CBSE Class 12 –Economics Question Paper 2022

1.(a) Distinguish between positive externalities and negative externalities with a suitable example.

Answer:

Positive Externalities occur when an economic activity has beneficial effects on third parties who are not directly involved in the activity. For example, a person who gets vaccinated not only protects themselves from disease but also reduces the spread of illness to others. The positive effects on others are external to the individual and benefit society.
Negative Externalities occur when an economic activity has harmful effects on third parties. For instance, a factory that pollutes the air with harmful emissions creates negative externalities for the nearby residents who suffer from poor air quality and health problems. The costs of the pollution are not borne by the factory but by society.

1.(b) Distinguish between stock variables and flow variables with a suitable example.

Answer:

Stock Variables are measures that represent a quantity at a particular point in time. They do not change over time but reflect the total amount accumulated. For example, the amount of money in a savings account is a stock variable because it reflects the current balance at a specific time.
Flow Variables are measures that represent quantities over a period of time and change continuously. For example, income is a flow variable because it represents the amount of money earned over a period, such as per month or per year.

2. Justify the following statement with a valid argument: ‘At higher levels of income, people generally have lower Marginal Propensity to Consume (MPC).

Answer:

At higher levels of income, people generally have a lower Marginal Propensity to Consume (MPC) because they tend to spend a smaller proportion of additional income on consumption. As income rises, individuals are able to meet their basic needs and have more disposable income, which they may save or invest rather than spending it all. For example, a person earning a high salary is more likely to save or invest additional income, while someone with a lower income may spend most or all of their extra income on goods and services. This tendency to save more as income increases leads to a lower MPC.

3.(a) State any two harmful effects of Global warming.

Answer:

Rising Sea Levels: Global warming causes the melting of polar ice caps and glaciers, leading to higher sea levels. This can result in the flooding of coastal areas, displacing communities and causing extensive damage to infrastructure.
Extreme Weather Events: Global warming contributes to the intensification of extreme weather events, such as hurricanes, droughts, and heatwaves. These events can cause widespread destruction, loss of life, and economic disruption.

3.(b) State any two advantages of ‘sustainable development’.

Answer:

Environmental Protection: Sustainable development aims to use natural resources efficiently and responsibly, ensuring that they are available for future generations. This helps in preserving biodiversity and reducing environmental degradation.
Economic Growth: Sustainable development encourages the use of clean technologies and renewable resources, which can lead to long-term economic growth. It creates green jobs, promotes innovation, and reduces the economic costs of environmental damage in the future.

4.(a) Calculate equilibrium level of income for a hypothetical economy, for which it is given that:

Autonomous Investments (I) = 2,500 crores, and
Consumption Function: C = 1000 + 0.8Y
Where C = Consumption and Y = Income.

Answer:

To calculate the equilibrium level of income (Y), we need to use the concept of aggregate demand and aggregate supply. In equilibrium, aggregate demand (AD) equals aggregate output (income, Y).

Aggregate demand = Consumption + Investment
Consumption function: C = 1000 + 0.8Y
Investment (I) = 2,500 crores

At equilibrium: $AD = C + I$

$A D = C + I$ $Y = C + I$

$Y = C + I$

Substitute the consumption function: $Y = (1000 + 0.8Y) + 2,500$

$Y = (1000 + 0.8 Y) + 2, 500$

Now, solve for Y:

$Y – 0.8Y = 1000 + 2,500$

$Y - 0.8 Y = 1000 + 2, 500$ $0.2Y = 3,500$

$0.2 Y = 3, 500$ $Y = \frac{3,500}{0.2} = 17,500 \, \text{crores}$

$Y = \frac{3 , 500}{0.2} = 17, 500 crores$

Thus, the equilibrium level of income is 17,500 crores.

4.(b) Calculate the change in income (ΔY) for a hypothetical economy, for which it is given that:

Marginal Propensity to Consume (MPC) = 0.75, and
Change in Investments (ΔI) = 20,000 crores.

