SARTHAK TUTORIALS

STD 12 Commerce Economics Total Marks : 80

economics DPS paper 1

SECTION A – MACRO ECONOMICS

* Choose The Right Answer From The Given Options.[1 Marks Each] [7]

1. Demand deposits include.

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.
Ans. :
b. Saving account deposits and current account deposits.
2. Who is called the bank of issue?
a. RBI.
b. SBI.
c. IDBI.
K
d. ICICI.
HA

Ans. :
a. RBI.
RT

3. The ratio of total deposits that a commercial bank has to keep with Reserve
SA

Bank of India is called:

a. Statutory liquidity ratio.
b. Deposit ratio.
c. Cash reserve ratio.
d. Legal reserve ratio.
Ans. :
c. Cash reserve ratio.
4. Sum total of currency held by public (C), Demand Deposits in Bank (DD) and
Other Deposits with RBI(OD) are combindly known as:
a. M1
b. M2
c. M3
d. M4

Ans. :
a. M1

5. If MPC = 1, the value of multiplier is: (Choose the correct alternative)

Page 1
 a. 0
b. 1
c. Between 0 and 1
d. Infinity.
Ans. :
4. Infinity.
6. If the marginal propensity to consume is greater than marginal propensity to
save, the value of the multiplier will be.
a. Greater than 2.
b. Less than 2.
c. Equal to 2.
d. Equal to 5.
Ans. :
a. Greater than 2.
7. Suppose in a hypothetical economy, the income rises from ₹ 5,000 crores
to ₹ 6,000 crores. As a result, the consumption expenditure rises from ₹ 4,000
crores to ₹ 4,600 crores. Marginal propensity to consume in such a case would
be ________. (Choose the correct alternative)
K
a. 0.8
HA

b. 0.4
c. 0.2
RT

d. 0.6
Ans. :
SA

d. 0.6

* State Whether The Following Sentences Are True Or False.[1 Marks Each] [1]

8. Giving reasons, state whether the following statements are true or false.
Money supply is a stock concept.
Ans. : True.
Explanation:
Money supply is a 'stock concept' as it is measured at a particular point of time.

* Fill In The Blanks With Correct Alternative.[1 Marks Each] [2]

9. The sum of APS and ______ is always equal to 1.

Ans. : The sum of APS and APC is always equal to 1.
10. When the consumption expenditure is more than the income, the value of APS
be ______.
Ans. : When the consumption expenditure is more than the income, the value of
APS be negative.

Page 2
 * Answer The Following Questions In One Sentence.[1 Marks Each] [7]

11. What is repo rate?

Ans. : Repo rate is the rate of interest at which commercial banks can raise short-
term loans from the Central Bank for a period between 1 to 14 days.
12. State the components of supply of money.
Ans. : Currency with the public and demand deposits with the banks.
13. Define the concept of C-C economy.
Ans. : C-C economy is the one in which commodities are exchanged for
commodities or in which goods are exchanged for goods and money is not
involved in any form.
14. Define money.
Ans. : Money is anything serving as a medium of exchange.
15. Give the formula of money multiplier.
Ans. : Money multiplier LRR.
16. Why does consumption curve not start from the origin?
Ans. : Because consumption exist even at zero level of income i.e., autonomous
K

consumption. It is must for survival because you have to consume even at zero
HA

income. It starts from above the origin.

RT

17. What is the relation between MPC and MPS?

Ans. : The sum of MPC and MPS is always equal to one, i.e., MPC + MPS = 1.
SA

* Given Section consists of questions of 3 marks each. [6]

18. What is High Powered Money?

Ans. : High Powered Money:
High powered money or monetary base refers to the money produced by R.B.I.
and Government of India. Alternatively, total liability of monetary authority of the
country and R.B.I. is called monetary base or high powered money. It consists of:
i. Currency in the hands of public.
ii. Cash reserve of commercial banks.
iii. Other deposits with RBI.
So, to sum up, high powered money is:
H=C+R
Where,
H - High powered money.
C - Currency.
R - Cash Reserves of commercial banks.

Page 3
19. If the total deposits created by commercial banks is ₹ 10,000 crore and legal
reserve requirements is 10%, calculate the amount of initial deposits.
Ans. : Given, Legal Reserve Requirements (LRR) is 10% or 0.1 and Money.
Multipier =
1

LRR

Money Multipier =
1

0.1
= 10

If total deposite created is of ₹ 10,000 crore,

Initial Deposits
Total Deposits 10,000
= =
Money Multipier 10

Initial Deposits = ₹ 1,000 crore.

OR
*
Calculate the value of money multiplier and total deposit created if initial deposit is
of ₹ 1,000 crore and LRR is 20%.

