# 12th Economics Paper Solutions Set 1 : CBSE All India 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 :

Define indifference curve.

Indifference curve is a curve that depicts various combinations of two goods that provides a consumer with the same level of satisfaction. In other words, it shows those combinations of two goods between which the consumer is indifferent.

Q2 :

If due to fall in the price of good X, demand for good Y rises, the two goods are : (Choose the correct alternative)
(a) Substitutes
(b) Complements
(c) Not related
(d) Competitive

If due to fall in the price of good X, demand for good Y rises, the two goods are complements. This is because demand for a good moves in the opposite direction of the price of its complementary goods.
Hence, the correct answer is option (b).

Q3 :

If Marginal Rate of Substitution is increasing throughout, the Indifference Curve will be : (Choose the correct alternative)
(a) Downward sloping convex
(b) Downward sloping concave
(c) Downward sloping straight line
(d) Upward sloping convex

If Marginal Rate of Substitution is increasing throughout, the Indifference Curve will be
downward sloping concave.
Hence, the correct answer is option (b).

Q4 :

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

 Good X (units) Good Y (units) 0 30 1 27 2 21 3 12 4 0

Q5 :

What is likely to be the impact of "Make in India" appeal to the foreign investors by the Prime Minister of India, on the production possibilities frontier of India? Explain.

OR

What is likely to be the impact of efforts towards reducing unemployment on the production potential of the economy? Explain.

Q6 :

Explain the significance of 'minus sign' attached to the measure of price elasticity of demand in case of a normal good, as compared to the 'plus sign' attached to the measure of price elasticity of supply.

Q7 :

In a perfectly competitive market the buyers treat products of all the firms as homogeneous. Explain the significance of this feature.

Q8 :

What are the effects of 'price-floor' (minimum price ceiling) on the market of a good? Use diagram.

Q9 :

A consumer spends Rs 1,000 on a good priced at Rs 10 per unit. When its price falls by 20 percent, the consumer spends Rs 800 on the good. Calculate the price elasticity of demand by the Percentage method.

Q10 :

What is the behaviour of (a) Average Fixed Cost and (b) Average Variable Cost as more and more units of a good are produced ?

OR

Define Average Revenue. Show that Average Revenue and Price are same.

Q11 :

A consumer consumes only two goods X and Y, both priced at Rs. 2 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? Why or why not? What will a rational consumer do in this situation? Explain.

OR

A consumer consumes only two goods X and Y whose prices are Rs. 5 and Rs. 4 respectively. If the consumer chooses a combination of the two goods with marginal utility of X equal to 4 and that of Y equal to 5, is the consumer in equilibrium? Why or why not? What will a rational consumer do in this situation? Use utility analysis.

Q12 :

What are the different phases in the Law of Variable Proportions in terms of marginal product ? Give reason behind each phase. Use diagram.

Q13 :

Explain why will a producer not be in equilibrium if the conditions of equilibrium are not met.

Q14 :

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

Q15 :

What is 'aggregate demand' in macroeconomics?

Q16 :

If MPC = 1, 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 is : (Choose the correct alternative)
(a) Revenue expenditure − Revenue receipts
(b) Total expenditure − Total receipts
(c) Revenue deficit − Interest payments
(d) Fiscal deficit − Interest payments

Q18 :

Direct tax is called direct because it is collected directly from : (Choose the correct alternative)
(a) The producers on goods produced
(b) The sellers on goods sold
(d) The income earners

Q19 :

Other things remaining the same, when in a country the market price of foreign currency falls, national income is likely : (Choose the correct alternative)
(a) to rise
(b) to fall
(c) to rise or to fall
(d) to remain unaffected

Q20 :

If the Real GDP is Rs 400 and Nominal GDP is Rs 450, calculate the Price Index (base = 100).

Q21 :

What are fixed and flexible exchange rates ?

OR

Explain the meaning of Managed Floating Exchange Rate.

Q22 :

Where is 'borrowings from abroad' recorded in the Balance of Payments Accounts ? Give reasons.

Q23 :

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

OR

Explain the "Bank of Issue function" of the central bank.

Q24 :

Currency is issued by the central bank, yet we say that commercial banks create money. Explain. How is this money creation by commercial banks likely to affect the national income ? Explain

Q25 :

An economy is in equilibrium. Calculate the Investment Expenditure from the following :

National Income = 800
Marginal Propensity to Save = 0.3
Autonomous Consumption = 100

Q26 :

Giving reason explain how the following should be treated in estimation of national income :
(i) Payment of interest by a firm to a bank
(ii) Payment of interest by a bank to an individual
(iii) Payment of interest by an individual to a bank

Q27 :

What is 'deficient demand' ? Explain the role of 'Bank Rate' in removing it.

OR

What is 'excess demand' ? Explain the role of 'Reverse Repo Rate' in removing it.

Q28 :

Explain how the government can use the budgetary policy in reducing inequalities in incomes.