ECONOMICS
Series : ONS/1
[Time allowed : 3 hours] [Maximum marks : 100]
General Instructions:
(i) All questions in both the sections are compulsory.
(ii) Marks for questions are indicated against each question.
(iii) Question number 1 to 5 and 16 to 20 are very short answer type questions carrying 1 mark each.
They are required to be answered in one sentence.
(iv) Question number 6 to 8 and 21 to 23 are short answer type questions carrying 3 marks each.
Answers to them should not normally exceed 60 words each.
(v) Question number 9 to 11 and 24 to 26 are also short answer type questions carrying 4 marks
each. Answers to them should not normally exceed 70 words each.
(vi) Question number 12 to 15 and 27 to 30 are also long answer type questions carrying 6 marks
each. Answers to them should not normally exceed 100 words each.
(vii) Answer should be brief and to the point and the above word limit be adhered to as far as possible
Section – A
1. What is the relation between marginal cost and average variable cost
when marginal cost is rising and average variable cost is falling?
Ans. MC is less than AVC
2. Suppose total revenue is rising at a constant rate as more and more
units of a commodity are sold, marginal revenue would be
(choose the correct alternative)
(a) Greater than average revenue (b) Equal to average revenue
(c) Less than average revenue (d) Rising
Ans. (b) Equal to average revenue
3. When does ‘increase’ in demand take place?
Ans. When there is an increase in price of substitute good
(Write any other factor than the price).
4. ‘Homogenous products’ is a characteristic of : (choose the correct alternative)
(a) Perfect competition only (b) Perfect oligopoly only
(c) Both (a) and (b) (d) None of the above
Ans. (c) Both (a) and (b)
5.There is inverse relation between price and demand for the product of a firm under:
(choose thecorrect alternative)
(a) Monopoly only
(b) Monopolistic competition only
(c) Both under monopoly and monopolistic competition
(d) Perfect competition only
Ans. (c) Both under monopoly and monopolistic competition
Section – B
16. Define stocks.
Ans. Variables whose magnitude is measured at a particular point of time are called stock variables.
For example, stock of goods in the godown as on 31st March, 2009.
17. Depreciation of fixed capital assets refers to : (choose the alternative)
(a) Normal wear and tear
(b) Foreseen obsolescence
(c) Normal wear and tear and foreseen obsolescence
(d) Unforeseen obsolescence
Ans. (c) Normal wear and tear and foreseen obsolescence
18. What is revenue expenditure?
Ans. Revenue expenditure refers to the expenditure which neither creates any asset nor causes
reduction in any liability of the government. Some examples of revenue expenditures are:
Payment of salaries, pensions, interests, expenditure on administrative services etc.
19. Fiscal deficit equals: (choose the correct alternative)
(a) Interest payments (b) Borrowings
(c) Interest payments less borrowing (d) Borrowings less interest payments
Ans. (b) Borrowings
20. Foreign exchange transactions dependent on other foreign exchange transactions are called :
(choose the correct alternative)
(a) Current account transactions (b) Capital account transactions
(c) Autonomous transactions (d) Accommodating transaction
Ans. (d) Accommodating transaction
21. Find net value added at factor cost:
(Rs. Lakh)
(i) Durable use producer goods with a life span of 10 years 10
(ii) Single use producer goods 5
(iii) Sales 20
(iv) Unsold output produced during the year 2
(v) Taxes on production 1
Ans. Gross value of output at MP = Sales + Unsold output produced
during year = 20 + 2 = 22
Depreciation per year = Total value of capital goods/Total life span =
10/10 =1
Net value added at FC = Govt at MP – (ii) – (v) – Depreciation
= 22 – 5 – 1 – 1 = Rs. 15 lakh.
22. Distinguish between marginal propensity to consume and average propensity to consume. Give
a numerical example.
OR
Explain the role of taxation in reducing excess demand.
24. Government incurs expenditure to popularize yoga among the masses. Analyse its impact on gross domestic product and welfare of the people.
