BOOK: INTRODUCTORY MACROECONOMICS

UNIT 1: NATIONAL INCOME AND RELATED AGGREGATES

Q.1 NVA fc Equals to

a) Sum of factor payments b) Sum of Current transfer Payments
c) Sum of Capital Transfer Payments d) Net Current transfer from rest of the world
Ans: Sum of factor Payments
Q.2 NNP fc is called:
a) National Income b) Domestic Income
c) Personal Income d) Private Income
Ans: National Income
Q.3 National Income = Domestic income when:
a) NFIA is Positive b) NFIA is Negative
c) NFIA is Zero d) None of the above
Ans:NFIA is Zero
Q.4 Which of the following item will not be included while calculating NDP mp.
a) Private final consumption expenditure b) Consumption of fixed capital
c) Govt Final consumption expenditure d) Net Export
Ans: Consumption of fixed capital
Q.5 Which of the following will not be included while calculating national income by income method?
a) Wages and Salaries b) Royalty
c) Scholarship d) Profit
Ans: Scholarship
Q.6 Which of the following is not included in estimation of NI?
a) Subsidies Lunch b) Old Age Pension
c) Free Medical Facilities served in office to employees d) Construction of a House
Ans: Old Age Pension
Q.7 Consumption of fixed capital refers to fall in the value of fixed assets…
a) Due to normal wear and tear b) Due to abnormal wear and tear
c) Due to foreseen obsolescence
d) Due to normal wear and tear and foreseen obsolescence
 Ans: Due to normal wear and tear and foreseen obsolescence
Q.8 Value of output is equal to
a) Sales+ Change in Stock b) Sales + Closing Stock
c) Sales + Opening Stock d) Sales- opening Stock
Ans: Sales + Change in stock
Q.9 Income of the Family is the example of which variable?
a) Stock Variable b) Flow Variable
c) Both stock and flow d) Neither Stock nor flow
Ans: Flow Variable
Q.10 Which of the following is not a flow variable?
a) Income b) Capital Formation
c) Supply of Money in a country d) Leakage of water from a tank
Ans: Supply of water in a country
Q.11 Define Production.
Ans: Production is the process of converting inputs into outputs or value added to the raw
materials.
Q.12 Define consumption.
Ans: The process of using up utility of goods and services for direct satisfaction of individual or
collective human wants is called Consumption.
Q.13 Define Capital Formation.
Ans: Excess of production over Consumption is called investment.
Q.14 Define Good.
Ans: In economics, a good is defined as any physical object, natural or manmade, or service
rendered, that could command a price in the market.
Q.15 Define Consumption Goods.
Ans: Goods purchased or even produced, for satisfaction of wants is called consumption goods.
Example: washing machines, TV etc.
Q.16 Define Capital Goods.
Ans: Goods capable of being used for producing other goods are called Capital goods. Eg. car
machinery etc.
Q.17 Define final goods.
Ans: Goods and services purchased, or own produced, for the purpose of consumption and
investment are final goods.
Q.18 Define Intermediate goods.
Ans: Intermediate goods refer to those goods and services which are purchased during the year by
one production unit from other production unit and completely used up, or resold, during the
same year.
Q.19 Define Stocks.
Ans: Variables whose magnitude is measured at a particular point of time are called stock
variables.
Q.20 Define Flow.
Ans: Variables whose magnitude is measured over a period of time are called flow variables.
Q.21 Distinguish between leakages and Injections.
Leakages Injections
1. These flow variables have a negative 1. 1.These cause positive impact on the
impact on the process of production. process of production or income
2. These are withdrawals from circular flow generation.
of income. 2. These are additions to the circular floe of
3. Effect on economy: reduce demand of income.
goods and services; reduce flow of 3. Effect on economy: Add to the production
income capacity of the economy; generate
4. Examples: saving taxation and imports. demand of goods and services.
4. 4.Examples: investment, exports,
consumption expenditure

Q.22 What are the steps for estimating national income by value added method?
Ans: 1. Identification of producing units
(namely primary sector, secondary sector and tertiary sector)
2. Calculation of GDPmp or GVAmp:
• GVOmp=Sales + Change in Stocks+Goods produced for self-consumption
=(Domestic Sales+exports)+(Closing Stock-Opening Stock)
• GVA mp/GDPmp =GVOmp-intermediate Consumption
=GVOmp-(Domestic purchase+imports)
3. Calculation of Domestic Income(NDP fc): NDP fc=GDPmp-Depreciation-NIT
4.Calculation of National income (NNpfc): NNPfc=NDPfc+NFIA
Q.23 What is double counting? How can it be avoided?
Ans: Counting the value of commodities at every stage of production more than one time is called
double counting.
It can be avoided by
a) taking value added method in the calculation of the national income.
 b) By taking the value of final commodity only while calculating N. I.
Q.24 Given the following data:
i) GDPFC = 25,215 Crores
ii) Net Indirect Taxes = 1575 Crores
iii) Depreciation = 1000 Crores
iv) NFIA = 40 Crores
Calculate: -
i) GDPMP ii) GNPMP ii) NNPMP
iv) NNPFC v) NDPMP vi) NDPFC
Ans. i) GDPMP = GDPFC + NIT
= 25215 + 1575
= Rs. 26,790 Crores
ii) GNPMP = GDPMP + NFIA
= 26790 + 40
= Rs. 26,830 Crores
iii) NNPMP = GDPMP – Depreciation – NFIA
= 26,790 – 1000 – 40
= Rs. 25,750 Crores
iv) NNPFC = NNPMP – NIT
= 25,750 – 1575
= Rs. 24,175 Crores
v) NDPMP = NNPFC – NFIA + NIT
= 24,175 – 40 + 1575
= Rs. 25,710 Crores
vi) NDPFC = NDPMP – NIT
= 25,710 – 1,575
= Rs. 24,135 Crores
Q.25 There are only two producing sectors A and B in an economy. Calculate:
(a) Gross value added at market price by each sector
(b) National income.
Rs. (Crore)
(i) Net factor income from Abroad. 20
 UNIT 2: MONEY AND BANKING
Money – Money may be defined as anything which is acceptable as a medium of exchange.
Money Supply – Total of money (currency notes, coins and demand deposits of banks) in circulation
are held by the public at a given point of time.
Component of M1 –
M1 = C + DD + OD
Where C = Currency with public
DD = Demand deposits of the people with the commercial banks
OD = Other deposits with Central Bank
Stock of Money – If supply of money is studied at a point of time, it is called stock of money.
Flow of Money – When supply of money is considered over a period of time, it is called flow of
money.
Who Supplies money? – Central bank of the country
Money Creation – It is a process by which a commercial bank creates total deposits number of times
the primary deposits.
Primary Deposits – It refers to the initial deposits with commercial banks.
Cash Reserve Ratio (CRR) – This refers to the proportion of total deposit of the commercial banks
which they must keep as cash reserves with Central Bank.
Statutory Liquidity Ratio – This refers to liquid assets of the commercial banks which they must
maintain as a minimum percentage of their total deposits,
Repo Rate – It is the rate of interest at which the central bank gives short period of loan to the
commercial banks against security pledged for the loan.
Reverse Repo Rate – It is the rate of interest at which the Central Bank of a country borrows money
from commercial banks.
Bank Rate – It is the rate of interest at which the Central Bank gives loan to the commercial banks
without any security to cope with immediate cash.
Central Bank – It is an apex bank of the entire banking system of a country.
Multiple Choice Question
Q1. Supply of money refers to quantity of money –
(a) As on 31st March
(b) During any specified period of time
(c) As on any point of time
(d) During a fiscal year

Q2. Money supply includes _________

(a) All deposits in bank
(b) Only demand deposits in banks
(c) Only time deposits in banks
 (d) Currency with the banks

Q3. Who regulates money supply in India?

(a) Government of India
(b) Reserve Bank of India
(c) Planning Commission
(d) NITI Aayog

Q4. __________ is the main source of money supply in an economy.

(a) Central Bank
(b) Commercial Banks
(c) Government
(d) Both a and b

Q5. _______ is the primary function of money.

(a) transfer of value
(b) medium of exchange
(c) standard of deferred payment
(d) store of value

Q6. The creation of ________ is called credit creation.

(a) time deposits
(b) primary deposits
(c) secondary deposits
(d) none of these

Q7. Limitation of barter system of exchange

(a) lack of unit of value
(b) lack of store of value
(c) lack of standard of deferred payments
(d) all of these

Q8. High powered money includes –

(a) currency and demand deposits
(b) demand deposits and saving deposits
(c) currency held by public and cash reserves with banks
(d) none of these

Q9. Money supply is a ________ concept.

(a) Flow
(b) Stock
(c) Variable
(d) All of these

Q10. _________ are called legal tenders.

(a) demand deposits
(b) time deposits
(c) inter-bank deposits
 (d) currency notes and coins

Answer
Q1. – (c) Q2. – (b) Q3. – (b) Q4. – (d) Q5. – (b) Q6. – (c)
Q7. – (d) Q8. – (c) Q9. – (b) Q10. – (d)

Very Short Answer Question

Q1. Define money.
Ans. Money may be defined as anything which is acceptable as a medium of exchange.
Q2. What determines money multiplier?
Ans. Legal reserve ratio
Q3. State any two components of M1 measure of money supply.
Ans. Currency with public and demand deposits with banks.
Q4. What are demand deposits?
Ans. Demand deposits are the deposits which are payable by the banks on the demand by the
customers at any time.
Q5. Define Barter system.
Ans: Barter system of exchange is a system in which goods are exchanged for goods.
Q6. What is meant by double coincidence of wants?
Ans: Double coincidence of wants means that goods in possession of two different persons must be
useful and needed by each other.
Q7. Define commercial bank.
Ans:Commercial bank is a financial institution which performs the functions of accepting deposits
from the public and making loans and investments, with the motive of earning profit.
Q8. Define money multiplier/credit multiplier/deposit multiplier.
Ans:When the primary cash deposit in the banking system leads to multiple expansion in the total
deposits, it is known as money multiplier or credit multiplier.
Q9. Define central bank.
Ans: The central bank is the apex institution of a country’s monetary system. The design and the
control of the country’s monetary policy is its main responsibility. India’s central bank is the Reserve
Bank of India.
Q10. What will be the effect of a rise in bank rate on the money supply?
Ans: Money supply will reduce.

Short Question Answer

Q1. Give meaning of money supply. State its components.
Ans. Money supply may be referred as the total stock of money of various kinds at any particular
point of time held by the public. Following are the main components of money supply –
(a) Currency with public – Currency held public means coins and currency notes with the public
outside the bank.
(b) Demand deposits with banks – Demand deposits are the deposits which can be withdrawn
at any time by writing cheques.

Q2. Explain the ‘medium of exchange’ function of money.

Ans:

Money when used as a medium of exchange helps to eliminate the basic limitation of barter trade,
that is, the lack of double coincidence of wants.

1. Individuals can exchange their goods and services for money and then can use this money to
buy other goods and services according to their needs and convenience.
2. Thus, the process of exchange shall have two parts: a sale and a purchase.
3. The ease at which money is converted into other goods and services is called “liquidity of
money”.

Q3. Explain the working of money multiplier with the help of a numerical example. (4)
Ans. Money multiplier refers to the process of creation of credit by the commercial banks, with the
help of initial deposits made by the public and legal reserve ratio (LRR).
1
Money Multiplier = 𝐿𝑅𝑅
Suppose there is initial deposit of Rs.1000 crores and LRR is 10%, then
1
Money Multiplier = = 10
10%
1
Total deposits = Initial deposits X 𝐿𝑅𝑅

Credit Creation = 1000 X 10 = Rs.10000 Crore.

Q4. Explain bankers bank function of Central Bank.
Ans. Central Bank act as banker to all other banks in the country just as commercial banks act as
banker to general bank public. It performs following function –
(a) Making policies and regulation for commercial banks
(b) Maintaining cash reserve as deposit by the commercial banks
(c) Providing financial assistance to commercial banks during crisis

Q5. Explain the role of repo rate in reducing money supply.

Ans. Repo rate is the rate of interest at which Central Bank lends money to commercial banks for
short period. Raising repo rate makes borrowing by commercial banks costlier. So these banks are
forced to raised their lending rates. Since borrowing becomes costly for people, they borrow less.
Banks therefore create less credit.
Q6. Discuss briefly the credit controller function of Central Bank.
Ans. The primary objective of credit control is to remove causes responsible for instability in price
fluctuations which in turn are related to the supply of money. By controlling credit, the Central Bank
can exercise an effective control over economic activity and mobilise it in the desired direction.
Central Bank regulates the volume and use of credit by using quantitative and qualitative tools.
Q7.What is a ‘legal tender’? What is ‘fiat money’? (3)
Ans:

Legaltender:
(a) Legally, money is anything proclaimed by law as a medium of exchange.
(b) Paper notes and coins (together called currency) is money as a matter of law.
(c) Nobody can refuse its acceptance as medium of exchange.

1. FIAT Money: It is defined as a money which is under the ‘FIAT’ (order/authority) of the
government to act as a money.

Q8. What role of RBI is known as ‘Lender of last Resort’? (3)

Ans:

1. As banker to the banks, the central bank acts as the lender of the last resort.
2. In other words, in case the commercial banks fail to meet their financial requirements from
other sources, they can, as a last resort, approach to the central bank for loans and advances.
3. The central bank assists such banks through discounting of approved securities and bills of
exchange.

Long Answer Questions

Q1. What are the main functions of money? How does money overcome the shortcoming of a
barter system?

