CBSE Class 12 Economics Question Paper 2024 (Set 2- 58/3/2) Available- Download Solution PDF with Answer Key

Solution:
An inflationary gap arises when Aggregate Demand (AD) exceeds Aggregate Supply (AS) at full employment level. This results in demand-pull inflation, where excess demand drives prices upward.

Key Characteristics of Inflationary Gap:
1. Occurs when actual AD surpasses the productive capacity of an economy.
2. Leads to rising prices and inflation due to excess demand.
3. Creates pressure on wages and resources, pushing costs higher.

Conclusion: An inflationary gap is a sign of an overheating economy, requiring contractionary fiscal and monetary policies to control inflation. Thus, option (A) is correct.

Solution:
Foreign exchange reserves increase when the Reserve Bank of India (RBI) purchases foreign currency, leading to an outflow of domestic currency. This transaction is recorded as a debit entry in the Balance of Payments (BoP) under the financial account.

Conclusion: Since an increase in forex reserves is a debit transaction in the BoP, option (D) is correct.

Solution:
1. Reserve Ratio and Credit Creation:
- A higher reserve ratio means banks have less money to lend, reducing credit creation.
- A lower reserve ratio allows banks to lend more, increasing credit creation. - Thus, they are inversely related.

2. Central Bank's Role in Credit Control:
- The Central Bank (RBI) controls credit creation by adjusting monetary policy tools like CRR (Cash Reserve Ratio), SLR (Statutory Liquidity Ratio), and repo rate.

Conclusion: Since both statements are true, option (C) is correct.

Solution:
To prevent a fall in Aggregate Demand, the government can implement expansionary fiscal policies, such as:
1. Decreasing tax rates:
- Lower taxes increase disposable income, encouraging higher consumption and investment, thereby increasing Aggregate Demand.
2. Increasing government spending:
- More public expenditure stimulates demand, creating jobs and boosting the economy.

Conclusion: Since reducing tax rates increases Aggregate Demand, option (D) is correct.

Solution:
This question relates to the credit creation process where:
1. Deposits in Round II = 1800 (from Loans of Round I)
2. Loans in Round II = 90% of Deposits in Round II = 1620
3. Total Deposits = Initial Deposit × Money Multiplier
- Money Multiplier = ¹⁄_{Reserve Ratio} = ¹⁄_0.10 = 10
- Total Deposits = 2000 × 10 = 20000
- Total Loans = Total Deposits - Reserves = 20000 – 2000 = 18000

Conclusion: Thus, the correct values are (i) 1800, (ii) 1620, (iii) 20000, (iv) 18000, making option (D) correct.

Solution:
- Statement 2 correctly matches with "Devaluation” because devaluation refers to the government's deliberate reduction of the currency's value against foreign currencies under a fixed exchange rate system.
- The other options do not correctly match, making option (B) correct.

Solution:
1. Statement 1 is true
- The straight-line consumption curve exists because the Marginal Propensity to Consume (MPC) remains constant, meaning AC/AY is unchanged.
2. Statement 2 is false
- The marginal rate of change between consumption and income is known as Marginal Propensity to Consume (MPC), not Average Propensity to Consume (APC).
- APC is calculated as C/Y, which measures the proportion of total income spent on consumption.

Conclusion: Since Statement 1 is correct but Statement 2 is incorrect, option (A) is correct.

Solution:
1. Assertion (A) is true:
- A nation's Balance of Trade (BoT) may be negative if visible imports exceed visible exports.
- However, the Current Account can still be in surplus if net invisible receipts (services, remittances, and transfers) exceed net visible receipts.
2. Reason (R) is also true and explains Assertion (A):
- Invisible receipts include earnings from tourism, IT services, remittances, and financial transfers, which may offset the deficit in visible trade.
- If these invisible receipts are high enough, the Current Account may remain in surplus despite a trade deficit.

Conclusion: Since both the assertion and reason are correct, and the reason explains the assertion, option (A) is correct.

