KENDRIYA VIDYALAYA SANGATHAN, JAMMU REGION SAMPLE

PAPER SET-3
CLASS – XII SUBJECT:
ECONOMICS

TIME: 3 HOURS MM:80

General Instructions:

● This question paper contains

two sections: Section A –
Macro Economics
● Section B – Indian Economic
Development
● This paper contains 20 Multiple Choice Questions type questions of 1 mark each.
● This paper contains 4 Short Answer Questions type questions of 3 marks each to
be answered in 60 to 80 words.
● This paper contains 6 Short Answer Questions type questions of 4 marks each to
be answered in 80 to 100 words.
● This paper contains 4 Long Answer Questions type questions of 6 marks each to
be answered in 100 to 150 words.
Q.N SECTION: A MACRO ECONOMICS MARK
.
1. Read the following statements carefully -Assertion (A) & Reason (R) and choose the 1
correct alternative.
Assertion (A) : Real GDP is a better indicator of economic growth and welfare of
people of the country than Nominal GDP
Reason (R ) : Real GDP is not affected by changes in general price level. secondly
, because increase in real GDP means more goods and services are available to
the society during the year, thus, the welfare increases.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation for Assertion (A) .
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not
the correct explanation for Assertion (A) .
(c) Assertion (A) is true but Reason (R) is false .
(d) (d ) Assertion (A) is false but Reason (R) is true .
Or
A firm produces ₹ 100 worth of goods per year , ₹ 20 is the value of intermediate
goods used by it during the day year and ₹ 10 is the value of capital consumption. The
net value added will be
(a) ₹ 100
(b) ₹ 80
(c) ₹ 70
(d) ₹ 130

2. Calculate money multiplier, if legal reserve ratio LRR is 0.4. 1

or
Since banks earn interest from loans they may make any bank would like to land the
maximum possible amount. But there is a limit to money or credit creation by banks and
this is determined by ……
 (i) Commercial bank (ii) The central bank (RBI)
(iii) Both (i) and (ii) (iv) None of above
3. The Reserve Bank of India (RBI), cut Repo Rate to 4.4%, the lowest in at least 15 1
years. Also it reduced the Cash Reserve Ratio(CRR) maintained by banks for the
first time in over seven years. CRR for all banks was cut by 100 basis points to
release Rs.1.37 lakh cr. across the banking system. RBI governor Dr.Shaktikanta
Das predicted a big global recession and said India will not be immune. It all
depends how India responds to the situation. Aggregate demand may weaken and
ease core inflation.
Cut in Repo rate by RBI is likely to the demand for goods and services in the
economy.
(i) Increase (ii) Decrease
( iii) Double (iv) None of these
4. There are two statements given below; Read the statement and choose the correct 1
option.
Statement I : APC can be zero.
Statement II : Even at zero income, there has to be a minimum or subsistence level of
consumption expenditure, called autonomous consumption.
(i) Both the statements are true.
(ii) Both the statements are false.
(iii) Statement I is true and Statement II is false
(iv) Statement II is true and Statement I is false
5. Average Propensity to consume can never be ……………… 1
(i) positive (ii) zero
(iii) more than one (iv) less than
one Or
What will be the value of Investment Multiplier if MPS (Marginal propensity to save) is
0.4?
a) 1
b) 2
c)2.5
d) 3
6. Read the following statements: Assertion (A) and Reason (R). Choose one of the 1
correct alternatives given below:
Assertion (A): Deficient Demand leads to underemployment equilibrium.
Reason (R): During deficient demand, equilibrium is determined at a level of
full-employment equilibrium.
Alternatives:
a) Both Assertion and Reason are true and Reason (R)
is the correct explanation of Assertion (A)
b) Both Assertion and Reason are true and Reason (R) is
not the correct explanation of Assertion (A)
c) Assertion (A) is True but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True
7. C= 100+0.75y, saving function will be .............. 1
(i) S= -100+0.75Y
(ii) S= 100-0.25Y
(iii) S= -100+0.25Y
(iv) S= 100+0.25Y
8. A company located in India receives a loan from a company located abroad. 1
How is this transaction recorded in India’s Balance of payments account.
(a) Credit side of current account
(b) Debit side of current account
(c) Credit side of capital account
(d) Debit side of capital account

