ECONOMICS. Time Allowed: 3 hours Maximum Marks: 100

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1 Sample Paper (CBSE) Series ECO/SP/E Code No. SP/-E ECONOMICS Time Allowed: hours Maximum Marks: 00 General Instructions: (i) All Questions in both the sections are compulsory. However there is internal choice in some questions. (ii) Marks for Questions are indicated against each. (iii) Question Nos. - and 7-2 are very short-answer questions carrying mark each. They are required to be answered in one sentence each. (iv) Question Nos. 4-8 and 22-2 are short-answer questions carrying marks each. Answer to them should not normally exceed 0 words each. (v) Question Nos. 9-0 and are also short-answer questions carrying 4 marks each. Answer to them should not normally exceed 70 words each. (vi) Question Nos. -4 and 0-2 are long-answer questions carrying marks each. Answer to them should not normally exceed 00 words each. (vii) Answers should be brief and to the point and the above word limit be adhered to as for as possible. SECTION A Introductory Microeconomics. What will be the value of elasticity of demand if the demand curve is parallel to the y axis? 2. Under which market form price rigidity and interdependence of firms in decision making is found?. At what price higher or lower than the equilibrium price, there will be excess demand?

2 4. Given the PPC for rifles and automobiles. Suppose an improvement occurs in the production of rifles and not automobiles. Draw the new PPC. Now, assume that a technological advance occurs in both rifles and automobiles. Draw another PPC. 5. What are the three central problems of an economy? Why do they arise?. Explain the Law of DMU with the help of utility schedule. How will an increase in the demand of bread affect the demand for jam? Explain with diagram. 7. What is the relationship between AR and MR in perfect competition and monopoly? 8. Discuss the main features of monopolistic market. 9. Explain the relationship between marginal cost and average cost with the help of a diagram. 4

3 0. Explain the law of supply using diagrams. 4 Define producer s equilibrium. State its conditions. 4. Explain with the help of diagrams the effect of following on the supply of a good. a. A rise in the rate of excise duty b. An improvement in technology 2. When will simultaneous change in demand and supply not have any impact on the price of a commodity? Explain with diagram. Distinguish between perfect competition and oligopoly.. Given the market price of a good, how does a consumer decide how many units of that good to buy? Explain with numerical example. 4. Explain the law of demand. Describe the factors affecting demand. SECTION B Introductory Macroeconomics 5. Give the narrow definition of money?. Name two general utility services provided by commercial banks to society.

4 7. What is the value of MPC when MPS = 0? 8. What is inflationary gap? 9. Define fiscal deficit in a Government budget. 20. Explain the circular flow of income for four factors. 2. Does public debt impose a burden? Explain. 22. What are visible and invisible items in the Balance of Payments account? Give example of invisible account. 2. Complete the following table. Level of income Consumption Marginal Marginal (Rs.) Expenditure Propensity to Propensity to (Rs.) Consume Save Giving reasons, categorize in capital and revenue expenditure. a. Subsidies b. Grants given to state Governments c. Repayment of loans d. Construction of schools buildings What is the relationship between foreign exchange rate and demand for foreign exchange? 4

5 2. Find out (a) GNP at market price and (b) Net current transfers from abroad. (Rs. Crores) a. Net National disposable income 00 b. Net indirect tax 20 c. Private final consumption expenditure 750 d. Government final consumption expenditure 250 e. Net domestic fixed capital formation 200 f. Net imports -40 g. Net factor income to abroad -20 h. Depreciation 50 i. Change in stock Explain the steps involved in the estimation of national income using the value added approach. Discuss the precautions that need to be taken while using this method. Differentiate between a. GDPFC and NNPMP b. National Income and Net National Disposable Income 28. What is money multiplier? How will you determine its value? What ratios play an important role in the determination of the value of money multiplier? 29. With the help of an example, explain how an increase in investment in an economy affects its level of income.