Answer:

The formula for calculating the change in income (ΔY) using the investment multiplier is:

$\Delta Y = \frac{\Delta I}{1 – MPC}$

$Δ Y = \frac{Δ I}{1 - MPC}$

Substitute the given values:

$\Delta Y = \frac{20,000}{1 – 0.75}$

$Δ Y = \frac{20 , 000}{1 - 0.75}$ $\Delta Y = \frac{20,000}{0.25} = 80,000 \, \text{crores}$

$Δ Y = \frac{20 , 000}{0.25} = 80, 000 crores$

Thus, the change in income (ΔY) is 80,000 crores.

5. Do you agree with the given statement: “In any country, as income rises, the composition of infrastructure requirements changes significantly”?

Answer:

Yes, I agree with the statement. As income rises, the demand for infrastructure changes because the needs of the population evolve. For instance:

Basic Infrastructure: In a developing country with low income, there is a focus on basic infrastructure such as roads, sanitation, electricity, and healthcare to meet the immediate needs of the population.
Advanced Infrastructure: As income rises, there is a shift toward more advanced infrastructure like high-speed transportation systems, modern communication networks, and sustainable energy solutions, reflecting a more developed economy.

Thus, higher incomes lead to a change in the composition of infrastructure as people demand higher-quality services and amenities.

6.(a) Estimate the value of Nominal Gross Domestic Product (GDP) for a hypothetical economy. The values of Real GDP and Price Index are given as:

Real GDP = 500 crores, and
Price Index = 125.

Answer:

To estimate the Nominal GDP, we use the formula:

$\text{Nominal GDP} = \text{Real GDP} \times \frac{\text{Price Index}}{100}$

$Nominal GDP = Real GDP \times \frac{Price Index}{100}$

Substitute the given values:

$\text{Nominal GDP} = 500 \times \frac{125}{100} = 500 \times 1.25 = 625 \, \text{crores}$

$Nominal GDP = 500 \times \frac{125}{100} = 500 \times 1.25 = 625 crores$

Thus, the Nominal GDP is 625 crores.

6.(b) Which of the following will not be included in the estimation of National Income of India?

Answer:

Purchase of shares of Sethi Ltd. by an investor in the Bombay Stock Exchange: This is not included in national income as it is a transfer of ownership and does not involve the production of new goods or services.
Salaries paid by Indian Embassy in Japan, to the local workers: This will be included in national income, but as part of the income earned abroad by Indian nationals.
Depreciation on capital assets charged by firms: Depreciation is subtracted from the gross value to get net national income, so it is not counted directly in the national income.

Thus, the purchase of shares is the one that will not be included in national income.

7. Compare and analyze the health status of India and Sri Lanka, on the basis of any two indicators from the given schedule:

Indicators of Health:

Indicator	India	Sri Lanka
Infant Mortality Rate (IMR)	34	7.5
Under-5 Mortality Rate	39.4	6.6

Answer:

Infant Mortality Rate: India has a significantly higher IMR (34) compared to Sri Lanka (7.5), indicating that infant survival is a greater challenge in India. This reflects the need for improved maternal care, nutrition, and healthcare infrastructure in India.
Under-5 Mortality Rate: India’s rate of 39.4 is again much higher than Sri Lanka’s 6.6, suggesting that children in India face higher risks from malnutrition, disease, and lack of access to healthcare.

Overall, Sri Lanka’s health status is better in these two indicators, suggesting stronger healthcare systems and policies.

8. Using a hypothetical example, elaborate the working of the investment multiplier in an economy.

Answer:

The investment multiplier is the ratio of change in income to the initial change in investment. It works through the concept that an increase in investment leads to increased income, which then leads to more consumption and further increases in income.

For example, if the government invests 1,000 crores in building infrastructure, the people involved in construction spend part of their income on goods and services. This, in turn, increases the income of others, who will spend a part of it, and so on.

