Students can Download Tamil Nadu 12th Economics Model Question Paper 3 English Medium Pdf, Tamil Nadu 12th Economics Model Question Papers helps you to revise the complete Tamilnadu State Board New Syllabus, helps students complete homework assignments and to score high marks in board exams.

## TN State Board 12th Economics Model Question Paper 3 English Medium

General Instructions:

1. The question paper comprises of four parts.
2. You are to attempt all the parts. An internal choice of questions is provided wherever applicable.
3. All questions of Part I, II, III and IV are to be attempted separately.
4. Question numbers 1 to 20 in Part I are Multiple Choice Questions of one mark each.
These are to be answered by choosing the most suitable answer from the given four alternatives and writing the option code and the corresponding answer
5. Question numbers 21 to 30 in Part II are two-mark questions. These are to be answered in about one or two sentences.
6. Question numbers 31 to 40 in Part III are three-mark questions. These are to be answered in above three to five short sentences.
7. Question numbers 41 to 47 in Part IV are five-mark questions. These are to be answered in detail Draw diagrams wherever necessary.

Time: 3.00 Hours
Maximum Marks: 90

PART – I

Choose the correct answer. Answer all the questions: [20 x 1 = 20]

Question 1.
The branches of the subject Economics is………….
(a) Wealth and welfare
(b) production and consumption
(c) Demand and supply
(d) micro and macro
(d) micro and macro

Question 2.
………. is another name for economics.
(a) Political economy
(b) Socialist economy
(c) Capitalist economy
(d) Planned economy
(a) Political economy

Question 3.
Income method is measured by summing up of all forms of…………
(a) Revenue
(b) Taxes
(c) expenditure
(d) Income
(d) Income

Question 4.
Match the following and choose the correct answer by using codes given below:

Code:

(d) A-3, B-4, C-1, D-2+

Question 5.
According to classical theory, rate of interest is a reward for………..
(a) Investment
(b) Demand
(c) Capital
(d) Saving
(d) Saving

Question 6.
Which of the following is not correctly matched:
(a) Say’s law of Market – Classical theory of Employment
(b) Adam Smith – Wealth of nations
(c) Keynes – The General theory of Employment, Interest and Money
(d) A.C. Pigou – French Economist
(d) A.C. Pigou – French Economist

Question 7.
When investment is assumed autonomous the slope of the AD schedule is determined by the…………
(a) marginal propensity to invest
(b) disposable income .
(c) marginal propensity to consume
(d) average propensity to consume
(c) marginal propensity to consume

Question 8.
Which of the following is correctly matched:
(a) J.M. Clark – Ceteris Paribus
(b) J.M. Keynes – Psychological law of consumption
(c) R.F. Khan – Accelerator model
(d) Duesenberry – Laissez-faire
(b) J.M. Keynes – Psychological law of consumption

Question 9.
The basic distinction between M1 and M2 is with regard to…………..
(a) post office deposits
(b) time deposits of banks
(c) saving deposits of banks
(d) currency
(b) time deposits of banks

Question 10.
Match the following and choose the correct answer by using codes given below:

Code:

(a) A-1, B-2, C-3, D-4

Question 11.
(a) Rate at which the Commercial Banks are willing to lend to RBI
(b) Rate at which the RBI is willing to lend to commercial banks
(c) Exchange rate of the foreign bank
(d) Growth rate of the economy
(b) Rate at which the RBI is willing to lend to commercial banks.

