Students must start practicing the questions from RBSE 12th Economics Model Papers Set 7 with Answers in English Medium provided here.
RBSE Class 12 Economics Model Paper Set 7 with Answers in English
Time: 2:45 Hours
Maximum Marks: 80
General Instruction for the Examinees:
- Candidate must first write his/her Roll No. on the question paper compulsorily.
- All the questions are compulsory.
- Write the answer to each question in the given answer-book only.
- For questions having more than one part, the answers to those parts must be written together in continuity.
Section – A
1. Multiple Choice Questions
(i) Macroeconomics emerged as a separate area of study after the British economist ………………………
published his book ‘The General Theory of Employment, Interest and Money’ in 1936. [1]
(a) Rudyard Kipling
(b) John Maynard Keynes
(c) Henry Fayol
(d) F. W. Taylor
Answer:
(b) John Maynard Keynes
(ii) Food processor used by households is an example of ……………………. goods. [1]
(a) capital
(b) intermediate
(c) consumption
(d) None of these
Answer:
(c) consumption
(iii) In the process of making chair, wood is: [1]
(a) final good
(b) intermediate good
(c) capital good
(d) none of these
Answer:
(b) intermediate good
(iv) Who supplies money in India? [1]
(a) The RBI
(b) The commercial banks
(c) The government
(d) All of these
Answer:
(d) All of these
(v) In India, there are four alternative measures of money supply, the correct formula for calculation of M1 is: [1]
(a) Currency with people
(b) Currency with people + demand deposits
(c) Currency with people + demand deposits + other deposits with RBI
(d) None of these
Answer:
(a) Currency with people
(vi) A progressive tax is the one in which: [1]
(a) The rate of tax decreases with the increase in income
(b) No change in the tax with the change in Income
(c) The rate of tax increases with the increase in income
(d) None of these
Answer:
(c) The rate of tax increases with the increase in income
(vii) Which among the following is not concerned with the problem of choice? [1]
(a) Excessive income
(b) Alternative use of resources
(c) Unlimited wants
(d) Limited or scarce resources
Answer:
(a) Excessive income
(viii) Downward slope of the demand curve shows: [1]
(a) Positive relation between price and quantity demanded of a commodity
(b) Negative relation between price and quantity demanded of a commodity
(c) No relation between Price and quantity demanded of a commodity
(d) None of these
Answer:
(b) Negative relation between price and quantity demanded of a commodity
(ix) How are the two goods related, when, as a result of rise in price of one good, demand for the other good increases? [1]
(a) Substitute Goods
(b) Complementary Goods
(c) Normal Goods
(d) Inferior Goods
Answer:
(a) Substitute Goods
(x) Marginal cost of a good includes: [1]
(a) Only variable cost
(b) only fixed cost
(c) Both (a) and (b)
(d) None of these
Answer:
(a) Only variable cost
(xi) When average cost is falling: [1]
(a) MC > AC
(b) MC = AC
(c) AC > MC
(d) None of these
Answer:
(c) AC > MC
(xii) Total cost is the vertical summation of: [1]
(a) TFC and TVC
(b) TVCandAVC
(c) AFC and AYC
(d) None of these
Answer:
(a) TFC and TVC
2. Fill in the blanks
(i) …………………… goods are those goods which are not ready for use by their final users and value is still to be added to these goods. [1]
Answer:
Intermediate
(ii) …………………… refers to the total stock of money by the people of a country at a point of time. [1]
Answer:
Supply of money
(iii) A ………………………….. is a compulsory payment made by a person or a firm to the government
without reference to any benefit. [1]
Answer:
tax
(iv) In Free economy, economic activities are controlled by the …………………… .
Answer:
market forces
(v) Convexity of indifference curve to the origin indicates that the marginal rate of substitution ……………………………. as we move along this curve downward. [1]
Answer:
diminishes
(vi) Producer’s equilibrium is struck when MP tends to ………………….. .