Ans. Money has overcome the shortcoming of a barter system in the following manner:
(a) Medium of exchange – Under barter system, there is lack of double coincidence of wants. With
money as a medium exchange individuals can exchange their goods and services for money and then
use this money to buy other goods and services according to their needs and conveniences.
A buyer can buy goods through money and a seller can sell goods for money.
(b) Measure of value – Under barter system, there was no common measure of value. Money has
also solved this difficulty. Money measures the value of economic goods. Money works as a common
denominator into which the values of all goods and services are expressed.
When we express the values of a commodity in terms of money, it is called price and by knowing
prices of the various commodities, it is easy to calculate exchange ratios between them.
(c) Store of value - Under barter system it is very difficult to store wealth for future use. Most of the
goods are perishable and their storage requires huge space and transportation cost.
Wealth can be conveniently stored in the form of money.
Money can be stored without loss in value.
Money can easily be stored for future use.
(d) Standard of deferred payments – Under barter system, transactions on deferred payments are
not possible.
With money, the debtors make a promise that they will make payments on some future dates. In
 simply “banks’. Let us also assume that all receipts and payments in the economy are routed
through the banks. One who makes payment does it by writing cheque. The one who receives
payment deposits the same in his deposit account.
2. Suppose initially people deposit Rs 1000. The banks use this money for giving loans. But the
banks cannot use the whole of deposit for this purpose. It is legally compulsory for the banks to
keep a certain minimum fraction of these deposits as cash. The fraction is called the Legal
Reserve Ratio (LRR). The LRR is fixed by the Central Bank.
3. Let us now explain the process, suppose the initial deposits in banks is Rs 1000 and the LRR is
10 percent. Further, suppose that banks keep only the minimum required, i.e., Rs 100 as cash
reserve, banks are now free to lend the remainder Rs 900. Suppose they lend Rs 900. What
banks do to open deposit accounts in the .names of the borrowers who are free to withdraw
the amount whenever they like. Suppose they withdraw the whole of amount for making
payments.
4. Now, since all the transactions are routed through the banks, the money spent by the
borrowers comes back into the banks into the deposit accounts of those who have received
this payment. This increases demand deposit in banks by Rs 900. It is 90 per cent of the initial
deposit. These deposits of Rs 900 have resulted on account of loans given by the banks. In this
sense the banks are responsible for money creation. With this round increase in total deposits
is now Rs 1900 (=1000 + 900).
5. When banks receive new deposit of Rs 900, they keep 10 per cent of it as cash reserves and
use the remaining Rs 810 for giving loans. The borrowers use these loans for making payments.
The money comes back into the
accounts of those who have received the payments. Bank deposits again rise, but by a smaller
amount of Rs 810. It is 90 per cent of the last deposit creation. The total deposits now increase
to Rs 2710 (=1000 + 900 + 810). The process does not end and continues till total deposit
 UNIT 3: DETERMINATION OF INCOME AND EMPLOYMENT

1 MARK QUESTIONS
1. What is the aggregate demand ?
Ans. The demand for all the final goods and services in economy during year.
2. What are the components of aggregate demand?
Ans. AD= C + I + G + (X-M)
3. What is the relation between APC and APS?
Ans. APC+APS=1
4. What is the relation between MPC and MPS?
Ans. MPS+MPC=1.
5. If APC is 0.7 then how much will be APS?
Ans. 1-0.7=0.3
6. If MPC =0.75, what will be MPS?
Ans. MPC+MPS=1
1-0.75=0.25

7. What is meant by investment?

Ans. Investment means addition to the stock of capital good, in the nature of
structures, equipment or inventory.
8. What is the investment demand function?
Ans. The relationship between investment demand and the rate of interest is called
investment demand function.
9. What is equilibrium income?
Ans. The equilibrium income is the level of income where AD=AS i.e.…AD=AS and
planned saving equals planned investment.
10. Give the formula of investment multiplier in terms of MPC.
Ans. K=1/1-MPC
11. What can be the minimum value of investment multiplier?
Ans. One.
12. What is the maximum value of investment multiplier?
Ans. Infinity.
13. Give the equation of consumption function?.
Ans. C= a + by.

14. Write down the equation of saving function?

Ans. S= -a + (1-b) y.

MCQ
1-Which of the followings value may be negative?

a-MPC b- MPS c- APS d- APC

2- When MPS value is 0.25 , the value of investment multiplier will be?

a- 1.33 b- 2 c- 5 d- 4

3- Maximum value of investment multiplier is------------- when the value of MPC------------

 a- Negatively b- directly c- not d- rarely

5-If saving function of an economy is S = -50 + 0.25 Y, then the value of MPC is-------

a- 0.25 b- 1.25 c- (-0.25) d- 0.75

6- If consumption expenditure is equal to the national income, then APS will be?

a- 1 b- o c- (-1) d- infinity

7- If the value of APC is greater than one, APS will be?

a- Negative b- Zero c- Greater than one d- None

8- The ratio of change in saving and change in Income is----------------------

a- MPC b- APC c- MPS d- APS

9- When MPC is increasing in the economy, the rate of investment multiplier will---------

a- Rise b- Fall c- Either rise or fall d- Neither rise nor fall

10- In an economy investment increase by 100 Crores , and MPC is 0.57 , then National income will
increase by----------

a- 500 b- 250 c- 570 d- 400

3AND 4 MARKS QUESTIONS.

1- Define the term Aggregate Supply.

It refers to the total production of commodities in the economy at a given point of time
which is measured in terms of value added or the total income generated. It also refers to
the disposable income which consist of two components viz, consumption & saving. Since
AS = Y, therefore, AS = C + S
2- Differentiate between Autonomous Investment and Induced Investment.

Autonomous investment Induced investment

 1. It refers to the investment It refers to the investment expenditure
expenditure which is incurred by the which is incurred by the enterprises
Government with the motive to with the motive to make greater
promote the level of growth & investments & receive higher returns. It
development. It is not influenced by is positively related to level of income.
the level of profits or income of an
economy. It is influenced by the level of income of
2. It is influenced by the change in an economy. Higher the income,
population structure, natural greater is the induced investments, &
calamities, change in technology & vice versa.
institution, war etc.
3- Explain the distinction between voluntary and involuntary unemployment.

Ans. Voluntary unemployment refers to the situation when people are willing to remain
unemployed in the production activities at the current factor prices.
Involuntary unemployment refers to the situation when the willing & able bodied people
remain unutilized in the economy due to lack of employment opportunities.

4- What is equilibrium income?

Answer: The equilibrium income is defined as the level of income where AD = AS that means
Aggregate Demand is = to the Aggregate supply. Planned savings is always = to the planned
investment.

5- Explain the relationship between investment multiplier and MPC?

Ans. K=1/1-MPC, It shows direct relationship between MPC and the value of Multiplier. Higher
the proportion of increased income spend on consumption, higher will be value of investment
multiplier. Higher the proportion of increased income spend on consumption, higher will be
value of investment multiplier.

6- Define the meaning of Deflationary gap? And measure to correct it.

Ans: It is the economic situation when Aggregate demand is less than Aggregate supply
corresponding to the full employment level of output.
Measures to correct it:
a- Fiscal tools-
1-Increase govt. expenditures.
2- Decrease the taxes
b- Monetary tools:
1-Decrease in –CRR, SLR, REPO, REVERSE REPO.
2- Purchase of bonds and securities in open market operation
3- Decrease in debt margin.
7- What is Inflationary gap or excess demand? State measures to correct it.
Ans: It is the economic situation when Aggregate demand is more than Aggregate supply
corresponding to the full employment level of output.
Measures to correct it:
c- Fiscal tools-
1-decrease govt. expenditures.
2- Increase the taxes
d- Monetary tools:
1-Increase in –CRR, SLR, REPO, REVERSE REPO.
2- sell of bonds and securities in open market operation
3- increase in debt margin.

8-Explain the role of the following in correcting ’Excess demand in an Economy’

1. Bank Rate
2. Open market

Ans.

1. To Correct excess demand central bank can rise the bank rate. This forces commercial
bank to increase lending rates. This reduces demand for borrowing by the public for
investment and consumption. Aggregate demand falls.
2. When there is excess demand Central Bank sells securities. This leads to flow of money
out of the commercial banks to the central bank when people make payment by cheques.
This reduces deposits with the banks leading to decline in their lending capacity.
Borrowing decline. AD declines.

9. Explain the meaning of investment multiplier? What can be its minimum value and
maximum value why?
Ans. Defined as the ratio of change in the income to the change in the investment.
K=∆Y/∆I.
The value of the multiplier is determined by the MPC. It is directly related to MPC.
K=1/1-mpc = 1/1-0 =1
K=1
Minimum value of K is when minimum value of MPC=0, the minimum value of K will be
unit one.
Maximum value of K is when Value of MPC=1 , the value of K will be infinitive .
10. Explain the working of a multiplier with an example.
Ans. Multiplier tells us what will be the final change in the income, as a result of change in
investment. Change in investment results in the change in income. Symbolically:
∆I→∆Y→∆C→∆Y
The working of a multiplier can be explained with the help of the following table which is
based on the consumption that is, ∆I=1000 and MPC=4/5.
PROCESS OF INCOME GENERATION.

ROUNDS ∆I ∆Y ∆C
1. 1000 1000 4/5×I000=800
2. - 800 4/5×800=640
3. - 640 4/5×640=512
4. - 512 4/5×512=409.6
↓∞ ↓∞ ↓∞ ↓∞
TOTAL 5000 4000

As per the table the initial increase in the investment of Rs 1000 there is a total increase in the
income by Rs 5000 given MPC=4/5 . Out of this total increase in the income Rs 4000 will be
consumed and Rs 5000 be saved.
11. Differentiate between ex ante and ex post investment.
Ans. Ex ante is the planned investment which the planner intends to invest at different level of
income and employment in the economy.
Ex post investment may differ from ex ante investment when the actual sales differ from the
planned sales and the firms thus face unplanned addition or reduction of inventories.

6 MARKS QUESTIONS WITH ANSWERS

1. Explain the equilibrium level of income, employment and output with saving and investment
approach. What happens when savings exceeds investment?

Ans. Equilibrium is achieved when planned saving is equal to planned investment that is S=I.
This can be seen with the help of a diagram.

Y
Saving

100 I

0 X
S/I 300
Income

The equilibrium level of income is s 300 core and at this point S (100) =i (100) the
equilibrium may necessarily not be at the full employment level.
When saving exceeds planned investment means people are consuming less and
spending more as a result AD is less than AS.
This will lead to accumulation of more goods with producer .this will make the
businessmen to reduce production consequently, output, income & employment will
be reduced till the equilibrium level of income

2. Draw a straight line consumption curve. From it derive a saving curve explaining the process.
Show on the diagram.

consumption Y= C+S
1-When income is 0, the economy’s consumption level is OA. The corresponding level of
saving is -0A.
2- At break even point where C= Y hence Saving will be zero that is at Y income level.
 UNIT 4: GOVERNMENT BUDGET AND THE ECONOMY
1. In the context of government budget, which of the following statements is correct?
(a) Budget is a statement of expected annual receipts and expenditures of the government
(b) It is the detail of actual receipts and expenditures of the government in a financial year
(c) It offers a detailed description of achievements of the government during the five year
plans
(d) It indicates BoP status of the domestic economy
ANS:a
2. Which of the following are the objectives of government budget?
(a) Redistribution of income wealth

(b) Economic stability

( c) GDP growth
(d) all of these
ANS: d
3. Which of the following is a non-tax receipt?
(a) Gift tax

(b) sales tax

(c) donations
(d) Excise duty
ANS:c
4. Progressive tax is a tax which is :
(a) Charged at a decreasing rate when income of the individual increases
(b) Charged at a increasing rate when income of the individual increases
(c) A fixed percentage of an individual income
(d) None of these
ANS:b
5. Regressive tax is a tax which is :

(a)Charged at a increasing rate when income of the individual increases

(b)Charged at a decreasing rate when income of the individual increases
(c)Relatively a low percentage of an individual’s income
(d)None of these
ANS:b
6. A tax, the burden of which can be shifted to others, is called:
(a) Indirect tax (b) direct tax

(c) wealth tax (d) none of these

ANS:a
 7.Tax, the impact of which lies on the person on whom it is legally imposed, is known as:
(a) Indirect tax (b) direct tax

(c) value added tax (d) none of these

ANS:b
8. Which of the following is an indirect tax?
(a) Wealth tax (b) Excise tax

(c) income tax (d) none of these

ANS:b
9. Which of the following is a direct tax?
(a) income tax (b)Excise tax

(c) sales tax (d) custom duty

ANS:a
10.Tax is imposed on value added at the various stages of production is known as:
(a) Corporate profit tax (b) direct personal tax

(c) value added tax (d) none of these

ANS:c
11.Taxes like wealth and gift tax in India which carry their significance in terms of revenue yield
are called:
(a) Indirect tax (b) direct tax

(c) value added tax (d) paper taxes

ANS:d
12. Which of the following is a non-tax receipt?
(a) Fees (b) Fines

(c) gift tax (d) grants and donations

ANS:c
13. Which of the following is a part of the revenue expenditure in the Indian Government budget

(a) Interest payments (b) Defence purchases all of these

(c) Wage bill of the government (d) all of these

ANS:d

14.Capital receipt is that receipt of the government which:

 (a) creates a liability (b) reduces the assets

(c) both (a) and (b) (d) neither la) nor (b)

ANS:c

15, Which of the following are capital receipts of the government?