Question 12.
Lowering the Bank rate off sets……….. tendencies.
(a) Deflationary
(b) Inflationary
(c) Stagflationary
(d) Hyper inflationary
(a) Deflationary

Question 13.
Which of the following is a modem theory of international trade?
(a) absolute cost
(b) comparative cost
(c) Factor endowment theory
(d) none of these
(c) Factor endowment theory

Question 14.
The headquarters of ASEAN is ……………..
(a) Jaharta
(b) New Delhi
(c) Colombo
(d) Tokyo
(a) Jaharta

Question 15.
Which of the following is correctly matched
(a) Objectives of IMF – To promote textiles
(b) Functions of IMF – Exchange stability
(c) Facilities offered by IMF – Basic Debit Facility
(d) Achievements of IMF – Country discipline and co-operation
(b) Functions of IMF – Exchange stability

Question 16.
………. refers to Government spending incurred by central, state, local government of a country.
(a) Public Finance
(b) Public Expenditure
(c) Public Revenue
(d) Social Welfare
(b) Public Expenditure

Question 17.
Which of the following is the anticipated effect of Global wanning?
(a) Rising sea levels
(b) Changing precipitation
(c) Expansion of deserts
(d) All of the above
(a) Rising sea levels

Question 18.
………… the state is all powerful in preparation and implementation of the plan.
(a) Centralized planning
(b) Planning by direction
(c) Indicative planning
(d) Imperative planning
(d) Imperative planning

Question 19.
State whether the statements are true or false.
(i) Economic development was redefined in terms of reduction of poverty, inequality and unemployment with in the context of a growing economy.
(ii) New welfare oriented approach is “Redistribution with growth”.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (0 is false but (ii) is true
(a) Both (i) and (ii) are true

Question 20.
Assertion (A): Ronald Fisher introduced the concept of Standard Deviation.
Reason (R): Standard Deviation is one of the methods of Absolute measure of dispersion.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
(d) ‘A’ is false but ‘R’ is true

PART – II

Answer any seven question in which Question No. 30 is compulsory. [7 x 2 = 14]

Question 21.
Define Mixed Economy (or) Mixedism.
In a mixed economy system both private and public sectors co-exist and work together towards economic development. It is a combination of both capitalism and socialism. It tends to eliminate the evils of both capitalism and socialism.

In these economies, resources are owned by individuals and the government. India, England, France and Brazil are the examples of mixed economy.

Question 22.
Explain briefly NNP at factor cost.
Net National Product refers to the value of the net output of the economy during the year. NNP is obtained by deducting the value of depreciation, or replacement allowance of the capital assets from the GNP. It is expressed as,
NNP = GNP – depreciation allowance.

Question 23.
Write the types of unemployment.
Types of unemployment:

1. Cyclical Unemployment
2. Seasonal Unemployment
3. Frictional Unemployment
4. Educated Unemployment
5. Technical Unemployment
6. Structural Unemployment
7. Disguised Unemployment

Question 24.
Define marginal propensity to consume (MPC).
Marginal Propensity to Consume:
The marginal propensity to consume may be defined as the ratio of the change in the consumption to the change in income. Algebraically it may be expressed as under:
MPC = $$\frac{ΔC}{ΔY}$$
Where, ΔC = Change in Consumption; ΔY = Change in Income
MPC is positive but less than unity, 0 < $$\frac{ΔC}{ΔY}$$ < 1

Question 25.
What is gold standard?
Gold Standard is a system in which the value of the monetary unit or the standard currency is directly linked with gold. The monetary unit is defined in terms of a certain weight of gold. The purchasing power of a unit of money is maintained equal to the value of a fixed weight of gold.

Question 26.
International Trade refers to the trade or exchange of goods and services between two or more countries. In other words, it is a trade among different countries or trade across political boundaries. It is also called as ‘external trade’ or ‘foreign trade’ or ‘inter-regional trade’.

Question 27.
Write the ‘ASEAN’ member of countries.
ASEAN was established on 8 August 1967 in Bangkok by the five original member countries: Indonesia, Malaysia, Philippines, Singapore and Thailand.

Question 28.
What is public revenue?
Public Revenue: Public revenue deals with the methods of raising public revenue such as tax and non-tax, the principles of taxation, rates of taxation, impact, incidence and shifting of taxes and their effects.