9 Equilibrium in Balance of Payment is achieved when the net value of all the receipts 1
and payments is …………….
(i) Zero (ii) Positive
(iii) Negative (iv) Equal
Or
FDI (Foreign Direct investment) comes under Account of BOP.
)(Current/Capital)
10 In its time of financial crisis, Pakistan approached IMF for a loan to raise imports and 1
to clear old debts. As an Economics student, you will record this as
side in the
Account of BOP. (Fill up the blanks with correct alternative)

(i) credit, capital (ii) debit, capital

(iii) credit, current (iv) debit, current

11. Which among the following are final goods and which are intermediate goods? Give 3
reasons also.
(i) Milk purchased by tea stall.
(ii) Bus purchased by a school.
(iii) Juice purchased by a student from the school canteen.

12. How is the exchange rate determined under a flexible exchange rate regime? 3
OR
Distinguish between current account and capital account of the balance of payments
on the basis of its components.

13. Explain the ‘lender of last resort’ function of the central bank. 4
OR
Explain in brief the Credit creation by commercial bank with the help of numerical
example?
14. What is meant by the excess demand ? Show it on a diagram. Explain three 4
measures to reduce this gap.

15. In an economy, C=100+0.8Y is the consumption function, where C is consumption 4

expenditure and Y is National Income. If investment expenditure is 1,300.
(i) Calculate equilibrium level of National Income.
(ii) Calculate additional investment needed to reach the new equilibrium level of
income 8,500.

16 Calculate from the following data, Net National Product at Market Price by 6
(a) Income Method and (b) Expenditure Method
S.N. Particulars Rs. in crore
(i) Compensation of Employees 1180
(ii) Mixed income of self employed 820
(iii) Gross fixed capital formation 400
 (iv) Consumption of fixed capital 20
(v) Employers’ contribution to social security scheme 110
(vi) Operating surplus 9500
(vii) Net capital formation 420
(viii) Exports 20
(ix) Imports 50
(x) Indirect taxes 150
(xi) Subsidies 30
(xii) Private final consumption expenditure 2,200
(xiii) Government final consumption expenditure 610
(xiv) Purchase by non-residential households in the domestic market 60
(xv) Net factor income to abroad 100
17 Categorise the following into revenue expenditure and capital expenditure. Give 6
reasons.
(i) Investment in shares
(ii) Subsidies
(iii) Construction of school building
(iv) Defence services expenditure
(v) Repayment of loan with interest
(vi) Grants to state governments for creation of assets
OR
(i) “Fiscal deficit indicates the total borrowing requirements of the government from all
sources.” Elucidate.
(ii) “A large fiscal deficit leads to a higher revenue deficit in future.” Do you agree with
the statement? Give reasons in support of your answer.

Q.No SECTION: B INDIAN ECONOMIC DEVELOPMENT M.M. : 40 MARK

.
18 Read the following statements relating to the industrial sector during British rule and 1
choose the correct sequence of these statements.
(i) Cheap imports of British manufactured goods increased in the country.
(ii) The growth rate of the Industrial sector was very low.
(iii) India was reduced to be a mere exporter of raw material.
(iv) India faced shortage of locally made
goods. Alternatives :
(i) (i),(ii),(iii),(iv) (ii) (iv),(iii),(ii),(i)
(iii) (iii),(iv),(ii),(i) (iv) (iii),(iv),(i),(ii)

19 Write the correct sequence of alternatives given in Column II by matching them with 1
respective terms in Column I ;
Column I Column II
A.Growth (i)Adoption of new technology to increase the production of
goods and services.

B.Modernisation (ii)Avoiding imports of those goods which could be produced in

India itself.
 C.Self-reliance (iii)Every Indian should be able to meet his/her basic needs
such as food,a decent house,education and health,and
inequality in the distribution of wealth should be reduced.

D. Equity (iv)Increase in the country’s capacity to produce the output of

goods and services within the country.