Ans. GDP is considered as a index of welfare of the people. Welfare means sense of material well
being among the people.
Many activities in the economy are not evaluated in monetary terms. For example, leisure time
activities are not included in GDP but they result in welfare of people in the country. When
government incurs expenditure to popularize yoga among the masses it will result in good
health and well being of individuals. This will increase efficiency and lead to higher productivity
in future in the country. Thus, inspite of being an activity to which it is difficult to put monetary
value yoga will surely result in better mental and physical health of people in the country
resulting in overall welfare of the citizen of the country.
25. Explain the ‘store of value’ function of money. How has it solved the related problem created by
barter?
OR
Explain the ‘unit of account’ function of money. How has it solved the related problem created
by barter?
Ans. (a) We find that individuals don’t spend their entire income. They may save a part of their
income to store it for use at later date.
(b) They do this as they know that money will be acceptable at any time in future for buying
any commodity which they desire.
(c)In the barter system it is difficult to store commodities as it involves costly storage/
reduction in quality or value of the stored commodity. Thus, money overcomes the problem
of storage that exist in barter system.
OR
Ans. (a) With the introduction of money, the value of each commodity can be estimated from it’s
price which is in terms of a common unit, say Rs.
(b) For e.g. we know that the value of one pen is Rs.10/- that of a notebook is Rs. 20/-.
Therefore, 2 pens are equivalent to 1 notebook. Therefore, the relative value of goods can
be determined.
(c) In barter system, if there are 10 goods the price of each good is measured in terms
of 9 other goods which makes the exchange more complex. Thus, there is no common
measure of value which gets overcome with the introduction of money
26. Explain how open market operations are helpful in controlling credit creation.
Ans. (a) Open market operations refers to sale and purchase of securities (mainly government
securities) in the open market by the central bank.
(b) The sale of government securities to banks will have the effect of reducing their reserves.
When the bank gives the central bank a cheque for the securities, the central bank collects
the amounts by reducing the bank’s reserves by the particular amount. This directly
reduces the bank’s ability to give credit and therefore decrease the money supply in the
economy.
(c) When the central bank buys securities from the banks, it gives the banks a cheque drawn
on itself in payment for the securities. When the cheque clears the central bank increases
the reserves of the bank by a particular amount. This directly increases the bank’s ability
to give credit and thus increase the money supply.
27. What is government budget? Explain how taxes and subsidies can be used to influence
allocation of resources.
OR
Define revenue receipts in a government budget. Explain how government budget can be used
to bring in price stability in the economy.
Ans. Government budget is an annual statement, showing item-wise estimates of receipts and
expenditures during a fiscal year.
Reallocation of Resources:
(a) The government aims to reallocate resources according to economic and social priorities
through its budgetary policy.
(b) Government encourages the production of certain commodities by giving subsidies or tax
reliefs. For e.g. government encourages the use of ‘khadi products’ by providing subsidies.
(c) Government can discourage the production of harmful goods like liquor or cigarettes, by
imposing heavy excise duties or taxes. In India we use progressive taxation, i.e., higher
taxes from rich people and distribute these receipts through various welfare activities.
OR
Ans. Revenue Receipts refer to those receipts which neither create any liability nor cause reduction
in the assets of the government.
Revenue Receipts are classified under two heads, (i) Tax Revenue (ii) Non Tax Revenue.
Government budget can be used to bring in price stability in the economy are
(a)Government budget is used to prevent business fluctuations and to maintain economic
stability.
(b) During excess demand, the government imposes higher taxes and reduces its expenditure
to correct excess demand. This implies that government follows the policy of surplus
budget during inflation.
(c)During deficient demand, the government increases its expenditure and reduces taxes
This implies that the government follows the policy of deficit budget during deflation.
Thus the government through its budgetary policy tries to achieve price stability in the economy.
28.Given consumption curve, derive saving curve and state the steps taken in the
process of derivation. Use diagram.
