Q11.

Calculate Net Value Added at Factor Cost

Step 1: Calculate Gross Value Added at Market Price (GVAMP)

GVAMP = Sales + Change in Stock − Purchase of Intermediate Goods
= 3500 + 50 − 2000 = 1550 lakhs

Exports are already included in sales, so not added separately.

Step 2: Calculate Net Value Added at Market Price (NVAMP)

NVAMP = GVAMP − Consumption of Fixed Capital
= 1550 − 500 = 1050 lakhs

Step 3: Calculate Net Value Added at Factor Cost (NVAFC)

NVAFC = NVAMP − Indirect Taxes
= 1050 − 350 = 700 lakhs

Final Answer (write this in exam):

Net Value Added at Factor Cost = 700 lakhs

12)
Option 12(A): Explain “Banker’s Bank” function of the Central Bank
(3 Marks)
The Central Bank acts as a banker’s bank by providing banking facilities to commercial
banks.
Explanation (any three points):
1. Custodian of Cash Reserves:
Commercial banks keep a part of their cash reserves with the Central Bank.
2. Lender of Last Resort:
The Central Bank provides loans and rediscounts bills of commercial banks during
financial emergencies.
 3. Clearing House Function:
The Central Bank settles inter-bank claims through clearing operations.

Option 12(B): “The Reserve Bank of India provides several banking services to the
government.” Do you agree?
(3 Marks)
Yes, I agree. The Reserve Bank of India acts as a banker to the government and provides
various services.
Explanation (any three points):
1. Accepts and Makes Payments:
RBI receives and makes payments on behalf of the central and state governments.
2. Manages Public Debt:
RBI issues government bonds and treasury bills and manages public debt.
3. Custodian of Government Cash Balances:
Government maintains its cash balances with the RBI.
13)
Option 13(A): Treatment in Estimation of National Income
(4 Marks)
(Giving reasons)
(i) Payment of interest by a firm
• Included in National Income.
• Reason: Interest paid by a firm is a factor payment made for the use of borrowed
capital and hence forms part of factor income.
(ii) Financial aid given to flood victims
• Not included in National Income.
• Reason: Such aid is a transfer payment as no goods or services are produced in
return.

Option 13(B): “Sale of private vehicles is increasing day by day.” Discuss its impact on GDP
and welfare
(4 Marks)
Impact on GDP
1. GDP increases due to higher production and sale of vehicles.
2. Increase in allied industries like steel, rubber, fuel, and services raises national
income.
Impact on Welfare
1. Welfare may decrease due to traffic congestion, pollution, and accidents.
2. Environmental degradation and health issues reduce the overall quality of life.

Q14. Effect of shift of MNC investments to India on Foreign Exchange Rate

(4 Marks)
1. Increase in Foreign Direct Investment:
Shift of MNCs to India leads to an increase in foreign direct investment inflows.
2. Increase in Supply of Foreign Exchange:
Higher foreign investment increases the supply of foreign exchange in the Indian
foreign exchange market.
3. Appreciation of Indian Rupee:
Increased supply of foreign exchange, with demand remaining constant, leads to
appreciation of the Indian rupee.
4. Fall in Foreign Exchange Rate:
Appreciation of the rupee results in a fall in the foreign exchange rate (₹ per dollar
decreases).

Q15 (i) Define Inflationary Gap

(1 Mark)
Inflationary gap refers to the situation when aggregate demand exceeds aggregate supply
at the full employment level of output, leading to a rise in the general price level.

Q15 (ii) Role of Legal Reserve Requirement in Reducing Inflationary Gap

(3 Marks)
 1. Reduction in Bank Lending Capacity:
Increase in legal reserve requirements (CRR/SLR) forces commercial banks to keep a
higher proportion of deposits as reserves with the Central Bank, reducing their
lending capacity.
2. Contraction of Credit Creation:
With less funds available for lending, banks create less credit, leading to a contraction
in the money supply.
3. Decrease in Aggregate Demand:
Reduced credit availability lowers consumption and investment expenditure, thereby
reducing aggregate demand and helping to close the inflationary gap.

