12 CH 1-7 Economics Notes

CHAPTER-1 GRAPHS IN ECONOMICS
SECTION-A
OBJECTIVES (MCQ-VSQ 1 Mark Each)
1. Economics explains and analyze various economic events occurring in the real world.
2. Statistics classifies diagrams and graphs as different types of pictures which are used for
distinct purposes.
3. The independent variable in a diagram is measured on X-Axis and the dependent variable is
measured on Y-Axis.
4. A bar diagram shows distribution of value of the variable in various components.
5. Economics is an art and science which evolves every day as the behaviour of human beings,
society and state changes with time.
6. Economics deals with lots of data.
7. NSSO stands for NATIONAL SAMPLE SURVEY ORGANIZATION.
8. CMIE stands for CENTRE FOR MONITORING INDIAN ECONOMY.
9. *For discrete/discontinuous distribution a diagram is drawn.
10. *For continuous type of distribution a graph is drawn.
11. *Bar Diagram & Pie Diagram is drawn for similar data.
12. *Internet in the present times is a close substitute for schools.
13. *Some authorities and agencies like laboratories, research centers, government agencies,
etc. present data CDs pertaining to economic information.
14. Diagrams and Graphs are the two types of pictures that depict economic information.
15. Thorough knowledge of statistics is not required in diagram.
16. Graphs are mainly used in Higher Studies.
17. By using different colours or shades in a diagram or graph clarity can be made.
18. Time based line diagram can be used to represent rate of inflation in various years.
19. In Pie diagram, the entire data represents 360 degree.
20. SPSS & Ms Excel are the statistical programmes used for data processing.
21. Time series graphs are used to show the trends of macroeconomic parameter.
22. The vertical bars of the data series should be placed in left to right order in bar diagram.
23. The statistical programmes like SPSS, SHAZAM, E-VIEW, SAS, etc are very expensive
programmes.
24. Certain softwares like Gretl, PSPP, R, etc can be obtain free of cost from internet.
25. Agency like CMIE (centre for monitoring Indian Economy) creates softwares which can be
purchased only by researchers and corporations.
(* MCQs of Text Book)
SECTION-B
ANSWER THE FOLLOWING QUESTIONS IN ONE/TWO LINES (VSQ 1 Mark Each).
Q1. What is meant by a diagram?

Ans: A diagram is a representation of the relationship between the variables in a picture, a plan,
a drawing, a design, etc.
Q2. What is meant by a graph?

Ans: A graph is a picture drawn to simplify the complex or unclear information or data with the
help of statistical tools or for the information or data presented in continuous frequency
with the help of the statistical tools.
Q3. What is meant by a bar diagram?

Ans: A diagram that uses bars to show the comparison between the various sections of the data
is called a bar diagram. The bars can be either horizontal or vertical.
Q4. What is meant by a pie diagram?

Ans: A diagram which is drawn by representing sub-divisions of an entire data by proportionate
degrees in a circle is called pie diagram or circle diagram.
Q5. What is a data CD?

Ans: A data CD is a compact discs used to store a huge data and information. A data CD can also
be used to transfer large quantities of data, presentations & programs to another
computer device.
SECTION-C
ANSWER THE FOLLOWING QUESTIONS IN SHORT (2 MARKS EACH).
Q1. What is meant by a diagram and for what purpose it is drawn?
Ans: Meaning: A diagram is a representation of the relationship between the variables in a

picture, a plan, a drawing, a design, etc.
Purpose:
1. A diagram is drawn for self-explanatory data. Common man do not require and skill or
knowledge to understand a diagram.
2. It is drawn by advertisement companies to draw attention of their prospective clients.
3. It is drawn by the government to provide information to the people.
4. It is drawn by the social organization to spread awareness among the people.
Q2. What is meant by a graph and for purpose it is drawn?
Ans: Meaning: A graph is a picture drawn to simplify the complex or unclear information or data
with the help of statistical tools or for the information or data presented in continuous
frequency with the help of the statistical tools.
Purpose:
1. Graphs are drawn to make informa on easier to visualize.

2. Graphs show the trends and cycles.
3. Graph is also drawn for other types of complex or unclear statistical information.
4. Graph is drawn for the comparison of the statistical data or information.
Q3. State the importance of diagrams and graphs in economics.

Ans: The importance of diagrams and graph in economics are as follows:
IMPORTANCE/ADVANTAGES:
1. Diagrams and graphs drawn are easy to understand.

2. Comparison of available statistical data can be easily done.
4. Time and effort of the presenter of the graph and diagram is saved as presentation of
the graph is very easy.
5. Certain important and difficult contents and principles are very easy to understand with
the help of the diagram and graph.
6. Certain trends and cycles of various sectors of the economy can be easily understood.
Q4. How is computer technology useful in the process of learning?

Ans: The various programmes of the computer technology can be used in the process of learning
in the following manner:
USES OF COMPUTER TEHNOLOGY IN THE PROCESS OF LEARNING:
1. Presentation: The economic information or the data of economics can be made easy by
expressing it by using PowerPoint presentation. The complicated data can be presented
in very simple manner.
2. Excel Work Sheets: Any informa on which is of big size or any data which requires any
kind of calcula ons or formulae then use of excel work sheet is very important.
3. Diagram & Graphs: There are many programmes and software through which one can
easily draw the diagrams & charts which are helpful in the study and learning of
economics. For example the drawing tools in a MS Word.
4. Storage tools: One can easily store the study material in their computer rather than
have the physical books. The data can be stored in hard drive of the computer system
and can be easily transferred through pen drive.
5. Other tools: Many statistical programmes like SPSS, SHAZAM, SAS, etc. are used for
learning purpose. Some of these programmes are easily available on the internet free
of cost.
Q5. Write a note on data CD.
Ans. Meaning: A data CD is a compact discs used to store a huge data and information. A data
CD can also be used to transfer large quantities of data, presentations & programs to
another computer device.
USES/ADVANTAGES:
 The use of data CD in the field of education is increasing day by day.
 Many authorities and agencies like laboratories, research centres, government
agencies, etc. uses the data CD for the storage of collected information relating to
economics and other important statistics.
 Not only the above agencies but also the educational institutions, research institutes
also used these data CDs for their studies and research.
 Some of the data CDs frequently used in economics are CD of National income accounts
of India, CD of census of India, CD of data pertaining to any ministry in India, etc.
Difficulty in using Data CDs:
1. Since it stores huge amount of data it is complicated to use.

2. The person using the data CDs must have the knowledge of using the data CDs and if is not
properly done then there is a risk of losing the data.
SECTION-D
ANSWER THE FOLLOWING QUESTIONS IN BRIEF (3 MARKS EACH).
Q1. State the important aspects to be considered while drawing a diagram and a graph.
Ans: The following aspects must be considered while drawing the diagram and a graph in order
to make it’s analysis simpler and effective.
1. Choice of type of diagram or graph and it’s presentation
2. Clarity
3. Scales and measures
4. Representation of axes
5. Data table and its sources
6. Method of calculating the data
1. Choice of type of diagram or graph and it’s presentation:
In order to make the diagram or a graph more effective, proper selection of the type of the
diagram or graph must be done. Some data can be presented by one or more types of
graphs but selection of the most appropriate one is very important.
2. clarity
The drawn picture must be clear and it must be drawn in neat and clean manner. Use of
different colours or shades may be used to make the picture clear.
3. Scales and measures:
The drawn picture must be in appropriate size. The scales and measures must be taken in
accordance with the data for which the picture is drawn.
4. Representation of Axes:
The axes of diagram or graph must be properly presented and it must be as per the details
for what they are presented.
5. Data table and source of Data:
The picture becomes more reliable and authentic if properly presented with data table and
the source from which it is taken.
6. Method of calculating the data:
It is very essential to mention the statistical method used in the presentation of the
diagram or graph. By this the diagram or graph will be self explanatory.
Q2. State the important aspects to be considered while drawing a bar diagram.
Ans: The following aspects must be considered while drawing the bar diagram in order to make
it’s analysis simpler and effective.
1. All the bars should be of equal with as the width of the bars does not represent any data.
2. The length of the bars must be in proportion to the value of the variable which they
represent.
3. The distance between all the bars must be equal.
4. The base of all the bars usually coincides the X- Axis.
5. All the vertical bars should be arranged from left to right in the order of the series of the
data.
Q3. Give the difference between diagrams and graphs.

Ans. The following are the difference between diagrams & graphs:
No Diagrams Graphs
1 A diagram is a representation of theA graph is a picture drawn to simplify the
relationship between the variables complex or unclear information or data
in a picture, a plan, a drawing, a with the help of statistical tools or for the
design, etc. information or data presented in
continuous frequency with the help of the
statistical tools.
2 A diagram is drawn for the data A graph is drawn for the data which are
which are presented in discrete presented in continuous frequency
frequency distribution. distribution.
3 A diagram is drawn for self- A graph is drawn for statistical data which is
explanatory data. not self-explanatory.
4 Thorough knowledge of statistics is Thorough knowledge of statistics is
not required in drawing a diagram. required in drawing a graph.
5 A diagram is used for conveying A graph is not used for conveying
information to general public. information to general public.
Q4. Explain the usefulness of internet technology in the process of learning.

Ans: The usefulness of internet technology in the study of economics are as follows:
1. Tutorials
2. Learning
3. Reading materials
4. Information
5. Secondary data
6. Miscellaneous uses
Explanation of the points:
1. Tutorials: Many educational institutions have developed their websites in which they have
kept power point presentations and study materials. We can view that by visiting their
websites.
2. Learning: Many educational institutions have kept the videos of the lectures conducted by
the experts on their websites. Some of them also provide facilities of live video lectures for
learning. For this the students have to register themselves and than they can access the
website. For example, lectures by experts are available in economics and other subjects.
3. Reading Materials: Many books, articles, journals, etc. are easily available online either free
of cost or by paying the charges. Some of the books, journals, etc. can be purchased from
online shopping websites like Amazon, Flipkart, etc. These materials are called e-books, e-
journals, etc.
4. Information: by merely searching on the search engines like google, Yahoo search, etc., we
can get the desired and required information. We can also search the information
regarding the universities offering the degree in economics or any other subjects.
5. Secondary data: in economics the use of secondary data is very important. These data can
be accessed from the official websites of the authorities. For example, any information
regarding banking can be obtained from the official website of Reserve Bank Of India. We
can also get data of international organizations & agencies like World Bank, IMF, United
Nations, etc. from their official websites.
6. Miscellaneous uses: we can also get the thoughts of economists and experts on any topic,
names of reference books, articles, etc.
Thus, the above points indicate the usefulness of internet technology in the study of
economics.
Q5. Give the caution areas in using computer and internet technologies for studying.
Ans: The following care and caution must be taken while using computer and internet
technologies for studying:
1. Computer and internet are just tools in studying and learning and it is not the study
material itself.
2. It helps in the process of studying and learning but it does not replace the process of
studying or learning.
3. If we do not use proper and correct commands in a computer programme then we might
end up losing our material.
4. If we do not use proper formulae or data then also we may also end up getting incorrect
graphs and data processing.
5. A lots of substandard material, irrelevant information, misleading information and
plagiarized articles are found on internet from that only relevant and suitable information
must be taken into consideration.
6. Proper care must be taken regarding how to use the computer and internet technologies in
a responsible manner.
Q6. What is the importance of diagrams and graphs in context of presenting information about
economics for lay persons and for experts?
Ans. The importance of diagrams and graph in economics are as follows:
IMPORTANCE/ADVANTAGES:

2. Comparison of available statistical data can be easily done.
3. Diagrams and graphs drawn are less confusing and less complicated.
4. Time and effort of the presenter of the graph and diagram is saved as presentation of
the graph is very easy.
5. Certain important and difficult contents and principles are very easy to understand with
the help of the diagram and graph.
6. Certain trends and cycles of various sectors of the economy can be easily understood.
SECTION-E
ANSWER THE FOLLOWING QUESTIONS IN DETAIL (5 MARKS EACH).
Q1. Explain the types of diagrams in detail.

Ans: Introduction:
Any statistical data in economics if presented in the form of pictures then only a common
man can understand it. If the same is presented in any other format than the purpose of
presenting the same will not fulfill. So, it is very important to present the statistical
information by way of pictures or diagrams.
Meaning of Diagram:
A diagram is a representation of the relationship between the variables in a picture, a plan,

a drawing, a design, etc.
Types of Diagrams:
The following are the types of diagrams that are commonly used:
1. Pictogram
2. Scatter Diagram
3. Line Diagram (based on time periods)
4. Bar Diagram
5. Pie Diagram

1. Pictogram: pictograms are the kind of images that are used to represent data. In
economics the pictograms are the icons represents the data to make it more interesting
and easier to understand.
For example, © is symbol of copyright, © is a pictogram.
2. Scatter Diagram: The scatter diagram also known as the correlation chart is used to find
out the correlation between two variables. This diagram is drawn with two variables,
usually the first variable is independent and the second variable is dependent on the
first variable.
Scatter diagrams can be divided into following categories:
a. Scatter Diagram with No Correlation

b. Scatter Diagram with Moderate Correlation
c. Scatter Diagram with Strong Correlation
3. Line Diagram (based on time period): in economics the line diagram is used to
represent time based self explanatory trends of a variable.
For example, size of population in different time periods, rate of inflation in various
years, literacy rate in various years, etc.
Decade Decade Growth Rate of

growth rate of population
population (%) 30
1951-61 21.64 20
10
1971-81 24.66 0 growth rate of
1991-01 21.54 population
2001-2011 17.64
4. Bar Diagram: A diagram that uses bars to show the comparison between the various
sections of the data is called a bar diagram. The bars can be either horizontal or vertical.
The following are the types of bar diagrams:
a. Simple bar diagram

b. Clustered bar diagram
c. Divided bar diagram
a. Simple bar diagram: A simple bar diagram is used to represent the values of one
variable over base. In simple bar diagram the bars are of equal width but variable
length. It gives visual effects of the difference in the value of the variable between
regions, years, etc.
b. Clustered bar diagram: A cluster bar diagram is used to represent the values of two or
more variables over common base. Hence, one can get a clusters of bar for the same
variable over various base-values.
c. Divided bar diagram: in a divided bar diagram, a bar is divided into parts and all the
divide parts represent a common variable and common base values.
In such diagram, every single value of the variable has sub-categories.
Q2. Give an understanding of usefulness of technology in the study of economics.

Ans: The usefulness of technology can be divided into two parts:
1. The usefulness of internet technology in the study of economics.
2. The usefulness of computer technology in the study of economics.
Today majority of popula on is using the internet technology now and then. According to a
survey more than 60% of Indian people know how to use internet technology and they are
using it very wisely. In economics also the use of internet techology is increased from me
to me.
The usefulness of internet technology in the study of economics are as follows:
1. Tutorials
2. Learning
3. Reading materials
4. Information
5. Secondary data
6. Miscellaneous uses
1. Tutorials: Many educational institutions have developed their websites in which they have
kept power point presentations and study materials. We can view that by visiting their
websites.
2. Learning: Many educational institutions have kept the videos of the lectures conducted by
the experts on their websites. Some of them also provide facilities of live video lectures for
learning. For this the students have to register themselves and than they can access the
website. For example, lectures by experts are available in economics and other subjects.
3. Reading Materials: Many books, articles, journals, etc. are easily available online either
free of cost or by paying the charges. Some of the books, journals, etc. can be purchased
from online shopping websites like Amazon, Flipkart, etc. These materials are called e-
books, e-journals, etc.
4. Information: by merely searching on the search engines like google, Yahoo search, etc., we
can get the desired and required information. We can also search the information
regarding the universities offering the degree in economics or any other subjects.
5. Secondary data: in economics the use of secondary data is very important. These data can
be accessed from the official websites of the authorities. For example, any information
regarding banking can be obtained from the official website of Reserve Bank Of India. We
can also get data of international organizations & agencies like World Bank, IMF, United
Nations, etc. from their official websites.
6. Miscellaneous uses: we can also get the thoughts of economists and experts on any topic,
names of reference books, articles, etc.
Thus, the above points indicate the usefulness of internet technology in the study of
economics.
(For usefulness of computer technology refer to Ans 4 of sec D.)
*****
CHAPTER-2 INDICATORS OF GROWTH & DEVELOPMENT
SECTION-A
OBJECTIVES (MCQ-VSQ 1 Mark Each).
1. Economic development is the prime requirement of Developing countries & Economic

growth is related with Developing countries.
2. Economic growth is a quantitative change.
3. There is a rise in national income and per capita income in case of economic growth.
4. Economic development is not just about quantitative changes but also about qualitative
changes.
5. According to Michael Todaro, “Economic development is a multidimensional process”.
6. Gerald Meier stated that “Development is growth plus change”.
7. Economic development is not possible without Economic growth but Economic growth is
possible without Economic development.
8. Economic development is a process and Economic growth is an occurrence.
9. The indicators of economic development are
1. Rate of growth of national income
2. Rate of growth of per capita income
3. Quality of physical quality of life index (PQLI)
4. Human development index (HDI).
10. The experts of United Nations Organisation (UNO) have recommended per capita
income as an indicator of economic development.
11. PQLI= Literacy level + Life expectancy index + Infant mortality rate.
12. PQLI as an indicator of economic development has lesser drawbacks.
13. United Nations Development Programme (UNDP) presented the Human Development
Report (HDR) in 1990 (It is the latest indicator).
14. The value of HDI ranges from 0 to 1 & PQLI is always between 0 to 100.
15. India with 0.609 points ranked 130th out of 188 countries while Norway was ranked 1st with
0.944 points in HDI in 2014.
16. True progress = Economic progress + Social changes.
17. GDI = Gender Development Index, TAI = Technological Achievement Index, HPI = Human
Poverty Index, HCI = Human Consumer Index.
18. The per capita income of India in 2014 was 5497 US Dollars as per HDR of 2014.
19. Economic development is the cause of economic growth.
20. Economic Development takes place in a country when the contribution of agriculture
sector decreases.
SECTION-B
Q1. What is Economic Growth?

