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CBSE 12th Term-2 2022: Economics Important Short Questions For Practice
CBSE Class 12th Term 2 Economics exam would be conducted on May 28, 2022. Economics is an important subject and is a well-scoring subject as well. CBSE has put forward some sample papers on this subject too. Check the short questions apart from the CBSE sample papers below to understand the questions and answer them. Check below.
CBSE Class 12 Term 2 Study Material
Q1. Define stock & flow
Ans :
| Stock | Flow |
| Stock relates to a point of time | Flow relates to a period of time. |
| Stock is not time dimensional. | Flow is time dimensional as per hour, per month, per year. |
| Example: Wealth, capital, etc. | Example: Income, capital formation. |
Between net investment and capital, capital is a stock since it is measured over a point of time and net investment is a flow since it is measured over a specified period of time.
Q2. Define Gross investment
Ans : Gross investment implies the part of the final output produced in an economy during an accounting year which consists of capital goods (machinery, tools etc.). In other words, gross investment comprises total expenditure incurred on capital goods.
Q3. Give two examples of the flow concept
Ans : Two examples of flow concepts are capital formation, interest on capital.
Q4. Define externalities. Give an example of a negative externality. What is its impact on welfare?
Ans : Externalities refer to the benefits (or harms) a firm or an individual causes to another for which it is not paid (or penalised). Example: Polluting river by an oil refinery. Impact: Reduces welfare through negative effect on health.
Q5. If Real GDP is Rs. 200 and price index (with base = 100) is 110, calculate Nominal GDP.
Ans : Real GDP = (Nominal GDP/ Price Index of Current Year)*100 = Rs 200 (given)
Price index = 110
Hence, 200 = (Nominal GDP/110)* 100
Therefore, Nominal GDP = (200*110)/100 = 220
Q6. If the Nominal GDP is Rs. 1,200 and the price index (with base = 100) is 120, calculate Real GDP.
Ans : Given, Nominal GDP= Rs.1200.
Q7. Giving reason, explain whether the following are included in the domestic product of India.
Ans : Interest received by an Indian resident from its abroad firms will not be included in the domestic income of India because it is the factor income from abroad.
Q8. Define the problem of double counting in the computation of national income. State any two approaches to correct the problem of double counting.
Ans : Double counting refers to a situation where the value of a good is taken into account (counted) more than once. Such a problem occurs because, for every producer, the commodity he sells is the final commodity.
Q9. Will the following factor income be a part of the domestic factor income of India? Give reasons for your answer
i) Profit Earned by the foreign banks from their branches in India
ii) Salary received by Indian residents, working in the American embassy in India.
iii) Profit earned by an Indian company from its branch in Singapore.
Ans : Remember, only those factor incomes which have been generated/earned in India's domestic (economic) territory will be included in domestic factor income of India.
(i) It will be included because the profits have been earned in Indian domestic territory.
(ii) It will not be included because salary has been earned in American embassy which is considered a part of American territory (not of Indian territory).
(iii) It will not be included because profits are earned in a foreign country.
Q10. How will you treat the following while calculating the domestic product of India? Give reasons for your answer.
i) Profits earned by a foreign company in India.
ii) Salary of Indian residents working in Russian Embassy in India
Ans : (i) Yes. It will be included in the domestic product of India because it is a factor income earned within the domestic territory of India.
(ii) 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.
Q11. Governments spend on child immunization programmes. Analyse its impact on GDP and the welfare of the people.
Ans : Government expenditure on child immunisation programme is an expenditure related to productive expenditure which enhances the productive capacity of an economy. Vaccination reduces the number premature deaths and ensures better or efficient utilisation of resources. Children are able to remain healthy by preventing them from contracting deadly diseases, and thereby the quality of the labour force is improved in the production process. This increases production efficiency, and hence, GDP growth
Q12. How will you treat the following while estimating the domestic product of a country? Give reasons for your answer.
(a) Profit earned by branches of the country’s bank in other countries.
(b) Gifts are given by an employer to his employees on Independence Day.
(c) Purchase of goods by foreign tourists
Ans : (a) Profit earned by branches of a country's bank in other countries: The profits earned by the branches of a country's banks will not be included in the domestic income of that country as the banks are located outside the domestic territory of the country.
(b) Gifts are given by an employer to his employees on Independence day: Gifts by the employer are included in the domestic income as they are a compensation paid in kind'
(c) Purchase of goods by foreign tourists: Purchase of goods by foreigners are exports and thus' are a part of the domestic income
Q13. Explain the precautions that should be taken estimating national income by expenditure method (by value-added method).
Ans : Precautions Regarding Calculation of National Income by Expenditure Method
1. Expenditure on only final goods and services should be included in the national income estimation while intermediate consumption expenditure should not be included.
2. Similarly, expenditure on the purchase of second hand goods should not be included in the national income estimation of the current accounting year. This is because they have already been included in the national income of the accounting year in which they were originally purchased.
3. Expenditure on shares and bonds is not included. This is because these are mere financial assets and do not reflect any production activity of the goods or services.