Solution:
Voluntary unemployment occurs when individuals choose not to work at the prevailing wage rate, even though they are capable of working. This could be due to personal preferences, job dissatisfaction, or expectations of higher wages.
Full employment equilibrium refers to a state where all willing and able workers are employed, and only voluntary unemployment exists. Involuntary unemployment is absent at this stage, meaning anyone who wants a job at the prevailing wage rate can find one.

Conclusion: While both statements are true, the Reason (R) does not directly explain Assertion (A), hence option (B) is correct.

Solution:
Gross National Product (GNP) and Gross Domestic Product (GDP) are related, but their sum cannot be zero.
Key Difference:
GNP = GDP + Net Factor Income from Abroad (NFIA)
- If NFIA is positive, GNP will be greater than GDP. - If NFIA is negative, GNP will be less than GDP. - If NFIA is zero, GNP will be equal to GDP.
Thus, option (D) is incorrect, as the sum of GDP and GNP is not necessarily zero but depends on NFIA.

Solution:
The demand for foreign exchange in a nation is influenced by several economic factors. Two key factors are:
1. Imports of Goods and Services:
- When residents import foreign goods, they need to exchange domestic currency for foreign currency, increasing demand for foreign exchange.
2. Tourism and Foreign Travel:
- When individuals or businesses travel abroad, they require foreign currency for expenses, accommodation, and business activities, increasing demand for foreign exchange.

Conclusion: The demand for foreign exchange rises when international transactions require payments in foreign currency.

Solution:
1. Transfer Payments Exclusion:
- Transfer payments such as pensions, scholarships, and unemployment benefits should not be included in national income as they do not reflect productive activity.
2. Exclusion of Capital Gains:
- Gains from sale of assets like land, buildings, or shares should be excluded as they do not result from current economic production.
3. Avoiding Double Counting:
- Only final incomes earned by factors of production should be included, and intermediate transactions should be excluded to prevent inflated values.

Solution:

NI (NNP at FC) = GDP at MP - Depreciation - Net Indirect Taxes + Net Factor Income from Abroad

= (200 + 300 + 80 + (-20) + 20) - 15 - (60 - 15) + (-40)

= 580 - 15 - 45 - 40

= 480 crore

Solution:
The change in income is determined using the investment multiplier formula:
Multiplier(K) = ¹⁄_MPS
Step 1: Initial Multiplier Calculation Given: Initial MPS = 20% = 0.20
K₁ = ¹⁄_0.20 = 5
Step 2: New Multiplier Calculation (MPS Reduced by Half) New MPS = 10% = 0.10
K₂ = ¹⁄_0.10 = 10
Step 3: Change in Income Calculation Change in income (ΔY) due to additional investment:
ΔY₁ = K₁ × ΔI = 5 × 5000 = 25000
ΔY₂ = K₂ × ΔI = 10 × 5000 = 50000
Final Answer: The increase in income due to the reduction in MPS is:
ΔY = 50000 - 25000 = 25,000 crore

Solution:
Autonomous investment refers to investment that is independent of changes in income levels. It is primarily influenced by government policies, technological advancements, infrastructure development, and strategic economic decisions.
Examples:
- Investment in public infrastructure (roads, railways, power plants).
- Research and development investments.
- Defense and space-related investments.
Conclusion: Autonomous investment remains constant regardless of economic fluctuations and plays a key role in long-term economic stability.

Solution:
In a two-sector economy (comprising only households and firms), Aggregate Supply (AS) represents the total output produced in an economy. The two main components of Aggregate Supply (AS) are:
1. Consumption (C):
- Households spend a part of their income on consumption of goods and services.
- This is known as induced consumption, as it varies with the level of income.
- It is represented as:
C = C₀ + MPC × Y
where C₀ is autonomous consumption, and MPC is the Marginal Propensity to Consume.
2. Saving (S):
- The part of income that is not consumed is saved for future needs.
- Saving is an essential component of aggregate supply as it provides funds for investment in the economy.
- It is represented as:
S = Y - C
Conclusion: In a two-sector economy, aggregate supply (AS) is equal to national income (Y) and consists of Consumption (C) and Savings (S):
AS = C + S