(i) (i),(iii),(ii),(iv) (ii) (iv),(iii),(ii),(i)

(iii) (iv),(i),(ii),(iii) (iv) (ii),(iv),(iii),(i)
20 is not a cause for environmental degradation. 1
i) Waste management
ii) Deforestation
iii) Global warming
iv) Guarding green cover
OR
is not the strategy for Sustainable Development. (Choose the correct
alternative)
i) Use of bio-gas
ii) Use of solar power
iii) Use of thermal power
iv) Use of hydel power
Read the following carefully and answer questions no.21-22 on the basis of the same:
The draft National Education Policy 2019 states that “India aspires to take its place
beside the United States and China as the third largest economy by 2030-2032….
India is the sixth largest economy now and we will reach five trillion in five-seven years
taking us to fourth or fifth position. Then the economy will not be driven by natural
resources, but by knowledge resources. Are we ready to take our place besides the
USA and China as the top three largest economies of the world and be confident of
sustaining it in the following years? To do this, we will need a knowledge based society
based on a robust education system, with all the requisite attributes and
characteristics in the context of changes in knowledge demands, technologies, and
the way in which society lives and works.” This policy vision suggests how human
capital formation in India will move its economy to higher growth trajectory.

21 How is government expenditure on education expressed? 1

(i) As % of total government expenditure (ii) As % of Gross Domestic
Product (GDP)
(iii) Both (i) and (ii) (iv) None of these
22 By 2030-2032 we will be the third largest economy at over Trillion. 1
(i) Five (ii) Six
(iii) Three (iv) Ten

23 Name the apex institution for rural financing in India. 1

(i) SIDBI (ii) IDBI
(iii) NABARD (iv) None of these
OR
Which of the following is a major source of Human Capital Formation in the country ?
(i) Expenditure on education (ii) Expenditure on subsidy
(iii) Expenditure on defence (iv) Expenditure on fertilisers
24. Arrange the following events of China in chronological order and choose the correct 1
alternative;
(i) Great Proletarian Cultural Revolution (ii) Great Leap Forward campaign
(iii) Introduction of Economic Reforms (iv) First five year
plan Choose the correct alternative;
(i) (ii),(iv),(iii),(i) (ii) (iv),(ii),(i),(iii)
(iii) (ii),(iv),(i),(iii) (iv) (iv),(i),(ii),(iii)
25. Read the following statements carefully and choose the correct alternative: 1
Statement-I: while India and Pakistan became independent nations in 1947, People’s
Republic of China was established in 1949.
Statement-II: while India announced its first Five Year Plan in 1951, Pakistan
announced its first five year plan, now called the Medium Term Development Plan,
in 1953. China announced its First Five Year Plan in 1956.
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement-I is true, Statement-II is false.
(d) Statement-II is true, Statement-I is false.
26 Which of the following countries has the lowest density of population? 1
(i) China (ii) India
(iii) Pakistan (iv) None of these

27. Which of the following countries adopted ‘One Child Policy’ as a measure to control 1
population?
(i) Pakistan (ii) India
(iii) China (iv) None of these

28 Read the following carefully and answer the questions given below on the basis of the
same: An important lesson that the COVID-19 pandemic has taught the policymakers
in India is to provide greater impetus to sectors that make better allocation of
resources and reduce income inequalities. COVID-19 has also taught a lesson that in
crisis the population returns to rely on the farm sector. India has a large arable land,
but the farm sector has its own structural problems. However, directly or indirectly, 50
percent of the households still depend on the farm sector. Greater support to MSMEs,
higher public expenditure on health and education and making the labour force a
formal employee in the economy are some of the milestones that the nation has to
achieve.
One of the imminent reforms to be done in the country is labour reforms. Labour laws
are outmoded in India, and some of these date back to the last century. India’s
complex labour laws have been blamed for keeping manufacturing businesses small
and hindering job creation. Industry hires labour informally because of complex laws
and that is responsible for low wages.
“It is necessary to create employment in the formal sector rather than in the informal
sector.’’ Defend or refute the given statement with valid argument.

29. (i) Raj is going to school. When he is not in school, you will find him working in 3
his farm. Can you consider him as a worker? Why
(ii) Meena is a housewife. Besides taking care of Household chores, she works in
the cloth shop which is owned and operated by her husband. Can she be considered
as a worker? Why?
(iii) Victor is able to get work only for two hours in a day. Rest of the day, he is
looking for work. Is he unemployed? Why? What kind of jobs could persons like
Victor be doing ?
Or
 What are the different causes of unemployment?
30. Discuss briefly any two major steps taken by the government of India on “Financial 4
Sector Front” under the Economic Reforms of 1991.
OR
Explain briefly how Goods and Services Tax (GST) has simplified the multiplicity of
taxes on goods and services.
31 What is organic farming and how does it promote sustainable development? 4