Ans. Consumption and Saving Curves are Complementary Curves.
income is either consumed or saved. It
means, consumption and saving curves are
complementary curves.
(b) We can derive saving curve from the consumption
curve. In the diagram, CC is the consumption
curve and the 45° line (OY) represents income.
Consumption, at zero level of income, is equal
to OC (autonomous consumption. The amount
of saving is indicated by vertical distance
between consumption curve and income line.
So savings, at zero level of income, will be OS
(= – OC). It means, the saving curve will start
from point S on the negative Y-axis.
(c) CC intersects OY at point E (Break-even point)
where savings are zero. Draw a perpendicular
on the X-axis (point K) at the income level where
the consumption curve and 45° line intersect
each other. Join S & K to obtain saving curve.
(d) Beyond point E (Break even point) consumption
is less than income therefore savings are
positive is saving curve is above the x-axis. As
income increases, saving also increases.
29. (a) In which sub-account and on which side of balance of payments account will foreign
investments in India be recorded? Give reasons.
(b) What will be the effect of foreign investments in India on exchange rate? Explain.
Ans. (a) Foreign investments in India will be recorded in the capital account of balance
of payment account as it leads to decrease in the asset of the residents of the country
to the rest of the world.
It is recorded on the credit side of
balance of payment account as it
leads to inflow of foreign exchange.
(b) Foreign investment in India will lead
to increase in the supply of foreign
exchange.
If the supply of foreign exchange
increases in the foreign exchange
market, it will lead to a rightward
shift in the supply curve from SS to
S1S1 and exchange rate will fall to
OR1
30. Find national income and private income :
(Rs. crores)
(i) Wages and salaries 1000
(i) Net current transfers to abroad 20
(iii) Net factor income paid to abroad 10
(iv) Profit 400
(v) National debt interest 120
(vi) Social security contributions by employers 100
(vii) Current transfers from government 60
(viii) National income accruing to government 15
(ix) Rent 200
(x) Interest 300
(xi) Royalty 50
Series : ONS/1
[Time allowed : 3 hours] [Maximum marks : 100]
General Instructions:
(i) All questions in both the sections are compulsory.
(ii) Marks for questions are indicated against each question.
(iii) Question number 1 to 5 and 16 to 20 are very short answer type questions carrying 1 mark each.
They are required to be answered in one sentence.
(iv) Question number 6 to 8 and 21 to 23 are short answer type questions carrying 3 marks each.
Answers to them should not normally exceed 60 words each.
(v) Question number 9 to 11 and 24 to 26 are also short answer type questions carrying 4 marks
each. Answers to them should not normally exceed 70 words each.
(vi) Question number 12 to 15 and 27 to 30 are also long answer type questions carrying 6 marks
each. Answers to them should not normally exceed 100 words each.
(vii) Answer should be brief and to the point and the above word limit be adhered to as far as possible
Section – A
1. What is the relation between marginal cost and average variable cost
when marginal cost is rising and average variable cost is falling?
Ans. MC is less than AVC
2. Suppose total revenue is rising at a constant rate as more and more
units of a commodity are sold, marginal revenue would be
(choose the correct alternative)
(a) Greater than average revenue (b) Equal to average revenue
(c) Less than average revenue (d) Rising
Ans. (b) Equal to average revenue
3. When does ‘increase’ in demand take place?
Ans. When there is an increase in price of substitute good
(Write any other factor than the price).
4. ‘Homogenous products’ is a characteristic of : (choose the correct alternative)
(a) Perfect competition only (b) Perfect oligopoly only
(c) Both (a) and (b) (d) None of the above
Ans. (c) Both (a) and (b)
5.There is inverse relation between price and demand for the product of a firm under:
(choose thecorrect alternative)
(a) Monopoly only
(b) Monopolistic competition only
(c) Both under monopoly and monopolistic competition
(d) Perfect competition only
Ans. (c) Both under monopoly and monopolistic competition
Section – B
16. Define stocks.
Ans. Variables whose magnitude is measured at a particular point of time are called stock variables.