Ans: According to Prof. Hansen, “Economic growth refers to the growth of national income or
rise in total quantum of goods and services”.
 “Economic growth refers to an increase in aggregate productivity of a developed
country”.
Q2. Give the meaning of Economic development.
Ans: According to Michael Todaro, “Economic development is a multidimensional process”.
 “Economic development is a process of improving the economical, political & social
status of a developing nation”.
Q3. What is per capita income?
Ans: Per capita income is the gross national income divided by the population of that country.
 PCI = Gross National Income
Total Population
Q4. Why per capita income as an indicator is is more effective than national income as an
indicator?
Ans: The per capita income as an indicator is more effective than national income as an
indicator because it also takes the concept of population into consideration.
Q5. Which economist presented the concept of PQLI?
Ans: Morris David Morris has presented the concept of PQLI.
Q6. How many countries were included in HDI of 2014?
Ans: 188 countries were included in HDI of 2014.
Q7. Which factors are included in Human Development Index?
Ans: The following three factors are included in Human Development Index:
(1) Life expectancy (2) Knowledge (3) Standard of living
Q8. What is Infant Mortality rate?
Ans: The rate which states how many infants die before completion of one year for every 1000
live births in one year is called IMR.
Q9. State the maximum value of HDI.
Ans: The maximum value of HDI is 1.
Q10. What does high per capita income indicate?
Ans: The high PCI indicates growth and development has taken place in an economy.
SECTION-C
ANSWER THE FOLLOWING QUESTIONS IN SHORT (SQ 2 Marks Each).
Q1. State the limitations of National Income as an indicator.

Ans: The following are the limitations of National income as an indicator:
1. Difficulty in calculating the true national Income:
Various problems makes difficult to ascertain true value of national income. The problems
like double counting, products for self consumption, difficulties in calculating depreciation,
illegal incomes, tax avoidance, tax evasion, barter system, etc.
2. Population:
The concept of population is ignored in national income as an indicator of economic
development. If rate of population is high, development is low and if rate of population is
low development is high.
We cannot measure the rate of economic development only by knowing the national
income of the country.
3. Different methods of calculating national income:
There are various methods used to calculate national income across the world.
The most used methods are (a) production method (b) income method and (c) expenditure
method. The problem arises when the national income is measured using more the one
method. The result obtain from both method differs, so this is the drawback of these
methods as international comparison becomes difficult as different country use different
method to measure national income.
Q2. State the limitations of Per Capita Income as an indicator.

Ans: The following are the limitations of per capita income as an indicator:
1. Only Estimates:
The national income of any country is calculated every year so we can get almost correct
data but the population of the country is not calculated every year but once in ten years. So
only estimated values are taken. Hence PCI is not acquired correctly.
2. Difficulty in calculating national income and per capita income:

There are several issues which makes calculation of national income difficult. In same way
there are certain issues which make calculation of PCI difficult such as whether to calculate
PCI at current price or constant price which make it difficult to know real situation.
3. Per capita income shows only average:
PCI only shows the average (Gross National Income/Total Population) and on basis of this
average we cannot take any decision and the stage of development cannot be defined. If
the income is distributed equally then we can decide about the stage of development but
in any other case it will not show correct situation and this the defect in PCI.
4. Difficulty in comparison: Different countries express their per capita income in their
own currency and it makes comparision difficult at the interna onal level. So, in order
to compare per capita income of various countries first it should be converted into US
Dollars. Different countries have different criteria about the foreign exchange. This
makes comparison difficult.
5. Per Capita Income not actual income of the citizens: PCI is not the real or actual
income that a citizen of any country gets. As an indicator PCI hides more than it reveals
and hence it is not a correct indicator of economic development.
Q3. Where do the quantitative and qualitative changes occur?
Ans: Quantitative and qualitative changes are one of the characteristic of economic
development.
 In the stage of economic development there is increase in the level of “output” which
depicts the quantitative change.
 Due to research and development there are innovations which further appraises the
quality of the products which depicts the qualitative changes.
 However, qualitative changes are more as compared to the quantitative changes.
Q4. Which type of change is rise in production?
Ans: when there is rise in production it depicts quantitative changes.
 Because In the stage of economic development there is increase in the level of “output”
which depicts the quantitative change.
Q5. What are the various indicator of economic development?
Ans: The following are the indicators of economic development:
a. Growth rate of National Income
b. Growth rate of Per Capita Income
c. Physical Quality of life index (PQLI)
d. Human Development Index (HDI)
Q6. State the limitations of economic growth.
Ans: The limitations of economic growth are as follows:
 Economic growth takes only quantitative changes into consideration.
 There is rise in national income and per capita income but institutional and
psychological factors remains as it is.
 It is very narrow concept and it only shows only rise in rate and extent of output.
 This concept does not consider the concept of human welfare which is very important
in the study of economics.
Q7. State the limitations of economic development.
Ans: The limitations of economic development are as follows:
 Economic development cannot discuss about human development as it only shows the
progress of nation.
 It is very difficult to measure the economic development as it includes those changes
that have happened in the society.
 We cannot say that economic development means improvement in standard of living as
in India today also there is not much of improvement in standard of living of the
people.
 Economic development leads to increase in corruption.
 Economic development also increases financial debts.
Q8. What is life expectancy at birth?
Ans: Expectation of number of years a person will live on an average at the time of his birth is
known as life expectancy at birth.
 If the life expectancy rate increases than it can be said that the medical services of the
country are good. Higher the life expectancy be er the development.
Q9. Between growth and development,which one is difficult to measure?why?
Ans: As compared to growth,development is very difficult to measure.
 Development is more connected with the concept of quality. it covers the aspects of
improvement of standard of living of the people, health services, educa on services,
etc. it is very difficult to measure such aspects.
 On other hand, growth is connected with the concept of quan ty. it covers the aspects
of na onal income, per capita income, etc. which are easy to measure.
Q10. Sanita on facility indicates which aspect of improvement?
Ans: Improvement in sanita on facility indicates qualita ve aspect.
 Because In the stage of economic growth there is increase in the level of “output”
which depicts the quantitative change.
SECTION-D
ANSWER THE FOLLOWING QUESTIONS IN BRIEF (3 Marks Each).
Q1. What is physical quality of life? What are the aspects included in it?
Ans: Quality of life in human beings depends on the different types of goods and services that a
person consumes. The standards of consumption refer to the:
1. Consumption of food, fuel and other non-durable goods.
2. Consumption of durable and semi durable goods.
3. Consumption of services during a period of time by a person or group of people.
The physical quality of life can be determined by the consumption standard or living
standard.
If the living standard of the people increases, it can be said that there is increase in PQL
ASPECTS INCLUDED IN PHYSICAL QUALITY OF LIFE:
The composition of goods and services consumed by an individual during a period of one
year determines the physical quality of life.
The following are the determinants included in the list of goods and services:
1. Food proportion(calories, proteins-fats)
2. Health and medical services (of doctor to the population)
3. Housing and clothing (no. of houses, average no. of people living in each house)
4. Education and entertainment (% of population getting primary secondary education, TV,
theatre, etc)
5. Transport, communication, and information services (the extent of road, railway lines,
number of telephone per capita)
6. Energy (per capita energy consumption)
7. Population having access to pure drinking water
8. Average life expectancy
9. Infant mortality rate
10. Drainage system
Q2. Discuss national income as an indicator of economic development.
Ans: NATIONAL INCOME AS AN INDICATOR OF ECONOMIC DEVELOPMENT:
 According to national income indicator, a country is said to attained economic
development if there is constant rise in real national income of the country for a long
period of time.
 If the rate of rise in national income is high the development is said to be high and if the
rate of rise in national income is low than the development is said to be low.
 If there is no rise in national income is then development is stagnant whereas if
national income decreases, it means there is underdevelopment or negative
development.
 For calculating national income real income is taken and not the money income. So, it is
not calculated at current price but at constant prices.
Tabular explanation of national income as an indicator-:
Country Annual Growth rate of

National Income
Norway 2.2 %
America 2.4 %
Sri Lanka 4.5 %
China 7.3 %
India 7.3 %
Pakistan 4.7 %
(Source: World Bank & Economic Survey, 2015-16)
 Some countries have a faster growth rate of national income compared to other
countries. Hence we can say that the economic development in such countries will be
faster.
 The above table shows the annual growth rate of national income of the countries like
Norway, America, Sri Lanka, China, and Pakistan. The annual growth rate of India is
more as compared to these countries.
 Though India has the highest growth rate of national income but the countries like
Norway & America have already developed in past. Hence their growth rate appears to
be less than that of India.
Q3 Discuss per capita income as an indicator of economic development.
Ans: PER CAPITA INCOME AS AN INDICATOR OF ECONOMIC DEVELOPMENT:
 The figure obtained by dividing national income of a country with total population is
called per capita income.
 The concept of per capita income is superior to national income as it also considers the
population also.
 United Nations has recommended PCI as an indicator of economic development.
 If country’s PCI rises at faster rate, development is fast and if it grows at slow rate,
development is slow and if it is constant then development is stagnant and if it falls
then development is negative.
 The main objective of economic development is to improve the standard of living of the
people and to raise the human development. PCI is one of the best indicators in
fulfilling this objective.
 Rise in PCI improves the standard of living and physical welfare of the people and hence
it is the real indicator of economic development.
Tabular explanation of per capita income as an indicator-:

(As per purchasing power parity)
Country PCI of 2014 (in US Growth Rate

$) (%)
Norway 64,992 1.1
America 52,947 1.6
Sri 9,779 3.5
Lanka
China 12,547 6.7
India 5,497 6.0
Pakistan 4,866 2.6
 It can be seen from the table that the PCI of India was 5497 us Dollars in 2014 which is
lower than other countries like Norway and America.
 Compared to Norway, India’s PCI is 11 to 12 times less and hence we can say that the
PCI growth rate is 11 to 12 times more in Norway than India.
 The rate of PCI is less in developed countries but the amount of PCI is very much higher
as these countries are highly developed.
Q4 Explain in brief the limitations of PQLI.
Ans: The limitations of PQLI are as follows:
 ONLY THREE INDICATORS: PQLI I calculated on the basis of only 3 indicators. On these 3
basis we cannot say that the country has actually developed or not. Other factors are
also required to be included.
 PQLI Only gives average: PQLI only give average. As per the calculation of PQLI, the
values obtained are from the 3 indicators divide by 3 to obtain PQLI. One cannot make
any decision based upon this average.
 If the country’s present PQLI is high, it cannot be generalized that the economic
development is high compared to other countries.
 It is not right to give equal weighted of 100 to all the indicators as all the indicators
have different importance in human life.
 Growth of income is very important aspect of economics. PQLI does not consider this
which is a major limitation.
 The PQLI of rich countries rise at a slower rate because average life cannot increase
beyond a particular limit.
Q5. At present, India is growing or developing or both. Give answer by stating reasons.
Ans:  India is one of the fastest developing economies of the world.
 If we look at the annual growth rate of national income of India it was 7.3% in 2014
which was higher than the most developed countries like Norway and America.
 If we now look at the growth rate of per capita income, the India’s PCI has grown by 6%
which is also very high as compared with other developed countries like Norway &
America.
 By looking at above figure we can say that India has achieved economic growth. But
only by this we cannot say that India is a developed country.
 The twist occurs when we look at human development in India. The human
development index of 2014 states that India’s HDI was 0.609 and it stood at 130 th
position out of 180 countries. This is very low as compared with Norway and America.
 Although economic development is taking place in India today, there is much
improvement required in standard of living of the people.
 Thus, we can say that India is more developing country than a developed country as
there are certain areas like human development, standard of living, etc on which it
requires improvement and after improving those areas India will be termed as
economic developed nation.
SECTION-E
ANSWER THE FOLLOWING QUESTIONS IN BRIEF (5 Marks Each).
Q1. Explain with the help of examples, the difference between economic growth and
economic development.
Ans: The following are the points of difference between economic growth and economic
development.
Economic Growth Economic Development
Economic growth means increase in national Economic development is defined as a process in
income and per capita income due to increase in which national income and per capita income
production of goods and services by quantitative increases continuously over a long period of time as
changes i.e. changes in the efficiency and a result of quantitative changes in the productive
productivity of factors of production. resources and qualitative changes in the structure of
the economy as a whole i.e. inventions and
innovations.
Economic growth is always quantitative. Regular Economic Development is always qualitative &
increase in production of the long term in an quantitative. Economic growth based on inventions,
economy results in economic growth. use of new technology, improved raw materials in an
economy results in economic development.
An increase in income of developed nations is An increase in income of developing or
economic growth because in developed countries underdeveloped nations is economic development
there is knowledge of how to use resources i.e. because the problem of developing countries is
development of resources. connected with unutilized resources of the country
as they do not have enough finance.
Economic growth does not leads to economic Economic development in the long run leads to
development that is it is the effect. The increase in economic growth that is it is the cause because it
output and income do not always lead to economic structural changes always leads to an increase in
development output and income.
Increase in production leads to increase in national Increase in national income without increase in
income, due to increase in consumption, labour population, improved methods, technology etc.
force, savings, capital; government’s expenditure Increases the per capita income in the economy is
etc. is economic growth. economic development.
If production increases because of the increase in If the production increases because of discovery of
the area of land under cultivation along with hybrid seed is economic development.
greater application of labour and capital on it, it is
economic growth.
Economic growth is easy to measure. Economic development is very difficult to measure.
Economic growth is a rapid process. Economic growth is a slow process.
The concept of growth is narrow. The concept of development is broad.
Q2. Explain an improvement in PQLI as an indicator of economic development.

Ans: Introduction:
There are various indicators of economic development viz. rise in national income, rise in
per capita income, PQLI, HDI, etc. Each of one has its own importance in the study of
economics. Keeping in mind the requirements of the citizens Morris Davis Morris present
the concept of PQLI.
Meaning:
PQLI attempts to measure the quality of life of the human beings in context of economic
development.
Morris D Morris has included three indicators for measuring PQLI: 1. Literacy 2. Life
expectancy 3. Infant mortality rate.
PQLI= Literacy level + Life expectancy index + Infant mortality index
PHYSICAL QUALITY OF LIFE INDEX:

Increase in national income and per capita income are not the real indicators of
economic development as it has number of limitations. Increasing income of the country is
concentrated in the hands of very few people which is not development.
The development of the country also includes the concept of fulfillment of basic
requirements of the citizens of any country that depicts the standard of living of the
people.
The concept of PQLI studies the physical quality of life of the human being which makes
this concept more reliable than others.
There are three standards to measure the PQLI which are:
1. Extent of education
2. Life expectancy
1. Extent of education: Literacy level of the country determines situation of education.

The percentage of population educated out of the total education determines the
extent of education.
2. Life expectancy: Number of years a child is expected to live at the time of birth is
known as life expectancy. It shows the average life. If the life expectancy rises it can be
said that the medical facilities of the country is good.
3. Infant mortality rate: The number of infants who die out of every 1000 infants before
completing their first year is known as infant mortality. If IMR falls, it can be said that
health care services of the country is good.
After 2003, instead of 3 aspects, three more aspects were included and quality of life
index (QLI) is prepared in the world.
Q3. What are the factors included in human development index? Explain them.
Ans: Introduction:
The most recent indicator of development is the Human Development Index (HDI). United
Nations Development programme (UNDP) presented Human Development Report (HDR) in
1990.HDI emphasized on both economic and non economic aspects in the measurement of
economic development which makes this concept even more reliable.
Determinants of Human Development Index:

There are three factors which help in determining the HDI. Instead of absolute values,
averages of all the three values are taken.
1. Life Expectancy
2. Knowledge (Literacy/education)
3. Good standard of living
1. Life Expectancy: What is the expected number of years a person will live at the time of
birth of the population of a country determines the value. It the value is less than 50
years, that country is said to be deficient in health. Higher the life expectancy better the
HDI.
2. Knowledge (Literacy/education): To know the quantum of knowledge adult literacy in
percent is calculated. People in the age group of 15 years and above are included. Two
aspects are considered here (a) No of years of schooling (b) expected number of
schooling. The gap between expected and actual number of years of schooling is taken
to derive the values.
3. Good standard of living: Standard of living refers to availability of basic necessities like
pure drinking water, medical facilities, good sanitation, IMR, calorie consumption,
protein and fat availability, etc. these factors depends upon income of the person i.e.
purchasing power parity (PPP).
Q4. Compare PQLI and HDI and show which indicator is superior and why?
Ans: Same as Ans No (2) & (3) of section E.
Which of one is superior?
Among the two indicators PQLI and HDI, HDI is superior as it includes both economic and
non economic aspects of economy to measure the economic development.
Q5. Explain in short the indicators of economic development.

Ans: Introduction: the indicators works as standards to understand whether a country has made
progress or not and if yes than at what extent. These indicators measures the rate of
economic development and its extent can be measured in numerical and statistical terms.
Meaning: A numerical value that shows the progress of the country in terms of health,
education, gender equality, etc is known as an indicator of development.
Indicators of Economic Development:

The following are the indicators of economic development:
1. Rate of growth of national income
2. Rate of growth of per capita income
3. PQLI
4. HDI
NATIONAL INCOME AS AN INDICATOR OF ECONOMIC DEVELOPMENT:

 According to national income indicator, a country is said to attained economic
development if there is constant rise in real national income of the country for a long
period of time.
 If the rate of rise in national income is high the development is said to be high and if the
rate of rise in national income is low than the development is said to be low.
 If there is no rise in national income is then development is stagnant whereas if
national income decreases, it means there is underdevelopment or negative
development.
 For calculating national income real income is taken and not the money income. So, it is
not calculated at current price but at constant prices.
Tabular explanation of national income as an indicator-:
Country Annual Growth rate of

National Income
Norway 2.2 %
America 2.4 %
Sri Lanka 4.5 %
China 7.3 %
India 7.3 %
Pakistan 4.7 %
 Some countries have a faster growth rate of national income compared to other
countries. Hence we can say that the economic development in such countries will be
faster.
 The above table shows the annual growth rate of national income of the countries like
Norway, America, Sri Lanka, China, and Pakistan. The annual growth rate of India is
more as compared to these countries.
 Though India has the highest growth rate of national income but the countries like
Norway & America have already developed in past. Hence their growth rate appears to
be less than that of India.
PER CAPITA INCOME AS AN INDICATOR OF ECONOMIC DEVELOPMENT:

 The figure obtained by dividing national income of a country with total population is
called per capita income.
 The concept of per capita income is superior than national income as it also considers
the population also.
 United Nations has recommended PCI as an indicator of economic development.
 If country’s PCI rises at faster rate, development is fast and if it grows at slow rate,
development is slow and if it is constant then development is stagnant and if it falls
then development is negative.
 The main objective of economic development is to improve the standard of living of the
people and to raise the human development. PCI is one of the best indicators in
fulfilling this objective.
 Rise in PCI improves the standard of living and physical welfare of the people and hence
it is the real indicator of economic development.
Tabular explanation of per capita income as an indicator-:

(As per purchasing power parity)
Country PCI of 2014 (in US Growth Rate

$) (%)
Norway 64,992 1.1
America 52,947 1.6
Sri 9,779 3.5
Lanka
China 12,547 6.7
India 5,497 6.0
Pakistan 4,866 2.6
 It can be seen from the table that the PCI of India was 5497 us Dollars in 2014 which is
lower than other countries like Norway and America.
 Compared to Norway, India’s PCI is 11 to 12 times less and hence we can say that the
PCI growth rate is 11 to 12 times more in Norway than India.
 The rate of PCI is less in developed countries but the amount of PCI is very much higher
as these countries are highly developed.
PHYSICAL QUALITY OF LIFE INDEX AS AN INDICATOR OF ECONOMIC DEVELOPMENT:

Increase in national income and per capita income are not the real indicators of
economic development as it has number of limitations. Increasing income of the country is
concentrated in the hands of very few people which is not development.
The development of the country also includes the concept of fulfillment of basic
requirements of the citizens of any country that depicts the standard of living of the
people.
The concept of PQLI studies the physical quality of life of the human being which makes
this concept more reliable than others.
There are three standards to measure the PQLI which are:
4. Extent of education
5. Life expectancy
4. Extent of education: Literacy level of the country determines situation of education.