(a) Recovery of loans

(b) Borrowings

(c) Disinvestment

(d) All of these

ANS:d

16. Capital expenditure is that estimated expenditure of the government by which:

(a) assets are increased

(b) liability is decreased

(c)both (a) and (b)

(d) assets and liabilities do not change

ANS:c

17. Deficit budget refers to that situation in which government's budget expenditure is:

(a) less than its budget receipts

(b) more than its budget receipts

(c) equal to its budget receipts

(d) none of these

ANS:b

18. Fiscal Deficit=

 a) Total expenditure - Total receipts other than borrowing

(b) Revenue expenditure - Revenue receipts

(c) Capital expenditure Capital receipts

d) Revenue expenditure + Capital expenditure - Revenue receipts

ANS:a

19. In which of the following ways, can deficit in budget be financed?

a) Borrowing from RBI (b) Borrowing from the public

(c) both (a) and (b) (d) Neither (a) nor (b)

ANS:c

20. Which of the following is/are implication/s of fiscal deficit?

(a) Erosion of government credibility (b) Inflationary spiral

(c) national debts for future generation (d) none of these

ANS:d

21. A budget is a balanced one when:

(a) Total expenditure = Total receipts

(b) Total expenditure< Total receipts

(c) Total expenditure > Total receipts

(d) none of these

ANS:a

22. Surplus budget is that budget wherein:

(a) Estimated revenue of the government <Estimated expenditure of the government

(b) Estimated revenue of the government > Estimated expenditure of the government
 (c) Estimated revenue of the government= Estimated expenditure of the government

(d) none of these

ANS:b

23. The difference between fiscal deficit and interest payment is called:

(a) revenue deficit (b) primary deficit

(c) budget deficit (d) capital deficit

ANS:b

24. If primary deficit is ₹ 6,900 and interest payment is ₹600, then fiscal deficit is:

(a)₹ 6,300 (b) ₹7,500

(c)₹27.400 (d) ₹7.300

ANS:b

B.INFORMATION AND COCEPT BASED QUESTIONS-

What is meant by the fiscal year in India?
Ans- Fiscal year is the year which begins on April 1 and ends on March 31 of the following year.
2.State any one objective of government budget.
Ans- Through revenue and expenditure policy, the government strives to achieve high rate of growth.
Define revenue budget.
Ans- revenue budget a the statement of estimated revenue receipts and estimated revenue
expenditureduring a fiscal year

Define revenue receipts.

Ans- revenue receipts are those receipts which neither create any lability nor lead to any reduction in
assets.
Define revenue expenditure.
Ans- revenue expenditure is that expenditure of the government which neither creates assets for the
government nor causes a reduction in liabilities of the government.
What is a direct tax?
Ans- Adirect tax is that tax the final burden of which falls on that very person whois liable to pay it to
the government.
What is an indirect tax?
Ans- Indirect tax is a tax on goods and services. Those who are liable to pay this tax need not bear the
finalburden of this tax.
What is a progressive tax?
Ans- Progressive tax is a tax that causes relatively less real burden on the poor and more on the rich
Define regressive tax.
Ans- Regressive tax is a tax that causes relatively more real burden on the poor and less on the rich.
What is value added tax?
Ans. Value added tax is an indirect tax which is imposed on ‘value added’ at the various stages of
production.
Define capital budget.
Ans. Capital budget is the statement of estimated capital receipts and estimated capital expenditure
during a fiscal year
Define capital receipts.
Ans- Capital receipts are those receipts which either create a liability or lead to reduction in assets.
Define capital expenditure.
Ans- Capital expenditure is an expenditure which leads to creation of assets or reduction in liabilities
Give two examples of capital receipts.
Ans. (i) Recovery of loans, and (i) Borrowings.
Give two examples of capital expenditure.
Ans-(i)Expenditure on the purchase of land by the government. (ii)Loans granted by the central
government to state governments
Define plan expenditure.
Ans- Plan expenditure is the expenditure whichis related to some specified plan for the year.
Define non plan expenditure
Ans. Non-plan expenditure is the expenditure which is not related to any specified plan for the year.
Why is payment of interest a revenue expenditure?
Ans. Payment of interest is treated as a revenue expenditure, because it neither reduces liability of
the payer nor adds to his assets.
Why is recovery of loans treated as a capital receipt?
Ans. Recovery of loans is a capital receipt because it leads to reduction in assets.
How is disinvestment by the government a capital receipt?
Ans. Disinvestment by the government is a capital receipt, as it leads to a reduction in assets.
What is budgetary deficit?
Ans. Budgetary deficit is the excess of total expenditure over total receipts of the government.
Define surplus budget.
Ans. Surplus budget is that budget in which government receipts are more than government
expenditure.
Define balanced budget.
Ans. Balanced budget is that budget in which government receipts are equal to government
expenditure.
What is meant by revenue deficit?
Ans: Revenue deficit is equal to the excess of total revenue expenditure over the total revenue
receipts
Revenue deficit = Revenue expenditure - Revenue receipts
Define fiscal deficit.
Ans. Fiscal deficit is equal to the excess of total expenditure over the sum of revenue receipts and
capital receipts excluding borrowing
Fiscal deficit= (Revenue expenditure + Capital expenditure) –(Revenuereceipts + Capital receipts
other than borrowing)
Define primary deficit.
Ans. Primary deficit is the difference between fiscal deficit and interest payment.
Primary deficit= Fiscal deficit - Interest payment
What is the significance of primary deficit?
Ans. The significance of primary deficit is that it reflects borrowings on account of current year
expenditure exceeding the current year receipts of the government. interest payment on the
accumulated borrowing Is not accounted for.
What is the significance of measuring fiscal deficit?
Ans. The significance of measuring fiscal deficit is that it reflects total borrowings of the government
during the financial year. Accumulated borrowings over the year reflect accumulated burden of
national debt which is to be borne by the future generations.
Why are subsidies treated as revenue expenditure?
Ans. Subsidies are treated as revenue expenditure by the government, because this expenditure
(i)does not reduce liability of the government, nor
(ii) adds to assets of the government.
 UNIT 5: BALANCE OF PAYMENT

Foreign Exchange refers to all currencies other than the domestic currency of a given country.
Foreign exchange rate is the rate at which currency of one country can be exchanged for currency of
another country.
Foreign Exchange Market: The Foreign Exchange market is the market where the national currencies
are traded for one another.
Functions of Foreign Exchange Market:
1. Transfer function: It transfers the purchasing power between countries.
2. Credit function: It provides credit channels for foreign trade
3. Hedging function: It protects against foreign exchange risks.
FIXED EXCHANGE RATE SYSTEM: Fixed exchange rate is the rate which is officially fixed by the
government, monetary authority and not determined by market forces.
FLEXIBLE EXCHANGE RATE: Flexible exchange rate is the rate which is determined by forces of supply
and demand in the foreign exchange market.
DEMAND AND SUPPLY FOR FOREIGN EXCHANGE
Demand for foreign exchange:
1. To purchase goods and services from other countries
2. To send gifts abroad
3. To purchase financial assets (shares and bonds)
4. To speculate on the value of foreign currencies
5. To undertake foreign tours
6. To invest directly in shops, factories, buildings
7. To make payments of international trade.
Supply of foreign exchange:
Foreign currencies flow into the domestic economy due to the following reason.
1. When foreigners purchase home countries goods and services through exports
2. When foreigners invest in bonds and equity shares of the home country.
3. Foreign currencies flow into the economy due to currency dealers and speculators.
4. When foreign tourists come to India
5. When Indian workers working abroad send their saving to families in India.
Managed Floating: This is the combination of fixed and flexible exchange rate. Under this, country
manipulates the exchange rate to adjust the deficit in the B.O.P by following certain guidelines issued
by I.M.F.
Dirty floating: If the countries manipulate the exchange rate without following the guidelines issued
by the I.M.F is called as dirty floating.
BALANCE OF PAYMENTS: MEANING AND COMPONENTS
Meaning: The balance of payments of a country is a systematic record of all economic transactions
between residents of a country and residents of foreign countries during a given period of time.
BALANCE OF TRADE AND BALANCE OF PAYMENTS
Balance of trade: Balance of trade is the difference between the money value of exports and imports
of material goods (visible item)
Balance of payments: Balance of payments is a systematic record of all economic transactions
between residents of a country and the residents of foreign countries during a given period of time.
It includes both visible and invisible items. Hence the balance of payments represents a better
picture of a country‘s economic transactions with the rest of the world than the balance of trade.
STRUCTURE OF BALANCE OF PAYMENT ACCOUNTING:-
A balance of payments statement is a summary of a Nation‘s total economic transaction undertaken
on international account.
There are two types of account.
1. Current Account: It records the following 03 items.
a) Visible items of trade: The balance of exports and imports of goods is called the balance of visible
trade.
b) Invisible trade: The balance of exports and imports of services is called the balance of invisible
trade E.g. Shipping insurance etc.
c) Unilateral transfers: Unilateral transfers are receipts which resident of a country receive (or)
payments that the residents of a country make without getting anything in return e.g. gifts. The net
value of balances of visible trade and of invisible trade and of unilateral transfers is the balance on
current account.
2. CAPITAL ACCOUNT: It records all international transactions that involve a resident of the domestic
country changing his assets with a foreign resident or his liabilities to a foreign resident.
VARIOUS FORMS OF CAPITAL ACCOUNT TRANSACTIONS
1. Private transactions: These are transactions that are affecting assets (or) liabilities by individuals.
2. Official transactions: Transactions affecting assets and liabilities by the government and its
agencies.
3. Direct Investment: It is the act of purchasing an asset and at the same time acquiring and control
of it. 4. Portfolio investment: It is the acquisition of assets that does not give the particular control
over the asset. The net value of balances of direct and portfolio investment is called the balance on
capital account.

OTHER ITEMS IN THE BALANCE OF PAYMENT

 They are included since the full balance of payments account must balance. These items are as
follows.
1) Errors and Omissions: They may arise due to the presence of sampling and due to his honesty.
2) Official reserve transactions: All transactions except those in this category may be termed as
autonomous transactions. They are so called because they were entered into with some independent
motive. Balance of payments always balances.
AUTONOMOUS AND ACCOMMODATING ITEMS
Autonomous items: Autonomous items in the B.O.P refer to international economic transactions
that take place due to some economic motive such as profit maximization. These items are often
called above the line items in the B.O.P. The balance of payments is in a deficit if the autonomous
receipts are less than autonomous payments. The monetary authorities may finance a deficit by
depleting their reserves of foreign currencies, or by borrowing from I.M.F.
Accommodating items: Accommodating items in the B.O.P. refer to transactions that occur because
of other activity with the B.O.P such as government financing. Accommodating items are also
referred to as below the line of items.
DISEQUILIBRIUM THE BALANCE OF PAYMENTS
There are a number of factors that cause disequilibrium in the balance of payments showing either a
surplus or deficit. These causes are categorized into 3 factors.
I Economic factors: Large scale development expenditure that may cause large imports.
II Cyclical fluctuations in general business activities such as recession or depression.
III High domestic prices may result in imports.
II Political factors: Political instability may cause large capital outflows and hamper the inflows of
foreign capital.
III Social factors: Changes in tastes, preferences and fashions may affect imports and exports.
OBJECTIVE ANSWER TYPE QUESTIONS:
(A) MULTIPLE CHOICE QUESTIONS

Q.1Balance of trade is measured as:

(i) Difference between import and export of the goods
(ii) Difference between import and export of the services
(iii) Difference between import and export of the capital
(iv) Difference between all import and all export
Ans.(a)
Q.2 Cause of Bop imbalance relates to:
(i) Autonomous items (ii) Accommodating items
(iii) Both (i) & (b) (iv) Neither (i) nor (ii)
Ans. (i)
 (B) FILL IN THE BLANKS

Q.3.BoP surplus leads to an/a ________in official reserves. (increase/decrease)

Ans.Increase
Q.4.___________= Compensation of employees + Investment income.(Factor income /Transfer
income)
Ans.Factor income
(C) TRUE OR FALSE

Q.5.Financial transactions relate to international sale and purchase of real assets.(true/false)

Ans.False
Q.6.Current account records all payments to rest of the world as debit.(True/False)
Ans.True
(D) MATCHING

Q.7 Identify the correct sequence of alternatives given in Column II by matching them with respective
items in Column I :
COLUMN I COLUMN II
A Trade deficit I Cause of Bop balance
B Merchandise II Export of goods < Import of goods
C Autonomous items III An element of invisibles
D Current transfers IV Foreign institutional investment
E Portfolio investment V Export and import of goods
Ans.(A)-(II), (B)-(V),(C)-(I),(D)-(III),(E)-(IV)

