OR
(B) When Aggregate Demand (AD) and
Aggregate Supply (AS) are equal at less
than full employment level of income,
then it is a situation of underemployment
equilibrium.
The measures to reach full-employment
equilibrium are:
(1) Increase in government expenditure
(Fiscal measure): The government
incurs expenditure on administrative
and welfare activities. This increase
in expenditure will directly increase
Aggregate Demand (AD).
(2) Lowering the Bank Rate (Monetary
measure): If the Central Bank reduces
the bank rate, commercial banks are
compelled to reduce their lending rates
to producers. As borrowing becomes
more affordable, demand for loans for
investment and consumption will rise.
(3) Buying of Securities from the market
by the Central Bank (Monetary
measure): When the Central Bank buys
securities from the public, it pays out
money to the public. Money flows out
of the Central Bank and into commercial
banks via buyers of these securities who
have accounts in these banks. Deposits
at commercial banks rise as a result,
increasing their lending ability. As a
result, borrowing for consumption and
investment will rise, and the AD will rise
as well. (Any two)
15. Credit multiplier measures the amount of
money that the banks are able to create in
the form of deposits with every initial deposit.
The credit creation is inversely related to LRR.
Higher the credit multiplier, higher will be the
total credit created and vice-versa.
The credit creation by commercial banks
is determined by the amount of the initial
deposit and Legal Reserve Ratio (LRR). Suppose
the initial deposits are ₹ 1000 and LRR is 10%,
the banks will keep 10% of the deposits i.e.
₹ 100 as reserves and will lend the remaining
amount of ₹ 900. Those who borrow will spend
the money for making payments.
It is assumed that the entire ₹ 900 comes back
as secondary deposits to the banking system.
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Now the banks will again keep 10% of ₹900
i.e. ₹ 90 as reserve and lend out ₹810. This
process continues till total reserves become
equal to initial reserves.
1
Total money creation = Initial deposit ×
LRR
1
= 1000× = ₹10,000
10%
Hence, the initial deposit of ₹ 1000 has led to
the total money supply of ₹ 10,000.
16. (A) Compensation of Employees (CoE)
= (ii) + (iii) + (iv)
= 60,000 + 30,000 + 7,500
= ₹ 97,500 crores
(B) A stock is any economic variable that is
measured at a specific point of time. It
does not require a time dimension. Flow,
on the other hand, refers to any economic
variable that is measured across time. It
always necessitates a time dimension.
Capital, for example, is a stock variable,
whereas capital formation/investment is a
flow variable.
OR
(A) (i) Goods purchased by a Japanese tourist
in India were produced in the domestic
territory so it will be a part of domestic
income of India.
(ii) Broker’s commission on the sale of
second hand goods will be included
in domestic income because it is the
remuneration earned by the broker for
rendering productive service.
(B) GDP cannot be used to measure welfare
if income distribution becomes unequal. In
this instance, even if GDP increases, welfare
may not be revised equitably because GDP
may benefit the affluent class more by
making them richer and the poor poorer.
As a result, increased inequality in GDP
distribution will not be followed by an
increase in welfare.
17. Given that, ∆I = ₹ 900 crores and MPC = 0.6,
increase in income takes place in the following
sequence:
(1) Increase in investment raises the income
of those who supply investment goods by
` 900 crores, in the first round.
(2) Since MPC is given as 0.6, income earners
spent ` 540 crores on consumption. This
raises income by ` 540 crores = 900 × 0.6
in the second round.
(3) In the similar way, third round increase in
income is ` 324 crores = 540 × 0.6.
Sample Paper 15 23
 (4) In this way, income goes on increasing
round by round with each round increase in
income equal to 60% of the previous round
increase.
(5) The total increase in income is:
1 = ` 2,250 crores
ΔY = ΔI ×
1 − MPC
SECTION - B
(Indian Economic Development)
18. (c) SAARC
Explanation: The given logo is related to South
Asian Association for Regional Cooperation
(SAARC) regional and economic group.
Related Theory
 South Asian Association for Regional Cooperation
(SAARC) is the regional association of South-East
Asian countries consisting of eight member countries.
 India, Pakistan, Bhutan, Sri Lanka, Bangladesh,
Nepal, Maldives and Afghanistan are the members
of SAARC.