Answer:
fall
3. Answer the following in 10-20 words
(i) Define capital. [1]
Answer:
To carry out production activities, one needs natural resources such as land and machines in the process of production is known as capital.
(ii) Give the formula of converting nominal GDP into real GDP. [1]
Answer:
Real GDP = \(\frac{\text { Nominal GDP }}{\text { Price Index }}\) × 100
(iii) Define real gross domestic product (GDP). [1]
Answer:
GDP when measured at constant prices (or base year prices) is called real GDP.
(iv) What does CRR stand for? [1]
Answer:
CRR stands for Cash Reserve Ratio.
(v) What do you mean by a commercial bank? [1]
Answer:
A commercial bank is a business organisation which deals in money, i.e., borrowing and lending of money.
(vi) Give two types of expenditure which can reduce inequalities of income. [1]
Answer:
The expenditure which can reduce inequality of income are:
- Unemployment allowance,
- Old-age pension.
(vii) What is revenue deficit ? [1]
Answer:
Revenue deficit refers to the excess of total revenue expenditure over total revenue receipts.
(viii) Give an example of a country following the centrally planned system of economy. [1]
Answer:
China / Russia / North Korea.
(ix) What is the marginal rate of substitution? [1]
Answer:
The Marginal Rate of Substitution (MRS) is the rate at which one commodity can be substituted for another, the level of satisfaction remaining the same.
(x) What is Average Cost? [1]
Answer:
According to Dooley, “The average cost of production is the total cost per unit of output”. In other words, average cost of production is the total cost of production divided by the total number of units produced.
(xi) What is Opportunity Cost? [1]
Answer:
The opportunity cost of any good is the next best alternative good that is sacrificed.
(xii) When the market supply is more than market demand, What will this condition be called? [1]
Answer:
Excess Supply.
Section – B
Question 4.
What is nominal income ? How can we find real income? Explain. [2]
Answer:
When goods and services produced in a year are valued at the price prevailing in that particular year, we obtain nominal income.
Nominal Income = Current Price (P1) × Current Quantity (Q1)
When goods and services produced in a year are valued at prices of a fixed base year, we obtain real income.
Real Income = Base year price (P0) × Current Quantity (Q1)
Nominal income can be converted to real income by using the following formula:
Real Income \(\frac{\text { Nominal Income }}{\text { Corrent Price Index }}\)
Question 5.
Define the problem of double counting in the computation of national income. State any two approaches to correct the problem of double counting. [2]
Answer:
The problem of double counting arises when the value of some goods and services are counted more than once while estimating national income.
Two ways to avoid double counting are:
- Deducting intermediate consumption from value of output to arrive at value added.
- Taking the value of final product only.
Question 6.
Explain ‘store of value’ function of money. [2]
Answer:
Wealth can be conveniently stored in the form of money. Money can be stored without loss in value. Savings are secured and can be used whenever there is a need. In this way. money acts as a bridge between the present and the future. Money denotes goods and services. Thus, money serves as a store of value. It is also known as asset function of money.
Question 7.
Explain Government’s Capital Receipts and Capital Expenditures. [2]
Answer:
Capital Receipts are those money receipts of the government which either create a liability for the government or cause a reduction in its assets. Examples of capital receipts are recovery of loans, borrowings, other liabilities and other receipts. Capital expenditure refers to the estimated expenditure of the government in a fiscal year which creates assets or causes a reduction in liabilities. Examples of capital expenditures are expenditure on land and building, expenditure on machinery and equipment, purchase of shares and loans by the central government to the state governments or state corporations.
Question 8.
Mention two measures of reducing Government Deficit. [2]
Answer:
Following are the two measures of reducing government deficit:
- Disinvestment by way of selling its ownership of public enterprises.
- Government should try to receive more and more revenues with the help of effective policies.
Question 9.
Explain ‘Balanced budget’, ‘Surplus budget’ and ‘Deficit budget’. [2]
Answer:
- Balanced budget: A budget is said to be a balanced budget when estimated receipts (revenue and capital) are equal to the estimated expenditures.