Solution:
Open Market Operations (OMO) refer to the buying and selling of government securities (bonds, treasury bills, etc.) in the open market by the Reserve Bank of India (RBI) to regulate money supply and liquidity in the economy.
How Open Market Operations Help Regulate Money Supply:
1. When RBI Buys Government Securities (Expansionary Policy):
- RBI purchases securities from banks and the public.
- This injects money into the banking system, increasing liquidity and encouraging lending and investment.
- This is used to stimulate economic growth during a recession.
2. When RBI Sells Government Securities (Contractionary Policy):
- RBI sells government securities to banks and the public.
- This absorbs excess liquidity, reducing money supply and curbing inflationary pressures.
- This is used to control inflation in an overheated economy.
Conclusion: Open Market Operations (OMO) are an essential tool for controlling liquidity and stabilizing economic conditions in an economy.

Solution:
The Central Bank, such as the Reserve Bank of India (RBI), plays a crucial role in managing the financial system and regulating monetary policies. Two of its key functions are:
Banker's Bank:
- The Central Bank regulates and supervises commercial banks.
- It provides liquidity support by acting as a lender of last resort.
- It ensures banks maintain the required Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
Conclusion: The Central Bank ensures financial stability, supports the banking system, and provides critical policy advice to the government.

Solution:

Step 1: Calculate Primary Deficit

Primary Deficit = Fiscal Deficit – Interest Payments

Step 2: Calculate Fiscal Deficit

Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-Debt Capital Receipts)

Given Data: - Revenue Deficit = Rs. 110 crore - Interest Payments = Rs. 25 crore - Revenue Receipts = Rs. 100 crore - Non-Debt Capital Receipts = 40% of 100 crore = 40 crore - Capital Expenditure = Rs. 120 crore

Step 3: Compute Values - Fiscal Deficit = (Revenue Deficit + Capital Expenditure) - (Revenue Receipts + Non-Debt Capital Receipts)

= 110 + 120 - (100 + 40) = Rs. 90 crore

Primary Deficit = Fiscal Deficit - Interest Payments

= 90 - 25 = Rs. 65 crore

Final Answers: - Fiscal Deficit: Rs. 90 crore - Primary Deficit: Rs. 65 crore

Solution:
Private goods are rivalrous and excludable, meaning their consumption by one person reduces availability for others, and only paying consumers can access them.
Examples:
1. Automobiles: Cars, bikes, and other vehicles are privately owned and used by individuals.
2. Clothing: Apparel like shirts, shoes, and accessories are purchased for personal use and cannot be used simultaneously by others.

Solution:
Public Provision: - Goods and services provided by the government but produced either by private firms or public enterprises. - Example: Government-funded education, health services, and subsidies.
Public Production: - Goods and services both provided and produced by the government using public resources. - Example: Public sector undertakings (PSUs) like Indian Railways and BSNL.
Key Differences:

Solution:
The circular flow of income in a two-sector economy refers to the continuous movement of goods, services, and money between households and firms.
Key Components:
1. Households: Own the factors of production (land, labor, capital, and entrepreneurship) and provide them to firms.
2. Firms: Use these factors to produce goods and services, generating income in the form of wages, rent, interest, and profit.
Flow of Income:
- Households receive factor payments from firms and use their income to purchase goods and services.
- Firms receive revenue from sales, which they use to pay for factor inputs.
Conclusion: In a two-sector economy, the income generated by production is fully circulated between households and firms, ensuring a balanced economic system.

Solution:
Gross Domestic Product (GDP) measures the total monetary value of all final goods and services produced within a country during a given period.
Gross Value Added (GVA) refers to the value of output minus the value of intermediate consumption across all economic sectors.
Justification:
GDP = ΣGVA + Net Indirect Taxes
- If Net Indirect Taxes (Taxes - Subsidies) = 0, then GDP and sum of GVA are equal.
- GDP represents the total economy, while GVA measures the contribution of different sectors.
Conclusion: GDP and sum of GVA are equal only if Net Indirect Taxes are zero; otherwise, they differ by the tax component.