Question 29.
Define Global warming.
Global warming is the current increase in temperature of the Earth’s surface (both land and water) as well as its atmosphere. Average temperatures around the world have risen by 0.75°C (1.4°F) over the last 100 years. About two thirds of this increase has occurred since 1975. Carbon dioxide, methane, Chlorofluoro Carbon, nitrous oxides are the green house gases warming the earth’s surface. So it is also called green house effect. The CO2 is the most important of the green house gases contributing to 50% of global warming. Global warming adversely affects agriculture, horticulture and eco system.

Question 30.
Define economic development.
Economic development refers to the problems of underdeveloped countries and economic growth to those of developed countries. Economic development deals with the problems of UDCs. Change is discontinuous and spontaneous.

Economic development is not determined by any single factor. Economic development depends on Economic, Social, Political and Religious factors.

PART – III

Answer any seven question in which Question No. 40 is compulsory. [7 x 3 = 21]

Question 31.
Indicates the Merits of Socialism.

1. Reduction in Inequalities: No one is allowed to own and use private property to exploit others.
2. Rational Allocation of Resources: The central planning authority allocates the resources in a planned manner. Wastages are minimised and investments are made in a pre planned manner.
3. Absence of Class Conflicts: As inequalities are minimum, there is no conflict between rich and poor class. Society functions in a harmonious manner.
4. End of Trade Cycles: Planning authority takes control over production and distribution of goods and services. Therefore, economic fluctuations can be avoided.
5. Promotes Social Welfare: Absence of exploitation, reduction in economic inequalities, avoidance of trade cycles and increase in productive efficiency help to promote social welfare.

Question 32.
Write the statistical problems.
The following are the some of the statistical problems:

1. Accurate and reliable data are not adequate, as farm output in the subsistence sector is not completely
2. informed. In animal husbandry, there are no authentic production data available.
3. Different languages, customs, etc., also create problems in computing estimates.
4. People in India are indifferent to the official inquiries. They are in most cases non-cooperative also.
5. Most of the statistical staff are untrained and inefficient.

Question 33.
What do you mean by propensity to consume?
The consumption function or propensity to consume refers to income consumption relationship. It is a “functional relationship between two aggregates viz., total consumption and gross national income.”
Symbolically, the relationship is represented as C = f (Y)
Where, C = Consumption; Y Income; f = Function

Thus the consumption function indicates a functional relationship between C and Y, where C is the dependent variable and Y is the independent variable, i.e., C is determined by Y. This relationship is based on the ceteris paribus (other things being same) assumption, as only income consumption relationship is considered and all possible influences on consumption are held constant.

Question 34.
Explain Demand-pull and Cost push inflation.
Demand-Pull Vs Cost-Push inflation:
(i) Demand-Pull Inflation: Demand and supply play a crucial role in deciding the inflation levels in the society at all points of time. For instance, if the demand is high for a product and supply is low, the price of the products increases.

(ii) Cost-Push Inflation: When the cost of raw materials and other inputsrises inflation results. Increase in wages paid to labour also leads to inflation.

Question 35.
Give a brief note on NBFI.
Non-Banking Financial Institution (NBFI):

A non-banking financial institution (NBFI) or non-bank financial company (NBFC) is a financial institution that does not have a full banking license or is not supervised by the central bank.

The NBFIs do not carry on pure banking business, but they will carry on other financial transactions. They receive deposits and give loans: They mobilize people’s savings and use the funds to finance expenditure on investment activities. In short, they are institutions which undertake borrowing and lending. They operate in both the money and the capital markets.

NBFIs can be broadly classified into two categories. Viz.., (1) Stock Exchange; and (2) Other Financial institutions. Under the latter category comes Finance Companies, Finance Corporations, ChitFunds, Building Societies, Issue Houses, Investment Trusts and Unit Trusts and Insurance Companies.

Question 36.
What are import quotas?
Import Control: Imports may be controlled by:

1. imposing or enhancing import duties
2. restricting imports through import quotas
3. licensing and even prohibiting altogether the import of certain non-essential items. But this would encourage smuggling.