19. (b) Net exporter of raw materials
Explanation: The colonial government's
restrictive policies on commodity production,
trade, and tariffs had a negative impact on the
structure, composition, and volume of India's
foreign trade. As a result, India became a net
exporter of raw materials.
Related Theory
 India became an importer of finished consumer
produced in the factories of Britain. Britain maintained
a monopoly control over India’s exports and imports.
As a result, more than half of India’s foreign trade
was restricted to Britain.
20. (c) Both statements 1 and 2 are true
Explanation: A SHG is a financial intermediary
group made up of 10 to 25 local women aged
18 to 40.
Related Theory
 SHGs play an important role in providing credit to
the poor, which is critical for poverty alleviation.
They also play an important role in women's
empowerment since SHGs help women from
economically disadvantaged backgrounds.
21. (c) (II), (I), (III),(IV)
Explanation: Pakistan created in 1947;
People’s Republic of China was established in
1949; First FiveYear Plan of India was started
in 1951 and First Five Year Plan of China was
started in 1953.
22. (d) A – (II), B – (IV), C – (I), D – (III)
Explanation: World Trade Organisation is a
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1
= 900 ×
1 − 0.6
1
= 900 ×
0.4
multilateral trade negotiating body; Reserve
Bank of India is the Central Bank of India;
International Monetary Fund provides short-
term loans to Balance of Payments problems
and International Bank for Reconstruction
and Development facilitates lending for
reconstruction and development.
23. (c) Greater possibilities for import
Explanation: ‘Greater possibilities for import’ is
not an advantage of organic farming.
Related Theory
 Organic farming contributes to environmental health
by lowering pollutant levels. It decreases human and
animal health risks by lowering the residual level in
the product. It contributes to the sustainability of
agricultural output. It lowers agricultural production
costs while simultaneously improving soil health.
24. (b) Industrial
Explanation:In the late 1980s and early
1990s, the second stage of reform involved
the privatisation and contracting out of much
state-owned industries in China.
Related Theory
 The Chinese Communist Party's (CCPCC) reform
and open-door policy began in late 1978, with
the approval of a new economic development
strategy at the Third Plenary Session of the 11th
Central Committee of the Chinese Communist Party
(CCPCC).
25. (d) (I),(II) and (III)
Explanation: Diversification has two
components: changing cropping patterns and
a shift in labour from agriculture to other allied
sectors and the non-agricultural sector.
Related Theory
 The necessity for diversification stems from the fact
that relying solely on farming for a living poses a
larger risk.
Caution
 Students must understand that Diversification into
new areas is required not only to minimise risk in the
 agriculture industry, but also to provide productive
and sustainable living options to rural people.
26. (d) India and Britain
Explanation: The Suez Canal is a man-made
waterway that runs from north to south. It
provided a direct passage for ships travelling
between India and Britain. The Suez Canal's
opening increased British control over India's
overseas trade.
Related Theory
 The Suez Canal connects Port Said on the
Mediterranean Sea to the Gulf of Suez, which is
an arm of the Red Sea. By eliminating the need
for ships to go through Africa, the canal provides a
direct commercial route for ships operating between
European or American ports and ports in South Asia,
East Africa, and Oceania.
 Suez Canal is one of the most significant waterways
in the world, both strategically and commercially.
Its establishment in 1869 decreased transportation
costs and facilitated access to the Indian market.
27. (d) Assertion (A) is false but Reason (R) is true
Explanation: A country's demographic
characteristics provide an overview of its
population size, composition, territorial
distribution, trends, and components of change
such as life expectancy, mortality, and social
mobility.
28. Expenditure to acquire information relating
to labour and other markets is necessary
to make decisions regarding investment in
human capital. Information relating to job
opportunities enables people to increase their
earning potential. Thus, it is a major factor that
influences human capital formation.
Expenditure on migration is another important
source of human capital formation. People
migrate in search of better employment
opportunities that may fetch them higher
income. Technically qualified workforce
migrate to other areas because of higher
income and better opportunities.
29. (A) The given statement is defended as
agricultural sector was adversely affected
by the reform process in the following
ways:
(1) Public investment in agriculture
sector especially in infrastructure like
irrigation, power etc. has been reduced
in the reform period.
(2) Reduction of fertiliser subsidy increased
the cost of production affecting thereby
the small and marginal farmers.
(3) Increased international competitiveness
due to liberalisation and reduction of
import duties.
