UNIT I: NATIONAL INCOME AND RELATED AGGREGATES

1. If gross domestic fixed capital formation is 500 crore and the gross domestic capital formation is 470
crore then value of change in stock is ………. Crore.
-30

2. If in an economy the value of Net Indirect Tax is Rs. 300 crores and the value of subsidies is Rs. 60
crores. Identify the value of Indirect Taxes. (Choose the correct alternative)
a. Rs. 300 crores
b. Rs. 260 crores
c. Rs. 360 crores
d. Rs. 180 crores
360 crores

3. Match the following:

A. Stock i Depreciation
B. Decrease in value of fixed assets. ii Real GDP
C. Flow. iii Wealth
D. GDP at base year prices. iv Investment
a. ii, iv, i, iii
b. iii, ii, i, iv
c. iii, i, iv, ii
d. i, iii, ii, iv
c

4. Who among the following are not the Normal Residents of India: (Choose the correct alternative)
a. An Indian citizen working in branch of USA company located in India
b. An Indian cricketer went to Australia for playing ICC trophy
c. Foreign tourist visited Kaziranga National park of Assam
d. Indian students went to U.K for completing their higher studies.
C

5. Value Addition refers to ……….. (write correct definition )

6. Gross Domestic Product can be defined as ………..

7. Flow Variables are studied on the basis of …… ( period / point) of time.

8. Gross domestic fixed capital formation + …………(depreciation / change in stock)= Gross domestic
capital formation

9. Give any two examples of stock concepts.

10. Annual allowance for normal wear and tear of a capital good is known as the………..

11. Define ‘Capital goods’.

12. Define ‘Intermediate goods’.

13. Define Real Gross Domestic Product.

14. Give one example of negative externalities.

15. savings are ...........concept whereas the capital formation ( Investment) is a ..... concept. (Stock/ flow)

16. Define “positive externalities”. Differentiate between stock and flow variables with suitable examples.
Those which results in the benefits of the citizens. Point of time/period of time

17. State with valid reason, which of the following statement is true or false:
a. Real GDP is better indicator of Economic Development as it eliminates the price effect
b. GNP market price is always greater than the GDP market price
a. True
b. False

18. Management of a water polluting industry says that it ensures welfare through its contribution to Gross
Domestic Product (GDP).” Defend or refute the argument of management with respect to GDP as a
welfare measure of the economy.
Refute the statement giving proper reasons.

19. Distinguish between nominal GNP and real GNP.

Based on price index

20. Explain the main steps involved in measuring national income through product method.
Just write three steps to get national income.

21. Final goods are those goods which are consumed only by the households.’’ Defend or refute the given
statement with a valid argument.
Refute as those capital goods which are not further processed and are used in production process are also
the final goods.

22. Sale of cellphones is rising particularly in India due to pandemic. Analyse its impacts on gross domestic
product and welfare.
Mention positive and negative aspects of the pandemic.
23. What is meant by the problem of double counting? Discuss briefly the two approaches to avoid this
problem.
Explain with the help of examples.

24. Distinguish between ‘value of output’ and ‘value added’.

Differentiate w.r.t. intermediate cost

25. Distinguish between intermediate goods and final goods. Give an example of each.
Depends on end use

26. Calculate national income, if NDPfc is Rs 500 cr. and NFIFA is -50 cr..
Use correct formula adding NFIFA in NDPfc

27. Discuss briefly the three components of ‘Income from Property and Entrepreneurship’.
Rent, interest and profit

28. What are ‘externalities’? State its types with suitable examples.
Impact of any economic activity on people.
 Positive/ Negative

29. Explain the various steps of Income method and expenditure method of calculating national income.

30. Will the following factor incomes be included in domestic factor income of India? Give reasons for your
answer.
1. Profits earned by a branch of state bank of India in England.
2. Salary of Indian residents working in Russian Embassy in India.
3. Compensation of employees to the residents of japan working in Indian Embassy.

31. Are the following included in the estimation of National Income of India? Give Reasons.
a. Salaries paid to Americans working in the Indian embassy in America.
b. Profits earned by a resident of India from his company in Singapore.
c. Festival gift from an employer.

32. Are the following included in the estimation of Domestic Income of India? Give Reasons.
a. Salaries paid to American working in Indian embassy in America.
b. Profits earned by a resident of India from his company in Singapore.
c. Festival gift from an employer

33. Will the following be included in National Income of India? Give reasons for your answer.
a. Financial help given to flood victims
b. Profits earned by an Indian bank from its branches abroad.
c. Salaries paid to non-resident Indians working in Indian Embassy in America.

34. What is double counting? How can it be avoided? Explain with the help of an example.

UNIT II: MONEY AND BANKING

1. Double coincidence of wants is a typical feature of monetary system of exchange.

Ans. False, Double coincidence of wants is a typical feature of barter system of exchange.
2. There is no common u nit of value in barter system.
Ans. True. There is a lack of common unit of exchange in barter system. Evolution of money offered a common
unit of value.
3. M1 measure of money supply includes only notes and coins held by the people.
Ans. False,
M1 = Notes and coins held by the people + Demand Deposits + Other Deposits.
4. What is SLR?
Ans. SLR (statutory liquidity ratio) refers to liquid assets of the commercial banks which they are required to
maintain as a minimum percentage of their total deposits.
5. Define bank rate.
Ans. The bank rate is the rate at which the central bank of the country offers loans to the commercial banks
6. What is repo rate?
Ans. Repo rate is the rate of interest at which commercial banks can raise short-term loans from the central
bank.
7. What is reverse repo rate?
Ans. Reverse repo rate is the rate of interest at which commercial banks can park their surplus funds with the
central bank, for short period of time.
8. What do you mean by open market operations?
Ans. Open market operations refer to the sale and purchase of government securities in the open market by the
central bank of the country.
9. Define margin requirement.
Ans. Margin requirement refers to the difference between market value of the security offered for loans and the
amount of loans offered by the commercial banks.
10. If CRR is lowered, investment demand must rise. Defend or refute.
Ans. Yes, the above statement is correct. If CRR is lowered, credit creation capacity of the commercial banks is
enhanced . Higher availability of credit and at lower interest rate must lead to a rise in investment demand.
11. What is a barter system? What are its drawbacks?
Ans. Barter system is a system where goods are exchanged for goods.
Drawbacks:
(i) It requires double coincidence of wants.
(ii) It lacks common unit of exchange.
(iii) It lacks convenient means of storage of value.
12. How does money overcome the shortcomings of a barter system?
Ans. Use of money overcomes the drawbacks of barter system of exchange in the following manner:
(i) Use of money as a medium of exchange has overcome the difficulty of double coincidence of wants.
Accordingly, exchange has tended to expand.
(ii) Money facilitates storage of value just in terms of paper claims, avoiding the storage of goods under barter
system.
(iii) Money acts as a standard unit of value which is absent.
(iv) Money acts as an instrument of deferred payments. No such instrument is available in the barter system of
exchange.
1. Define a central bank. What are the functions of the central bank?
2. "Commercial banks create money in the economy." Comment.
3. How does the central bank of a country control the supply of money in an economy?

