AHSEC| CLASS 12| ECONOMICS| SOLVED PAPER - 2022| H.S. 2ND YEAR
2022
ECONOMICS
Full Marks: 80
Pass Marks: 24
Time: Three hours
The figures in the margin indicate
full marks for the questions.
PART-A
1. (i) Define involuntary unemployment. 1
Ans:- Involuntary
unemployment occurs when a person is unemployed despite being willing to work
at the prevailing wage. This is distinguished from voluntary unemployment,
where a person refuses to work because their reservation wage is higher than
the prevailing wage.
(ii) What is
effective demand? 1
Ans:- In
economics, market effective demand (ED) is the demand for a product or service
that occurs when buyers are constrained in a different market. This is the
opposite of hypothetical demand, which is demand that occurs when buyers are
not limited to another market.
(iii) What do
you understand by depreciation of capital?
1
Ans:- In
economics, depreciation of capital refers to the gradual reduction in the
economic value of the capital stock of a firm, nation, or other entity, either
through physical depreciation, obsolescence, or changes in demand for the
services of the capital in question.
(iv) GNP =
GDP - NFIFA. (Fill in the blank) 1
(v) What is
foreign exchange market? 1
Ans:- The
foreign exchange market (foreign exchange, or FX, market), institutions for
exchanging one country's currency for another.
(vi) What of
the following transactions are included in the current account of Balance of
Payment? 1
(a) Import
and Export of goods
(b) Import
and Export of services
(c)
Unilateral transfer
(d) All of the above (Choose the correct option)
2. Write the differences between GDP at market price and
GDP at factor cost. 2
Ans:- Gross Domestic Product (GDPMp) at Market
Price: It is the gross market value of all final goods and service
production within the domestic territory of a country during a period of one
year.
Gross Domestic
Product (GDPFc) at Factor Cost: GDPFc is the gross
money value of all final goods and services produced within the domestic
territory of a country during a period of one year.
GDPFC=GDPMP-Net indirect taxes.
Or
Write one
similarity and one difference between intermediate goods and capital
goods. 1+1=2
Ans:- Those
goods which are used for further production or resale in the same year are
called intermediate goods. Intermediate goods are purchased by one production
unit from other production units. As. What wheat is bought for flour mill,
cotton is bought for spinning mill.
Capital goods
are those final goods, which help in the production of other goods and
services. Example machinery, equipment, plant etc.
3. What do you understand by ‘Paradox of Thrift’? 2
Ans:- The paradox of frugality has been popularized
by John Maynard Keaton. This concept states that if everyone tries to save as
much of their income as possible, they will become poorer rather than richer.
This is because due to lack of demand the economy will slow down and the same
people will lose their jobs. However, this theory mainly applies to Keynesian
economics where increased savings reflect a decreasing circular flow of income.
Or
What is
aggregate supply? Explain. 2
Ans:- Aggregate
supply means the total output of goods and services produced in an economy. Thus,
we can say that aggregate supply and national income are the same thing. A
large part of the national income is spent on consumption and the rest is
saved. So, national income is the sum total of consumption and saving in an
accounting year.
AS=C+S where
C=Consumption
S=Saving
4. Write two differences between direct tax and indirect
tax. 2
Ans:- Following are the four differences between direct
tax and indirect tax:
(i) Direct taxes
are levied on income and activities conducted. Whereas indirect tax is imposed
on products or services.
(ii) The burden
of direct tax cannot be shifted. At the same time, the burden of indirect tax
can be increased.
5. What are the components of high-powered money? 2
Ans:- Currency created by the central bank is known
as high-powered money. This includes currency held by the public and cash
reserved with banks.
Or
Define Bank
Rate and Cash Reserve Ratio. 1+1=2
Ans:- Cash
reserve ratio refers to the minimum percentage of time and demand deposits that
commercial banks are required to maintain with the central bank.
CRR or Cash
Reserve Ratio is the percentage of a bank's total deposits that it needs to
maintain in the form of liquid cash. It is a requirement of RBI, and the cash
reserve is with RBI. A bank does not earn interest on this liquid cash kept
with RBI, nor can it use it for investment and lending purposes.
6. Write two differences between Balance of Payment and
Balance of Trade. 2
Ans:- The difference between balance of trade and balance
of payments are:-
(i) Balance of
trade includes only exports and imports of visible goods, whereas balance of
payments includes both visible and invisible transactions. It also includes
unilateral transfers and capital transactions.
(ii) Trade
balance account is a part of the current account of balance of payments,
whereas balance of payments account considers both current and capital
accounts.
7. Write in brief the ideas of fixed exchange rate and
flexible exchange rate. 2
Ans:- (i) Fixed exchange rates are officially
declared by the government and remain fixed, while flexible exchange rates are
determined by the forces of demand and supply in the foreign exchange market.
