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 Bihar Board 12th Economics Model Question Paper 5 in English Medium

Bihar Board 12th Economics Model Question Paper 5 in English Medium

Time : 3 Hour. 15 Min
Full Marks : 100

Instructions

1. Candidates are required to give their answers in their own words as far as practicable.
2. Figures in the right hand margin indicate full marks.
3. 15 minutes of extra time has been allotted for the candidate to read the questions carefully.
4. This question paper has two sections : Section-A and Section-B.
5. In Section-A, there are 50 objective type questions which are compulsory, each carrying 1 mark. Darken the circle with black/blue ball pen against the correct option on OMR Sheet provided to you Do. not use Whitener/Liquid/Blade/Nail on OMR Sheet, otherwise the result will be treated as invalid.
6. In Section-B, there are Non-objective type questions. There are 25 Short answer type questions, out of which any 15 questions are to be answered. Each question carries 2 marks. Apart froms this, there are 08 Long answer type questions, out-of which any 04 of them are to be answered. Each questions carries 5 marks.
7. Use of any electronic device is prohibited.

Objective Type Questions

Question No. -1 to 50 have four options provided, out of which only one is correct. You have to mark, your selected option, on the OMR-Sheet. Each questiion carries 1 (one) mark. [50 x 1 = 50]

Question 1.
Which is a central problem of an economy ?
(a) Allocation of Resources
(b) Optimum utilization of Resources
(c) Economic development
(d) All of these
Answer:
(d) All of these

Question 2.
Which of the following is a source of production ?
(a) Land
(b) Labour
(c) Capital
(d) All of these
Answer:
(d) All of these

Question 3.
According to whom, Economics is a science of human welfare ?
(a) A. Marshall
(b) Paul Samuelson
(c) J.S.Mill
(d) Adam Smith.
Answer:
(a) A. Marshall

Question 4.
Which of the following is not a factor of production ?
(a) Land
(b) Labour
(c) Money
(d) Capital
Answer:
(c) Money

Question 5.
The word ‘micro’ was first used by __________
(a) Marshall
(b) Boulding
(c) keynes
(d) Ragnar Frisch
Answer:
(d) Ragnar Frisch

Question 6.
Consumer’s behaviour is studied in __________
(a) Micro-economics
(b) Income theory
(c) Macro-economics
(d) None of these
Answer:
(a) Micro-economics

Question 7.
Elasticity of demand for necessary goods is __________
(a) zero
(b) unlimited
(c) greater than unity
(d) less than unity
Answer:
(a) zero

Question 8.
Which of the following factors affects elasticity of demand ?
(a) Nature of goods
(b) Price level
(c) Income level
(d) All of these
Answer:
(d) All of these

Question 9.
Law of demand is a __________
(a) Qualitative statement
(b) Quantitative statement
(c) Both (a) and (b)
(d) None of these
Answer:
(c) Both (a) and (b)

Question 10.
In production function, production is a function of __________
(a) price
(b) factors of production
(c) total expenditure
(d) None of these
Answer:
(b) factors of production

Question 11.
At which time all the factors of production may be changed ?
(a) Short run
(b) Long run
(c) Very long run
(d) All of these
Answer:
(a) Short run

Question 12.
Average variable costs can be defined as __________
(a) TVC x Q
(b) TVC + Q
(c) TVC – Q
(d) TVC -r Q
Answer:
(d) TVC -r Q

Question 13.
For a firm’s equlibrium __________
(a) MR = MC
(b) MR > MC
(c) MR < MC
(d) MR = MC = 0
Answer:
(a) MR = MC

Question 14.
Supply is associated with __________
(a) a time period
(b) price
(c) both (a) and (b)
(d) none of these
Answer:
(c) both (a) and (b)

Question 15.
Determining factor of supply of goods is __________
(a) Price of goods
(b) Price of related goods
(c) Price of factors of production
(d) All of these
Answer:
(d) All of these

Question 16.
Which is a characteristic of the market ?
(a) One area
(b) Presence of Buyers and” Sellers
(c) Single price of the commodity
(d) All of these
Answer:
(d) All of these

Question 17.
Which one is a feature of monoplistic competition ?
(a) Differentiated product
(b) Selling cost
(c) Imperfect knowledge of the market
(d) All of these
Answer:
(d) All of these

Question 18.
Which is a reason of change in demand ?
(a) Change in Consumer’s Income
(b) Change in price of related goods
(c) Population increase
(d) All of these
Answer:
(d) All of these

Question 19.
Net National Income at factor cost is called __________
(a) National Income
(b) Gross Investment
(c) Income
(d) None of these
Answer:
(a) National Income

Question 20.
Depreciation expenses are included in __________
(a) GNPMP
(b) NNPMP
(c) NNPpc
(d) none of these
Answer:
(a) GNPMP

Question 21.
Which one is included in three sector model ?
(a) Family
(b) Goverment
(c) Firm
(d) None of these
Answer:
(b) Goverment

Question 22.
Which service is included in Tertiary sector ?
(a) Mining
(b) Construction
(c) Communication
(d) Animal Husbandry.
Answer:
(d) Animal Husbandry.