UNIT III: DETERMINATION OF INCOME AND EMPLOYMENT

Q1. MPC+MPS=_____

ANS. 1

Q2. APC + APS=

Ans 1

Q3. (A) Rich people have lower propensity to consume as compared to poor people.

(R) Consumption can never be zero even if National Income is Zero

(B) Both Assertion and Reason(R) are True but Reason (R) is not the correct explanation of Assertion(A)

Q4. (A) Excess demand does not lead to any increase in the level of Output.
 (R) Excess demand gives rise to an Inflationary Gap.

(B) Both Assertion and Reason(R) are True but Reason (R) is not the correct explanation of Assertion(A)

Q5.Why does consumption curve not start from the origin?

Ans: Consumption curve does not start from zero because people consume even at zero level of income.

Q6. What is the relationship between APS and APC. Can the value of APS be negative? If yes, when?

Ans. Income can be consumed or saved, thus the sum of average propensity to consume and average propensity
to save is always equal to one
APC + APS = 1

Or APC = 1-APS

APS = 1-APC

Hence APS can be negative when APC is more than one i.e, when consumption expenditure is more than the
income.

Q7. What is the difference between ex-ante investment and ex-post investment?

Ans :

Ex-ante Investment: It is the planned investment during a given period. Ex-post Investment: It is the amount of
realised investment.

The actual or realised investment is equal to the sum of ex-ante (planned) investment and unplanned investment
in the economy. Ex-post investment will be equal to ex-ante investment if unplanned investment = 0.

Q9. Which of the two, average propensity to consume or average propensity to save, can be negative and why?

Ans:
APC cannot be negative as even at zero level of income, there will be some minimum amount of consumption
(i.e. autonomous consumption) for survival. While, APS can be negative because at zero level of income, there
can be dis-savings.

Q10. Giving reasons, state whether the following statements are true or false:
(i) When marginal propensity to consume is zero, the value of investment multiplier will also be zero.
(ii) Value of average propensity to save can never be less than zero.
Ans.
(i) False. When MPC = 0, Multiplier 1/ 1-MPC = 1/1/0=1
(ii) False. APS or S/Y can be negative when S is negative at low level of income. At low level of income
consumption expenditure is more than income.

Q11.In an economy 75 percent of the increase in income is spent on consumption. Investment is increased by
Rs 1,000 crore. Calculate:

(a) Total increase in income.

(b) Total increase in consumption expenditure.
Ans.
MPC = -3/4, MPS = -1/4 K= 4
(i) Y = I X K

= 1,000 x 4

= Rs 4,000 Crore

(ii) Given that Y = C + I

C=Y–I

= 4,000-1,000

= Rs 3,000 Crore.

Q12. In an economy, planned savings exceed planned investment. How will an equality between the two be
achieved? Explain.

Ans. The equilibrium level of National income can be established by the equality between planned savings and
planned investment. As this is derived by the AD – AS approach itself.
AD = AS

C+1 = C+S

(Planned) I = S (Planned)

From the diagram above, if S > I i.e. National income ON2. But increase in savings as compared to investment
will result in decrease in production, income and employment in the economy. This will bring the income at
equilibrium level i.e. where S = I i.e. at ON level of income.
Moreover, if I > S i.e., level of National income is at ON1. This will result in increase in income, output level is
reached i.e. ON level of income where S = I.

Q13. What is meant by Aggregate Demand ? State its component.

Ans. Aggregate Demand (AD) refers to the total expenditure on consumption and investment by different
sectors of the economy.
Aggregate Demand comprises of the following components:
(i) Private Consumption Expenditure (C): Household expenditure on goods and services during an accounting
year is called consumption expenditure. It depends upon the level of income of the households.
(ii) Investment Expenditure (I): Investment expenditure is the expenditure on goods by private investors, which
add to their capital stock. These goods include producer’s durable, equipment, new construction and change in
inventories.

(iii) Government Expenditure (G): Government expenditure, both consumption and investment, on public goods
such as opening of schools, construction of roads, maintain law and order, provide justice, etc.

(iv) Net Exports (X – M): Net exports is the difference between total imports and total exports. Note: For a two-
sector economy, state and discuss only C & I.

Q14. Can an economy be in a state of underemployment equilibrium? Explain with the help of a diagram.
Answer:Yes, an economy can be in a state of underemployment equilibrium. Equilibrium is attained when
planned expenditure is equal to the planned output in the economy.

If this equality is achieved at a level less than full employment level of output then the economy will be in a
situation of underemployment equilibrium.
C + I curve shows Aggregate Demand (AD) at different levels of output. OY is the underemployment level of
output and OYF is the full employment level of output. The – OY level of output is sufficient to meet current
Aggregate Demand. Thus, at OY level of output the economy is in equilibrium but it is a situation of
underemployment equilibrium

Q15.Explain the working of investment multiplier with the help of a table.

