CBSE Sample Papers for Class 12 Economics Compartment Delhi -2015

CBSE Sample Papers for Class 12 Economics Compartment Delhi -2015

Time allowed : 3  hours                                                                                         Maximum marks 100

GENERAL INSTRUCTIONS
(i) All questions in both the sections are compulsory.
(ii) Marks for questions are indicated against each.
(iii) Questions No. 1-5 and 17-21 are very short-answer questions carrying 1 nick each. They are required to be answered in one sentence each.
(iv) Questions No. 6-10 and 22-26 are? short-answer questions carrying 3 marks each. Answers to them should normally not exceed 60 words each.
(v) Questions No. 11-13 and 27-29 are also short-answer questions carrying 4 marks each. Answers to them should normally not exceed 70 words each.
(vi) Questions No. 14-16 and 30-32 are long-answers questions carrying 6 marks each. Answers to them should normally not exceed 100 words each.
(vii) Answers should be brief and to the point and the above word limit should be adhered to as far as possible.

SET I

SECTION A
Question.1. The demand curve of a good shifts from DD’ to dd’.
This shift can be caused by: (Choose the correct alternative)
(a) fall in the price of the goods
(b) rise in the price of the goods.
(c) rise in the price of substitute goods.
(d) rise in the price of complementary goods.

Answer. (c) rise in the price of substitute goods.

Question.2.When 5 units of a goods are sold, total revenue is Rs 100. When 6 units are sold, marginal revenue is Rs 8. At what price are 6 units sold? (Choose the correct alternative) .
(a) Rs 28 per unit (b) Rs 20 per unit
(c) Rs 18 per unit (d) Rs 12 per unit
Answer. (c) 718 per unit.

Question.3. Suggest any one economic measure by which the government can promote consumption of ‘Khadi’.
Answer. Consumption of Khadi can be promoted providing subsidies on it which Would rMuce its cost and increase its demand.

Question.4. Do rich countries also face central problems? Give reasons for your answer.
Answer. As resources & of an economy are scarce and they have alternative uses, every economy is compelled to make choices in the alternative uses of available resources. The very fact that every’ economy has to face the problem of choice makes it the central problem of the choice makes it the central problem of the economy.
Scarcity of resources is a universal problem faced by all economies no matter how rich a country is. The resources at command are always scarce to satisfy all of one’s needs irrespective of an individual or an economy’s fortunes or prosperity.

Question.5. Explain the effects of floods in Jammu and Kashmir on its production possibilities frontier.
Answer. Production Possibility Curve (PPC) represents various combinations of two goods which can be produced using the given resources and technology. Widespread floods in Jammu and Kashmir have led to destruction of resources, reducing their production capacities and productivity. This will result in a leftward shift in the Production Possibility Frontier.

Question.6. Why does the government of India fix ‘support price’ for some crops? Explain.
Answer. When government fixes price of a product at a level higher than equilibrium price, it is Called ‘support price’ (or Price Floor) It is the minimum price the producers must be paid for their products. Support price is fixed for some crops to safeguard the interest of producers. The main aim of fixing support price is to insulate and protect the farmers from fluctuations in their income which is caused by price variations in the free market.

Question.7. Why is a firm under perfect competition a ‘price-taker’ and not a ‘price-maker’? Explain.
Answer. The equilibrium price is determined with the help of the forces of demand and supply of industry in perfect competition. In perfect competition, the number of buyers and sellers is so large that none of them can influence the prevailing price in the market. Here, the . share of each seller in the total market’Supply is so small that no single seller on its own can influence the price. Hence it has no option but to sell the product at the price given by the industry. It is because of this the each firm is said to be a price-taker in perfect competition and not a price-maker.
Or
Explain ‘non-price competition’ feature of oligopoly.
Answer. Non-Price competition in oligopoly. Since there are only a few firms in oligopoly which are mutually dependent, they Are afraid of competing with each other by lowering their price. It may* start a price war and the firm who starts the price war may ultimately lose. Avoiding price war, the firms use other ways of competition like advertising customer care, free gifts etc. Such a competition is called non-price competition.

Question.8. State Whether the following statements are true or false. Give reasons for your answer.
(a) When total product is constant average product will fall.
(b) Average cost will rise only when marginal cost rises.
Answer. (a) True Average product is calculated as follows : \(AP=\frac { Total\quad Product }{ Units\quad of\quad variable\quad input } \)
Therefore, when total product is Constant, with increase inuahStsi of variable factor, average product will fall.
(b) True, because as has been stated in the relationship between average cost and marginal cost – Average cost will-rise when marginal cost, is more than average cost.