Question 23.
Which method is adopted in measuring National Income ?
(a) Production method
(b) Income method
(c) Expenditure method
(d) All of these
Answer:
(d) All of these

Question 24.
“Money is what money does”- Who said it ?
(a) Hawtrey
(b) Keynes
(c) Hartley Withers
(d) Prof. Tinbergen
Answer:
(c) Hartley Withers

Question 25.
Which is the primary function of commercial banks ?
(a) Accepting deposits
(b) Advancing loans
(c) Credit creation
(d) All of these
Answer:
(d) All of these

Question 26.
The full form of ATM is __________
(a) Any Time Money
(b) All Time Money
(c) Automated Teller Machine
(d) both (a) and (b)
Answer:
(c) Automated Teller Machine

Question 27.
Reserve Bank of India was established in __________
(a) 1947
(b) 1935
(c) 1937
(d) 1945
Answer:
(b) 1935

Question 28.
Micros which means ‘small’ belongs to which language ?
(a) Arabic
(b) Greek
(c) German
(d) English
Answer:
(b) Greek

Question 29.
How many types of elasticity of demand is there ?
(a) Three
(b) Five
(c) Six
(d) Seven
Answer:
(b) Five

Question 30.
Which money is issued by the central bank ?
(a) Currency
(b) Credit money
(c) Coins
(d) All of these
Answer:
(b) Credit money

Question 31.
RBI announced the guidelines to issue itences to new banks of Private Sector on __________
(a) January 22, 1993
(b) March 15,1995
(c) April 1,1999
(d) None of these
Answer:
(a) January 22, 1993

Question 32.
Banking Sector Reforms in India began in __________
(a) 1969
(b) 1981
(c) 1991
(d) 2001
Answer:
(c) 1991

Question 33.
“Supply creates its own demand” Who gave this law ?
(a) J. B. Say
(b) J.S.Mill
(c) Keynes
(d) Ricardo.
Answer:
(c) Keynes

Question 34.
On Which factor does Keyneaian theory of employment depend ?
(a) Effective demand
(b) Supply
(c) Production efficiency
(d) None of these
Answer:
(a) Effective demand

Question 35.
Who is the writer of the book. ‘Traited Economic Politique’ ?
(a) Pigou
(b) J. B. Say
(c) Keynes
(d) Ricardo
Answer:
(b) J. B. Say

Question 36.
If MPC = 0.5 then mulutiplier (k) will be __________
(a) i-
(b) 0
(C) f
(d) 2
Answer:
(d) 2

Question 37.
On which concept does classical viewpoint depend ?
(a) Say’s law of market
(b) Perfect Flexibility of wage Rate
(c) Perfect Flexibility of Interest Rate
(d) All of these
Answer:
(b) Perfect Flexibility of wage Rate

Question 38.
Which is included in indirect tax ?
(a) Income tax
(b) Wealth tax
(c) Excise duty
(d) Gift tax
Answer:
(c) Excise duty

Question 39.
Which one is the item of Current Account ?
(a) Import of visible items
(b) Expenses of tourists
(c) Export of visible items
(d) All of these
Answer:
(d) All of these

Question 40.
Balance of trade means __________
(a) capital transaction
(b) import & export of goods
(c) total debit and credit
(d) all of these
Answer:
(d) all of these

Question 41.
What is price flexibility of a necessities of demanded things ?
(a) Zero
(b) Infinite
(c) More then a unit
(d) less than unit
Answer:
(a) Zero

Question 42.
‘Profit is the award of bearance risk’ who said this ?
(a) Halley
(b) J. B. Clark
(c) Knight
(d) None of these
Answer:
(c) Knight

Question 43.
The market situation in which there is only are consumer is called __________
(a) Monopoly
(b) Monopsani
(c) Duopoly
(d) None of these
Answer:
(c) Duopoly

Question 44.
On which matter it is decide of general value, __________
(a) market day
(b) short-term market
(c) long term market
(d) none of these
Answer:
(b) short-term market

Question 45.
Following is not a source of origin __________
(a) Land
(b) Labour
(c) Money
(d) Capital
Answer:
(c) Money

Question 46.
Who the Central Bank of India ?
(a) SBI
(b) Central Bank of India
(c) Reserve Bank of india
(d) None of these
Answer:
(c) Reserve Bank of india

Question 47.
When was establish Reserve Bank of India ?
(a) In 1932
(b) In 1935
(c) In 1945
(d) In 1956
Answer:
(b) In 1935

Question 48.
In which year the nationalisation of the commercial bank:
(a) 1960
(b) 1968
(c) 1969
(d) 1980
Answer:
(c) 1969