(E) VERY SHORT ANSWER TYPE QUESTIONS

Q.1Give the meaning of managed floating exchange rate.
Ans. The system of adjusting the exchange rates as per the rules and regulations of foreign exchange
market is termed as managed floating.
Q.2 Define foreign exchange rate.
Ans. Foreign exchange rate refers to the rate at which one currency can be exchanged for the other
currency in foreign exchange market, e.g. if Rs. 58 is paid to buy one US dollar, then Rs./$ exchange
rate will be 58 i.e. Rs.58 per dollar.
Q.3 What is floating exchange rate?
OR
Define flexible exchange rate system.
Ans. The rate of exchange which is determined by the market forces of demand and supply of
foreign currencies in the foreign exchange market, is termed as flexible exchange rate system
Q.4 What is a fixed exchange rate?
Or
Give the meaning of fixed foreign exchange rate.
Ans. Fixed exchange rate is the system under which the central authority or government maintains
their exchange rate fixed either against gold or some other foreign currency, (say USD)
Q.5. What is foreign exchange?
Or
Give meaning of foreign exchange.
Ans.Foreign exchange refers to the reserve of foreign currency with a country, e.g. currency of US
and UK are the foreign exchanges for India.
Q. 6. State two sources of supply of foreign exchange.
Ans. Two sources of supply of foreign exchange are:
(i)Export of goods and services from domestic country to foreign country.
(ii) Foreign direct investment.
Q. 7. State two sources of demand for foreign exchange.
Ans. Two sources of demand for foreign exchange are
(i) Payment of loans and interest to international organizations.
(ii) Gifts and grants to rest of the world.
Q.8. What is meant by appreciation of currencies?
Ans. Appreciation of a currency occurs when its exchange value in relation to currencies of other
country increases.
Q.9. Define Spot exchange rate.
Ans.The spot exchange rate refers to the rate at which foreign currencies are available on the sport.
Q.10. Define forward market.
Ans. Market for foreign exchange for future delivery is known as the forward market.
Q.11 What is meant by balance of payments?
Ans. Balance of payments refers to the statement of accounts recording all economic transactions of
a given country with the rest of the world.
Q.12 What do you mean by balance of trade?
Ans. Balance of trade is the difference between the value of imports and exports of only physical
goods.
Q.13 The balance of trade shows a deficit of Rs. 600 crores, the value of exports is Rs.1000 crores.
What is value of Imports?
Ans. Balance of Trade = Exports of goods – import of goods Import of good = Export of goods –
(B.O.T) = 1000- (-600) = Rs. 1600.
Q.14 What is the balance of visible items in the balance of payments account called?
Ans. Balance of trade
Q.15 What do you mean by disequilibrium in BOP?
Ans. Disequilibrium in BOP is means either there is a surplus or deficit in balance of payment account.
Q.16. List two items of the capital account of BOP account.
Ans.(i) external assistance ii) commercial borrowing iii) foreign investment
Q.17 Which transactions bring balance in the BOP account?
Ans. Accommodating transactions bring balance in the BOP account.
Q.18.Define autonomous items in BOP.
Ans. Autonomous items in BOP refer to international economic transaction that take place due to
some economic motive such as profit maximization. These items are independent of the state of the
country balance of payments.
Q.19.What is the other name of autonomous items in the BOP?
Ans. The other name of autonomous items in BOP is above the line item.
Q.20. When does a situation of deficit in BOP arises?
Ans.A situation of deficit in BOP arises when autonomous receipts are less than autonomous
payments.
Q.21What is meant by managed floating?
Ans. It is a system that allows adjustments in exchange rate according to a set of rules and
regulations which are officially declared in the foreign exchange market.
Q.22 What is meant by dirty floating?
Ans. Manipulate the exchange rate without following the guidelines issued by IMF is called dirty
floating.
Q.23. What is "Current Account Deficit" in the balance of payments?
Ans.When foreign exchange receipts in the current account fall short of foreign exchange payments,
it is called Current Account Deficit.
Q.24.What is excess of exports of goods over the imports of goods called ?
Ans. Surplus Balance of Trade.
SHORT TYPEANSWER QUESTIONS (3 / 4 MARKS)
Q.1.Why is foreign exchange demanded?
Ans. Foreign exchange is demanded for the following purposes.
a) Payment of International loans
b) Gifts and grants to rest of the world
c) Investment in rest of the world.
d) Direct purchases abroad for goods and services as well as imports from rest of the world.
Q.2 What determines the flow of foreign exchange in to the country?
Ans. Following factors contribute to the flow of foreign exchange in to the country.
a) Purchases of domestic goods by the foreigners
b) Direct foreign investment and portfolio investment in the home country.
c) Speculative purchase of foreign exchange.
d) When foreign tourists come to India.
Q.3. Why does the demand for foreign exchange rise, when it price falls?
Ans.With a fall in price of foreign exchange, the exchange value of domestic currency increases and
that of foreign currency falls. This implies that foreign goods become cheaper and their domestic
demand increases. The rising domestic demand for foreign goods implies higher demand for foreign
exchange. So there is inverse relationship between price and demand for foreign exchange.
Q.4. When price of a foreign currency falls, the supply of that foreign currency also fall why?
Ans. When price of a foreign currency falls it makes exports, investment by foreign residents costlier
as a result supply of foreign currency falls.
Q.5. Distinguish between autonomous and accommodating transaction of balance of payment
account.
Ans. Autonomous transactions are done for some economic consideration such as profit, such
transactions are independent of the state of B.O.P. Accommodating transactions are under taken to
cover the deficit/surplus in balance of payments.
Q. 6. Give two examples explain why there is a rise in demand for a foreign currency when its price
falls.
Ans. When price of foreign currency falls, imports are cheaper. So, more demand for foreign
exchange by importers.
Tourism abroad is promoted as it becomes cheaper. So demand for foreign currency rises.
Q.7.Distinguish between fixed and flexible foreign exchange rate.
Ans. When foreign exchange rate is fixed by Central Bank/government, it is called fixed exchange
rate. When foreign exchange rate is determined by market forces/mechanism, it is flexible exchange
rate.
Q.8 Distinguish between devaluation and depreciation of domestic currency.
Ans. Difference between devaluation and depreciation
Basis Devaluation Depreciation
Meaning Devaluation is the fall in the It occurs when the value of
value of domestic currency in domestic currency decreases
relation to foreign currency. It in relation to the value of
is planned by the Central Bank foreign currency in the foreign
in situation, when exchange exchange market
rate is not determined by the
forces of demand and supply.
Example A government has set 10 units If US $ exchanges ? 45 instead
 of its currency is equal to one of ? 40 earlier the domestic
dollar. currency (Indian rupee) has
shown depreciation of
domestic currency.
Q.9. Giving two examples, explain the relation between the rise in price of a foreign currency and its
demand.
Ans. (i) when the price of a foreign currency rises, the imports become costlier and exports become
cheaper so the value of imports will fall with time, hence the demand for foreign exchange will fall.
(ii) When domestic companies want to buy foreign assets and with the rise in price of foreign
currency the price of the assets also increase. Hence, the demand for foreign exchange falls.
Q.10. How can increase in foreign direct investment affect the price of foreign exchange?
Ans. Increase in foreign direct investment will result in more supply of foreign exchange therefore,
due to excess supply; price of foreign exchange will fall. I.e. exchange rate falls which leads to
appreciation of domestic currency?
Q.11. When price of a foreign currency rises, its demand falls. Explain why?
Or
Why there is a fall in demand of foreign exchange, when its price rises. Explain.
Ans. Exchange rate of foreign currency is inversely related to the demand. When price of a foreign
currency rises, it results into costlier imports for the country. As imports become costlier, the
demand for foreign products also reduces. This leads to reduction in demand for that foreign
currency and vice-versa.
Q.12. Explain the meaning and two merits of fixed foreign exchange rate.
Ans.Two merits of fixed foreign exchange rate are:
(i) Less speculation in the currency market.
(ii) Encourages international trade and investment flows.

Q13. State two sources each of demand and supply of foreign exchange.
Ans. Two sources of demand for foreign exchange are:
(i) Imports from rest of the world.
(ii) Foreign investment across the world.
Two sources of supply of foreign currency are:
(i) Exports of goods and services from domestic country to foreign country.
(ii) Remittances from abroad.
Q.14. Give the meaning of foreign exchange and foreign exchange rate. Giving reason, explain the
relation between foreign exchange rate and demand for foreign exchange.
Ans. Foreign exchange Foreign exchange rate is determined by the market forces of demand and
supply in foreign exchange market. The point where demand and supply of foreign exchange meet,
gives the equilibrium rate of exchange as shown in figure and quantity of foreign exchange.
Foreign exchange rate Foreign exchange rate refers to the rate at which one currency can be
exchanged for the other currency in foreign exchange market, e.g. if Rs. 58 is paid to buy one US
dollar, then Rs./$ exchange rate will be 58 i.e. Rs.58 per dollar.
 1. DEVELOPMENT POLICIES AND EXPERIENCE (1947-1990)

1. What was the condition of agriculture sector at the time of Independence?3

Ans : 1) Low level of agricultural productivity :
Agricultural productivity became very low and this stagnation in agriculture sector was mainly due to
systems of land settlement that were introduced by the British Government. The Zamindari system,
the profit accuring out of the agriculture sector went to Zamindaris instead of the cultivators. This
lead to discouragement amongst the cultivators to produce less.
2. High dependence on Monsoon :-Agriculture sector was mainly dependent on monsoon. No effort
was ever made under the British rule to develop permanent mode of irrigation.
3. Lack of Proper Input:
Low level of technology, lack of irrigation facility and negligible use of fertilizers, added to aggravate
the plight of the farmers and contributed to the dismal level of agricultural productivity.

. Q-2What was the condition of foreign trade under the British rule?3
Ans 1) Due to discriminative tariff policy adopted by the British Government, India became net
exporter of raw materials and primary products. On the other hand, it became net importer of
finished goods reproduced by the British Industry.
(ii) Composition of exports and imports showed the backwardness of Indian economy. Exports and
imports were largely restricted to Britain only due to monopoly control of India’s foreign trade.
(iii) Surplus profit made and account of foreign trade during the British rule was distributed on
administrative and as well as on war expenses. It was only used to increase the pursuits of the British
Government.

Q 3 Mention the demographic profile during the British rule.3

Ans : 1) High birth and High death rate implied low survival rate, which was nearly 8 per thousand
per annum.
2) Life expectancy was as low as 32 years which shows the lack of health care facilities, lack of
awareness.
3) Literacy rate was as low as 16 percent, which reflects the social and economic backwardness of the
country.

Q4 What were the objectives of of the British government in bringing about infrastructural changes
in the Indian economy.3
Ans Their objective was to serve colonial interest
A . The roads built served the purpose of mobilizing the army within India and transporting raw
material from the countryside to the ports for onwards export to Britain from where the British
merchant could make large profit.
B. Railways were also developed for same motive.
C. Post telegraph and other modes of communication were required for effective administration.

Q.5 Describe the Indian economy at the time of independence.3

3.demographic indicators literacy rate poverty per capita income sectoral occupation all fare poorly
under the the 200 years of colonization and enslavement of India drain of wealth all the precious
metals handicraft prints of textile and valuable minerals war used up up by the British.
The Indigenous Industries declined under the British rule and there was a complete absence of
capital goods industries there was some infrastructure that was developed like the railways and
telegraph services but that was only two ease the administration and control for the British.

Q.6 What was the condition of Industrial sector at the time of Independence?4
Ans : - 1) Discriminatory Tariff Policy :
The British Government allowed tariff free export of raw materials from India and tariff free import of
British industrial products into India. But a heavy duty on the export of Indian handicrafts products. It
leads to decay of handicrafts industry in India.
(ii) Competition from machine :
Industrial revolution in Britain gave a stiff competition to the handicraft industries in India. Due to
low cost and better quality product produced by machine forced the Indian craftsmen to shut down
the handicraft Industry in India.
(iii) New Patterns of Demand :-
Owing to British rule in India, a new class of people emerged in India. This changed the pattern of
demand in India against the Indian products and in favour of British products. As a result, the Indian
Industry tended to Perish
(iv) More market for British Goods :-
An introduction of railways facilitated the transportation of the British products to different parts of
the country. As a result, the size of the market for the low cost British product expanded while it
started shrinking for the high cost Indian products. This lead toof foreign trade under the British rule.

Q7Mention the condition of occupation structure at the time Independence.4

Ans : - (i) Agriculture was the principal source of occupation and about 72 percent of working
population was engaged in agriculture.
(ii) Only 10% of the working population were engaged in the manufacturing sector, which showed
the backwardness of Indian Industry at the time of Independence.
(iii)only 17.2 percent of the working population were engaged in the service sector, which also
proved the slow growth of tertiary sector at the time of Independence.
(iv) There was an unbalanced growth of Indian economy at the time of Independence

Q8 What was the condition of Infrastructure at the time of Independence.4

Ans : 1) There was some infrastructural development during the British in the area of transport and
communication.
2) Introduction of railways, was a major break through followed by the development of some ports
Q-9 How the Indian handicrafts industry was ruined during the British rule?4
Ans: The British were always guided by their own interests they never bothered to considered the
effect of their policies on the people of India in terms of unemployment ,human suffering ,burden on
agriculture etc.they imposed heavy duties on Indian handicrafts so that they become more expensive
than British woolen and silk. they followed a policy of duty free export of raw material and import of
finished goods from Britain but post heavy duties on exports of of Indian handicrafts moreover Indian
handicrafts had to face competition from machine made goods from Britain in this way the Indian
handicraft industry was ruined during the British rule.

Q10 British intended to achieve some objectives through their policies of infrastructure.” Explain
the given statement.4
Ans This is true statement. British intended to achieve the following objectives through their policies
of infrastructure.
(i) Expansion of Indian market for the British products through the railways expansion.
(ii) To handle export of raw material to Britain and import of finished goods from Britain through the
development of ports.
(iii) To increase administrative efficiency through the development of post and telegraphs.
(iv) To facilitate transportation of raw material from different parts of the country to the ports
through the developments of roads. Thus, it is clear from the above points that they were having
personal objectives for which they were making policies and developing infrastructure

Q-11Discuss the positive contribution made by the British in India?6

Ans The following are the positive contribution made by the British
1. Introduction of railways the introduction of railways by the British was abe through to a
breakthrough the development process of Indian economy it opened up the cultural and ud
geographical barriers and facilitated commercialisation of Indian agriculture
2.Introduction of commercialisation of agriculture: prior to the advent of the British Indian
agriculture was of subsistence nature but with the commercialization of agriculture the agricultural
production was carried out as per the market requirements it was due to this factor that today de
India can I am at attaining self sufficiency in food grains production
3.Development of infrastructure
the infrastructure developed in India by the British proved as useful tool to check the spread of the
famines. The telegraph and postal services served ud Indian people.
 CHAPTER-2

Three Marks Questions

Q-1What were the main shortcomings of IPR 1956?3
Ans: There were many shortcomings of IPR 1956.
1. Many industries which code easily be handed over to private sector work kept under public sector
control.
2. Too many industries were covered under licence policy which create huddle in industrial
development
3. Too many regulations led to low level of industrial development.

Q2 What is subsidy ? what is its objective.3

Ans: Subsidy is a benefit given by the government to the producers as an incentive to produce to
farmers a subsidy is given to lower the cost of import it is given on electricity to the producers to
lower cost of production and it is given to consumers especially those living below poverty line on
necessities to make basic needs affordable for them.

Q3 How private sector was regulated under IPR 1956.3

Ans: Industrial policy resolution classified industries into two three categories.
A) In the first category those industries were included which were exclusively owned by the state and
in which private sector was not allowed to participate it had 17 industries.
B) In the second category those industries were included in which private sector could supplement
the role of public sector.
C) Third category consisted of the remaining industries in which private sector could enter.