Ans:Investment multiplier (K) expresses the relationship between the final change in income and the initial
change in investment It is estimated as the ratio of change in income due to change in investment A. Change in
investment causes a ‘multiple’ change in the output.
K=ΔI / ΔY
ΔI=K×ΔY
Assume that the MPC is 0.8. Further, suppose that there is an increase in investment worth ₹ 100, which results
in the construction of a new building. This processes can be shown with the help of following table:
Time Period Increase in Initial in Investment Change in Induced Change in

crores Expenditure Income Consumption (MPC = 0.8)

1. 100 100 80

2. — 80 64

3 — 64 51.2

Here MPC = 0.8

Q16. Suppose in a hypothetical economy, the income rises from ₹ 5,000 crores to ₹ 6,000 crores. As a result,
the consumption expenditure rises from ₹ 4,000 crores to ₹ 4,600 crores. Marginal propensity to consume in
such a case would be ______
Ans. 0.6

Q17. An economy is in equilibrium. Its consumption function is C=300 +0.8Y and investment is 700. Find
national income.
Ans. : C= 300+0.8 Y
Y = C+I
Y = 300+0.8Y+700
=1250

Q18.Calculate the equilibrium level of income in the economy.

C = 500 + (0.9)Y;
Investment expenditure = 3,000

Ans: Given C = 500 + (0.9)Y,

Investment expenditure, (I) = Rs.3,000;
At equilibrium level, Y = C + I
⇒⇒ Y = 500 + (0.9) Y+ 3,000
⇒⇒ Y – (0.9)Y = 3,500
=> (0.1)Y = 3,500
Y=3,5000

Q19. What happens if AD>AS prior to full employment level of employment?

Ans. It is a state of disequilibrium in economics. When AD>AS , producers have to cater to demand out of their
existing stock of goods , implying that the desired level of stocks will decrease. It implies greater production &
therefore there is increase in AS. This process continues till equilibrium is struck between AD and AS.

Q20. Does an excess of AD over AS always imply a situation of inflationary gap?

Ans. No. Inflationary gap occurs only when AD>AS corresponding to full employment level of employment.

Q21. Explain the relationship between investment multiplier and MPC?

Ans. K=1/1-MPC, It shows direct relationship between MPC and the value of Multiplier. Higher the proportion
of increased income spend on consumption, higher will be value of investment multiplier. Higher the proportion
of increased income spend on consumption, higher will be value of investment multiplier.

Q22. If MPC is 0.9, what is the value of multiplier? How much investment is needed to increase national
income by Rs 5,000 Crores .
Ans.

ΔY = 5,000 Cr., MPC = 0.9, K = ?, ΔI = ?

K = 1/1-MPC

K = -1/1-0-.9- = 1/0.1

K = 10

Also K = Y/I

10 = 5,000/I

I= 5000/10= 500Cr

So K = 10 and ΔI = 500Cr.

Q23. In an economy Aggregate Demand is greater than Aggregate Supply. Explain the changes that will take
place in this economy?

Q24. In an economy Aggregate Demand is less than Aggregate Supply. Explain the changes that will take place
in this economy.

Q25. What is deficient demand in an economy? What is its impact on output, employment and prices?
Ans. Diagram and explanation
1. Deficient demand refers to the situation when AD is short of AS corresponding to the full employment
level in the economy.
i. Effect on output: Low level of investment and employment implies low level of output.
ii. Effect on employment: Because of deficiency of demand, investment level is reduced. Accordingly,
level of employment tends to fall.
iii. Effect on prices: Fall in prices is the immediate consequence of deficient demand.
Q26. If planned saving is less than planned investment, what changes will bring economy in equilibrium?

Ans. Explanation and diagram

1. AD = AS
C+I=C+S
I = C + S -C = S
i. When planned saving is less than planned investment, then national income will decrease as shown
in the below diagram.

ii. When, investment > saving [at Y1], then production will have to be increased to meet the excess
demand. Consequently, national income will increase leading to rise in saving until saving becomes
equal to investment. It is here that equilibrium level of income is established because what the savers
intend to save becomes equal to what the investors intend to invest.

Q 27. Explain the distinction between voluntary and involuntry employment.

Ans. Voluntary unemployment is that part of the working force not willing to engage itself is gainful
occupation. Involuntary unemployment is that part of labour force which is willing and able to work at the
prevailing wage rate but is out of work.

Q28. Discuss the working of the adjustment mechanism in the following situations:
(a) Aggregate demand is greater than Aggregate supply.
(b) Ex Ante Investments are lesser than Ex Ante Savings.
Ans:
(a) When Aggregate Demand is greater than Aggregate Supply, buyers are planning to buy more goods and
services than what producers are planning to produce. It will lead to fall in planned inventory below the desired
level. The producers, in turn, will produce more which will increase the aggregate supply till aggregate demand
becomes equal to aggregate supply.

(b) Ex-ante investment are lesser than Ex-ante savings, meaning buyers are planning to buy lesser output as to
what producer are planning to produce. It will lead to rise in planned inventory above the desired level. As a
result, the producers will cut down production leading to a reduction of income till saving becomes equal to
investment.

Q29. Explain the role of the following in correcting deficient demand in an Economy.

1. Open market operation

2. Bank rate
Ans:
 3. Open market operation refer to the sale and purchase of securities by the Central Bank in case of
deficient demand when AD falling short of AS at full employment, the Central Bank buys
securities in the open market and makes payment to the sellers. The money flows out of the
central bank and reaches the commercial bank as deposits. This raises the lending capacity of
the banks, people can borrow more. This will raise AD.
4. In case of deficient demand central bank decrease the bank rate which the central bank charges
on the loan given to commercial bank. This forces the commercial banks to reduce lending rate.
Since borrowing become cheaper and people borrow more. Arises.

UNIT IV: GOVERNMENT BUDGET

1 Q. Define revenue receipts.

Ans. Those receipts which neither create any liability nor causes any reduction in the assets of the
government.

2 Q. Define capital receipts.

Ans. Those receipts which either create a liability or causes a reduction in the assets of the
government.

3 Q. Define revenue expenditure.

Ans. Those expenditures which neither create any asset nor causes any reduction in the liability of
the government.

4 Q. Define capital expenditure.

Ans. Those expenditures which either creates an asset or reduces a liability of the government.

