CBSE Class 12 Economics Question Paper 2024 (Set 2- 58/4/2) Available- Download Solution PDF with Answer Key

Solution:
- Money supply is measured at a point in time and does not include the money held by the government or exclusively held by the central bank.
- Money supply includes all money in circulation in the economy, not just with the central bank.
Conclusion: All three statements are incorrect because money supply is defined based on the circulating money in the economy and not just the central bank's reserves.

Solution:
- Assertion (A) is true: Real GDP adjusts for inflation, making it a better indicator of true economic growth compared to nominal GDP, which is affected by price changes.
- Reason (R) is false: Real GDP is calculated using constant prices, not current year prices. Nominal GDP uses current year prices, which include inflation effects.
Conclusion: Real GDP is a better measure of economic growth because it is inflation-adjusted, while Reason (R) incorrectly defines Real GDP.

Solution:
- APS becomes zero when savings are zero.
- At income = Rs.100 crore, consumption = Rs.100 crore. Since savings = income - consumption, savings = 100 - 100 = 0.
Conclusion: APS = 0 at an income of Rs.100 crore.

Solution:
- Statement 1 is true: Consumption and savings are indeed the components of national output. They represent how the income of an economy is either spent (consumed) or saved, both of which are part of the overall aggregate demand in the economy.
- Statement 2 is false: Higher levels of income typically lead to higher savings, not lower. As income rises, people often save a greater proportion of their income, although the marginal propensity to save (MPS) might vary across income levels.
Conclusion: Consumption and savings are important components of national output, and higher income usually leads to higher savings, not lower.

Solution: In the case of an inflationary gap, the government needs to reduce the aggregate demand to bring the economy back to full employment. The correct sequence of steps is:
1. Increase in Taxes (ii): The government raises taxes, which reduces disposable income and consumption expenditure.
2. Decrease in Disposable Income (i): As taxes increase, people have less disposable income to spend, thus curbing their consumption.
3. Decrease in Aggregate Demand (iii): The reduction in disposable income leads to a decrease in consumption, which subsequently lowers aggregate demand, helping to control inflation.
Conclusion: The proper sequence to reduce an inflationary gap involves first increasing taxes, then decreasing disposable income, followed by a decrease in aggregate demand.

Solution:
- Devaluation makes exports cheaper and imports costlier, leading to an increase in net exports, which contributes to National Income.
- However, Reason (R) only defines devaluation and does not directly explain how it impacts National Income.
Conclusion: Since both statements are true but Reason (R) does not directly explain Assertion (A), option (B) is correct.

Solution:
- Bank Rate refers to the rate at which the central bank lends money to commercial banks.
- When the central bank increases the bank rate, borrowing becomes expensive, reducing the money supply in the economy.
Conclusion: A higher bank rate discourages borrowing, reducing liquidity, which helps control inflation.

Solution:
- Demand for foreign exchange arises when India makes payments abroad (imports, remittances, foreign travel).
- Loans from ROW are an inflow, increasing the foreign exchange supply, not demand.
Conclusion: Since foreign loans bring money into the economy rather than increasing demand for foreign currency, option (D) is correct.

Solution:
- MPC remains constant because it is the slope of the consumption function.
- APC falls as income increases since fixed autonomous consumption makes a smaller proportion of income at higher levels.
Conclusion: Since the MPC is constant and the APC falls with rising income, option (D) is correct.

Solution:
- In a Managed Floating Exchange Rate System, exchange rates fluctuate based on market forces, but the central bank intervenes to stabilize extreme fluctuations.
- This differs from a Fixed Exchange Rate System, where the currency value is strictly controlled.
Conclusion: Since the central bank manages fluctuations within a range in a managed floating system, option (C) is correct.