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(4) Shift from food crops to cash crops due
to export-oriented policy in agriculture
led to a rise in prices of food-grains.
(Any three)
OR
(B) The given statement is defended. Foreign
Direct Investment (FDI) and Foreign
Institutional Investment (FII) have Increased
from around $100 million in 1990-91 to
$74 billion recently. This has transformed
India's status from a "begging bowl"
economy in the 1990s to a "self-sufficient"
economy today. Because of the opening
up of the Indian economy, it has become
one of the world's greatest holders of
foreign exchange reserves. India's foreign
exchange reserves increased from
approximately US $ 6 billion in 1990-91 to
approximately US $321 billion in 2014-15.
30. The given image indicates towards the
environmental challenge of ‘deforestation’.
Deforestation involves the removal of a
large number of trees and the clearance of
forest regions. It has had numerous negative
repercussions on the environment. Climate
change, soil erosion, global warming, species
extinction, and subsurface water depletion are
all significant consequences of deforestation.
In addition, there will be flooding, diminishing
wildlife habitats, and decreased water quality.
31. (A) The Great Leap Forward (GLF), Campaign
which began in 1958 in China, aimed to
massively industrialise the country. People
were encouraged to start businesses in
their own backyards. In rural areas, the
commune system was established, under
which people cultivated land cooperatively.
The GLF initiative encountered numerous
challenges, including a devastating drought
in China that killed around 30 million
people. When Russia had disagreements
with China, it withdrew its personnel who
had been brought to China to assist with
the industrialisation process.
OR
(B) China used the market system without
sacrificing political commitment and
succeeded in increasing growth while
alleviating poverty. It made use of the
market process to “generate additional
social and economic opportunities”. Not
only that, but by keeping collective land
ownership and enabling individuals to
develop land, China has secured rural
social stability. Even prior to reforms,
public participation in building social
infrastructure resulted in positive effects
in human development metrics in China.
These advancements were credited
to the correct policies that China had
implemented prior to reform.
Sample Paper 15 25
 32. (A) The given statement is true. Crop
diversification involves shifting from a
single-cropping to a multi-cropping system.
It requires altering planting patterns from
food grains to cash crops. Subsistence
farming remains dominant in India, with
farmers prioritising cereals in the cropping
system. Farmers' dependency on one or
two crops is lessened since they raise a
diverse range of crops. Crop diversity is
necessary to enhance farmers' income and
avoid risks.
(B) The given statement is true. Casual
employees are the most vulnerable
segment of the workforce. They are not
normally protected by official rules. As a
result, such workers confront a continuing
danger to their job security. They may
also be denied regular income and social
security benefits.
33. (A) The characteristics of Small Scale Industries
(SSI) are as follow:
(1) These are labour intensive and
therefore, employment friendly.
(2) These show locational flexibility and is
therefore, equality-oriented.
(3) These need small investment and is
therefore, equity-oriented.
(B) The three main components of institutional
reforms in Indian agriculture are as under:
(1) Abolition of intermediaries:
Intermediaries, often known as
zamindars, have been abolished. The
soil's tillers now have ownership rights.
As a result, self-interest has increased
in the farming activity.
(2) Ceiling on land holdings: A holding-
size limit has been implemented in
order to promote equity (equality) in
land allocation.
(3) Consolidation of holdings:
Consolidation of holdings has
been prioritised in order to reduce
fragmentation. This has made farm-
size economically viable.
(4) Regulation of rent: Rents have been
regulated to put an end to exorbitant
and illegal extortion from cultivators.
(Any three)
OR
(A) The three main components of technical
reforms carried out after independence
are:
(1) Use of HYV seeds: High Yielding
Variety seeds have mostly replaced
26 Economics Class XII
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traditional varieties, resulting in an
increase in agricultural productivity.
(2) Use of chemical fertilisers: Chemical
fertilisers have also resulted in a
significant increase in agricultural
productivity.
(3) Use of insecticides and pesticides for
crop protection: This has protected
crops from pests and illnesses, resulting
in less yield loss.
(4) Expansion of irrigation facilities:
Several major and local irrigation
projects have been expanded around
the country. This has increased
productivity and efficiency. (Any three)
(B) The importance of large-scale industries in
the growth process of the Indian economy
are as follow:
(1) These generate infrastructural base in
the economy.
(2) These induce the growth of small-scale
industry.
