Very Very Important Plan for 10 Days Economics Class 12

ECONOMICS                                                                                Class – 12

PM Shri Kendriya Vidyalaya New Bongaigaon

 DAY 1

Budget – It is a financial statement of estimated receipts and expenditure of the government during an accounting year.

Objective of Government Budget –

(i)                 Allocation of Resources

(ii)               Redistribution of income and wealth

(iii)             Economic stability

(iv)            Balanced regional development

(v)                Generation of employment

Component of Government Budget

A. Revenue Budget – it shows revenue receipts(RR)  and revenue expenditure(RE) of the government related to the current financial year only.

Revenue Receipts – are those receipts which neither creates any liabilities nor cause any reduction in assets .E.g. tax

Revenue Expenditure -  are those expenditures which neither leads to any creation of assets nor reduction of liability of the government. For example – Salaries and pensions

B. Capital Budget -  it shows capital receipts(RR)  and capital expenditure(RE) of the government 

Capital Receipts – are those receipts which either creates any liabilities or cause any reduction in assets. For example – borrowings and disinvestment

Capital Expenditure -  are those expenditures which either leads to any creation of assets or reduction of liabilities of the government. For example – construction of schools and repayment of loan

Direct Taxes – Taxes which are not shifted i.e., the incidence of taxes which falls on persons who pay them to the government are direct taxes. For example – income tax, wealth tax etc.

Indirect Taxes – The burden of tax is shifted to other i.e., tax is levied on a commodity is termed as indirect tax. For example – sale tax, custom duty, GST etc.

Budget Deficit – is the excess of total expenditure over total receipts. 

Revenue Deficit = RE – RE 

It means that government will not be able to meet its revenue expenditure from its revenue receipts.

Implications of Revenue Deficit

(i) Government has to borrow from the market which reduces the resources available for private investment.

(ii) It increases burden of taxes.

Fiscal Deficit = Tolal Expenditure – Total Receipts excluding Borrowing

 Fiscal Deficit = Borrowings

It indicates borrowing requirement of the government.

Implications of Fiscal Deficit –  (i)  causes inflation  (ii) increases foreign dependence  (iii) accumulates financial burden for future generation

Primary Deficit = FD – Interest payments

It indicates borrowing requirement of the government to meet fiscal deficit net of interest payments.

1. Assertion and Reasoning

In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Choose the correct alternative among those given below:

Alternatives:

(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

(c) Assertion (A) is true but Reason (R) is false

(d) Assertion (A) is false but Reason (R) is true

1. Assertion (A): In case of public goods, non-paying users are known as free riders.

Reason (R) : Public goods are rivalrous and non-exludable in nature.

2. Assertion (A): A high revenue deficit can cause inflation in the country.

Reason (R) : Rising expenditure of the government can cause a rise in the aggregate demand in the country.

3. Assertion (A): GST is an indirect tax.

Reason (R) : The burden of indirect taxes cannot be shifted to others.

II. True-False Alternatives

In the following questions, two statements are given. Read the statements carefully and choose the correct alternative among those given below

Alternatives:

(a) Both the statements are true

(b) Both the statements are false

(c) Statement 1 is true and Statement 2 is false

(d) Statement 2 is true and Statement 1 is false

1. Statement 1: Foreign grants-in-aid receipts do not lead to any claim on the government.

Statement 2: Disposal of equity by the Public Sector Undertakings in the market may lead to a decrease in the assets of the government.

2. Statement 1 Government budget is an accounting statement showing actual receipts and expenditure of the government during a fiscal year.

Statement 2: Two main components of government budget are: Revenue Budget and Capital Budget.

3. Statement 1: Fiscal deficit is always greater than primary deficit.

Statement 2: Fiscal deficit indicates borrowing requirements of the government.

4. Statement 1: Tax is not a legal payment.

Statement 2: Regressive tax system causes a greater real burden on the poor than the rich.

Choose the Correct Pair of Statements/Identify the Correct Sequence of Alternatives

III. Choose the Correct Pair of Statements/Identify the Correct Sequence of Alternatives

1. From set of statements given in Column I and Column II. choose the correct pair of statements:

Column i	Column Il
A Direct taxes                             B. Indirect tax                               C. Revenue receipts                  D. Capital expenditure	() Income and Services tax (ii) Income tax (iii) Disinvestment (iv) Construction of a school

 Alternatives:

(a) A-(i)                    (b) B-(ii)                   (c) C-(iii)                        (d) D - (iv)

2. Identify the correct sequence of alternatives given in Column II by matching them with respective items in Column I:

Column I	Column II
A. Annual financial statement    B. Capital receipts C. Capital payment D. Export > Import	(i) Create liabilities or reduce financial assets (ii) Trade surplus (iii) Main budget document (iv) Create financial assets or reduce liabilities

                                                      Alternatives:

(a) A - (i) B - (ii) C-(iii), D - (iv)               (c) A - (i) B - (ii) C - (iv) D-(iii)

(b) A-(iii), B - (i) C - (iv) D-(ii)                 (d) A-(iii), B - (iv) C - (i) D-(ii)

Short Answer Type Questions        (4 marks each)

Q. 1. Elaborate economic growth' as objective of government budget.

Ans. Economic Growth implies a sustainable increase in real GDP of an economy, i.e. an increase in volume of goods and services produced in an economy. Budget can be an effective tool to ensure the economic growth in a country.

(i) If the government provides tax rebates and other incentives for productive ventures and projects, it can stimulate savings and Investments in an economy.

(ii) Spending on infrastructure of an economy enhances the production activity in different sectors of an economy. Government expenditure is a major factor that generates demand for different types of goods and services in an economy which induces growth in private sector too.

Q. 2. Elaborate the objective of 'reallocation of resources' in the government budget.

Or

Explain how can government budget be useful in influencing allocation of resources in an economy.

Ans. Reallocation of resources: Government through its budgetary policies tries to reallocate (re-distribute) resources to ensure fulfilment of various socio-economic objectives.

The government may influence the allocation of resources through:

(i) Taxation policy: Heavy taxes may be imposed on harmful products to discourage their production and subsidies may be provided on the production of socially useful products to encourage their production.

 (ii) Government may directly undertake production of certain goods and services in the areas where private sector may not be willing to participate in production activities.

2. How are capital expenditure different from revenue expenditure? Discuss briefly.

Ans. Revenue expenditure is that expenditure of the government that neither creates any asset nor reduces any liability. For example: Expenditure on salaries, pensions, interest payments. Whereas; capital expenditure 2 is that expenditure of the government that either creates assets or reduces liabilities. For example: Expenditure on construction of flyovers, repayment of loans.

3. Giving reasons, classify the following as Revenue Expenditure and Capital Expenditure

(i) Subsidies

(ii) Repayment of loans

(iii) Expenditure on collection of taxes

(iv) Expenditure on building a bridge

Ans. (i) Subsidies: Revenue Expenditure, as it neither leads to any reduction in liabilities nor any increase in assets.

(ii) Repayment of Loans: Capital Expenditure, as it leads to reduction in liabilities.

(iii) Expenditure on collection of taxes: Revenue Expenditure, as it neither leads to any reduction in liabilities nor any increase in assets.

(iv) Expenditure on building a bridge: Capital Expenditure, as it leads to creation of an asset.

4. Distinguish Revenue Deficit, Fiscal Deficit and Primary Deficit

Table: Revenue Deficit, Fiscal Deficit and Primary Deficit

Basis of Difference	Revenue Deficit	Fiscal Deficit	Primary Deficit
Meaning	It is the excess of revenue expenditure over revenue receipts. Revenue Deficit= Revenue expenditure - Revenue receipts	It is the excess of total expenditure over total receipts, other than borrowings. Fiscal Deficit = Budget expenditure - Budget receipts other than borrowings	It is the difference between fiscal deficit and interest payment. Primary Deficit = Fiscal deficit - Interest payment
Indication	It indicates the need for borrowings by the government to manage its budgetary expenditure.	It indicates the extent of borrowings by the government when interest payment is accounted for.	It indicates the extent of borrowings by the government when interest payment is not accounted for.
Cause and Impact	- High revenue deficit arises basically because of low tax receipts and high expenditure on subsidies. It leads to borrowings.	- High fiscal deficit (in terms of borrowings) points to the lack of fiscal discipline in the country. -It lowers credit-rating of the country in the international money market.	Primary deficit points to the need for borrowings even when interest payment on the existing loans is ignored. It reflects continuous lack of fiscal discipline in the country.