Solution:
Yes, GDP deflator is used to measure the effect of price changes on GDP by comparing Nominal GDP and Real GDP.
Formula:
GDP Deflator = ^{Nominal GDP}⁄_{Real GDP} × 100
Example:

Solution:
- Income from Property: Earnings from ownership of assets such as rent from land, interest on capital, and royalties. - Income from Entrepreneurship: Profits earned by business owners after paying all costs, including wages, rent, and interest.

Solution:
The main objectives of a regulated agricultural market include:
1. Ensuring fair prices for farmers.
2. Preventing exploitation by middlemen.
3. Promoting infrastructure development like storage and transportation.
Incorrect objectives:
- (i) is incorrect: Agricultural marketing aims to improve infrastructure, not discourage it.
- (iii) is incorrect: The focus is on encouraging farmers to enhance production quality, not discouraging it.
Conclusion: Since statements (i) and (iii) are incorrect, option (A) is the right answer.

Solution:
- Statement 1 is true: Land ceiling was introduced to limit the maximum land holdings by individuals to reduce inequality in land distribution.
- Statement 2 is true: Post-independence, Zamindari abolition was a major land reform policy that ended the feudal land ownership system.
Conclusion: Both statements are correct, making option (C) the correct answer.

Solution:
- Assertion (A) is false: GST was implemented on 1st July 2017, not 8th November 2016.
- Reason (R) is true: GST was introduced to replace multiple indirect taxes and create a unified tax system in India.
Conclusion: Since the date mentioned in Assertion (A) is incorrect but Reason (R) is valid, option (D) is the correct answer.

Solution:
- The G20 (Group of Twenty) is an international forum of 19 countries and the European Union that discusses global economic policies.
- Argentina, Australia, and Brazil are members of the G20.
- Bangladesh is not a G20 member.
Conclusion: Since Bangladesh is not part of the G20, option (D) is correct.

Solution:
- Crop diversification refers to growing different types of crops instead of focusing on a single specialized crop.
- This reduces the risk of crop failure and increases soil fertility.
Conclusion: Since the question refers to agriculture, the correct answer is option (C) crops.

Solution:
- The Human Development Index (HDI) is a measure of life expectancy, education, and standard of living.
- Life Expectancy at Birth, Adult Literacy Rate, and Maternal Mortality Rate are indicators of health and education, which are part of HDI.
- Unemployment is not directly included in HDI, though it affects economic conditions.
Conclusion: Since unemployment is not a direct HDI measure, option (D) is correct.

Solution:
- Statement 1 is true:
- Human development focuses on improving education and healthcare as they are fundamental to well-being and enhance quality of life.
- Statement 2 is true:
- Human capital views education and health as investments that increase productivity and economic output, treating individuals as resources for economic gains.
Conclusion: Both statements are correct, making option (C) the right choice.

Solution:
- Statement (A) is correct:
- Both Pakistan (6.3% to 5.3%) and China (10.3% to 6.8%) experienced a decline in GDP growth rates from 1980-90 to 2015-17.
- Statement (B) is correct:
- China achieved double-digit GDP growth (10.3%) in 1980-90, making this statement accurate.
- Statement (C) is correct:
- India's GDP increased from 5.7% to 7.3%, indicating moderate acceleration in 2015-17.
- Statement (D) is incorrect:
- Pakistan's growth rate (6.3%) was higher than India's (5.7%) in 1980-90, but in 2015-17, India's GDP (7.3%) surpassed Pakistan's (5.3%), making this statement false.

Solution:
1. Assertion (A) is true:
- During British rule, the agricultural sector dominated the Indian economy, providing employment to a majority of the population.
2. Reason (R) is also true:
- The British exploited Indian agriculture to procure raw materials (like cotton, jute, and indigo) for their industries in England.
3. Why Reason (R) is not the correct explanation for Assertion (A):
- While British policies did exploit Indian agriculture for their industries, this did not contribute to sectoral growth in India.
- Instead, it led to stagnation and commercialization of agriculture, harming Indian farmers.
Conclusion: Both Assertion (A) and Reason (R) are true, but Reason (R) does not fully explain Assertion (A), making option (B) correct.