For example, stock of goods in the godown as on 31st March, 2009.
17. Depreciation of fixed capital assets refers to : (choose the alternative)
(a) Normal wear and tear
(b) Foreseen obsolescence
(c) Normal wear and tear and foreseen obsolescence
(d) Unforeseen obsolescence
Ans. (c) Normal wear and tear and foreseen obsolescence
18. What is revenue expenditure?
Ans. Revenue expenditure refers to the expenditure which neither creates any asset nor causes
reduction in any liability of the government. Some examples of revenue expenditures are:
Payment of salaries, pensions, interests, expenditure on administrative services etc.
19. Fiscal deficit equals: (choose the correct alternative)
(a) Interest payments (b) Borrowings
(c) Interest payments less borrowing (d) Borrowings less interest payments
Ans. (b) Borrowings
20. Foreign exchange transactions dependent on other foreign exchange transactions are called :
(choose the correct alternative)
(a) Current account transactions (b) Capital account transactions
(c) Autonomous transactions (d) Accommodating transaction
Ans. (d) Accommodating transaction
21. Find net value added at factor cost:
(Rs. Lakh)
(i) Durable use producer goods with a life span of 10 years 10
(ii) Single use producer goods 5
(iii) Sales 20
(iv) Unsold output produced during the year 2
(v) Taxes on production 1
Ans. Gross value of output at MP = Sales + Unsold output produced
during year = 20 + 2 = 22
Depreciation per year = Total value of capital goods/Total life span =
10/10 =1
Net value added at FC = Govt at MP – (ii) – (v) – Depreciation
= 22 – 5 – 1 – 1 = Rs. 15 lakh.
22. Distinguish between marginal propensity to consume and average propensity to consume. Give
a numerical example.
OR
Explain the role of taxation in reducing excess demand.
24. Government incurs expenditure to popularize yoga among the masses. Analyse its impact on gross domestic product and welfare of the people.
Ans. GDP is considered as a index of welfare of the people. Welfare means sense of material well
being among the people.
Many activities in the economy are not evaluated in monetary terms. For example, leisure time
activities are not included in GDP but they result in welfare of people in the country. When
government incurs expenditure to popularize yoga among the masses it will result in good
health and well being of individuals. This will increase efficiency and lead to higher productivity
in future in the country. Thus, inspite of being an activity to which it is difficult to put monetary
value yoga will surely result in better mental and physical health of people in the country
resulting in overall welfare of the citizen of the country.
25. Explain the ‘store of value’ function of money. How has it solved the related problem created by
barter?
OR
Explain the ‘unit of account’ function of money. How has it solved the related problem created
by barter?
Ans. (a) We find that individuals don’t spend their entire income. They may save a part of their
income to store it for use at later date.
(b) They do this as they know that money will be acceptable at any time in future for buying
any commodity which they desire.
(c)In the barter system it is difficult to store commodities as it involves costly storage/
reduction in quality or value of the stored commodity. Thus, money overcomes the problem
of storage that exist in barter system.
OR
Ans. (a) With the introduction of money, the value of each commodity can be estimated from it’s
price which is in terms of a common unit, say Rs.
(b) For e.g. we know that the value of one pen is Rs.10/- that of a notebook is Rs. 20/-.
Therefore, 2 pens are equivalent to 1 notebook. Therefore, the relative value of goods can
be determined.
(c) In barter system, if there are 10 goods the price of each good is measured in terms
of 9 other goods which makes the exchange more complex. Thus, there is no common
measure of value which gets overcome with the introduction of money
26. Explain how open market operations are helpful in controlling credit creation.
Ans. (a) Open market operations refers to sale and purchase of securities (mainly government
securities) in the open market by the central bank.
(b) The sale of government securities to banks will have the effect of reducing their reserves.
When the bank gives the central bank a cheque for the securities, the central bank collects
the amounts by reducing the bank’s reserves by the particular amount. This directly
reduces the bank’s ability to give credit and therefore decrease the money supply in the
economy.