5 Q. Name three types of deficits.

Ans. Revenue, fiscal & primary deficit.

6 Q. The tax which is levied on individuals and companies is called_________

Ans. Direct tax.

7 Q. The tax which is levied on goods and services is called ____________

Ans. Indirect tax.

8 Q. Which tax is progressive in nature?

Ans. Direct tax.

9 Q. What is non-debt creating capital receipts?

Ans. Capital receipts excluding borrowings are known as non-debt capital receipts.
10 Q. Which type of budget is proposed by government during deflation?

Ans. Deficit budget.

11 Q. Calculate Revenue, Fiscal and Primary Deficit.

a) Capital Expenditure = 110 b) Revenue Expenditure = 100

c) Tax Receipts = 55 d) Non- Tax Receipts = 25

e) Interest Payments = 10 f) Capital Receipts = 95

Ans. RD = RE – RR = 100 – (55 + 25) =20

FD = TE – TR = (110 + 100) – (95 + 55 + 25) =35

PD = FD – Interest Payments = 35 -25 = 10

12 Q. Giving reasons classify the following as direct & indirect taxes:

i) GST

ii) Income tax

iii) capital gain tax

Ans. I) Indirect tax as its impact & incidence lie on different person.

ii) Direct tax as its impact & incidence lie on same person.

iii) Direct tax as its impact & incidence lie on same person.

13 Q. Giving reasons classify the following as revenue & capital receipts:

i) Loan received from PSU

ii) Financial help from Micrsoft for the victims of flood affected area.

iii) Fund raised by the public in the form of NSC(National Saving Certificates)

Ans. I) Capital receipts as it reduces assets of the government.

ii) Revenue receipts as it neither creates any liability nor reduces assets of the government.

iii) Capital Receipts as it creates liability to the government.

14 Q. Giving reasons classify the following as revenue & capital expenditures:

i) Repayment of loans

ii) Subsidies
 iii) Expenditure on collection of taxes

Ans. I) Capital expenditure as it reduces the liability of the government.

ii) Revenue expenditure as it neither creates any assets nor reduces liability of the government.

iii) Revenue expenditure as it neither creates any assets nor reduces liability of the government.

15 Q. How can surplus budget used during inflation?

Ans. Surplus budget refers to budget where estimated total receipts are more than estimated total
expenditure. In case of surplus budget, government takes more money from the economy than it
injects into it. It results a fall in aggregate demand & price level in the economy and helps to combat
inflationary situations.

16 Q. Can there be a fiscal deficit in the government budget without a revenue deficit? Explain.

Ans. It is possible in the following situations:

i) When revenue budget is balanced and capital budget shows a deficit.

ii) When there is surplus in the revenue budget but the deficit in capital budget is greater than this
surplus.

17 Q. Write differences between revenue receipts & capital receipts.

Ans.

Revenue receipts Capital receipts

Those receipts which neither create any Those receipts which either create a liability or
liability nor causes any reduction in the causes a reduction in the assets of the
assets of the government. government.

It is regular and recurring in nature. It is irregular and non-recurring in nature.

There is no future obligation to return In case of certain capital receipts(like

the amount. borrowings) there is future obligation to return
the amount along with interest.

Example- Corporation tax, Wealth tax, Example- Borrowings, Recovery of loans,

Income tax, Excise duty, interest , fees Other receipts like disinvestment and small
etc. savings.

18 Q. Write differences between revenue expenditure & capital expenditure.

Ans.

Revenue expenditure Capital expenditure

Those expenditures which neither Those expenditures which either creates an

create any asset nor causes any asset or reduces a liability of the government.
reduction in the liability of the
 government.

It is regular and recurring in nature. It is irregular and non-recurring in nature.

It is incurred for normal running of It is incurred mainly for acquisition of assets &
government departments & provision of granting of loans and advances.
various services.

Example-Salary, pension, interest etc. Example-Repayment of borrowings,

expenditure on acquisition of capital, etc.

19 Q. Write differences between direct tax & indirect tax.

Ans.

Direct tax Indirect tax

It is levied on individuals and It is levied on goods and services. Example

companies.Example income tax GST

The burden cannot be shifted i.e. The burden can be shifted i.e. impact and
impact and incidence is on the same incidence is on different persons.
person.

They are generally progressive in They are generally proportional in nature.

nature.

They have limited reach as they do not They have wide coverage as they reach to all
reach to all the sections of the the sections of the society.
economy.

20 Q. Explain “reallocation of resources” as an objective of government budget.

Ans. Government aims to reallocate its resources in accordance with the economic and social
priorities of the country. Government can influence the allocation through:

i) Tax concession or subsidies –To encourage investment, government can give tax concession,
subsidies etc. to the producers. For example government can discourage production of harmful
consumption goods like wine through heavy taxes and encourage the use of Khadi by providing
subsidies.

ii) Directly producing goods and services –If private sector does not take interest, government can
directly undertake the production.

21 Q. Explain “economic stability” as an objective of government budget.

Ans. Government budget is used to prevent business fluctuations of inflation or deflation to achieve
the objective of economic stability. The government aims to control the different phase of business
fluctuations through budgetary policy. Policies of surplus budget during inflation and deficit budget
during deflation helps to maintain stability of prices in the economy.
 22 Q. Explain “redistribution of income & wealth” as an objective of government budget.

Ans. Economic inequality is an inherited part of every economic system. Government aims to reduce
such inequality of income and welfare, through its budgetary policy. Government aims to influence
distribution of income by imposing taxes on the rich and spending more on the welfare of the poor. It
will reduce income of the rich and raise standard of living of the poor, thus reducing inequalities in
the income.