5. Distinguish between direct tax and indirect tax.

Basis of difference	Direct tax	Indirect tax
Meaning	It is the tax paid by person whom it is imposed.	It is tax which is imposed on one person but is paid by another.
Shifting of burden	It is not shifted to others	It is shifted to others.
Nature of tax	It is progressive in nature.	It is regressive in nature.
Example	Income tax, corporate tax	GST, excise duty

TEST – 1

1. "In the Annual Budget 2023-24, the Government of India set up disinvestment targets of 65,000 crore”. Such proceeds from disinvestment can be classified as……… ………. receipts in the Government Budget as it leads to…………. of the Government. (Choose the correct alternative)

(a) capital, decrease in assets (b) revenue, increase in assets (c) capital, increase in liabilities (d) revenue, decrease in liabilities

2. Read the following statement given below and choose the correct alternative
Statement 1- Government imposes high rate of income tax on higher income groups
Statement 2- Low income groups pay high amount of tax
a) Both are correct
b) Both are wrong
c) Statement 1 is correct and statement 2 is wrong
d) Statement 2 is correct and statement 1 is wrong

3.  Read the following statement given below and choose the correct alternative
Assertion (A)- Government increases rate of tax and imposes new taxes and reduces expenditure.
Reason ( R)- Government take resort of deficit budget to solve the problem of deflation

A. Both Assertion (A) and Reason(R) are true and Reason (R) is the correct explanation of Assertion (A)

B. Both Assertion (A) and Reason (R) are true but Reason (R) are true but Reason (R) are true but (R) is not the correct explanation of Assertion (A)

C. Assertion (A) is true, but Reason (R) is false.

D. Assertion (A) is false, but Reason (R) is true.

4. Differentiate between revenue expenditure and capital expenditure. (4)

5. Explain the role of government budget in reducing inequalities. (4)

6. Two friends, Deepak and Mohan were discussing the impact of increase in GST rates on luxury items, as recently undertaken by the Government. Mohan was of the view that most of the luxury items (like foreign travel, imported cigarettes, etc.) should be taxed exorbitantly, while the items related to daily consumption of poor and middle class should be tax-free.

 

DAY 2

OPEN ECONOMY

A. BALANCE OF PAYMENTS (BOP)

Balance of payments are the systematic records of all economic transactions that takes place between residents and non-residents of a country during an accounting year.

Economic Transactions are – (a) Visible items (b) Invisible items (c) transfer payments/ receipts

Current Account –  It is the record of trade in goods, services and unilateral transfer.

Capital Account – records of all international transactions of assets such as bonds, stocks, government borrowing etc.

Difference between BOP and BOT

Basis of Difference	Balance of Payments	Balance of Trade
Concept	Balance of payments is a summary statement of all economic transactions of a country with rest of world.	Balance of trade is the difference between visible exports (X) and visible imports (M).
. Nature of Transactions	It records transactions related to goods as well as services.	It records transactions related to goods only.
Scope of Transactions	It records both current account as well as capital account transactions.	It does not record capital account transactions.
Balance	BoP always balances, when movement of RBI reserves is reflected in it.	It is either positive (X > M) or negative (X < M). It balances only when X = M.

Components of Capital Account –

(a) Foreign investment -

(i) Foreign Direct Investment (FDI) – Setting up of industry

(ii)   Portfolio Investment – Investment in stocks

(b) Foreign Borrowings

(i) External Borrowing for short term

(ii) External assistance – Government Aid

Distinguish between Autonomous Item of BOP and Accommodating item of BOP

Basis of Difference	Autonomous Item	Accommodating Items
Meaning	Autonomous items refer to such BoP transactions which are undertaken for considerations of profit.	Accommodating items are free from the considerations of profit.
Classification	- Autonomous items are classified as 'above the line' items of BoP.	- Accommodating items are classified as 'below the line' items of BoP.
Movement of Goods	Autonomous items may involve the movement of goods across the borders (like export and import of consumer goods or capital goods).	Accommodating items do not involve the movement of goods across the borders. These items only involve the movement of official reserves with the RBI.
Impact	BoP Autonomous items lead to imbalance (BoP surplus or BoP deficit).	Accommodating items lead to correction of BoP imbalance.
Example	Import of iron ore	Borrowings from IMF to cover deficit decrease /increase  in foreign reserve exchange

Differentiate between current account and capital account of BOP.

Current Account	Capital Account
It is the account which records such as exports and imports of goods and services and unilateral transfers. country and rest of the world	It records capital transactions such  loan and investment between a country and rest of the world.
The main components of current account are export and import of goods, services and unilateral transfers.	The main components of capital account are private capital transaction, official capital transaction and baking capital transaction etc.

 

What is meant by visible and invisible items in the Balance of payments account? Give some examples of each.

 Visible items refer to items relating to trade of material goods with other countries. Examples - tea, clothes, machinery etc.

Invisible items refer to items relating to trade of services with other countries and unilateral transfers. Examples- Transport services, Insurance and banking services etc.

B. Foreign Exchange Rate

Foreign Exchange Rate refers to the rate at which one unit of the currency of a country can be exchanged for number of units of the currency of another country.

Diagram for Foreign Exchange Rate

System of Foreign Exchange Rate –

Fixed Exchange Rate  (b) Flexible Exchange Rate (c)Managed  Floating  Exchange Rate 

Demand and supply of Foreign Exchange

Difference between fixed and flexible exchange rate

FUNCTIONS OF FOREIGN EXCHANGE MARKET

Foreign exchange market performs the following functions

Transfer function: This function transfers the purchasing power between the countries involving in purchasing and selling of foreign exchange.

Credit function: It provides credit to the foreign countries in terms of foreign currency for the purpose of international payments.

Hedging functions: This functions of foreign exchange market provides security form the risk of fluctuation of prices in the foreign exchange market. When seller and buyer enter into an agreement for a future date at the current year price, it is called hedging. This is done to avoid the losses that might be caused due to exchange rate variation.

Depreciation and Devaluation

Depreciation is the fall in the value of a country’s currency in the foreign exchange market due to market forces (demand and supply).

Key features:

• Happens automatically
• Occurs under flexible (floating) exchange rate
• Caused by market demand–supply changes
• Government does not directly control

Example:
If $ 1 = ₹90 becomes $ 1 = ₹92 → Rupee has depreciated.

Devaluation is the official reduction in the value of a country’s currency by the government or central bank.

Key features:

• Done deliberately by government
• Occurs under fixed exchange rate system
• Policy decision
• Used to boost exports

Example:
Government officially changes ₹90 becomes $ 1 = ₹92 → Rupee is devalued.

 

Appreciation and Revaluation      

Appreciation is the rise in the value of a country’s currency in the foreign exchange market due to demand and supply forces.

• Happens automatically
• Occurs under flexible (floating) exchange rate
• Caused by market forces
• No direct government action

Example:
If ₹90 becomes $ 1 = ₹88 → Rupee has appreciated.

Revaluation is the official increase in the value of a country’s currency by the government or central bank.

Key features:

• Done deliberately
• Occurs under fixed exchange rate system
• Policy decision
• Government controlled

Example:
Government changes ₹90 becomes $ 1 = ₹88 → Rupee is revalued.

 

Worksheet

Time 35 min MM - 20

1. The measurement of Balance of Payments deficit is based on _______ transaction

a) Accommodating b) Autonomous c) Current account d) Capital account

2. Assertion (A): Trade of invisible items between two nations is a part of capital account of Balance of Payment

Reason(R): Transactions that affect the asset-liability status of a country in relation to the rest of the world are known as Capital Account transaction.

A statement of Assertion (A) followed by a statement of Reason 1 (R) is given. Choose the correct answer out of the following choices.

(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A) (B) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A) (C) Assertion (A) is true but Reason (R) is false (D) Assertion (A) is false but Reason (R) is true

3. Which of the following statement is not true?

(A) Borrowing from the Asian Development Bank by the Government is an accommodating transaction. (B) Loans given to Sri Lanka by the Government are an accommodating transaction. (C) Buying of machinery from Japan is an accommodating transaction. (D) Borrowing from the public is an accommodating transaction.

4. Agrawal group of real estate company received rent from a foreign firm in New York. This transaction would be recorded on ________ side ______ account of Balance of Payment.

(A) Credit, Current (B) Debit, Current (C) Credit, Capital (D) Debit, Current

5.

 

Based on the interpretation of above given picture should a current account deficit be always a cause for alarm?

6. Suppose balance of payment of current account of India in a year was (–) 2579 million US$, whereas Balance on its capital account was 8409 million $, how will it affect the foreign exchange reserve of India?

7. Discuss the effect of the following on the Balance of Payments: (i) ‘Make in India’ Programme, (ii) Import of Petrol. Or Deficit or Disequilibrium in BOP may occur either due to autonomous transactions or due to accommodating transactions.’ Defend or refute.

8. Are the following entered (i) on the credit side or the debit side and (ii) in the current account or capital account in the Balance of Payments account? You must give reason for your answer a. Purchase of shares of TATA by Microsoft. b. Imports of computer spare parts from France. c. Borrowings from World Bank. d. Repayment of loan by Indian Government taken from Russia.