(3) These promote high-end technology
which raises efficiency.
(4) The regenerate economies of scale.
(Any three)
34. (A) The Chipko campaign was a non-violent,
social, and ecological campaign in India
in the 1970s led by rural villagers, mainly
women, to safeguard trees and forests
threatened by government-backed logging.
The inhabitants relied largely on the trees
for subsistence—directly for food and
firewood, and indirectly for services like as
water purification and soil stabilisation.
(B) Through a stealthy revolution, the people
attempted to resist indiscriminate tree
cutting. Chipko and Appiko are two
examples of such movements. Chipko—
sometimes known as 'tree huggers'—
was first planted in the early 1980s in
northern India and the Himalayan woods.
The locals embraced the trees, shielding
them from the contractors' axes with their
bodies. The Chipko movement in India,
which has been active since 1973, is one
of the most effective examples of people-
oriented environmental rehabilitation in
the Himalayan region. The primary goal
of this campaign, in which women play
an important part, is tree protection and
planting. The Appiko movement, like the
Chipko movement, was founded to save
the ‘Western Ghats' tropical forests. This
basic non’ violent deed gained popularity,
and individuals spontaneously joined this
movement.
 ANSWERS
SAMPLE PAPER - 16
SECTION - A
(Macro Economics)
1. (a) Statement 1 is true and statement 2 is
false
Explanation: Money multiplier or credit
multiplier indicates the maximum amount of
additional money that the commercial bank
scan legally create. It is inversely related to the
legal reserve ratio.
2. (c) Managed Floating Exchange Rate
Explanation: The floating rate influenced by
buying and selling of foreign exchange by the
central bank in the foreign exchange market is
known as “Managed Floating Exchange Rate”.
Caution
 Students get confuse between Managed Floating
Exchange Rate and Dirty Floating Rate.
3. (b) (I) and (III)
Explanation: For reducing inequalities in
income and wealth, a government should
generate employment opportunities in the
country for the unemployed youth and should
change the income tax rate as well as far as
possible for it.
4. (c) Rise in prices, No change in output and
employment
Explanation: Inflationary gap refers to the gap
by which actual aggregate demand exceeds
the aggregate demand that is required to
establish full employment equilibrium. Thus,
when there will be inflationary gap persists in
the economy, prices of commodities will fall
and no change in output and employment
level in the economy.
5. (a) stock; flow
Explanation: Inventory is a stock concept as it
can be measured at a point of time, whereas
change in inventory is a flow concept as it can
be measured over a period of time.
Related Theory
 ‘Stock’ refers to any economic variable which is
measured at a point of time, whereas ‘Flow’ refers to
any economic variable which is measured during a
period of time. For example capital is a stock variable
and capital formation/investment is a flow variable.
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Caution
 Students must know that Stock variable does not
call for a time dimension, whereas flow variable
always calls for a time dimension.
6. (c) 22,000
Explanation: Given that,
C = 500 + 0.75Y and
I = ` 5000 crores
At equilibrium level,
AD = AS
or, Y=C+I
Thus, Y = 500 + 0.75 Y + 5000
Y – 0.75 Y = 500 + 5000
5500
Y=
0.25
= ` 22,000 crore
7. (b) positive, current
Explanation: Current account of balance of
payments records all the transactions related
to export and imports of goods and services
and unilateral transfers. Those items that result
in inflow of foreign exchange are recorded as
positive item in the current account of balance
of payments. Sale of machinery to abroad
is an export and as such results in inflow of
foreign currency. Thus, it will be recorded as
positive item in the current account of balance
of payments.
Related Theory
 Capital account of Balance of Payment records
receipts and payments of foreign exchange which
impact the asset-liability status of a country in
relation to rest of the world.
8. (c) A – Revenue Receipts, B – Tax Revenue,
C – Recovery from loans
Explanation: Revenue receipts are those
receipts that neither reduce the assets of
the government nor create any liability for
the government, whereas the receipts which
either create liabilities or reduce assets of the
government are known as capital receipts.
Sample Paper 16 27
 Related Theory an increase in demand for Indian rupee,
resulting in its appreciation in relation to
 Budget receipts are the total amount expected to
foreign currencies.
accrue to the government from different sources
during a fiscal year. OR
(B) It is only in the accounting sense that
9. (b) Demand deposits balance of payment always balances.
