CBSE Sample Papers for Class 12 Economics Paper 7

CBSE Sample Papers for Class 12 Economics Paper 7 are part of CBSE Sample Papers for Class 12 Economics Here we have given CBSE Sample Papers for Class 12 Economics Paper 7.

CBSE Sample Papers for Class 12 Economics Paper 7

Students who are going to appear for CBSE Class 12 Examinations are advised to practice the CBSE sample papers given here which is designed as per the latest Syllabus and marking scheme, as prescribed by the CBSE, is given here. Paper 7 of Solved CBSE Sample Papers for Class 12 Economics is given below with free PDF download solutions.

Time Allowed: 3 Hours
Maximum Marks : 80

General Instructions

(i) All questions in both sections are compulsory. However, there is internal choice in some questions.
(ii) Question Nos.1 – 4 and 13 – 16 are very short answer questions carrying 1 mark each. They are required to be answered in one sentence.
(iii) Question Nos.5 – 6 and 17 – 18 are short answer questions carrying 3 marks each. Answers to them should not normally exceed 60 words each.
(iv) Question Nos. 7-9 and 19 – 21 are also short answer questions carrying 4 marks each. Answers to them should not normally exceed 70 words each.
(v) Question Nop.10 – 12 and 22 – 24 are long answer questions carrying 6 marks each. Answers to them should not normally exceed 100 words each.
(vi) Answers should be brief and to the point and the above word limit be adhered to as far as possible.

Questions

Section A : Microeconomics

Question 1:
Define indifference curve.

Question 2:
Any statement about demand for a good is considered complete only when the following is/are mentioned in it (choose the correct alternative) :
(a) Price of the good.
(b) Quantity of the good.
(c) Period of time.
(d) All of the above.

Question 3:
Demand for a good is termed inelastic when if ____ . (choose the correct alternative):
(a) price of the good falls, quantity increases.
(b) price of the good falls, quantity decreases.
(c) price of the good falls, quantity remains same.
(d) both (b) and (c).

Question 4:
A seller cannot influence the market price under  ____ . (choose the correct alternative):
(a) perfect competition.
(b) monopoly.
(c) monopolistic competition.
(d) All of the above.

Question 5:
Define market supply. Explain the factor ‘input prices’ that can cause a change in supply.
Or
Give the behaviour of marginal product and total product as more and more units of only one input are employed while keeping other inputs as constant.

Question 6:
What does a production possibility curve show ? When will it shift to the right ?

Question 7:
Explain “perfect knowledge about the markets” feature of perfect competition.

Question 8:
Distinguish between ‘increase in demand’ and ‘increase in quantity demanded’ of a good.
Or
Explain the meaning of ‘Budget set’ and ‘Budget line’.

Question 9:
Complete the following table :

Question 10:
When the price of a good rises from ₹ 10 per unit to ₹ 12 per unit, its quantity demanded falls by 20 per cent. Calculate its price elasticity of demand. How much would be the percentage change in its quantity demanded, if the price rises from ₹ 10 per unit to ₹13 per unit ?

Question 11:
From the following total cost and total revenue schedule of a firm, find out the level of output, using marginal cost/and marginal revenue approach, at which the firm would be in equilibrium. Give reasons for your answer.

Question 12:
Distinguish between perfect oligopoly and imperfect oligopoly. Also explain the “interdependence between the firms” feature of oligopoly.
Or
Explain the meaning of excess demand and excess supply with the help of a schedule. Explain their effect on equilibrium price.

Section B : Macroeconomics

Question 13:
Demand deposits include ______ . (Choose the correct alternative):
(a) saving account deposits and fixed deposits.
(b) saving account deposits and current account deposits.
(c) current account deposits and fixed deposits.
(d) All types of deposits.

Question 14:
Define marginal propensity to consume.