23 Q. Calculate Capital Expenditure, Total Expenditure & Interest Payment.

a) Fiscal Deficit 12,000

b) Revenue Deficit 9,000

c) Primary Deficit 5,000

d) Revenue Receipts 6,000

e) Non-debt creating Capita Receipts 10,000

Ans. CE = 13,000 TE = 28,000 IP = 7,000

UNIT V: BALANCE OF PAYMENTS

1. Balance of Payments is an accounting statement that records monetary transactions between ________.

a. Residents of a nation and the rest of the world

b. Non-residents and the rest of the world
c. Residents of a nation and non-residents
d. None of the above

Answer: a

2. Balance of Payments uses the _________ system of accounting.

a. Single-entry
b. Double-entry
c. Cash basis
d. Accrual basis

Answer: b

3. The ‘resident’, whose monetary transactions get recorded under the Balance of Payments system,
includes _______.
a. Government agencies
b. Individuals
 c. Firms
d. All of the above

Answer: d

4. The components of a Balance of Payment account are ____________.

a. Capital Account
b. Current Account
c. Both a and b
d. None of the above

Answer: c

5. The Balance of Payment account records the inflow of foreign exchange on the _______.
a. Debit side
b. Credit side
c. Both a and b
d. None of the above

Answer: b

6. Balance of trade is the ___________.

a. Difference between export and import of services
b. Total of export and import of services
c. Difference between export and import of goods
d. Total of export and import of goods

Answer: c

7. Which of the following is not a component of the Balance of Payments?

a. Real account
b. Current account
c. Capital account
d. None of the above

Answer: a

8. Import and export of goods are known as _____.

a. Nominal trade
b. Invisible trade
c. Visible trade
d. None of the above

Answer: c

9. Import and export of services are known as ________.

a. Nominal trade
b. Invisible trade
c. Visible trade
d. None of the above

Answer: b
10. Import of machinery and equipment is recorded under __________ of the ______ account.
a. Credit side, capital
b. Debit side, capital
c. Debit side, current
d. Credit side, current

Answer: c

11. Gifts or grants received from outside the country get recorded under __________ of the ______ account.
a. Credit side, capital
b. Debit side, capital
c. Debit side, current
d. Credit side, current

Answer: d

12. The Current account of the Balance of Payments includes transactions like ___________.
a. Imports and exports of goods and services
b. Transfers to and from abroad
c. Income to and from abroad
d. All of the above

Answer: d

13. The Capital account of the Balance of Payments includes transactions like ___________.
a. Changes in foreign exchange reserves
b. Investments to and from abroad
c. Borrowings and lendings to and from abroad
d. All of the above

Answer: d

14. Balance of payments is a ___________ concept as compared to balance of trade.

a. Broader
b. Similar
c. Narrower
d. None of the above

Answer: a

15. Trade Deficit occurs when ______________.

a. Export of goods is less than imports of goods
b. Export of goods is more than imports of goods
c. Export of services is less than imports of services
d. Export of services is more than imports of services

Answer: a

16. A business organization located within India gets a loan from a foreign-based company. This transaction
is recorded in the ____________ of ____________ account within the Balance of Payment account of
India.
a. Debit side, current
 b. Credit side, current
c. Debit side, capital
d. Credit side, capital

Answer: d

17. A business organization located within India invests in a foreign-based company. This transaction is
recorded in the ____________ of ____________ account within the Balance of Payment account of
India.
a. Debit side, current
b. Credit side, current
c. Debit side, capital
d. Credit side, capital

Answer: c

18. Foreign exchange transactions that are independent of other activities in the Balance of Payments
account are ________ transactions.
a. Capital account
b. Current account
c. Accommodating
d. Autonomous

Answer: d

19. Foreign exchange transactions that are dependent on other activities in the Balance of Payments account
are __________ transactions.
a. Capital account
b. Current account
c. Accommodating
d. Autonomous

Answer: c

20. When payments of foreign exchange are more than receipts, then the Balance of Payments is
__________.
a. Surplus
b. Deficit
c. Balanced
d. None of the above

Answer: b

21. The transactions undertaken to cover the deficit or surplus of autonomous transactions are called
__________.
a. Accommodating transactions
b. Capital account transactions
c. Current account transactions
d. None of the above

Answer: a
22. The measures taken to improve the negative Balance of Payments include ___________.
a. Exchange control
b. Currency devaluation
c. Import substitution
d. All of the above

Answer: d

23. An increase in the foreign exchange reserve gets recorded on the _________ of the Balance of Payments
account.
a. Debit side
b. Credit side
c. Not added to any side
d. It can be added to any side

Answer: b

24. Which of the following are a part of the Capital account of the Balance of Payments?
a. Foreign loans
b. Monetary movements
c. Foreign investments
d. All of the above

Answer: d

25. Balance of Payments is an accounting statement for _________.

a. Business year
b. New year
c. Accounting year
d. All of the above

Answer: c

26. The current account deficit is unfavorable for a country because it signifies ______.
a. Demerits for the nation
b. That the nation is a borrower from the rest of the world
c. The government does not have sufficient foreign exchange to finance its international payment
d. Both b and c

Answer: d

27. The interest amount on deposits from a foreign bank is recorded in the current account because it is
______.
a. A transfer receipt
b. An income from abroad
c. An invisible service
d. A visible good

Answer: b

28. If the value of visible exports is more than the value of invisible imports, the balance relates to
____________.
 a. Trade deficit
b. Capital account
c. Current account
d. It cannot be determined

Answer: d

29. If the value of visible imports is more than the value of invisible exports, the balance relates to
____________.
a. Trade deficit
b. Capital account
c. Current account
d. It cannot be determined

Answer: d

30. If the trade deficit is Rs. 1000 crores and the import of goods is Rs. 2000 crores, then the export of
goods will be Rs. _________.
a. 2000 crores
b. 1000 crores
c. 1500 crores
d. 500 crores

Answer: b
Q31. What does balance of payments account show? Name the two parts of the balance of payments accounts.
Ans. BOP account shows a country’s inflows and outflows of foreign exchange. The two parts of the BOP are:
1) The current account.

(2) The capital account.

Q32. State the components of capital account of balance of payments.

Ans. (1) Borrowings and lending’s to and from abroad.
(2)Investments to and from abroad.

(3) Changes in foreign exchange reserves, (or any other way to describe components)

Q33. State the components of current account of balance of payments

Ans. (1) Exports and imports of goods.

(2) Exports and imports of services.

(3) Income receipts and payments to and from abroad.

(4) Transfers to and from abroad.

Q34. What are the sources of supply of foreign exchange?

