Economics (318) - Oct' 2014 | NIOS SENIOR SECONDARY Solved Papers

3. What is a production possibility curve?            2

Basis	Stock	Flow
Meaning	Stock variable refers to that variable, which is measured at a particular point of time.	Flow variable refers to that variable, which is measured over a period of time.
Time Dimension	It does not have a time dimension	It has a time dimension as its magnitude can be measured over a period of time.

Marks:	0-10	10-20	20-30	30-40	40-50
No. of Students:	20	24	40	36	20

11. Calculate the arithmetic mean by using ‘assumed mean’ method from the data given below :                           5

Marks:	0-10	10-20	20-30	30-40	40-50
No. of Students:	20	24	40	36	20

12. Calculate ‘national income’ from the following data : 5

	Rs. (in crores)
1)            Government final consumption expenditure 2)            Gross investment 3)            Exports 4)            Imports 5)            Private final consumption expenditure 6)            Depreciation 7)            Net indirect taxes 8)            Net factor income from abroad	9,000 4,000 30 20 8,000 50 40 10

13. What is fiscal deficit? State any three ways to finance deficit.                                                                            5

Ans.:- Fiscal Deficit:- Fiscal deficit is by far the most important measure of a deficit budget  in any economy. Fiscal deficit is equal to the excess of total expenditure (capital and revenue ) over the sum of revenue and  capital receipts excluding borrowings.

Financing the Deficit, A deficit in government budget may be financed by the following ways:-

1.       Monetary Expansion:- Deficit may be financed by borrowing from the country’s central bank. The government issues treasury bills to the central bank. The central bank buys these treasury bills from the government in return for cash which is created by the bank by printing new currency notes. The government uses this money to fund its deficit.

2.       Borrowing:- Budget deficit can be financed by borrowing from domestic sources (e.g., public and commercial banks) and external sources (e.g., foreign government, World Bank and other international financial institutions). Borrowing from public to deal with deficit is considered better than deficit financing because it does not increase the money supply which is regarded as the main cause of rising prices.

3.       Fiscal Discipline:- Government deficit can be reduced by an increase in taxes and reduction in public expenditure. In view of limited public revenue, more efforts should be made towards reduction in government expenditure which is referred to as fiscal discipline.

14. Calculate gross domestic product at market prices from the following data : 5

	Rs. (in crores)
1)            Compensation of employees 2)            Net factor income from abroad 3)            Rent 4)            Interest 5)            Net indirect taxes 6)            Depreciation 7)            Profit 8)            Mixed income	7,500 (–)20 600 400 200 100 1,500 4,000

15. Explain the view that “economic planning in India has been a mixed bag of success and failure”.                     5

Ans.:-

16. Calculate total cost and average total cost on the basis of following information :  5

Output (units)	Total Fixed cost (Rs.)	Total variable cost (Rs.)
0 1 2 3 4	60 60 60 60 60	0 50 90 180 300

Ans.:-

Output (units)	Total Fixed cost (Rs.)	Total variable cost (Rs.)	Total cost (Rs.)	Average total cost (Rs.)
0 1 2 3 4	60 60 60 60 60	0 50 90 180 300	60 110 150 240 360	0 55 50 80 90

17. Present the following data on the expenditure of a family in the form of a pie diagram :                                      8

Items of expenditure	Percentage of income spent
Food Clothing Housing Education Others	65 15 12 5 3

( For Blind Candidates Only )

Note : Write the steps involved in the preparation of pie diagram for the above data.

18. What is equilibrium price? How is equilibrium price of a commodity determined? Explain with the help of a diagram or a appropriate schedule.                                                                                                                                          8

Ans.:-  The equilibrium price is the market price where the quantity of goods supplied is equal to the quantity of goods demanded. This is the point at which the demand and supply curves in the market intersect. To determine the equilibrium price, we have to figure out at what price the demand and supply curves intersect.

                Equilibrium Price

Equilibrium means a state of no change. Evidently, at the equilibrium price, both buyers and sellers are in a state of no change. Technically, at this price, the quantity demanded by the buyers is equal to the quantity supplied by the sellers. Both market forces of demand and supply operate in harmony at the equilibrium price.