If the Marginal Propensity to Consume (MPC) is 0.8, the investment multiplier can be calculated as:

$\text{Investment Multiplier} = \frac{1}{1 – MPC} = \frac{1}{1 – 0.8} = 5$

$Investment Multiplier = \frac{1}{1 - MPC} = \frac{1}{1 - 0.8} = 5$

This means the total increase in income will be 5 times the initial investment. So, if the government invests 1,000 crores, the total increase in income will be:

$1,000 \times 5 = 5,000 \, \text{crores}$

$1, 000 \times 5 = 5, 000 crores$

9.(a) Calculate the value of Gross National Product at Factor Cost (GNP)

Given data:

Compensation of Employees: 12,000 crores
Rent and Interest: 1,800 crores
Indirect Taxes: 1,120 crores
Profits: 1,500 crores
Depreciation: 1,100 crores
Subsidies: 210 crores
Net Factor Income from Abroad (NFIA): 120 crores
Mixed Income of Self-Employed: 1,300 crores

Steps to calculate GNP at Factor Cost (GNPFC):

To calculate GNP at Factor Cost, we use the formula:

$\text{GNPFC} = \text{Compensation of Employees} + \text{Rent and Interest} + \text{Profits} + \text{Mixed Income of Self-Employed} + \text{Net Factor Income from Abroad} – \text{Subsidies}$

GNPFC=Compensation of Employees+Rent and Interest+Profits+Mixed Income of Self-Employed+Net Factor Income from Abroad−Subsidies

Now, substitute the given values into the formula:

$\text{GNPFC} = 12,000 + 1,800 + 1,500 + 1,300 + 120 – 210$

GNPFC=12,000+1,800+1,500+1,300+120−210 $\text{GNPFC} = 16,510 \, \text{crores}$

GNPFC=16,510crores

Thus, the Gross National Product at Factor Cost (GNPFC) is 16,510 crores.

9.(b) (i) Calculate Net Value Added at Factor Cost based on the following data:

Given data:

Market sale of rice: 580,000 (in thousands)
Purchase of tractor and thresher: 400,000 (in thousands)
Procurement of rice by the government: 20,000 (in thousands)
Self-consumption of rice during the year: 15,000 (in thousands)
Expenditure on running and maintenance of tractor and thresher: 20,000 (in thousands)
Fertilizer subsidies received from the government: (no value provided)

Steps to calculate Net Value Added at Factor Cost (NVA):

The formula for Net Value Added at Factor Cost (NVA) is:

$\text{NVA} = \text{Market Sale of Rice} – \text{Purchase of Tractor and Thresher} – \text{Expenditure on Running and Maintenance of Tractor and Thresher}$

NVA=Market Sale of Rice−Purchase of Tractor and Thresher−Expenditure on Running and Maintenance of Tractor and Thresher

Substitute the given values:

$\text{NVA} = 580,000 – 400,000 – 20,000$

NVA=580,000−400,000−20,000 $\text{NVA} = 160,000 \, \text{(in thousands)}$

NVA=160,000(in thousands)

Thus, the Net Value Added at Factor Cost (NVA) is 160,000 thousands or 160 crores.

9.(b) (ii) Distinguish between ‘Value of Output’ and ‘Value Addition’.

Value of Output refers to the total value of goods and services produced in an economy or sector, including both the value of intermediate goods and final goods.

Value Addition refers to the increase in value that a firm or economy adds at each stage of production. It is calculated by subtracting the value of intermediate goods from the value of output. It reflects the contribution of labor and capital in the production process, i.e., the value added to raw materials.

Example:

Value of Output: The total market sale of rice is 580,000 (in thousands).
Value Added: Subtract the value of intermediate goods (like tractors or inputs used for maintenance) to get the net value added to the economy.

Thus, value addition is what contributes to the GDP, while value of output is a broader measure that includes the entire production process.