32 What are the areas where India has an edge over Pakistan? 4

33 How far has Indian Economic Planning been successful in achieving its objectives 6
during 1951-90? Briefly assess the achievements and failures of planning in India
during this period.
34 “Human Capital Formation gives birth to innovation and technological improvements.” 6
Do you agree with the given statement? Support your answer with valid arguments.
OR
‘In recent times the Indian Economy has experienced the problem of Casualization
of the workforce. This problem has only been aggravated by the outbreak of
COVID-19.’ Do you agree with the given statement? Discuss any two
disadvantages of casualization of the workforce in the light of the above
statement.

S.No. MARKS
Answer
SECTION: A
1 (a ) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct 1
explanation for Assertion (A) .
Or
(c ) ₹ 70
2 2.5 OR (iii) 1
3 (i) 1
Or
(c) 2.5
4 (iv) 1
5 (ii) 1
6 (iii) 1
7 (iii) 1
8 ( c ) Credit side of capital account 1

9 (iv) 1
or
capital account
10 (ii) 1
11 (i) Intermediate good : because it is purchased for another production unit, for 3
resale indirectly.
(ii) Final good : because expenditure on the school bus is an investment
expenditure.
(iii) Final good : because it is purchased for own use and not for resale.
12 Flexible exchange rate is determined by the forces of supply and demand in the 3
international market. The equilibrium exchange rate is determined at a level
where demand for foreign exchange is equal to the supply of foreign exchange.
use proper diagram.
OR
Current Account : Exports and Imports of visible items, Exports and Imports of
invisible items, unilateral transfer, private transfer etc
Capital Account : Private transactions, official transactions, direct investment,
portfolio investment etc.
13 When a commercial bank faces financial crisis and fails to obtain funds from 4
other sources, then the central bank plays the vital role of 'lender of last resort'
and provides them with the financial assistance in the form of credit. This role of
the the central bank saves the commercial bank from bankruptcy. Thus, the
central bank plays the role of guarantor for the commercial banks and maintains
a sound and healthy banking system in the economy.
OR
A commercial bank is a dealer of credit. It creates money based on cash
deposits. Further, it issues new money through its loan operations and creates
credit or expands the monetary base of a country. Therefore, this process of
credit creation leads depositors to believe that they have money with the bank.
Also, borrowers believe that they owe a certain amount of money to the bank.
Use numerical example

14 The excess demand is the amount by which the actual aggregate demand 4
exceeds the level of aggregate demand required to established the full
employment equilibrium
Measures : decrease in government expenditure, increase in taxes, increase in
bank rate, open market operations, increase in legal reserve requirements,
raise repo rate, raise reverse repo rate, raise margin requirements on loan etc.