Question.9. Show that price and demand of a commodity are inversely related? Use utility analysis.
Answer. In case Of a single commodity a consumer buys a good only up to the point where marginal utility and price are equal, i.e… .’,MU = Price.Now, suppose price falls, the situation now changes to MU Price.Since marginal utility is greater than price, this induces the customer to buy more of the good . This shows that when price of a good falls, its demand increases. Similarly, if price-rises,, then MU < Price. Therefore, the consumers will buy less quantity of the good. This establishes the inverse relationship between price of a good and its demand.
Or
Explain any two factors that affect price elasticity of demand.
Answer. See Q. 12(0), 2013 (II Delhi).

Question.10. Define ‘market demand’ for a good. State the factors that affect it.
Answer. Market demand refers to the total quantity demanded of a commodity by all consumers at a given price during a period of time.
Following factors affect the market demand of a commodity:

1. Own price of the commodity.
2. Price of substitute goods.
3.  Income of the consumer.
4. Tastes and preferences of consumers.
5. Population size/number of buyers
6. Distribution of income.
7. Price of complementary goods.

Question.11. Explain the conditions of producer’s equilibrium.
Answer. Producer’s equilibrium refers to the level of output of a commodity. , which gives maximum profit to the producer of that commodity.
The two conditions of Producer’s equilibrium under MC = MR approach are:
(i) MC = MR (Marginal Cost = Marginal Revenue).
(ii) MC > MR after the “MC = MR” Output level.
Explanation:
(i) MC = MR. MR is the addition to total, revenue (TR) from sale of an additional unit of output and MC is addition to total cost (TC) for producing one more unit of output. Every producer aims to maximise its profit. Profits will increases as long as MR exceeds MC and will be maximum when MR = MC.
Equilibrium will not be achieved when MC < MR as it is still possible to increase profits by producing more. The producer will not be in equilibrium When MC > MR because then cost will be greater than benefit implying losses. Therefore, the firm will be in equilibrium only when MC=MR.
(ii) MC is greater than MR after “MC = MR” output level: – MC = MR is necessary but not sufficient condition to ‘equilibrium. This is because this condition may be achieved at more than one,output level. Therefore, only that output level is the equilibrium output when MC,becomes greater than MR after the equilibrium. This is because producing beyond that level would reduce profits. So, the first condition must be supplemented with the Second coneRtioru to attain producers equilibrium.
Or
What is the relationship between:
(a)Marginal revenue and Average revenue; (b) Total revenue and Marginal revenue
Answer. (a) Relationship between Marginal Revenue (MR) andAverage Revenue(AR):
(i) When price remains constant—In perfect competition, since price remains the same, the revenue from every additional unit (MR) is equal to AR. As a result
both AR and MR curves coincide in a horizontal straight line parallel to X-axis.
(ii) When price falls with rise in output—
• This means that AR falls with increase in sales.
• MR (i.e., revenue from every additional unit) will fee less than AR.
• Therefore, both AR and MR curves slope downwards from left to right.
• However, fall in MR is double than that in AR.
(b) Relationship between Total Revenue (TR) and Marginal Revenue (MR):
(i) When price no mains constant—As a result,MR curve is a horizontal straight line parallel to X-axis. As MR is constant, TR increases at a constant rate and is a positively sloped straight line starting from the origin.
(ii)When price falls with rise in output—
• As long as MR is positive, TR increases.
• When MR is zero, TR is maximum.
• When MR becomes negative, TR starts falling.

Question.12.Explain the law of variable proportions with the help of marginal product and total product curves.
Answer.The law of variable proportions explains, the relationship between input and output in die short period. K die short period, some factors are fixed and for increasing the output additional units of variable factors are employed. This law states that “as more and more units of variable inputs are employed, first output increases at increasing rate; after that it increases at decreasing rate and ultimately it fads.” Alternatively, marginal product first increases then it decreases and finally it becomes negative.
This can Tie better understood with The help of a schedule and diagram:

As can he seen from the schedule and diagram, when more and more units of the variable factor are employed then initially
– TP increases at an increasing rate, MP also increases
-TP increases at decreasing rate, MP falls but remains positive; and
-TP ultimately falls and MP becomes negative.