Or

Case Study: -

 India’s Balance of Payments for the fiscal year 2023–24 showed a widening current account deficit, mainly due to increased imports of crude oil and gold. However, the capital account recorded a 6 surplus owing to higher Foreign Direct Investment (FDI) and portfolio investment inflows. The country’s foreign exchange reserves remained stable due to RBI’s interventions in the forex market. During this period:

 1. Merchandise exports slightly declined due to a global economic slowdown.

2. Service exports, especially in IT and business outsourcing, grew significantly.

3. Remittances from overseas Indians increased.

4. Loan repayments to foreign lenders rose Based on the above case study answer the following questions:

a) Identify two components of the Current Account mentioned in the case. b) Are remittances from overseas Indians included in the Current or Capital Account? Justify.

ANSWER 1. b) Autonomous transaction. 2. (D) Assertion (A) is false but Reason (R) is true 3. (C) Buying of machinery from Japan is an accommodating transaction.

4. Agrawal group of Real Estate Company received rent from a foreign firm in New York. This transaction would be recorded on (A) Credit, Current account of Balance of Payment. (It's an inflow of income, hence credit, and relates to services/income from factors of production, hence current account).

5. Based on the interpretation of the picture (which is not provided, so I will answer generally about current account deficit), should a current account deficit always be a cause for alarm? No, a current account deficit should not always be a cause for alarm. A current account deficit essentially means a country is importing more goods and services than it is exporting, and/or net income from abroad is negative. While a persistent and large deficit can be problematic, signalling a country living beyond its means, it's not inherently alarming for several reasons:

6. Since the overall BOP is positive (a surplus of 5830 million US$), it means that the country has received more foreign currency than it has spent. This surplus will lead to an increase in the foreign exchange reserves of India by 5830 million US$.

 7. Discuss the effect of the following on the Balance of Payments: (i) ‘Make in India’ Programme, (ii) Import of Petrol. (i) ‘Make in India’ Programme: The 'Make in India' program aims to boost domestic manufacturing and reduce reliance on imports. Its effects on the Balance of Payments would likely be: • Reduced Imports, Current Account balance (specifically, the balance of visible trade) by reducing outflows. • Increased Exports • Increased Foreign Direct Investment (FDI • Technology Transfer and Skill Development • (ii) Import of Petrol: Import of petrol (crude oil) has a significant effect on the Balance of Payments: • Increased Imports: • Deterioration of Current Account: • Impact on Exchange Rate:

8. a. Purchase of shares of TATA by Microsoft. • (i) Credit side: This is an inflow of foreign currency into India because Microsoft (a foreign entity) is investing in an Indian company (TATA). • (ii) Capital Account: This is a foreign direct investment (FDI) or portfolio investment, which affects the asset/liability position of the country. b. Imports of computer spare parts from France. • (i) Debit side: This is an outflow of foreign currency from India as payment is made for goods imported from France. • (ii) Current Account: This relates to the trade in visible goods. c. Borrowings from World Bank. • (i) Credit side: This represents an inflow of foreign currency into India as the country is receiving a loan from the World Bank. • (ii) Capital Account: This is an external borrowing, which changes the country's external debt (a liability). e. Repayment of loan by Indian Government taken from Russia. • (i) Debit side: This is an outflow of foreign currency from India as the Indian government is sending money to Russia to repay its loan. • (ii) Capital Account: This transaction reduces India's external liability. a) 1. Merchandise exports 2. Services. b). Current Account of BOP because it does not affect assets/liabilities.

 

 

DAY 3

Money may be defined as anything which generally accepted as medium of exchange.

Function of money

(i) Medium of exchange – Money serve as a medium of exchanging goods and services.

 (ii) Store of value – Wealth can be stored easily to be used in future.

(iii) Standard of deferred payment – are postponed payment contracted to be made some future date.

Money Supply refers to the total volume of money held by public at point of time.

M1 = C + DD + OD

Money Creation is a process in which a commercial bank creates total deposits many times the initial deposits.

Two Factors for creation of money by commercial banks

(i) Amount of Initial Deposits                  (ii) Legal Reserve Ratio (LRR)

Money Multiplier (M) =

Working of Money Creation

Suppose initial deposit = Rs.1,000            and  LRR = 20%

As required, the bank keeps 20% i.e., Rs.200 as cash reserve and lend remaining Rs.800. Those who borrow, use the money for making payments. As assumed those who receive these payments put the money back into their bank accounts. This creates a fresh deposit of Rs.800. the The bank again keep 20%, i.e., Rs.160 and lend Rs.640. In this way the money goes on multiplying leading to total money creation of Rs.5,000.

Total Credit Creation = Initial Deposit x 1/LRR

= 1000x 1/20% 

= 5000                                                                         

Central Bank (Reserve Bank of India) – is an apex institution in the banking system of the country. It supervise, controls and regulates the activities of commercial banks and acts as a banker to them,

Functions of Central Bank (Reserve Bank of India)

(i) Issuing of currency – The Central Bank of a country has monopoly over the currency issue. It has the sole responsibility of printing and putting in circulation all types of currency notes.

(ii) Government’s bank, agent and advisor – It maintains the banking accounts of the government for the purpose of receiving/making payments on its behalf. As govt. agents, Central Bank accepts receipts and make payments on its behalf. As the govt’s advisor, , Central Bank advises the govt on all economic, financial and monetary matters.

(iii) Bankers’ Bank – Central Bank accepts the deposits from commercial banks and also advances loans to them. It maintains reserves of all banks and utilizes it to settle inter-bank claims.

(iv) Supervision of banks – Central Bank regulates and supervises routine functioning of the banks. Commercial banks follow all the rules regarding their licensing, branch expansion, liquidity of assets.

Monetary Policy – (i) Bank Rate (ii) Open Market Operation (ii) CRR (iv) SLR (v) Repo Rate (vi)Reverse Repo Rate (vii) Margin Requirement

Tools	Control Inflationary Gap	Control Deflationary Gap
Bank Rate	Increase	Decrease
OMO	Selling	Buying
CRR	Increase	Decrease
SLR	Increase	Decrease
Repo Rate	Increase	Decrease
Reverse Repo Rate	Increase	Decrease
Margin Requirement	Increase	Decrease

 WORKSHEET 

1 MONEY and Banking 

 Maximum Marks: 20 TIME : 30 MINUTES 

 Read the following statements – Assertion (A) and Reason (R). Choose one of the correct alternatives given below: 

 Q1. Assertion (A): Barter system lacked a standard unit of account. 1 

 Reason (R): It was difficult to measure and compare the value of goods in barter exchange. Alternatives: 

 a. Both A and R are true, and R is the correct explanation of A b. Both A and R are true, but R is not the correct explanation of A c. A is true, but R is false d. A is false, but R is true

2. Assertion (A): Legal tender money is accepted compulsorily for transactions. 1 

Reason (R): Acceptance of legal tender is backed by law.

Alternatives:

 a. Both A and R are true, and R is the correct explanation of A b. Both A and R are true, but R is not the correct explanation of A c. A is true, but R is false d. A is false, but R is true 

 Q3. Read the statements given below and choose the correct option: 1 

 Statement I: Money serves as a medium of exchange, which eliminates the need for a double coincidence of wants. 

 Statement II: Under the barter system, transactions were easier as goods were exchanged directly. Options: 

 a. Both statements are true, and Statement II is the correct explanation of Statement I. b. Both statements are true, but Statement II is not the correct explanation of Statement I. c. Statement I is true, but Statement II is false. d. Both statements are false. 

 Q4. Read the statements given below and choose the correct option: 1 

Statement I: Fiat money has intrinsic value.

Statement II: Money supply includes currency held by the public and demand deposits.

Options:

a. Both statements are correct b. Both statements are incorrect c. Statement I is correct, Statement II is incorrect d. Statement I is incorrect, Statement II is correct

Refer to the image below and answer Questions

Q5. What type of money does the image represent? 1

 a) Commodity Money b) Digital Money c) Barter d) Token Money

Q.6 Read the following passage carefully and answer the questions:

Seema runs a tailoring business and accepts payments in cash, UPI, and through mobile wallets. She finds UPI fast and reliable, while some of her older clients still prefer cash. Her bank encourages her to use digital payments as it increases transparency. Seema maintains a savings account and uses net banking to pay for raw materials. She sometimes deposits her excess income into a fixed deposit to earn interest.

1. UPI and mobile wallets used by Seema are examples of: 1

a. Near money b. Commodity money c. Digital money d. non-monetary assets

Q.7.Identify the function of money and explain with suitable example. 3

Q.8 Explain the medium of exchange function of money. 3

Q.9 Explain the significance of standard of deferred payment function of money.