15 (i) At equilibrium level of income Y=C+I 4

Y=100+0.8Y+1300
Y-0.8Y=1400
0.2Y=1400
Y=1400/0.2=7000
(ii) From the consumption function C=100+0.8Y,We get MPC=0.8
Value of multiplier k=1/1-MPC = 1/1-0.8 1/0.2 = 5
To reach the new equilibrium level of income 8500, required increase in income
Y=8500-7000=1500
K= Y/ I =5=1500/ I=1500/5=300
Additional investment needed =300
16 Income Method 6
Net National Product at market price = Compensation of employee + Operating
surplus + mixed income of self-employed-Net factor income to abroad + Indirect
tax-subsidy
1180+950+820-100+150-20=Rs.2950 cr.
Expenditure Method
Net National Product at market price = Private final consumption expenditure +
Government final consumption expenditure + net capital formation +
exports-imports-net factor income to abroad
2050+610+420+20-50-100=Rs.3095 cr.
17 (i) Capital Expenditure: because it creates assets for the government. 6
(ii) Revenue Expenditure: because it neither creates any asset nor reduces any
liability of the government.
(iii) Capital Expenditure: because it creates assets for the government.
(iv) Revenue Expenditure: because it neither creates any asset nor reduces any
liability of the government.
(v) Capital Expenditure: because it reduces liability of the government. But the
interest amount will be revenue expenditure because it neither creates any
asset nor reduces any liability of the government.
(vi) Revenue Expenditure: because it neither creates any asset nor reduces any
liability of the government.(since grants are given for creation of assets of state
government).
OR
(i) Fiscal deficit is the difference between the Government's budgetary
expenditure and its budgetary receipts excluding borrowings.
The fiscal deficit will have to be financed through borrowings.Therefore, Fiscal
Deficit = Borrowings from the financing side.
Fiscal Deficit = Net borrowing at home + Borrowing from RBI + Borrowing from
abroad.
Thus, it indicates the total borrowing requirements of the government from all
sources.
(ii) Yes, a large fiscal deficit leads to a higher revenue deficit in future.
Reason: A large fiscal deficit means large amount of borrowings.This creates a
large burden of repayment of loans in future and interest payments will increase
revenue expenditure. Hence revenue deficit in future will increase.
18 (iv) 1
19 (iii) 1
20 (i) OR (iii) 1
21 (iii) 1
22 (i) 1
23 (iii) 1
OR
(i)
24 ( c) Statement-I is true, Statement-II is false. 1
25 (iii) 1
26 (i) 1
27 (iii) 1
28 Yes, it is necessary to generate employment in the formal sector than in the 3
informal sector because those who work in the informal sector do not get any
regular income and do not get protection from the government. Workers are
dismissed without any compensation. The technology used is outdated and
they also do not maintain any accounts. Workers live in slums or badly built
houses.
Those who work in the formal sector, on the other hand, earn more than those
in the informal sector and also enjoy social benefits. It is thus, necessary to
generate more employment in the formal sector.
29 (i) No, he cannot be considered as a worker because he works casually in his 3
farm and not on a regular basis, as Raj regularly goes to school as a student.
(ii) Yes, Meena can be considered as a “Self-employed” worker, as the cloth
shop in which she works is owned and operated by her husband.
(iii) Victor is underemployed. It seems he has potential to do work on a regular
basis, but only gets employed for 2 hours in a day. Rest of the time he remains
unemployed. Victor seems to be doing casual work.
30 Two steps taken by the government of India on financial sector under the 4
Economic Reforms of 1991 were:
A. Change in the role of Reserve Bank of India (RBI): The role of RBI was
reduced from regulator to facilitator of financial sector. This means that financial
sector was given greater autonomy (to take decisions) on many matters
independent of RBI.
B. Origin of Private Banks: The reform process led to establishment of private
sector banks of Indian as well as foreign origin.
OR
the proposed dual GST envisages taxation of the same taxable event, i.e.,
supply of goods and services, simultaneously by both the Centre and the
States. Therefore, both Centre and States will be empowered to levy GST
across the value chain from the stage of manufacture to consumption.
31 Organic-farming is a whole system of farming that restores, maintains and 4
enhances the ecological balance.
* It also generates income, by way of exports, on account of rising demand for
organically grown crops.
* It also provides people with healthy foods.
* Since it requires more labour input than conventional farming, it turns out to be
an attractive profession.
*The organic produce is pesticide-free and produced in an environmentally
sustainable way.
32 India has relatively more skilled manpower and research and development 4
institutions, exports of software, investment in education, adult literacy rate,
female literacy rate, education index india has better more, reduced population
growth, defense, technology, space research, genetics, telecommunication
India having edge over Pakistan etc.

33 Achievements: Increase in National Income, Increase in per capita GDP, 6

Institutional and Technical changes in agriculture, Growth and Diversification Of
industries, Economic infrastructure, Social infrastructure, International trade etc.
Failures : Extreme poverty, High rate of inflation, Unemployment crisis, Deficit
infrastructure, Skewed / Biased distribution etc.
34 Investment in human capital formation enhances efficiency/productivity, skill, 6
capability implies economic growth.
Technical skill acquired through sources of human capital formation
Investment in education creates the ability to adopt newer technology,
facilitators invention and innovation since educated workforce generally adapt
to modern technologies and innovation etc.
OR
The given statement is quite appropriate
For casual labour workers, the rights of the labour are not properly protected by
labour laws. Particularly during pandemic times, as demand for goods and
services fell the casual workers were left jobless, without any compensation or
surplus.
During the COVID-19 lockdown, millions of casual workers lost their jobs raising
the question of their survival. Also additional health expenditure added to their
troubles. Had such workers been working under the formal sector. It would have
given them some respite in their difficult times etc.