This relation can be discussed in the following three phases:
PHASE I
Increasing returns to a factor. In this phase, every additional variable factor adds more and more to the total output implying better utilization of the fixed factor and increase in efficiency of the variable factor. This raises the MP of the variable factor.
PHASE II
Diminishing returns to a factor. Now with increase in the quantity of the variable input, the amount of fixed input looks smaller than actually required to engage the increasing variable input. This reduces MP of the variable factor which however remains positive.
This phase ends at the 5th unit of variable input when MP become 2010.This phase starts at Point S and ends at Point P in the diagrams
PHASE III
Negative returns to a factor. In this-phase the quantity of the variable input becomes too big in relation to the quantity of fixed inputs. This reduces the efficiency of the variable input so much that MP becomes negative and TP starts from 6th unit on wards in the schedule and after point P in the diagram.
Note: The following Question is for the Blind Candidates only in lieu of Q.NO 12 Explain the law of variable proportions with the help of schedule.
Answer. As explained in the above question except diagram.

Question.13. Define consumer’s equilibrium. Explain its conditions under indifference curve- analysis.
Answer. Consumers equilibrium means maximum satisfaction level of the consumer at the given level of his income and prices of goods and services in the market.
Conditions of Consumer’s Equilibriums Let the two goods consumed X and Y, whose prices are \({ P }_{ x }\) and \({ P }_{ y }\)respectively. The two conditions of Consumers equilibrium under indifference curve analysis are:
(i) Marginal rate of substitution =Ratio of prices of die two goods
\(MR{ S }_{ xy }=\frac { { P }_{ x } }{ { P }_{ y } } \)
(ii)\(MR{ S }_{ xy }\) falls as more of good X is consumed in place of good Y. \(MR{ S }_{ xy }\) is the number of units of good Y that the consumer is willing to sacrifice, to obtain one extra unit of good X. \( \frac { { P }_{ x } }{ { P }_{ y } } \) is the ratio of prices that prevail in the market. It gives the actual number of units of good Y the consumer is required to sacrifice to obtain one extra unit of good X in the market.
Suppose \(MR{ S }_{ xy }>\frac { { P }_{ x } }{ { P }_{ y } } \)

• This means that to obtain extra unit of good X the consumer is writing to sentence more units of good Y than what is required to sacrifice in the market because He is getting more marginal utility from per unit consumption of X
• As he goes on consuming more units to X, \({ MU }_{ x }\) decreases.
• Therefore the consumer is willing to sacrifice less and less of good Y each time he obtains one extra unit of good X, In other Words \(MR{ S }_{ xy }\) declines.
• This process continues till \(MR{ S }_{ xy }=\frac { { P }_{ x } }{ { P }_{ y } } \)
  Suppose \(MR{ S }_{ xy }<\frac { { P }_{ x } }{ { P }_{ y } } \)
•  It means to obtain one extra unit of good X> the consumer is willing to sacrifice less units of good Y than what is required to sacrifice in the market because he is getting less marginal utility from per unit consumption of X.
• Therefore, he buys less and less of X.
•  As consumption of good X decreases, its marginal utility increases.
•  Thus \(MR{ S }_{ xy } \) increases. This process continues till \(MR{ S }_{ xy }=\frac { { P }_{ x } }{ { P }_{ y } } \).

Question.14. The market for commodity A is in equilibrium. The price of its inputs rises. Explain its chain of Effects on equilibrium price, quantity demanded and supplied with the help of a diagram.
Answer. Market for commodity A is in equilibrium at point E where the market demand curve DD and the market supply curve SS intersect so that OP and OQ are the equilibrium price and quantity respectively.Increase in the price of its inputs will increase the cost of production of the firms producing this commodity.Price remaining unchanged, increase in cost leads to fall in demand profits. So the producers are induced to supply ” less quantity of the goods at the same price. Therefore, total market supply will decrease to S1S1.

It will create excess.demand in the market equal to AE at the equilibrium price OP. This leads to competition between consumers leading to rise in price. Rise in price leads to fall in demand (contraction) and rise in supply (expansion). These changes continue till the market is in equilibrium again, but at a higher price-OP1 where the equilibrium quantity exchanged is less than before by Q1Q.
Note: The following Question is for the Blind Candidates only in lieu of Q. No. 14.
Give die meaning of ‘excess demand’ of a commodity. Explain its chain of effects on equilibrium price, quantity demanded and quantity supplied.
Answer. Excess of the quantity demanded of a good or service, at a given price, over its supply at that price is known as excess demand in Rest of the answer: Same as above.