Question 15:
If the marginal propensity to consume is greater than marginal propensity to save, the value of the multiplier will be (Choose the correct alternative) :
(a) greater than 2
(b) less than 2
(c) equal to 2
(d) equal to 5

Question 16:
Which of the following is the central bank of India ?
(a) State Bank of India
(b) Central Bank of India
(c) Reserve Bank of India
(d) Indian Bank

Question 17:
Distinguish between direct taxes and indirect taxes. Give an example of each.

Question 18:
Explain the concept of fiscal deficit in a government budget.
Or
From the following data about a government budget, find (a) revenue deficit (h) fiscal deficit and
(C) primary deficit :
                                                                           ( ₹ In Arab)
(i) Tax revenue                                                            47
(ii) Capital receipts                                                    34
(iii) Non-tax revenue                                                 10
(iv) Borrowings                                                           32
(v) Revenue expenditure                                          80
(vi) Interest payments                                              20

Question 19:
What precautions must be taken while estimating national income by expenditure method ?

Question 20:
Explain the “bankers’ bank” function of the central bank.
Or
Explain the process of credit creation by commercial banks.

Question 21:
An economy is in equilibrium. From the following data, calculate the marginal propensity to save :
(a) Income = 10,000
(b) Autonomous consumption = 500
(c) Consumption expenditure = 8,000

Question 22:
Distinguish (a) between current account and capital account, and (b) between autonomous transactions and accommodating transactions of balance of payments account.

Question 23:
Given a consumption curve, outline the steps required to be taken in deriving a saving curve from it. Use diagram.
Or
Give two alternative conditions of national income equilibrium. Explain what is likely to happen, if the economy is not in equilibrium.

Question 24:
(A) Will the following be included in the domestic product of India ? Give reasons for your answer.
(a) Profits earned by foreign companies in India.
(b) Salaries of Indians working in the Russian Embassy in India.
(c) Profits earned by a branch of State Bank of India in Japan.

(B) Calculate National Income
                                                                                                 ( ₹ In Crores)
(i) Compensation of employees                                                       2,000
(ii) Rent                                                                                                   400
(iii) Profit                                                                                                900
(iv) Dividend                                                                                          100
(v) Interest                                                                                             500
(vi) Mixed income of self-employed                                              7,000
(vii) Net factor income to abroad                                                      50
(viii) Net exports                                                                                   60
(ix) Net indirect taxes                                                                         300
(x) Depreciation                                                                                   150

Answers

Answer 1:
Indifference curve is defined as the curve depicting the various alternative combinations of two goods which provide the same level of satisfaction to the consumer.

Answer 2:
(d) All of the above.

Answer 3:
(c) price of the good falls, quantity remains same.

Answer 4:
(a) perfect competition.

Answer 5:
Market supply may be defined as the estimates of quantity supplied of the commodity by all the firms per time period at various alternate prices.
There is inverse relationship between cost and supply. When there is rise in input prices, the marginal cost of production increases and the production of given good becomes less profitable. The supplies of other goods increase at the expense of the good. As a result, there will be decrease in the supply of the good.
When there is fall in input prices, the marginal cost ot ,y production decreases and the production of given good — becomes more profitable. As a result, there will be increase in the supply of the good.

In the diagram, the supply of good at OP price has decreased from OX to OX₁, due to rise in input prices and supply of good at OP price has increased from OX to OX₂ due to fall in input prices.

OR

When only one input is increased and other inputs are held constant, Law of Variable Proportions will be applicable. According to Law of Variable Proportions, total production increases initially at an increasing rate, and finally at diminishing rate. There are three stages of the law :

1. Total product increases at an increasing rate i.e., marginal product increases.
2. Total product increases at diminishing rate i.e., marginal product decreases.
3. Total product starts falling i.e., marginal product decteases and becomes negative.