Ans. : Given, LRR is 20% or 0.2 and Money.

Mulitiplier =
LRR
1

Money Mulitipier =
1

0.2
= 5

If initial deposite is of ₹ 1,000 crore,

K
Total Deposite = Initial Deposite × Money Multipier = 1000 × 5 = 5,000 crore.
HA

* Given Section consists of questions of 4 marks each. [4]

RT

20. Explain the process of credit creation by commercial banks.

Ans. : When a commercial bank receives deposits it keeps a part of it with the
SA

Central bank and a part with itself. These are called legal reserves. The money lent
comes back to it as deposits. Again it keeps a part of it with the central bank and a
part with itself and lends the rest.
This process continues. In this way bank gives loans which is many a times the
original deposit. The total credit creation will be 1

Legal Reserve Ratio

OR
* Explain 'government's banker' function of the central bank.

Ans. : Central bank is banker to the government like commercial banks are to be
public. It accepts deposits from government and gives loans to the government.

* Given Section consists of questions of 6 marks each. [12]

21. Explain the functions of a commercial bank.

Ans. : Function of Commercial Bank:
The function of commercial bank divided into three categories
i. Primary Functions: A commercial bank performs two primary functions:

Page 4
 a. Accepting Deposits: Commercial bank accepts deposits from public by
several kinds of account like:
Current account
Fixed deposit account
Saving account
Reccuring deposit account
b. Providing Loans and Advances: A commercial bank provides loans and
advances both for productive purpose as well as consumption (household)
purpose. The commercial bank provides cash credit. Demand loans and
short term loans.
ii. Secondary Functions: In addition to the primary functions. banks also
perform the following secondary functions:
a. Overdraft Facility: It refers to a facility in which a account holder is allowed
to overdraw amount up to limit from his current account.
b. Discounting Bills of Exchange: The commercial bank provides the facility of
discounting bill before the date of maturity.
iii. Agency Functions: A commercial bank acts as an agent of his customer.
Some of the agency functions are:
Transfer of funds.
K

Collection and payment of various items.

HA

Purchase and sale of foreign exchange.

RT

Purchase and sale of securities.

Act as consultant.
SA

Provide locker facility.

Provide information and statistics data to the customers.
OR
*
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.

Ans. : Money creation (or deposit creation or credit creation) by the banks is
determined by (i) the amount of initial fresh deposits and (ii) the Legal Reserve
Ratio (LRR), the minimum ratio of deposit legally required to be kept as cash by the
banks. It is assumed that all the money that goes out of banks is redeposited into
the banks. It can be explained through an example.
Let the LRR be 20% and there is a fresh deposit of ₹ 10,000. As required, the banks
keep 20%, i.e., ₹ 2,000 as cash. Suppose the banks lend the remaining 8,000 to the
borrowers. As assumed those who receive payment put the money back into the
bank. In this way, bank receives fresh deposits of ₹ 8,000. The bank again keep

Page 5
 20%, i.e., ₹ 1,600 as cash and lend ₹ 6,400, which is also 80% of the last deposit. The
money again comes back to the bank leading to a fresh deposit of ₹ 6,400.
The money goes on multiplying in this way, and ultimately total money creation is ₹
50,000, i.e., five times the initial deposit.
Given the amount of fresh deposit and the LRR, the total money creation formula
is:
1
Total money creation = Initial deposit ×
LRR

The lending process of the commercial banks increases the rate of investment and
production in the economy, which in turn helps in improving the national income
of the country.
22. Explain ‘saving function’ with the help of a schedule and diagram.
Ans. :

K
OR
HA

*
Explain ‘consumption function’ with the help of a schedule and diagram.
RT
SA

Ans. :

SECTION B – INDIAN ECONOMIC DEVELOPMENT

* Choose The Right Answer From The Given Options.[1 Marks Each] [4]

23. What percentage of India was dependent on agriculture at the time of

independence?
a. 60 percent.
b. 80 percent.
c. 70 percent.
d. 90 percent.
Ans. :

Page 6
 c. 70 percent.
24. What was Infant Mortality Rate of India at the time of independence?
a. 214 per thousand.
b. 218 per thousand.
c. 216 per thousand.
d. 260 per thousand.
Ans. :
b. 218 per thousand.
25. Whose estimate of national income was considered very significant?
a. Dadabhai Naoroji.
b. William Digby.
c. RC Desai.
d. VKRV Rao.
Ans. :
d. VKRV Rao.
26. What was the growth rate of GDP during British rule?
a. 2 percent.
b. 3 percent.
K

c. 4 percent.
HA

d. 0.5 percent.
Ans. :
RT

a. 2 percent.
SA

* State Whether The Following Sentences Are True Or False.[1 Marks Each] [1]

27. Modernisation is necessary increase in the country's capacity to produce the

output of goods and services within the country. (True/ False)
Ans. : False.
Explanation:
It is necessary to adopt new technology in order to increase production of goods
and services. Adoption of new technology is called modernisation.