Q-4Mention the development of Agriculture sector between 1950-1990.3

Ans : (i) Land reforms :Land reforms were initiated in order to bring equity in ownership of lanthe
improvement and growth of the organization. Therefore, Navaratna Policy do improve the
performance of the public sector organizations greatly. It improves the cost efficieny,generates more
employement, more profits, increases in size over time and various other enhancements. Then, the
government decides to retain them in the public sector undertakings and allow them to expand in
the holdings. It was decided to establish intermediaries and to make the tillers of the owners of land.
It gives the tillers the incentives to invest in making improvements in land provided sufficient capital
was made available to them.
(ii) Land Ceiling : If refers to fixing the maximum size of land which could be owned by an individual.
The purpose of land ceiling was to reduce the concentration of land ownership in a few hands and to
promote equality in the agricultural sector.
(iii) Green Revolution: It refers to large increase in production of food grains resulting form the use
of High yielding variety (HYV) seeds. The use of fertilizers, pesticides, irrigation facilities is important
along with HYV seeds in order to increase agricultural productivity & production. The farmers should
be provided adequate financial resources in order to purchase agricultural inputs.
Q5 Mention the development of foreign trade between 1950-1990?3
Ans : - Inward looking trade strategy was adopted as foreign trade policy . This strategy is called
import substitution. It aims at replacing or substituting imports with domestic production. Domestic
industry is offered protection from foreign competition through import duties. Its main objective was
to save foreign exchange by encouraging domestic production of such goods which could be
imported from rest of the world.
The Government protected the domestic industries from competition through tariffs and quotas.
Through imposition of tariffs and quotas, the government restricted the imports of goods and
thereby protecting the domestic firms from foreign competition.

4Marks Questions
Q6Mention the objectives or goals of planning in India. Briefly explain it.6
Ans : - The goals or objectives of planning in India are as follows:
i) Growth: -
It refers to increase in the country’s capacity to produce the output of goods and services within the
country. It implies either a large stock of productive capital or an increase in the efficiency of
productive capital and services like transport, banking & communication etc. In other words, it
means steady increase in the gross domestic product (GDP). It is necessary to produce more goods
and services if the country need to achieve higher growth level.
(ii) Modernization:-
It is necessary to adopt new technology in order to increase production of goods & services.
Adoption of new technology is called modernization. However, modernization does not refer only to
the use of new technology but also to change in social outlook such as women empowerment . A
modern society makes use of the talents of women in the work place so that the society will be more
civilized and prosperous.
(iii) Self reliance:-
It refers to utilization of country’s resources in order to promote economic growth and
modernization without using the resources imported from other countries. It means avoiding imports
of those goods which could be produced in India itself. It is necessary in order to reduce our
dependence on foreign countries in order to safeguard the sovereignty of our country and
unnecessary foreign interference in our polices.
(iv) Equity:-
It means equal distribution of income and wealth among the societies. It is important to ensure that
the benefits of economic development should reach the poor sections of the society as well instead
of being enjoyed by the rich. It is necessary that every people of a country should be able to meet
their basic needs such as food, education, health facilities in order to reduce the inequality

Q-7The public sector undertaking that are making profits should be privatized”. Do you agree with
the statement.4
The public sector undertakings that are unable to make profits or are going under huge losses, which
are unable to make the best use of all the resources they have, or have more expenses than the total
revenues, these should be privatized because they can revive the resources more feasibly and
convert them into economic profits development. On the other hand, the public sector
undertakings, which are making huge profits, should not be privatized. Privatization may result in the
exploitation of the employees in the organization. They might also focus only on the profits, which
can also result in a huge deadweight loss in the economy. The public sector undertaking should only
be privatized when there is a possibility of earning better revenues and growth in the economy. The
profits from these public sector undertakings must be used for the betterment of the societies and
the people living in those societies.
Q-8Discuss briefly the improvement in the performance of public sector undertakings because of
Navaratna Policy 4
The Navaratna Policy focuses on identifying public sector undertakings and declare them as
Navaratnas to improve their efficiency and the competitiveness in the outside world. The Navaratna
organizations are those who are given greater operational autonomies and managerial decision
authorities while making various decisions. This gives the firms greater flexibility to take the decisions
which focuses on global markets and grow financially and economically.
Q-9 Mention the development of Industrial sector between 1950-1990?4
Ans : 1) Public enterprises were played a central role in the process of Industrialization 2) Private
enterprises were to play only a secondary role in the process of industrialization. It means private
sector were to obtain a license for their industrial establishments and to produce goods within the
prescribed limits of production capacity.
3) Major thrust was given to import substitution. It means production of such goods were to be
accorded high priority which were imported from abroad. It was necessary to achieve the objective
of growth with self reliance.
4) Domestic industries were given protection from foreign competition and it was done through
(i) Heavy duty in imports
(ii) Large – scale industry was to be developed with a view to build an infrastructural base in country.

Q-10Why was public sector given a leading role in industrial development during the planning
period?4
Ans: public sector has been playing a very important role in the development of industries in the
following ways:
1. For creating a strong industrial base
2.For developing infrastructure .
3.Fordeveloping backward areas .
4.To mobilize savings and on earn foreign exchange
5.To prevent concentration of economic power.
6. To promote equality of income and wealth distribution
7. To provide employment to promote import substitution

Q.11What is Green Revolution. Write its advantage and disadvantage.6

The Green Revolution is referred to as the process of increasing agricultural production by
incorporating modern tools and techniques. Green Revolution is associated with agricultural
production. It is the period when agriculture of the country was converted into an industrial system
due to the adoption of modern methods and techniques like the use of high yielding variety seeds,
tractors, irrigation facilities, pesticides, and fertilizers. Until 1967, the government majorly
concentrated on expanding the farming areas. But the rapidly increasing population than the food
production called for a drastic and immediate action to increase yield which came in the form of the
Green Revolution.
Advantages of green revolution
1).It transformed the economy of of scarcity into to an economy of plenty
2) green revolution led to ryzen production and productivity
3) green revolution helped in removing continuing food shortages
Disadvantages of green revolution.
A) HYV was restricted to only five crops namely wheat rice, jawar, Bajra and maize. Commercial crops
for excluded from the Ambit of the strategy. Substantial increase in in wheat production was noticed
B) HYV crops were more prone to to attack by pets.
C It increase the gap between rich and poor farmers on the one hand and agriculturally developed
and agriculturally less developed States on the other

Q.12 What are the the main problems of Indian agriculture?6

Ans-agriculture in India suffers from variety of problems that contribute towards to its backwardness
some of these problems are:
1 Excessive population pressure.
2.Stagnation and low productivity
3.Uneconomic landholdings.
4.Subdivision and fragmentation of land
5.Inadequate irregation facilities
6.Inadequate credit supply
7.Traditional and outdated production method

Q13 What are the major land reform measures adopted in India?6
1.Land reforms cover all such policies and measures that she to change the pattern of land
ownership and provide security e to the farmers.
2. The main objective of of land reforms is to remove institutional obstacles in the way of
modernising agriculture and also promote equity and social justice in rural areas.
3.Zamindari System has been abolished and the actual cultivators have been given the ownership of
land.
4.Ceilings have been placed on the maximum size of land area that an individual can own.The surplus
land above this ceiling has been taken away and distributed among landless workers and small
farmers.
5.Small scattered pieces of land owned by different persons have been put together and
consolidated into bigger fields.

Q14 What has been the impact of agricultural reforms.6.

Ans:1.Increase in agricultural productivity.
2.Increase in agricultural production.
3.Modernisation of agriculture
4.Green revolution.
5.Increase in Marketable surplus.

Q15What are the objectives of Land reforms.3

Ans:1.Abolition of intermediaries i.e end of Zamindari System.
Reorganisation of agriculture
a.Ceiling of landholdings and redistribution of surplus land
b.Consolidation of holding
 3. ECONOMIC REFORMS SINCE 1991

Q1. What are stabilization measures and the structural reform measures?
ANSWER- Stabilization measures are short term measures, intended to correct some of the
weaknesses that have developed in the balance of payment and to bring inflation under control.
Structural reform policies are long term measures, aimed at improving the efficiency of the economy
and increasing its international competitiveness by removing the inflexibility in different segments of
the Indian economy.

Q2. Define Liberalization .Explain the measures taken in industrial sector for liberalization of the
economy.
ANSWER- Liberalization is the removal or reduction of various types of controls and restrictions,
which are in force in the economy, in order to allow trade and industry to function more freely.
Following measures had been taken for liberalization of Indian economy under Industrial Sector
Reforms :
Industrial Sector Reforms: Industrial Sector Reforms were aimed at reducing government control and
opening up the Industrial Sector to private participation. The reforms were
• Delicensing of Industries- Since 1991, the government has relicensed several industries in
phased manner. At present, only 5 industries such as liquor, cigarette, and defence
equipments, indusrial explosive and dangerous chemicals require permission from the state.

• Contraction of Public Sector: As per the Industrial Policy Resolution1956, 17 Industries were
reserved for the public sector and small scale enterprises. In 1991, this number was reduced 8
and presently only 3 industries reserved for the public sector. These are atomic energy,
defiance equipments and railway.

• Dereservation of Production Areas: Many goods produced by Small scale industries have now
been dereserved. In many industries, the market has been allowed to determine the prices.

• Monopolies and Restrictive Trade Practices (MRTP): With the introduction of Liberalization
and expansion schemes, the requirement for large companies, to seek prior approval for
expansion, establishment of new undertakings, merger etc was eliminated.

• Freedom to Import goods: liberalization also implied freedom for the industrialists to import
capital goods with a view to upgrading their technology.

Q 3. What are the important reforms introduced in the Financial Sector Reforms?
ANSWER- Financial sector includes financial institutions, such as commercial banks,
investment banks, share market operations and foreign exchange market. The financial
 sector in India is controlled by the Central Bank- Reserve Bank of India (RBI).These reforms
were:
• Change in Role of RBI : The role of RBI was reduced from regulator to facilitator of financial
sector, now financial sector was free to take decisions on many matters without consulting
the RBI.

• Private Banks granted permission: Before 1991, all banks were owned either by the RBI or by
the government . Private Banks were not permitted. The NEP encouraged private banks and
so many private banks such as the ICICI, HDFC etc.

• Increase in limit of Foreign Investment- The limit of foreign investment in banks was raised to
around 51% .Foreign Institutional Investors such as merchant bankers, mutual funds and
pension funds were now allowed to invest in Indian financial market.

Q.4 Discuss the external sector reforms taken by the Government under Liberalization?
ANSWER- External sector reforms included: foreign exchange reforms and foreign trade
policy reforms
• Foreign Exchange Reforms: The important reforms made in the foreign exchange market are
:

a) Devaluation of Rupees: Devaluation refers to reduction in the value of domestic

currency by the government. To overcome Balance of Payment crisis, the rupee was
devalued against foreign currencies. This led to an increase in the inflow of foreign
exchange.
b) Market Determination of Exchange Rate: The Government allowed rupee value to be
free from its control. As a result, market forces of demand and supply determine the
exchange of the Indian rupee in terms of foreign currency.
• Foreign Trade reforms :The important trade and investment policy reforms included:

• Removal of quantitative restrictions on Imports and Exports

• Removal of Export Duties

• Reduction in Import Duties

• Relaxation in important licensing system

Q.5 Distinguish between the following:

i) Strategic and Minority sale
ii) Bilateral and Multilateral trade
iii) Tariff and Non- tariff barriers.
 ANSWER- i) Strategy and Minority sale: Strategic sale refers to the selling off a major part
of equity (51%or more) of the public sector undertaking to the private sector. Under
strategic sale ownership transfers to a private company.
Minority sale means a sale of 49% or less of the equity of public sector undertaking. The
ownership of the PSU remains with the government.
ii) Bilateral and multilateral trade: Trade between two countries is known as bilateral
trade.
Trade between more than two countries is known as tariff barriers.
iii) Tariff and Non tariff Barriers: The barriers which are imposed on imports, to make
them relatively expensive, to protect the domestic industry are known as tariff barriers.
The barriers which are imposed on the quantity of imports and exports are known as
non tariff barriers.

Q.6 Define privatization. Discuss the need for privatization.

ANSWER- Privatization means transfer of ownership, management and control of public
sector enterprise to the entrepreneurs in the private sector. With a view to improve the
performance of the public sector enterprises, the wave of privatization has spread all over
the world. Need for privatization was felt mainly because of the inefficiency of the public
sector enterprises. Thus, the private sector was given larger space to operate in the areas
reserved exclusively for the public sector.Privatisation can be done by two ways:
• By withdrawal of government control from the management and ownership of public sector
companies;; and

• By outright sale of public sector companies.

Q. 7 What do you mean by Globalization? Explain its merits and demerits.

ANSWER- Globalization means integrating the national economy with the world economy
through removal of barriers on international trade and capital movement.
Merits of Globalization-
• This improves quantity as well as quality of production due to rise in competition.

• Globalization will attract foreign capital which will lead to technological up gradation.

• India’s share in the world trade has increased from 0.5% in 1990-91 to 1.1% in 2005.

• Banking and foreign sector of the home country will raise their competitive skill and efficiency
in order to have a competitive edge over foreign banks.

Demits of Globalization-
 • Globalization has destroyed local producers since they are unable to compete with cheap
imports.

• Large scale establishment of MNCs in the developing countries like India mighty result in
monopolies.

• Globalization may lead to income inequalities within the country as it will benefit only those
who possess latest skills and technology.

Q. 8 What is Outsourcing? What makes India a favourite destination for Outsourcing?

ANSWER- It refers to a system of hiring business services( like call centres ,transcription
,clinical advise etc) from the outside world. The following points suggest that outsourcing
is good for India. The following points qualify India to be the favorite destination for
outsourcing by various MNCs
• Availability of Cheap Labor – Wage rates in India are comparatively lower than that of in the
developed countries

• Reasonable Degree of Skills- India has vast manpower with fairly reasonable degree of skills
and techniques.