SECTION B
Question.15. Which one of the following is a combination of direct taxes? (Choose the correct alternative)
(a) Excise duty and Wealth tax (b) Service tax and Income tax
(c) Excise duty and Service tax (d) Wealth tax and Income tax
Answer.(d) Wealth tax and income tax.

Question.16. State the components of money supply.
Answer. Components of money supply are—(i) Currency with the public; (ii) Demand deposits.

Question.17.Which of the To Showing statements is true?
(a)Fiscal deficit is die difference between total expenditure and total receipts.
(b) Primary deficit is the difference between total receipt and interest payments.
(c) Fiscal deficit is the sum of primary deficit and interest payment
Answer. (c) Fiscal deficit is the sum of primary deficit and interest payment

Question.18. Which of the following is not a flow? (Choose-the correct alternative)
(a) Capital (b) Income (c) Investment (d) Depreciation
Answer. (a) Capital

Question.19. Which of the following is hot a function of money? (Choose the Correct alternative)
(a) Medium of exchange (b) Price stability
(c) Store of value (d) Unit of account
Answer. (b) Price stability

Question.20. What is the relationship between:
(a) Average propensity to consume and average propensity to save.
(b) Marginal propensity to consume and investment multiplier
Answer.

Give the meaning of:
(i) involuntary unemployment, and
(ii) inflationary gap.
Ans. (i) Involuntary unemployment. It means’ that part of the labour force of the country which is able and willing to work at the prevailing wage rate’but cannot get jobs because of the economy’s inability to generate employment opportunities. They are . unemployed against their wish.
(ii) inflationary gap. When aggregate demand is greater than aggregate supply (i.e. AD > AS) at the full employment level of income, the gap between the two is called inflationary gap.

Question.21. Describe any three sources of demand for foreign exchange.
Answer. Demand for foreign exchange is caused due to: –

1. Imports. Governments need foreign exchange to make payments for imports of goods and services.
2. Purchase of financial assets abroad. Foreign exchange is also demanded by those who wish to make investments in foreign countries.
3. Sending unilateral transfers. Foreign exchange is needed, for making transfer payments to other countries in the form of gifts or, remittances.

Question.22. S = -100 + 0.2Y is the saving function in an economy. Investment expenditure is 5,000 Calculate the equilibrium level of income.
Answer.

Question.23. From the following data, calculate Net Value Added at factor cost.

Answer.

Question.24. Distinguish between intermediate goods and final goods. Give an example of each.
Answer.

Or
Explain the circular flow of income.
Answer. See (Comptt. I Delhi).

Question.25. Distinguish- between autonomous and accommodating transactions of balance of payments account. Explain the significance of this distinction.
Answer.

Significance of this distinction. Autonomous transactions are the reason for the imbalance in BOP (BOP surplus or BOP deficit) which is restored through Accommodating transactions undertaken by the Central Bank of our country. Therefore, the magnitude of accommodating transactions is determined by the autonomous transactions.

Question.26. Explain the need for reduction in inequalities of income and wealth. Explain any two budgetary measures by which it can be done.
Answer. The distribution of income and wealth is highly unequal in under developing countries like India. Caught in the vicious circle of poverty, the poor with fewer Skills and resources at their disposal are unable to bridge this economic divide. Without help from the government the poor will become poorer over time arid their standard of living will worsen. The economy will also suffer as the capacity of a large part of the workforce will remain underutilized. The government can bridge this economic divide with the help of its revenue and expenditure policy:
— The government can influence distribution of income by increasing the tax on incomes of the rich and on the goods consumed by the rich people. It can also reduce the taxes on lower income groups. This will bridge the difference between the disposable incomes of the higher income and lower income groups.
— The amount collected through taxes can be used by the government for spending on welfare of the poor people. It can provide them with transfer payments, subsides and other free services like education and healthcare. This will have twin effects. First, it will increase their disposable income and second, it will increase their standard of living and thus increase their welfare.