The percentage of population educated out of the total education determines the
extent of education.
5. Life expectancy: Number of years a child is expected to live at the time of birth is
known as life expectancy. It shows the average life. If the life expectancy rises it can be
said that the medical facilities of the country is good.
6. Infant mortality rate: The number of infants who die out of every 1000 infants before
completing their first year is known as infant mortality. If IMR falls, it can be said that
health care services of the country is good.
After 2003, instead of 3 aspects, three more aspects were included and quality of life
index (QLI) is prepared in the world.
HUMAN DEVELOPMENT INDEX AS AN INDICATOR OF ECONOMIC DEVELOPMENT::

There are three factors which help in determining the HDI. Instead of absolute values,
averages of all the three values are taken.
4. Life Expectancy
5. Knowledge (Literacy/education)
6. Good standard of living
4. Life Expectancy: What is the expected number of years a person will live at the time of
birth of the population of a country determines the value. It the value is less than 50
years, that country is said to be deficient in health. Higher the life expectancy better is
the HDI.
5. Knowledge (Literacy/education): To know the quantum of knowledge adult literacy in
percent is calculated. People in the age group of 15 years and above are included. Two
aspects are considered here (a) No of years of schooling (b) expected number of
schooling. The gap between expected and actual number of years of schooling is taken
to derive the values.
6. Good standard of living: Standard of living refers to availability of basic necessities like
pure drinking water, medical facilities, good sanitation, IMR, calorie consumption,
protein and fat availability, etc. these factors depends upon income of the person i.e.
purchasing power parity (PPP).
*****
CHAPTER-3 MONEY AND INFLATION
SECTION-A
 OBJECTIVES (MCQ-VSQ 1 Mark Each).

1. Money is at centre of all economic activities in a modern world.
2. Money is not only medium of exchange but also has a store value.
3. Barter system is a system of exchange where goods or services are directly exchange
without using a medium of exchange, such as money.
4. Cow, Horse and buffalo became the means of exchange values for money and trade.
5. Democracy and Industrialization inspired the need for the modern money as a measure of
exchange.
6. Marshall: “Money is that medium which is used as a medium of exchange without any
doubt or investigation regardless of time or place”.
7. Robertson: defines money as “what is accepted universally in exchange of goods or
services”.
8. Types of money: (1) commodity money (2) animals money (3) metal money (4) paper
money (5) plastic money (6) banking money (invisible/E-money).
9. Money became an important basis for the entire systems of credit, hire-purchase and
instalment purchase.
10. Increase in price level of goods or services over a time period is called Inflation.
11. A.P. Lerner defines inflation as “A situation of excess demand over supply of goods is
called inflation”.
12. DR. A.C. Piguo defines inflation as “Inflation is said to be occur when monetary income
rises faster than real income”.
13. Inflation reduces the purchasing power of the people (value of money).
14. “The real situation of inflation is created with increase in money income beyond the level
of the full employment of factors of production”- Dr J.M. Keynes.
15. When the government controls inflation via rules, law and subsidies, it is called suppressed
inflation.(it is called inflation even if there is no rise in prices)
16. If the price rise in an economy is for shorter time period then it is not inflation.
17. The two major factors affecting the price of goods or services are (1) Demand (2) Supply
18. The major factors affecting inflation are: (1) Increase in demand (2) Increase in
production cost.
19. The minor/other factors affecting inflation are: (1) Taxation policy (2) Increase in price of
import (3) scarcity.
20. If there is inflation due to increase in aggregate demand as compared to aggregate
supply, then it is called “Demand-pull inflation”.
21. If the inflation is caused due to increase in production cost, then it is called “Cost-push
inflation” or “Supply Shock inflation”.
22. Monetarists consider inflation as a purely monetary phenomenon.
23. In India 70% of petroleum products are supplied through Imports.
24. Answers of Text Book’s MCQ: (1) D-Robertson (2) A-Demand-pull (3) B-Decreases (4) A-
Suppressed (5) C- Keynes (6) C-Barter System (7) D-Coins.
SECTION-B
Q1. Write the meaning of barter system.
Ans: Barter system is a system of exchange where goods or services are directly exchange
 Exchange of goods and services for goods and services is called barter system.
Q2. Write the definition of money given by Marshall.
Ans: Marshall defines money as “Money is that medium which is used as a medium of exchange
without any doubt or investigation regardless of time or place”.
Q3. Normally, what is inflation?
Ans: Increase in price level of goods or services over a time period is called Inflation.
Q4. What is cost-push inflation?
Ans: If the inflation is caused due to increase in production cost, then it is called “Cost-push
inflation” or “Supply Shock inflation”.
SECTION-C
Q1. Discuss the function of money as a medium of exchange.
Ans: The most important function of money is to act as a medium of exchange and trade.
 Money overcomes the limitation of lack of ‘double coincidence of wants’ and makes the
exchange easier.
 Money is used as a medium to satisfy the present and future needs of an individual by
buying goods or services.
 For example, a farmer can get money by selling wheat and then from that money he
can satisfy his needs of buying clothes, ghee, milk, etc.
Q2. Discuss the function of money as a store of value.
Ans: In order to be a medium of exchange, money must hold its value over time i.e. it must be a
store of value.
 Before the invention of money, it was very difficult to store and save wealth for the
future use.
 It was not possible to keep animals as medium of exchange because they were mortal
and long term saving of values was not possible using them.
 It is very easy to store money. This made money the most successful means of storage
of value in the terms of time.
 Another advantage of using money became an important that it could be used as a
standard of deferred payment. His characteristic of money became important basis for
the entire system of credit, hire-purchase and instalment payments.
Q3. State the causes of inflation.
Ans: Increase in rice level of goods or services over a period of time are called inflation.
 The two major aspects that affect the price of goods and services are: demand and
supply.
 Based on these two aspects we can say that inflation is affected by two major factors,
they are:(A) Increase in demand (B) Increase in production cost
 The major reasons for increase in demand are: Increase in supply of money, increase in
public expenditure and over population.
 The major reasons for increase in production cost are: rise in cost of materials,
machines, electricity, water rates, worker’s wages, etc.
Q4. State the characteristics of inflation.
Ans: The following are the characteristics of inflation:
 Constant rise in levels of price
 Price rise in all the sectors
 Purchasing power (value of money) decreases
 The rise in price level after full employment is inflation
Other important aspects to understand the concept of inflation are:
 When the government controls inflation via rules, law and subsidies, it is called
suppressed inflation.(it is called inflation even if there is no rise in prices)
 If the price rise in an economy is for shorter time period then it is not inflation.
 When some factors of production are unemployed, it results in rise in price which
boosts economic activity and gives more employment to the factors and thus
production rise and price fall.
Thus, Price rise in all the sectors even after full employment of factors of production and it
is considered inflation and it proves to be very harmful for the development of any
economy.
SECTION-D

Q1. Define money and explain its functions.
Ans: MEANING:
 According to Marshall “Money is that medium which is used as a medium of exchange
without any doubt or investigation regardless of time or place”.
 Robertson defines money as “what is accepted universally in exchange of goods or
services”.
FUNCTIONS OF MONEY:
The following are the functions of money:
1. Money as a medium of exchange:
The most important function of money is to act as a medium of exchange and trade.
 Money overcomes the limitation of lack of ‘double coincidence of wants’ and makes the
exchange easier.
 Money is used as a medium to satisfy the present and future needs of an individual by
buying goods or services.
 For example, a farmer can get money by selling wheat and then from that money he
can satisfy his needs of buying clothes, ghee, milk, etc.
2. Money as a store of value:
In order to be a medium of exchange, money must hold its value over time i.e. it must be a
store of value.
 Before the invention of money, it was very difficult to store and save wealth for the
future use.
 It was not possible to keep animals as medium of exchange because they were mortal
and long term saving of values was not possible using them.
 It is very easy to store money. This made money the most successful means of storage
of value in the terms of time.
 Another advantage of using money became an important that it could be used as a
standard of deferred payment. His characteristic of money became important basis for
the entire system of credit, hire-purchase and instalment payments.
3. Money as a measure of value:
 Money plays an important role as a measure of value.
 Money, as a measure of value provides a common measure of the value of goods and
services being exchanged.
 Knowing the value or price of a good, in terms of money, enables both the supplier and
the purchaser of the good to make decisions about how much of the goods to supply
and how much of the goods to purchase.
 In the barter system, it was very difficult to measure the value of the goods exchanged.
E.g. 20 kg of wheat equals to how much kg of rice or meter of cloths or kg of ghee?
Q2. Write a short note on the origin and evolution of money.
Ans:  In order to simplify the procedure of exchange and to introduce a universally acceptable
medium which also satisfy the storage of value, money was introduced.
 Under barter system, animals were used as medium of exchange in India.
 As agriculture was the main sector of the economy, there was large production of crops
which were stored and rest were sold to buy animals.
 When required, they sold animals to buy other goods or at times even other crops also.
 In this way, animals like Cow, Horse and Buffalo became the means of exchange values
for trade. As they are mortal, they get sick and die and so this limitation caused
difficulties.
 Owing to the limitations of the animals as a standard value, people started using
minerals-stones instead of money.
 When the period of imperialism started, people started using coins as medium of
exchange in the kingdom. The only limitation was that they were used in limited
societies and regions.
 Democracy and Industrialization inspired the need for modern money as means of
exchange.
 Money with the help and support of government became widely accepted as medium
of exchange of goods and services.
 Money overcome all the limitations of barter system and with the inception of banking
system it even became easy to store and transfer money.
Q3. Explain the statement “Too much money chasing too few goods causes inflation”
Ans: “Too much money chasing too few goods causes inflation” is a statement given by
Machlup.
 The above statement means that with increase in the income there will be more
demand but the supply is less and this leads to inflation.
 When demand increase with increase in income and there is shortage of supply, there
are more buyers of the goods as compared to the suppliers, leading to increase in price
and inflation.
 This situation arises due to increase of supply of money in an economy.
 So we can say that- “Too much money chasing too few goods causes inflation”
SECTION-E

Q1. Define barter system and explain its limitations in detail.
Ans: Introduction:
In the earlier years, individuals lived a simple village life, had less needs and carried out
agricultural exchange, exchange of goods and services which was sufficient for their living.
Many factors like increasing population, urbanization, division of labour, etc made barter
system limited and less applicable.
Meaning:
 Barter system is a system of exchange where goods or services are directly exchange
 Exchange of goods and services for goods and services is called barter system.
LIMITATIONS OF BARTER SYSTEM:
The following are the limitations of barter system:
1. Issue of mutual adjustment of wants
2. Difficulty in storing value
3. Problem of Measurement of value
EXPLAINATION OF POINTS:
1. Issue of mutual adjustment of wants:
 With socio-economic development, the needs of human beings increased and so the
economic structure which was simple became more complicated.
 For example, those who had rice to exchange for wheat did not need wheat but pair of
shoes. While on another hand one who had pair of shoes did not want rice but ghee in
exchange of pair of shoes.
 Thus, there was a difficulty in establishing a need for each other’s goods or services to
make barter possible, making it a challenge to establish a barter between indivisible
and divisible goods.
2. Difficulty in storing value:
 Barter system had the most important limitation that was of storage of value.
 For example, a farmer may exchange wheat for pair of shoes or cloth, but when the
productivity rises she/he produces more and there arises the problem of storage of
surplus wheat. If the wheat can be stored for a long time period then at a future date
such stock of wheat can be exchanged for new pair of shoes or clothes or rice. The
problem was how to store surplus wheat?
 It was very difficult to store the surplus goods or store the exchange value of the goods.
3. Problem of Measurement of value:
 When the development of the world was started, division of labour and specialization
problems of measuring the value of goods or services was raised.
 Exchanging wheat for rice was simpler but large number of goods became available for
exchange against wheat and rice and hence it became very difficult to determine and
maintain exchange value of wheat.
 Wheat, rice, ghee, etc were measured in kg, clothes in meter. How many kg of wheat to
be exchange for 10 meter of cloth?
 It became very difficult to determine such measures and hence need for a universally
acceptable measuring rod raised.
 This led to the origin of money as universally acceptable measuring rod.
Q2. Define inflation and explain its causes in detail.
Ans: Introduction:
Increase in rice level of goods or services over a period of time are called inflation.
 The two major aspects that affect the price of goods and services are: demand and
supply.
 Based on these two aspects we can say that inflation is affected by two major factors,
they are:(A) Increase in demand (B) Increase in production cost
 The major reasons for increase in demand are: Increase in supply of money, increase in
public expenditure and over population.
Meaning:
 A.P. Lerner defines inflation as “A situation of excess demand over supply of goods is
called inflation”.
 DR. A.C. Piguo defines inflation as “Inflation is said to be occur when monetary income
rises faster than real income”.
CAUSES OF INFLATION:
The following are the causes of inflation:
1. Increase in demand
a. Increase in supply of money
b. Increase in public expenditure (Government expenditure)
c. Over population
2. Increase in cost of production
3. Other reasons
a. Taxation policy
b. Increase in price of import
c. Scarcity
EXPLAINATION OF POINTS:
1. Increase in demand:
 If there is inflation due to increase in aggregate demand as compared to aggregate
supply, then it is called “Demand-pull inflation”.
 The major reasons for increase in demand are following:
A. Increase in supply of money:
 When there is increase in money in a state, the individuals earn more and as a result
there will be increase in the demand of the goods but the supply remains steady which
leads to increase in price and inflation.
 Machlup says that “Too much money chasing too few goods causing inflation”
B. Increase in public expenditure (Government expenditure):
 The government of the developing countries like India incurs more expenditure in the
infrastructural facilities.
 These infrastructural facilities like provision of basic utilities, employment
opportunities, etc increases the supply of money in the economy.
 This will further rise the demand of the goods and which further increase the price and
causes inflation.
C. Over population:
 In India there is 2% increase in population, leading to increase in the demand of the
individuals.
 When the supply is less to satisfy the demand, price level increases and leads to
inflation.
2. Increase In cost of production:
 If there is an increase in the cost of materials, machines, electricity, water rates,
worker’s wages or transportation there is an increase in the price of goods or services.
 The inflation caused due to increase in production cost is called ‘cost-pull inflation or
supply shock inflation.
3. Other factors:
Basically there is an increase in demand and increase in coat of production that leads to
inflation, but there are other minor factors which causes inflation such as
A. Taxation policy:
 Tax policy of the government also causes inflation. The higher the taxes, higher the
production cost and higher the production cost, higher the prices which leads to
inflation.
B. Increase in price of import:
 In India, 70% of petroleum products are imported. If the prices of crude oil in the
international market increase, there will be rise in the price of import also.
 This rise in the price of import leads to inflation.
C. Scarcity:
 When there is scarcity of any resources, the price of those resources increases.
 This rise in the price of resources leads to inflation.
*****
CHAPTER-4 BANKING AND MONETARY POLICY
SECTION-A
 OBJECTIVES (MCQ-VSQ) (1 Mark Each).
1. The English word bank originated from the Italian word “banca” or from the French word
“Banque”.
2. The Bank of Barcelona set up in Spain in 1401 is the first real bank established in the
world.
3. The Banks are instrumental in mobilizing money.
4. *The meaning of word bank relates with stock of money.
5. The Banking Company Act was enacted in 1949.
6. *The short term lending is for a period up to 1 year, medium term lending is a period
between 1 and 5 years and long term lending is a period between 5 and 15 years.
7. The interest on call money is called call money rate.
8. NEFT= National Electronic Fund Transfer, RTGS= Real Time Gross Settlement,
CORE=Centralized Online Real Time Exchange, NBFC= Non Banking Financial Companies.
9. After the economic reforms of 1991, the foreign banks entered the private sector in India.
10. The companies which are listed in the 2nd schedule of RBI Act, 1949 are called scheduled
banks.
11. *Reserve Bank of India is the central/apex bank of India.
12. RBI also provides monetary/financial advice and suggestions to the Government.
13. The Reserve Bank of India Act was enacted in 1934.
14. RBI was established on 1st April, 1935 with a private capital of rupees 5 crores.
15. The RBI has the sole right to issue and withdraw the currency in India.
16. The RBI is a banker, advisor and agent of the central government and all state
government.
17. The RBI is the custodian of India’s reserves of foreign currencies.
18. The RBI manages the Prime Minister’s ‘Jan Dhan Yojna’.
19. The monetary policy is also known as the stabilization policy.
20. The rate at which RBI lends funds to the commercial banks for long term is called bank
rate.
21. The policy of keeping low bank rate is called cheap money policy & the policy of keeping
high bank rate is called dear monetary policy.
22. Bank Rate 1953 = 3.5%, 1981 = 10%, 1991 = 12%, 2016 = 7%.
23. The word repo in repo rate is used for the term repurchase rate.
24. Repo Rate January, 2006 = 6.5%, March, 2010 = 5%, April, 2016 = 6.5%.
25. Reverse Repo Rate January, 2006 = 5.5%, March, 2010 = 3.5%, April, 2016 = 6%.
26. The interest rate in marginal standing facility is higher than repo rate.
27. The interest rate of marginal standing facility in 2016 was 7%.
28. CRR is variable between 3% and 15% of the total deposits of individual banks.
29. All the banks have to maintain equal to and not less than 25% of their total deposits in the
form of cash, gold and government approved securities.
30. If SLR is higher people gets lesser credit and if it is lower people gets more credit.
31. Open market operations (OMO) were not used in India prior to 1991.
33. *Reverse Repo Rate (RRR) is the rate at which RBI borrows funds for very short term
period from commercial banks.
34. A commercial bank is a business unit which provides banking services for profit.
35. Finance Ministry of Government of India issues RE. 1 currency notes and currency coins
and RBI issues all other currency notes and currency coins in India.
36. In present times, monetary policy is used more for credit creation.
SECTION-B
Q1. Give the meaning of bank.

Ans: A bank is that institution which provides services of banking.
D. A bank is an authorized institution which accepts the deposits from its customers to lend the
same elsewhere for profit.
Q2. Give the meaning of a commercial bank.