Question 49.
Central Bank can control by which __________
(a) Bank Rate
(b) Open market
(c) CRR
(d) All these
Answer:
(d) All these

Question 50.
When was establish State Bank of India ?
(a) 1950
(b) 1955
(c) 1960
(d) 1965
Answer:
(b) 1955

Non-Objective Type Questions

Short Answer Type Questions

Question no. 1 to 25 are Short answer type questions. Answer any 15 out of them. Each question carries 2 marks. (15 x 3 = 30)

Question 1.
State any four difficulties of Barter System.
Answer:
The four difficulties of Barter system are as follows:

1. Lack of Double Coincidence : The barter system requires a double coincidence of wants on the part of those who want to exchange goods or services. lt is necessary for a person who wishes to trade his goods or service to find some other person who is not willing to buy his goods or service,but also possesses that goods which the former wants.
2. Difficulties in store value : A major difficulty in barter system appears because store of purchasing power for future can not be made due to perishable nature of most of the goods.
3. Lack of common acceptability unit of value : Due to lack of common acceptable unit of value ,it becomes difficult to determine.The value of commodity to be exchanged.
4. Lack of divisibility in commodities: Another difficulty of barter system relates to the fact that all commodities can not be divided or sub-divided.

Question 2.
What is law of supply ? Explain it with illustration.
Answer:
The law of supply states, that other things remaining constant, the higher the price, the greater the quantity supplied or the lower the price, the smaller the quantity supplied.Law of supply states the positive relationship between price of the commodity and its supply.Producer always wants to sell his commodity at a higher price and less at a lower price .Thus,price of commodity and its supply are positively related.In functional form.S = f (P) Where S refers to supply of the commodity and P for price.Thus,supply function of a commodity represents a direct relationship between supply of commodity and its price.

The law of supply can also be explained with ‘Supply schedule’ and ‘Supply Curve.

Above table shows individual supply schedule, that explains supply of commodity increases with increase in price.

Question 3.
Discuss the main features of government budget.
Answer:
The main features of Government budget are as follows:

1. Encouragement to economic development: The basic objective of the budget is to accelerate the pace of economic development in the country.For accelerating the pace of economic development:
   • government may grant tax rebates to productive activities
   • government may develop infrastructure like roads .bridges etc.
   • government may establish public enterprises.
2. Balanced Regional Development : Through budget .government may promote the development in backward areas for ensuring balanced regional development in the economy. Engorgement may grant tax rebates to these areas,may establish public enterprises in these areas and may allocate more funds for infrastructural development in these backward areas.
3.  Re- distribution of income and property : Budget plays a vital role in reducing the economic disparities in the economy.Many steps can be taken in the budget for reducing the economic disparities in the economy.
4. Economic Stability: Economy faces the cycles of boom and depression and the budget aims to put a control on these cycles.
5. Creation of employment : Employment creation is one of the important objectives of government budget.Govemment may promote labour – intensive techniques in public works programmes and may also initiate programmes in the economy.

Question 4.
Distinguish between primary sector and secondary sector.
Answer:
Difference between Primary sector and secondary sector are as follows :
Primary sector :

1. It is that sector which exploits natural resources and produce goods and services.
2. It is known as agriculture and allied sector.
3. It includes all agricultural and allied activities such as forestry,mining,quarrying,fishing,animal husbandry etc.
4. Unorganised and traditional techniques.
5. No possibility of division of labour.

Secondry sector :

1. It is that sector which transforms one goods into another for creating more utility from it.
2. Famously known as manufacturing sector.
3. It includes manufacturing units small scale units, large firms ,big corporate, multinational corporation.
4. Organised techniques.
5. Complex division of labour can be used for production.

Question 5.
What is National Income ?
Answer:
National income is the sum of factor incomes earned by normal residents of a country during the period of one year.

NY = National income
Z = Sum or total (Z is called sigma)
FY = Factor income
n = all normal residents of a country.
Rent, interest, profit and wages are the factor incomes. So, national income is the sum of rent, interest, profit and wages earned by normal residents of a country during an accounting year.

According to the central statistical organisation (the official agency engaged in the estimation of national income in India) defines national income as under: “National income is the sum of factor income earned by the normal residents of a country in the form of wages, rent, interest and profit in an accounting year.”

Question 6.
Define the functions of Central Bank.
Answer:
Principal function of the central bank are as follows :

1. Issuing of notes : In modem times, central bank alone has the exclusive right to issue notes in every country of the world. The notes, issued by the central bank are unlimited legal tender throughout the country. Central bank of the country enjoys monopoly right of note issuing.
2. Banker to the Government: Central bank acts as a banker, agent and financial advisor to the government. As a banker to the government, it keeps the accounts of all government banks and manages government treasuries. It performs the some functions for the government as the commercial banks do for their customers.
3. Banker’s bank : It performs the function of a banker to all other banks in the country. Central bank has almost the same relation with all other banks as a commercial bank has with its customers. It keeps part of the cash balances of all commercial banks as deposit with a view to meeting liabilities of these banks in times of crisis.
4. Supervision of the banks : As a banker’s bank, the central bank also supervises the commercial banks.
   The supervision of commercial banks relates to
   • licensing of the commercial banks
   • expansion of the commercial banks in terms of their branches across different parts of the country.
5. Lender of the last resort : The central bank also acts as lender of last resort for the other banks of the country. It means that if a commercial bank fails to get financial accommodation form anywhere, it approaches, the central bank as a last resort.