Question.27. Describe any two main functions of a Central Bank.
Answer. The Central Bank is the apex institution of a country’s monetary system. Following are the two main function performed by it:
(i) Bank of issue. See Q. 23, 2015 (I Delhi).
(ii) Bankers Bank and Supervisor. See Q. See Q. 23, 2015 (I Outside Delhi).
Or
How do changes in Bank Rate affect the money supply in an economy? Explain.
Answer. Bank Rate is the rate of interest at which the Central Bank lends money to the commercial banks in emergency, acting as “lender of the last resort”. The purpose of change in bank r rate is to change the cost of borrowings from the Central Bank.
(i) An increase in the bank rate increases the cost of borrowings from the Central Bank. Therefore, if the Central Bank increases the bank rate, the commercial banks also increase the rates at which they lend to the public and business firms. It makes borrowings by the people costly. This will discourage them to take loans. This also reduces the ability of commercial banks to create credit. Thus volume of credit and money supply will decrease in the economy.
(ii) A decrease in the bank rate will reduce the cost of borrowings of commercial banks from the Central Bank. The commercial banks will, further reduce their lending rates increasing the volume of credit and money supply in the economy. The decrease in bank rate induces the people to borrow more from the bank and this will have a ! positive effect on the money supply.

Question.28. Explain the changes that take place when aggregate demand and aggregate supply are not equal.
Answer. See Q. 32, 2014 (I Delhi).

Question.29. Calculate (a) national income and (b) gross national disposable income.

Answer.

SET II

Note: Except for the following questions, all the remaining questions have been asked in Set-1.
SECTION A
Question.4. Explain the problem of%For whom to produce’.
Answer. See Q. 6, 2014 (I Delhi).

Question.7. Why is average revenue curve of a firm parallel to the X-axis in a perfectly competitive market? Explain.
Answer. In perfect competition, since price remains constant, more quantity can be sold at-the same price. This implies that total revenue (TR) will increase at a constant rate and average revenue (AR) will also be constant throughout and will be equal to marginal revenue (MR). As a result, AR and MR curves will coincide in a horizontal straight line parallel to the X-axis.
Or
Explain the significance of ‘large number of buyers’ feature of a perfectly competitive market.
Answer. See Q. 7,2015 (I Delhi).

Question.8. State whether the following statements are true or false. Give reasons for your answer:
(i) When total revenue is constant, average revenue falls.
(ii) When marginal product falls, average product will also fall.
Answer. (i) True. Average Revenue (AR) is calculated by dividing Total Revenue (TR) with tire total output. We know, TR =\( \frac { AR }{ Q } \). As total revenue is constant, therefore with increase in output, average revenue will fall.
(ii) Fake. When marginal product (MP) falls due to diminishing returns to a factor, average product (AP) may rise so long as MP is greater than AP.

Question.14. The market for commodity X is in equilibrium. The prices of its inputs fall. Explain with the help of a diagram its chain of effects on equilibrium price, quantity demanded and quantity supplied.
Answer. Market for good X is in equilibrium at point E where the market demand curve DD and the market supply curve SS intersect at the point E so that OP and OQ are the equilibrium price and quantity respectively. Fall in the prices of inputs of commodity X will decrease the cost of production of firms producing this commodity. Price remaining the same, decrease in cost will lead to increase in profits. So, the producers will be induced to increase supply of good X at the same price which will increase the total market supply shifting the supply curve rightwards to S1S1. This will create excess supply-4n the market (equal to EA) at the equilibrium price OP. Competition amongst the sellers will reduce the price. Decrease in price will increase demand (expansion) and reduce supply (contraction). These changes continue till the market is in equilibrium (E1) again at a lower equilibrium price (OP1) and higher equilibrium quantity (OQ1).

Note: The following Question is for the Blind Candidates only in lieu of Q. No. 14.
Explain the chain of effects of excess supply of a commodity on its equilibrium price, demand and supply.
Answer. Market for a commodity is in equilibrium at point E where the market demand curve DD and the market supply curve SS intersect at the point E so that OP and OQ are the equilibrium price and quantity respectively.
Excess supply means market supply exceeds market demand at a price, which is greater than the equilibrium price.

— Excess supply leads to competition between sellers, which will lead to fall in price.
— Fall in price leads to rise in demand (expansion of demand) and fall in supply (contraction of supply) as indicated by the arrows.
— Price will continue to fall till excess supply is wiped out. This happens because price will decrease to a level where market demand becomes equal to market supply (OQ) and equilibrium price of OP is attained.

SECTION B
Question.20. What is the relationship between:
(a) Marginal propensity to save and marginal*propensityTo consume,
(b) Marginal propensity .to save and investment multiplier.
Answer.