Ans: A commercial bank is a business unit which provides banking services for profit.
E. A commercial bank is an institution which accepts the deposits from its customers for the
purpose lending or investing the same elsewhere for profit and repays the accepted
deposits on demand or withdrawable by cheque, draft, pay order or by any other
instrument.
Q3 Give the meaning of central bank.
Ans: A central bank is the apex bank of the country whose function is to aid, regulate, monitor
and promote the banking sector, money market and formulates monetary policy.
F. A central bank is the apex bank of India which supervises & regulates the entire banking
sector as well as formulates the monetary policy of India.
Q4 Give the meaning of monetary policy.

Ans: The policy undertaken by the apex bank for regulating the supply of money in order to
maintain economic stability keeping in to consideration the process of economic
development & interest of the public is called monetary policy.
G. Monetary policy is a policy framed by the banking authority which ensures
Liquidity, credit creation & supply of money within the economy.
Q5 What is meant by quantitative tools of monetary policy?

Ans: The quantitative tools are the measures which influence the economy as whole. These are
also known as general measures of monetary policy.
Q6 What is meant by qualitative tools of monetary policy?

Ans: The qualitative tools are the measures which direct the credit for the development of certain
sectors or sections of the economy. These are also known as the specific measures of the
monetary policy.
SECTION-C
Q1. How did the word bank originate?

Ans: The history of banking begins with the banks of merchants of the ancient world, which
made grain loans to farmers and traders who carried goods between cities. This was the
informal banking.
 The word bank came into existence from the French word ‘banque’ & Italian word
‘banca’ which means exchange of money on bench.
 In English bank means ‘heap’ or ‘mass’ & in Sanskrit it means ‘bhanda’ which means
collection of fund/capital.
 In ancient Europe, European money lenders or money changers used to display coins of
different countries in big heaps on benches or tables for the purpose of lending or
exchanging. Thus bank relates to collection or funding of money.
 The first real bank established in the world was ‘The Bank of Barcelona’ in 1401.
Q2. Give an idea of the accounts of commercial bank.

Ans: There are generally 4 accounts which can be opened in any commercial bank.
They are (A) Current Account Deposits (B) Savings Account Deposits (C) Recurring Account
Deposits (D) Fixed Account Deposits.
A. Current Account Deposits: A business, firm or an individual can open a current account
with a bank for the transactions relating to the business.
In this type of account the account holder can withdraw money number of times during
the day.
Bank gives no interest on the balance of the money which is deposited in the account but
will levy some bank charges on this account.
Bank also provides overdraft facility to the current account holder based upon his
reputation and credit.
B. Savings Account Deposits: Any individual can open a savings account with any commercial
bank to deposit his saved money and in return to earn interest on that savings.
Banks are paying interest ranging from 3% to 6% on the available balance of the account.
The account holder can withdraw money using cheque, withdrawal slip, debit card,
credit card, etc.
C. Recurring Deposits: Recurring deposits are also a type of savings deposits.

In this type of account the account holder can deposit small amount of money every
month.
The amount deposited will increase gradually and the bank will provide interest on the
accumulated money.
If a person fails or skips to deposit the amount in a particular month, bank may charge
penalty along with interest loss.
D. Fixed/Long Term Deposit Account: Fixed deposits are for a fixed period of time and those
persons who want to invest money for longer time will deposit their money in this account.
the bank will pay interest in return of the deposited money either monthly, quarterly,
half yearly or yearly based upon the requirement of the depositor.
The interest paid by the bank of this deposit is ranging from 6% to 9% and the interest
paid senior citizens is more than paid to others.
Customers can avail overdraft facility on this deposit, if required.
Q3 write a note on qualitative tools of monetary policy.
Ans: The qualitative tools are the measures which direct the credit for the development of
certain sectors or sections of the economy. These are also known as the specific measures
of the monetary policy.
The following are the qualitative tools of monetary policy:
1. Security Requirement: when any bank lends money to any person it will ask for some asset
as mortgage for security.
This security can be in the form of jewellery, fixed deposits, house, land, car, etc.
RBI directs the commercial banks regarding the amount of security which they may ask
at the time of giving different types of loan to different class of people.
A poor farmer may be granted a loan without much security and the rich businessman
may require keeping more as security with the bank for loan.
2. Margin requirement: RBI sets the margin for granting loans against security.
An individual is given only a percentage as loan of the total value of the asset offered as
security.
for example, if Mr. A requires a loan of Rs. 200,000 and he offers his car which has a
market value of Rs. 200,000 as security and if RBI has directed the commercial bank to
grant 80% of the total value of the asset than in this case Mr. A will be granted only Rs.
160,000 as loan and not Rs. 200,000.
Banks are directed to keep different margins for different purposes of loan.
3. Ceiling on credit: Ceiling on credit means the maximum amount that the commercial bank
will lend to the borrower.
RBI also prescribes the ceiling/limit for credit for different purposes.
It is the highest amount which a borrower can borrow. For example, on credit card the
limit is fixed by the bank.
4. Discriminatory Interest Rate: RBI suggests different rates of interest for different types of
lendings. This is called policy of discriminatory interest rate.
For example, rate of interest on educational, housing & agricultural loan is less as
compared with the rate of interest on personal loans.
Q4 Explain the functions of central bank in short. (In 2 Marks only explain 4 points)
Ans: The Reserve bank of India is the central bank in India. The functions of RBI are as follows:
There are two types of func ons performed by the RBI:- (A) Monetary Func ons (B)
Non-Monetary Func ons.
Monetary Func ons Non-Monetary Func ons

1. Currency Issue 1. Regulatory & Supervisory Functions
2. Banker to Government 2. Promotional Functions
3. Banker’s Bank & Lender of last Resort 3. Financial Inclusion & Development
4. Credit Control
5. Custodian of Foreign Exchange Reserve
(A) Monetary Functions: The following are the monetary functions of RBI.
1. Currency Issue: In every country it is the central bank which has the authority to issue
and distribute the currency notes & currency coins.
RBI is the sole authority to issue notes of all denominations except of Re. 1 notes and
all currency coins which are issued by the Finance Ministry of Government of India.
This function also includes the power to withdraw the issued and circulated currency
at the time of emergency or contingency.
2. Banker to the Government: The RBI is a banker, advisor & agent of the Central as well
as the State Governments.
RBI manages the funds, securities, government accounts, currency notes of Re. 1 and
currency coins, etc.
RBI also provide loans to the Central and state government, when required.
3. Banker’s Bank & Lender of Last Resort: The RBI is the banker and regulator of the all
scheduled banks in India.
It performs the following functions:
a. It manages Cash Reserves of banks.
b. To determine and direct the credit policy and rate of interest for all the banks.
It is also the lender of last resort for the scheduled bank at the time of emergency.
4. Credit Control: The RBI controls the process of credit creation and money supply in the
economy with the help of various tools of monetary policy like CRR, SLR, Repo Rate,
Reverse Repo Rate, etc.
5. Custodian of Foreign Exchange Reserve: The RBI has the responsibility of maintaining
the value of India rupee as compared to other currencies under the process of fixed
exchange rate process.
RBI maintains the value of Indian currency by buying & selling the foreign exchange
in the open market as and when required.
RBI is also the custodian of India’s reserves of foreign currencies.
(B) Non-Monetary Functions: The following are the non-Monetary functions of the RBI.
1. Regulatory and Supervisory Functions: RBI supervises and regulates the working of all
the commercial banks in India.
It supervises the functions like permission of opening banks, branch expansion,
methods of working of the banks, etc.
It also regulates the working of non banking financial companies (NBFC) & co-
operative banks.
2. Promotional Functions: Even today many people do not have a bank account and they
highly depend upon the unorganized sector for their credit needs.
In order to make them aware RBI promotes the banking throughout India through
various means.
RBI encourages people to open bank account also promotes banks to setup new
branches in the rural areas to enable the banking services.
3. Financial Inclusion & Development: In the highly populated country like India it is very
difficult to provide and manage banking services.
RBI continuously makes efforts to provide and mange the banking services
throughout India.
It provides special credit facilities to the priority sectors like agriculture, small scale
industries, cottage industries, self employed people, etc.
RBI protects the interest and rights of customers.
In present time RBI also manages the Prime Minister’s ‘JAN DHAN YOGNA’.
SECTION-D
Q1. State the difference between a commercial bank and central bank.
Ans:
No. Commercial Bank Central Bank
1. A commercial bank is a business unit A central bank is the apex bank of the
which provides banking services for profit. country which supervises & regulates the
entire banking sector as well as formulates
the monetary policy.
2. The main aim of a commercial bank is to The main aim of the central bank is of
earn profit. public welfare and economic development.
3. Commercial bank directly deals with the The central bank does not directly deals
customers. with the customers.
4. Commercial bank does not frame Central bank frames monetary policy.
monetary policy.
5. Commercial bank does not issue currency. Central bank has sole power to issue
currency.
6. There are many commercial banks in The Reserve Bank of India is the central
India. bank of India.
7. Commercial banks are subordinate to Central bank is the superior bank in India,
central bank.
Q2. List down the primary and secondary functions of commercial banks and explain each of
those in one sentence.
Ans: The following are the primary and secondary functions of commercial banks:
Primary Functions Secondary Functions
1.Accepting deposits 1.Agency and utility services
2.Providing Credit Facilities 2.Providing various facilities with changing time.
3.Payment and Withdrawal Facilities
4.Credit Creation
5.Inter-Banking transaction
(A) Primary Functions: The primary functions of the commercial banks are as follows.
1. Accepting Deposits: A bank accepts deposits from the customers and in return pays
interest at nominal or reasonable rate.
H. Deposits are mainly of three types: a. Current Account Deposits b. Savings Account
Deposit c. Fixed/Long Term Deposits.
In this type of account the account holder can withdraw money number of times
during the day.
Bank gives no interest on the balance of the money which is deposited in the account
but will levy some bank charges on this account.
B. Savings Account Deposits: Any individual can open a savings account with any
commercial bank to deposit his saved money and in return to earn interest on that
savings.
Banks are paying interest ranging from 3% to 6% on the available balance of the
account.
credit card, etc.

month.
The amount deposited will increase gradually and the bank will provide interest on
the accumulated money.
If a person fails or skips to deposit the amount in a particular month, bank may
charge penalty along with interest loss.
D. Fixed/Long Term Deposit Account: Fixed deposits are for a fixed period of time and
those persons who want to invest money for longer time will deposit their money in
this account.
The interest paid by the bank of this deposit is ranging from 6% to 9% and the
interest paid senior citizens is more than paid to others.
2. Providing Credit Facilities: Banks provides credit facilities to the needy persons such as
farmers, investors or professionals and in return bank will charge interest.
The credit facility of bank is measured in terms of time period. It can be for short term,
medium term or long term.
Short term is a period which is up to 1 year, medium term is a period between 1 and 5
years and long term is a period between 5 and 15 years.
The rate of interest charged by the bank varies with the purpose of loan.
3. Payment and Withdrawal Facilities: A bank provides easy payment and withdrawal
facilities to its customers.
These facilities are in the form of cheques, withdrawal slips and drafts, pay order, ATM
facilities (Automated Teller Machine), credit and debit cards, internet banking, etc.
The bank levy charges for such facilities.
4. Credit Creation: Banks undertakes the activity of credit creation to ensure that the supply
of money fulfills the demand for money in the economy.
Banks create money from the existing stock of money which is deposited by the
customers in their respective account.
Here on the basis of the cash deposited by the customers the banks will increase the
supply of the money through loans and advances and investments.
5. Inter-banking Transactions: Banks provides short term or long term credit to other banks
from time to time.
When short term credit is provided by one bank to another bank through central bank it
is called ‘call money’.
The interest on call money is called the call money rate.
(B) Secondary/Other Functions: The Secondary functions of the commercial banks are as
follows.
1. Agency and Utility Services: Banks as an agent provides utility services like:
I. Letter of Credit
J. Underwriting agent services
K. Payment of tax challans
L. Safe deposit vaults(Lockers)
M. Payment of electricity bills, mobile bills, gas bills, collecting LPG subsidy, etc.
N. Micro finance facilities for the development of small business.
2. Providing various facilities with changing time: With changing of time banking is also
expanding. Various services and facilities are provided by the banks which make banking
very easy and simple.
Services like RTGS, NEFT, Internet Banking, safe deposit vault, Demat account, etc has
made digitalization more effective.
Now a days customers can move freely by keeping their banks in the pockets as majority
of banks have introduced mobile banking application.
Q3 List down the quantitative and qualitative tools of monetary policy and explain each of
them in short.
Ans: There are two types of instruments/measures of monetary policy. They are:
A. Quantitative Measures
B. Qualitative Measures
Quantitative Measures Qualitative Measures

1.Bank Rate 1.Security Requirement
2.Repo Rate (RR) & Reverse Repo Rate (RRR) 2.Margin Requirement
3.Stabilization under emergency situation 3.ceiling on Credit
4.Cash Reserve Ratio (CRR) 4.Discriminatory Interest rate
5.Statutory Lending Rate (SLR)
6.Open Market Operations (OMO)
7.Sterilization of RBI accounts against shocks
arising from excessive increase & decrease
of Foreign Exchange (Balancing Inflow &
outflow of Foreign Exchange)
A. Quantitative Measures: The quantitative tools are the measures which influence the
economy as whole. These are also known as general measures of monetary policy.
1. Bank Rate: When the commercial banks have shortage of the funds, they borrow from RBI.
The rate at which the commercial banks borrow for long term from RBI is called Bank Rate.
If the bank rate is increased, commercial banks will borrow less as it would be very
expensive for them and if it is reduced then commercial banks will borrow more.
The policy of keeping bank rate very low is called cheap money policy and the policy of
keeping the bank rate very high is called dear money policy.
In current scenario, RBI has stopped using bank rate as a tool to regulate the money
supply.
Trends of Bank Rate
Year Bank Rate
1953 3.5%
1981 10%
1991 12%
2016 7%
2. Repo Rate (RR) & Reverse Repo Rate (RRR): When commercial banks are in need of funds
for short period say for 1 day, 7 days, 15 days, etc., they sell some securities to RBI with a
repurchase agreement at a particular rate. This rate is called Repo Rate.
At the time of inflation the central bank increases the repo rate so that it would be
disadvantageous for the bank to borrow from central bank.
The rate at which RBI borrows funds for very short term from the commercial banks is
called Reverse Repo Rate.
An increase in RRR is advantageous for the commercial banks as they can get more
incentives on their lendings.
RR & RRR in past few years
Years RR RRR
Jan,2006 6.5% 5.5%
March,2010 5% 3.5%
April,2016 6.5% 6%
3. Stabilization under emergency situation: This is a special window for banks to borrow
funds from RBI at the time of cash/fund shortage.
This rate is higher than repo rate. In 2016, this rate was 7%.
This facility is also known as Marginal Standing Facility.
4. Cash Reserve Ratio (CRR): All the commercial banks have to keep certain minimum cash
reserves with RBI. This reserve is called Cash Reserve Ratio (CRR).
In the initial years, CRR was decided at 5% of demand deposits and 2 % of time deposits.
Since 1962, CRR is variable between 3% and 15% of the total deposits of the individual
bank.
CRR is increased at the time of inflation and it is reduced at the time of deflation or
depression.
For Example, (if CRR is 5%) Mr. A deposits  1000 Rs in Bank  Bank keeps 950 Rs and
50 Rs will be kept as CRR with RBI.
5. Statutory Liquidity Ratio: All the commercial banks have to maintain equal to or not less
than 25% of their total deposits in the form of cash, gold and mortgage free approved
securities.
If SLR is on higher side then it would be beneficial to the government to meet
government expenditure and if it is on lower side it increases the capacity of the banks to
create loans and raise money supply by credit creation.
If SLR is higher people gets lesser credit and if it is lower people will get more credit.
6. Open Market Operations (OMO):When RBI purchases or sells government

securities/bonds in the open market, it is called Open Market Operations (OMO).
When RBI purchases government securities/bonds from the open market, the money
supply will increase.
When RBI sells government securities/bonds in the open market the money supply
decreases.
7. Sterilization of RBI accounts against shocks arising from excessive increase & decrease of
Foreign Exchange: Sterilization is an action taken by the RBI to balance the inflow and
outflow of the Foreign Exchange.
If the inflow is more than outflow or outflow is more than inflow then there will be
imbalance in the economy
This is done to keep the balance sheet unchanged owing to excessive foreign exchange.
Example,
If 100 $ is inflow of foreign exchange then RBI will sell the government securities/bonds
worth 100 $ in the open market.
B. Qualitative Measures: The qualitative tools are the measures which direct the credit for
the development of certain sectors or sections of the economy. These are also known as
the specific measures of the monetary policy.
1. Security Requirement: when any bank lends money to any person it will ask for some asset
as mortgage for security.
This security can be in the form of jewellery, fixed deposits, house, land, car, etc.
RBI directs the commercial banks regarding the amount of security which they may ask
at the time of giving different types of loan to different class of people.
A poor farmer may be granted a loan without much security and the rich businessman
may require keeping more as security with the bank for loan.
2. Margin requirement: RBI sets the margin for granting loans against security.
An individual is given only a percentage as loan of the total value of the asset offered as
security.
for example, if Mr. A requires a loan of Rs. 200,000 and he offers his car which has a
market value of Rs. 200,000 as security and if RBI has directed the commercial bank to
grant 80% of the total value of the asset than in this case Mr. A will be granted only Rs.
160,000 as loan and not Rs. 200,000.
Banks are directed to keep different margins for different purposes of loan.
3. Ceiling on credit: Ceiling on credit means the maximum amount that the commercial bank
will lend to the borrower.
RBI also prescribes the ceiling/limit for credit for different purposes.
It is the highest amount which a borrower can borrow. For example, on credit card the
limit is fixed by the bank.
4. Discriminatory Interest Rate: RBI suggests different rates of interest for different types of
lendings. This is called policy of discriminatory interest rate.
For example, rate of interest on educational, housing & agricultural loan is less as
compared with the rate of interest on personal loans.
SECTION-E
Q1. Give the meaning of commercial bank and explain its functions.
Ans: Introduction:
In modern times most of our monetary transactions are done through banks. We deposit
our valuable savings in our bank account with a motive to get some interest and that deposits will
be used by the bank for lending purpose and in return bank will get interest and like this any
commercial bank works and the difference of interest paid and interest earned is the profit of the
bank. Besides accepting and lending money banks also have some other functions.
Meaning of Commercial Bank:
1. A commercial bank is a business unit which provides banking services for profit.
2. A commercial bank is an institution which accepts the deposits from its customers for the
purpose lending or investing the same elsewhere for profit and repays the accepted
deposits on demand or withdrawable by cheque, draft, pay order or by any other
instrument.
Functions of Commercial Banks:
The following are the functions of commercial banks:

Primary Functions Secondary Functions
1.Accepting deposits 1.Agency and utility services
2.Providing Credit Facilities 2.Providing various facilities with changing time.
3.Payment and Withdrawal Facilities
4.Credit Creation
5.Inter-Banking transaction
Explanation of points:
A. Primary Functions: The primary functions of the commercial banks are as follows.
1. Accepting Deposits: A bank accepts deposits from the customers and in return pays
interest at nominal or reasonable rate.
O. Deposits are mainly of three types: a. Current Account Deposits b. Savings Account
Deposit c. Fixed/Long Term Deposits.
In this type of account the account holder can withdraw money number of times
during the day.
Bank gives no interest on the balance of the money which is deposited in the account
but will levy some bank charges on this account.
B. Savings Account Deposits: Any individual can open a savings account with any
commercial bank to deposit his saved money and in return to earn interest on that
savings.
Banks are paying interest ranging from 3% to 6% on the available balance of the
account.
credit card, etc.

month.
The amount deposited will increase gradually and the bank will provide interest on
the accumulated money.
If a person fails or skips to deposit the amount in a particular month, bank may
charge penalty along with interest loss.
D. Fixed/Long Term Deposit Account: Fixed deposits are for a fixed period of time and
those persons who want to invest money for longer time will deposit their money in
this account.
The interest paid by the bank of this deposit is ranging from 6% to 9% and the
interest paid senior citizens is more than paid to others.
2. Providing Credit Facilities: Banks provides credit facilities to the needy persons such as
farmers, investors or professionals and in return bank will charge interest.
The credit facility of bank is measured in terms of time period. It can be for short
term, medium term or long term.
Short term is a period which is up to 1 year, medium term is a period between 1 and
5 years and long term is a period between 5 and 15 years.
The rate of interest charged by the bank varies with the purpose of loan.
3. Payment and Withdrawal Facilities: A bank provides easy payment and withdrawal
facilities to its customers.
These facilities are in the form of cheques, withdrawal slips and drafts, pay order,
ATM facilities (Automated Teller Machine), credit and debit cards, internet banking, etc.
The bank levy charges for such facilities.
4. Credit Creation: Banks undertakes the activity of credit creation to ensure that the
supply of money fulfills the demand for money in the economy.
Banks create money from the existing stock of money which is deposited by the
customers in their respective account.
Here on the basis of the cash deposited by the customers the banks will increase the
supply of the money through loans and advances and investments.
5. Inter-banking Transactions: Banks provides short term or long term credit to other
banks from time to time.
When short term credit is provided by one bank to another bank through central
bank it is called ‘call money’.
The interest on call money is called the call money rate.
B. Secondary/Other Functions: The Secondary functions of the commercial banks are as

follows.
1. Agency and Utility Services: Banks as an agent provides utility services like:
P. Letter of Credit
Q. Underwriting agent services
R. Payment of tax challans
S. Safe deposit vaults(Lockers)
T. Payment of electricity bills, mobile bills, gas bills, collecting LPG subsidy, etc.
U. Micro finance facilities for the development of small business.
2. Providing various facilities with changing time: With changing of time banking is also
expanding. Various services and facilities are provided by the banks which make
banking very easy and simple.
Services like RTGS, NEFT, Internet Banking, safe deposit vault, Demat account, etc has
made digitalization more effective.
Now a days customers can move freely by keeping their banks in the pockets as
majority of banks have introduced mobile banking application.
Thus, the above discussed are the primary and secondary functions of commercial banks.
Q2. Give the meaning of central bank and explain its functions.
Ans: Introduction:
There exists a central bank in all countries of the world which regulates the banking sector
of that country. In India Reserve Bank of India is the central bank and it works for the protection
of the interest and rights of customers of various banks and of the general public. The main
function of the central bank is to frame the monetary policy.
Meaning of central bank:
A central bank is the apex bank of the country whose function is to aid, regulate, monitor
and promote the banking sector, money market and formulates monetary policy.
A central bank is the apex bank of India which supervises & regulates the entire banking
sector as well as formulates the monetary policy of India.
Functions of Central Bank:
The Reserve bank of India is the central bank in India. The functions of RBI are as follows:
There are two types of func ons performed by the RBI:- (A) Monetary Func ons (B)
Non-Monetary Func ons.
Monetary Func ons Non-Monetary Func ons

1. Currency Issue 1. Regulatory & Supervisory Functions
2. Banker to Government 2. Promotional Functions
3. Banker’s Bank & Lender of last Resort 3. Financial Inclusion & Development
4. Credit Control
5. Custodian of Foreign Exchange Reserve
Explanation of points:
A. Monetary Functions: The following are the monetary functions of RBI.

1. Currency Issue: In every country it is the central bank which has the authority to issue
and distribute the currency notes & currency coins.
RBI is the sole authority to issue notes of all denominations except of Re. 1 notes and
all currency coins which are issued by the Finance Ministry of Government of India.
This function also includes the power to withdraw the issued and circulated currency
at the time of emergency or contingency.
2. Banker to the Government: The RBI is a banker, advisor & agent of the Central as well
as the State Governments.
RBI manages the funds, securities, government accounts, currency notes of Re. 1 and
currency coins, etc.
RBI also provide loans to the Central and state government, when required.
3. Banker’s Bank & Lender of Last Resort: The RBI is the banker and regulator of the all
scheduled banks in India.
It performs the following functions:
a. It manages Cash Reserves of banks.
b. To determine and direct the credit policy and rate of interest for all the banks.
It is also the lender of last resort for the scheduled bank at the time of emergency.
4. Credit Control: The RBI controls the process of credit creation and money supply in the
economy with the help of various tools of monetary policy like CRR, SLR, Repo Rate,
Reverse Repo Rate, etc.
5. Custodian of Foreign Exchange Reserve: The RBI has the responsibility of maintaining
the value of India rupee as compared to other currencies under the process of fixed
exchange rate process.
RBI maintains the value of Indian currency by buying & selling the foreign exchange
in the open market as and when required.
RBI is also the custodian of India’s reserves of foreign currencies.
B. Non-Monetary Functions: The following are the non-Monetary functions of the RBI.
1. Regulatory and Supervisory Functions: RBI supervises and regulates the working of all
the commercial banks in India.
It supervises the functions like permission of opening banks, branch expansion,
methods of working of the banks, etc.
It also regulates the working of non banking financial companies (NBFC) & co-
operative banks.
2. Promotional Functions: Even today many people do not have a bank account and they
highly depend upon the unorganized sector for their credit needs.
In order to make them aware RBI promotes the banking throughout India through
various means.
RBI encourages people to open bank account also promotes banks to setup new
branches in the rural areas to enable the banking services.
3. Financial Inclusion & Development: In the highly populated country like India it is very
difficult to provide and manage banking services.
RBI continuously makes efforts to provide and mange the banking services
throughout India.
It provides special credit facilities to the priority sectors like agriculture, small scale
industries, cottage industries, self employed people, etc.
RBI protects the interest and rights of customers.
In present time RBI also manages the Prime Minister’s ‘JAN DHAN YOGNA’.
Q3 Explain the Quantitative measures of monetary policy in detail.

Ans: Introduction:
Quantitative measures are those tools which influence the economy as whole and not the
certain class or section of the economy. In the quantitative measures of monetary policy RBI uses
bank rate, repo rate and reverse repo rate, cash reserve ratio, statutory liquidity ratio, open
market operations, etc. as the tools for credit creation and supply of money in the economy.
Meaning of Quantitative tools/measures:
The quantitative tools are the measures which influence the economy as whole. These are also
known as general measures of monetary policy.
Types of instruments/measures of monetary policy:
There are two types of instruments/measures of monetary policy. They are:

A. Quantitative Measures
B. Qualitative Measures
Quantitative Measures Qualitative Measures

1.Bank Rate 1.Security Requirement
2.Repo Rate (RR) & Reverse Repo Rate (RRR) 2.Margin Requirement
3.Stabilization under emergency situation 3.ceiling on Credit
4.Cash Reserve Ratio (CRR) 4.Discriminatory Interest rate
5.Statutory Lending Rate (SLR)
6.Open Market Operations (OMO)
7.Sterilization of RBI accounts against shocks
arising from excessive increase & decrease
of Foreign Exchange (Balancing Inflow &
outflow of Foreign Exchange)
Explanation of Points:
1. Bank Rate: When the commercial banks have shortage of the funds, they borrow from RBI.
The rate at which the commercial banks borrow for long term from RBI is called Bank Rate.
If the bank rate is increased, commercial banks will borrow less as it would be very
expensive for them and if it is reduced then commercial banks will borrow more.
The policy of keeping bank rate very low is called cheap money policy and the policy of
keeping the bank rate very high is called dear money policy.
In current scenario, RBI has stopped using bank rate as a tool to regulate the money
supply.
Trends of Bank Rate
Year Bank Rate
1953 3.5%
1981 10%
1991 12%
2016 7%
2. Repo Rate (RR) & Reverse Repo Rate (RRR): When commercial banks are in need of funds
for short period say for 1 day, 7 days, 15 days, etc., they sell some securities to RBI with a
repurchase agreement at a particular rate. This rate is called Repo Rate.
At the time of inflation the central bank increases the repo rate so that it would be
disadvantageous for the bank to borrow from central bank.
The rate at which RBI borrows funds for very short term from the commercial banks is
called Reverse Repo Rate.
An increase in RRR is advantageous for the commercial banks as they can get more
incentives on their lendings.
RR & RRR in past few years
Years RR RRR
Jan,2006 6.5% 5.5%
March,2010 5% 3.5%
April,2016 6.5% 6%
3. Stabilization under emergency situation: This is a special window for banks to borrow
funds from RBI at the time of cash/fund shortage.
This rate is higher than repo rate. In 2016, this rate was 7%.
This facility is also known as Marginal Standing Facility.
4. Cash Reserve Ratio (CRR): All the commercial banks have to keep certain minimum cash
reserves with RBI. This reserve is called Cash Reserve Ratio (CRR).
In the initial years, CRR was decided at 5% of demand deposits and 2 % of time deposits.
Since 1962, CRR is variable between 3% and 15% of the total deposits of the individual
bank.
CRR is increased at the time of inflation and it is reduced at the time of deflation or
depression.
For Example, (if CRR is 5%) Mr. A deposits  1000 Rs in Bank  Bank keeps 950 Rs and
50 Rs will be kept as CRR with RBI.
5. Statutory Liquidity Ratio: All the commercial banks have to maintain equal to or not less
than 25% of their total deposits in the form of cash, gold and mortgage free approved
securities.
If SLR is on higher side then it would be beneficial to the government to meet
government expenditure and if it is on lower side it increases the capacity of the banks to
create loans and raise money supply by credit creation.
If SLR is higher people gets lesser credit and if it is lower people will get more credit.
6. Open Market Operations (OMO):When RBI purchases or sells government

securities/bonds in the open market, it is called Open Market Operations (OMO).
When RBI purchases government securities/bonds from the open market, the money
supply will increase.
When RBI sells government securities/bonds in the open market the money supply
decreases.
7. Sterilization of RBI accounts against shocks arising from excessive increase & decrease of
Foreign Exchange: Sterilization is an action taken by the RBI to balance the inflow and
outflow of the Foreign Exchange.
If the inflow is more than outflow or outflow is more than inflow then there will be
imbalance in the economy
This is done to keep the balance sheet unchanged owing to excessive foreign exchange.
Example,
If 100 $ is inflow of foreign exchange then RBI will sell the government securities/bonds
worth 100 $ in the open market.
Thus, the above discussed are the quantitative tools of monetary policy used by RBI for
credit creation.
*****
CHAPTER-5 POVERTY
Section-A MCQ/VSQ (1 mark each)
1. Text Book MCQ Ans:
1. (A) 2400
2. (C) 1000
3. (C) Goa
4. (D) Odisha
5. (B) 15.2 %
6. (D) Kerala.
2. Poverty is such a situation in the economy, under which one class of economy is unable to
fulfill the minimum basic needs.
3. Meaning of Poverty can be divided into 2 parts: 1. Traditional meaning of poverty 2.
Modern meaning of poverty.
4. Poverty is a state of Scarcity.
5. Nature of poverty: 1. Absolute Poverty 2. Relative Poverty.
6. ICMR = Indian Council of Medical Research.
7. In order to find Minimum per capita expenditure, ICMR has decided that Rural areas per
person per day calorie requirement =2400 calories and for urban area= 2100 calories per
day.
8. Planning Commission (Now NITI Ayog) has also accepted Minimum per capita expenditure
method in 1969.
9. Rs. 20 per capita per month was decided as measuring rod for poverty (base year 1961-
62).
10. Dandekar & Rath for rural areas decided rs. 15 per capita per month and for urban area
rs. 22.50 Per capita per month.
11. Planning commission appointed an expert committee under the chairmanship of Prof.
D.T. Lakdawala.
12. Expert committee under the chairmanship of Prof. D.T. Lakdawala estimated the poverty
for the year 1993, for rural areas rs. 49 & rs. 57 per capita per month consumption
expenditure for urban areas.
13. Poverty line becomes “Starvation Line”.
14. In 2009, Prof. Suresh Tendulkar (Tendulkar’s Committee) submitted its report to
Government. This committee also included the expenditure on health and education.
15. As per Tendulkar’s method, in 2011-12, the per capita monthly consumption expenditure
for rural and urban areas was Rs. 816 & Rs. 1000 respectively.
16. Poverty in India: 2004-05= rural area was 41.80% & urban area was 25.7% (total was
37.20%). In 2011-12= rural area was 25.70% & urban area was 13.70% (total was 21.90%)
17. GINI Coefficient is used for measuring poverty.
18. India’s rank in measurement of malnourishment= 2nd
19. Total malnourished population in India in 2011-12= 15.60%
20. IRDP was started on 2nd Oct, 1980.
21. SGSY was started on 1st April, 1999.
22. NREGA=2005, MGNREGA=2009
23. PM Awas yojana= 25th June, 2015.
24. PMFBY=Prime Minister Fasal Bima Yojana
25. Jan Dhan Yojana= 28th Aug, 2014.
SECTION-B VSQ (One Mark Each)
Q1. What is poverty line?
Ans: The estimated minimum level of per capita consumption and expenditure required to decide
the minimum basic needs of the people, it is known as poverty line.
Q2. Explain the concept of Relative poverty.
Ans: The condition in which people lack the minimum amount of income needed in order to
maintain the average standard of living in the society in which they live is called relatively poor.
Q3. Which kind of expenditure is included in Tendulkar’s committee?
Ans: The expenditure included in Tendulkar’s committee are nutritive food and balanced diet,
health, electricity, kitchen fuel, clothing, educational expenditure, housing, etc.
Q4. Which method is used to measure relative poverty?
Ans: Lorenz curve & Gini coefficient methods are used to measure relative poverty.
SECTION-C SHORT ANSWERS (2 MARKS EACH)
Q1. Explain the income concept of poverty (traditional approach).
Ans: poverty is a situation where majority of the population are unable to satisfy their basic
requirements and are living in very ordinary standard of living.
 The traditional concept of poverty defines poverty on basis of income of the person.
 When a certain minimum level of per capita consumption and expenditure is required to
decide the minimum basic needs of people it is known as poverty line.
 All the people who are earning and spending below this poverty line are called poor.
Q2. Explain the modern approach of poverty (Non income).
Ans: poverty is a situation where majority of the population are unable to satisfy their basic
requirements and are living in very ordinary standard of living.
 The modern approach is the non income approach of the poverty.
 This concept not only includes money aspect but also other important aspects like housing,
clothes, drinking water, health, sanitation, etc.
 This approach is better than the traditional approach as it give clear picture of poverty and
has wider scope than the other one.
Q3. Explain the limitations of poverty line.
Ans: The estimated minimum level of per capita consumption and expenditure required to decide
the minimum basic needs of the people, it is known as poverty line.
 The major drawback of poverty line is that it only takes into account calorie consumption.
 Poverty is an economic situation and hunger is a physical situation. So that poverty line
becomes starvation line.
Q4. What is the measure of absolute poverty in India?
Ans: In the 68th round of NSSO (National Sample Survey Organisation) 2011-12 using family
expenditure data, Tendulkar committee estimated the absolute poverty in India.
 Tendulkar committee estimated that in India in the year 2004-05, the measurement of
absolute poverty was 37.20% which reduced to 21.90% in the year 2011-12.
 The above mentioned estimations are done by MRP (Mixed Reference Period) method or
Tendulkar’s method.
Measurement of poverty in India