Solution:
1. Autonomous Items: These are economic transactions in the Balance of Payments (BoP) that are driven by economic motives such as trade and investment. They occur due to private sector decisions and are independent of a nation's foreign exchange reserves.
- Example: Foreign Direct Investment (FDI) in India by a multinational corporation.
2. Accommodating Items: These transactions are undertaken by the government or central bank to balance the BoP when there is a deficit or surplus. They ensure equilibrium in international transactions.
- Example: Borrowing from the International Monetary Fund (IMF) to cover a BoP deficit.
Conclusion: Autonomous items occur naturally through economic activities, while accommodating items are introduced to correct imbalances in the BoP.

Solution:
The given statement is refuted. Disposition phase of circular flow of income indicates the flow of spending by the households on purchase of goods and services produced by firms. Whereas, the aforesaid statement depicts the distribution phase which involves the flow of factor incomes, which comprises of rent, wages, interest and profits from firms to households.
Conclusion: Since the disposition phase deals with how national income is utilized by households after being received as factor payments, the statement is valid and well-supported by economic theory.

Solution:
- A decrease in the Bank Rate reduces the cost of borrowing for commercial banks, encouraging them to lend more to businesses and consumers. - Increased credit availability leads to higher investment and consumption spending, boosting Aggregate Demand in the economy. - This rise in demand helps in correcting deflationary pressures, bringing the economy back to stability.
Conclusion: Lowering the Bank Rate makes borrowing cheaper, increasing liquidity, investment, and consumer spending, thus combating deflation.

Solution: Yes, The government budget objective of 'Redistribution of Income' aims to bring about equality in the distribution of income. Government can reduce inequalities of income through taxes and public expenditure. It may impose high taxes on the rich to reduce their disposable income.
1. Progressive Taxation:
- Higher taxes on the wealthy and lower taxes on the poor help in redistributing wealth.
2. Welfare Expenditure:
- Government spends on subsidies, education, healthcare, and social security, benefiting lower-income groups.
3. Public Employment Programs:
- Schemes like MGNREGA create jobs and income opportunities, reducing economic disparity.
Conclusion: The government budget serves as a powerful tool to promote economic equity by using taxation and welfare policies.

Solution:
Meaning:
The primary deficit refers to the difference between the fiscal deficit and interest payments on previous borrowings. It reflects the government's borrowing requirements to meet its current expenditures, excluding the interest burden.
Formula:
Primary Deficit = Fiscal Deficit – Interest Payments
Explanation:
- A positive primary deficit indicates that the government is borrowing not only to pay interest but also to cover part of its current expenditure. - A negative primary deficit (primary surplus) suggests that the government is generating enough revenue to meet current expenses, excluding interest payments.

Solution:
Classification:
1. Dividend from a Maharatna company - Revenue Receipt
- It is a regular income for the government and does not create any liability or reduce assets.
2. Sale of PSU shares - Capital Receipt
- It reduces the government's ownership in PSU assets and is a non-recurring receipt.
3. Debt repayment by Sri Lanka - Capital Receipt
- Repayment of debt results in a change in financial assets of the government.

Solution:
The Value Added Method (or Product Method) is used to estimate National Income by summing up the value added by different sectors of the economy. The key steps are:
1. Identifying Production Units:
- The economy is divided into Primary (agriculture), Secondary (manufacturing), and Tertiary (services) sectors.
2. Calculating Gross Value Added (GVA):
- Value Added = Value of Output - Value of Intermediate Consumption
3. Summing Up GVA Across Sectors:
- The GVA of all sectors is summed to obtain Gross Domestic Product at Market Price (GDP_MP).
4. Adjusting for Net Indirect Taxes (NIT):
- GDP at Factor Cost = GDP_MP - Net Indirect Taxes (NIT)
5. Adding Net Factor Income from Abroad (NFIA):
- Net National Product at Factor Cost (NNP_FC) = GDP at Factor Cost + NFIA
Conclusion: By following these steps, we ensure accurate estimation of National Income, eliminating double counting and considering only final value addition.