4 Q.10 How does money overcome the problems of barter system? Explain briefly. 4

SUGGESTIVE ANSWER :-

1. A 2. A 3. C 4. C 5. D 6. C

7. Money is an asset that retains its value over time. People store their wealth in the form of money, without fearing for loss in its value. Money overcomes the problem of storing perishable item under barter system of exchange. With money, people hold liquidity and value in a much more convenient manner.

8. The primary function of money is, acting as a medium of exchange between two parties involved in a transaction. It avoids the practical problems of wastage of time and resources, involved in the barter system of an exchange and it improves the transactional efficiency. It also promotes allocational efficiency in the trade and production of goods and services. Hence, it can be said that money has separated the acts of sales and purchases.

9. Money simplifies the mechanism of deferred payments significantly. Deferred payments means future payment. When we take a loan from somebody, we not only pay the principal amount but also the interest amount. Under barter system of exchange, it was very difficult to make such transactions. As money maintains a standard value over a period of time, provided price remains constant, deferred payments can be easily made.

10.Money serves as a unit of value or common measure of value in terms of which the value of all goods and services are measured. This helps in measuring the exchange values of commodities. The prices of all the goods and services can be fixed in terms of money and the problem of expressing the value of each commodity in terms of quantities of other goods can be avoided. The related problem of barter which this function of money has solved is the problem of Tack of common measure of value.In barter system, there was absence of a common unit of measurement in which the value of goods and services can be measured. In the absence of common unit, proper valuation was not possible. e.g. cloth is measured in metre (i.e. length) while milk is measured in litre (i.e. capacity), hence both cannot be measured in a single unit, thereby complicating the process of exchange. But the evolution of money has solved this problem, and now every good or service can be measured in terms of money.

DAY 4

DETERMINATION OF INCOME AND EMPLOYEMT

Aggregate Demand – refers to the total demand for all goods and services in an economy during an accounting year.

AD = C+I+G+(X-M)

Autonomous Investment – is done by government for social welfare.

Aggregate Supply – refers to total supply of goods and services available by all the producers in the economy.

AS = C+S

Effective Demand – is the situation where AD equals to AS.

Diagram of AD And AS Short Run Equilibrium

Q. How equilibrium level of income and output is determined by the investment and saving in the economy. In an economy planned savings exceed planned investment. How will the equality between the two be achieved? Explain.

Ans:- In an economy, equilibrium level of income and output will be determined at that point where investment is equal to saving.

At equilibrium I=S Excess of planned savings over planned investment means that the expenditure in the economy is less than what the producers had expected. This would result in undesired or unplanned build up of unsold stock. To correct this situation producer will produce less. This will reduce level of output and income. Fall in income will result in fall in savings. These changes will continue till income falls to a level at which savings equal investment.

Consumption Function (Propensity to Consume)

C=f(Y)

C = Ꞇ + bY

Saving Function (Propensity to Save)

S=f(Y)

S= -ṥ + (1-b)Y

Q. Can the average propensity to consume be greater than one? Explain with the reason.

Answer: Average propensity to consume can be greater than one when the consumption exceeds the income. At that degree average propensity to save would be negative. APC would be greater than one if, the APS is negative. For instance, if the income is ₹. 1,000/-, consumption is ₹. 1,200/-. Then APC = 1200/1000 = 1.20.

 

Full Employment – refers to a situation where all those workers who are able to work and willing to work get employment at prevailing wage rate.

Short Run Equilibrium

(a) AD = AS Approach

Schedule of AD and AS

Income (Y)	Consumption (c)	Investment (I)	AD = C+ I	S	AS	Result
0	20	20	40	-20	0
20	30	20	50	-10	20
40	40	20	60	0	40
60	50	20	70	10	60
80	60	20	80	20	80
100	70	20	100	30	100
120	80	20	110	40	120
140	90	20	120	50	140

 

 

 

(i) Employment is determined at point where AD= AS

(ii) If AD > AS, this will lead to unfulfilled demand. To restore the desired level of inventories, producers may expand production.

(iii) If AD < AS, this may lead to the unplanned accumulation of inventories. To bring back the inventories to desired level, producers may reduce production.

S = I

Employment is determined at point where I= S

(i) If S > I, it means unplanned accumulation of inventories. To bring back the inventories to desired level, producers may reduce production.

(ii) If S < I, this will lead to unfulfilled demand. To restore the desired level of inventories, producers may expand production.

Multiplier  establishes relation between investment and income. It measures the change in income due to change in investment.

Working of Investment Multiplier

Investment multiplier measures the change in income due to change in investment.\

   It can be concluded that an initial investment of ₹200 crores has resulted in a total increase of ₹1,000 crores in income.

Thus, the multiplier will be,
Multiplier(k)= ΔY/ΔI
= 1000/200 = 5

Derivation of Saving Curve from Consumption curve

Shows the derivation of savings curve from consumption curve.

 

At zero income level, OC is the autonomous consumption (cˉ)(cˉ), which means that savings (−cˉ)(−cˉ) at zero income level will be OS. Therefore, the savings curve will start from point S on the negative Y-axis because, at zero level of income, savings are negative. Now the point where the CC curve and OY curve intersects; i.e., point E is the break-even point. It means that at this point C = Y, APC = 1, and Savings = 0. Therefore, the savings curve will intersect the X-axis at point R. Now, join the points S and R and extend it further to get the Saving Curve SS.Deficient Demand – When AD falls short of AS at full employment level. It is also called deflationary gap.

Excess Demand - When AD exceeds of AS at full employment level. It is also called inflationary gap.

Explain the role of the following in correcting the deficient demand in an economy.

Bank rate

Answer: Bank rate in correcting the deficient demand in an economy – Bank rate is the rate at which the central bank gives money to the commercial banks. To regulate the circumstance of the deficit demand, the bank rate is decreased, due to this depletion of bank rate by the central bank, commercial banks will certainly fall the market rate of interest.

In an economy, C = 300 + 0.5Y and I = ₹. 600/- (where C = consumption, Y = income or investment). Compute the following:the equilibrium level of income

Test – 4

 _______ is the change in the consumption per unit change in income.
( Fill in the blank with correct alternative)
a) Average propensity to consume
b) Marginal propensity to save
c) Marginal propensity to consume
d) Average propensity to save

 _______ is defined as addition to the stock of physical capital (Fill in the blank with correct alternative)
a) Investment                  b) Consumptions
c) Savings                       d) All of the above

Open market operations include ( choose the correct alternative)
a)Selling of securities                                         b)Buying and selling of securities
c)Buying and selling of government securities and bonds

d)None of the above

 If AS=C+S and AD=C+I , then equilibrium will be established at:
(Choose the correct alternative)
a)S=I               b)S>I           c)S<I         d)All of the above

Read the following statement given below and choose the correct alternative
Statement 1- If the people of the economy save more, income will increase.
Statement 2- If the people of the economy save less, Income will decrease
a)Both are correct                          b)Both are incorrect
c)Statement 1 is correct and statement 2 is incorrect
d)Statement 1 is incorrect and statement 2 is correct

Read the following statement given below and choose the correct alternative
Assertion (A)- The demand curve is a positively sloped straight line
Reason ( R)- Aggregate demand is Sum of investment and consumption
a)Both assertion and reason are true. Reason is the correct explanation of assertion
b)Both assertion and reason are true. Reason is not the correct explanation of assertion
c)Assertion is true but reason is false
d)Reason is true but Assertion is false

“Consumption curve is a straight line”,due to
a)Zero income level                                               c)Inverse in consumption
c)Constant marginal propensity to consume         d)All of the above

Which of the following is the correct definition of "Full Employment"?

A) All workers are employed at all times B) Only skilled workers are employed

C) Every person who wants to work can find employment at the prevailing wage rate

D) Unemployment is zero at all times

.Read the following statements: Assertion (A) and Reason  (R).  Choose one of the correct alternatives given below 

Assertion(A): There is positive relationship between saving and income.

Reason(R): Savings are positive even at zero level of national income.

Alternatives 

A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(B) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A) 

(C) Assertion (A) is true but Reason (R) is false.
(D) Assertion (A) is false but Reason (R) is true.

Which of the following statements is the correct description of propensity to save?

(a)It is the additional income that does not get saved

(b)It denotes the ratio of the savings to income

(c)It denotes the actual level of income at which is it equal to the savings

(d) None of the above

Which of the statements is correct about the relationship between the average propensity to save (APS) and average propensity to consume (APC)?