Poverty 2004-05 (%) 2011-12 (%)
Rural 41.80 25.70
Urban 25.70 13.70
Total 37.20 21.90
In rural area, the measurement of poverty in the year 2004-05 was 41.80% which reduced to
25.70% in the year 2011-12. Whereas in urban area the measurement of poverty was 25.70% in
the year 2004-05 which reduced to 13.70% in the year 2011-12.
Q5. Explain the importance of safe drinking water and housing facility.
Ans: Drinking Water:
 Health problem of people are connected with drinking water facilities and cleanliness.
 In India around 63.30% gets pure drinking water from treated source, 8.67% from tap
water and 26% from other sources like well, tubewell, canal, river, etc.
 In absence of pure drinking water, the danger of having water borne disease increases.
Housing:
 In Developing countries like India there exist problems of housing.
 People live in dirty hutments and slums. Housing is the basic requirement of human but
housing facilities are lacking.
 In India, 60 crores people have dwelling which are dangerous for their health and risky
for their lives.
SECTION D- ANSWER IN BRIEF (3 MARKS EACH)
Q1. Explain the economic causes of poverty.
Ans: The following are the economic causes of poverty.
1. Low agricultural productivity per labour: The agricultural productivity per labour is very
low in rural India. This is because of poor irrigation facilities, lack of sufficient technology,
lack of education and training, low rate of investment, heavy population, etc. which makes
income of the poor farmers very low and poverty increases.
2. Unequal distribution of land and property: The distribution of land and property in India is
unequal. This is because of zamindari system & exploitation of poor farmers by zamindars.
On other hand, the tenants have to work in other’s land. Income of poor will be less and
poverty will be more.
3. Minimum development of small and cottage industry: the development of small and
cottage industries in India is very less. This is due to defective planning of the government.
Government during planning period gave importance to capital intensive industries rather
than small and cottage industries.
4. Rapid increase in prices: Price rise seriously affects the poverty. If there will be more
demand and the supply to meet such high demand is less the there will be rise in the levels
of prices. It increases poverty.
5. High rate of unemployment: In India majority of people depends upon agriculture and
agriculture depends upon rain. If there will be sufficient rain then there will be good
productivity of agriculture and if not good then there will be seasonal unemployment.
Increase in population increases labour supply but employment opportunities are less.
Q2. Explain employment oriented programme for poverty eradication.
Ans: Employment generation and poverty eradication are inter-related. Some important
employment programmes are as follows:
1. IRDP- Integrated Rural Development Programme/SGSY- suvarna Jayanti Gram Svarojgar
Yogana
2. Wage employment schemes
3. PMRY-Prime minister Rojgar Yogana
4. NREGA-National Rural Employment Guarantee Act,2005/MGNREGA- Mahatma Gandhi
national Rural Employment Guarantee Act,2009
5. Housing Schemes (IAY- Indira Awas Yojana/PMAY- Pradhan Mantri Awas yojana)
6. Social Security Schemes
7. Jan Dhan Yojana
Q3. Discuss health related indicators of poverty.
Ans: In health sector, Doctors, nurses, compounders, etc are included and their scarcity affects
health services.
 India as compared to other countries lacks health services and doctors.
 In developing countries, poor people get less nutritive food and if they are sick there is
scarcity of medical facilities and doctors.
 In developing countries, every 6000 population, 1 doctor is available whereas in
developed countries, every 350 population, service of 1 doctor is available.
 In developing countries, every year 1.70 crores people die from diarrhea, malaria and
T.B. in whole world 2.30 crores people are suffering from AIDS. Out of this, 90% belong
to the developing counties.
Q4. Explain the nature of poverty.
Ans: There are two main types of poverty. They are absolute poverty and relative poverty. The
nature of poverty depends upon these two factors.
Absolute poverty: The estimated minimum level of per capita consumption and expenditure
required to decide the minimum basic needs of the people, it is known as poverty line.
People living below poverty line are called absolute poor and their poverty is called absolute
poverty.
Relative poverty: The condition in which people lack the minimum amount of income
needed in order to maintain the average standard of living in the society in which they live is
called relatively poor.
Q5. Explain in short the social security schemes for poverty eradication.
Ans: As a strategy to reduce the impact of poverty many social security schemes were started.
 For the workers of unorganized sector, from 9th may, 2015, Atal Pension scheme was
started in which monthly pension is paid to the people above 60 years.
 Prime Minister Security Scheme is also started under which for the people of age group
of 18-70 years, accident insurance of rs 2 lacs was opened with the minimum premium
of 12 rs.
 Jivan jyoti scheme was started with 2 lacs rs life insurance policy at 330 rs.
 To safeguard farmers from crop failure Prime Minister Fasal Bima Yojana (PMFBY) was
started.
SECTION E- ANSWER IN DETAIL (EACH 5 MARKS)
Q1. What is poverty? Explain its indicators.
Ans: Introduction: The level of poverty and their components are called indicators. In India many
factors showing poverty are known as indicators of poverty. They are useful to know the
poverty and levels of poverty.
Meaning: Poverty is a situation in which major part of the population cannot satisfy its
minimum requirements and it lives below the living standard.
The following are the indicators of poverty:
1. Low per capita household consump on expenditure: per capita household consump on
expenditure is the amount of income a family spends on an average on consump on of
goods and services. The per capita consumption expenditure of developing countries is
much lower than that of developed countries.
Per capita consumption expenditure ($)
Countries per capita
consumption
expenditure
US 31,469
UK 25,828
CHINA 1420
INDIA 725
2. Level of malnutrition: The level of malnutrition in developing countries is very high
inspite of more agricultural production the people with low income are unable to get
nutritive food. This is due to low per capita income and unequal distribution of income.
Measurement of malnourished people in %
Year Malnourished people

1990-92 23.70
2005-07 20.5
2014-16 15.2
3. Life expectancy and infant mortality rate: In developing countries life expectancy is very
less and infant mortality is very high. There are many reasons for this kind of problem.
The life expectancy is less due to lack of medical and health facilities and infant mortality
is high due to social and economical issues.
Life expectancy and infant mortality rate
Countries LE IMR
Norway 81.6 02
USA 79.1 06
INDIA 68.00 39
4. Medical facilities: In health sector, Doctors, nurses, compounders, etc are included and
their scarcity affects health services. India as compared to other countries lacks health
services and doctors. In developing countries, poor people get less nutritive food and if
they are sick there is scarcity of medical facilities and doctors. In developing countries,
every 6000 population, 1 doctor is available whereas in developed countries, every 350
population, service of 1 doctor is available. In developing countries, every year 1.70
crores people die from diarrhea, malaria and T.B. in whole world 2.30 crores people are
suffering from AIDS. Out of this, 90% belong to the developing counties.
5. Drinking Water: Health problem of people are connected with drinking water facilities
and cleanliness. In India around 63.30% gets pure drinking water from treated source,
8.67% from tap water and 26% from other sources like well, tubewell, canal, river, etc. In
absence of pure drinking water, the danger of having water borne disease increases.
6. Provision of Toilets: In India, 66% houses have toilet facility within house whereas
remaining 34% families us common toilets. Lack of toilet, cleanliness, pollution and
physical weaknesses keeps the production and productivity low and it is one of the
important indicators of poverty.
7. Housing: In Developing countries like India there exist problems of housing. People live in
dirty hutments and slums. Housing is the basic requirement of human but housing
facilities are lacking. In India, 60 crores people have dwelling which are dangerous for
their health and risky for their lives.
8. Electricity consumption: One of the major factors in the development of any country is
electric facility. India is major producer and consumer of electricity but then also per
capita electric consumption is less.
9. Education: The literacy rate in developing countries is less as compared to developed
countries. As per World Bank, people in the age group of 15 years and above who can
read and write are literate and all the rest are illiterate and they are mostly poor. In 2011,
literacy rate in India was 74.04% and in Brazil it was 91%.
10. Unequal distribution of income: In developing countries like India there is unequal
distribution of income seen between the rich and poor. Due to defective planning policies
there is no larger reduction in poverty.
Share of actual national income to top 1% rich class
Countries 1998 2012
US 15.2 18.9
UK 12.5 12.7
INDIA 9.0 12.6
11. High rate of unemployment: As the level of poverty is high, the level of unemployment
will also be high. As per labour commission in the year 2013-14, the rate of
unemployment among 15 years and above is 4.9%. in rural areas this rate was 4.7% and
in urban it was 5.5%.
Q2. Discuss the nature and causes of poverty.
Ans: Introduction: Poverty is such a situation in the economy, under which one class of economy
is unable to fulfill the minimum basic needs like nutritive food, shelter clothes, housing, etc.
The study nature and causes of poverty is very important.
Meaning: Poverty is a situation in which major part of the population cannot satisfy its
minimum requirements and it lives below the living standard.
Nature of poverty:
There are two main types of poverty. They are absolute poverty and relative poverty. The
nature of poverty depends upon these two factors.
1. Absolute poverty: The estimated minimum level of per capita consumption and
expenditure required to decide the minimum basic needs of the people, it is known as
poverty line. People living below poverty line are called absolute poor and their poverty is
called absolute poverty.
2. Relative poverty: The condition in which people lack the minimum amount of income
needed in order to maintain the average standard of living in the society in which they
live is called relatively poor.
Causes of poverty:
The following are the causes of poverty.
A. Historical Reasons: Historians says that, India was more urbanised and most
commercialized na on. but a er the entry of Bri sh, French and Dutch and due to
colonial exploitation, India’s agriculture and industrial progress collapsed. In order to
earn profit, Britishers ruined India by making such policies. They gave importance to large
capital intensive industries rather than labour intensive small and cottage industries, they
collected high taxes from Indians, poor farmers were also exploited.
B. Causes of Rural Poverty:
The following are the causes of rural poverty:
1. Natural causes: India being an agricultural country mainly depends upon agricultural
productivity and agriculture depends upon nature i.e. rain, weather condition,
draught, floods, etc results in low production and hence poverty increases.
2. Demographic Factors: high population rate is the main reason for poverty and also
low death rate. This results into more labour supply but employment opportunities
are less and hence it creates severe situation of poverty.
3. Economic causes of poverty: The following are Economic the causes of rural poverty
a. Low agricultural productivity per labour: The agricultural productivity per labour is
very low in rural India. This is because of poor irrigation facilities, lack of sufficient
technology, lack of education and training, low rate of investment, heavy
population, etc. which makes income of the poor farmers very low and poverty
increases.
b. Unequal distribution of land and property: The distribution of land and property in
India is unequal. This is because of zamindari system & exploitation of poor farmers
by zamindars. On other hand, the tenants have to work in other’s land. Income of
poor will be less and poverty will be more.
c. Minimum development of small and cottage industry: the development of small
and cottage industries in India is very less. This is due to defective planning of the
government. Government during planning period gave importance to capital
intensive industries rather than small and cottage industries.
d. Rapid increase in prices: Price rise seriously affects the poverty. If there will be
more demand and the supply to meet such high demand is less the there will be rise
in the levels of prices. It increases poverty.
e. High rate of unemployment: In India majority of people depends upon agriculture
and agriculture depends upon rain. If there will be sufficient rain then there will be
good productivity of agriculture and if not good then there will be seasonal
unemployment. Increase in population increases labour supply but employment
opportunities are less.
C. Social reasons: The social reasons are:
a. Low level of education: Low level of education is also an important reason for the
poverty. This type of low level education is mainly seen in rural areas. The poor
farmers cannot earn more due to lack of education and knowledge.
b. Gender Equality: India has gender equality right from the ancient time. Society cares
less about the health of the females. Amongst them low health and less opportunities
to work in economic field keeps family income low and increase the level of poverty.
D. Other Reasons: The other reasons are:
a. War: In war there will be destruction and there will rise in the level of prices of food
grains and it will result into poverty.
b. Increase in Defence Expenditure: In order to protect the nation, government will do
expenditure on modern missiles, fighter planes, tanks, etc. this will reduce the pace of
economic development and level of poverty increases.
c. Defective Policies: The policies made by the planning commission in the early stages
were defective rather than effective so it resulted in the situation of poverty.
Q3. Discuss the measures to reduce the poverty.
Ans: The following steps have been taken by the Government of India to reduce the poverty
during planning period.
1. To Increase Agricultural Productivity: With increase in agricultural productivity and income
of the farmer, poverty can be reduced. For this proper irrigation facilities, awareness,
information about upgraded technology, reasonable rates, improved infrastructural
facilities, etc should be done.
2. Development of Small Scale Industries: In order to reduce poverty, the labour intensive
industries like small scale industries and cottage industries must be developed. By
development of small scale industries, poverty can be reduced on large scale.
3. Development of unorganized sector: unorganized sectors have least government controls
so sometimes it is neglected. National Commission has recommended upgrading the
unorganized sector by providing the social security benefits.
4. Use of appropriate tax policy: Government tries to reduce the inequality of income by
using tax policy. It redistributes the income to the needy people by framing various
schemes and programmes. As a result socio-economic condition of poor improves and
there will be reduction in poverty.
5. Rise in Human Capital Investment: Poverty in developed nation is less because they give
more importance to education, training and development of skills. High level of education
satisfies the requirement of various employment opportunities. Skill development
increases productivity and income of the worker and hence poverty can be reduced.
6. Goods and services at reasonable rate: Reasonable rate here means affordable price. The
nutritive food and other basic requirements of the poor people can be satisfied through
Public Distribution schemes (PDS). The basic products can be sold at reasonable rates at
ration shops.
7. Employment programmes: The following employment programmes for poverty eradication
are as follows:
a. Integrated Rural Development Programme/Suvarna Jayanti Gram Swarojgar yojana
b. Wage Employment Schemes
c. Prime Minister Rojgar Yojana
d. National Rural Employment Guarantee Act, 2005
e. Housing Schemes
f. Social Security Schemes
g. Jan Dhan Yojana
(From a to g only 4 things to remember Name, date, objectives, benefits)
*****
CH: 6 UNEMPLOYMENT
SECTION-A MCQ/VSQ (ONE MARK EACH)
1. TB MCQ: A, A, A, A, A
2. Unemployment has become a global problem today.
3. Illiteracy is a social problem faced by India.
4. Active work force supply includes people in the age group of 15 to 64 years.
5. An unemployed person is dependent economically and cannot live with dignity.
6. Shri Krishna Committee has given 4 measures (Time, Income, Willingness and Productivity) in
2011-12.
7. If CA works as a clerk= Underemployment.
8. If a person is willing and capable of working but does not get work for more than 28 hours =
intensively unemployed.
9. A person at prevailing wage rate is eager and ready to work but is deprived of work then he is
said to be "unwilling unemployment" or "compulsory nature of unemployment."
10. If a person is not willing and ready to work and not getting work then he is not said to be
unemployed= voluntary unemployed (children, elderly people, weak people and people who do
not want to work)
11. Open unemployment can be seen more among the age group of 15 to 25 years..
12. There are three methods to get proper number of open unemployed people :(1)Through
Registration in Employment Exchange Centres (2) Through Sample Survey for Labour Supply (3)
Through Census.
13. If the marginal productivity of the labourers is zero, they are said to be disguisedly
unemployed.
14. In India the information regarding unemployment is published by Planning Commission (NITI
AYOG), Central Statistical Organisation, National Sample Survey and journal published by
Employment Exchange Reports.
15. Bhagwati Committee was established to study the problem of unemployment and it talks
about magnitude and causes of unemployment.
16. At the end of the first five year plan, 53 lacs people were unemployed which increased to 304
lacs at the end of the fifth five year plan and 348.5 lacs at the end of the ninth five year plan.
17. In India each year there is an increase in population by 1.70 crores which is more than total
population of Australia.
18. Indian intelligence is moving from India to abroad. This one sided movement is called "Drain of
Brain".
19. Advantage of Green Revolution is enjoyed by few states like Punjab, Haryana.
20. In the initial years of planning, the rate of economic development use to be as low as 3 to 3.5
%.
21. New education policy-2015.
22. Small industries can create 7.5 times more employment than big industries.
23. India is a capital scarce and labour intense country.
24. If planned properly than agriculture has more space to provide employment than any other
sector= Economist P. C. Mahalnobis.
25. According to Dr. M. S. Swaminathan, if development is encouraged towards agriculture sector
than many times more employment can be created.
26. Pandit Deendayal Upadhyay Shramev Jayate Yojana (PDUSJY) : This scheme was started on
16th October, 2014.
27. Deendayal Upadhyay Gramjyoti Yojana (DUGJY) : This programme is started with an objective
of providing constant 24 × 7 electricity services in rural areas.
28. Deendayal Upadhyay Gramin Kaushalya Yojana (DUGKY): This scheme was started on 25th
September, 2014 with main objective of providing employment to youth between age group of 18
to 35.
29. Prime Minister Agricultural Irrigation Programme : This programme was started on 1st July,
2015 with an objective of "Water to every filed".
SECTION B VSQ (ONE MARK EACH)
Q1. Explain meaning of unemployment.
Ans: Unemployment is a situation where a person is ready and capable of working at current wage
rate but does not get work.
Q2. Which type of unemployment is seen in developed nations?
Ans: Disguised Unemployment is mostly seen in developing countries.
Q3. Define disguised unemployment.
Ans: In any activity if too many persons are employed at the given level of technology, and when a
few persons are removed from work, the total production does not change, and then there exists
disguised unemployment.
Q4. Which depression is called world's great depression?
Ans: The severe depression was experienced by America during 1929-30 is called world’s Great
Depression and its effect was faced by many countries of the world.
Q5. From where is information regarding extent of unemployment in India is obtained?
Ans: In India the information regarding unemployment is published by Planning Commission (NITI
AYOG), Central Statistical Organisation, National Sample Survey and journal published by
Employment Exchange Reports.
Q6. Which age group is called productive age group?
Ans: Age group between 14-64 years.
Q7. Which industries should develop to solve the problem of unemployment?
Ans: Small & Cottage Industries.
Q8.Which slogan is given by Prime Minister Agricultural Irrigation scheme?
Ans "Water to every filed".
Q9.When was "Pandit Deendayal Upadhyay Shramev Jayate Yojana" started?
Ans: This scheme was started on 16th October, 2014.
SECTION C ANSWER THE FOLLOWING (TWO MARKS EACH)
Q1. Explain meaning of full unemployment.
Ans: Those individuals who are ready to work at current wage rate and posses qualifications too,
but do not get any job are said to be ‘fully unemployed or openly unemployed’
 This type of unemployment is seen more in cities than in villages. Open unemployed people are
those who migrate from villages to cities in search of job.
 Open unemployment can be seen more among the age group of 15 to 25 years.
 To get proper number of open unemployed people is very difficult, still there are three
methods: (1) Through Registration in Employment Exchange Centres (2) Through Sample Survey
for Labour Supply (3) Through Census.
Q2. Explain frictional unemployment with example.
Ans: When in production process, because of changes in demand or production or due to change
in taste and preferences or new technology, new goods enter in the market and unemployment
arises, then this unemployment is called frictional unemployment.
In a developed nation when old production system is replaced by a new production system then
the units with old production system face economic loss and shut down. As a result, the labourers
working in those units remain unemployed for a short term till they don't learn the work according
to the new technology.
e.g. When smart phone replaced old mobile phones then the labourers engaged in production,
sales and service of old mobile phones became unemployed. This is frictional unemployment.
Q3. "The problem of unemployment is because of low savings and investment in India." Explain
in brief.
Ans: Indian planning has increased national income but side by side population growth rate also
increased.
As a result, per capita income increased at a lower rate than national income. Due to low per
capita income and expenses in satisfying basic needs of burdensome population kept saving and
investments at a lower rate.
Because of low rate of investment in industry, agriculture or other sector, they could not create
much employment opportunities which increased the problem of unemployment.
Q4. "Labour intensive technique is more applicable for India." Explain.
Ans: Cottage and small scale sector have capacity to create employment with low a investment.
Small industries can create 7.5 times more employment than big industries.
India is a capital scarce and labour intense country. So, development of cottage and small scale
industries should be accepted as the best alternative and special initiative should be taken for its
development.
In the industrial policy also, these industries are given importance and various measures have
been taken for their development.
Q5. Which scheme was started to provide continuous electricity service in rural area? Explain it.
Ans: Deendayal Upadhyay Gramjyoti Yojana (DUGJY) scheme was started to provide continuous
electricity service in rural area.
Instead of the earlier Rural Electrification programme, this programme is started with an
objective of providing constant 24 × 7 electricity services in rural areas.
Q6. When and with what objective Prime Minister Irrigation scheme was started?
Ans: Prime Minister Agricultural Irrigation Programme was started on 1st July, 2015.
It has main objective of "Water to every filed" to increase field productivity, optimum use of
available resources and planning of irrigational facilities to agricultural areas.
SECTION D ANSWER IN BRIEF (THREE MARKS EACH)
Q1. Explain the measures given by Raj Krishna to understand the nature of unemployment.
Ans: Shri Raj Krishna committee Report in 2011-12 has given four measures:
Time: If any person has willingness and capacity to work but does not get work for more than 28
hours a week, he is said to be intensively unemployed. But those who are employed for more than
28 hours and less than 42 hours in a week then they are considered as less intensively
unemployed.
Income: When a person gets very less income which cannot solve the problem of his poverty
then from income point of view, he is poor. In rural India, especially this type of poverty is seen.
e.g. a person required 30,000/- per month for satisfying the needs of his family, but earning only
15,000/- or less from his current job.
Willingness: When a person is eligible of getting good job but she/he does not get job
as per her/his eligibility and accepts lower cadre job and gets very less income from this job then
he is underemployed.
e.g. if C.A. works as clerk.
Productivity: When a labourer is working with less than his actual productivity then production
is less than his productive capacity.
e.g., a person can make 20 meter clothes in a day but gets a job where he can make only 10 m
clothes.
Q2. Explain the concept of under employment in detail.
Ans: When labourers cannot utilize their capabilities fully and for certain period accept less cadre
job, it is said to be underemployed.
When a labourer is willing and ready to work for certain years or days but gets job for less than
those hours or days then he is said to be underemployed.
e.g. a labourer working in industry or agricultural land gets work only for 5 hours instead of 8
hours, then he is said to be underemployed.
Similarly many individuals do not get jobs according to their degrees, they accept degraded job
that is also called underemployment.
e.g. a person with the degree of computer engineer works in a garage.
Q3. Explain the concept of disguised unemployment with example.
Ans: Disguised unemployment means hidden unemployment. This type of unemployment is very
common in developing economies like India.
Meaning: In any activity if too many persons are employed at the given level of technology, and
when a few persons are removed from work, the total production does not change, then there
exists disguised unemployment. Disguised unemployment has zero marginal productivity.
In India, population is constantly increasing. Hence, people demanding employment is also
increasing at a higher rate. But in India, poor development of sectors other than agriculture puts
heavy burden on agriculture sector for employment. If the surplus labourers are removed from
agriculture sector then also agriculture production will not decrease. As the marginal productivity
of these labourers is zero, they are said to be disguisedly unemployed.
E.g. If 10 hectare land is to be optimally used then maximum 5 labourers can be employed. But
due to unavailability of work, anywhere else, the other 3 members of family also join the same
work. But even after they join, the total production does not increase at all, and then the other
three labourers are called disguisedly unemployed.
These labourers visibly do not seem to be unemployed but because the marginal productivity is
zero there is a disguised unemployment.
Q4. Explain the concept of cyclical unemployment.
Ans: During prosperity there is a high investment, production, income, employment in the
economy. When economy faces depression then there is a reduction in the demand of goods and
services. Due to reduction in effective demand, industries have to reduce production or shut down
the production and many labourers are retrenched from work.
So this type of unemployment is called cyclical or depressive unemployment or trade cycle
unemployment.
This type of unemployment is seen developed countries like America, England, etc.
To solve the problem of cyclical unemployment, investment in productive and developmental
activities should be done and provide employment to maximum people and try to increase their
income levels. With increase in income, effective demand will increase and production will
increase. With increase in production, employment will increase. As a result the problem of cyclical
unemployment will reduce.
Q5. "Defective education system is responsible for unemployment." Explain.
Ans: In India, one reason for a high educational unemployment is ineffective educational system.
Those who can work according to the changing working atmosphere in every sector, such type
of workers are not created. With the objective of increasing economic growth rate, technology and
mechanization has been adopted by industries and agriculture.
Such labourers are required who have knowledge of these techniques, but the present
education system is opposite to that.
Hence, skilled labourers are few because of lack of vocational education. Present education
failed in mental and physical formation of human being even after acquiring education, a person is
incapable of self employment and suffers from problem of unemployment.
Q6."Negligence towards agriculture has increased the problem of unemployment in India."
Explain.
Ans: In India's economic development policy, more emphasis is given to other sector than
agriculture. As agriculture was given less importance, it could not develop effectively and the
planning related to agriculture sector failed to generate more employment.
Advantage of Green Revolution is enjoyed by few states like Punjab, Haryana. So, overall
employment could not be created in agriculture sector.
Burden of population, lack of irrigation facilities and lack of agricultural finance, uncertainty of
monsoon and few other uncertainties are responsible for poor development of agriculture.
In rural area, non-agricultural sectors are not developed properly. That is why rural labourers
who are dependent on agriculture, face high rate of seasonal and disguised unemployment.
Q7."Speed and expansion of green revolution can solve the problem of unemployment."
Explain.
Ans: To solve the problem of unemployment in rural areas, green revolution should be speed up
and effort should be made to extend it to more areas which can increase the opportunities of
employment.
As per Economist P. C. Mahalnobis proper planning in agriculture can provide more
employment opportunities than any other sector.
According to him, in India by investing 1 cr in agriculture sector 40,000 people can be employed
and production can be increased by 5.7 %. Whereas in big industries by investing 1 cr only 500
people can be employed and production can be increased by 1.4 %.
Thus, agriculture sector can create more employment than industry. So for the green revolution
in agriculture, the important complimentary activities such as minor and major irrigation, soil
conservation, mix farming, forest development, planning for more harvest should be adopted. By
enhancing the planning for more than one harvest in a year, modernization of land, stressing on
agro based rural industries, employment opportunities can be increased.
According to Dr. M. S. Swaminathan, if development is encouraged towards agriculture sector
Q8. Give the information about Mahatma Gandhi National Rural Employment Guarantee
Programme.
Ans: The name NREGA was changed to MGNREGA on 2nd October, 2009. To make this programme
successful, government declared 2nd February as "Employment Day". In this programme, at least
one person from each family is given guarantee of getting employment for 100 days in a year.
1/3rd employment is reserved for females under this scheme. It was recommended to provide
minimum wages for physical labour.
Labourers should be provided wages within seven days. Labourer should be given employment
within 5 km from their residence. If labourers are given employment beyond that distance then 10
% extra wages are given to them.
Labourers working under this scheme are provided job cards which is valid for five years. After
receiving job card if the labourer does not get employment then he is paid employment allowance.
SECTION E ANSWER IN DETAIL (FIVE MARKS EACH)
Q1. What are the reasons of unemployment? Describe any five in detail.
Ans: Introduction: In India the information regarding unemployment is published by Planning
Commission, Central Statistical Organisation, National Sample Survey and journal published by
Employment Exchange Reports. Bhagwati Committee was established to study the problem of
unemployment and it clearly talks about magnitude and causes of unemployment.
Meaning: Unemployment is a situation where a person is ready and capable of working at current
wage rate but does not get work.
REASONS/CAUSES OF UNEMPLOYMENT:
1. High Rate of Population Growth
In India, size of population and high rate of population growth is noticed. Because of high growth
rate of population, there is a tremendous increase in the size of population. With this, labour
supply also increases rapidly and there is a continuous increase in new labourers, in search of
employment in labour market. But simultaneously, there is a slow rise in employment
opportunities which increases the problem of unemployment and underemployment.
According to one estimate, in India each year there is an increase in population by 1.70 crores
which is more than total population of Australia. So, with this much increase in population and lack
of employment opportunities, unemployment rises.
The rate of growth of employment is much lesser than the population growth rate in India,
which gives rise to the problem of unemployment and it keeps on increasing.
2. Slow Rise in Employment Opportunities
Increase in employment and economic growth rate has strong relationship. But during planning
periods, there was continuous increase in economic growth but we failed in creating employment
opportunities which shows that "Economic growth has remained jobless growth."
In first three decades of planning, India attained 3.5 percent of economic growth. This growth
rate increased to 7.6 % in 10th five year plan and 7.8 % in 11th five year plan but still number of
unemployed kept increasing.
Even after planned economic growth, opportunities cannot be created. Green revolution in
agriculture sector remained limited to certain areas and sector other than agriculture observed
slow growth. Employment cannot be created as per labour supply, which increased
unemployment.
3. Low rate of Savings and Investments
Indian planning has increased national income but simultaneously population growth rate also
increased. As a result, per capita income increased at a lower rate than national income. Due to
low per capita income and expenses in satisfying basic needs of burdensome population kept
saving and investments at a lower rate.
Due of low rate of investment in industry, agriculture or other sector, they could not create
much employment opportunities which increased the problem of unemployment.
4. Capital Intensive Production Technique
To solve the problem of unemployment, labour intensive techniques of production should have
been adopted but from the second five year plan but India has adopted development of heavy and
basic industries.
In planning schemes also in place of capital intensive technique, labour intensive technique was
given less importance. In agriculture and industries, mechanisation was adopted which increased
employment at slow rate. In industrial sector also to increase productivity and to get security
against organized labour unions, such a policy is adopted which saves labour. Other than that
railway, irrigation, roads, construction and public sector of state also uses capital intensive
technique. As a result, unemployment problem increased.
Bhagwati Committee and Venkatraman Committee also recommended using less of
mechanisation.
5. Lack of Vocational Education
In India, one of the main reasons for a high educational unemployment is ineffective educational
system.
Those who can work according to the changing working atmosphere in every sector, such type
of workers are not created. With the objective of increasing economic growth rate, technology and
mechanisation has been adopted by industries and agriculture. So such labourers are required who
have knowledge of these techniques, but the present education system is opposite to that.
Hence, skilled labourers are few because of lack of vocational education. Present education
failed in mental and physical formation of human being even after acquiring education, a person is
incapable of self employment and suffers from problem of unemployment.
6. Lack of Manpower Planning
In India during planning period manpower is not planned properly. The type of labour which is
in demand presently in India, availability of similar type of labour supply is not possible, as that
kind of human resource planning is not found in the education system.
Education has been made a widespread activity without estimation of kind and number of
labour requirement.
In many cases, due to lack of employment opportunities the doctors and engineers with high
degree, go to foreign countries because of not getting suitable work in our country.
During British rule, gold used to move from India to Britain. This one sided movement is called
"Drain of Gold." Similarly presently Indian intelligence is moving from India to abroad. This one
sided movement is called "Drain of Brain".
7. Inefficiency of Public Sector
After independence, public sector was given more importance than private sector. There is an
immense increase in number of public sectors and its investments.
The quantity of employment generation estimated from public sectors, was not able to generate
more employment because of its low productivity. Employment oriented private sectors were
controlled, for the development of public sector.
Moreover, private sector development was neglected and so there was less employment
generation and unemployment increased.
8. Negligence Towards Agriculture Sector