Question 37.
Mention the objectives of ASEAN.
Objectives of ASEAN:
The ASEAN Declaration states the aims and purposes of the Association as:

1. To accelerate the economic growth, social progress and cultural development in the region;
2. To promote regional peace and stability and adherence to the principles of the United Nations Charter;
3. To promote cooperation among the members of ASEAN through the exchange of knowledge and experience in the field of public sector auditing.
4. To provide a conducive environment and facilities for research, training, and education among the members
5. To serve as a centre of information and as an ASEAN link with other international organizations.

Question 38.
Mention any three methods of redemption of public debt.
Methods of Redemption of Public Debt:
The process of repaying a public debt is called redemption. The Government sells securities to the public and at the time of maturity, the person who holds the security surrenders it to the Government. The following methods are adopted for debt redemption.

(i) Sinking Fund:

1. Under this method, the Government establishes a separate fund known as “Sinking Fund”.
2. The Government credits every year a fixed amount of money to this fund.
3. By the time the debt matures, the fund accumulates enough amount to pay off the principal along with interest.
4. This method was first introduced in England by Walpol.

(ii) Conversion:

1. Conversion of loans is another method of redemption of public debt.
2. It means that an old loan is converted into a new loan.
3. Under this system a high interest public debt is converted into a low interest public debt.
4. Dalton felt that debt conversion actually relaxes the debt burden.

(iii) Budgetary Surplus:

1. When the Government presents surplus budget, it can be utilised for repaying the debt.
2. Surplus occurs when public revenue exceeds the public expenditure.
3. However, this method is rarely possible.

Question 39.
State the meaning of e-waste.

1. Electronic waste which is commonly referred as “e-waste” is the new byproduct of the Info Tech society.
2. It is a physical waste in the form of old discarded, end of life electronics.
3. It includes a broad and growing range of electronic devices from large household appliances such as refrigerators, air conditioners, cellular phones, computers and other electronic goods”.
4. Similarly, e-waste can be defined as the result when consumer, business and household devices are disposed or sent for re-cycling (example, television, computers, audio-equipments, VCR, DVD, telephone, Fax, Xerox machines, wireless devices, video games, other household electronic equipments).

Question 40.
How would you break the vicious circle of poverty?
Breaking the Vicious Circle of Poverty:

1. The vicious circle of poverty is associated with low rate of saving and investment on the supply side.
2. In UDCs the rate of investment and capital formation can be stepped up without reduction in consumption. For this, the marginal rate of savings is to be greater than average rate of savings.
3. To break the vicious circle on the demand side, Nurkse suggested the strategy of balanced growth.
4. If investment is made in several industries simultaneously the workers employed in various industries will become consumers of each other’s products and will create demand for one another.
5. The balanced growth i.e. simultaneous investment in large number of industries creates mutual demand. Thus, through the strategy of balanced growth, vicious circle of poverty operating on the demand side of capital formation can be broken.

PART – IV

Answer all the questions. [7 x 5 = 35]

Question 41 (a).
Explain the Importance of Factor Cost.

[OR]

(b) Critically explain Say’s law of market.
Criticisms of Say’s Law:
The following are the criticisms against Say’s law:

1. According to Keynes, supply does not create its demand. It is not applicable where demand does not increase as much as production increases.
2. Automatic adjustment process will not remove unemployment. Unemployment can be removed by increase in the rate of investment.
3. Money is not neutral. Individuals hold money for unforeseen contingencies while businessmen keep cash reserve for future activities.
4. Say’s law is based on the proposition that supply creates its own demand and there is no over production. Keynes said that over production is possible.
5. Keynes regards full employment as a special case because there is under – employment in capitalist economies.
6. The need for state intervention arises in the case of general over production and mass unemployment.

Question 42 (a).
What is consumption function?
Meaning of Consumption Function:
The consumption function or propensity to consume refers to income consumption relationship. It is a “functional relationship between two aggregates viz., total consumption and gross national income.”