Both APS and APC rise in case of an increase in the national income

Both APS and APC fall in case of an increase in the national income

APC rises, but APS falls in case of an increase in the national income

APS rises, but APC falls in case of an increase in the national income

______ is called planned investment. ( Fill in the blank with correct alternative)
a) Ex-ante investment          b) Ex-post investment
c) Both (a) and (b)               d) None of the above

______ is an ex-ante measure. ( Fill in the blank with correct alternative)
a) Actual investment                        b) Planned consumption
c) Actual output in the economy     d) All of the above

________ refers to the amount by which actual aggregate demand is more than the aggregate demand required to establish full employment in economy. ( Fill in the blank with correct alternative)
a)Deflation                           b)Inflationary gap
c)Deflationary gap               d)Inflation

______ refers to the rate at which RBI lends to commercial banks against security.( Fill in the blank with correct alternative)
a)Repo rate
b)Open market operation
c)Reverse repo rate
d)Marginal requirement

. In a two-sector economy, the consumption function and investment function are: C = 60 + 0.8Y and l = ₹60 Cr. Calculate: 6 (i) Equilibrium level of income (Y). (ii) Consumption at equilibrium level of income. (iii) Saving at equilibrium level.

In an economy, C = 300 + 0.5Y and I = ₹. 600/- (where C = consumption, Y = income or investment). Compute the following: The equilibrium level of income

Can the average propensity to consume be greater than one? Explain with the reason.

 

DETERMINATION OF INCOME AND EMPLOYMENT

The consumption function of an economy is given as – C = 40 +0.8Y. Calculate the total increase in income and consumption if investment expenditure increases by Rs. 500 Crore. (3)

Or

Calculate consumption expenditure of the economy whose equilibrium level of income is Rs.20,000, autonomous consumption is Rs.500 and MPS is 0.5. (3)

In an economy, the consumption function is given by C = 80 +0.75 Y and investment expenditure is Rs.200 crore. Is the economy in equilibrium at an income level of Rs.1220 crores?              (4)

(i) Define average propensity to consume? Can its value be greater than unity?

(ii) Define marginal propensity to save? How is it related to marginal propensity to consume? (2+2)

Given that national income is Rs.80 crore and consumption expenditure is Rs.64 crore find out average propensity to save. When income rises to Rs.100 crore and consumption expenditure to Rs.78 crore, what will be the values of average propensity to consume and marginal propensity to consume?    (4)

Draw a hypothetical consumption curve and from it derive the saving curve. (6)

Explain the role of repo rate in controlling of inflationary gap.     (3)

Or

Explain the role of open market operation in controlling of deflationary gap.

Explain the meaning of investment multiplier? How is it related to MPC? (3)

Define the following terms (i) break even point (ii) autonomous consumption (iii) aggregate supply. (3)

 

DAY 5

NATIONAL INCOME AND RELATED AGGREGATES

Final Goods are those goods which crossed the boundary line of production. For example – milk and machine

Intermediate Goods are those goods which do not crossed the boundary line of production, yet value is added for further production. For example – raw material

Stock is a quantity measured at particular point of time. For example – wealth

Variable is a quantity measured during period of time. For example – national income, change in stock

Circular Flow of Income refers to the flow activities of production, income generation and expenditure involving different sectors of the economy.

National Income is the sum total of factor incomes earned by normal residents of a country.

Value Added Method

GVA_MP = Sales + Change in stock – Intermediate Consumption

Precautions while Using Value Added Method

The value of Intermediate Goods should not be included.

Purchase and sale of second goods should not be included,

Own account production should be included.

Commission on sale and purchase of second hand goods are included,

Income Method              

NDP_FC = Compensation of employees + Operating surplus + Mixed Income of self employed

NNP_FC = NDP_FC + NFIA

Precautions while Using Income Method

(i) Income from illegal activities like smuggling, theft, gambling should not be included.

(ii) Commission on sale and purchase of second hand goods are included.

(iii) Transfer earnings like old age pension, pocket expenses should not be included.

(iv) Income in terms of wind fall gains should not be included.

Expenditure Method

GDP_MP = Private Final Consumption Expenditure+ Govt Final Consumption Expenditure + Gross Domestic Capital Formation + Net Exports

NNP_FC = GDP_MP – Dep + NFIA – NIT

Precautions while Using Expenditure Method

(i) Only final expenditure is to be taken into account to avoid error of double counting.

(ii) Expenditure on second hand goods in not to be included.

(iii) Expenditure on transfer payments bt the government is not to be included.

Nominal GDP is defined as the money value of final goods and services produced in the domestic territory of an economy measured at current year prices.

Real GDP is defined as the money value of final goods and services produced in the domestic territory of an economy measured at base year prices.

Test – 5

 

DAY 6

DEVELOPMENT EXPERIENCE (1947-90)

A India On the Eve of Independence

Low Level of Economic Development

(i) Protection and promotion of the economic interests of their home country rather than development of the Indian economy.

(ii) India became supplier of raw materials and consumer of finished industrial products from Britain

Condition of Agriculture under the British Rule

(i) Stagnation of agricultural sector

(a) Zaminadari system – The main interest of zamindars was only to collect rent regardless of economic condition of the farmers.

(b) Low level of technology, lack of irrigation facilities and negligible use of fertilizers

(c) Lack of resources and incentives due to low investment

(ii) Commercialisation of agriculture – It could not help farmers in improving their economic condition because, instead of producing food crops, now they were producing cash crops which were to be used by British industries.

Two-fold motive behind the systematic de-industriliasation

(i) To get raw materials from India at cheaper rate

(ii) To sell finished goods produced by the Britain industries in Indian market at higher price

Features of India’s Foreign Trade Policy

(i) Britain’s monopoly control over India’s exports and imports

(ii) India as exporter of raw materials and importer of finished goods

(iii) Generation of a large export surplus but at a huge cost – Drain of Wealth

Indian’s Demographic profile during British rule

(i) Low level of literacy (16%)    (ii) Lack of adequate public health facilities

(iii) High infant mortality rate (218/1000) (iv) Low life expectancy (32 Years only)

India’s pre-independence occupational structure

(i) Predominance of agricultural sector (about 75%)

(ii) Growing regional variation – Madras, Bengal and Bombay presidencies witnessed a decrease in the share of workforce in agriculture and a large share of workforce in Orissa, Rajasthan and Punjab.

Infrastructure Development in India by British

(i) Introduction of the Railways in India in 1850

(ii) Construction of roads

(ii) Development of the inland trade and sea lanes

Main causes behind infrastructural development by British rule

(i) Mobilisation of Army

(ii) Maintenance of law and order

Indian Economy 1950-1990

Types of Economic System

(i) Market Economy (ii) Socialist Economy (iii) Mixed Economy

Five Year Plans – Common Goals

(i) Growth – It refers to increase in country’s capacity to produce the output of goods and services within the country.

(ii) Modernisation – Adoption of new technology in the production of goods and services to increase the output.

(iii) Self-reliance/self-sufficiency – It means avoiding imports of those goods which could be produced in India itself.

(iv) Equity – It refers to reductions in inequality of income and wealth.

Land Reforms refers to change in the ownership of land holdings and fixing the maximum size of land which could be owned by an individual.

Draw of the Land Reforms

(i) The goal of equity was not fully served by abolition of intermediaries

(ii) The land ceiling legislation also faced hurdles

(iii) Land reforms were unsuccessful in most states ( except Kerala and West Bengal)

Green Revolution – It refers to the large increase in production of food grains resulting from the use of high yielding resulting from the use of HYV seeds specially for wheat and rice.

Benefits of Green Revolution

(i) Increase in income of the farmers

(ii) Self-sufficiency in food grains

(iii) Creation of buffer stock

(iv) Decrease in price of food grains

Demerits of Green Revolution

(i) Green Revolution increased the disparities between small and big farmers

(ii) The HYV crops were also more prone to attack by pest

(iii) Use of HYV seeds was restricted to the more affluent areas.

DAY 7

ECONOMIC REFORMS SINCE 1991

Liberalisation  means removal of entry and growth restrictions on the private sector.

Deregulation of Industrial Sector

(i) Industrial licensing was abolished

(ii) De-reservation under small scale industries

(iii) Market determined pricing

Financial Sector Reforms

(i)  RBI became facilitator from regulator

(ii) Origin of private banks

(iii) Increase in limit of foreign investment

Tax Reforms

(i) Rationalisation of direct tax

(ii) Simplification of tax payment procedures

Foreign Exchange Reforms

(i) Devaluation of rupees

(ii) Market determination of exchange rate

Privatisation can be done by two ways

(i) Transfer of ownership  (ii) Disinvestment

Globalsation – It means an integration of the economy of the country with the rest of the world.

Positive Result of  Globalsation

(i) Greater access of global market (ii) High Technology

(iii) Better prospects of skilled people (iv) Better future prospects of large industries

Negative Results of Globalisation

(i) It has compromised the welfare and identity of people belonging to poor countries

(ii) It increases the economic disparities among nations and people

Outsourcing – It means hiring of regular service from external sources mostly from foreign countries.

Indian is a favourable destination for Outsourcing

(i) Available of skilled people (ii) Favourable government policies

(iii) Low wage rare       (iv) Considerable growth of Indian IT Sector                      

World Trade Organisation – founded in 1995.