- Surplus budget: When estimated receipts are more than estimated expenditure in the presented budget, the budget is said to be a Surplus Budget.
- Deficit budget: When estimated expenditure exceeds estimated receipts in the budget, the budget is said to be a Deficit Budget.
Question 10.
Differentiate between Public goods and Personal goods. [2]
Answer:
- Consumption or use of public goods is done by public together and use of personal goods is done individually.
- In consumption of public goods arises the problem of freeloading, whereas in personal goods, if payment is not made by an individual, he will be restricted from using that good or product.
Question 11.
Explain the problem of‘how to produce’?. Why does this problem arise? [2]
Answer:
There are various alternative techniques of producing a commodity. For example, cotton cloth can be produced with either handlooms or power looms or automatic looms. Production with handlooms involves use of more labour, while production with automatic loom involves use of more machines and capital. A society has to decide whether it will produce cotton cloth using labour-intensive techniques or capital-intensive techniques. Likewise, for all other goods and services, it has to decide whether to use labour- intensive techniques or capital intensive techniques. Obviously, the choice would depend on the availability of different factors of production (i.e., labour and capital) and their relative prices. It is in the society’s interest to use those techniques of production that make best use of the available resources.
Question 12.
ICs never touch or intersect each other. Prove it. [2]
Answer:
What happens if ICs are shown to be intersecting, as given in the given diagram:
IC1 and IC2 are intersecting at point a. Points a and b are on IC1. implying a = b in terms of the level of satisfaction. Likewise, points a and c are on IC2, implying that a = c. If a = b, and a = c, then we can infer that b = c. But c is definitely better than b. Because point c offers the same amount OS of Good-2 as to point b, but greater amount of Good-1. At c, consumer is getting sc amount of Good-1 while at b he is getting only sb amount of Good 1, sb < sc, apparently. So at that point c must be offering a higher level of satisfaction to the consumer than point b. The intersecting IC1 and IC2 however, reveal that b and c are equal. This must be wrong and hence proved that ICs never touch or intersect each other.
Question 13.
Draw the budget line and throw light on the feasibility and non-feasibility area of budget line. [2]
Answer:
The budget line divides the commodity space into two parts which may be termed as:
(i) Feasibility Area: The area recumbent in the south-west of the budget line is feasibility area. Any combination of goods X and Y which is represented by a point in this area (e.g., point A) or on the boundary line (i.e., budget line) is a feasible combination (given M, Px and Py).
(ii) Non-Feasibility Area: The area in the North-East of the budget line is non-feasibility area because any point falling in this area, e.g., point B, is unattainable (given M, Px and Py).
Question 14.
Explain LAC (Long run average cost curve). [2]
Answer:
Long-run average cost is the long-run total cost divided by the level of output. Long run average cost curve depicts the least possible average cost for producing all possible levels of output. The short-run average cost curves are also called plant curves. In a long run, the firm has a choice in the employment of a plant, and it will employ that plant which yields minimum possible unit cost for producing a given output. Long-term average cost curve is in the shape of English letter ‘U’, because it is determined by return to scale. It is also called the envelope curve since it surrounds many short-term average cost curves, (LAC = TC / Q).
Question 15.
What is very long-run market? [2]
Answer:
When the time is so long, that long term changes occur both in demand and supply, then it is called a long-run market. Organizational changes are also possible in this period.
Quantity 16.
What is the objective of perfect competition?
Answer:
The objective of perfect competition is to maximize the profit of the firm.
Section – C
Question 17.
Write down some of the limitations of using GDP as an index of welfare of a country. [3]
Or
Distinguish between domestic product and national income. [3]
Answer:
Major limitations of GDP as an index of welfare are as follows:
- Distribution : If GDP of a country is rising, the welfare of the people may not necessary rise. This may happen when increased GDP is concentrated in a few hands.
- Non-monetary exchanges: A border exchanges are generally not counted while estimating national income in developing country like India, (b) Domestic services performed by housewives are very’ useful but they are not included in national income.