It may be shown as und;r :

Answer 6:
Production possibility curve shows the various combinations which can be produced by utilising all the resources of an economy.
A production possibility curve will shift to the right in the following cases:

1. When technological progress takes place in the economy.
2.  When there is growth of resources.
3. Both of the above.

Any point on production possibility curve (PPC) represents fuller utilisation of resources. If PPC shifts upward, there is growth of resources or technological progress. It means that the economy can produce more of both the goods. Higher the grow th rate of economy, higher will be shift of PPC.

In the given diagram, production possibility curve MN has shifted to OP due to growth of resources.

Answer 7:
The feature ‘perfect knowledge about market’ means that firms as well as the buyers have the perfect knowledge about the cost and price of the product prevailing in the different parts of the market. As a result of perfect knowledge about the market, no seller can afford to charge a price higher than the prevailing price. If he tries to charge the price more than prevailing price, he will lose all his customers to his competitors. This will lead to emergence of uniform price of the product in the market.

Answer 8:
Following are the points of distinction between increase in demand and increase in quantity demanded of a commodity :

Basis of distinction	Increase in Demand	increase in Quantity Demanded or Expansion of Demand
(i) Causes	Increase in demand is caused by the factors other than the price of the commodity i.e, increase in the income of the consumer, change in tastes of the consumer etc.	Increase in quantity demanded is caused by decrease in the price of the product.
(ii) Demand Curve	Increase in demand leads to righiward shift of the demand curve. it is shown on the new demand curve.	Increase in quantity denianded is downward movement along a demand curve. It is shown on the same demand curve.
(iii) Diagram

OR

Budget set – Budget set of a consumer is the collection of all bundles of goods that a consumer can buy with her income at the current market prices.
Following are the factors on which budget set depends :

1. Income of the consumer
2. Prices of two goods.

When any of these factors or both the factors change, there is a change in budget set. Suppose, the money income of a consumer is ₹ 1,000 and prices of good A and good B are ₹ 50 and ₹ 20 respectively.
The budget set of the consumer will be within 20 units of A and 50 units of B. If money income of the consumer increases to ₹ 1.500, the budget set will be within 30 units of A and 75 units of B.

Budget line – Budget line is a line representing all the bundles which cost exactly equal to the consumer’s income. Budget line shows the maximum units of the commodity, the consumer can purchase with his given money income and given market prices of the goods (x and v). Suppose, the money income is ₹1,000 and price of x is ₹ 5 per unit and that of y ₹ 2 per unit. Obviously, a consumer can have 200 units of x with no y or alternatively 500 units of y with no x. However, within these two limits, the consumer can have any combination of x and y. If the consumer moves from one combination to another option, he will have to give up some units of x to gain extra unit ofy. As a result, budget line has a downward slope i.e., it slopes downward from left to right. The slope of budget line is \(\frac { Px }{ Py }\)

Answer 9:

Formulae used:
(i) Total fixed cost = Average fixed cost x Unit of output = 60 x 1 = 60

Answer 10:
(i) Original price (p₀) = ₹ 10 per unit
New price (p₁) = ₹ 12 per unit
Rise in price = 12 – 10 = ₹2

Answer 11:

The conditions for producer’s equilibrium are :
I. MC = MR and
II. Beyond the level of output at which MC = MR. MC must be greater than MR.
In the above table, marginal revenue is equal to marginal cost at two output levels i.e., 3 units and 4 units where marginal cost and marginal revenue are ₹ 6 and ₹ 4 respectively.
But the both of the conditions are satisfied at 4 units of output. Hence, the producer will be in equilibrium when he produces 4 units.