Question 7.
Explain law of demand.
Answer
The law of demand stages that, other things being equal the demand for a good extends with a decrease in price and contracts with an increase in price. There is inverse relationship between quantity demanded of a commodity and its price, provided other factors influencing demand remain unchanged.

The law of demand states that other things remaining constant, quantity demanded of a commodity increases, with a fall,in price and diminishes when price increases.

Question 8.
What do you mean by Macro-economics ?
Answer:
The term Macro in English has its origin in the Greek term Macros which means large. In the context of macro economics “large” means economy as a whole. Thus, macro economic is defined as that branch of economics which studies economic activities at the level of an economy as a whole.

According to M. H. Spencer, “Macro-economics is concerned with the economy as a whole or large segments of it. In Macroeconomics, attention is focused on such problems as the level of unemployment, the rate of inflation, the nation’s total output and other matters of economy-wide significance.”

Question 9.
Explain the functions of money.
Answer:
Functions of money are classified into following two categories:

1. Primary or main functions,
2. Secondary or subsidiary functions.

1. Primary or main functions : This category includes those functions of money, which are common to all countries during all periods.

• Medium of exchange : Medium of exchange is an important function of money. It means that money acts as an intermediary for the goods and services in the exchange transaction. The medium of exchange function of money has classified all transactions on the basis of time and place.
• Measure of value or unit.of value : Unit of account means that the value of each good as service is measured in the monetary unit. Money measures the value of everything or the prices of all goods and services can be expressed in terms of money.

2. Secondary Functions : These functions are supplementary to primary functions. These are as follow.

• Standard of Deferred Payment : Deferred payment means those payments which are to be made in futuse.
• Store of Value : Human beings has a tendancy to save a part of his income for future to fulfil his future requirements. Store of value can take place only when person becomes confident to use his saving as per his requirements in future.
• Transfer of Value : Money is a licuid means of exchange. Hence, purchasing power of money can easirly be transferred from one person to another or one place to the other. Thus, in modem times, money has become the best means of tranferring the value of money.

Question 10.
Write the sources of production.
Answer:
There are five types of the factor of production :

1. Land
2. Labour
3. Capital
4. Organisation
5. Enterprise.

Land, labour, capital, machines tools, equipments and natural means are limited. Every demand of every individual in the economy cannot be satisfied, so the society has to decide what commodieits are to be produced and to what extent. Goods purchased in an economy can be classofied as consumer goods and produce goods. These goods may be further classified as single use goods and durable goods.

It is undoubtedly the basic problem of the economy. If we produce one commodity, it will mean that we are neglecting the production of the other commodity. We assume that all the factors of production in the economy are fully absorbed, so if we want to increase the production of one commodity, we will have to withdraw resources from the production of the other commodity on the basis of 4 requirements goods are further classified as goods for necessaries comforts and luxuries.

Question 11.
Write the Functions of money.
Answer:
Primary function of money are also called prime functions. These functions are of prime importance and common to all countries during all the periods. Money has two primary functions.

1. Medium of exchange : Money acts as a medium of exchange. In modem days, exchange is the basis of entire economy and money makes this exchange possible. At old age barter system was in practise in which goods were exchanged for goods but due to lack of double co¬incidence exchange was difficult. But the uses of money has removed this difficulty. In modem times, money performs all function of exchange in the economy.
2. Measure of value : Money acts unit of measure of value. In other words it acts as a yardstick of standard measures of value to which all other things can be measured. In barter system the general measurement of value was absent and consequently it was difficult to measure the value of exchange. In modem times, the value of every commodity can be measured in money, with the use of money, economic calculations for measuring values have become simplified

Question 12.
What do you mean by NNP ?
Answer:
Net National product at factor cost (NNPFC) is the sum of total factor income (rent + interest + profit + wages) genrated within the domestic territory of a country along with net factor income from abroad during a year. NNP is the sum of total factor incomes earned.by normal residents of a country during a year.
NDPFC + Net factor income from abroad = NNPFC

Question 13.
Explain the importances of Government Budget.
Answer:
The notable objective and importance of government budgets are as follows :

1. Redistribution of income and wealth: Equitable distribution of income and wealth is a sign of social justice which is the principal objective of any welfare state as in India.
2. Reallocation of resources : The government of a country directs the allocation of resources in a manner such that there is a balance between the goals, of profit maximization and social welfare.
3. Economic stability : These refer to the phases of recession, depression, recovery and boom in the economy. Budget is used as an important policy instrument to combat the situations of deflation and inflation. By doing it the government tries to achieve the state of economic stability.
4. Managing public enterprises : The budgetary policy of the government shows interest of the government to increase the rate of growth through public enterprises.

