# 12th Economics Paper Solutions Set 2 : 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 :

A consumer consumes only two goods. If price of one of the goods falls, the indifference curve : (Choose the correct alternative)
(a) Shifts upwards
(b) Shifts downwards
(c) Can shift both upwards or downwards
(d) Does not shift

If price of one of the goods falls, the indifference curve will not shift. This is because indifference curve shows only the various combinations of two goods that provides a consumer with the same level of satisfaction. Thus, if the price of any good changes, the indifference curve will not change.

Q2 :

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.

Q3 :

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).

Q4 :

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.

Q5 :

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

 Good X (units) Good Y (units) 0 20 1 18 2 14 3 8 4 0

Q6 :

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 ?

Q7 :

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

Q8 :

Explain the significance of the feature 'product differentiation' in monopolistic competition.

Q9 :

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.

Q10 :

A consumer spends Rs 200 on a good priced at Rs 5 per unit. When the price falls by 20 percent, he continues to spend Rs 200. Find the price elasticity of demand by percentage method.

Q11 :

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

Q12 :

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

Q13 :

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

Q14 :

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.

Q15 :

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

Q16 :

Name any two components of 'aggregate demand'.

Q17 :

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

Q18 :

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

Q19 :

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

Q20 :

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

Q21 :

If the Real Gross Domestic Product is Rs 200 and the Nominal Gross Domestic Product is Rs 210, calculate the Price Index (base = 100).

Q22 :

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.

Q23 :

An economy is in equilibrium. Find the Investment Expenditure from the following :
National Income = 750
Autonomous Consumption = 200
Marginal Propensity to Save = 0.4

Q24 :

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

OR

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

Q25 :

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 ?

Q26 :

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

Q27 :

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

Q28 :

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.