(c) When the central bank buys securities from the banks, it gives the banks a cheque drawn
on itself in payment for the securities. When the cheque clears the central bank increases
the reserves of the bank by a particular amount. This directly increases the bank’s ability
to give credit and thus increase the money supply.
27. What is government budget? Explain how taxes and subsidies can be used to influence
allocation of resources.
OR
Define revenue receipts in a government budget. Explain how government budget can be used
to bring in price stability in the economy.
Ans. Government budget is an annual statement, showing item-wise estimates of receipts and
expenditures during a fiscal year.
Reallocation of Resources:
(a) The government aims to reallocate resources according to economic and social priorities
through its budgetary policy.
(b) Government encourages the production of certain commodities by giving subsidies or tax
reliefs. For e.g. government encourages the use of ‘khadi products’ by providing subsidies.
(c) Government can discourage the production of harmful goods like liquor or cigarettes, by
imposing heavy excise duties or taxes. In India we use progressive taxation, i.e., higher
taxes from rich people and distribute these receipts through various welfare activities.
OR
Ans. Revenue Receipts refer to those receipts which neither create any liability nor cause reduction
in the assets of the government.
Revenue Receipts are classified under two heads, (i) Tax Revenue (ii) Non Tax Revenue.
Government budget can be used to bring in price stability in the economy are
(a)Government budget is used to prevent business fluctuations and to maintain economic
stability.
(b) During excess demand, the government imposes higher taxes and reduces its expenditure
to correct excess demand. This implies that government follows the policy of surplus
budget during inflation.
(c)During deficient demand, the government increases its expenditure and reduces taxes
This implies that the government follows the policy of deficit budget during deflation.
Thus the government through its budgetary policy tries to achieve price stability in the economy.
28.Given consumption curve, derive saving curve and state the steps taken in the
process of derivation. Use diagram.
Ans. Consumption and Saving Curves are Complementary Curves.
(a) We know that income (Y) is the sum total
of consumption (C) and savings (S) as income is either consumed or saved. It
means, consumption and saving curves are
complementary curves.
(b) We can derive saving curve from the consumption
curve. In the diagram, CC is the consumption
curve and the 45° line (OY) represents income.
Consumption, at zero level of income, is equal
to OC (autonomous consumption. The amount
of saving is indicated by vertical distance
between consumption curve and income line.
So savings, at zero level of income, will be OS
(= – OC). It means, the saving curve will start
from point S on the negative Y-axis.
(c) CC intersects OY at point E (Break-even point)
where savings are zero. Draw a perpendicular
on the X-axis (point K) at the income level where
the consumption curve and 45° line intersect
each other. Join S & K to obtain saving curve.
(d) Beyond point E (Break even point) consumption
is less than income therefore savings are
positive is saving curve is above the x-axis. As
income increases, saving also increases.
29. (a) In which sub-account and on which side of balance of payments account will foreign
investments in India be recorded? Give reasons.
(b) What will be the effect of foreign investments in India on exchange rate? Explain.
Ans. (a) Foreign investments in India will be recorded in the capital account of balance
of payment account as it leads to decrease in the asset of the residents of the country
to the rest of the world.
It is recorded on the credit side of
balance of payment account as it
leads to inflow of foreign exchange.
(b) Foreign investment in India will lead
to increase in the supply of foreign
exchange.
If the supply of foreign exchange
increases in the foreign exchange
market, it will lead to a rightward
shift in the supply curve from SS to
S1S1 and exchange rate will fall to
OR1
30. Find national income and private income :
(Rs. crores)
(i) Wages and salaries 1000
(i) Net current transfers to abroad 20
(iii) Net factor income paid to abroad 10
(iv) Profit 400
(v) National debt interest 120
(vi) Social security contributions by employers 100
(vii) Current transfers from government 60
(viii) National income accruing to government 15
(ix) Rent 200
(x) Interest 300
(xi) Royalty 50