Question 14.
Explain the merits or advantages of perfect competition.
Answer:
The following are the main advantages of. perfect competition:

1. Large number of firms or sellers : The number of firms selling a particular commodity is so large that any increae or decrease in the supply of one particular firm hardly influences the total market supply.
2. Large number of buyers : Not only is the number of sellers very large, also, the number of buyers is very large. Accordingly, like an individual firm, an individual buyer is also not able to influence price of the commodity. Accordingly an individual buyer under perfect competition is also a price taker.
3. Homogeneous product : All sellers sell identical units of a given product. Seeling homogeneous product at the given price rules out the possibility of advertisement or other sale-promotion expenses. So, that there are selling costs, in perfectly competitive market.
4. Perfect knowledge : Buyers and sellers are fully aware of the price prevailing in the market. Buyers know it fully well at what price sellers are selling a given product.
5. Free entry and exit of firms : A firm can enter and leave any industry. There is no legal restriction on the entry or exits.
6. Perfect mobility : Factors, of production are perfectly mobile under perfect competition.

Question 15.
What is GDP ?
Answer:
Gross Domestic Product (GDP) is the market value of the final goods and services produced during a year within the domestic territory of a country.

GDP is the market value of the final goods and services produced within the domestic territory of a country during one year inclusive of depreciation. There are both resident as well as foreign producers within the domestic territory of a country. In India, for example, there are many international banks as well as multinational companies. Gross domestic product includes the market value of the final goods and services produced by all such producers.

Question 16.
Explain the four difficulties of barter exchange.
Answer:
The four difficulties of barter exchange are as follows:

1. Lack of double coincedence : The barter system requires a double coincidence of wants on the parts of those who want to exchange goods or services. It is necessary for a person who wishes to trade his goods or services. It is necessary for a person who wishes to trade his goods or services, but also possesses that goods which the farmer wants.
2. Difficulties in store of value: A major difficulty in barter system appears because store of purchasing power for future can not be made due to perishable nature of most of the goods.
3. Lack of common acceptability unit of value :
   Due to lack of common acceptable unit of value, it becomes difficult to determine. The value of commodity to be exchange for example how will it be determined that how much wheat will be exchanged for are metre of cloth and vice versa.
4. Lack of divisibility in commodities : Another difficulty of barter system relates to the fact that all commodities can not be divided or sub-divided. If the commodity is divided, its utility is lost.

Question 17.
What is law of supply ?
Answer:
The law of supply states that other things remaining constant, quantity supplied of a commodity increases with increase in the price and decreases with a fall in its price.

Law of supply states that, other things remaining constant, there is a positive relationship between price of a commodity and its quantity supplied. Thus, more is supplied at higher price and less at the lower price. There is positive relation between the price and quantity supplied. The law of supply only explain the extension and contraction of supply in response to increase and decrease in price of the commodity. It does not explains increase or decrease in supply.

Supply curve (SS) slopes upward and shows increases in quantity supplied in response to increase in price of the commodity. Thus, quantity supplied increases, when price rises.

Question 18.
Write the advantages of government budget.
Answer:
Advantages of government budget : Budgets plays a decision-making role in planned economy. The goals of economic development in a planned economy may be achieved with the basic instruments of budget. A budget in a planned economy may contain the following advantages.

1. In a planned economy budget is based on the broad objectives of national planning.
2. In initials phase of economic development, planning is supported by deficit budget which is brought to near balanced budget in the later stage of development.
3. In a planned economy a policy of Justice in Taxation is adopted while making budget and for it the policy of progressive taxation is adopted.
4. Budget also plays a positive role in performing the economic activities in the country.

Question 19.
Explain difference between primary and secondary sector.
Answer:
Differences between Primary and Secondary sector are as follows :
Primary Section :

1. It is that sector which exploits natural resources and produce goods and services.
2. It is known as agriculture and allied sector.
3. It includes all agricultural and allied activities such as forestry, mining, quarrying, fishing, animal husbandry etc.
4. Unorganised and traditiona techniques.
5. No possibility of division of labour.

Secondary Sector :

1. It is that sector which transforms one goods into another for creating more utility from it.
2. Famously known as manufacturing sector.
3. It includes manufacturing units, small scale units, large firms, big carporates, multinational corporation.
4. Organised techniques.
5. Complex divisin of labour can be used for production.