In India's economic development policy, more emphasis is given to other sector than
agriculture. As agriculture was given less importance, it could not develop effectively and the
planning related to agriculture sector failed to generate more employment.
Advantage of Green Revolution is enjoyed by few states like Punjab, Haryana. So, overall
employment could not be created in agriculture sector. Burden of population, lack of irrigation
facilities and lack of agricultural finance, uncertainty of monsoon and few other uncertainties are
responsible for poor development of agriculture.
In rural area, non-agricultural sectors are not developed properly. That is why rural labourers
who are dependent on agriculture, face high rate of seasonal and disguised unemployment.
9. Low Mobility of Workers :
In many circumstances lack of mobilisation among labourers, is also a reason for
unemployment. In India, due to social reasons, family relations, language, religion, casteism,
culture, lack of information, lack of transportation facilities and problem of housing are few
reasons which restrain mobilisation and increase problem of unemployment.
People with higher education are not interested in going to rural areas, backward areas even if
they get employment. These people expect to get employment in urban area which, if not satisfied
they would prefer to remain unemployed. Attraction towards urban life and urban facilities do not
show readiness among people to go to rural areas for employment.
10. Lack of Infrastructural Facilities
In rural area because of lack of infrastructural facilities unemployment is increased.
In rural area lack of transportation facilities, lack of proper roads, lack of education, health and
electricity facilities are the reasons of low generation of employment. As such, in rural areas for
industries there are availability of labourers at low wages and easy availability of raw materials for
agro-based industries but due to lack of continuous and required electricity, industrialists do not
wish to establish industries in rural areas, as a result new employment cannot arise and
unemployment exist.
In India, lack of national employment policy, lack of proper environment for development of
industries and trade, under utilisation of natural resources are also responsible for increase in
unemployment.
Q2. What are the measures to solve the problem of unemployment? Explain any five in detail.
Ans: Introduction: The problem of unemployment is not only economic, it also gives rise to social,
moral, political and psychological issues. In the eighth five year plan, it was thought to make Right
to employment as fundamental right and changes could be made in constitution but it could not
be materialised. It is necessary to provide appropriate employment opportunities is the prime
responsibility of our country.
Meaning: Unemployment is a situation where a person is ready and capable of working at current
wage rate but does not get work.
Measures to solve the problem of unemployment:
1. Population Control
The high population growth rate of India has increased the problem of unemployment and
made it more serious.
In India, problem of unemployment is to be solved then effective steps for population control
must be taken. With that, the rate of population growth will come down and the high rate labour
supply will reduce.
So, the number of job seekers will reduce and on the other hand because of population control,
resources will become surplus. As a result, rate of capital investment and employment
opportunities will increase. With the population control, in long term, the productive age group
(15 to 64 year) can be placed appropriately.
2. Increase in the rate of Economic Development :
One of the constructive solutions of reducing unemployment is by increasing the rate of
economic development.
In the initial years of planning, the rate of economic development was very low at 3 to 3.5 %. If
economic developement is continuously increased at a higher rate, then employment
opportunities can also develop at higher rate and problems of unemployment can be solved.
Efforts should be made so that advantage of green revolution shall be reaped by every state and
that way by achieving high economic development, employment opportunities should increase
and problem of unemployed could be solved.
3. Employment Oriented Planning
It is seen that during planning, special emphasis is given to economic development. Like, from the
2nd five year plan special importance was given to the development of public sector and as a key
to basic industries, capital intensive industries were developed.
In present situation, employment oriented planning is very important. For that state has
encouraged consumer goods and labour intensive industries, small and medium scale industries
and business and trade, animal husbandry, dairy development. Because of all these, industries
require less of capital and generate more employment.
With the establishment and development of these employment oriented industries, the
production of consumer goods will increase, employment will increase and economic stability will
also be achieved.
4. Employment Oriented Education
Present education system is responsible for unemployment. Present education system only
provides bookish knowledge and produce clerks. So, even after being graduated in commerce and
management field, individual does not become capable enough for self employment.
 So for a longer period of time, they have to remain unemployed. In order to change this
situation, it is necessary to give vocational education in the field of trade, commerce, business,
agriculture and other fields. For this, a major change is needed in present education system. In
India, to solve the problem of unemployment and to increase the capabilities to gain employment,
a revolutionary change in the educational field is necessary which can implement an educational
system with perfect human resource planning.
In the new education policy of 2015, for employment generation, collaboration with industries
were developed as the objective to have vocational education.
5. Development of Cottage and Small Scale Industries
Cottage and small scale sector have capacity to create employment with low a investment. To
provide employment to one person, low capital investment is required as compared to big
industries.
With the development of these types of industries, problem of unemployment can be solved.
With similar capital investment small industries can create 7.5 times more employment than big
industries. India is a capital scarce and labour intense country.
Development of cottage and small scale industries should be accepted as the best alternative
and special initiative should be taken for its development. In the industrial policy also, these
industries are given importance and various measures have been taken for their development.
6. Extension of Infrastructural Facilities :

Indian rural areas have less employment opportunities than urban areas and the reason
responsible for this is poor infrastructural facilities in rural area.
If Government extend the services like education, health, housing, electricity, roads, business
training center and other infrastructural facilities, then with the help of local resources,
employment can be made availaible to individuals, nearer to their residences.
With the development of infrastructural facilities, new employment opportunities will increase.
Employment will also generate in agriculture and allied sector. So, problem of unemployment will
reduce.
7. Speed and Expansion of Green Revolution in Agricultural sector :
To solve the problem of unemployment in rural areas, green revolution should be speed up and
effort should be made to extend it to more areas which can increase the opportunities of
employment.
As per Economist P. C. Mahalnobis proper planning in agriculture can provide more
employment opportunities than any other sector.
According to him, in India by investing 1 cr in agriculture sector 40,000 people can be employed
and production can be increased by 5.7 %. Whereas in big industries by investing 1 cr only 500
people can be employed and production can be increased by 1.4 %.
Thus, agriculture sector can create more employment than industry. So for the green revolution
in agriculture, the important complimentary activities such as minor and major irrigation, soil
conservation, mix farming, forest development, planning for more harvest should be adopted. By
enhancing the planning for more than one harvest in a year, modernization of land, stressing on
agro based rural industries, employment opportunities can be increased.
According to Dr. M. S. Swaminathan, if development is encouraged towards agriculture sector
Q3. Explain any three schemes introduced to solve the problem of unemployment.
Ans: Introduction: From the fifth five year plan, various employment oriented schemes were
started to solve the problem of unemployment.
Some of them are as below :
A. Mahatma Gandhi National Rural Employment Guarantee Programme.
The name NREGA was changed to MGNREGA on 2nd October, 2009. To make this programme
successful, government declared 2nd February as "Employment Day". In this programme, at least
one person from each family is given guarantee of getting employment for 100 days in a year.
1/3rd employment is reserved for females under this scheme. It was recommended to provide
minimum wages for physical labour.
Labourers should be provided wages within seven days. Labourer should be given employment
within 5 km from their residence. If labourers are given employment beyond that distance then 10
% extra wages are given to them.
Labourers working under this scheme are provided job cards which is valid for five years. After
receiving job card if the labourer does not get employment then he is paid employment allowance.
B. Pandit Deendayal Upadhyay Shramev Jayate Yojana (PDUSJY):
This scheme was started on 16th October, 2014. Some of the objectives of this scheme were to
provide health and security along with good management, skill development and welfare to the
labourers of unorganised sector and to develop Proper environment for industrial development.
C. Deendayal Upadhyay Gramjyoti Yojana (DUGJY):

Replacing the earlier Rural Electrification programme, this programme is started with an
objective of providing constant 24 × 7 electricity services in rural areas.
D. Deendayal Upadhyay Gramin Kaushalya Yojana (DUGKY):
This scheme was started on 25th September, 2014.
The main objective of this programme was to provide employment to youth between age group
of 18 to 35 years.
E. Prime Minister Agricultural Irrigation Programme:
This programme was started on 1st July, 2015.
The main objective of this programme is "Water to every filed" to increase field productivity,
optimum use of available resources and planning of irrigational facilities to agricultural areas.
*****
CH-7 POPULATION
SECTION- A (MCQ/VSQ- 1 mark each)