Explanation: A demand deposit is the money From the practical point of view, it should
that is deposited into a bank account and can not be interpreted as a situation of zero
be taken whenever it is needed. net financial obligation for a country. A
Related Theory negative balance on the current account is
equated with positive balance in the capital
 A time deposit, like a Certificate of Deposit (CD), is an
account. But the positive balance in capital
interest-bearing bank account with a maturity date.
To get the full interest on a time deposit, the funds account may have been achieved through
must be kept for the specified amount of time. loans from rest of the world. All loans are
financial obligations to rest of the world.
Caution
13. Given, Consumption function, C = 80 + 0.6Y
 Students must understand that in demand deposits,
there is no fixed time period, whereas time deposits (A) False,
are deposited in the banks for a fixed period of time. At equilibrium level, AD = AS
10. (c) ` 400 crores \ C+I=Y
Explanation: Trade balance Given, C = 80 + 0.6Y and I = ` 800 crores
= Exports – Imports Substituting the values in the equation,
= 250 – 300 crores We get
= (–) `50 crores (80 + 0.6Y) + 800 = Y
Invisible Balances = Balance on non-factor 80 + 0.6Y + 800 = Y
services + Balance on income 800 + 80 = Y – 0.6Y
+ Balance on unilateral transfers
880 = 0.4Y
= 200 crores + 100 crores
+ 150 crores 880
Y = = ` 2,200 crores
= 450 crores 0.4
Current Account Balance 
Therefore, equilibrium level of income
= Trade balance would be ` 2,200 crores.
+ Invisibles balance (B) False
= (–) 50 crores + 450 crores Given, Change in investment, ∆I = ` 150
= 400 crores crores

11. (a) Fees paid to a mechanic by a firm will Investment multiplier, k =

1
not be included in the estimation of Gross 1 − MPC
Domestic Product at market price because
MPC is given as 0.6
it is an intermediate expenditure of the firm,
which is not included, to avoid the problem 1 1
So, k = = = 2.5
of double-counting of the expenditure. 1 − 0.6 0.4
(b) Interest paid by an individual on a car loan
∆Y
taken by a bank is not included, because Alternatively, k = ∆ I
the loan is taken to meet the consumption
expenditure of the individual and thus, the
Substituting the values in the equation, we
interest paid on such a loan is not treated
get
as a factor payment.
∆Y
12. (A) The given statement is true as if the domestic 2.5 =
150I
interest rate rises and becomes higher
than the global interest rate, foreigners ∆ Y = 150 x 2.5 = 375
will be enticed to relocate their funds to
Therefore, if investment rises by ` 150
the domestic economy. An increase in the
crores, the change in income would be
flow of capital from overseas will increase
` 375 crores.
demand for Indian currency, indicating

28 Economics Class XII

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 14. Recently, Yes Bank, an Indian private sector
bank, had undergone severe finance crisis due
to lack of liquidity. Reserve Bank of India, as a
“lender of last resort” came forward to rescue
the bank by providing liquidity to ailing bank.
As a banker’s bank, the Reserve Bank of India
performs the function of lender of last resort to
commercial banks. It comes up with granting
credit to the banks that are facing temporary
liquidity problems by supplying much needed
liquidity to them. This role of Reserve Bank
of India saves the commercial banks from
bankruptcy.
OR
 – NIT
The function of the central bank which is
indicated in the given statement is Banker to
the government.
The Central bank acts as a banker to both
17. (A) The relationship between the consumption
Central and State governments. It provides
them the short-term-loans whenever necessary
and also manages the public debt of the
country. It transacts all banking business
of the government which involves receipts
and payments of money on behalf of the
government and carrying on other banking
transactions. It is also responsible for advising
the government on banking and financial
issues.
15. Government budget refers to a statement of
planned receipts and planned expenditure of
the government during a fiscal year. The major
components of a government budget are:
(1) Revenue Receipts: These are receipts
which neither create a liability nor lead to
a reduction in assets of the government.
(2) Capital Receipts: These are the receipts
which either create a liability or lead to
reduction in assets of the government.
(3) Revenue Expenditure: It is the expenditure
which does not lead to any creation of
assets or reduction in liabilities of the
government.
(4) Capital Expenditure: It is the expenditure
which leads to creation of assets or
reduction in liabilities of the government.