Symbolically, the relationship is represented as
C = f(Y)
Where,
C = Consumption; Y = Income;/= Function
Thus the consumption function indicates a functional relationship between C and Y, where C is the dependent variable and Y is the independent variable, i.e., C is determined by Y. This relationship is based on the ceteris paribus (other things being same) assumption, as only income consumption relationship is considered and all possible influences on consumption are held constant.

[OR]

(b) Explain the Inflation Effects of production.
Effects on Production: When the inflation is very moderate, it acts as an incentive to traders and producers. This is particularly prior to full employment when resources are not fully utilized. The profit due to rising prices encourages and induces business class to increase their investments in production, leading to generation of employment and income.

1. However, hyper-inflation results in a serious depreciation of the value of money and it discourages savings on the part of the public.
2. When the value of money undergoes considerable depreciation, this may even drain out the foreign capital already invested in the country.
3. With reduced capital accumulation, the investment will suffer a serious set-back which may have an adverse effect on the volume of production in the country. This may discourage entrepreneurs and business men from taking business risk.
4. Inflation also leads to hoarding of essential goods both by the traders as well as the consumers and thus leading to still higher inflation rate.
5. Inflation encourages investment in speculative activities rather than productive purposes.

Question 43 (a).
Describe the functions of Reserve Bank of India.
Functions of Central Bank (Reserve Bank of India):
The Reserve Bank of India (RBI) is India’s central banking institution, which controls the monetary policy of the Indian rupee.
1. Monetary Authority: It controls the supply of money in the economy to stabilize exchange rate, maintain healthy balance of payment, attain financial stability, control inflation, strengthen banking system.

2. The issuer of currency: The objective is to maintain the currency and credit system of the country. It is the sole authority to issue currency. It also takes action to control the circulation of fake currency.

3. The issuer of Banking License: As per Sec 22 of Banking Regulation Act, every bank has to obtain a banking license from RBI to conduct banking business in India.

4. Banker to the Government: It acts as banker both to the central and the state governments. It provides short-term credit. It manages all new issues of government loans, servicing the government debt outstanding and nurturing the market for government securities. It advises the government on banking and financial subjects.

5. Banker’s Bank: RBI is the bank of all banks in India as it provides loan to banks, accept the deposit of banks, and rediscount the bills of banks.

6. Lender of last resort: The banks can borrow from the RBI by keeping eligible securities as collateral at the time of need or crisis, when there is no other source.

7. Act as clearing house: For settlement of banking transactions, RBI manages 14 clearing houses. It facilitates the exchange of instruments and processing of payment instructions.

8. Custodian of foreign exchange reserves: It acts as a custodian of FOREX. It administers and enforces the provision of Foreign Exchange Management Act (FEMA), 1999. RBI buys and sells foreign currency to maintain the exchange rate of Indian rupee v/s foreign currencies.

9. Regulator of Economy: It controls the money supply in the system, monitors different key indicators like GDP, Inflation, etc.

10. Managing Government securities: RBI administers investments in institutions when they invest specified minimum proportions of their total assets/liabilities in government securities.

11. Regulator and Supervisor of Payment and Settlement Systems: The Payment and Settlement Systems Act of 2007 (PSS Act) gives RBI oversight authority for the payment and settlement systems in the country. RBI focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms.

12. Developmental Role: This role includes the development of the quality banking system in India and ensuring that credit is available to the productive sectors of the economy. It provides a wide range of promotional functions to support national objectives. It also includes establishing institutions designed to build the country’s financial infrastructure. It also helps in expanding access to affordable financial services and promoting financial education and literacy.

13. Publisher of monetary data and other data: RBI maintains and provides all essential banking and other economic data, formulating and critically evaluating the economic policies in India. RBI collects, collates and publishes data regularly.

14. Exchange manager and controller: RBI represents India as a member of the International Monetary Fund [IMF], Most of the commercial banks are authorized dealers of RBI.