* Fill In The Blanks With Correct Alternative.[1 Marks Each] [3]

28. When _________ of a country is more than is called export surplus.

Ans. : When export of a country is more than import is called export surplus.
29. Public enterprises played a central role in the process of __________.
Ans. : Public enterprises played a central role in the process of industrialisation.
30. Planning commission was set up in ___________.
Ans. : Planning commission was set up in 1950.

Page 7
 [3]
* Answer The Following Questions In One Sentence.[1 Marks Each]

31. Define a small scale industry.

Ans. : A small scale industry is presently defined as one whose investment in fixed
assets does not exceed ₹ 5 crore.
32. Give one main feature of capitalist economy.
Ans. : Private ownership of resources.
33. What is subsidy?
Ans. : Subsidy is an economic benefit, direct or indirect, granted by the
government to domestic producers of goods and services, to strengthen their
competitive position against foreign companies.

* Given Section consists of questions of 3 marks each. [18]

34. What were the main motives of British rulers behind the beginning of the
railways in India?
Ans. : The main motives of British rulers behind the beginning of railways in India
were as follows:
i. Railways were developed by British in order to have effective control and
K

administration over the large Indian territory. So they needed to link

HA

important administrative and military link through railway lines.

ii. Earning of profits through foreign trade was second most important
RT

objective for the development of railways. Therefore, railways were

SA

connected to ports on the one hand and mandies on the other.

iii. The third objective was to invest British funds in a profitable venture.
35. What was the nature of India's foreign trade under the British rule?
OR
Explain the position of foreign trade at the time of independence.
Ans. : India, which had been an important trading country since time immemorial
was adversely affected by the restrictive policies pursued by the colonial
government W.r.t commodity production, trade and tariff. As a result, India became
an exporter of primary products and an importer of consumer goods. Britain
maintained a monopoly control over India's imports and exports.
'Generation of a large export surplus' was the most important feature of India's
foreign trade in the colonial era.
But the surplus came at a huge cost to the economy as it was used to meet the
expenses on war and for the import of invisible items by the colonial government.
All these led to the drain of Indian wealth, i.e., economic drain.
36. Discuss the impact of decline of Indian textile industry on Indian economy.
Ans. : The destruction of Indian handicrafts industry had far reaching effects:
 i. It led to unemployment on a large scale. In 1834, Lord William Besitick
reported, "The misery hardly finds a parallel in the history of commerce.
The bones of cotton weavers are bleaching the plain of India."
ii. Another consequence of the decline of handicraft was back to the land
movement. The British destroyed the institution of Indian handicrafts but
did not care to provide an alternate source of employment.
iii. The percentage of population dependent on agriculture increased. It was
55% in the middle of nineteenth century and increased to 72% in 1931. It
led to an increase in land rent charged from the tenants.
37. How did government ensure that the small farmers also benefit from the Green
Revolution as the rich farmers?
Ans. : The new agricultural strategy implied use of better and improved inputs of
agriculture, which required more capital. Green Revolution would have benefitted
only the rich farmers, if the government had not played an important role in
ensuring that the small farmers should also gain from the new technology.
The government provided loans at low rate of interest. The fertilisers and High
Yielding Varieties (HYVs) of seeds were subsidised.
Also easy and cheap credit was made available to the farmers so that they can buy
expensive farm equipment.
K
HA

38. Distinguish between tariffs and quotas.

Ans. : 'Tarifls' are a tax levied on the imported good whereas Quotas' specify the
RT

quantity of goods which can be imported. Both are different forms of protection
from the imports.
SA

39. Explain the 'permit license raj'.

Ans. : To begin with the need to procure a license to start an industry was misused
by the big industrial houses. A big industrialist would get a license not for starting
a new firm but for preventing competitors from starting new firms.
The excessive regulation of 'permit license raj' permitted certain firms from
becoming more efficient.
More time was spent by the industrialists in obtaining a license or lobby
with the others, rather than on improving their product.