Solution:
- Statement (i) is true: The Chinese government established communes in 1958 as part of the Great Leap Forward to promote collective farming.
- Statement (ii) is true: China introduced Special Economic Zones (SEZs) in 1980 to attract foreign investments.
- Statement (iii) is true: The introduction of better healthcare policies led to lower mortality rates in China.
Conclusion: Since all statements are true, awarding one mark to all candidates is justified.

Solution:
(ii) Elaborate the likely impacts of this source on the economic development of India.
1. Enhancement in Quality of Education:
- Training programs for teachers improve the quality of teaching, which enhances student learning outcomes and skill development.
2. Economic Growth and Productivity:
- Well-trained teachers produce a skilled workforce, leading to higher labor productivity and economic development.
Conclusion: Investment in teacher training is a crucial aspect of Human Capital Formation, which leads to long-term economic growth and skill enhancement.

Solution:
During 1950–1990, India's industrial sector was shaped by government intervention and planned economic policies.
Key Features:
1. Dominance of Public Sector:
- Industries were classified into public and private sectors, with major industries like steel, coal, and energy controlled by the government.
2. Industrial Licensing Policy:
- Industrial licensing (License Raj) required businesses to seek government approval for setting up or expanding industries, limiting private sector growth.
Conclusion: This period was characterized by state-led industrialization, focusing on self-reliance but leading to inefficiencies and slow growth.

Solution:
The World Trade Organisation (WTO) was established in 1995 to regulate and liberalize international trade.
Main Purposes:
1. Promotion of Free Trade:
- WTO aims to reduce trade barriers like tariffs and quotas, ensuring smooth international trade among member nations.
2. Dispute Resolution Mechanism:
- It provides a legal framework for resolving trade disputes between countries, ensuring fair and transparent global trade practices.
Conclusion: WTO plays a crucial role in global economic integration, fostering free and fair trade among nations.

Solution:
Identification of the Situation:
- The image likely depicts situation of employment in the formal sector.
Possible Economic Impacts:
1. In the formal sector, workers can form trade unions and are entitled to fair wages and other social security measures. Whereas, workers in the informal sector do not get regular income.
2. Also, they do not have any protection or regulation from the government. Many a time, workers may be dismissed without any compensation.
3.Hence, formal sector employees are generally in a better position as compared to informal sector employees. Therefore, it is essential to generate employment in the formal sector rather than the informal sector.
Conclusion: The depicted situation in the image plays a critical role in shaping India's economic stability. Government interventions such as policy reforms, financial support, and sustainable development measures are necessary to mitigate the negative effects.

Solution:
1. Agriculture Sector:
- India and Pakistan have a high workforce dependency on agriculture (43% and 41% respectively) but contribute only 16% and 24% to GVA.
- China has low employment in agriculture (26%) but an even lower GVA contribution (7%), showing greater productivity in industry and services.
2. Industry Sector:
- China's industrial sector contributes 41% to GVA with 28% workforce participation, showing high industrial productivity.
- India's industrial sector contributes 30% GVA with 25% workforce, while Pakistan lags behind (19% GVA with 24% workforce).
3. Services Sector:
- The service sector is the highest contributor to GVA in all three nations:
- India: 54%, China: 52%, and Pakistan: 57%.
- China employs 46% in services, showing a strong transition from agriculture to services.
- India's workforce in services (32%) is lower than its GVA share (54%), indicating potential for growth.
Conclusion:
- China leads in industrial productivity, while India and Pakistan still rely on agriculture for employment but have a low GVA contribution.
- India's service sector dominates its economy, but there is a need for more industrial growth to enhance employment.

Definition: The worker-population ratio (WPR) is the percentage of the working population in relation to the total population of a country.

WPR = ^{Total Workers}⁄_{Total Population} × 100

Usefulness:

- It helps in analyzing the employment scenario in a country.

- A high WPR indicates better labor force participation, while a low WPR may suggest unemployment or economic dependence.

- Policymakers use it to design employment generation programs and measure economic development.

Definition:
Disguised unemployment refers to a situation where more people are engaged in work than required, leading to zero marginal productivity.