10. India has been dealing with the problem of Deficient Demand since the imposition of the Covid lockdown in March 2020. State and discuss any two monetary policy measures to combat the situation of Deficient Demand in India.

Answer:

Reduction in the Repo Rate: The Reserve Bank of India (RBI) has reduced the repo rate to encourage borrowing and stimulate economic activity. A lower repo rate makes loans cheaper for businesses and consumers, which can help in boosting demand for goods and services. By encouraging borrowing, it aims to increase consumption and investment, thus tackling deficient demand.
Liquidity Support through Open Market Operations (OMOs): The RBI has conducted Open Market Operations (OMOs) to inject liquidity into the banking system. By buying government securities, the central bank ensures that there is enough money circulating in the economy. This makes funds more accessible for businesses and individuals, supporting demand for goods and services in the economy.

11. (i) In the recent past, the Government of India has taken vital steps to revive and popularize Indian System of Medicine (ISM). Do you agree with the given statement? Justify your answer with valid reasons.

Answer:

Yes, I agree with the statement. The Government of India has indeed taken several steps to revive and popularize the Indian System of Medicine (ISM), which includes traditional practices such as Ayurveda, Yoga, Unani, and Siddha. Some of the key measures are:

National Ayush Mission (NAM): The government launched this mission to promote the use of traditional systems of medicine in the healthcare sector. It provides funding for the establishment of AYUSH centers and educational institutions.
Promotion of AYUSH-Related Research: The government has also increased support for research in traditional medicine through institutions like the Central Council for Research in Ayurvedic Sciences (CCRAS). The aim is to integrate ISM into mainstream healthcare and boost its credibility through scientific research.

These steps show a concerted effort by the government to bring ISM to the forefront of the country’s healthcare system.

11. (ii) “Casualization of workforce has become a perennial problem of the Indian economy.” Justify the given statement with valid arguments.

Answer:

The statement about the “casualization of workforce” in India being a perennial problem holds true due to the following reasons:

Prevalence of Informal Employment: A large portion of India’s workforce is employed in informal or casual jobs that lack job security, benefits, and labor protections. This is particularly common in sectors like agriculture, construction, and services, where workers often don’t have permanent contracts.
Low Wages and Limited Benefits: Casual workers typically receive lower wages and are not entitled to benefits such as health insurance, pensions, or paid leave. This perpetuates poverty and income inequality, as casual workers face significant financial instability.

The increasing trend of casualization of the workforce, coupled with the lack of strong labor policies, has made this issue a long-term challenge for the Indian economy.

12. State and discuss any two reasons that exhibit slowdown in the Chinese economy.

Answer:

Real Estate Dependency and Crisis: China has been highly reliant on the real estate sector for growth, but this dependency has created significant imbalances in the economy. The recent crackdown on the real estate sector, combined with debt issues faced by major property developers (like Evergrande), has led to a slowdown in construction and real estate investment, further slowing economic growth.
Power Shortages: China is facing an electricity shortage, which is significantly hampering industrial production. The power crunch is being caused by a combination of rising coal prices, stringent environmental policies, and surging demand. With many industries unable to operate at full capacity, this has negatively affected the country’s overall economic output.

13. Discuss briefly any two measures, which you may suggest as an economic advisor to the government of China.

Answer:

Diversification of the Economy: Given China’s heavy reliance on real estate and manufacturing, it would be wise for the government to focus on diversifying the economy into high-tech and green industries. Encouraging innovation in sectors like AI, electric vehicles, and renewable energy could help reduce over-dependence on real estate and stimulate long-term, sustainable growth.
Improving Domestic Consumption: To counteract the risks posed by slower export growth and external factors, China could implement policies aimed at boosting domestic consumption. This could include measures such as providing subsidies for consumer goods, improving social security systems, and fostering a middle-class growth that can drive demand within the country.

By shifting focus toward sustainable growth and internal consumption, China could mitigate some of the risks caused by external factors and transition to a more balanced and resilient economy.