Ans. Supply of foreign exchange comes from:
(i) Purchase of goods and services by foreigners

(ii) Inflow by the NRIs settled in foreign countries.

(iii) Foreign Direct Investment (FDI) into our country.

(iv) Speculative purchase of home currency by NRIs/Foreigners.

Q35. When price of a foreign currency rises, its demand falls. Explain why.
Ans. When price of foreign currency rises it makes imports costlier. This leads to fall in demand for imports. As
a result demand for foreign exchange falls.

Q36. When price of foreign currency rises, its supply also rises. Explain why.
Ans. When price of foreign currency rises it makes exports cheaper. This to rise in demand for exports. As a
result supply of foreign currency rises.

Q37. Explain the effect of appreciation of domestic currency on imports.

Ans. Appreciation of domestic currency means fall in exchange rate, i.e., price of foreign currency. It means
that the importers have now to pay less domestic currency to buy one unit worth of foreign currency goods from
abroad. Imports become cheaper. This raises demand for imports.

Q38. Distinguish between devaluation and depreciation of domestic currency.

Ans. i. Under fixed exchange rate regime reduction in price of domestic currency in terms of all foreign
currencies is called devaluation.
ii. Under flexible exchange rate regime, fall in market price of domestic currency in terms of a foreign currency
is called depreciation.

Q39.What are the causes of disequilibrium in Balance of Payment (BOP)?

Ans. Various causes of dis-equilibrium in Balance of Payment (BOP) are:
(A) Economic Factors:
(i) Inflation:
Inflation phenomenon i.e., higher wages, higher cost of raw materials, wages etc. make the exports costlier and
decrease in exports. This leads to deficit in the BOP.

(ii) Exchange rate fluctuations:

The exchange rate also affects the BOP. When the value of currency of a country increases, imports become
cheaper thus the value of imports rises and value of exports falls, which contributes to disequilibrium.

(iii) Population Growth:

Uncontrolled growth of population leads to fall m aggregate demand / fall export surplus and thus BOP
becomes adverse.

(B) Social Factors:

People of an underdeveloped country tend to imitate the consumption pattern of the people of developed
countries. Due to ouch psychology, the imports of the former country increase which again triggers
disequilibrium. ‘

(C) Political Aspects:

Political instability, non-cordial international relations can also have adverse impact. Partition, unification of
nation also affects the BOP.

Q40. Distinguish between Autonomous and Accommodating transactions in the balance of payments.
Ans. Difference between Autonomous Items and Accommodating items is detailed here below:

INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

Chapter 1

LOW LEVEL OF ECONOMIC DEVELOPMENT UNDER THE COLONIAL RULE:

1.Give any two features of the state of Indian economy on the eve of independence.

2.Whose estimate of national income was considered very significant?

Ans: VKRV Rao

5.What was the sole purpose of the British colonial rule in India?

To reduce the status of the country to a sole supplier of raw material to the British industries.

Short answer questions :

1.Explain any two features of Indian economy on the eve of independence.

2.Discuss the reasons for backwardness of agriculture.

a.Land revenue system

b.Commercialisation of agriculture.

c.Impact of partition

d.Low investment

3. What was the impact of decline of handicrafts industries?(increasing imports from Britain)

This led to increasing imports from Britain.

4. In which year TISCO was started ?

1907

5. Other than steel industry, what other industries were started after the Second World War?

Sugar, cement,, paper.

6.State the two fold motive behind de industrialisation by the colonial government in India.

To reduce India into an exporter of raw material

To turn India into a market for finished products.

7.What do you understand by the drain of India’s during the colonial period?

(how the export surplus was misused.)

8.Which year is known as the ‘year of great divide’ in the demographic history of India.

1921

9.How were the details of the population of British India were first collected? (through a census in 1881)

10.Were there any positive contributions made by the British in India? Discuss.

Chapter 2

Indian economy (1951– 1990)

1.When was NITI Ayog established?

1 st JAN 2015

2.Who will be Ex officio chairman of NITI Ayog?

The Prime minister

3.Who is the architect of the second five year plan?

Prashanth Mahalnobis

4.What are the goals of planning? Explain any two of them?

5.How is the goal of equity is attained in various sectors of the Indian economy?

6. Why is modernisation as a goal of planning is important?

7.What are high yielding variety seeds?

8.What is a marketable surplus?

9.Give an argument against subsidies in agricultural sector?

Burden on the exchequer.

10.What great innovation led to the breaking up of stagnation in agriculture?

Green revolution.

11.Under which pact India used to import food grains from US?

PL 480

11.Explain the need and type of land reforms implemented in agricultural sector?

12.What is green revolution? Why was it implemented and how did it benefit and harm the farmers?

13.In which year the first IPR was introduced? 1948

14.Schedule ‘A’ comprises of industries exclusively owned by ………?

The State

15.What was the trade policy followed during 1950 to 1990?

Inward looking strategy.

16.Why and how was private sector regulated under the IPR-1956?

17.Why do small scale industries need protection by the government?

18.What were the two forms of protection from imports? (tariff and quota)

19.What made the planners decide to attribute a major role to the public sector and a minor role to the private
sector?

At the time of independence, Indian industrialists did not have the capital to undertake

investment in industrial ventures required for the development of our economy;

nor was the market big enough to encourage industrialists to undertake major projects even if they had the
capital to do so.

The decision to develop the Indian economy on socialist lines led to the policy of the state controlling the
commanding heights of the economy.

