AHSEC| CLASS 12| ECONOMICS| SOLVED PAPER - 2024| H.S. 2ND YEAR
2024
ECONOMICS
(For new course Students)
Full Marks: 80
(Part-A = 40 + Part-B = 40)
Pass Marks: 24
(For Old Course Students in lieu of
Project Works)
Full Marks: 100
(Part-A = 40 + Part-B = 40 + Part-C =
20)
Pass Marks: 30
Time: Three hours
[The who appeared till H.S. Final
Exam - 2023 have been treated as Old Course students]
The figures in the margin indicate
full marks for the questions.
PART-A
1. Answer any four of the following questions: 1x4=4
(i) What is intermediate good?
Ans:- Intermediate goods are products
that are used in the production of final goods or services. They are essential
components in the manufacturing process and are also called producer goods or
semi-finished goods.
(ii) If MPS = 1, what is the value of MPC?
Ans:- If the marginal propensity to save
(MPS) is equal to 1, then the marginal propensity to consume (MPC) can be
calculated using the following relation:
MPC+MPS=1
Given that
MPS=1:
MPC+1=1
To
find the MPC, we can rearrange the equation:
MPC=1−MPS=1−1=0
Thus,
when the MPS is 1, the value of the MPC is 0. This indicates that all the extra
income is saved, and none is consumed.
(iii) Primary Deficit = Fiscal Deficit - Interest
Payments. (Fill in the blank)
(iv) Which one of the following is not a quantitative credit control
measure of the central bank?
(a) Bank rate
(b) Open market operation
(c) Variable reserve ratio
(d) Direct control
(v) Write one merit of flexible exchange rate.
Ans:- An important feature of the
flexible exchange rate system is the automatic adjustment in the balance of
payments (BOP). This system allows currencies to fluctuate according to market
forces, which helps correct any imbalances. For example, if a country faces a
BOP deficit, the excess supply of its currency will cause its value to fall.
This depreciation makes exports cheaper and imports costlier, thereby increasing
exports and reducing imports, which ultimately helps restore balance in the
BOP. Conversely, in the case of a surplus, the price of the currency rises,
making exports more expensive and imports cheaper, again aiding the adjustment
process.
(vi) What is GDP deflator?
Ans:- The GDP deflator, also known as
the implicit price deflator, is a leading economic indicator that measures the
level of price changes in all new, domestically produced final goods and
services within an economy. It serves as a broad measure of inflation by
comparing nominal GDP (which reflects current prices) to real GDP (which
reflects constant prices adjusted for inflation).
2. Answer any five of the following
questions: 2x5=10
(i) Differentiate between capital expenditure and revenue
expenditure.
Ans:- Capital expenditures (capex) and
revenue expenditures (opex) are two fundamental categories of business
expenditures, each of which serves different purposes and has different
implications for financial reporting.
Capital expenditures (capex): This
refers to funds used by a business to acquire, upgrade or maintain long-term
assets that will provide benefits over several accounting periods. Capex is
usually associated with the purchase of physical assets such as property,
machinery or equipment. These expenditures are capitalized on the balance sheet
and depreciated over time, reflecting their long-term value to the business.
Revenue expenditures (opex): In
contrast, revenue expenditures are expenses incurred for the day-to-day
functioning of a business. These include expenditures such as salaries, rent,
utilities and raw materials. Revenue expenditures are fully expensed in the
period in which they are incurred and appear on the income statement, directly
affecting the company’s profit for that period.
(ii) What are the components of high-powered money?
Ans:- High-powered money, also known as the monetary base, consists
of two primary components:-
(i) Currency in circulation: This
includes all physical currency (notes and coins) that are actively used by the
public for transactions.
(ii) Bank reserves: These are the
reserves held by commercial banks at the central bank, including both required
reserves (the minimum amount to be held by banks) and excess reserves (any
excess reserves held above the required amount).
Thus, high-powered money can be summarized with the formula:-
H=C+R
Where H is high-powered money, C is currency in circulation, and R
denotes bank reserves.
(iii) What are the transactions that are included in the capital
account of balance of payments?
Ans:- The capital account of the balance
of payments includes various transactions that reflect changes in the ownership
of assets and liabilities between a country's residents and the rest of the
world.