15. Banking Ombudsman Scheme: RBI introduced the Banking Ombudsman Scheme in 1995. Under this scheme, the complainants can file their complaints in any form, including online and can also appeal to the Ombudsman against the awards and the other decisions of the Banks.

16. Banking Codes and Standards Board of India: To measure the performance of banks against Codes and standards based on established global practices, the RBI has set up the Banking Codes and Standards Board of India (BCSBI).

[OR]

(b) Explain the State Industrial Development Corporations.
State Industrial Development Corporations (SIDCOs):

1. The Industrial Development Corporations have been set up by the state governments and they are wholly owned by them.
2. These institutions are not merely financing agencies; they are entrusted with the responsibility of accelerating the industrialization of their states.

SIDCO (Small Industrial Development Corporation):

1. SIDCOs provide financial assistance to industrial concerns by way of loans guarantees and underwriting of or direct subscriptions to shares and debentures.
2. In addition to these, they undertake various promotional activities, such as conducting techno-economic surveys, project identification, preparation of feasibility studies and selection and training of entrepreneurs.
3. They also promote joint sector projects in association with private promoter in such type of projects.
4. SIDCOs take 26 percent, private co-promoter takes 25 percent of the equity, and the rest is offered to the investing public.
5. SIDCOs undertake the development of industrial areas by providing all infrastructural facilities and initiation of new growth centers.
6. They also administer various State government incentive schemes.
7. SIDCOs get refinance facilities form IDBI.
8. They also borrow through bonds and accept deposits.

Question 44 (a).
Explain briefly the Comparative Cost Theory.
Ricardo’s Theory of Comparative Cost Advantage:

1. David Ricardo, the British economist in his ‘Principles of Political Economy and Taxation’ published in 1817, formulated a systematic theory called ‘Comparative Cost Theory’.
2. Ricardo demonstrates that the basis of trade is the comparative cost difference. In other words, trade can take place even if the absolute cost difference is absent but there is comparative cost difference.
3. According to Ricardo, a country can gain from trade when it produces at relatively lower costs. Even when a country enjoys absolute advantage in both goods, the country would specialize in the production and export of those goods which are relatively more advantageous.

Assumptions:

1. There are only two nations and two commodities (2×2 model)
2. Labour is the only element of cost of production.
3. All labourers are of equal efficiency.
4. Labour is perfectly mobile within the country but perfectly immobile between countries.
5. Production is subject to the law of constant returns.
6. Foreign trade is free from all barriers.
7. No change in technology.
8. No transport cost.
9. Perfect competition.
10. Full employment.
11. No government intervention.

Illustration:
Ricardo’s theory of comparative cost can be explained with a hypothetical example of production costs of cloth and wheat in America and India.

(Units of labour required to produce one unit)

It is evident from the example that India has an absolute advantage in production of both cloth and wheat.

However, India should concentrate on the production of wheat in which she enjoys a comparative cost advantage. (80/120 < 90/100). For America the comparative cost disadvantage is lesser in cloth production. Hence America will specialize in the production of cloth and export it to India in exchange for wheat. (Any exchange ratio between 0.88 units and 1.2 units of cloth against one unit of wheat represents gain for both the nations). With trade, India can get 1 unit of cloth and 1 unit of wheat by using its 160 labour units. In the absence of trade, for getting this benefit, India will have to use 170 units of labour. America also gains from this trade. With trade, America can get 1 unit of cloth and one unit of wheat by using its 200 units of labour. Otherwise, America will have to use 220 units of labour for getting 1 unit of cloth and 1 unit of wheat.

[OR]

(b) Briefly explain causes for Balance of payments disequillibrium.
Causes for BoP Disequilibrium:
The following are the major causes producing disequilibrium in the balance of payments of a country.
(i) Cyclical Fluctuation:

1. .Cyclical disequilibrium in different countries is caused by their cyclical fluctuations, their phases and magnitude.
2. World trade shrinks during depression while trade flourishes during prosperity.