- Externalities : In the production process, some benefits or harms are caused. These externalities are not considered in the estimation of GDP.
Question 18.
What are the limitations of credit creation by banks ? [3]
Or
Explain the origin of the word ‘bank’ in brief. [3]
Answer:
Following are the limitations of credit creation by banks :
- Level of development of banks: The countries in which the level of development of banking services is not adequate, credit-creation facility is also limited there.
- The attitude of public: The banking habit of people also has a direct impact on capacity of credit creation.
- Monetary policy of central bank: Liberal monetary policy encourages credit creation in a country.
- Level of development in business and industry: Those countries which have attained higher level of industrial development, the banking transactions in these countries are higher, and thus, they have high credit creation capacity.
Question 19.
Distinguish between total utility and marginal utility. [3]
Or
State the main features of wealth definition of economics. [3]
Answer:
Total utility refers to the entire amount of satisfaction obtained from consuming a given quantity of a commodity. According to Lipsey, “Total utility refers to the total satisfaction from the amount of the commodity consumed.’”
Marginal utility is the additional utility which results from a unit increase in consumption. According to Prof. Boulding, “The marginal utility is the utility which results from a unit increase in consumption.”
Question 20.
How are the equilibrium price and quantity affected when:
(a) both demand and supply curves shift in the same direction?
(b) demand and supply curves shift in opposite directions? [3]
Or
In what respect do the supply and demand curves in the labour market differ from those in the goods market? [3]
Answer:
(a) Both demand and supply curves shift in the same direction:
Conditions | Effect on equilibrium price | Effect on quantity |
Increase in demand equals to increase in supply | No change | Increases |
Increase in demand more than the increase in supply | Increases | Increases |
Increase in demand less than the increase in supply | Decreases | Increases |
Decrease in demand equals to decrease in supply | No change | Decreases |
Decrease in demand more than decrease in supply | Decreases | Decreases |
Decrease in demand less than decrease in supply | Increases | Decreases |
(b) Demand and supply curves shift in the opposite directions:
Conditions | Effect on equilibrium price | Effect on quantity |
Increase in demand equals to decrease in supply | Increases | No change |
Decrease in demand equals to increase in supply | No change | Increases |
Decrease in demand less than increase in supply | Decreases | Increases |
Decrease in demand more than increase in supply | Decreases | Decreases |
Increase in demand less than decrease in supply | Increases | Decreases |
Increase in demand more than decrease in supply | Increases | Increases |
Section – D
Question 21.
Suppose the price elasticity of is -0.2. How will the expenditure on the good be affected if there is a 10%, increase in ths jprice of the good ? [4]
Or
Suppose there was a 4% decrease in the price of a good and as a fesult, the expenditure on the good increased by 2%. What can you say about the elasticity of demand? [4]
Answer:
Price elasticity of demand is -0.2. It means Ed < 1. It is a case of inelastic demand. So, if the price of the good increases by 10%, there will be less than 10% fall in the quantity demanded. This will result in increase in expenditure.
Question 22.
Show the price controlled by the government through a diagram. [4]
Or
When do we say that there is an excess demand in market? [4]
Answer:
In the figure, SS is supply curve and DD is demand curve. P is equilibrium price, q is equilibrium quantity. Government fixes controlled price lesser than equilibrium price, and thus P1 shows controlled price. Thus, here price is reduced from OP to OP1.
Question 23.
Mention the importance of money in revenue sector. [4]
Or
Why is money considered to be an important invention ? [4]
Answer:
Governments of different countries prepare an annual budget these days. Budget is prepared in monetary units. Revenues and expenditures of government are determined in monetary terms. Determination of taxes and their collection is possible because of money. Division of expenses on different schemes and programmes of government under different headings is possible because of money. Today, government runs many programmes and schemes for social security and welfare. Determination of expenses on these schemes and programmes, and valuation of these expenses is not possible without money. Therefore, money plays an important role in revenue sector.
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