Solution:
Positive externalities refer to the spillover benefits that arise from investments, particularly in infrastructure. The rapid development of infrastructure in India has significantly contributed to economic growth in the following ways:
1. Enhanced Productivity and Efficiency:
- Improved transportation networks (roads, railways, and airports) have reduced logistics costs, increasing industrial efficiency.
2. Attracting Foreign Investment:
- Better infrastructure fosters a favorable business environment, attracting both domestic and foreign investments.
3. Employment Generation:
- Infrastructure projects like highways, metro systems, and smart cities have created millions of jobs, boosting income levels.
4. Expansion of Markets:
- Rural infrastructure development, including electrification and internet connectivity, has facilitated rural-urban trade and digital economy expansion.
Conclusion: Infrastructure development creates long-term economic benefits, leading to higher productivity, investment, employment, and economic expansion.

Solution:
- The Agricultural Marketing System includes activities that focus on the post-production process.
- Incorrect combination (B): Production refers to the primary agricultural activity, which is not part of the marketing system. The marketing system starts after production.
- Correct components: Assembling, storage, processing, packaging, and distribution are part of the agricultural marketing system.
Conclusion: Option (B) is incorrect as it includes Production, which is not part of the Agricultural Marketing System.

Solution:
- Assertion (A) is true: License Permit Raj, introduced by the government, severely restricted the growth of the private sector by imposing bureaucratic controls.
- Reason (R) is true: Private firms had to spend significant time and resources obtaining licenses instead of focusing on improving product quality or enhancing international competitiveness.
Conclusion: Reason (R) directly explains why the License Permit Raj hindered the growth of the private sector, making option (A) the correct choice.

Solution:
- Assertion (A) is true: India and Pakistan, despite their differences, have had many similar developmental experiences post-independence, including challenges of poverty, economic inequality, and reliance on agriculture.
- Reason (R) is false: While both countries did promote industrialization, Pakistan focused more on state-led industrialization and emphasized the public sector, whereas India focused more on the public sector and did not prioritize creating a large private sector.
Conclusion: While both nations have had similar developmental experiences, Pakistan's focus on the private sector is incorrect in this context, making Reason (R) false.

Solution:
- Organic farming is a method of farming that focuses on sustainable practices, avoids synthetic chemicals, and restores and maintains ecological balance by promoting biodiversity and soil health.
- It is an environmentally friendly approach that enhances the sustainability of agricultural production.
Conclusion: Organic farming helps maintain ecological balance by avoiding chemical inputs and focusing on sustainable agricultural practices.

Solution:
- India introduced major economic reforms in 1991 under the leadership of Prime Minister P.V. Narasimha Rao and Finance Minister Dr. Manmohan Singh.
- Pakistan began its economic reforms in 1988, focusing on liberalization and privatization under Prime Minister Benazir Bhutto.
Conclusion: India's major economic reforms were introduced in 1991, while Pakistan's were initiated in 1988.

Solution:
(a) Impact on the Agriculture Sector:
- Adverse Effects: The economic reforms in India, particularly in the 1990s, led to a reduction in public investment in agriculture. Government focus shifted towards liberalization and privatization, leaving the agriculture sector underfunded. - Cost of Production: The partial removal of subsidies, such as those on fertilizers, led to an increase in input costs,

Solution:
Son Preference and Skewed Sex Ratio:
- Cultural and Socio-Economic Factors: In India, Pakistan, and China, son preference has been historically ingrained due to traditional beliefs and socio-economic factors. Sons are often considered the breadwinners who will continue the family name, support parents in old age, and inherit family wealth.
- Skewed Sex Ratio: This preference for sons has contributed to a distorted sex ratio, where the number of males significantly outweighs the number of females. In India, the sex ratio has been biased against females with higher female mortality, lower female births, and female feticide practices.
- Similar Patterns in Pakistan and China: The gender imbalance is also observed in Pakistan and China, where the preference for male children is evident in both birth ratios and social expectations.
Conclusion: The skewed sex ratio in India, Pakistan, and China is a direct consequence of cultural son preference, which has resulted in the marginalization and disempowerment of females in these countries.