Graphically, this is represented gby the intersection of the demand and supply curve. Further, it is also known as the market clearing price. The determination of the market price is the central theme of microeconomics. That is why the microeconomic theory is also known as price theory.

Supply and Demand Schedule

Price	Quantity Demanded	Quantity Supplied
5 4 3 2 1	5 12 20 25 35	30 25 20 15 8

A detailed look at the above supply and demand schedule reveals a bag full of information about the market. Most importantly, we can observe that the demand and supply become equal at a price of 3. Thus 3 is the equilibrium price.

19. What is meant by credit creation? Explain with the help of a numerical example how banks create credit. 8

Ans.:- Credit Creation is a situation in which banks make more loans to consumers and businesses, with the result that the amount of money is circulation (being passed from one person to another) increases.

                There are two ways in which a bank creates credit:-

(i)                  By advancing loans on the cash credit bases or by an overdraft arrangement;

(ii)                By purchasing securities and paying for them with its own cheques.

Let us see the actual process. Suppose a customer deposits Rs 1,000 in a bank. The bank has to pay him interest ; therefore the bank must seek a safe and profitable investment for this amount. That is, it must lend it to somebody in order to earn interest. But this amount is not actually paid out to the borrowers; it is retained by the bank to meet its obligations, i.e./ to pay to those of its depositors who need cash, and draw cheques for the purpose.

Suppose the bank in which a depositor has deposited Rs. 1000 keeps 20 per cent-cash reserve to meet the demand of depositors. This means that, as soon as the bank has received a deposit of Rs. 1,000, it will make up its mind to advance loans up to the amount of Rs. 5,000 (only one-fifth reserve is kept). When, therefore, a businessman comes to the bank with a request for a loan of Rs. 5,000, he may be sure of being granted accommodation to this extent, provided, or course, his credit is good.

20. What is fiscal policy? Explain any three fiscal measures undertaken by the government to control the poor fiscal situation in the country under the new economic policy.                                                                             8

Ans.:- Fiscal Policy refers to the use of government spending and tax policies to influence economic conditions, including demand for goods and services, employment, inflation, and economic growth.

                Three fiscal measures undertaken by the government to control the poor fiscal situation in the country under the new economic policy are:-

1.       Development by effective Mobilization of Resources:- The principal objective of fiscal policy is to ensure rapid economic growth and development. This objective of economic growth and development can be achieved by Mobilization of Financial Resources. The central and state governments in India have used fiscal policy to mobilize resources. The financial resources can be mobilized by: -

a)Taxation:-  Through effective fiscal policies, the government aims to mobilize resources by way of direct taxes as well as indirect taxes because most important source of resource mobilization in India is taxation.

b) Public Savings:- The resources can be mobilized through public savings by reducing government expenditure and increasing surpluses of public sector enterprises.

c) Private savings:- Through effective fiscal measures such as tax benefits, the government can raise resources from private sector and households. Resources can be mobilized through government borrowings by ways of treasury bills, issuance of government bonds, etc., loans from domestic and foreign parties and by deficit financing.

2. Reduction in inequalities of Income and Wealth:- Fiscal policy aims at achieving equity or social justice by reducing income inequalities among different sections of the society. The direct taxes such as income tax are also more in the case of semi-luxury and luxury items which are mostly consumed by the upper middle class and the upper class. The government invests a significant proportion of its tax revenue in the implementation of Poverty Alleviation  Programmes to improve the conditions of poor people in society.

3. Price Stability and Control of Inflation:-  One of main objectives of fiscal policy is to control inflation and stabilize price. Therefore, the government always aims to control the inflation by reducing fiscal deficits, introducing tax savings schemes, productive use of financial resources etc.

SECTION–B

OP TION–I

( Role of Agriculture and Industry in India’s Economic Development )

21. State any two causes responsible for low productivity in agriculture in India.   2

Ans.:- Two causes responsible for low productivity in agriculture in India are:-

a)      Dependence on Monsoons

b)      Condition of agricultural labourers. 

22. State five points of importance of industries in Indian economy. 5

Ans.:- Importance of Industries in Indian economy are :-

1.       Rapid growth of income:- The first and the foremost argument in favor of industrialization is that it can provide a base for rapid growth of income. It is because of the fact that productivity rates are higher in industry than in agriculture. Industries mainly depend on man’s  effort while agriculture is restricted by the limiting factor of the nature. It is also seen that the industrialized nations have a high per capita income.