(ii) Structural Changes:

1. Structural disequilibrium is caused by the structural changes brought by huge development and investment programmes in the developing economies.
2. Such economies may have high propensity to import for want of capital for rapid industrialization, while export may not be boosted up to that extent.

(iii) Development Expenditure:

1. Development disequilibrium is caused by rapid economic development which results in income and price effects.
2. The less developed countries in the early stage of development are not self sufficient.
3. Income, savings and investment are abysmally low.
4. They depend upon developed countries for import of commodities, capital and technology.
5. Export potential is low and import intensity is high.
6. So the LDCs suffer from adverse BoP.

(iv) Consumerism:

1. Balance of payments position of a country is adversely affected by a huge increase in consumption.
2. This increases the need for imports and decreases the capacity to export.

(v) Demonstration Effect:

1. Deficit in the balance of payments of developing countries is also caused by demonstration effect which influences the people in UDCs to imitate western styled goods.
2. This will raise the propensity to import causing adverse balance of payments.
3. This is good for the developed countries.

(vi) Borrowing:

1. International borrowing and investment may cause a deficit in the balance of payments.
2. When the international borrowing is heavy, a country’s balance of payments will be adverse since it repays loans with interest.
3. Servicing of debt is a huge burden. That is why the IJDCs are forced to borrow more.

(vii) Technological Backwardness:

1. Due to technological backwardness, the people (Indians) are unable to use the energy (Solar) available with them.
2. As a result they import huge petroleum products from foreign countries, increasing the trade deficit.

(viii) Global Politics:

1. The rich countries (e.g. USA) need to sell their weapons to promote their economy and generate employment.
2. Hence, wars between countries (for example Iran and Irag, Pakistan and India) are stimulated In order to win the wars, the poor countries are forced to buy the weapons from weapon – rich countries, using their export earnings and creating trade deficit.
3. Thus UDCs are trapped forever.

Question 45 (a).
Explain the achievements of World Bank.
Achievements of World Bank:
The World Bank is said to be successful in achieving its primary objective of reconstruction and-development of war ravaged nations. It helped greatly in the reconstruction of Europe after the World War II. It has been providing the developed and developing countries the same treatment in the process of growth.

1. It is noted that the Bank’s membership has increased from the initial number of 30 countries to 68 countries in 1960 and to 151 countries in 1988. The IBRD has 189 member countries.
2. The Bank grants medium and long-term loans (i.e., payable over a period of 15-20 years) for reconstruction and development purposes to the member countries. The actual term of a loan depends upon the estimated useful life of the equipment or plant financed.
3. Initially the World Bank’s loans were mainly directed at the European countries for financing their programmes of reconstruction. Later it changed its development loan strategy and lays more emphasis of financing schemes for the poor masses of the developing countries.
4. The World Bank grants loans to member countries only for productive purposes particularly for agriculture, irrigation, power and transport. In other words, the Bank strengthens . infrastructure needed for further development.
5. The International Development Association (IDA), the Soft Loan Window of the Bank provides loans to UDCs at very low rate of interest. However, the economic inequality among the member-countries goes on increasing. Many African countries are yet to improve their economic status.

[OR]

(b) Bring out the merits of indirect taxes over direct taxes.
Merits of Direct Taxes:
(i) Equity:

1. Direct taxes are progressive i.e. rate of tax varies according to tax base.
2. For example, income tax satisfies the canon of equity.

(ii) Certainty:

1. Canon of certainty can be ensured by direct taxes.
2. For example, an income tax payer knows when and at what rate he has to pay income tax.

(iii) Elasticity:

1. Direct taxes also satisfy the canon of elasticity.
2. Income tax is income elastic in nature. As income level increases, the tax revenue to the Government also increases automatically.

(iV) Economy:

1. The cost of collection of direct taxes is relatively low.
2. The tax payers pay the tax directly to the state.

Merits of Indirect Taxes:
(i) Wider Coverage:

1. All the consumers, whether they are rich or poor, have to pay indirect taxes.
2. For this reason, it is said that indirect taxes can cover more people than direct taxes.
3. For example, in India everybody pays indirect tax as against just 2 percent paying income tax.