Question 20.
Define various types of credits in bank.
Answer:
Principal instruments of monetary policy or credit control of the central bank of a country are broadly classified as:

(a) Quantitative instruments and
(b) Qualitative instruments

(a) Quantitative instruments of monetary policy : There are those instruments of monetary policy which affect supply of money in the economy. These important of monetary policy are as follows :

• Bank rate : The bank rate is the minimum rate at which the central bank of a country (as a lender of last resort) is prepared to give credit to the commercial banks.
• Open market operations : Open market operations refer to the sale and purchase of securities in the open market by the central bank. Cash balances are high powered money on the basis the which commercial banks create credit.

(b) Qualitative Instruments of monetary policy :

• Margin Requirements : The margin requirement of loan refers to the difference between the current value of the security offered for loans and the values of loans granted.
• Rationing of credit: Rationing of credit refers to fixation of credit quotas for different business activities.

Question 21.
What is meant by limitations in Economics ?
Answer:
Economics has classified in two branches :

1. Micioecoomics
2. Macroeconomics

Limitations of Micro economic are as follows : Micro economic analysis fails to adopt the shape of “Universal Analysis” due to its various limitations are as follows:

1. Study not of whole but of a fraction : Micro economics studies only a fraction of a economy and does not study the entire economy. The entire economy can not be represented by studying only individual units.
2. Inadequate analysis : Micro economic analysis is an inadequate analysis because conclusions derived from individual units may not be applicable to entire economy.

Limitations of Macroeconomic are as follows :

1. Macro Economic Paradoxes : Sometimes aggregates provide misleading conclusions. What is true for an individual may not be true for the entire group.
2. Individual units are ignored: Macro economics puts an emphasis on the entire society while individual units, which make the society, are ignored.

Question 22.
What is the difference between Direct tax and Indirect tax.
Answer:
Distinctinction between Direct tax and Indirect tax: .

Direct Taxes :

1. The are directly paid to government by the person on whom it is imposed.
2. They are generally progressive. The rate of tax increase with increase in income.
3. They cannot be shifted on to others.

Indirect Taxes:

1. They are paid to the government by one person but their burden is borne by another person.
2. They are generally regressive. The rate of tax decreases as income increases.
3. They can be shifted on to others.

Question 23.
Explain the functions of commercial banks.
Answer:
The functions of commercial banks are as follows :

(i) Accepting deposits : The prime function of the commercial bank is to accept deposits from bank.
The various types of deposits accepted by the commercial bank are as follows :

• Current Deposits : Deposits in current account are termed as current deposits. A depositer can deposit the amount any member of times he likes and can also withdraw the amount any number of times he wants.
• Saving deposits: Such accounts generally belong to the people having small savings and who do not require withdrawal of money many times.
• Fixed deposits : In fixed accounts, account is deposited for a certain fixed period. Depositor gets deposits receipt while depositing cash in such accounts.
• Recurring deposit : Recurring deposits are certain type of fixed deposit. Depositor deposits certain amount every month in this account.

(ii) Granting loans : The second important primary function of commercial banks is advancing of loans. After keeping certain cash reserves, the banks lend their deposits to needy borrowers.
Various types of loans granted by banks are as follows :

• Cash credit : In cash credit system, bank provides, loans to the borrower against bonds or some other types of securities.
• Overdraft: Customers having current account with the bank are granted the facility of withdrawing more money than the amounts lying in their accounts.
• Loans and advances : A particular, amount is given by banks as loan and advances which is deposited in customer’s account.
• Discounting the bills of exchange : Bank discounts the bill of exchange i.e. after making some marginal deductions, the pays the value of the bill to the holder.
• Investment in government securities : Banks also grant loan to the government. The buying of government securities by banks is termed as ‘Earning to the government:’

(iii) Credit creation : In present times, credit creation has become the prime function of commercial banks. Banks invite primary deposits from the public and grant loan many times than these, priihary deposits on the basis of credit multiplier.

Question 24.
What are main advantages of balance of payments.
Answer:
The main advantages of Balance of Payment are as follows :

1. Systematic record : It is a record of payment and receipts of a country related to its import and export with other country.
2. Fixed period of time : It is amount of a fixed period of time generally a year.
3. Comprehensiveness : It includes all types of visible items invisible items and capital transfer.
4. Double entry system : Payment and receipts are accounted on the basis of double entry system.
5. Self-balanced: Double entry system itself keeps balance of payment as balanced.
6. Adjustment of differences : Whenever difference arises between total receipts and payments, this disequilibrium needs to be adjusted. Balance of payments is thus as overall record of all economic transactions of a country in a given period with rest of the world.

Question 25.
What is Demand ?
Answer:
Demand refers to the quantities of a commodity that the consumers are able and willing to buy at each possible price of the commodity during a given period of time.
The three elements of demand for a commodity :

1. desire for a commodity
2. money to fulfill that desire
3. readiness to spend money.

Thus, demand may be defined as the desire to buy a commodity, backed by sufficient purchasing power and the willingness to spend.