6 ANSWERS Section A: Introductory Microeconomics. Zero 2. Oligopoly. When MP is lower than equilibrium 4. Increase on production of rifles only Increase in production of both rifles and automobiles

7 5. What to produce, how to produce, for whom to produce. Arise due to scarcity of resources.. Law of DMU states that as a consumer consumes more and more of a commodity, the marginal utility obtained from an additional unit of it goes on diminishing, other things remaining the same. 7. AR = MR in perfect competition and AR>MR in monopoly. 8. Monopolistic market a. Large number of buyers and sellers b. Product differentiation c. Freedom of entry and exit 9.

8 0. Law of supply states that there is a direct relation between the quantity supplied and the price of the commodity. Producer s equilibrium is the situation in which the producer is producing at a level where the profits are maximum. Conditions are: a. MR = MC b. MC must be rising at the point of equilibrium or MC must cut MR curve from below.. a. b.

9 2. Basis Perfect Competition Oligopoly Number of buyers large Few sellers, large buyers and seller Nature of product homogenous Homogenous or differentiated

10 Entry or exit of firms free Restricted Price Uniform Indetermined or rigid Demand curve Perfectly elastic Undefined Mobility Perfect mobility Imperfect Selling costs Not required Huge Knowledge of market conditions Perfect knowledge Imperfect knowledge. Consumer s equilibrium refers to situation where consumer gets maximum satisfaction. Condition for equilibrium is when MU = P. E.g. Units of oranges Marginal utility Price consumed Law of demand states that at a higher price consumer will buy less of a commodity, other factors being kept constant. Factors: a. Price of commodity b. Price of related goods c. Tastes and preferences of consumer d. Income 5. Narrow definition is based on medium of payment function. Money = cash + demand deposit. Bank lockers and traveler s cheques

11 7. 8. Measure of the amount of excess demand 9. Fiscal deficit = Total budget expenditure total budget receipts net of borrowings Yes. Because it a. Proves a burden if debt is for war or other unproductive purpose b. Hampers economic development of country c. Poses threat to political freedom d. Leads to unplanned spending e. Results in drain of national wealth 22. Visible items all commodities and merchandise which are exported and/or imported

12 Invisible items all services rendered to and from across border. E.g. transport services, insurance and banking services 2. MPC = ΔC/ΔI & MPS = -MPC Level of income (Rs.) Consumption Expenditure (Rs.) Marginal Propensity to Consume Marginal Propensity to Save /00 = /00 = a. Revenue expenditure as they don t lead to creation of any assets or reduction in liabilities b. Revenue expenditure as they don t lead to creation of any assets or reduction in liabilities c. Capital expenditure as it reduces liabilities d. Capital expenditure as it leads to creation of assets 25.

13 2. GNPMP = PFCE + GFCE + GDCF (-NDFCF + ΔS + CFC) Net imports NFIA = Rs. 20 crores 00 = Net current transfers from abroad Net current transfers from abroad = -70 crores 27. Value added method measures contribution of each producing unit. a. Identify all producing units and classify them into different sectors b. Estimate value of output (sales + ΔS) and deduct value of intermediate consumption, depreciation and net indirect taxes. c. Add NVA at FC of all industrial sectors to calculate NDP at FC d. Estimate net factor income from abroad. So, NI = NDP at FC + NFIA Precautions: a. Avoid double counting b. Count production for self consumption c. Don t include second hand goods a. NNPMP = GDPFC Depreciation + Net factor income from abroad + net indirect taxes b. Net National Disposable income = NNPFC (NI) + Net indirect taxes + net current transfers from abroad 28. Money multiplier is the ratio of stock of money to stock of high powered money in an economy. M = CU + DD = ( + cdr) DD Where M = money supply CU = money help by public in currency DD = deposits Cdr = currency deposit ratio

14 H = CU + R = cdr. DD + rdr. DD = (cdr + rdr) DD Where H = High powered money R = reserves of commercial banks rdr = reserves deposit ratio money multiplier = M/H 29. Working of a multiplier explains what will be the final change in income as a result of change in investment. Symbolically, ΔI->ΔY->ΔC->ΔY. Any numerical example can be given.