Solution:
Liberty Indicators:
1. Extent of Constitutional Protection of Rights: The protection of citizens' rights through the Constitution is a significant indicator of liberty. For instance, the Bill of Rights in many constitutions ensures that individuals' freedom of speech, expression, and privacy are safeguarded.
2. Protection of Judicial Independence and Rule of Law: The independence of the judiciary ensures that there is no government interference in legal matters, allowing citizens to enjoy fair trials and the rule of law. A robust legal system ensures individual liberties are not violated by the state.
Conclusion: The liberty indicators reflect how well the state's constitutional provisions and legal systems protect individual freedoms and rights.

Solution:
- Importance of Collective Fight in Achieving SDGs:
The Sustainable Development Goals (SDGs), set by the United Nations, are global in nature and require collective action from all countries, sectors, and individuals. Achieving these goals requires a concerted effort as global challenges, such as climate change, poverty, inequality, and health crises, transcend national boundaries.
- Global Collaboration: Countries, regardless of their size or wealth, must work together, pooling resources and sharing knowledge, technology, and best practices to tackle global problems like climate change and pandemics.
- Inclusivity: Collective action ensures that no one is left behind, as it involves collaboration across sectors, governments, organizations, and individuals. This inclusivity is vital in addressing inequality and ensuring that the benefits of development reach the most vulnerable populations.
- Shared Responsibility: The SDGs demand that all nations recognize their shared responsibility for the global environment and prosperity. By uniting efforts, we can make significant progress towards common goals, from reducing carbon emissions to ensuring access to quality education.

Solution:
- The 'One Health' Approach:
The One Health approach is an integrated approach to human health, animal health, and the environment, emphasizing the interconnection between these three domains. This approach is critical in tackling health issues that span across species, such as zoonotic diseases, antimicrobial resistance, and environmental health threats.
- G-20 Action Plan for One Health: The G-20 leaders have acknowledged the importance of a holistic approach to global health through the One Health approach. Their action plan includes several key initiatives:
- Strengthening Global Health Systems: The G-20 aims to enhance health surveillance and data sharing between countries to better detect and respond to emerging infectious diseases.
- Addressing Zoonotic Diseases: The G-20 action plan calls for better coordination between animal health authorities and public health sectors to monitor and mitigate risks from diseases that cross over from animals to humans.
- One Health Financing: The plan also includes commitments to increase funding for One Health programs, supporting the infrastructure, research, and interventions needed for effective implementation globally.

Solution:
Credit plays a crucial role in rural development by facilitating investments in agriculture, small-scale industries, and other rural activities.
Importance of Credit in Rural Development:
1. Agricultural Investment: - Farmers require credit to purchase seeds, fertilizers, machinery, and other essential inputs. - It helps in adopting modern farming techniques and improving agricultural productivity.
2. Promotion of Rural Enterprises: - Credit allows the establishment and expansion of small-scale rural businesses, generating employment opportunities.
3. Mitigating Income Fluctuations: - Rural households often face irregular income flows. Credit provides a buffer to meet consumption needs and emergencies.

Solution:
Justification:
1. Enhanced Access to Knowledge: - Information technology enables widespread dissemination of information, facilitating access to educational resources, research, and innovation. - Digital platforms support online learning and skill development programs.
2. Boost to Innovation and Start-ups: - IT supports the development of start-ups by providing tools for innovation and global market reach. - Technology-driven solutions can revolutionize sectors like healthcare, education, and agriculture.

Solution:
Justification:
1. Income Security and Benefits: - The formal sector offers job security, regular wages, and benefits like healthcare and pensions. - It ensures better working conditions compared to the informal sector.
2. Economic Stability and Tax Revenue: - Formal sector jobs contribute to government revenue through taxation, supporting public welfare programs. - It leads to a more stable and inclusive economy.

Solution:
Two Measures to Improve Agricultural Marketing:
1. Electronic National Agriculture Market (e-NAM): - e-NAM is an online trading platform that connects various agricultural markets across the country. - It facilitates better price discovery and eliminates middlemen.
2. Grading and Standardization: - The government has encouraged grading and standardization of agricultural produce to ensure better pricing and marketability. - This helps farmers get fair prices for high-quality produce.