Q16 (A)
(6 Marks | Macroeconomics – Income Determination)
Given:
• Equilibrium Income (Y) = ₹5,000 crores
• Autonomous Consumption (C̄) = ₹250 crores
• Investment (I) = ₹1,000 crores
• Marginal Propensity to Consume (MPC) = 0.75

(i) Consumption Expenditure at equilibrium level of income

Formula:

𝐶 = 𝐶ˉ + 𝑀𝑃𝐶 × 𝑌

Calculation:
𝐶 = 250 + 0.75 × 5000
𝐶 = 250 + 3750 = ₹4000 crores

(ii) Saving Function

Saving Function:
 𝑆 = −𝐶ˉ + 𝑀𝑃𝑆 × 𝑌

Where,
𝑀𝑃𝑆 = 1 − 𝑀𝑃𝐶 = 1 − 0.75 = 0.25
𝑆 = −250 + 0.25𝑌

Saving Function:

𝑆 = −250 + 0.25𝑌

(iii) Investment Multiplier

Formula:
1
𝑘=
1 − 𝑀𝑃𝐶
1 1
𝑘= = = 4
1 − 0.75 0.25

Final Answers (Option A):

• Consumption Expenditure = ₹4,000 crores
• Saving Function = −250 + 0.25Y
• Investment Multiplier = 4

Q16 (B)
(6 Marks | Alternative Option)
Given:
• Change in Initial Investment (ΔI) = ₹1,000 crores
• Marginal Propensity to Save (MPS) = 0.5
• Autonomous Consumption (C̄) = ₹350 crores
 • Planned Investment (I) = ₹100 crores

(i) Investment Multiplier

Formula:
1
𝑘=
𝑀𝑃𝑆
1
𝑘= = 2
0.5

(ii) Equilibrium Level of Income

First find MPC:
𝑀𝑃𝐶 = 1 − 𝑀𝑃𝑆 = 1 − 0.5 = 0.5

Consumption Function:

𝐶 = 𝐶ˉ + 𝑀𝑃𝐶 × 𝑌
𝐶 = 350 + 0.5𝑌

At equilibrium:
𝑌 =𝐶+𝐼
𝑌 = (350 + 0.5𝑌) + 100
𝑌 − 0.5𝑌 = 450
0.5𝑌 = 450
𝑌 = ₹900 crores

Final Answers (Option B):

• Investment Multiplier = 2
• Equilibrium Level of Income = ₹900 crores

Q17 (a) Categorise the given items into tax / non-tax receipts
(2 Marks)
Tax Receipts:
• Property Tax
• Individual Income Tax
• Corporate Income Tax
• Sales & Gross Receipts Tax
Non-Tax Receipts:
• Fines
• Motor Vehicle License Fee
(1 mark for correct tax receipts + 1 mark for correct non-tax receipts)

Q17 (b) How can government use budgetary policy to reduce inequalities of income?
(2 Marks)
1. Government can increase public expenditure on free services like education and
health for the poor.
2. Government can levy higher taxes on the rich and provide subsidies to the weaker
sections, thereby reducing income inequalities.

Q17 (c) Why must public goods be provided by the government?

(2 Marks)
1. Public goods are non-excludable, meaning people cannot be prevented from using
them.
2. Public goods are non-rivalrous, so private producers cannot charge prices profitably;
hence, government provision is necessary.
3.
Q28 (a) Comment upon the population growth rates among the three countries
(2 Marks)
• Pakistan has the highest population growth rate (2.1%), indicating rapid population
increase.
 • China has the lowest population growth rate (0.5%), reflecting effective population
control measures, while India lies in between with a growth rate of 1.2%.

Q28 (b) Which country is most skewed in sex ratio?

(1 Mark)
• India has the most skewed sex ratio (929) among the three countries.

Q29 (A) Interpretation of the given picture

(Land degradation / deforestation)
(3 Marks → 1 + 1 + 1)
(a) Two economic consequences on rural livelihoods in India
• Loss of agricultural productivity due to soil erosion and declining soil fertility.
• Loss of employment and income for rural people dependent on forests and
agriculture.

(b) How does it conflict with the objectives of sustainable development?

• Land degradation leads to overuse of natural resources, reducing their availability for
future generations, which contradicts sustainable development.

(c) Two policy measures to reduce land degradation and promote sustainability
• Afforestation and reforestation programmes should be encouraged.
• Strict regulation on deforestation and promotion of sustainable farming practices.

Q29 (B) Meena as a worker

(3 Marks)
Yes, Meena can be considered a worker.
1. She works in her husband’s cloth shop, contributing to production of goods and
services.
2. Even if she is not paid wages, her work adds to family income and economic activity.
 3. According to economic definition, unpaid family workers are also treated as workers.

Q30 (A) “The introduction of Railways affected the structure of the Indian economy in two
important ways.” Justify.
(4 Marks)
1. Commercialisation of Agriculture:
Railways connected distant markets, encouraging farmers to produce cash crops for
sale, thereby linking agriculture with markets.
2. Growth of Inland Trade:
Railways facilitated easy and cheap movement of goods across regions, promoting
internal trade and integration of markets.
3. Expansion of Export-Oriented Production:
Raw materials like cotton and jute could be transported to ports easily, boosting
exports to Britain.
4. Uneven Economic Development:
Railway development was biased towards port cities, leading to regional imbalances
in economic growth.