* Given Section consists of questions of 6 marks each. [12]

40. What were the main causes of India’s agricultural stagnation during the colonial
period?
Ans. : Indian agriculture was primitive and stagnant. The main causes of stagnation
of agriculture sector were as follows:
1. Land Tenure System: There were three forms of Land tenure system
introduced by the British rulers in India. These were:
a. Zamindari system.
 b. Mahalwari system.
c. Ryotwari system.
In the Zamindari system, Zamindars or landlords were the owners of land.
The actual collections by Zamindars was much higher than what they had to
pay to the Government. Zamindari system led to multiplication of middlemen
between cultivators and Government, absentee landlordism, exploitation of
peasants by unsympathetic agents and enmity between landlords and
tenants. Under the system, intermediaries benefited at the cost of both actual
cultivators and the state.
2. Commercialisation of Agriculture: Commercialisation of agriculture means
production of crops for sale in the market rather than for self
consumption. Farmers were forced to cultivate commercial crops like
Indigo. Indigo was required by the textile industry in Britain for dyeing of
the textile. As a result, there was fall in the production of food crops. The
farmers had to suffer from frequent occurence of famine. Indian
agriculture was transformed into a raw material exporting sector for
England.
3. Partition of the Country: Partition of the country in 1947 also adversely
affected India’s agricultural production. The rich food producing areas of
K
West Punjab and Sindh went to Pakistan. It created food crisis in the
HA

country. Also, the whole of fertile land under jute production went to East
Pakistan. The jute industry was most severely affected due to partition.
RT

Thus, Indian agriculture became backward, stagnant and non-vibrant under

the British rule. Indian Economy on the Eve of Independence.
SA

OR
*
Give the negative effects of the British rule in India.

Ans. : The negative effects of the British rule in India are as follows:
i. Colonial exploitation through trade malpractices: The Britishers exploited
India by following the given trade practices:
a. They collected raw material for British industries from India.
b. They sold finished goods of British industries in India. To encourage
the above trade, no duty was charged on imports from Britain and
subsidy was given for exporting raw material to Britain.
ii. Use of British capital to exploit country's resources: The Britishers used
their capital and entrepreneurial skills to exploit India's natural resources
and cheap labour resources. The Britishers invested in mining and
plantation industries and paid very low wages to the workers inspite of
unsafe working conditions.
 iii. Development of industries which complemented the British industries: The
Britishers invested only in those industries which complemented the
growth of their industries back home. So, they invested in developing
railways, post and telegraphs, rubber, tea and coffee plantations, etc. They
totally neglected the development of key and basic industries like iron and
steel, machine making industries, etc. Jute and cotton textile industries,
were also discouraged as they could have been a threat for the textile
factories of Britain.
iv. Economic drain: The Britishers drained the country economically. They took
away various wealthy possessions that India possessed, e.g., the famous
Kohinoor diamond. According to an estimate, approximately a trillion
dollars were looted by the Britishers, in addition to the gems and jewels.
v. Partition of the country: This was the most diastatic consequence of the
British rule in India; the effects of which we still face in the form of cross-
border terrorism. The Britishers fuelled the Hindu-Muslim dispute for their
own benefit, which led to the partition of the country.
41. Match the following:
1Prime Minister A Seeds that give large proportion of output.
. .
K

2Gross B Quantity of goods that can be imported.

HA

. Domestic Prod .
uct
RT

3Quota C Chairperson of the planning commission.

SA

. .
4Land Reforms DThe money value of all the final goods and services produced
. . within the economy in one year.
5HYV Seeds E Improvements in the field of agriculture to increase its
. . productivity.
6Subsidy F The monetary assistance given by government for
. . production activities.

Ans. :
1 Prime Minister C Chairperson of the planning commission.
. .
2 Gross DThe money value of all the final goods and services produced
. Domestic Produ . within the economy in one year.
ct
3 Quota B Quantity of goods that can be imported.
. .
4 Land Reforms E Improvements in the field of agriculture to increase its
. . productivity.
 5 HYV Seeds A Seeds that give large proportion of output.
. .
6 Subsidy F The monetary assistance given by government for production
. . activities.

OR
*
Give the benefits of inward looking trade strategy.

Ans. : The following benefits are credited to the country by following this trade
policy:
i. Increased rate of industrial growth leading to structural transformation:
This strategy, followed by the Indian Government, helped the domestic
industries to survive and expand their operations.
This resulted in an increased rate of industrial growth. The share of industrial
sector towards the GDP of the country also increased from 12% in 1951 to
approximately 25% in 1990, thus ensuring structural transformation in the
country.
ii. Diversification of industrial growth: This strategy helped in diversifying the
K
industrial activities in the country. Till 1950, modern industries were merely
HA

confined to textile and jute industries, but the introduction of this policy
helped in diversification of industries.
RT

iii. Created opportunities for investment: The policy of the government to

protect small scale industries induced the investors to invest in them.
SA

These industries needed less capital and created opportunities for self-
employment. The establishment of these industries promoted growth with
equity and ensured that small savings are also channelised towards the
economic growth of the country.
----- wish you all the best -----