(ii) Equitable:
The indirect tax satisfies the canon of equity when higher tax is imposed on luxuries used by rich people.

(iii) Economical:

1. Cost of collection is less as producers and retailers collect tax and pay to the Government.
2. The traders act as honorary tax collectors.

(iv) Checks harmful consumption:

1. The Government imposes indirect taxes on those commodities which are harmful to health e.g. tobacco, liquor etc.
2. They are known as sin taxes.

(v) Convenient:

1. Indirect taxes are levied on commodities and services.
2. Whenever consumers make purchase, they pay tax along with the price.
3. They do not feel the pinch of paying tax.

Question 46 (a).
Bring out the merits and demerits of Direct taxes.
Merits of Direct Taxes:
(i) Equity:

1. Direct taxes are progressive i.e. rate of tax varies according to tax base.
2. For example, income tax satisfies the canon of equity.

(ii) Certainty:

1. Canon of certainty can be ensured by direct taxes.
2. For example, an income tax payer knows when and at what rate he has to pay income tax. (Hi) Elasticity:
3. Direct taxes also satisfy the canon of elasticity.
4. Income tax is income elastic in nature.
5. As income level increases, the tax revenue to the Government also increases automatically. (iv) Economy:
6. The cost of collection of direct taxes is relatively low.
7. The tax payers pay the tax directly to the state.

Demerits of Direct Taxes:
(i) Unpopular:

1. Direct taxes are generally unpopular.
2. It is inconvenient and less flexible.

(ii) Productivity affected:

1. According to many economists direct tax may adversely affect productivity.
2. Citizens are not willing to earn more income because in that case they have to pay more taxes.

(iii) Inconvenient:
The tax payers find it inconvenient to maintain accounts, submit returns and pay tax in lump sum.

(iv) Tax Evasion:

1. The burden of direct tax is so heavy that tax-payers always try to evade taxes.
2. This ultimately leads to the generation of black money, which is harmful to the economy.

[OR]

(b) Brief the linkage between economy and environment.
Linkage between Economy and Environment:

1. Man’s life is interconnected with various other living and non-living things.
2. The life also depends on social, political, ethical, philosophical and other aspects of economic system.
3. In fact, the life of human beings is shaped by his living environment.
4. The relationship between the economy and the environment is generally explained in the form of a “Material Balance Model”.
5. The model considers the total economic process as a physically balanced How between inputs and outputs.
6. Inputs are bestowed with physical property of energy which is received from the environment.
7. The interdependence of economics and environment.

Question 47 (a).
Describe the case for planning.
The economic planning is justified on the following grounds.
(i) To accelerate and strengthen market mechanism: The market mechanism works imperfectly in underdeveloped countries because of the ignorance and unfamiliarity with it. A large part of the economy comprises the non-monetized sector.

(ii) To remove unemployment: Capital being scarce and labour being abundant, the problem of providing gainful employment opportunities to an ever-increasing labour force is a difficult task.

(iii) To achieve balanced development: In the absence of sufficient enterprise and initiative, the planning authority is the only institution for planning the balanced development of the economy.

• Development of Agriculture and Industrial Sectors: The need for developing the agriculture sector along with the industrial sector arises from the fact that agriculture and industry are interdependent.
• Development of Infrastructure: The agriculture and industrial sectors cannot develop in the absence of economic and social overheads. The building of canals, roads, railways, power stations, etc., is indispensable for agricultural and industrial development.
• Development of Money and Capital Markets: The expansion of the domestic and foreign trade requires’ not only the development of agricultural and industrial sectors along with social and economic overheads but also the existence of financial institutions.

(iv) To remove poverty and inequalities: Planning is the only path open to underdeveloped countries, for raising national and per capita income, reducing inequalities and poverty and increasing employment opportunities.

[OR]

(b) Central Statistical Office (CSO)