16. (A) National Income by Income Method:
NDPFC = Wages and salaries + Royalty
 + Interest + Corporate tax
 + Profit after tax + Rent
= 25,000 + 200 + 6,400 + 200
 + 4,000 + 1,500
= ` 37,300 crores
NNPFC = NDPFC + NFIA
= 37,300 + 50
= ` 37,350 crores
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(B) National Income by Expenditure Method:
GDPMP = Final consumption expenditure
of private non-profit institutions
serving households + Households
final consumption expenditure +
Government final consumption
expenditure + Net domestic fixed
capital formation + Depreciation +
Change in stock + Net exports
= 300 + 26,000 + 11,200 + 600 + 0
 + 100 + (-200)
= ` 38,000 crores
NNPFC = GDPMP – Depreciation + NFIA
= 38,000 – 0 + 50 – (1000 – 300)
= ` 37,350 crores
expenditure and the income is known as
consumption function. The consumption
function can be expressed, mathematically
–
as C = C + bY
–
Where C is consumption expenditure, C is
autonomous consumption i.e., consumption
at zero level of income, b is marginal
propensity to consume and Y is income.
A consumption
– function curve indicating
C = C + bY is drawn in the figure.
Y
C = C + bY
Consumption (C)
C
C
Y b = MPC =
R Y
C = OR
X
O Income (Y)
(1) The consumption curve starts from a
positive point R which indicates that
even when income is zero, consumption
expenditure equal to OR is incurred
from past savings. Thus, OR represents
–
autonomous consumptiion (C).
(2) Consumption curve slope upwards
which shows direct relationship i.e.,
when income increases, consumption
expenditure also increases but in lesser
proportion.
(3) The rising slope of consumption curve
is b (i.e. MPC = DC/DY)
(4) Since slope of curve is constant, we get
a straight line consumption curve.
(B) (i) True as Investment multiplier refers
to the number of times by which the
Sample Paper 16 29
 increase in output or income exceeds
the increase in investment.
(ii) True as the given statement is Marginal
Propensity to Save (MPS) cannot be less
than zero because it is the percentage
change in saving when there is some
change in the level of income which
cannot be less than the change in
savings. An individual may at the most
spend the entire change in income so
that change in saving can be zero but
not less than that. Therefore, it cannot
be negative.
OR
(A) A rise in exemption limit from 2 lakh to
2.5 lakh would lead to a rise in disposable
income of a taxpayer by ` 50,000.
Let us assume that MPC = 0.5, and it
SECTION - B
(Indian Economic Development)
18. (b) Pakistan
Explanation: In 1970s, the nationalisation of
capital goods industries took place in Pakistan.
19. (A) Both Assertion (A) and Reason (R) are true
and Reason (R) is the correct explanation of
Assertion (A).
Explanation: Land reforms refer to change
in the ownership by making fillers the owner
of the land. Land ceiling means fixing the
maximum size of land which could be owned
by an individual. The purpose of land ceiling is
to reduce the concentration of land ownership
in few hands.
20. (c) Ensures gender equity
Explanation: The process of human
capital formation adds skills and expertise,
improves efficiency and increase the output
productivity of individual labourers.
Related Theory
 Human capital formation, in other words, is the
process of obtaining and increasing the quantity
of competent, educated, and experienced people
who are critical to the country's economic, social,
and political progress. As a result, human capital
generation is linked to an investment in people
and their development as creative and productive
resources.
21. (b) (IV), (III), (II), (I)
Explanation: The People’s Republic of China
was established in 1949; the commune system
was formed in 1958; the Great Proletarian
Cultural Revolution was started in 1966 and
the first ever special economic zones were set
up in 1980 in China.
30 Economics Class XII
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remains constant. It would mean that
aggregate consumption in the economy
would increase by 0.5 × 50,000 25,000
per taxpayer. Accordingly, deficiency of
demand would be corrected. Thus, we
conclude that an increase in exemption
limit relating to income tax would help
correct deficiency of demand even when
MPC remains constant.
(B) It is true that saving causes a leakage from
the circular flow of income. As a result,
GDP tends to shrink. People, on the other
hand, save to further their own interests.
Individuals and households value savings
because it generates interest income. As a
result, what is true at the micro-level may
not be true at the macro-level. This is just a
micro-macro contradiction.
22. (a) United States of America (USA)
Explanation: Before the advent of Green
Revolution in 1960s, India was primarily
dependent on United States of America (USA)
for the supply of food grains.