The main components of the capital account are:-
(i) Capital transfers: These are
transactions where ownership of assets is transferred without any money being
exchanged in return. Examples include debt forgiveness and migration-related
transfers.
(ii) Acquisition/disposal of non-produced, non-financial assets: This includes transactions involving assets that are not produced,
such as patents, copyrights, trademarks, and land purchases.
(iii) Financial transactions: Although
often classified separately under the financial account, the capital account
may also include certain financial transactions, such as foreign direct
investment (FDI) and portfolio investment, which involves the purchase or sale
of financial assets such as stocks and bonds.
These transactions help track the net change in a country's assets
and liabilities in relation to foreign entities, providing insight into its
economic relationships globally.
(iv) Define personal Income and personal disposable Income.
Ans:- Personal income and personal
disposable income are key economic concepts that reflect the financial
resources available to individuals and households.
Personal income: Personal income refers
to the total income received by individuals or households from all sources. It
includes wages, salaries, bonuses, rental income, dividends, and any other
income before the deduction of taxes. Essentially, it includes all forms of
compensation and revenue that contribute to the financial resources of an
individual or household.
Personal disposable income: Personal
disposable income (DPI) is the amount of money that individuals or households
have available to spend or save after deducting taxes from their personal
income. It is calculated by subtracting personal current taxes from total
personal income. DPI is important because it indicates how much money is left
for consumption and savings after meeting tax obligations.
(v) As a result of increase in investment by Rs. 125 crores, national
income increases by 500 crores. Calculate the value of the multiplier.
Ans:-
(vi) Distinguish between stock and flow.
Ans:- Stock and flow are fundamental
concepts in economics that help distinguish between quantities measured at
specific points of time and quantities measured over periods.
Here is a description of their differences:-
Stock: A quantity measured at a specific
point in time. It refers to a constant amount that does not change
instantaneously. Examples include the total wealth of a country, the number of
cars in a parking lot, or the amount of money in a bank account.
Flow: A quantity measured over a period
of time. It is dynamic and reflects the change in quantity over that period.
Examples include income earned in a month, the number of cars produced in a
year, or the rate of inflation.
(vii) Write any two implications of revenue deficit.
Ans:- Revenue deficit occurs when a
government's total revenue expenditure exceeds its total revenue receipts,
indicating a shortfall in funds to cover regular expenses.
Here are two significant implications of a revenue deficit:-
(i) Increased Government Borrowing: To
bridge the gap created by a revenue deficit, governments often resort to
borrowing. This leads to an increase in the overall debt burden, which poses a
risk to fiscal stability and can create long-term financial challenges for the
government and the economy as a whole.
(ii) Impediment to Economic Growth: A
revenue deficit restricts the availability of funds for essential sectors such
as infrastructure, education, and healthcare. This lack of investment can
hinder economic development and progress, as critical areas may not receive the
necessary funding to operate effectively or expand.
3. Answer any two of the following
questions: 3x2=6
(i) Write any three limitations of barter system.
Ans:- The barter system, an early method
of trade, in which goods and services are directly exchanged for other goods
and services, has several notable limitations:-
Limitations of Barter System:-
(i) Lack of double coincidence of wants:
For barter to take place, both parties must have what the other wants. This
requirement makes successful transactions rare as it is unusual for two
individuals to desire each other's goods or services at the same time. This
limitation significantly impedes trade efficiency and can lead to lost
opportunities for both parties involved.
(ii) Lack of common measure of value: In
the barter system, there is no standardized unit of accounting for measuring
the value of different goods and services. As a result, determining how much of
one commodity should be exchanged for another becomes complex and arbitrary.
This often leads to disputes over the fairness of trade and can put one party
at a disadvantage if the value of the commodities is not assessed correctly.
(iii) Difficulty in storing value: Barter
transactions typically involve perishable goods or items that may not retain
their value over time. This makes it challenging for individuals to accumulate
wealth or save for future needs, as many goods can deteriorate or become
obsolete. As a result, individuals cannot easily accumulate resources for
future exchanges, limiting economic growth and stability.
These limitations explain why barter systems have largely been replaced
by monetary systems, which facilitate trade by providing a common medium of
exchange and a reliable measure of value.