This meant that the state would have complete control of those industries that were vital for the
 CHAPTER:3

Liberalisation, Privatisation and Globalisation: An Appraisal

The New Economic Policy

1. When were economic reforms introduced in India?Ans.1991

2. The aims of trade policy reforms were……..

Ans: (i) Removal of quantitative restrictions(ii) Reduction in tariff rates
3. For what categories of products was industrial licensing not abolished?
Ans:alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace and drugs
and pharmaceuticals.
4. What is outsourcing?
Ans: It is the practice of hiring external sources, mostly from other countries, for regular services: (i)
Record keeping(ii) Accountancy(iii) Banking services

5. There was a substantial shift in role of the RBI from ‘a regulator’ to ‘a facilitator’ of the financial
sector’.Comment
6. State the salient features of Foreign exchange reforms.Hint:(The rupee was devaluated and the
government adopted free market mechanism for the determination of rupee value in the foreign
exchange market)
7. Discuss the need for privatisation. What are the ways in which PSUs can be privatised? (Hint:
inefficiency of the public sector enterprises)
8. Is disinvestment really good for India? Hint: (Improve financial position and facilitate modernisation.
Provide strong impetus to the inflow of Foreign Direct Investment)
9. How important is the role of outsourcing in globalisation process? Hint:(With the adoption of
globalisation, outsourcing has been intensified by the growth of fast modes of communication)

10. Name the sector that benefited the most with the introduction of economic reforms in India.
Ans: Service (tertiary) sector
11. Why has the industrial sector growth slowed down in India?
Ans: Due to the cheaper imports and lower investments.
12. Agriculture sector appears to be adversely affected by the reform process. Why? ( reduced subsidies,
foreign competition, lack of modernisation)

Demonetisation & GST

1.What is demonetisation? When did demonetisation take place in India?

Ans:8th November, 2016
2.Which currency notes were affected due to demonetisation in November 2016?
Ans:₹ 500 & ₹ 1,000 notes
3.When was GST implemented in India? Ans:1st July 2017
4.Why is GST implemented?
Ans: create a simpler tax system

Short Answer questions (3marks & 4marks)

1.What are the components of GST? (Hint:CGST, SGST and IGST)
2.What are the advantages of demonetisation in India?
Hint: (Trace Black Money, Cashless Economy, Increase in Tax Revenue)
 Human Capital Formation in India

Very Short Answer questions (1 Mark)

1.Define human capital.

Ans:Human capital is the stock of knowledge and skills that make the workers productive
2.Define physical capital.
Ans:Physical capital refers to the manufactured assets used in the process of production such as machinery,
equipment, buildings, vehicles, etc.
3.Why do we need to invest in Human capital? Development of abilities & skill formation
4.How does human capital formation improve quality of life?
it provides better job, high income and improves health. It results in better standard of living.
5.What are the indicators used to measure the health status of a country?
Ans:(i) Life expectancy rate(ii) Mortality rate
6.State whether the following statements are true or false.
Education and health are the two major sources of human capital in a country-True
Preventive medicine includes medical practices which are designed to avoid or avert diseases-True
Human capital treats humans as ends in themselves-False
7.List the benefits of education.
(i) It gives a better social status and pride.(ii) It enables wise decision-making.

Short Answer questions (3mark & 4mark)

1.What are the different forms of health expenditure?
Hint:(Preventive medicine,Curative medicine,Social medicine)
2.Discuss the need for expenditure on information as a source of human capital.
Hint:(People need to incur expenditure in order to acquire information related to equity markets, labour
markets, education, health and other related markets)
3.What factors contribute to human capital formation? Hint: (Sources of human capital)
4.Differentiate between human capital and physical capital.
5.Bring out the differences between human capital and human development.
6.Bring out the need for on-the-job-training for a person.

Chapter 6: Rural development

1. Why is rural development important in India?

Answer: Rural development is important because around two-thirds of India’s population lives in rural
areas. India’s development is not possible without the development of the rural sector.
2. What is rural development?
Ans: Action Plan for the development of rural areas
3. Mention any two non-farm activities which should be developed in rural areas.
Answer: The two non-farm activities which should be developed in rural areas are

a) Handicrafts
b) Pottery

4. What do you mean by diversification of crops?

Hint: implies production of diverse type of crops.
5. What is diversification of productive activities?
Ans: shift of labour from farming to non-farming activities.
6. What are regulated markets?
Answer: Where sale and purchase of crop is monitored by market committee.
7. Define buffer stock.
Answer: Purchase on MSP by government is kept as buffer stock
8. Define PDS.
Ans: Public distribution system
9. Define cooperative marketing
Formers come together to sell product
10. To which crop golden fiber revolution is related?
Ans: production of jute
11. To which blue revolution is related?
Ans: Fisheries

12. What do you mean by rural / agriculture credit?

Answer: credit for farming families is called rural credit.

13. What are institutional and non-institutional sources of credit?
Answer: Sources like commercial banks, co-operative societies and Regional Rural Banks are institutional
sources and money lenders, traders, and landlords are non institutional sources.
14. Why is agricultural diversification essential for sustain-able livelihoods?
Answer. Diversification into non-farm activities is important because it will:
i) Reduce the risk from agriculture sector.
ii) Provide sustainable livelihood options to people living in villages.
15. List out three nonfarm areas of employment.
Hint: Poultry, animal husbandry and fisheries.
16. Explain the role of micro-credit in meeting credit requirements of the poor.
Hint: SHGs (Self-Help Groups) and micro credit programmes promote thrift in small proportions by a
minimum contribution from each member. From the pooled money, credit needs are fulfilled.
17. Critically examine the role of cooperative societies in financing the rural credit.
Hint: Help farmers get cheap loans and protect them from exploitation by informal sector.
18. What is Minimum Support Price.
Hint: Minimum price is assurance to the formers for purchase of their crop at specified price.
19. Explain the role of TANWA in empowering the women.
Hint: Provides training to women in different techniques of farming.
20.Write a short not on alternative marketing channels of marketing.
Hint: Apni Mandi, Rythu etc
21. What do you mean by organic farming? Write its advantages and disadvantages for Indian farmers?
Hint: farming where chemical fertilizers are avoided. Healthy food etc.
1. Give suggestions to encourage organic farming in India
Hint: promotion and awareness programmes by government, subsidies etc..
22. Explain the concept of rural development. What are the key issues in the development of rural areas?
Hint: Action plan for the upliftment of rural areas. Development of infrastructure, poverty alleviation
etc.
23. What are the various measures taken by government of India to strengthen the agriculture marketing?
Hint: Regulated market yards, co-operative marketing societies, provisions of warehousing etc,

Chapter: Employment
Very short answer type questions (One mark questions)

1. Define work force.

 Hint: Those who actually engaged in some sort of work.
2. What is rate of participation?
Hint: percentage of population actually participating in productive activities.