Major Function of WTO

(i) It provides greater market access to all member countries

(ii) It facilitates international trade

(iii) To protect environment

(iv) To enlarge production and trade services

Demonetisation – It was a new initiative taken by the Government of India on November 8, 2016 to tackle the problem of corruption, black money, terrorism and circulation of fake currency in the economy.

Goods and Service Tax : One Nation. One Indirect Tax, One Market

Impact of GST on the Indian Economy

(i) GST has simplified the multiplicity of taxes on goods and services

(ii) It will result into higher economic growth as GDP is expected to rise by 2%.

Test – 7

1. What was the amount received by India as a loan from the International Monetary Fund (IMF) in 1980s?
a) $ 6 billion    b) $ 6.5 billion

c) $ 7 billion   d) $ 8 billion

2. How many industries were reserved for the public sector at the time of deregulation of Industrial sector in 1991 ?
a) 17       b) 18     c) 19        d) 20

3. Which institution regulates the financial sector in India ?
a) SEBI   b) NABARD  c) SBI   d) RBI

4. What is the name of the tax introduced by Indian Parliament in 2016 to unify the indirect tax system in India?
a) Sales tax                               b) Value-added tax
c) Goods and Services tax        d) Custom duty

5. Which policy involves integrating Domestic economy with the World economy ?
a) Globalization       b) Privatisation
c) Liberalisation      d) None of the above

6. Name the successor organization of General Agreement on Trade and Tariff (GATT) ?
a) World Bank                           b) International Monetary Fund (IMF)
c) Food and Agricultural Organization (FAO) d) World Trade Organisation (WTO)

7.  Consider the following statements with regard to External Sector Reforms and mark the correct combination.
I) It falls under the category of Liberalisation
II) Liberation of trade policy was a major reform undertaken
III) Devaluation of Indian rupee was another major reform
a) Only I b) Only I and II c) All of the above d) None of the above

8. The process through which a company hires services from external sources, mainly foreign countries is known as ?
a) Incoming b) Outsourcing c) Deregulation d) Devaluation

9. Spectacular growth in the _________ sector was visible after 2000.
a) Service  b) Industry c) Social d) All of the above

10. ________ measures are short term measures, intended to correct the weaknesses of the Balance of Payment and to bring inflation under control.
a) Stabilisation                 b) Structural reforms
c) Federal reforms           d) None of the above

11. Many goods produced by the small-scale industries were ________ following the deregulation of Industrial sector in 1991.
a) Reserved           b) De-reserved
c) Both A and B    d) None of the above

12. Read the following statement given below and choose the correct alternative
Statement 1- Economic reforms helped to control deflation
Statement 2- Economic reforms made India an emerging power in the world economy
a) Both are correct
b) Both are incorrect
c) Statement 1 is correct and statement 2 is incorrect
d) Statement 1 is incorrect and statement 2 is correct

13. Read the following statement given below and choose the correct alternative
Statement 1- IMF facilitates world trade
Statement 2- WTO was founded as the successor of IMF
a) Both are correct
b) Both are incorrect
c) Statement 1 is correct and statement 2 is incorrect
d) Statement 1 is incorrect and statement 2 is correct

14. Read the following statement given below and choose the correct alternative
Assertion (A)- Government introduced various reforms in 1991 called tax reforms
Reason ( R )- Government needed to reduce tax evasion and raise tax and non tax revenue under 1991 reforms
a)Both assertion and reason are true. Reason is the correct explanation of assertion
b)Both assertion and reason are true. Reason is not the correct explanation of assertion
c)Assertion is true but reason is false
d)Reason ia true but Assertion is false

15. Read the following statement given below and choose the correct alternative
Assertion (A)- Globalisation resulted in jobless growth in India.
Reason (R )- Ineffective policy of disinvestment is a negative effect of economic reforms.
a)Both assertion and reason are true. Reason is the correct explanation of assertion
b)Both assertion and reason are true. Reason is not the correct explanation of assertion
c)Assertion is true but reason is false
d)Reason is true but assertion is false

DAY 8

Human Capital Formation in India

Human Capital refers to the skills which a person acquires through education, training and experience, adding to value to the production process.

Human Capital Formation refers to the stock of skills and abilities of people in the country over a period of time,

Sources of Human Capital Formation

(i)  Investment in education (ii) Expenditure on health

(iii) On the job training (iv) Migration (v) Information

Human Capital and Economic Growth

There is a direct relationship between Human Capital and Economic Growth.

(i) Higher productivity and production

(ii) Promotes invention, innovations and technological improvements

Growth of Education in India

Measurement of Government expenditure on education in India two ways

(i) As a percentage of total government expenditure

(ii) As a percentage of GDP

Indicator of Educational Achievements in India

(i)  Adult literacy level - %age population aged 15 + years

(ii) Primary education completion rate (%age of relevant age group)

(iii) Youth Literacy Rare - %age of people age 15+ to 24 years

Still There is need to promote Education for women in India

(i)   To improve economic independence and social status of women

(ii) Women education makes a favourable impact on fertility rate and health care of women and children

Problems of Human Capital Formation

(i) Brain drain  (ii) Rising population (iii) Low academic standard

 

Rural Development

Rural Development means a plan of action for the development of rural areas which are lagging behind in socio-economic development.

Challenges facing Rural Development

(i) Development of human resources              (ii) Infrastructure development

(iii) Alleviation of poverty

Sources of Rural Credit

Non Institutional Sources	Institutional Sources
Money Lenders Relatives Traders and commission agents Rich landlords	Co-operative credit Land development banks Commercial banks Regional rural banks NABARD Self Help Group

 

Role of Banking system in the process of rural development in India

(i) Increase in rural farm and non farm output, income and employment

(ii) Availability of adequate  credit facilities to the farmers

(iii) Provision of a variety of loans to the rural population for their production needs at

cheaper  rate of interest .

Problem faced in Rural Banking

(i) Dependence on informal credit system (ii) Less attention to poof farmers

(iii) Inadequate amount of sanction (iv) Rural banking are facing a lot of cash crunch

Agricultural Marketing is a process that involves the assembling, storage, processing, transportation, grading and distribution of different agricultural commodities across the country.

Problem Faced by Farmers in Agricultural Marketing

(i) Manipulation by big farmers  (ii) Lack of market information

(iii) Lack of storage facilities

Measures to Improve Agricultural Marketing

(i) Regulated markets    (ii) Infrastructural facilities  (iii) Co-operative marketing  

(iv) Different policy instrument Like MSP, Buffer stock etc.

APNI Mandi – Punjab, Haryana, Rajasthan

Hadaspar Mandi – Pune

Rythu Bazars – Andhra Pradesh Telangana

Uzhavar Sandies – Tamil Nadu

Diversification of Agriculture – relates to change in cropping pattern or shift of workforce from agriculture to other allied activities.

Types of Diversification

(a)  Diversification of crops – involves shift from single cropping to multiple cropping system

(b) Diversification of productive activities – involve shifts of workforce from agriculture to oher allied acitivities and non-agricultural sectors

Organic Farming – It is the form of agriculture that relies on techniques such as crop rotation, green manure, compost and biological pest control.

Benefits of Organic Farming

(i) Economical Farming   (ii) Generates income through export

(iii) Provides healthy food (iv) source of employment

Safety of environment (vi) Sustain soil fertility

Test – 8

Read the following statement given below and choose the correct alternative
Statement 1- Human capital formation brings positive outlook
Statement 2- Human capital formation ensures higher rate of participation and equality
a) Both are correct
b) Both are incorrect
c) Statement 1 is correct and statement 2 is incorrect
d) Statement 1 is incorrect and statement 2 is correct

Read the following statement given below and choose the correct alternative
Assertion (A)- The differences in literacy rate of males and females is narrowing.
Reason (R )- Education for women needs to be promoted further more.
a) Both assertion and reason are true. Reason is the correct explanation of assertion
b) Both assertion and reason are true. Reason is not the correct explanation of assertion
c) Assertion is true but reason is false

d) Reason is true but assertion is false

Read the following statement given below and choose the correct alternative
Assertion (A)- Physical capital is tangible and can easily be sold in the market.
Reason (R )- Human capital is intangible
a) Both assertion and reason are true. Reason is the correct explanation of assertion
b) Both assertion and reason are true. Reason is not the correct explanation of assertion
c) Assertion is true but reason is false

d) Reason is true but assertion is false

Read the following statement given below and choose the correct alternative
Assertion (A)- Education for all is still a distant dream in India
Reason (R )-  Government withdraws its resources from the education sector whenever it wants
a) Both assertion and reason are true. Reason is the correct explanation of assertion
b) Both assertion and reason are true. Reason is not the correct explanation of assertion
c) Assertion is true but reason is false

d) Reason is true but assertion is false

Choose the correctly matched pair from the following

Column A	Column B
A. Sarva sikhana abhiyan	1. Tool for building knowledge based society
B. Mid day meal program	2. 2001
C. NCERT	3. Program to achieve universalisation of primary education
D. Higher education	4. Apex organization to provide academic and financial support