(ii) Under fixed
exchange rates, central banks are ready to buy and sell their currencies at a
fixed price, whereas under flexible exchange rates, central banks change
exchange rates freely in the foreign exchange market without any intervention.
8. What is investment multiplier? If a new investment of
Rs. 300 crore increases National Income by Rs. 1200 crore, calculate the value
of investment multiplier. In this case, what will be the value of MPC? 1+1+2=4
Ans:- The concept of multiplier was introduced by
Professor J.M. Keynes has an important contribution. Keynes believed that an
initial increase in investment multiplies final income. The literal meaning of
multiplier is many. In an economy, when investment increases by a certain
amount, the resulting change in income is a multiple of the change in
investment.
Or
Briefly
discuss the components of aggregate demand.
4
Ans:- Aggregate
demand refers to the planned expenditure of households on the purchase of goods
and services in an accounting year. Components of Aggregate Demand (AD) =
C+I+G=(X-N)
Where C =
domestic consumption demand
I = private
investment demand
G = Demand for
government goods and services
(X-N) = Net
demand by foreigners.
9. Write differences between the following concepts: (any
two) 2+2=4
(i)
Autonomous investment and Induced investment.
Ans:- Investment
which is independent of income level is called autonomous investment.
The investment
which depends on the level of income is called induced investment.
(ii) Ex-ante
consumption and Ex-post consumption.
Ans:- Savings,
which are planned (intended) to be made by all the households in the economy at
the beginning of a period, are called planned or anticipated savings.
The investment
that is planned to be made by all the firms or entrepreneurs in the economy at
the beginning of a period is called. pre-pre-investment.
Output is at
its equilibrium point when aggregate quantity demanded = aggregate quantity
supplied.
Ex-post
savings refer to the actual savings in an economy during a year.
(iii)
Marginal propensity to consume and Marginal propensity to save.
Ans:- The
ratio of change in consumption to change in income is called marginal
propensity to consume. In other words.
It is the
ratio of change in savings to change in income
(iv) Marginal
propensity to consume and Average propensity to consume.
Ans:- (a)
Meaning: Average propensity to consume (APC) is the ratio between total
consumption and total income while marginal propensity to consume (MPC) is the
ratio between additional consumption and additional income.
(b) Zero:
APC can never be zero but MPC can be zero.
10. Discuss four main functions of Central Bank. 4
Ans:- The functions of the central bank can be discussed
as follows:
(a) Currency
regulatory or issuing banks: Central banks have the exclusive right to
create currency notes in an economy. All central banks around the world are
involved in issuing notes in the economy.
This is one of
the most important functions of the central bank in an economy and due to this
the central bank is also known as the bank of issue.
Earlier all
banks were allowed to publish their own notes which resulted in disorganization
of the economy. To avoid this situation, governments around the world
authorized central banks to act as currency issuers, resulting in uniformity in
circulation and a balanced supply of money in the economy.
(b) Bank for
the Government: An important function of the central bank is to act as a
bank for the government. The central bank accepts deposits and issues money to
the government. It is also involved in making and receiving payments for the
government. Central banks also give short-term loans to the government to tide
over the bad phase of the economy. In addition to being the bank of the
government, it acts as an advisor and agent to the government by providing
advice to the government in the areas of economic policy, capital markets,
money markets and borrowing from the government. In addition, the central bank
is instrumental in formulating monetary and fiscal policies that help regulate
money in the market and control inflation.
(c) Custodian
of Cash Reserves: It is the practice of the commercial banks of a country
to keep a part of their cash balances with the central bank in the form of
deposits. Commercial banks can withdraw that balance when the cash requirement
is high and pay back when the cash requirement is low. This is why the central
bank is considered the bankers' bank. The central bank also plays an important
role in the credit creation policy of commercial banks.
(d) Custodian
of International Currency: An important function of the central bank is to
maintain a minimum balance of foreign exchange. The purpose of maintaining such
a balance is to manage sudden or emergency requirements of foreign reserves and
to offset any adverse balance of payments deficit.
Or
Explain how
commercial banks create credit. 4
Ans:- A commercial bank is a creator of money in the economy as it creates demand deposits in the economy. Demand deposits are those deposits which can be withdrawn by the depositor at any time through check or otherwise. These deposits are payable on demand. No interest is paid on such deposits, rather the depositors have to make some payment to the bank for the services rendered to it. These deposits are made by businessmen to complete their daily transactions. The accounts in which these are deposited are called current accounts. There is no restriction on the amount of money that can be kept in these accounts. Moreover, any number of checks can be issued in a month.
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