3. How are hired workers?

Hint: One who works for others.
4. Define a regular worker.
One who gets regular salary?

1. Why are fewer women found in regular salaried employment?

Hint: It is because women, both in rural and urban areas, are less mobile and thus, prefer to engage
themselves in self-employment.
2. State three reasons for higher percentage of female population engaged in primary sector.
Hint: Poverty in rural areas, they are unwilling to migrate and illiteracy.
3. Explain why self employment continues to be significant source of livelihood in India?
Hint: due to poor conditions of agriculture sector and industrial sector unable to provide jobs to growing
population.
4. “In India primary sector continues to provide employment to more than half of population”, work out
the causes behind it.
Hint: More than half of the population is engaged in primary sector due to lack of employment
opprtunites, illiteracy etc.

5. Write a short not on jobless growth in India.

Hint: Jobless growth is situation where output increase without increasing job opportunities.
6. Distinguish between formal workers and informal workers.
Hint: Formal sector workers are regular having job security was as in case of informal works security of
job is not there.
7. Write a short not on MNREGA.
Hint: Employment scheme for rural area that guarantees 100 days employment in year.
8. Elaborate the concepts of casualisation and informalisation of workforce.
Hint: Casualisation mean increase in number of casual workers in economy where as informalisation
mean increase in number of workers in informal sector

9. Suggest some measures to eradicate unemployment in India; those can supplement government ‘efforts
to remove unemployment.
Hint: Increase in production, vocational education , help in self employment Explain various
programmes started by government to eradicate unemployment in India.Hint: MNREGA , Pradhan
Mantri Kaushal Vikas Yojana , Pradhan Mantri Jan Dhan Yojana etc.

ENVIRONMENT AND SUSTAINABLE DEVELOPMENT

Very Short answer type questions

Q1. Define Environment 1

Ans-The total planetary inheritance and the totality of all resources. It includes biotic and
abiotic factors.
Q2. Explain global warming in brief 1

Ans-.Gradual increase in the average temperature of the earth’s lower atmosphere.

Q3. Define sustainable development. 1

Ans-That allow all future generation to have a potential average quality of life that is at least
as high as that which is enjoyed by the current generation.

Q4. Name the two environment issues facing world today. 1

Ans-Global Warming and Ozone Depletion.

Q5. Define biotic element of environment? 1

Ans-Living organism in the ecosystem,which are capable to reproduction.

Q6. Define absorptive capacity of environment. 1

Ans-Ability of the environment to absorb degradation.

Q7. What role does the CPCB play in maintaining the environment? 3

Ans-(i).CPCB set up in 1974

(ii).Investigate,collect and disseminate information relating to water ,air and land

pollution.

(iii).Boards provide technical assistance to government for sewage/ trade effluent and
emission.

Q8. Explain four functions of environment. 3

Ans-(i).Supply resources .

(ii).It assimilates waste.

(iii).It sustains our life.

(iv).It provides aesthetic services

Q9. According to Brundtland Commission, what is the emphasis on protecting the future 4
generation?

Ans-(i).We have a moral obligation to hand over the planet earth in good order to future
generation.

(ii).Present generation should bequeath a better environment.

(iii).We should leave a stock of quality of life assets no less than what we have inherited.

Q10. What are the factors responsible for land degradation? Explain any six factors? 6

Ans-Any six factors.

Q11. Explain any three strategies to maintain sustainable development. 2+2+2

Ans-(i).Use of non conventional sources of energy.

(ii).Traditional knowledge and practices.

(iii).Bio composting.

(iv).Biopest control.

Any three.

COMPARATIVE DEVELOPMENT EXPERIENCES OF INDIA AND ITS NEIGHBOURS

TOPIC-DEVELOPMENT PATH-A SNAPSHOP VIEW

Very Short answer type questions

Q1. What is the full form of SAARC? 1

Ans-South Asian Association for Regional Cooperation.

Q2. What is commune system? 1

Ans-People collectively cultivated land in China.

Q3. When Great Leap Forward (GLF) campaign was initiated? Ans-1958 1

Q4. Mention any one similarity in the economic policies of India and Pakistan. 1

Ans – Mixed Economy

Q6. What types of problems were GLF campaign met? 3

Ans-Severe drought,Russia had conflicts with China,

Q7. Differentiate between Great Leap Forward (GLF) campaign and Great Proletarian 3
Cultural Revolution.

Ans GLF-Efforts were made to industrialization in country .

GPCR-Students and professionals were sent to work in the countryside.

Q8. What types of reforms were introduced by China in 1978? 4

Ans-Reforms in agriculture, foreign sector and investment sector.

Q9. How the Pakistan had started its economic journey in late 1950s and 1960s? 4

Level 2

Ans-Introduced a variety of regulated policy framework-Tariff protection, Green

 Revolution, Increase in public investment,nationalization of capital goods industries etc.

Q10 Growth rate of population is highest in which country among India, Pakistan and China. 1

Ans-Pakistan

Q11 One Child Policy was adopted by China in which year. 1

Ans -1979

Q12 Which country was able to maintain double digit growth for more than two decades? 1

Ans- China

Q13 Explain the demographic indicators of China. 3

Ans-Population, annual growth rate of population, density, sex ratio, fertility rate,
urbanization.

Q14 Compare the demographic indicators of China, India and Pakistan. 6

Ans-Population, annual growth rate of population, density, sex ratio, fertility rate,
urbanization

Q15 What is liberty indicator? 1

Ans-Used to measure the participation of the people in taking decisions

Q16 India, China and Pakistan have many similarities in their development strategies. 4
Explain.

Ans-(i).All had started planning in a similar way.

(ii).India and Pakistan adopted same mixed economy strategy.

(iii).Till 1980s all countries had similar growth rates and per capita

income.

(iv).Reforms started In India in 1991,in China 1978 and in Pakistan 1988.

Q17 Comment on the growth rate trends witnessed in China and India in the last two 4
decades.

Ans-(i).Comparison between China GDP (PPP) and India GDP (PPP) .

(ii). Comparison between different sectors of China and India .