Q30 (B) “During the colonial period the occupational structure showed lopsided
movements.” Do you agree?
(4 Marks)
Yes, I agree with the statement.
1. Overdependence on Agriculture:
A large proportion of the population remained engaged in agriculture despite low
productivity.
2. Stagnation of Manufacturing Sector:
Decline of handicrafts and lack of industrial growth limited employment in
manufacturing.
3. Slow Growth of Service Sector:
Services expanded mainly in administration and transport, not enough to absorb
surplus labour.
 4. Lack of Structural Transformation:
There was no shift of workforce from agriculture to industry, resulting in a lopsided
occupational structure.

Q32 (a) How can the inefficiency due to long chain of middlemen be solved?
(2 Marks – with extra point)
1. Direct marketing of agricultural produce through farmer markets like e-NAM and Apni
Mandi should be promoted so that farmers can sell directly to consumers and receive
better prices.
2. Formation of farmer cooperatives and Farmer Producer Organisations (FPOs) will
enable collective bargaining, reduce the role of middlemen, and increase farmers’
income.
3. Improvement in storage and transportation facilities can help farmers avoid distress
sales and sell their produce at appropriate prices.

Q32 (b) Suggestions to improve farming system in India (health-aware perspective)

(2 Marks – with extra point)
1. Promotion of organic farming using bio-fertilisers and bio-pesticides can reduce
health hazards caused by chemical inputs.
2. Adoption of sustainable farming practices such as crop rotation and integrated pest
management can maintain soil fertility and ecological balance.
3. Spreading awareness among farmers and consumers about the benefits of chemical-
free farming can encourage wider adoption of safe agricultural practices.

Q33 (A)
(i) “Every coin has two sides – debate over farm subsidies is one such classic example.”
Justify
(4 Marks → 2 in favour + 2 against)
Arguments in favour of farm subsidies:
1. Farm subsidies reduce the cost of production by providing cheaper inputs like
fertilisers, electricity, and irrigation.
 2. They support small and marginal farmers, protect them from crop failure, and
ensure food security.
Arguments against farm subsidies:
1. Excessive subsidies lead to overuse of fertilisers and water, causing environmental
degradation.
2. They create a heavy fiscal burden on the government and reduce funds available for
development activities.

(ii) Which institution has been replaced by “National Institution for Transforming India
(NITI Aayog)” and who is its ex-officio Chairman?
(2 Marks)
• Planning Commission was replaced by NITI Aayog.
• The Prime Minister of India is the ex-officio Chairman of NITI Aayog.

Q33 (B)
(i) “Indian economy has certain advantages which have made it a favourable outsourcing
destination.” Do you agree?
(3 Marks)
Yes, I agree with the statement.
1. India has a large pool of skilled and English-speaking workforce.
2. Low labour cost makes outsourcing services economical for foreign companies.
3. India has a well-developed IT and communication infrastructure, supporting global
outsourcing.

(ii) “Under liberalisation, regulation of the industrial sector was extremely crucial.”
Support or reject with valid arguments
(3 Marks)
Support the statement:
1. Regulation was necessary to prevent monopolies and unfair trade practices.
2. It ensured balanced regional development and protection of small-scale industries.
 3. Government regulation helped maintain quality standards and consumer protection
during liberalisation.

Q34 (a) Difference in productivity and role of human capital

(2 Marks)
Ravi, being a graduate with vocational skills, is likely to have higher productivity and
efficiency compared to Seema, who has no formal education. Education and training help
individuals perform tasks better and adopt new technologies. Human capital plays a key
role as investment in education and skills increases productivity, employability, and income.
Additional points (optional):
• Educated workers can adapt more easily to changes in technology and work
environment.
• Higher human capital leads to better decision-making and innovation at the
workplace.

Q34 (b) Challenges in human capital formation in India

(2 Marks)
Despite having a large population, India faces challenges in developing human capital. One
major issue is the poor quality of education and health services, especially in rural areas.
Another challenge is poverty and unequal access, which prevents many people from
investing in education and healthcare.
Additional points (optional):
• High population growth puts pressure on limited educational and health resources.
• Brain drain reduces the availability of skilled manpower within the country.

Q34 (c) Education and health as a form of capital formation

(2 Marks)
Investment in education and health is considered capital formation because it enhances the
productive capacity of individuals. Education improves skills and knowledge, while good
health increases efficiency and working life, contributing to economic growth.
Additional points (optional):
• Healthy and educated workers earn higher incomes, increasing national income.
• Such investment yields long-term returns, similar to physical capital formation.