Long Answer Type Questions

Question no. 26 to 33 are Long answer type questions. Answer any 4 of them. Each question carries 5 marks. (4×5 = 20)

Question 26.
Explain the different functions of money.
Answer:
The different functions of money are mainly of two types :

1. Primary functions
2. Secondary functions

1. Primary functions: Primary functions of money are also called prime functions. These functions are of prime importance and common to all countries during all the periods. Money has two prime functions:

• Medium of exchange : Money acts as a
  medium of exchange.In modem days,exchange is the basis of entire economy and money makes this exchange possible.
• Measure of Value : Money acts a unit of measure of value.The value of every commodity can be measured in money.

2. Secondary functions : These functions are supplementary to primary functions.There are following three secondary functions are as follows:

• Standard of deferred payments : Deferred payments mean those payments which are to be made in future.
• Store of value : Store of value can take place only when person becomes confident to use his savings as per his requirements in future.
• Transfer of value : Money is a liquid means of exchange. Hence, purchasing power of money can easily be transferred from one person to another or one place to the other.

Question 27.
Discuss the characteristics of Perfect Competition.
Answer:
Perfect competition.is that market situation in which a large number of buyers and sellers are found for homogeneous product single buyer or the seller are not capable of affecting the prevailing price and hence in a perfect competition market, a single market price prevails for the commodity.
Features of Perfect Competition :

1. Large number of buyers and sellers : Perfect competition market has a large number of buyers and sellers and hence any buyer or seller can not influence the market price. In other words individual buyer or seller can not influence the demand and supply conditions of the market.
2. Homogeneous product: The units sold in the market by all sellers are homogeneous (or identical) in nature.
3. Free entry and exit of firms : In perfect competition any new firm may join the industry or any old firm may quit the industry. Hence there is no restriction on free entry or exit of firms into/from the industry.
4. Perfect knowledge of the market: In perfect competition every buyer has the perfect knowledge of market conditions. None of the buyers will buy the commodity at higher price than the prevailing price in the market. Hence only one price prevails in the market.
5. Perfect mobility of factors : In perfect competition the factors of production are perfectly mobile. Factors can easily be mobile from one industry to other industry (or one firm to another firm) without any difficulty.
6. No transportation cost : Transportation cost remains zero in perfect competition due to which one price prevails in the market.

Question 28.
How does price determination in monopoly ?
Answer:
A monopolist charges, different prices from different consumers, called price discrimination. A monopolist has complete control over price and can also practice price discrimination.

Full control over price under monopoly does not mean monopolist can sell any amount of the commodity at any price. Once the monopolist fixes price of the commodity quantity demanded will entirely depend upon the buyers.

If the buyers feel that price is high, quantity demanded, will be low and vice-versa. Accordingly, there is an inverse . relationship between priede fixed by the monopolist and quantity sold by the monopoly firm or quantity demanded of the monopoly product. Thus, demand curve facing a monopoly firm is downward sloping.

Question 29.
Explain different types of Economic policy.
Answer:
Economic system : It is a structure of such institutions with which all economic activities are operated in the society. Every economy is based on an economic system which can be divided into 3 categories.

1. Capitalist economy or Market economy
2. Socialist economy or Planned economy
3. Mixed economy.

1. Market economy contains the following important features :

• Private property : Capitalist economic system recognises ‘Law of inheritance’ and right of individual private property. It also ensures to transfer the property of dead person to its heir.
• Economic freedom : Capitalist economy grants various economic freedoms to the individual like freedom to work. Freedom of choice of consumption and saving and investment.
• Competition : Competition is an essential features of market. Demand and supply takes places due to competition appearing in the economy.
• Price mechanism : In this economy prices are determined by the automatic adjustment of price mechanism price in market is determined at the point where demand and supply forces become equal.

2. Socialist Economy : The salient features of this economics my all as follows :

• Social ownership : In this economy social ownership is found on factors of production. These factors are used for the welfare of the society as a whole. Right to individual property has no place in socialist economy rather it is profited to only self-consumption goods.
• Passive role of price mechanism : In this economy prices are not determined by price mechanism, rather government take the use of accounting prices which are determined by govt, itself on the basis of social interest.
• Absence of competition : Socialist economy
  works on planning and direction as a result of which competition remains absent in the economy.

3. Mixed Economy : It contains the following economic features:

• Co-existence of private and public ownership : Private and public sectors co-exist in the mixed economy. Both private ownership and profit motive are found in such economic system. Law of inheritance finds a place in the economy but government imposes progressive taxation to attain economic equality.
• Economic freedom : Though enough state interference is found in mixed economy people enjoy limited economics freedom of choice, production investment and saving. Govt, adopts many controls so check the unlimited economic freedom of the individual.
• Price system : Both price mechanism and profit motive determine the price system simultaneously in the
  mixed economy. Profit motive is managed by the govt. So that it may not hit the motive of social welfare.