• Favorable Government Policies- MNCs get various type o lucrative offers from the Indian
Government like tax holidays ,low tax rates etc.

• International worthiness: India has a fair international worthiness and credibility;

• Better technology and growth of IT – The advancement and innovations in the IT sector
contributed to the growth of the service sector in India.

Q.9 Mention positive impact of LPG policies on the Indian economy.

ANSWER-
1. Rise in GDP growth- Since the introduction of economic reforms in 1991, country has shown rise in
GDP growth rate.
2. Rise in Foreign Exchange Reserves- Foreign exchange reserves which were only US $ 6 Billion in
1990-91 to about US $ 413 Billion in 2018-19.
3. Rise in inflow of Foreign Capital- One of the benefits derived from global integration is the
increased inflow foreign direct investment (FDI) .FDI was at US $ 30 Billion in 2017-18.
4. Control of Inflation- The positive point of economic reforms is that it has controlled inflation.
5. Rise in Competitiveness of Industrial Sector- Sectors such as auto components, textiles and
pharmaceuticals are pillars which show the strength of the industrial sector.
6. Controlling Fiscal Deficit- Continuously increasing fiscal deficit was a serious problem in front of
government .Due to LPG policies, government receipts have increased. Fiscal deficit has reduced.
7. A shift from Monopoly Market to Competitive Market- New economic policies i.e., LPG policies
have caused a significant shift from monopoly character of Indian market to monopolistic character.
8. Increase in role of Private Sector - Removal of licensing system and removal of restrictions on entry
of the private sector, in areas earlier reserved for the public sector; have increased the area of
operation of the private sector.

Q. 10 What is WTO? Discuss its objectives ?

ANSWER- The WTO was founded in 1995 as the successor organization to the General Agreement on
Trade and Tariff (GATT) . GATT was established in 1948 with 23 countries as the global trade
organization to administer all multilateral trade agreement by providing equal opportunities to all
countries in the international market for trading purposes. At present membership of WTO is 164.
Objective of WTO
1. To protect the environment.
2. To provide greater market access to all member countries.
3. To ensure optimum utilization of world resources.
4. To enlarge production and trade of services.
5. To ensures the reduction of tariffs and other barriers to trade.

Q11. Discuss the disadvantages of GST.

Ans. Disadvantages of GST are as under:
• Complicated tax system: GST has introduced 4 different tax stabs of 5%, 12%, 18% and
28%which has made consumer confused in these rates .sometimes he remains baffled over
these rates while making purchases.

• Difficult system for small and marginal producers: small producers and trades are unable to
maintain such a good record relating to sale and purchases of goods and services. They are
puzzled over filling quarterly returns and refund claims. However small businessmen with
annual income of Rs. 20 lakh have been kept out of GST arena.

• Some major items are out of GST regimes: Petroleum and Liquor are kept out of coverage of
GST which is a major source of state income. Therefore GST is a partial tax system.

• Negative impact on real estate market: GST will add up to 8% to the cost of new homes which
can reduce the demand for such homes.

• Inflationary: producers feel the tax slab are high which can raise prices of the product which
in turn can have negative impact on demand.

Negative impact of GST is expected to be

observed on GDP growth of India. It is to be expected to fall by more than 1% in the year
2017-2018. But economist feel it is a temporary effect which will be improved in coming
years.
Q.12. What are the main causes of demonetisation?
Or
What are reason behind demonetisation?
Ans. Following are the main reason behind demonetisation:
• Black money: A recent study has pegged India black market economy at over rs 30 lakh core
or about 20% of total GDP. This is even bigger than the GDP of countries like Thailand and
Argentina. So now after this decision black money holders are left with just two option –
either route his money through banks, declaring it to be their income or burn the stashed file.

• Fake currency and Terrorism: “Terrorism is a frightening thing. But have u ever thought about
how these terrorist get their money? Enemies from across their border have run their
operation using fake currency notes. This has been going for years.”

• Stability of the economy: The major impact of this decision is on the economy because it gives
it gives highly positive impact on the economic stability in near future. The coming 6 or 7
months are expected to witness a considerable level of deflation. Sectors like real estate,
construction materiel, gold, unorganised trade and services will see significant pain in the
near time.

• To check unorganised trading:

• Price hike in real estate sectors is mainly because of the involvement of black money , but
after taking this decision the prices of property will surely come down to their real value

To their real value.

• Unorganised dealing in share market will also be eliminated after this decision and this will
gain positive result in the economic condition of the country.

• The problem of inflation will get solved with this step as the govt. will get more money in its
pocket in the form of taxes and undisclosed income.

• Banking system will also get strengthen as the banks will also be flooded with the huge
amount of money. This will also result in more economic development in the nation as the
money will be channelized properly through banks.

• Less cash economy: It is not possible to make India ‘cash – les s economy’ but for the making
development and transparency in the economy, we can say use of less cash is possible. So far
making people familiar with e – payment and use of plastic currency is made possible only
after demonetization.

Q.13. Discuss the merits of demonetization.

 Or
Demonetised Favoured economic growth or not. Explain.
Ans. Demonetisation Favoured India’s Economic growth
The reasons are as follows:
• Financial Reform: Demonetisation policy of the Govt. has been termed as the greatest
financial reform that aimed to curb the black money corruption and counterfeit currency
notes.

• Corruption-free: Demonetisation was done to help India to become corruption free as it will
be difficult now keep the unaccounted cash.

• To check the black money: Demonetisation will help the Govt. to track the black money and
the unaccounted cash will now flow no more and the amount collected by means of tax can
be better utilised for the public welfare and development schemes.

• To curb terrorist activities : One of the biggest achievements of Demonetisation has been
seen in the drastic curb of terrorist activities as it has stop the funding the terrorism which
used to get a boost due to inflow of unaccounted cash and fake currency in large volume.

• To check money laundering: It will eventually come to halt as the activity easily be tracked
and the money can be seized by the authorities.

• To Stop Parallel Economy: Demonetisation aimed to stop the running of parallel economy due
to circulation of fake currency as the banning of Rs. 500 and Rs. 1000 notes will eliminate
their circulation.

• Loans the public sector banks which were reeling under deposit crunch and were running
short of funds have suddenly swelled with lot of money which can be used for future and
loans after keeping a certain amount of reserve as per RBI guidelines.

• Use of accounts: The people who opened the Jan Dhan accounts will now use their accounts
and becomes familiar with banking activities. The money deposited in these accounts can be
used for the developmental activity of the country.

• Cashless society: Demonetisation has driven the country towards a cashless society. Lakhs of
the people in the remote rural areas have started resorting to use the cashless transactions.
The move has promoted banking activities. Now even the small transactions have started
going through banking channels and the small savings have turned into huge national asset.

• To check inflation: The high rising price pattern and inflationary trends which the Indian
economy was facing are taking a down turn making the living possible within low income
group reach.

Q.14. Discuss arguments against (demerits) of economic reforms. (LPG)

 • Neglect of Agriculture Sector. Economic reforms concentrate on Industry, trade and finance,
ignoring the role of agriculture sector in Indian economy. No particular reform has been
suggested on this front.

• More Dependence on Foreign Debts. New policy makes Indian economy much dependent on
foreign investment and foreign technology. Average Indian owe Rs.1500 as foreign debt,
heavy dependence on foreign debts may prove disastrous for the economy.

• Pressure of World Bank and IMF.AII these reforms are introduced in India on the
recommendations of

Q.15. Define Gst. How is it governed?

Meaning-Gst is an indirect tax collected on the value addition of goods and services at each stage of
sale or purchase in a supply chain.
Whenever a producer makes some purchases of inputs(raw material), he will get input credits, which
will be adjusted from his total amount of tax. Gst will be charged from him on the basis of his value
additions. There will be no cascading (Compounding) of tax load on the consumer.
Gst tax is governed by GST-Council composed of Central Finance Minister and all the Finance
Ministers of various states. However, Union Finance Minister (Mr.Arun Jaitly) is the Chairman of this
Council. This Council meets occasionally to make required changes in it. Last meeting on 25 th Feb
2019,made some big changes in Real Estate taxes and made it “Nation Friendly”
What are the Merits of GST?
1. Taxes becomes easier and simple: It has replaced 17 complicated taxes into a single tax
2. Unified Market: it will help to introduce ‘one Nation-one Market-one Tax’ in whole India. No
Discrimination of rates in states will be there.
3. Consumption Based Tax: Gst is imposed on the basis of consumption rather than manufacturing. It
will not disturb expansion plans.
4. Abolition of CST: Central Sale tax(Cst) has been completely abolished so that there should be no
double taxation on certain goods produced in Centre Regime.
5.Booster to Global trade: Gst has made exportables as tax free but imports are taxed for the need of
the country.
6.Promotes ‘Make –in India’ spirits: Gst would reduce the cost of manufacturing both from a tax
perspective as well as an on compliance front. It will prove a booster for the industry
 His total earnings during his life Spain would far exceed his initial expenditure on education .

2. Expenditure on health : “ a sound mind in a sound body “ is an old saying. expenditure on

health makes a man more efficient and therefore more productive. Is contribution to the
production process tends to rise. He adds more to GDP of the nation then a sick person.
Expenditure on health and therefore is an important determinant of human capital
formation.

3. On the job training : on the job training helps workers to hone/sharpen their specialised skills.
It is enabled them to raise the level of their efficiency/productivity .

4. Study programs for adults : rather than formal education at the primary, secondary and
university level the government and NGOs organise study programmes for adults to make
them proficient in their work areas .

5. Migration : migration contributes to human capital formation as it facilitates and utilisation of

inactive skills of the people or it facilitates fuller utilisation of the skills .

6. Expenditure on information : information relating to job markets and educational institutions

offering specialised skills is an important determinant of skill formation . It enables people to
actualize their productive potential .accordingly expenditure on information is another
determinant of human capital formation .

Question 2. Distinguish between human capital and human development .

Answer : While human capital focuses on investment in education and health sector to
increase productivity and efficiency of workforce on the other hand , human
development focuses on investment in education and health sector to increase the
general well-being and standard and quality of living of human capital .
Question 3. Explain the role of capital formation in Economic growth .

Ans.
1. Change in emotional and material environment of growth : human capital formation
and generates a change in emotional and material environment of growth . A) emotional
environment becomes conducive to growth as people tend to to acquire growth-oriented
attitude and aspirations . B) material environment becomes helpful to growth as the
society now possesses higher number of skilled and trained workers to implement the
plans and programmes of economic growth .

2. Higher productivity of physical capital : human capital formation increases productivity of

physical capital . Specialised engineers skilled workers can certainly handle machines
better than the others .
3. Innovative skills : human capital formation facilitates innovations the undercurrent of
growth and development . Larger the number of skilled and trained personnel , greater
the possibilities of innovations in the area of production and related activities . Innovation
is the lifeline of growth.
4. Higher rate of participation and equality : by enhancing productive capacities the labour
force, human capital formation induces greater employment . This increased the rate of
participation .

Question 4. What are the main problems of human capital formation in India .
Answer : A) rising population : rapidly rising population adversely affects the the quality of

human capital . This is because it reduces per head availability of the existing facility
related to housing, salutation, drainage, water system, hospitals, education, power supply
etc . reduces availability of these facilities leads to a fall in the quality of life .

B) brain drain : migration of persons to develop countries is a serious threat to the

process of human capital formation in the country . Those who decide to buy great or
persons of high calibre such as scientist, administrators, executive’s, engineer, physicians,
educationist etc .

C) deficient manpower planning : not enough efforts have been made to maintain the
demand supply balance of the ever rising labour force in the country . AG result India is
facing and explosive problems related to graduate unemployment. It is a bad reflection on
the wastage of a human power and human skill .
D) insufficient on the job training in primary sector : primary sector is the backbone of
Indian economy . Unfortunately it has not received due attention in the area of
professional skills . The traditional wisdom predominants the primary sector, and that ' on
the job training programmes ' are highly scant, if note listless .
E) low academic standards : in our enthusiasm to spread higher education , we have been
opening many universities, unmindful of their academic standards . Consequently
we have a large army of half-baked graduates and postgraduates deficit skills only lowers
the level of efficiency .

Question 5
Explain the importance/ objective of education .
Answer :
1. Education produces responsible citizens .
2. It develops science and technology
3. It facilitates the use of natural and human resources of all regions of the country.
4. It explains mental horizon of the people.
5. It helps economic development through greater participation of the people in the
process of growth and development .
6. It develops cultural standards of the citizens .
7. It develops human personality .

Question 6. Explain the role of government in education and health sector .

Answer :

1) These sectors need huge investment with a very high fixed expenditure .
2) It is difficult to extract private investors to invest in health and education unless
they are allowed to recover their huge cost through high price of these services .
3) People in a poor country like ours cannot afford high price for education and
health .
Question 7. Explain main problems related to development of education in India .
Answer :
1) Large number of illiterates : India harbours the largest number of electorates in
the world . Presently nearly 36 crore people are estimated to be illiterate. The
number exceeds even the total population of most countries in the world .
2) Inadequate vocationalisation : education continuees to be largely degree oriented
throwing millions of educated youths down to the The corridors of employment
exchanges .
3) Gender bias : there is still a significant bias in offering opportunities of education
to male and female children . The enrollment ratio is relative leelo for the female
candidates and their dropout ratio in considerably high. Education system in India
thus needs a substantial change in the attitudes of the people .
 CHAPTER-6 RURAL DEVELOPMENT
Short answer type questions

1. What is rural development?

Ans. Rural development is an action plan for the economic and social upliftment of rural areas.

2. What is meant by agricultural diversification?

Ans. Agricultural Diversification means a major proportion of the increasing labour force in the
agricultural sector needs to find alternate employment opportunities in other nonfarm sectors.