Related Theory
 Green revolution refers to a rapid increase in
agricultural productivity through the use of high-
yielding seeds, chemical fertilisers, and new
technology.
23. (b) Cooperative Societies
Explanation: A co-operative society is a group
of people who form an organisation with
the primary goal of promoting the economic
interests of its members.
Related Theory
 To exist as a legal body, cooperative societies must
be registered under the Cooperative Societies Act of
1912.
24. (d) Myanmar
Explanation: Myanmar is not a member
of South Asian Association for Regional
Cooperation (SAARC).
Related Theory
 India, Pakistan, Bhutan, Sri Lanka, Bangladesh,
Nepal, Maldives and Afghanistan are the members
of SAARC.
Caution
 Students should not get confused that South Asian
Association for Regional Cooperation (SAARC) is the
regional association of South-East Asian countries
consisting of eight member countries.
 25. (C) Both the statements 1 and 2 are true.
Explanation: The problems faced by human
capital formation are brain drain and high
growth of population.
26. (d) (III), (IV), (II), (I)
Explanation: The Britishers introduced the
railways in 1850 in India; the Suez Canal was
opened in 1869; Tata Iron and Steel Company
(TISCO) established in 1907 and the year
regarded as the year of great divide is 1921.
27. (b) B–(II)
Explanation:
Childhood stunting: Impaired growth and
development in children due to poor nutrition.
Human development index: Composite index
of life expectancy, education and per capita
income reflecting standard of living.
Life expectancy rate: Average life expectancy
at the time of birth.
Infant mortality rate: Number of deaths per
1,000 live births of children under one year of
age.
28. Agricultural marketing is a process that
involves the assembling, storage, processing,
transportation, packaging, grading and
distribution of different agricultural
commodities across the country.
Prior to independence, farmers while selling
their produce to traders suffered from faulty
weighing, low prices and manipulation of
accounts. They also did not have proper
storage facilities to keep back their produce for
selling later at a better price. Therefore, state
intervention became necessary to regulate the
activities of the private traders.
The first step was regulation of markets to
30. (A) Human capital building is a key tool for
create orderly and transparent marketing
conditions. Second is provision of physical
infrastructure facilities like roads, railways,
warehouses, godowns, cold storages, and
processing units. Cooperative marketing, in
realising fair prices for farmers’ products, is
the third aspect of government initiative. The
success of milk cooperatives in transforming
the social and economic conditions of Gujarat
and some other parts of country is testimony
to the role of cooperatives. The fourth element
is the policy instruments like assurance of
minimum support prices (MSP) for agricultural
products, maintenance of buffer stocks,
distribution of food grains through PDS.
29. (A) The British introduced railways in India
in 1850 and it is considered as one of
their most important contribution to
Indian economy. The railways enabled
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the people to undertake long distance
travel thereby breaking geographical and
cultural barriers. Railways were developed
to move finished goods imported from
Britain to different interior parts of colonial
India. Britishers wanted to widen the size
of the market for their own goods. It also
led to commercialisation of agriculture,
the profits from which never reached the
Indian people.
OR
(B) Industrial Policy Resolution, 1956 was the
basis of Second Five Year Plan and tried to
develop socialist pattern of society. This
resolution classified industries into three
categories; first category was absolutely
owned by the state comprising of 17
industries such as railways, air transport,
arms and ammunition, iron and steel and
atomic energy.
In the second category, private sector could
supplement the efforts of state, with state
taking the sole responsibility of starting
new units and it comprised of 12 industries.
The third category consisted of remaining
industries which were to be in the private
sector. No new industry was allowed
without obtaining license from the
government.
This policy was used for promoting industry
in backward regions and obtaining a license
for establishing unit in economically
backward area was very easy. These units
were also given concessions such as tax
benefits and electricity at low tariffs. The
government tried to promote regional
equality through this policy.
lowering economic inequality. The higher
the rate of human capital formation,
the higher the rate of participation (the
proportion of the population engaged in
productive activity). Increased participation
would result in an increase in the share
of wages in national income. As a result,
inequality would decrease.
(B) The given statement is false since there
is a difference between production and
economic activity. The economic activity
appears to be related to the usage
of scarce resources. It encompasses
production activity, consumption activity,
investment activity, and exchange activity.
Thus, production is merely one aspect of
economic activity. In other words, while
all economic activities are production
activities, not all production activities are
economic activities.