Question 30.
Explain different process of measurement of national income.
Answer:
Measurement of national income : Three steps of value addition are as follows :
(i) First Step : Identification and classfication of productive enterprise at the very first step, we are to identify and classify various productive enterprises of an economy. Broadly, we can classify the economy into following three sectors:

• Primary sector: It is that sector which produces goods by exploiting natural resources like land, water, forests, mines etc.
• Secondary sector : This sector is also as manufacturing sector. It transforms one type of commodity into another, using men, machines and materials.
• Teritory sector : This sector is also known as service sector, which provides useful services to primary and secondary sector.

(ii) Second Step: Calculation of net value of output To estimate the net value added in each identified
enterprise in step first, the following estimates are calculated:

• Value of output,
• Value of intermediate consumption,
• Consumption of fixed capital i.e. depreciation. Value added + Value of Output – Intermediate consumption- Net Indirect taxes Hence, Net value Value added by Added = Primary sector + value added by secondary sector + value added by teritory sector.

(iii) Third step : Calculation of net factor income – road. The third and final step in the estimation of national income is to estimate the net factor income earned from abroad and add it to the net domestic product at factor.
This gives us the national income.
NNPFC = NDPFC + NFIA
Net National Product  Net Domestic product at factor cost = of factor cost
Or, National income + Net factor income from

Question 31.
Define different method of exchange rate?
Answer:
Exchange rate is mainly Of two types are as follows:

1. Fixed exchange rate
2. Flexible exchange rate

1. Fixed rate of exchange refers to that rate of exchange which is fixed by the government. It generally does not change or the changes can take place within a fixed limit only. In gold standard, exchange rate was fixed because changes in exchange rate could take place within certain limits and these limits were called ‘gold points’. Historically the two forms of fixed exchange rate were :

• Gold standard system of exchange rate
• Bretton woods system of exchange rate

2. Flexible exchange rate is that rate which is determined by market forces. Change in flexible exchange rate occur on account of change in market demand and supply. Flexible exchange rate is also called floating exchange rate. Thus, flexible rate is free to fluctuate according to the changes, in the demand and supply of foreign currency.
Hence, R = ∫(D, S)
i .e. Exchange rate is a function of demand and supply.

Question 32.
How many types of credit controlling in central bank ?
Answer:
The two types of credit controlling in central bank are as follows :

1. Quantitative methods
2. Qualitative or Selective methods.

1. Quantitative Method: It refers to those methods of credit control which are used by the central bank to influence the total volume of credit without regard for the purpose for which the credit is put. Quantitaitve credit control methods are :

• Bank rate : The bank rate is the rate of which the central bank is prepared to discount the first class bills of exchanges and grant loans of to commercial banks. This is the indirect important method for controlling credit money.
• Open market operations : Open market operations means “purchase or sale of government and other approved securities by the central bank in money and capital market.”
• Change in cash reserve ratio : When the cash flow or credit is to be increased, cash reserve ratio is reduced and when the cash flow or credit is to be reduced, cash reserve ratio is increased.
• Change in statutory liquidity ratio: Every bank is required to maintain a fix percentage of its assets in the form of cash or other liquid assets, called SLR.

2. Qualitative or Selective method : Qualitative or selective methods are those methods which are used by the central bank to regulate the flow of credit into particular directions of the economy.
The important qualitative methods of credit control are :

• Rationing of credit: Central bank is the lender of last resort. So, it can adopt the measures of credit rationing for credit control.
• Regulation of consumer’s credit : In this method the credit given to durable consumer goods is controlled. In days of inflation, consumer’s credit is squeezed and in days of deflation, credit is expanded.
• Change in margin requirements : Marginal requirement is the difference between the current value of physical security offered for loans and the value of loans granted. Central bank determines marginal requirement ratio for different commodities.
• Direct Action : Central bank can take direct action against any commercial bank if the latter do not follow central banks direction.

Question 33.
Why the slope of demand curve is downward ?
Answer:
Downward slope of demand curve indicated that more is purchased in response to fall in price. It is positive when increase in income causes increase in demand. It occurs in case of normal goods. Income effect is negative when increase in income causes decreases in demand. It occurs in case of inferior, goods, thus, there is inverse relationship between price of a commodity and its quantity demanded. This may be explained in terms of the following factors :

1. Law of diminishing marginal utility: According to this law as a consumer in a given time, increases the consumption of a commodity, the utility from each successive unit goes on diminishing. It is therefore, clear that with fall in price, more units, of a commodity will be demanded and with rise in price, less units, of a commodity will be demanded.
2. Income effect : Income effect is the effect on the change in the quality demanded when the real income of buyer changes as a result of the change in the price of commodity alone.
3. Substitution effect : Substitution effect refers to substitution of one commodity for the other when it becomes relatively cheaper.
4. Size of consumer group :’When the price of a commodity fall many consumer who were not buying it at its previous price begin to purchase it.
5. Different uses : Many goods have alternative uses grams are used for human consumption as well as for the consumption of horses