1. The world population has crossed 7 billion mark and India's population has reached 1.25
billion.
2. Rise in population is the root cause of most of the problems in an economy.
3. India's death-rate has fallen rapidly and as against it, birth-rate has not fallen to that
extent, which has resulted in rise in net population which is known as population
explosion.
4. Between 1931 and 2011, there has been a continuous rise in population.
5. In the year 1951, population of India was 36.1 crores which has increased to 121.02 crores
in the year 2011.
6. Period after 1970 is identified as population explosion in India.
7. The very first population census was conducted in 1871 owing to the initiative of Jamshedji
Tata.
8. A systematic census was conducted in 1891 and thereafter it has been conducted every 10
years.
9. The first census of independent India was conducted in 1951.
10. The number of females in the country per 1000 males is identified as Sex ratio or Gender
ratio or female-male ratio.
11. According to the census of 2011, between 2011 and 2025, the estimated population
growth in India will be 139.98 crores.
12. According to 2011 data for every thousand males, there were 1084 females in Kerala is the
highest. The lowest female population per 1000 males was 879 in Haryana. Female
population per 1000 males was 918 in Gujarat (2011).
13. 0-14 & 65 years & above are non working groups while 15-64 years are working groups.
14. There are two factors affecting increase in population: Birth-rate and Death-rate.
15. Birth Rate = The number of live-births during a given year/Total Population X 1000.
16. Birth rate: 1951=39.9 & in 2011=21.8.
17. Death rate = No. of people who die in a given year/Total Population X 1000.
18. Death Rate: 1951=27.4 & in 2011=7.1.
19. The birth-rate is high because of illiteracy and low education.
20. "Out of every 1000 children born in a given year, the number of child deaths before one
year of age is known as infant mortality rate".
21. Infant mortality rate: 1951=146 & 2011=41.40.
22. High fertility age group= 14-49 years.
23. In 1961, the average of women in age group of 14-49 gave birth to 6 children which fell to
3 in 2011.
24. Increase in the supply of food grains was registered after 1966, when green revolution was
introduced in India.
25. Population Policy was formed in the year 2000.
26. In the year 2000 population policy, emphasis was placed on women upliftment.
27. Demographers believed that education is the best method for population control.
28. By raising the legal age of marriage for women, reduction in birth-rate can be achieved.
29. As per the population policy of 2000, encouragement was given to raising the age of
marriage for women from 18 to 20 years.
30. The couples who undergo sterilisation are given financial compensation by the
Government.
31. In India, in the elections of local self government, couple with more than two children
cannot contest in elections.
32. India was the first country in the world to introduce population policy to control
population.
33. A committee was set up to frame New Population Policy of 2000 under the Chairmanship
of Dr. M. S. Swaminathan.
34. Text Book Mcq: {1-A, 2-C, 3-B, 4-D, 5-C, 6-B, 7-A, 8-C, 9-C, 10-A}
SECTION-B (VSQ- 1 Mark Each)
Q1. What has been the basic cause for all the problems?
Ans: Population Explosion or population rise is the basic cause for all the problems.
Q2. What is meant by working and non working population?
Ans: 0-14 years & 65 years & above are non working groups while 15-64 years are working
groups.
Q3. What was the population growth rate in 2011?
Ans: The population growth rate in 2011 was 1.64%.
Q4. Where does India stand in the world population order?
Ans: India stands 2nd in the world population after China.
Q5. What was the female population per 1000 males in Gujarat in 2011?
Ans: The female population per 1000 males in Gujarat in 2011 was 918.
Q6. What is meant by classification of population according to age group?
Ans: Distribution of total population of the country in different age group. e.g. 0-14 years,
15-64 years etc. is known as classification of population according to age group or age
composition of population.
Q7. Which age group has the highest population in India?
Ans: 15-64 years age group has the highest population in India.
Q8. State the percentage of rural urban population in India in the year 2011?
Ans: The percentage of rural population was 68% & urban population was 32% in India in the
year 2011.
Q9. What is meant by infant mortality rate?
Ans: Out of every 1000 children born in a given year, the number of children dies before
completion of one year of age is known as infant mortality rate.
SECTION- C (ANSWER IN SHORT- 2 MARKS EACH)
Q1. Why is the year 1921 identified as the year of 'great divide'?
Ans: Between 1901 and 1921, the rate of growth in population was slow.
 In the decade 1901 to 1911, there was 5.7% increase in population while in the decade
1911 to 1921, there was a decrease in the rate of population to the extent of – 0.3%.
The main reason for this decrease is a high death-rate.
 Frequent occurrence of famines led to various diseases like Cholera, Plague,
Tuberculosis, Malaria and Influenza leading to high death-rate.
 Except for 1921, the rate of population growth was high, in all the years. Hence the year
1921 was considered as the 'year of great divide'. After 1921, in every decade the
population growth-rate has been high.
Q2. What is meant by productive and unproductive population?
Ans: Distribution of total population of the country in different age group. E.g. 0-14 years,
15-64 years etc. is known as classification of population according to age group or age
composition of population.
 It has been divided into 3 age groups. They are: (1) 0-14 years, (2) 15-64 years & (3) 65
& more.
 The population in the age group of 0-14 years and 65 and above years falls under the
category of unproductive population as they belong to non working group.
 The population in the age group of 15-64 years falls under the category of productive
population as they belong to working group.
Q3. Give the meaning of birth-rate and state the formula to calculate birth-rate.
Ans: The birth-rate depicts the number of children born for every 1000 people during the given
year.
 Birth-rate is not depicted as percentage, but for every 1000 people how much the
addition is taking place is shown.
 FORMULA:-
Birth-rate= The number of live-births during a given year X 1000
Total Population
Q4. Give the meaning of death-rate and state the formula to calculate death-rate.
Ans: The death rate depicts the number of people who die per every 1000 people during a given
year.
 FORMULA:-
Death-rate= No. of people who die in a given year X 1000
Total Population
Q5. Give the meaning of population policy.
Ans: A population policy is a policy that a country engages in order to get its population to a
level that it feels is optimal for it.
 India was the first country in the world to introduce population policy to control
population.
 A committee was set up to frame New Population Policy of 2000 under the
Chairmanship of Dr. M. S. Swaminathan.
SECTION –D (ANSWER IN BRIEF 3 MARKS EACH)
Q1. Explain population explosion.
Ans: Population explosion means a sudden and large increase in the size of a population.
 India's death-rate has fallen rapidly and as against it, birth-rate has not fallen to that
extent, which has resulted in rise in net population which is known as population
explosion.
 It is an unchecked growth of human population caused as a result of:
Increased birth rate, decreased infant mortality rate and improved life expectancy.
 In the year 1951, population of India was 36.1 crores which have increased to 121.02
crores in the year 2011.
 It is more prominent in under-developed and developing countries than in developed
countries.
Q2. State the causes of low death-rate.

Ans: The following are the causes of Low Death-rate:
 Improvement in Standard of Living: Standard of living of the people has improved
because of the rise in income of the people, due to economic development. People
have now started getting better quality food grains, better housing, health care and
education which has led to decrease in death-rate.
 Control Over Epidemics: In the beginning of 20th century, there were life threatening
diseases like, Plague, Measles, Tuberculosis, Malaria, etc. which raised the death-rate.
At the end of 20th century, development resulted in extra ordinary progress and
innovation of varied immunization vaccines which successfully controlled the aforesaid
diseases and death-rate.
 Control on Drought: Science and technology led to control over drought. As a result,
the deaths caused by hunger could be stopped. Considerable increase in the supply of
food grains was registered after 1966, when green revolution was introduced in India.
Food grains can be easily transported from abundant areas to scarce areas and thus we
could prevent starvation related deaths.
 Protection against Natural Calamities and Transportation Facilities: Earlier natural
calamities like earth quake, Tsunami, landslides, floods, famines, etc. led to high death-
rate. If such calamities occur now in any part of the country then immediate relief can
be made available by enabling the availability of basic requirements like food grains,
medicines, etc. thereby reducing the death-rate.
SECTION-E (ANSWER IN DETAIL 5 MARKS EACH)
Q1. Discuss in detail the gender ratio (number of females per 1000 males).
Ans: The number of females in the country per 1000 males is identified as Sex ratio or Gender
ratio or female-male ratio.
 Gender ratio occupies an important place in the study of population.
 Falling number of females per 1000 males creates various implications in the country. If
there is skewed gender ratio, number of problems arises in the economy regarding
marriage, family, reproduction, etc.
 By getting a clear picture of the gender ratio, it is possible to understand the causes of
adversity in gender ratio and efforts can be made to solve the same.
 There are various developed countries, where the gender ratio is more i.e. females are
more than 1000 for every 1000 males.
 In India, except Kerala, all other states have low female-male ratio.
 According to 2011 data for every thousand males, there were 1084 females in Kerala.
The lowest female population per 1000 males was 879 in Haryana.
 The female population per 1000 males in Gujarat in 2011 was 918.
 It has been found that there are social, cultural, economic factors responsible for the
adverse female-male ratio.
 In Indian Society, the status of women has been low since ancient times. Due attention
was not given to nutrition, health, education and overall upbringing of daughters.
 The Dowry system also contributed towards the neglect of girls. Apart from this, early
marriage, frequent child births had adverse effect on the health, leading to high death-
rate among minor and adult females.
 All this leads to low female population as compared to males.
Gender Ratio in India
Year Number of females Number of females
per 1000 males per 1000 males
(India) (Gujarat)
1901 972 954
1931 950 945
1961 941 940
1991 927 936
2001 933 921

2011 940 918
Analysis or Conclusions :
(1) Between 1901 to 1991 for every 1000 males, number of female population has been
decreasing. But 2001 to 2011 was a period in which female population per 1000 males
increased negligibly, that was due to "Beti Bachao" programme and encouragement given
to the birth of girl child.
(2) If we talk about Gujarat, the period between 1901 to 2011 saw a consistent fall in female
population per 1000 males, which creates social and cultural problems.
(3) The main reasons can be found out that the craze for or preference for male child and
improvement in medical science has encouraged female foeticide. To stop this, the
Government has imposed ban on sex detection legally. But its implementation largely has
been only on papers.
(4) In states, which are economically prosperous like Punjab, Haryana and Gujarat, this
disparity or imbalance between females and males is more.
Q2. Discuss in detail the causes for high birth-rate.
Ans: Introduc on: Causes of high birth-rate in India can be classified under three heads :
1.Social factors,
2.Economic factors and
3.Other factors.
Social factors
(1)Universality of Marriage : In India marriage is a religious ritual. The society doubts an
unmarried person. To escape from this, a man and a woman enter, into an institution of
marriage. Even disabled people are not exceptions. Compared to advanced countries, in
India most women marry. This universality of marriage leads to high birth-rate.
(2)Early Marriage and Widow Remarriage : Child marriage is prevalent in many parts of the
country despite, laws banning child marriage. As they get married at an early age, their
fertility span is very long. This results in the birth of more children.
The widow remarriage act in India which has been supported by many and thus widow
remarriage has become common. Therefore it has resulted in high birth-rate.
(3)Preference for a Male Child : Indian society is male dominated and more importance is
given to sons rather than daughters for the following three reasons :
(a)It is believed that there is a hell named 'poo' and a son's birth can stop them from
reaching this hell.
(b) For procreation.
(c) To support them financially during old age.
Due to these three reasons, families give birth to more children expecting a son and in the
process their family size becomes large.
(4)Joint Family System : There is the prevalence of joint family system in the rural areas of
India. As a result the financial responsibility of the upbringing of a child is distributed
among all the family members so a child does not become a burden leading to high birth-
rate.
Economic Factors:
(1)Low Level of Education: Inadequate education makes it difficult to understand the need
for small families and as a result the family size tends to become large. Education and the
number of children in a family have inverse relationship all over the world. It has been
found that as compared to illiterate women, the women who have had primary education
give birth to less number of children.Thus it can be said that the birth-rate is high because
of illiteracy and low education.
(2)Low Level Income: When the income level of a family is low, the birth of an addi onal
child is considered as an asset and not burden. It is commonly said, "More the
merrier".They expects that child also contributes to the income of the family in future. Even
today we see children working in small eateries or in tea stalls.
(3)High Infant Mortality Rate: "Out of every 1000 children born in a given year, the
number of child deaths before one year of age is known as infant mortality rate".
Extent of Infant Mortality Rate in India

Year Infant Mortality Rate (for every 1000 live
births)
1951 146
2011 41.40
The extent of infant mortality rate is quite high in India in comparison to various other
developed counties. In India, infant mortality rate in 1951 was 146 which fell to 41.40 in
2011 but still, this rate is considered to be quite high. There are many reasons for this high
infant mortality rate they are poverty, less care given to girl child, lack of nutritious food,
frequent abortions among women, age-old practices in the upbringing of a child,
inadequate medical facilities, less gap between two children etc.
Other Factors:
(1)High Fertility Rate: In a given year, out of every 1000 females in the age group of 15-49
years, how many live children are given birth, is what is known as fertility rate.
In 1961, the average of women in the age group of 15-49 gave birth to 6 children whichfell
to 3 in 2011. It is high due to following 2 reasons:
(a)Early marriage leads to longer fertility period for women. (b)The proportion of
unmarried women in the total number of women in the fertile age group is very low.
(2)Lack of Family Planning Information: Family planning refers to decisions on the size of
family and maintaining gap between two children based on proper understanding i.e. a
planned parenthood. In India, poverty, social customs, religious beliefs & low level of
education has acted as obstacles to family planning. Lack of knowledge regarding the
instruments of contraception and sometimes scarcity of those leads to high birth-rate.
Q3. Explain in detail the methods to control population.
Ans: Introduction: It is necessary that all the citizens understand the problem of over population
and set their hands together to control the same. Government and private institutions are
spreading awareness for controlling the population.
The following are the methods or measures to control population.
a. Mass Education and Awareness
b. Effectiveness of Family Planning Programme
c. Increasing the Age of Marriage and Raising the Status of Women
d. Incentives and Disincentives
e. Expansion in Medical Services and its Growing Effectiveness:
1. Mass Education and Awareness:
It is necessary to make people realize the importance of small families, to reduce birth-rate.
For this it is necessary to propagate and spread education through various programmes,
Telecast through visual media, in schools and colleges, expert lectures need to be arranged
and awareness can be created through plays, mimes, songs etc.
2. Effectiveness of Family Planning Programme:
To make family planning programme more effective family planning services and incentives
has to be increased. It is essential to create simple, easy and affordable availability of
contraceptives. In the population policy of 2000, changes were made in the programmes
related to family planning by reducing the importance of sterilisation and emphasis was
placed on preventing unwanted pregnancy through preventive methods.
3. Increasing the Age of Marriage and Raising the Status of Women:
The legal age of marriage for women mus be increased for reduction in birth-rate. As per
the population policy of 2000, encouragement was given to raising the age of marriage for
women from 18 to 20 years.
If the status of women is raised in the society in comparison to men and if equal
opportunities are given to in the matters of education and employment then such women
will control the family size.
4. Incentives and Disincentives:
The incentives and disincentives that are offered by the Government play a very important
role in family planning. The couples who undergo sterilisation are given financial
compensation by the Government.
China has adopted disincentives to control rising population. In India, couple with more
than two children cannot contest in elections of local self government.
5. Expansion in Medical Services and its Growing Effectiveness:
In India death-rate has decreased but it is still higher than other developed countries. With
the help of science, there has been an increase in the services and facilities for child birth
and health of the new born. With Universalisation and effectiveness of vaccination,
awareness regarding communicable diseases like "AIDS", is to be increased, reduction in
various infectious diseases and sex related diseases, etc. can bring about a reduction in
death-rate and infant mortality rate.
 India was the first country in the world to introduce population policy to control
population. A committee was set up to frame New Population Policy of 2000 under the
Chairmanship of Dr. M. S. Swaminathan.
 The various measures in the population policy will result in increase in social welfare
which in turn will improve awareness against population growth.
*****

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CHAPTER-1 GRAPHS IN ECONOMICS

OBJECTIVES (MCQ-VSQ 1 Mark Each)

ANSWER THE FOLLOWING QUESTIONS IN ONE/TWO LINES (VSQ 1 Mark Each).

Q1. What is meant by a diagram?

Q2. What is meant by a graph?

Q3. What is meant by a bar diagram?

Q4. What is meant by a pie diagram?

Q5. What is a data CD?

ANSWER THE FOLLOWING QUESTIONS IN SHORT (2 MARKS EACH).

Q1. What is meant by a diagram and for what purpose it is drawn?

Ans: Meaning: A diagram is a representation of the relationship between the variables in a

1. Graphs are drawn to make informa on easier to visualize.

Q3. State the importance of diagrams and graphs in economics.

1. Diagrams and graphs drawn are easy to understand.

Q4. How is computer technology useful in the process of learning?

USES OF COMPUTER TEHNOLOGY IN THE PROCESS OF LEARNING:

Difficulty in using Data CDs:

1. Since it stores huge amount of data it is complicated to use.

ANSWER THE FOLLOWING QUESTIONS IN BRIEF (3 MARKS EACH).

1. Choice of type of diagram or graph and it’s presentation:

5. Data table and source of Data:

6. Method of calculating the data:

Q3. Give the difference between diagrams and graphs.

Q4. Explain the usefulness of internet technology in the process of learning.

Explanation of the points:

1. Diagrams and graphs drawn are easy to understand.

ANSWER THE FOLLOWING QUESTIONS IN DETAIL (5 MARKS EACH).

Q1. Explain the types of diagrams in detail.

A diagram is a representation of the relationship between the variables in a picture, a plan,

Explanation of the points:

For example, © is symbol of copyright, © is a pictogram.

a. Scatter Diagram with No Correlation

Decade Decade Growth Rate of

The following are the types of bar diagrams:

a. Simple bar diagram

Q2. Give an understanding of usefulness of technology in the study of economics.

The usefulness of internet technology in the study of economics are as follows:

Explanation of the points:

OBJECTIVES (MCQ-VSQ 1 Mark Each).

1. Economic development is the prime requirement of Developing countries & Economic

Q1. What is Economic Growth?

Q1. State the limitations of National Income as an indicator.

Q2. State the limitations of Per Capita Income as an indicator.

2. Difficulty in calculating national income and per capita income:

Country Annual Growth rate of

Tabular explanation of per capita income as an indicator-:

Country PCI of 2014 (in US Growth Rate

Q2. Explain an improvement in PQLI as an indicator of economic development.

PHYSICAL QUALITY OF LIFE INDEX:

1. Extent of education: Literacy level of the country determines situation of education.

Determinants of Human Development Index:

Which of one is superior?

Q5. Explain in short the indicators of economic development.

Indicators of Economic Development:

NATIONAL INCOME AS AN INDICATOR OF ECONOMIC DEVELOPMENT:

Country Annual Growth rate of

PER CAPITA INCOME AS AN INDICATOR OF ECONOMIC DEVELOPMENT:

Tabular explanation of per capita income as an indicator-:

Country PCI of 2014 (in US Growth Rate