Answer 12:
Perfect oligopoly is a market in which there are a few sellers selling a homogeneous product. Homogeneous product is a product which is identical in quality, shape, size, colour etc. For example, steel, fertilisers, etc. Imperfect oligopoly is a market in which there are a few’ sellers selling differentiated product. Differentiated products are products of similar nature but are made different on the basis of brand name, packaging, advertising etc. For example, soap, toothpaste, cars, motorcycles etc.
Oligopoly refers to a market situation in which there are few firms. Each firm can influence the price by his own action. But, a change in price and output of a product by any firm is likely to influence the output and profit of rival firms whose reaction may prove counter productive. This makes the firms mutually interdependent. For example, if there is interdependence of decision between Maruti Ltd. and Tata Motors. If Maruti Ltd. reduces the price of its cars, Tata Motors will follow the same substantially. Accordingly, while taking decision about price and output, a firm has to consider the possible reaction of rival firms in the market.

OR

Excess demand means that demand of a commodity is more than the supply of the commodity. Excess demand shows that market price is less than the equilibrium price.
Excess supply means that supply of a commodity is more than the demand of the commodity. Excess supply shows that market price is more than the equilibrium price.
Equilibrium price is the price at which demand and supply of a commodity are equal. Any other price will not be an equilibrium price. If a price higher than equilibrium price prevails in the market, there will be excess supply. As a result, firms will reduce the supply and supply will go down. If price is lesser than the equilibrium price, there will be excess demand. As a result, firms will increase the supply. It may be explained as under :

In the schedule and the diagram. the equilibrium price is ₹3. ₹4 or ₹2 cannot be equilibrium price.

Answer 13:
(b) saving account deposits and current account deposits.

Answer 14:
Marginal propensity to consume refers to the proportion of income that is consumed out of additional income. Thus,
MPC = \(\frac { \Delta C }{ \Delta Y }\)

Answer 15:
(a) greater than 2

Answer 16:
(c) Reserve Bank of India

Answer 17:
Distinction between the direct tax and indirect tax :

Answer 18:
Fiscal deficit may be defined as a position where total expenditure of the government is more than its sum total of revenue receipts and non-debt capital receipts. Thus,
Fiscal deficit = Total expenditure – Total revenue receipts – Non-debt capital receipts
Fiscal deficit within a limit does not create any problem. But, if fiscal deficit is high, it would create a large number of problems. High fiscal deficit encourages wasteful and unnecessary expenditure on the part of the government. Further, a high fiscal deficit leads to financial instability because high fiscal deficit encourages borrowings on the part of the government. This creates a large burden of interest payment and repayment of loans in the future. A country has to face the problem of debt-trap. Further, a large fiscal deficit may be inflationary.

OR

(a) Revenue Deficit
= Revenue expenditure – Revenue receipts
= Revenue expenditure – (Tax revenue + Non-tax revenue)
=80 – (47+ 10)
=80- 57
= ₹23 Arab

(b) Fiscal Deficit
= Borrowings
= ₹32 Arab

(C) Primary Deficit
= Fiscal deficit – Interest payments
=32 – 20= ₹12Arab

Answer 19:
Following precautions must be taken while estimating national income by expenditure method :

1. Self-produced final products – We should include the self use of own produced final products. For example, imputed rent of self occupied house should be included in the national income.
2. Second-hand goods – Expenditure on second-hand goods should not be included in the national income because it does not represent any addition to the flow constituting national income.
3. Financial assets – We should not include expenditure on financial assets such as shares, debentures etc., because expenditure on financial assets does not generate national income.
4. Intermediate goods – We should not include expenditure on intermediate goods and services because national income includes only finished goods (final goods) ready for consumption and investment.
5. Transfer payments – We should not include government expenditure on transfer payments such as unemployment benefits, old age pensions, scholarships etc., as no productive service is rendered by the recipients in exchange.

Answer 20:
Central bank serves as a bank to other commercial banks and its relation with other banks is akin to the relation of commercial banks with their customers. Central bank acts as a banker’s bank in following three capacities :

1. Central bank is the custodian of the cash reserves of the commercial banks.
2. Central bank is the lender of the last resort.
3. Central bank acts as a bank of central clearance, settlement and transfers.

