# 12th Economics Paper Solutions Set 1 : CBSE Abroad Previous Year 2015

General Instructions:
(i) All questions in both sections are compulsory. However, there is internal choice in some questions.
(ii) Marks for questions are indicated against each question.
(iii) Question No.1-3 and 15-19 are very short answer questions carrying 1 mark each. They are required to be answered in one sentence.
(iv) Question No.4-8 and 20-22 are short answer questions carrying 3 marks each. Answers to them should not normally exceed 60 words each.
(v) Question No.9-10 and 23-25 are also short answer questions carrying 4 marks each. Answers to them should not normally exceed 70 words each.
(vi) Question No.11-14 and 26-29 are long answer questions carrying 6 marks each. Answers to them should not normally exceed 100 words each.
(vii) Answers should be brief and to the point and the above word limit be adhered to as far as possible.
Q1 :

What are monotonic preferences ?

It means that the consumer prefers a particular bundle over the other bundle if the former consists of at least more of one good and no less of the other good.
Example:
If bundle A(3, 5) and bundle B(3, 2) are available to the consumer, then he/she will prefer bundle A over bundle B as bundle A consists of more units of good 2 than bundle B.

Q2 :

If with the rise in price of good Y, demand for good X rises, the two goods are : (Choose the correct alternative)
(a) Substitutes
(b) Complements
(c) Not related
(d) Jointly demanded

If with the rise in price of good Y, demand for good X rises, the two goods are said to be substitutes. This is because substitute goods are the ones which are consumed in place of each other. For instance, tea and coffee. Thus, if the price of one good rises, the demand for other substitute good will rise.
Hence, the correct answer is option (a).

Q3 :

Define budget line.

A budget line represents the different combinations of two goods that are affordable and are available to a consumer; while being aware of his/her income-level and market prices of both the goods. The budget line is represented by the following equation.

P1x1 + P2x2 = M

Q4 :

Giving reason, comment on the shape of Production Possibilities Curve based on the following table :

 Good X (units) Good Y (units) 0 4 1 3 2 2 3 1 4 0

Q5 :

What will be the impact of "Education for All campaign" (Sarv Shiksha Abhiyan) on the Production Possibilities Curve of the Indian economy and why ?

OR

What will likely be the impact of large scale inflow of foreign capital in India on Production Possibilities Curve and why ?

Q6 :

Why is minus sign attached to the measure of price elasticity of demand of a normal good in comparison to the plus sign attached to the measure of price elasticity of supply ? Explain.

Q7 :

There are no barriers in the way of firms leaving or joining industry in a perfectly competitive market. Explain the significance of this feature.

Q8 :

What is maximum price ceiling ? On what type of goods is it normally imposed ? Use diagram.

Q9 :

A consumer spends Rs 400 on a good priced at Rs 4 per unit. When the price rises by 25 percent, the consumer continues to spend Rs 400. Calculate the price elasticity of demand by percentage method.

Q10 :

What is supply ? Explain the effect of technological progress on supply of a good.

OR

What is 'change in supply' ? Explain the effect of tax imposed on a good on the supply of the good.

Q11 :

A consumer consumes only two goods, each priced at Rupee one per unit. If the consumer chooses a combination of the two goods with Marginal Rate of Substitution equal to 2, is the consumer in equilibrium ? Give reasons. Explain what will a rational consumer do in this situation.

OR

A consumer consumes only two goods X and Y whose prices are Rs 2 and Rs 1 per unit respectively. It the consumer chooses a combination of the two goods with marginal utility of X being 4 and that of Y also being 4, is the consumer in equilibrium ? Give reasons. Explain what will a rational consumer do in this situation. Use Marginal Utility Analysis.

Q12 :

What are the different phases in the Law of Variable Proportions in terms of Total Product ? Give reasons behind each phase. Use diagram.

Q13 :

Explain the rationale behind the conditions of equilibrium of a producer.

Q14 :

Market for a good is in equilibrium. Demand for the good "decreases". Explain the chain of effects of this change.

Q15 :

Name any two components of 'aggregate demand'.

Q16 :

If MPC = 0, the value of multiplier is : (Choose the correct alternative)
(a) 0
(b) 1
(c) Between 0 and 1
(d) Infinity

Q17 :

Primary deficit in a government budget equals : (Choose the correct alternative)
(a) Interest payments
(b) Interest payments less borrowings
(c) Borrowings less interest payments
(d) None of the above

Q18 :

Which one of these is a revenue expenditure ?
(a) Purchase of shares
(c) Subsidies
(d) Expenditure on acquisition of land

Q19 :

Other things remaining the same, when foreign currency becomes cheaper, the effect on national income is likely to be : (Choose the correct alternative)
(a) Positive
(b) Negative
(c) Positive and negative both
(d) No effect

Q20 :

If the Nominal Gross Domestic Product = Rs 4,400 and the Price Index (base = 100) = 110, calculate the Real Gross Domestic Product.

Q21 :

Give the meanings of 'autonomous' transactions and 'accommodating' transactions in the Balance of Payments Accounts.

OR

Give the meanings of Balance of Trade and Balance on Current Account of Balance of Payments Accounts.

Q22 :

Giving reasons explain where charity to foreign countries is recorded in the Balance of Payments Accounts.

Q23 :

Explain 'Government's Bank' function of the central bank.

OR

Explain 'Bankers' Bank' function of the central bank.

Q24 :

Why do we say that commercial banks create money while we also say that the central bank has the sole right to issue currency ? Explain. What is the likely impact of money creation by the commercial banks on national income ?

Q25 :

An economy is in equilibrium. Calculate Marginal Propensity to Save from the following :
National Income = 1,000
Autonomous Consumption = 100
Investment Expenditure = 200

Q26 :

Giving reasons explain how should the following be treated in estimation of national income :
(i) Payment of corporate tax by a firm
(ii) Purchase of machinery by a factory for own use
(iii) Purchase of uniforms for nurses by a hospital

Q27 :

What is 'inflationary gap' ? Explain the role of Cash Reserve Ratio in removing this gap.

OR

What is 'deficient demand' ? Explain the role of 'Margin Requirements' in removing this gap.

Q28 :

Explain the role of government budget in fighting inflationary and deflationary tendencies.