Sample Paper 16 31
 31. (A) India, Pakistan and China started their
developmental planning almost at
the same time. India and Pakistan got
independence in 1947 and People’s
Republic of China was established in 1949.
While India announced its First Five Year for
1951-56, Pakistan announced its First Five
year plan in 1956 and China announced its
first Five Year plan in 1953.
Since 2013, Pakistan is working on the
basis of 11th Five year development plan
(2013-18) whereas China is now working
on 13th Five Year plan (2016-20). Until
2017, India has also been following Five
Year plan based development model.
OR
(B) The various indicators of human
development are:
(1) Life expectancy—Higher the better
(2) Adult literacy rate—Higher the better
(3) Percentage of population below
poverty line—Lower the better
(4) Infant mortality rate—Lower the
better
(5) Maternal mortality rate—Lower the
better
(6) Percentage of population having
access to improved water sources—
Higher the better
(7) Percentage of undernourished
population—Lower the better
(Any four)
32. (A) The two principal causes behind
environmental degradation are:
(1) Population rise: Rising population is
one of the key causes of environmental
degradation since it increases the strain
on natural resources, resulting in an
environmental catastrophe.
(2) Consumption levels: It has been
noticed that in the past, both developing
and developed countries experienced
affluent consumption levels, causing an
imbalance in the demand and supply of
natural resources, driving the globe to
the brink of an environmental crisis.
(Or any other relevant point)
(B) No, employment generated in the country
does not commensurate with the growth of
GDP in India because India has experienced
jobless growth in the last 50-60 years.
Jobless growth means that the GDP of
the country is rising but without general
employment. Causes of jobless growth are:
(1) Stagnancy of the industrial sector which
did create the necessary prosperity,
32 Economics Class XII
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employment and socio-economic
political growth.
(2) Majority of the population continues to
be employed in the agricultural sector
despite lower incomes earned from
this sector. To compensate for lower
incomes most population became
engaged in tertiary sector.
(3)
Lack of skills and education, gender
discrimination, income disparities,
lack of social security and lack of easy
access to health and safety (especially
for women) also discouraged relevant
equal employment opportunities
despite economic growth.
OR
(A) Horticulture is vital in providing crops for
nutrition and food, as well as addressing
job issues. It employs approximately 19%
of the total labour force. It has been a
source of income for many women and
members of the impoverished strata.
Flower harvesting, nursery care, hybrid
seed generation, tissue culture, fruit and
flower propagation, and food processing
provide employment and remuneration
opportunities for rural women.
(B) The major challenges facing the Indian
education system are:
(1) The biggest educational challenge is
to bring all Indian children aged 6 to
14 years under the purview of school
education.
(2) The per capita education expenditure
varies by state. This, in turn, causes
disparities in educational opportunity
and achievement across states.
Furthermore, this contradicts the goal of
equity (regional equality).
(3) 'Education for All' is a faraway dream.
This is due to the fact that, while literacy
rates have increased substantially, the
absolute number of illiterates in India is
equal to India's population at the time
of independence.
33. (A) It is true that the British Raj's colonial
exploitation programme had some good
benefits on the Indian economy. The
establishment of railways, expansion of
ports, strengthening of communication
methods, and a good administrative system
were all key components of the colonial
exploitation agenda. All of this, however,
signalled a growth-oriented shift in the
Indian economy.
 (B) The observations which explain the reversal
of growth process under the British Raj in
India are:
(1) Agriculture: Prior to the British Raj,
cultivators had ownership rights and
were required to pay a suitable amount
of land tax to the king directly. The
introduction of British Raj reversed
this process. This resulted in farmer
exploitation and slowed the agricultural
expansion process.
(2) Industry: Industry was dominated by
handicrafts, and it gained worldwide
reputation of creating quality products
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like 'Deccai Muslin'. It was destroyed as
a result of discriminatory tariff policy.
(3) Foreign Trade: Prior to the British Raj,
exports were mostly finished goods,
while imports were mostly bullion (gold
and silver). India became a net exporter
of raw materials and an importer of
finished goods during the British Raj.
Thus, the British government's colonial
policy nearly reversed the composition
or structure of output, as well as the mix
of exports and imports. This caused the
growing process to reverse. As a result, the
rate of expansion had slowed significantly.
Sample Paper 16 33