2.       Exploitation of resources:- Industries are capable of utilizing all the resources present in the economy. They can even make use of scraps and waste materials,. Agriculture cannot make use of all the resources.

3.       Foreign exchange:- India cannot earn adequate foreign exchange from the exports of its primary products. It is because of the fact that the demand for such products is very low in other countries. Industrial exports need to be added to the primary products.

4.       Development of agriculture:- The requirements of agriculture are met by the industries in large. Agriculture requires improved farm machinery, chemical fertilizers and pesticides. It also requires storage and transport facilities. All these are adequately provided by our own industries.

5.       Employment :- With the increasing population agriculture is unable to provide for employment. Hence it is very important to set up industries to absorb this surplus labor. Hence industries can solve the problem of unemployment.   

23. Explain how in any four ways industrial sector dependent on the agriculture sector. 8

Ans.:- Industries and agriculture are interdependent i.e., they depend upon each other.

The source of raw materials for industries comes from agriculture. For example, sugarcane for sugar industry, animal skin for leather industry, etc. dairy industries also require raw materials that come from agriculture. Oil industries cannot run without oil seeds like mustard, sunflower, soybean, etc. which are all agricultural products. Cigarette industry cannot run without tobacco and similarly textile industries require cotton and silk so, it is fair to say that industries cannot run without agriculture.

                Similarly, agriculture is dependent upon industries. The tools required for agriculture like spade, mattock, etc. are produced in industries. They make the work easier and less time consuming and result high production. Similarly, without agro based industries, the agricultural products will go as waste. Chemical fertilizers and insecticides that are required to protect and grow plants are produced from the industries. The modern tools like tractor, harvester, etc, are also produced form industries. Industries encourage the farmers to produce more. This will help to increase the income of the farmers as well as there will never be scarcity of raw materials for industries.

OPTION–II

( Population and Economic Development )

21. What is meant by sex ratio? How is it obtained?   2

Ans.:- The sex ratio is usually expressed as the number of males per 100 females. It may also be given as a percentage excess or deficit of males. The Gender ratio is a pretty important part of evolutionary life. Sex ratio calculation is used to describe the balance between the male and female population.

Sex ratio is obtained

When number  of males and females given

                R = (m/f)x100

When female population % is given

                R= (10000/f)-100

When male population % is given

                R= (10000/(100-m))-100

22. “Fast growth rate of population has adversely affected the well-being of masses.” Explain. 5

Ans.:- “Fast growth rate of population has adversely affected the well-being of masses”:- A welfare state line India is pledged to meet social needs of the people adequately and for this, the government has to spend a lot on providing basic facilities like education, housing and medical aid. But rapid increase in  population make burden all the more heavy.

The standard of living is determined by their per capita income in relation to population growth equally apply to the standard of living. The increase in population leads to an increased demand for food products, clothes, houses etc., but their supply cannot be increased due to the lack of cooperate factors like raw materials, skilled labour and capital.

 

23. How does the high growth rate of population in India affect the following? 8

a)            Environment and forests

b)            Capital formation

Ans.:- The high growth rate of population in India affect the following :-

a)      Environment and forests:- Rapid population growth leads to the environmental change. Rapid population growth has swelled the ranks of unemployed men and women at an  alarming rate. Due to this, a large number of people are being pushed in ecologically sensitive areas such as hill sides and tropical forests. It leads to the cutting of forests for cultivation leading to several environmental change. Besides all this, the increasing population growth leads to the migration of large number to urban areas with industrialization. This results in polluted air, water, noise and population in big cities and towns.

b)      Capital formation:- In underdeveloped countries, the composition of population is determined to increase capital formation. Due to higher birth rate and low expectation of life in these countries, the percentage of dependents is very high. Nearly 40 to 50 per cent of the population is in the non-productive age group which simply consumes and does not produce any thing. In under developed countries, rapid growth of population diminishes the availability of capital per head which reduces the productivity of its labour force. Their income, as a consequence, is reduced and their capacity to save is diminished which, in turn, adversely affects capital formation.

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