OR

Commercial banks create deposits in by credit creation. A commercial bank creates credit in the sense that it gives more loans than the cash deposits received from the depositors. When a bank grants loan to a person, it does not give it in cash to the borrower rather loan is credited in the borrower’s account. Every bank loan, thus, creates an equivalent deposits with the bank. The bank on the basis of legal reserve ratio is required to maintain a specified percentage of its deposits as cash reserve. Legal reserve ratio (a mix of Cash Reserve Ratio and Statutory Liquidity Ratio) is determined by the central bank of the country. If legal reserve ratio is increased, the capacity of bank to create credit is reduced. Thus, the capacity of commercial banks to create credit depends on following two factors :

1. Amount of deposit
2. Legal reserve ratio

Given the amount of fresh deposits and legal reserve total money creation will be as under :
Total money creation = Initial Deposit x  \(\frac { 1 }{ Legal Reserve Ratio }\)
Let us take an example. Suppose a bank gets a deposit of ₹ 40,000. Legal Reserve Ratio is 20%. It means that bank can lend 80% of ₹ 40,000 i.e.,₹32,000. Borrowers are not given loan in cash and loan is credited to their account. Again 80% of ₹ 32,000 may be advanced as a loan to other borrowers. This process goes on and on. As a result, the bank creates credit a number of times (5 times) of primary deposits i.e., ₹ 2,00,000.
Total money creation = 40,000 x \(\frac { 1 }{ 0.20 }\) = ₹ 2,00,000.

Answer 21:
Consumption Expenditure
= Autonomous consumption + (Marginal propensity to consume x National income)
or
Marginal propensity to consume x National income = Consumption expenditure – Autonomous consumption

Answer 22:
(a) 

OR

(b)

Answer 23:
The process of deriving saving curve may be described as under :

1. CC is a straight line consumption curve.
2. Now we shall draw income curve from the point of origin which is 45° angled curve.
   Income (Y) = Consumption (C) + Saving (S)
3. At zero level of income, there is an autonomous consumption of OC. The corresponding saving at this income level is (-)OC. The saving curve starts at (-)C.
4. At the income level OB, where the 45° reference line intersects the consumption curve, C= Y. At this income level, saving is equal to zero. Thus, we get point B on the v-axis of the saving curve.
5. By connecting (-)C and B, we get the saving curve.
   Following diagram shows the derivation of saving curve from straight line consumption curve :
   

OR

Following are two alternative conditions of national income equilibrium :

1. Aggregate demand = Aggregate supply
2. Planned investment = Planned supply

If economy is not in the equilibrium, there may be either of the following situations in the economy :

1. Excess demand or inflationary gap.
2. Deficient demand or deflationary gap.

(1)  Excess demand – Excess demand is an excess of anticipated expenditure over available output at constant prices. In other words, when aggregate demand exceeds aggregate supply at full employment, the demand is said to be an excess demand. Thus,
Excess Demand = Aggregate Demand – Aggregate Supply
Following diagram shows the concept of excess demand :

(2) Deficient demand – Deficient demand means that aggregate demand is not sufficient to ensure equilibrium with aggregate supply at the full employment. Deficient demand may be defined as an excess of aggregate supply over aggregate demand at the full employment level. Thus,
Deficient demand = Equilibrium level of expenditure – Planned aggregate expenditure
= Aggregate supply – Aggregate demand
Following is the diagram showing deficient demand :

Answer 24:
(A) (a) Yes. It will be included in the domestic product of India because it is a factor income earned within the domestic territory of India.
(b) No. It will not be included in the domestic product of India because it is not a factor income earned within the domestic territory of India but a factor income from abroad.
(c) No. It will not be included in the domestic product of India because it is not earned within domestic territory of India.
(B) National Income
= Compensation of employees + Rent + Profit + Interest + Mixed income of self-employed – Net factor income to abroad
= 2,000 + 400 + 900 + 500+ 7,000 – 50
= 10,800 – 50
= 10,750 Crores.

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