Q14. Define the problem of double counting in the computation of the national income. State any Two approaches to correct the problem of double counting.
Ans : While estimating the National income, the value of only final goods and services is included. However the problem of double counting arises when value of intermediate goods is also included along with the value of final goods. So, double counting means a counting of an output more than once in the process of various of stages of production.
To avoid the problem of double counting two methods are used:
(i) Final Output Method, and (ii) Value Added Method.
(i) Final Output Method: According to this method, the value of intermediate goods is not considered. Only the value of final goods and services is considered.
(ii) Value Added Method: Another method to avoid the problem of double counting is to estimate the total value added at each stage of production.
Q15. “Gross domestic product does not give us a clear indication of the economic welfare of a country”. Defend or refute the given statement with valid reason.
Ans : GDP is not an indicator of economic welfare of a country.
Explanation:
- GDP( Gross domestic product) represents the market value of goods and services produced within domestic territory of a country in monetary terms.
- It simply represents economic growth of country but does not represent the distribution of income and hence is not an indicator of economic welfare of a country.
Q16. Define the following:
(a) Value addition
(b) Gross Domestic Product
(c) Flow variables
(d) Income from property and entrepreneurship
Ans : (a) Value Addition is the contribution of the enterprise to the current flow of goods and service. In other words, value added can be defined as the difference between value of output of a firm in a n accounting year and value of inputs brought from other firms (or value of intermediate consumption). Value added = Value of Output – Value of Inputs
(b) Gross Domestic Product (GDP) : Gross Domestic Product (GDP) is the market value of all the final goods and services produced within the domestic territory of a country during a year.
(c) Flow Variables : A flow is a quantity of any economic variable which is measured during a period of time (or per unit of time) say, a week, a month or a year. For example, monthly wages of a worker, the per hour speed of a train, production of cloth during a year etc.
(d) Income from property and entrepreneurship in the form of rent, royalty, interest and profit is termed as operating surplus.
(i) Income from Property : There are two principal forms of the income from property :
(a) rent and royalty and (b) interest.
(ii) Income from Entrepreneurship (Profit) : Profit is a residual factor payment to the owners of an enterprise.
Q17. What are non-monetary exchanges? Discuss with a suitable example.
Ans : Non-monetary exchanges refer to the goods and services produced but not exchanged through money, like the domestic services rendered by the members of a family to each other. The value of these services is many a times difficult to estimate and so it escapes national income estimation. These exchanges however have positive effect on the welfare of the people.
Examples of non-monetary exchanges can be exchange of plant, machinery and equipment.
Q18. Explain national income equilibrium through aggregate demand and aggregate supply. Use diagram. Also, explain the change that takes place in an economy when the economy is not in equilibrium.
Ans :
The National Income is in equilibrium when AD = AS. In the figure, the equilibrium, is at E, interaction of the AD curve and the 45° line. The equilibrium income is OM.
When the economy is not in equilibrium i.e. AD is not equal to AS. Suppose, AD is greater than AS (AD > AS). It will lead to fall in inventories with the producers. The producer in turn will produce more to reach the desired level of inventories stock. This raises AS till ii becomes equal to AD.
We can explain by AD < AS also.
Q19. In an economy the saving function, S = (-) 50 + 0.5Y here ( S= Saving and Y = National Income ) and Investment = Rs 7000 . From the following data calculate
a) Equilibrium level of National Income
b) Consumption Expenditure at the equilibrium level of Income
Ans : S= -50+0.5 Y
C+S=Y
=> C = Y-S
= Y - (-50+0.5 Y)
= Y + 50 - 0.5 Y
= 50 + 0.5 Y
Hence, C = 50 + 0.5 Y
At equilibrium level of output,
AS=AD
Y= C+I
=> Y= 50+ 0.5 Y + I
=> Y - 0.5 Y = 50+ 7000
=> 0.5 Y = 7,050
=> Y = 7,050/ 0.5 = 14,100 rupees
At equilibrium level of Income, consumption expenditure is
50 + 0.5 ( 14,100)
= 50 + 7,050
= Rs. 7,100
Q20. Explain the working of the investment multiplier with the help of a numerical example.
Ans : Investment Multiplier refers to increase in national income as i multiple of a given increase in Investment. Its value is determined by MPC. The value equals:
Multiplier = 1/1-MPC or 1/MPS
Suppose increase in investment is Rs.1000 and MPC = 0.8. The increase in National Income is in the following sequence.
(i) Increase in investment raises income of those who supply investment goods by Rs.1000. This is the first round increase.
(ii) Since MPC = 0.8, the income earners spend Rs.800 on consumption. This raises the income of the suppliers of consumption goods by Rs.800, This is second round increase.
(iii) In the similar way, the third round increase in Rs.640 = 800 x 0.8. In this way national income goes on increasing round after round.
(iv) The total increase in income is Rs.5,000 which equals.
△Y = △I x 1/1-MPC
△Y = 1000 x 1/1-0.8 = Rs.5000
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