3. What is TANWA?
Ans. TANWA (Tamil Nadu Women in Agriculture) is a project initiated in Tamil Nadu where rural
women find employment in nonfarm jobs, as well as they are trained in latest agricultural
techniques.

4. What is ‘Golden Revolution’?

Ans. The period between 19912003 is called ‘Golden Revolution’ because during this period the
named investment in horticulture became highly productions and the sector emerged as a
sustainable livelihood option.

5. Write two instruments to safeguard the interests of farmers by the government.

Ans. Two instruments are fixation of minimum support price (MSP) buffer stock.

6. What is cooperative marketing?

Ans. Cooperative marketing is a measure to ensure a fair price ot farmers. Member farmers sell their
surplus to the cooperative society which substitutes collective bargaining in place of individual
bargaining and hence provides best advantages to the farmers.

7. What do you mean by ‘Operation Flood’?

Ans. From 1966 onwards operation flood is a system whereby all the farmers can pool their milk
produce according to different grading (based on quality) and the same is processed and marketed to
urban centers through cooperatives.

8. What do you mean by micro credit programmer.

Ans. Credit provisions made by self help groups (SHG) to its different members is known as micro
credit programme.

9. Define no institutional sources of agricultural credit.

Ans. Noninstitutional sources include money lenders, traders, commission agents, landlords,
relations and friends.

10. What is agricultural marketing?

Ans. Agricultural marketing is a process of marketing in which farm produce are distributed through
wholesalers and stockiest to ultimate consumers.

11. Mention two limitations of rural banking.

Ans. Two limitations of rural banking are inadequate finance and large amount of over dues and
default rate.

12. Name two institutional sources of agricultural credit.

Ans. Two institutional sources of agricultural credit are cooperative credit societies and commercial
banks.

13. Which state has an efficient implementation of milk cooperatives?

Ans. Gujarat state has the efficient implementation of milk cooperatives.

14. When was NABARD established?

Ans. NABARD (National Bank for Agriculture and Rural Development) was established in 1982

15. What is sustainable development?

Ans. Sustainable development is a system of a long period sustainable process along with an eco-
friendly environment.

Long Answer type questions

Q.1 Explain the steps taken by the government in developing rural markets.

ANSWER:

The following are the various steps initiated by the Indian government to develop the rural markets:

1. Regulated Markets: The government came up with the concept of regulated market where the sale
and purchase of the products are monitored by the Market Committee. This Market Committee
consists of farmers, government agents and traders. This practice infuses greater transparency in the
marketing system through the use of proper scales and weights. Such committees ensure the farmers
and the consumers in receiving fair price in exchange of their products

2. Infrastructure Development: The present infrastructure is not sufficient to meet the growing
demands of the farmers. Indian government provided cold storages and warehouses that help the
farmers to sell their product at the time when the price is attractive. Also, railways offer subsidised
transport facilities to the farmers. This enables the farmers to bring their product to urban areas
where they can earn huge profits.

3. Co-operative Agricultural Marketing Societies: The government also started co-operative

marketing under which the farmers get access to fair prices. This is due to the better and enhanced
bargaining power of the farmers via collective sale in the market.

4. MSP Policy: Minimum Support Price is a minimum legislated price that a farmer may charge in
exchange for his products. This enables them to sell their products in the open market at a higher
price. The MSP insulates the farmers in case of price fall as this is the minimum price that they can
receive. The need of such assurance to the farmers is of immense importance as farming in India is
subject to many uncertainties.
Q.2 What do you mean by agricultural marketing.
Answer: agriculture marketing is a process that involves the assembling storage, processing,
transportation, packaging, grading and distribution of different agricultural commodities across the
country.

Q.3 Bring out the importance of animal husbandry, fisheries and horticulture as a source of
diversification.

ANSWER:

1. Importance of Animal Husbandry

Animal husbandry is the most important non-farm employment in India. It is also known as Livestock
Farming. Poultry, cattle and goats/sheep are the important components of livestock farming in India.
Most of the rural families carry out livestock farming together with crop farming in order to increase
their income. The share of livestock farming is comparatively higher in the semi arid and arid areas
than the irrigated areas. This is because the arid areas have lesser access to irrigation facilitiesand
thereby, crop farming is less feasible. Thus, in other words, it can be said that livestock farming
provides sustainable livelihood to the people in the semi arid and arid regions where farming can’t be
performed well. Further, capital investment in livestock farming is comparatively less than that in
crop farming. In addition, livestock farming is an important source of employment for rural women.
Presently, animal husbandry is the most important source of alternative employment, employing
approximately 70 million small and marginal farmers. Besides providing employment, livestock
farming has resulted in increased production of milk, eggs, meat, wool and other by-products,
enhancing the consumption bundle qualitatively and nutritionally.

2. Importance of Fisheries

‘Fisheries’ are an important source of livelihood in the coastal states such as Kerala, Maharashtra,
Gujarat and Tamil Nadu. The fishing community in India depends on water bodies- both inland and
marine water bodies. Inland sources include rivers, lakes, ponds, and streams, while, the marine
sources include seas and oceans. The increasing efforts by the state governments have attracted
funds in this sector, boosting the production. But this community remains one of the backward
communities in the country due to low per capita earnings, lack of labour mobility to other sectors,
illiteracy and indebtedness. Despite a significant segment engaged, this sector contributes only 1.4%
to India’s total GDP.

3. Importance of Horticulture

Horticulture is emerging as an important source of livelihood in the rural areas. Horticultural crops
include fruits, vegetables, medicinal and aromatic plants and flowers. Presently, India is the second
largest producer of fruits and vegetables that includes mangoes, bananas, coconuts, cashew nuts and
variety of species. There has been a considerable rise in the income levels of families engaged in
horticultural production. The increase in horticultural production has lowered the vulnerability of
small and marginal farmers. This has provided a gateway of opportunities for employment for
CHAPTER-7 EMPLOYMENT, GROWTH, INFORMALIZATION AND OTHER
ISSUE
1) What is an economic activity?
Ans. All activities which contribute to gross national product through production of goods and
services are called economic activities.
2) Who is worker?
Ans. A worker is an individual who is doing some productive employment to earn a living.
3) Define self employed workers?
Ans. Self-employed workers are those who work in their own business or profession and get profit as
their reward.
4) Define Casualization.
Ans. Casualization is defined as a situation in which percentage of casually hired workers in the
workforce tends to grow overtime.
5) Define Jobless Growth
Jobless growth is defined as an economic phenomenon in which an economy experiences growth
while maintaining or decreasing its level of employment.

6) Are the following workers a beggar, a thief, a smuggler, a gambler? Why?

Ans. No, they are not workers, as they are not doing any productive work.
7) Why is self-employed workforce higher in rural areas?
Ans. In case of rural areas, self-employed workers are greater as majority of rural people are engaged
in farming on their own plots of land.
8) Give the meaning of disguised unemployment.
Ans. Disguised unemployment refers to a state in which more people are engaged in work than are
really needed.
9) Who is casual wage labourer?
Ans. Workers who are not hired by their employers on a regular or permanent basis (i.e. don’t have
job security) and do not get social security benefits, are formed as casual wage labour.
10) How will you know whether a worker is worker in the informal sector?
Ans. It is an unorganised sector of an economy which includes all those private sector enterprises
which employ less than 10 workless.
11) Why are regular salaried employees more in urban areas than in rural areas.
Ans. Regular salaried employees are more in urban areas as considerable section of urban people are
able to study in various education institutions and if enables them to look for an appropriate job to
sui t their qualification and skill.
12) Explain different types of unemployment prevails in rural regions.
Seasonal Unemployment:- It refers to a situation where a number of person that are not able to
find a job in a particular season.
Disguised unemployment is a kind of unemployment in which some people look like being employed
but are actually not employed fully. This situation is also known as Hidden Unemployment. In such a
situation more people are engaged in a work than required. In other words it refers to a situation of
employment with surplus manpower in which some workers have zero marginal productivity. For
example in rural areas, this type of unemployment is generally found in agricultural sector.
13) Explain any four main causes of wide spread unemployment in India. OR
State the causes of unemployment in India?

Causes of unemployment:
a. Slow rate of economic growth
b. Population explosion
c. Underdeveloped agriculture
d. Defective educational system
e. Slow growth of Industry
f. Decline of cottage and small industry.
g. Faulty planning
h. inadequate employment planning.
i. Low capital formation.
j. Excessive use of Foreign Technology
k. Lack of financial resources
l. Increase in labour force

14) Suggest some remedial measures to remove unemployment In India?

Remedial measures for unemployment:
a. Accelerating growth rate of GDP
b. Control of population growth
c. Development to small scale enterprises.
d. Encouragement in infrastructure.
e. Special employment programmes.
f. Rapid industrialisation.

15) What is the difference between labour force and work force?
Labour Force
It refers to the number of persons actually working or willing to work. It is not related to wage rate.
Because it is measured in terms of the number of persons (not in terms of person-days), size of
labour force increases or decreases only when the number of persons actually working or willing to
work increases or decreases.
Work force
It refers to the number of persons actually working and does not account for those who are willing to
work.
It is a measurement of actual labour force.
The difference between workforce and labour force is called unemployment. Unemployment =
Labour Force – Work Force

16) Compared to urban women more rural women are found working. Why? (4)
The difference in participation rates is very high between urban and rural women. In urban areas, for
every 100 urban females, only about 14 are engaged in some economic activities. In rural areas, for
every 100 rural women, about 26 participate in the employment market.

1) It is common to find that where men are able to earn high incomes, families discourage
female members from taking up jobs. Earnings of urban male workers are generally higher
than rural males and so urban families do not want females to work.

2) Apart from this, many activities of the household in which urban women are engaged, are not
recognised as productive work, while women working on farms in the rural areas are
considered a part of the workforce if they are being paid wages in cash or in the form of
foodgrains.
 3) It is because of poverty that women in rural areas are forced to seek employment. On the
other hand, women belonging to affluent families in urban areas generally do not work.

4) In agriculture and allied activities, high skill and expertise are not required, hence women
work to support their families. Also in the rural area, the size of the families is large so the
women work to feed their large families.
17) Mention the salient features of the unemployment situation in India.(4)
Some of the salient features of the unemployment situation in India are mentioned below:
I. The incidence of unemployment is much higher in urban areas than in rural areas.
II. Underemployment is higher in case of women.
III. Unemployment rates for women are higher than those for men.
IV. Incidence of unemployment among the educated is much higher.

18) How is unemployment measured in India? Also give trends by these measures.(6)
Measurement of Unemployment:
Usual Status (UPS):
The Usual Status approach to measuring unemployment uses a reference period of 365 days i.e. one
year preceding the date of the survey of NSSO for measuring unemployment.
The Usual Status approach of measuring unemployment also looks at the principal activity and
subsidiary activity status of the worker.
Current Weekly Status:
The Current Weekly Status (CWS) approach to measuring unemployment uses seven days preceding
the date of survey as the reference period.
A person is considered to be employed if he or she pursues any one or more of the gainful activities
for at least one-hour on any day of the reference week. On the other hand, if a person does not
pursue any gainful activity, but has been seeking or available for work, the person is considered as
unemployed.
Current Daily Status (CDS): The current daily status approach to measuring unemployment seeks to
ascertain the activity status of an individual for each day of the reference week. It reports time
disposition of an individual on each day of the reference week. This means that in addition to
recording the activity being pursued, time intensity is also recorded in quantitative terms for each
day of the reference week.

19) What steps have been taken by the government solve the problem of unemployment in rural
areas? (6)
Apart from the programmes which are mainly aimed at the development of infrastructure, such as
construction of small and large dams, canals and roads, the government strategies to generate
employment are closely associated with poverty alleviation programmes. Nevertheless, the
government has undertaken many special programmes to generate employment opportunities. The
major ones among them are:
a) MGNREGA: NREGA was launched in 2005 which has been renamed as MGNREGA (Mahatama
Gandhi National Rural Employment Guarantee Act, 2005) which ensures 150 days of
employment guarantee to all rural people willing to do unskilled manual work.
b) Rural Works Programme: This programme aims at construction of civil works of permanent
nature in rural areas.
c) Integrated Dry Land Agricultural Development: Under this scheme, permanent works like soil
conservation, development of land and water harnessing are undertaken.
 CHAPTER 9 ENVIRONMENT AND SUSTAINABLE DEVELOPMENT

Q.1 What do you understand by the term environment?