(ii) What is balance of payments deficit? Write two causes of
balance of payments deficit.
Ans:- A balance of payments deficit
occurs when a country spends more on foreign trade than it earns, leading to a
situation where its total payments to the rest of the world exceed its total
receipts. This imbalance indicates that the nation is importing more goods,
services, and capital than it is exporting, necessitating borrowing or the use
of foreign exchange reserves to cover the shortfall.
Causes of Balance of Payments Deficit:-
(i) High Import Demand: A significant
cause of a balance of payments deficit is an increased demand for imports. This
can arise from various factors, such as a growing economy that requires more
raw materials and consumer goods from abroad, or a lack of domestic production
capacity to meet local needs.
(ii) Declining Exports: Another critical
factor is a decrease in exports, which can result from reduced global demand
for a country's goods or services, loss of competitiveness due to higher
production costs, or unfavorable exchange rates that make exports more
expensive for foreign buyers.
These factors can lead to persistent deficits if not addressed,
potentially impacting the country's economic stability and currency value.
(iii) Write a short note on:
Autonomous and Induced Investment.
Ans:- Autonomous and induced investment
are two fundamental concepts in economics that describe different types of
investment behaviour based on economic conditions.
Autonomous Investment:- Autonomous
investment refers to capital expenditure that occurs independently of the
current level of national income or economic activity. This type of investment
is motivated by factors such as technological progress, government policies and
long-term strategic goals rather than immediate economic conditions.
Characteristics:-
(i) Independence from economic conditions: Autonomous investments remain stable regardless of fluctuations in
income or output levels. For example, government spending on infrastructure
projects such as roads and bridges continues even during economic downturns.
(ii) Long-term focus: These investments
are often aimed at increasing productive capacity and addressing long-term
challenges such as climate change and energy security.
(iii) Financing sources: They can be
financed through the government budget, private sector funds or international
financial institutions.
Induced Investment: In contrast, induced
investment is directly affected by changes in economic conditions, particularly
variations in income and output levels. It increases when the economy is
performing well and decreases during recessions.
Characteristics:-
(i) Responsive to economic fluctuations:
Induced investments are more volatile and fluctuate with the business cycle.
For example, businesses may increase production capacity in response to high
consumer demand during economic booms.
(ii) Profit motive: This type of
investment is motivated primarily by profit expectations and short-term
economic opportunities.
(iii) Variability: Induced investments
can buck economic cycles, contributing to both growth during expansions and
contraction during recessions.
Summary:-
In short, autonomous investment is
characterized by its stability and independence from current economic
conditions, focusing on long-term goals. In contrast, induced investment is
flexible and responsive to economic fluctuations, reflecting immediate market
opportunities. Understanding these differences is important for policymakers
aiming to encourage economic growth and stability.
(iv) What is a government budget? What are the components of
government budget?
Ans:- A government budget is an annual
financial statement that outlines the government's anticipated revenues and
expenditures for a specific fiscal year. It serves as an important tool for
economic planning and policy implementation, allowing the government to
effectively allocate resources to meet its objectives, such as promoting
economic growth and social welfare.
Components of Government Budget:-
The government budget can be broadly divided into two main
components:-
(i) Revenue Budget: This component
details the government's expected revenue receipts and expenditures for the
fiscal year. It includes:-
(a) Revenue Receipts: Income generated
from taxes (such as income tax, GST) and non-tax sources (such as fees and
fines) that do not create liabilities for the government.
(b) Revenue Expenditure: Expenditures
incurred for the day-to-day functioning of the government, such as salaries,
subsidies, and operating costs, that do not result in asset creation.
(ii) Capital Budget: This component
accounts for the government's long-term investments and liabilities. It
includes:
(a) Capital receipts: Funds received by
the government that create liabilities or reduce financial assets, such as
loans from financial institutions or proceeds from asset sales.
(b) Capital expenditure: Expenditures
aimed at building long-term assets such as infrastructure projects (roads,
schools) and investments in public sector enterprises.
These two components collectively provide a broad overview of the
government's fiscal health and its planned economic activities for the coming
year.
4. Answer any two of the following:
6x2=12
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