Example:
- In agriculture, if a farm requires four workers but employs six, the extra two workers are disguisedly unemployed, meaning their removal wouldn't affect total output.

Implications:
- Reduces per capita productivity and economic efficiency.
- Hinders economic growth as excess labor is not utilized effectively.

- Common in developing economies, especially in rural and agricultural sectors.

Solution:
True. The Pradhan Mantri Jan-Dhan Yojana (PMJDY) was launched to provide financial inclusion for all sections of society.
Justification:
- It enables banking access for unbanked individuals, promoting savings and credit availability.
- Helps in direct benefit transfers (DBT), ensuring efficient and transparent allocation of resources.
Conclusion: By integrating underprivileged sections into the formal banking system, the scheme enhances financial inclusion and resource allocation.

Solution:
True. Cooperative credit institutions play a key role in providing affordable financial assistance to farmers and rural households.
Justification:
- Primary Agricultural Credit Societies (PACS) and Cooperative Banks provide low-interest loans to farmers.
- They help in reducing dependence on informal moneylenders, ensuring fair lending practices in rural areas.
Conclusion: Cooperatives improve credit accessibility for rural populations, supporting agriculture and rural development.

Solution:
Arguments in favour of farm subsidies:
1. Support for Small Farmers:
- Farm subsidies help small and marginal farmers afford agricultural inputs like seeds, fertilizers, and irrigation.
2. Ensures Food Security:
- Subsidies encourage higher agricultural production, ensuring an adequate supply of food grains at stable prices.
Arguments against farm subsidies:
1. Encourages Overuse of Resources:
- Excessive subsidies can lead to inefficient resource utilization, causing problems like groundwater depletion.
2. Fiscal Burden on Government:
- A large portion of the budget is spent on subsidies, increasing fiscal deficit and reducing funds for infrastructure and social welfare.

Solution:
- The Suez Canal was a crucial trade route for British colonial rule, allowing direct and faster access between India and Britain.
- Opened in 1869, it significantly reduced the time and cost of transporting goods and raw materials, strengthening British control over Indian trade.
- It facilitated the export of raw materials from India (cotton, spices, and tea) and the import of British manufactured goods, deepening India's economic dependence on Britain.
Conclusion: The Suez Canal enhanced British colonial trade, ensuring their economic dominance over Indian markets.

Solution:
Yes, India's inward-looking trade policy aimed at self-reliance and protection of domestic industries through import restrictions.
Justification:
1. Use of Tariff Barriers:
- High import duties and quotas were imposed to discourage foreign goods, boosting local industries.
2. Non-Tariff Restrictions:
- Licensing, government control over foreign exchange, and restrictions on foreign investments ensured that domestic industries thrived without competition.
Conclusion: Though this policy helped domestic industry grow, it also led to inefficiencies and lack of competitiveness in global markets.

Solution:
- The Navratna Policy was introduced to give operational freedom to high-performing Public Sector Undertakings (PSUs), enabling them to compete globally.
- It allowed financial and managerial autonomy, helping PSUs expand, invest in R and D, and enter joint ventures without government interference.
- Additionally, it facilitated disinvestment, allowing private investment in PSUs while ensuring the government retained strategic control.
Conclusion: The Navratna Policy enhanced efficiency and competitiveness of major PSUs, contributing to economic growth.

Solution:
- Green Growth: Refers to economic development that ensures environmental sustainability, promoting clean energy, resource efficiency, and reducing pollution.
- Net Zero Emissions: A state where the amount of greenhouse gases emitted is equal to the amount removed, achieved through carbon reduction and offsetting measures.

Solution:
- Green growth focuses on reducing dependence on fossil fuels and adopting renewable energy sources.
- It promotes energy efficiency and sustainable industrial practices, helping achieve net zero emissions.
- Policies supporting green technology, carbon pricing, and afforestation contribute to both economic growth and climate action.

Solution:
- Renewable Energy Transition:
- Shifting from coal and oil to solar, wind, and hydropower reduces carbon emissions.
- Encouraging investment in green energy projects accelerates sustainability efforts.