 

a) A-2   b) B-4    c) C-1   d) D-3

Read the following statement given below and choose the correct alternative
Statement 1- In India , there is gender biases in offering education to all
Statement 2- After 1991 reforms, there has been growing tendency towards privatisation of education
a) Both are correct                 b) Both are incorrect
c) Statement 1 is correct and statement 2 is incorrect
d) Statement 1 is incorrect and statement 2 is correct

_______ is a regulating authority of the education sector in India. ( Fill in the blank with correct alternative)

a)ICMR                                                b)Sarva Siksha abhiyan
c)Kendriya Vidyalaya                        d)University grants commission

________ refers to man made means of production which are required for further production. ( Fill in the blank with correct option)
a)Human Capital                           b)Physical capital
c)Financial capital                         d)None of the above

 _____ of human capital,  refers to the ways of adding to the stock of capital.
a) Sources                            b) Determinants of physical capital
c) Both a and b                     d) None of these

 

The enrolment ratio of female students in schools is ____and their drop- out ratio is____
a) High, Less                    b) Less, High
c) Less, Less                     d) None of these

Rural Development

1. The action plan for rural development focuses on: –
a) Lingering challenges        b) Emerging challenges
c) Both a and b                    d) None of these

2. Initiatives required for Rural development includes: –
a) Development of Human resource        b) Land Reforms
c) Infrastructure development                  d) All of these

3. Rural credit is required for farming because
a) Most farming families have small landholdings.
b) They produce only for self-consumption
c) They need funds for further investment in agriculture
d) All of these

4. Short term credit is required for
a) Construction offense               b) Purchasing inputs like seeds, fertilizers, etc
c) For purchasing land or tractor  d) None of these

5. Institutional source of rural credit includes
a) Money lenders                         b) Landlords
c) Regional Rural banks              d) None of these

6. Cooperative Credit societies ensure:
a) Timely and rapid flow of credit to farmers
b) Guidance in diverse agricultural operations
c) Elimination of the money lenders                d) All of these

7. In SHGs the credit is offered
a) Without collateral                           b) Moderate Rate of Interest
c) Both a and b                                  d) None of these

8.  ____ is an important source of occupation for the women.
a) Fishing                            b) Agriculture
c) Livestock Farming          d) Horticulture

9. Read the following statement given below and choose the correct alternative
Statement 1- MSP is set to safeguard the interests of farmers.
Statement 2- PDS is for the rich section of the society
a) Both are correct                      b) Both are incorrect
c) Statement 1 is correct and statement 2 is incorrect
d) Statement 1 is incorrect and statement 2 is correct

10.  Read the following statement given below and choose the correct alternative
Assertion (A)- Livestock sector alone provides alternative livelihood options to
over 70 million farmers in India.
Reason ( R)- Livestock production provides increased income
a) Both assertion and reason are true. Reason is the correct explanation of assertion
b) Both assertion and reason are true. Reason is the correct explanation of assertion
c) Assertion is true but reason is false
d) Reason is true but assertion is false

DAY – 9

EMPLOYMENT GROWTH, INFORMALISATION AND OTHER ISSUES

A worker is an individual, who is involved in some productive activity, to earn a living.

An economic activity refers to the activity performed by people to earn the living. The main three types of economic activities are consumption, production and distribution.

Production activity refers to all those activities which are under taken to produce goods and services for generation of income.

Labour force: All persons, who are working (have a job) and those are not working but able to work and willing to work at the existing wage rate constitutes labour force.

Labour Force: Persons working + persons seeking and/or available for work.

Work force: The number of persons, who are actually employed at a particular time are known as workforce. It includes all those persons who are actually engaged in productive activities. This includes person between age group of 15-60 years.

Labour supply: It refers to various amount of labour that workers are willing to work, corresponding to a particular wage rate.

Work Force Participation Rate(Ratio):- It is measured as the ratio between workforce and total population of a country.
.

Types of workers:
(a) Self employed
(b) Hired workers
i. Casual Workers
ii. Regular Workers(Salaried)

(a) Self Employed:- The worker who own and operate an enterprise to earn their livelihood are known as self employed.

(b) Hired workers:- Those people who are hired by others and are paid wages or salaries as a reward for their services are called hired workers.

Casual Workers:- Those people, who are not hired by their employers on a regular/permanent basis and do not get social security benefits are said to be casual workers.

Regular Workers(Salaried):– When a worker is engaged by someone or by an enterprise and paid his or her wages on a regular basis, they are known to as regular salaried employees or regular workers.

About two-fifth of the total population in the country is engaged in various economic activities.

Men particularly rural men, form the major section of workforce in India.

Majority of workers in India are self employed, casual wage labourers and regular salaried employees together account for less than half the proportion of India’s workforce.

About three fifth of India’s workforce depends on agriculture and other allied activities as the major source of livelihood.

Jobless Growth: It is defined as a situation where GDP grows faster than the employment opportunities resulting in unemployment.

Casualisation and informalisation of employment: Casualisation refers to a situation when the percentage of casually hired workers in the total workforce tends to rise over time.

Informalisation: Refers to a situation when people tend to find employment more in informal sector of the economy, and less in formal sector of the economy.

Unemployment: It is a situation where a person is ready and willing to work at the prevailing wage-rate but doesn’t get work.

Unemployment Rate: It is calculated as percentage of labour force who are unemployed, not as percentage of total population.

Types of unemployment:

1. Rural unemployment
a. Seasonal Unemployment
b. Disguised Unemployment

 

ENVIRONMENT AND SUSTAINABLE DEVELOPMENT

Environment: Environment is defined as the total planetary inheritance and the totality of all resources. It includes all the biotic and abiotic factors that influence each other.

Functions of Environment:

it supplies resources (both renewable and non-renewable)

it assimilates waste

it sustains life by providing genetic and biodiversity (the most vital function)

it also provides aesthetic services like scenery etc.

Renewable Resources: Those that can be used without the possibility of the resource becoming depleted or exhausted. That is, a continuous supply of the resource remains available. Examples of renewable resources are the trees in the forests, fish in the ocean, water, etc.

Non-renewable Resources: Those that get exhausted with extraction and use, for example, fossil fuel, iron-ore, etc.

The environment is able to perform these functions without any interruption as long as the demand on these functions is within its carrying capacity.

Carrying Capacity: This implies that

the resource extraction is not above the rate of regeneration of the resource and

the wastes generated are within the assimilating capacity of the environment.

When this is not so, the environment fails to perform its third and vital function of life sustenance, and this results in an environmental crisis.

Global warming is the gradual increase in the average temperature of the Earth's lower atmosphere.

It is caused by the release of greenhouse gases into the atmosphere, such as carbon dioxide and methane. The atmospheric concentrations of carbon dioxide and methane have increased significantly since the Industrial Revolution. These gases trap heat, causing the planet to warm.

Factors that may be contributing to global warming include:

Burning of coal and petroleum products

Deforestation

Methane gas released in animal waste

Increased cattle production

Some of the long-term results of global warming include:

Melting of polar ice with a resulting rise in sea level and coastal flooding

Disruption of drinking water supplies dependent on snow melts

Extinction of species as ecological niches disappear

More frequent tropical storms

An increased incidence of tropical diseases

The Kyoto Protocol, an international agreement to fight global warming, was signed in 1997.

Ozone Depletion

Ozone depletion is the thinning of the ozone layer, which is a region of Earth's stratosphere that absorbs most of the Sun's ultraviolet radiation.

Ozone depletion is caused by high levels of chlorine and bromine compounds in the stratosphere.

The main sources of these compounds are chlorofluorocarbons (CFCs) and bromofluorocarbons (halons), which are used in a variety of products, including refrigerators, air conditioners, fire extinguishers, and aerosol sprays.

Effects of Ozone depletion

It allows more ultraviolet (UV) radiation to reach Earth's surface.

UV radiation is responsible for skin cancer in humans, and it can also affect the immune system and increase the risk of other health problems.

UV radiation can also damage crops and reduce agricultural yields.

The Montreal Protocol, an international agreement to ban the production and use of ozone-depleting substances, was signed in 1987.

Some of the factors responsible for land degradation are:

loss of vegetation occurring due to deforestation

unsustainable fuel wood and fodder extraction

shifting cultivation

encroachment into forest lands

forest fires and overgrazing

non-adoption of adequate soil conservation measures

improper crop rotation

indiscriminate use of agro-chemicals such as fertilisers and pesticides

improper planning and management of irrigation systems

extraction of groundwater in excess of the recharge capacity

open-access resource

poverty of the agriculture-dependent people.