Ans: Environment is the sum total of surroundings and the totality of resources that affect
the existence and quality of human life.
Q.2 What does environment include?
Ans: Environment includes all the biotic and abiotic factors (that influence each other).
Q3. What do you mean by biotic elements?
Ans: All living elements like plants, forests, animals, birds, fisheries, etc. are biotic elements.
Q4. What are abiotic elements of environment?
Ans: Abiotic or physical elements of environment include land, water, climate, mountains,
minerals and all other resources which nature has provided to us as a free gift.
Q5. What are the renewable resources?
Ans: Renewable resources are those resources which can be used without the possibility of
being exhausted, such as sunlight, tree, fishes, etc.
Q6. What do you mean by non-renewable resources?
Ans: Non-renewable resources refer to those resources which get exhausted with extraction
and use such as coal, gas, etc.
Q7. Define pollution.
Ans: Pollution refers to those activities of production and consumption which challenge the
purity of air and water and thereby pollute the environment.
Q8. What do you mean by deforestation?
Ans: Deforestation occurs when trees are fell to meet the growing demand for wood and
other forest products.
Q9. What is social forestry?
Ans: Social forestry refers to the protection of the forests through by collective efforts of the
people of an area.
Q10. What do you mean by the carrying capacity of environment?
Ans: Carrying capacity of environment implies that the resource extraction is not above the
rate of regeneration of the resources and the waste generated are within the
assimilatingcapacity(absorption capacity) of the environment.
Q11. What is global warming?
Ans: Global warming refers to a gradual but consistent rise is in atmospheric temperature.
Q12. What is ozone depletion?
Ans: This refers to ozone (a protective layer) in the atmosphere. This occurs owing to the
excessive use of cooling substances in air conditioners and refrigerators.
Q13. What is economic growth?
Ans: Economic growth refers to long term increase in real per capita income.
Q14. What is economic development?
Ans: Economic development refers to long-term increase in real per capita income along
with equitable distribution of income and wealth.
Q15. What is sustainable development?
Ans: Sustainable development is development that meets the needs of the present
generation without impairing/ reducing the ability of future generation to meet their own
needs.
Q16. How is environment important to us?
Ans: Environment is important to us due to the following reason:
 by the emission of greenhouse gases in the environment beyond its absorption
capacity. Pollution of air implies that quality of life is impaired.
(ii) Water Pollution: It refers to the contamination of fresh water and its sources. It
causes various diseases like diarrhoea, hepatitis, etc.
(iii) Noise Pollution: Mechanisation has led the noise pollution. Noise pollution has
recorded exponential growth, millions of vehicles fitted with loud horns and noise
generating engines are plying on the roads.
Q18 What are the causes of land degradation in India?
Ans: The causes of land degradation in Indian is as under:
(i) Soil erosion caused by strong winds or floods or deforestation.
(ii) Alkalinity and salinity of soil caused by water logging.
(iii) Excessive water logged on the top soil. It tends to suck up the nutrients of the soil
and reduces its fertility.
Q19. State three principal factors contributing to Air and Noise pollution in India.
Ans: Air pollution:
(i) Smoke emitted by the industries, particularly those using coal as an energy.
(ii) Poiseness gases emitted by the industries in the prosses of chemical treatment of
the materials.
(iii) Emission of gases by the motor vehicles which has risen to the threatening level.
Noise Pollution:
(i) Noise produced by engines of various means of transport on the surface as well as
in the air.
(ii) Noise produced by the industrial machines.
(iii) Noise produced by the household appliances like mixer-grinders, water boosters
and washing machines, etc.
Q20. State three factors contributing to deforestation in India.
Ans: Following are the principal factors contributing to deforestation in India:
(i) Growing industrial demand for wood and other forest products.
(ii) Growing demand for wood owing to explosive rise in population.
(iii) River valley projects.
(iv) Rapid urbanization.
 UNIT-IV
CHAPTER-10 COMPARATIVE DEVELOPMENT EXPERIENCES OF INDIA
AND ITS NEIGHBOURS

PART:B:- Short Answer Type Questions :- (3 Marks Each)

Q.1) What is the important implication of the ‘one child norm’ in China?

Ans:- The one child norm introduced in China in the late 1970s has been the major reason for low
population growth. This measure led to a decline in the sex ratio defined as the proportion of
females per 1000 males. The important implications of the ‘one child norm’ are:

i. Low population growth.

ii. Decline in the sex ratio.

iii. After a few decades, there will be more elderly people in proportion to young people.

iv. In the long run, China will have to provide more social security measures with fewer
workers.

Q.2) Mention some examples of regional and economic groupings.

Answer. Every country aims to strengthen its own domestic territory. The nations are forming
regional and global economic groupings such as:

1. SAARC. It has 8 countries of South Asia.

2. EU has 25 independent states based on European Communities.
3. ASEAN. It has 5 countries of South East Asia.
4. G-8 (Group of Eight). It has 8 countries.
5. G-20 (Group of Twenty). It consists of 19 world’s largest economies.

Q.3) Compare and contrast India and China’s sectoral contribution towards GDP. What does it
indicate?

Answer. Sectoral Distribution of Output and Employment:

 1. Agriculture Sector. China has more proportion of urban people than India. In China in
the year 2009, with 54 per cent of its workforce engaged in agriculture, its contribution
to GDP is 10 per cent. In India’s contribution of agriculture to GDP is at 17 per cent.
2. Industry and Service Sectors. In both India and China, the industry and service sectors have
less proportion of workforce but contribute more in terms of output. In China, manufacturing
contributes the highest to GDP at 46 per cent whereas in India it is the service sector which
contributes the highest. Thus, China’s growth is mainly contributed by the manufacturing
sector and India’s growth by service sector.

Q.4) Define the liberty indicator. Give some examples of liberty indicators.

Answer. Liberty indicator has actually been added as a measure of ‘the extent of democratic
participationin social and political decision-making’ but it has not been given any extra weight. Some
of theexamples of liberty indicators are : literacy rate, women participation in politics, etc.

Q.5) Explain the Great Leap Forward campaign of China as initiated in 1958.

Ans: - The Great Leap Forward (GLF) was a campaign initiated in 1958 in China. The aims of this
campaign are as follows:

1. The aim of the campaign was to initiate large-scale industrialisation in the country
concentrating not only in the urban areas but also in the rural ones.
2. The people in the urban areas were motivated to set up industries in their backyards.
3. In the rural areas, Commune System was implemented. Under this system, people were
engaged in collective farming.

Q.6) Mention the various indicators of human development.

Ans:The indicators of human development are:

i. Life Expectancy.

ii. Adult Literacy Rate.

iii. Infant Mortality Rate.

iv. Percentage of the population below poverty line.

v. GDP per capita

vi. Percentage of the population having access to improved sanitation

vii. Percentage of the population having access to improved water sources.

Q.7)Define liberty indicator. Give some examples of liberty indicators.

Ans:- Liberty Indicator may be defined as the measure of the extent of demographic participation in
the social and political decision making. In other words, it is an index used to measure the
participation of the people in taking decisions. Some examples of liberty indicators are the measures
of the extent of the Constitutional Protection Rights given to the citizens and the extent of the
Constitutional Protection of the independence of the Judiciary and Rule of Law.

Q.8) Group the following features pertaining to the economies of India, China and Pakistan under
three heads

• One-child norm
• Low fertility rate
• High degree of urbanisation
• Mixed economy
• Very high fertility rate
• Large population
• High density of population
• Growth due to manufacturing sector
• Growth due to service sector

ANSWER:

India China Pakistan

Mixed economy One-child norm Mixed economy

High density of Low fertility rate Very high fertility rate

population
Growth due to High degree of urbanisation Large population
service sector
Growth due to
manufacturing sector

Q.9) Explain how China has an edge over India.

Ans:- China has an edge over India in several ways, as under:

I. Its growth story reflects an historically correct process of transformation from the
predominance of agriculture sector (in GDP growth) to the predominance of the industrial
sector. In India, the industrial sector. In India, the industrial sector has not grown as much as
in China.
II. China is far ahead of India in terms of HDI(Human Development Index)
Q.10) Discuss the concept of dual pricing in the reform process of China.

Ans:- The reform process in China involved dual pricing that means fixing prices in two ways.

I. Farmers and industrial units required to buy and sell fixed quantity of input and output on the
basis of prices fixed by the government.

II. For other transactions, the inputs and outputs were purchased and sold at market prices.

PART:C:- Short Answer Type Questions:- (4 Marks each)

Q.1) What are the common success story of India and Pakistan?

Ans: (a) India and Pakistan has succeeded in more than doubling their per capita income considering
the fact that population has increased four-folds in Pakistan and three-folds in India.

(b) Food production has successfully kept face with the rising population. Both countries are self-
sufficient in food production.

(c) Food self-sufficiency has been accompanied with improved nutritional status.

(d) The incidence of absolute poverty has reduced significantly.

(e) A well-developed modern sector has found global recognition in both the countries.

Q.2) Give an account of common failures of India and Pakistan.

Ans: Common failures faced by India and Pakistan are as below:

(a) There are a lot of problems faced by private sector like bribe, loan from public
financial institution, tax evasion etc.
(b) Politicians and government officials did not change. They still preferred controls rather
than freedom of choice.
(c) The relative inward looking economic policy and high protection of domestic industry
did not allow India and Pakistan to take advantage of globalisation.
(d) High fiscal deficit averaging 78% of GDP continued for a fairly long period of time
owing to huge borrowings by the government.
(e) Private capital formation failed to trend up to the desired level.

Q.3) What similar developmental strategies have India and Pakistan followed for their respective
developmental paths?

Ans:- India and Pakistan both have followed a similar developmental strategy. The main similarities
between the developmental strategies can be summed up as:
i. India and Pakistan both have started their developmental programmes based on economic
planning soon after their independence in 1947.

ii. Both the countries relied on the public sector for initiating the process of growth and
development.

iii. Both of them have followed the path of mixed economic structure involving the participation of
both the state as well as the private sector.

iv. Both of them introduced economic reforms at the same time to strengthen their economies.

Q.4) How do you explain re-emergence of poverty in Pakistan?

Ans: - Consequent upon economic reforms, Pakistan economy witnesses a significant breakthrough
in GDP growth. But the momentum of growth has failed to sustain itself. Rather, the GDP growth has
considerably slipped to once again push the Pakistan economy into the vicious circle of ‘low-income-
low-growth’. Political instability in Pakistan is perhaps the most important factor that explains the re-
emergence of poverty in this country. Domestic terrorism is the second important factor. The third
important factor is ‘shift in focus’ from economic growth to defence preparedness. Fourth, Pakistan
government has failed to improve its agriculture through institutional reforms. Agriculture still
continues to be controlled by absentee landlords.

PART:D: - Long Answer Type Questions: - (6 marks for each)

Q.1) Comment on the growth rate trends witnessed in China and India in the last two decades.

Ans:- India, with democratic institutions, performed moderately, but the majority of its people still
depend on agriculture. Infrastructure is lacking in many parts of the country. It is yet to raise the
Standard of living of more than one-fourth of its population that lives below the poverty line.

On the other hand, the lack of political freedom and its implications in China are the major concern in
the last two decades. The country used the market system without losing political commitment and
succeeded in raising the level of growth along with poverty alleviation. China used the market
mechanism to create additional social and economic opportunities. The country has also ensured
social security in the rural areas by retaining collective farming known as Commune System. Public
intervention in social infrastructure prior to the introduction of the economic reforms has brought
positive results in the human development indicators of China.

Q.2) Compare and contrast the development of India, China and Pakistan with respect to some
salient human development indicators.

Ans:- The following are the indicators of human development:

i. Life Expectancy
ii. Adult Literacy Rate

iii. Infant Mortality Rate

iv. Percentage of the population below poverty line

v. GDP per capita

vi. Percentage of the population having access to improved sanitation

vii. Percentage of the population having access to improved water sources.

On the basis of individual indices of these parameters, a Human Development Index (HDI) was
constructed. The higher the value of HDI, higher will be the level of growth and development of a
country. The rankings are accorded to the countries as per their HDI. China ranked 81, India 128 th and
Pakistan 136th. High ranking of China is due to the higher GDP per capita. Moreover, the one-child
norm led to sustained rise in the GDP, consequently, China was ranked higher than India and Pakistan
in HDI.

Q.3) Describe the path of developmental initiatives taken by Pakistan for its economic development.

Ans:- a) With the aim of economic development, Pakistan adopted the pattern of mixed economy
where both private and public sectors coexist

b) Pakistan introduced a variety of regulated policy framework for import substitution,

industrialisation during 1950s and 1960s. This implies producing goods domestically to substitute
imports, thereby, discouraging imports and simultaneously encouraging and developing domestic
industries.

c) In order to protect domestic industries producing consumer goods, policy measure was initiated to
create t tariff barriers.

d) The introduction of Green Revolution mechanised agriculture leading to the increase in the
production of food grains.

e) The mechanisation of agriculture was followed by the nationalisation of capital goods industries in
1970s.

f) In the late 1970s and early 1980s, Pakistan shifted its policy orientation by denationalising the
thrust areas, thereby, encouraging the private sector.

g) All these above measures created an environment conducive to initiate the economic reforms that
were ultimately initiated in 1988.

Q.4) What are the various means by which countries are trying to strengthen their own domestic
economies?

Ans:- The following are the various means through which the nations are trying to strengthen their
own domestic economies:
 1. Nations are forming various regional and economic groupings like SAARC, European Union, G-
8, G-20, ASEAN etc. in order to strengthen their economies. These groups provide a common
platform to the member countries to raise their voice in a unified manner on common issues
to safeguard their common interests.
2. Further, they are also interested in knowing the developmental process adopted by their
neighbouring nations, so as to analyse their strengths and weaknesses. Accordingly, they
formulate policies to accelerate social progress and cultural development among the member
countries.
3. Moreover, nations also resort to liberalising their economies. This minimises the government
interference in economic activities. The economy is governed by market forces, i.e., demand
and supply forces.

Nations also resort to the process of globalisation to open up their economies to provide wide
international market to their domestic producers.
Q.5) Write a few lines on the comparative development experiences of India and its neighbouring
countries.
Answer: Few lines on the comparative development experiences of India and its neighbouring
countries are.

• India and Pakistan started its development process almost at the same time in the year 1947.
Whereas, the Republic of China was established in the year 1949.
• India launched its five-year plan in 1951-1956, while Pakistan started its plan in 1956 and
China started in the year 1953.
• India and Pakistan follow the same strategy as generating a large public sector and rising
public expenditure on social development.
• All three counties have the same growth rates and per capita income until the year 1980.
• In all the three countries economic reform started from India 1991, China 1978, and Pakistan
1988.

Q.6) Explain the Great Leap Forward campaign of China as initiated in 1958.

Answer: - Communist China or the People’s Republic of China, as it is formally known, came into
being in 1949. There is only one party, i.e., the Communist Party of China that holds the power there.
All the sectors of economy including various enterprises and all land owned by individuals was
brought under governmental control. A programme called ‘The Great Leap Forward’ was launched in
1958. Its aim was to industrialise the country on a large scale and in as short a time as possible. For
this, people were even encouraged to set up industries in their backyards. In villages, village
Communes or cooperatives were set up. Communes means collective cultivation of land. Around
26000 communes covered almost all the farm population in 1958.
The Great Leap Forward programme faced many problems. These were:

1. In the earlier phase, a severe drought occurred in China and it killed some 3-crore
people.