Sustainable Development

Development that meets the needs of the present generation without compromising the ability of the future generation to meet their own needs.

 

Strategies for Sustainable Development

Use of Non-conventional Sources of Energy: Wind and solar power are good examples of non-conventional energy sources. These sources are clean and renewable, and they have a low environmental impact.

LPG, Gobar Gas in Rural Areas: LPG and gobar gas are clean fuels that can be used to replace wood and dung cake as fuel in rural areas. This can help to reduce deforestation, improve air quality, and conserve cattle dung.

CNG in Urban Areas: CNG is a clean fuel that can be used to reduce air pollution in urban areas.

Wind Power: Wind turbines can be used to generate electricity from wind power. This is a clean and renewable source of energy that has a low environmental impact.

Solar Power through Photovoltaic Cells: Photovoltaic cells can be used to convert solar energy into electricity. This is a clean and renewable source of energy that has a low environmental impact.

Mini-hydel Plants: Mini-hydel plants can be used to generate electricity from the energy of streams. This is a clean and renewable source of energy that has a low environmental impact.

Traditional Knowledge and Practices: Traditional Indian knowledge and practices can be used to develop sustainable solutions to environmental problems. For example, traditional herbal remedies can be used to treat diseases without the use of harmful chemicals.

Biocomposting: Biocomposting can be used to convert organic waste into compost, which can be used to improve soil fertility and reduce the need for chemical fertilizers.

Biopest Control: Biopest control methods can be used to control pests without the use of harmful pesticides. For example, neem-based pesticides can be used to control pests without contaminating food or the environment.

 

DAY – 10

COMPARATIVE DEVELOPMENT EXPERIENCE OF INDIA AND ITS NEIGHBOURS

Development Path of India, Pakistan and China.

(i) All the three countries started their development path at the same time. India and Pakistan got independence in 1947 and people’s Republic of China was established in 1949.
(ii) All the three countries had started planning their development strategies in similar ways. India announced its First Five Year Plan in 1951, Pakistan announced in 1956 and China in 1953.
(iii) India and Pakistan adopted similar strategies, such as creating a large public sector and raising public expenditure on social development.
(iv) Both India and Pakistan had adopted ‘mixed economy’ model but China had adopted ‘Command Economy’ model of economic growth.
(v) Till 1980_s, all the three countries had similar growth rates and per capita incomes.
(vi) Economic Reforms were implemented in China in 1978, in Pakistan in 1988 and in India in 1991.

Development Strategy:

A. China

(i) After the establishment of People’s Republic of china under one party rule, all the critical sectors of the economy, enterprises and lands owned and operated by individuals, were brought under government control.
(ii) A Programme named ‘The Great leap Forward (GLF) campaign was initiated in 1958, which aimed at industrialising the country on a massive scale. Under this programme, people were encouraged to set up industries in their backyards.
(iii) 1965, Mao Tse Tung introduced the ‘Great Proletarian Cultural Revolution (1966-1976)’, under which students and professionals were sent to work and learn from the countryside (rural areas).
(iv) In rural areas, commune system was started, under which people collectively cultivated lands.
(v) Reforms were introduced in China in phases.
(vi) In the initial phase, reforms were initiated in agriculture, foreign trade and investment sectors. In the later phase, reforms were initiated in the industrial sector.
(vii) The reforms process also involved dual pricing. This means fixing the prices in two ways; farmers and industrial units were required to buy and sell fixed quantities of raw materials and products on the basis of prices fixed by the government and rest were purchases and sold at market prices.
(viii) In order to attract foreign investors, special Economics Zones (SEZ) were set up. SEZ is a geographical region that has economic laws different from a country’s typical economic laws. Usually the goal is to increase foreign investment.

B. Pakistan

(i) Pakistan followed the mixed economy model with co-existence of public and private sectors.
(ii) Pakistan Introduced tariff protection for manufacturing of consumer goods, together with direct import controls on competing imports.
(iii) The introduction of Green Revolution and increase in public investment in infrastructure in select areas, led to a rise in the production of food grains.
(iv) In 1970s, Capital goods industries were nationalised.
(v) In 1988, structural reforms were implemented. Major thrust areas were denationalisation and encouragement to private sector.
(vi) Pakistan also received financial support from western nations and remittances from emigrants to the Middle countries. This helped the country in stimulating economic growth.

C. India

After Independence, India has adopted mixed economy as economic developmental strategy. Both public and private sector co-exist side by side. In order to achieve rapid economic growth, planned development economy was introduced.

Economic Development Strategy after Independence:

(i) Both public and private sectors were allotted to carry business activities. Public sector was allotted activities like coal, mining, steel, power, roads etc. Private sector was allotted to establish industries subject to control and regulations in the form of law.
(ii) Public sector was given major push by the Government. Maximum revenues in this sector was invested which increased from Rs. 81.1 crore in First Five-Year Plan (1951-56) to Rs 34,206 crores in Ninth Five-Year Plan (1992-97)
(iii) Public sector was given importance in order to eliminate poverty, unemployment etc.
(iv) Public sector contributed to the industrialisation of the economy. It also helped Indian economy to achieve a considerable degree of self-sufficiency.

Comparative Study – India, Pakistan and China:

1. Demographic Indicators:

a. The population of Pakistan is very small and accounts for roughly about one-tenth of China and India.
b. Though China is the largest nation geographically among the three, its density is the lowest.
c. Population growth is highest in Pakistan followed by India and China. One child norm which was introduced in China in the late 1970s is the major reason for low population growth. But this measure led to a decline in the sex ratio, that is the proportion of females per 1000 males.
d. The sex ratio is low and biased against females in all the three countries. There is strong son-preference prevailing in all these countries.
e. The Fertility rate is low in China and very high in Pakistan.
f. Urbanisation is high in both China and Pakistan- with India having 28 percent of its people living in Urban areas.

2. Gross Domestic Product (GDP) and Sectors :

a. China has the second largest GDP (PPP) of 10.1trillion(approx)in2013whereasIndia′s GDP(PPP) and Pakistan GDP (PPP) are 10.1 trillion (approx) in 2013 Whereas india′s GDP (PPP) and Pakistan GDP (PPP) are 4.2 trillion (approx) and $0.47 trillion (approx) respectively.
b. On this path of Development china’s average growth rate is about 9.5% while India’s and Pakistan’s average growth rate is about 5.8% and 4.1% respectively.
c. In China, in the year 2011. with 37 percent of its workforce engaged in agriculture, its contribution to GDP is 9 percent (approx). While in India and Pakistan the contribution of agricultural sector in GDP is about 19% and 21% respectively. In India about 56% are engaged in agricultural sector, while in Pakistan this figure is about 45%.
d. In china, manufacturing contributes the highest to GDP at 47 percent whereas in India and Pakistan, it is the service sector which contributes the highest (more than 50 percent of GDP)
e. Though china has followed the classical development pattern of gradual shift from agriculture to manufacturing and then to services, India and Pakistan’s shift has been directly from agriculture to service sector.
f. In the 1980s, India, China and Pakistan employed 17, 12 and 27 percent of its workforce in the service sector respectively. In 2011, It reached the level of 25, 33 and 35 percent respectively (approx.).
g. China’s growth is mainly contributed by the manufacturing sector where as in both India and Pakistan, the service sector is emerging as a major player of development.

3. Human Development Indicators:

a. In most areas of human development, China has performed better than India and Pakistan. This is true for many indicators-per Capita GDP or proportion of population below poverty line, health indicators such as mortality rates, access to sanitation, literacy, life expectancy or malnourishment etc.
b. Pakistan is ahead of India in reducing proportion of people below the poverty line and also its performance in transferring labour force from agricultural sector to industrial sector and access to water is better than India.
c. Contrary to it, India is ahead of Pakistan is education sector and providing health services.
d. India and Pakistan are ahead of China in providing improved water sources.

Conclusion

A. India-India performed moderately as is clear from

a. A majority of its people still depend on agriculture.
b. Infrastructure is lacking in many parts of the country.
c. It is yet to raise the level of living of more than 22% of its population that lives below the poverty line.

B. Pakistan-Pakistan has performed poorly. The reasons for the slowdown of growth and re-emergence of poverty in Pakistan’s economy are:

(i) Political instability.
(ii) Volatile performance of agriculture sector.
(iii) Over dependence on remittances.
(iv) Growing dependence on foreign loans on the one hand and increasing difficulty in paying back the loans on the other.

C. China-China has performed comparatively the best as is clear from:

a. Success in raising the level of growth along with alleviation of poverty.
b. It used the market mechanism to create additional social and economic opportunities without political commitment.
c. By retaining collective ownership of land and allowing individuals to cultivate lands, China has ensured social security in rural areas.
d. Public intervention in providing social infrastructure has brought about positive results in human development indicators in China.