Give the meaning of:
(a) Autonomous consumption, and
(b) Full employment
Answer. (a) Autonomous consumption. It is the consumption expenditure at zero level of income.
It happens because people need to fulfill their basic wants to sustain themselves, even if income is zero. Autonomous investment is also called as independent investment because it does not relate to the level of income; the factors affecting it are other than ‘ the income.
(b) Full employment. It refers to a situation in which all those people, who are willing and able to work at the existing wage rate, get work without any undue difficulty. In other words, it is the situation where the number of job seekers are nil.

Question.21.Describe any three sources of supply of foreign exchange.
Answer. Sources of supply of foreign exchange:

1. Supply of foreign exchange comes through exports of goods and services.
2. Foreign exchange flows in through gifts and other remittances from abroad.
3. Foreign investments in the home country also increases the supply of foreign exchange.

Question.22. Calculate the equilibrium level of income in the economy.
C = 500 + (0.9)Y
Investment expenditure = 3000
Answer.

Question.29. Calculate (a) net national product at factor cost and (b) net national disposable income:

Answer.

SET III

Note : Except for the following questions, all the remaining questions have been asked in Set I.
SECTION A
Question.4. Why do central problems arise? Explain.
Answer. Central problems arise because of scarcity of resources, i.e., limitation of supply in relation to demand.
The three main reasons for existence of central problems are:

1.  Scarcity of resources. Resources are limited in relation to their demand and economy cannot produce all what people want.
2. Unlimited human wants. Human wants also differ in priorities.
3. Alternate uses. Resources can be put to various uses which is why the problem of choice arises.

Question.7. Distinguish between perfect and imperfect oligopoly.
Answer. Perfect oligopoly. If the firms produce homogeneous products, then it is called perfect oligopoly, Example, cement, steel producing industries, etc.
Imperfect oligopoly. If the firms produce differentiated products, then it is called imperfect oligopoly, Example, cars, soft drinks, etc.
Or
Why is average revenue curve negatively sloped under monopolistic competition? Explain.
Answer. Monopolistic competition is characterized by product differentiation which implies presence of close substitutes. So in order to increase its sales, a firm will have to lower its price. Therefore, AR falls as more is produced and sold. This makes the AR curve downward sloping throughout.

Question.8. Explain the relationship between marginal cost and average variable cost.
Answer. Relationship between MC and average variable cost (AVC):

1. When AVC is falling, MC is less than AVC.
2. When AVC is minimum, MC is equal to AVC.
3. When AVC is rising, MC is more than AVC.

Question.14. X is a normal good for its consumers. Their income increases. Explain its chain of effects on equilibrium price, demand and supply of X. (use diagram)
Answer. Normal goods are those goods whose demand increases with an increase in the income of the consumer. Being a normal good, demand for good X will increase as consumer’s income increases. This will shift the demand curve of good X towards right from DD to D1D1. When demand increases, it creates a situation of excess demand (EA) at the old equilibrium price of OP. This leads to competition amongst buyers which increases the price. Increase in price leads to rise in supply and fall in demand. These changes continue till new equilibrium is established at point E1 where equilibrium price rises from OP to OP1 and equilibrium quantity rises from OQ to OQ1.

Note: The following Question is for the Blind Candidates only in lieu of Q. No. 14.
Explain the chain of effects of “decrease” in supply of a commodity on its equilibrium price, demand and supply.
Answer. Initially, market of a good (say X) is in equilibrium at point E where the market demand curve DD and the market supply curve SS intersect each other. Where OP and OQ are the equilibrium price and quantity respectively.

Now, there is decrease in supply of commodity X, which means less quantity supplied at the same price.
• Due to decrease in supply, the supply curve shifts to the left to S1S1. This creates excess demand (equal to EA) at the given equilibrium price OP.
• The excess demand leads to competition between consumers causing price to rise.
• Rise in price leads to fall in demand (contraction of demand) and rise in supply (extension of supply) as indicated by the arrows.
• These changes continue till the market reaches new equilibrium at point E1 with a higher equilibrium price at QP1 but lower equilibrium quantity at OQ1

SECTION B
Question.20. Give the meaning of investment multiplier and aggregate supply.
Answer. Investment multiplier. It explains how many times the income increases as a result of an increase in investment. Investment Multiplier (k) is the ratio of increase in national income (\(\Delta Y\)) due to an increase in investment (\(\Delta I\)).
\(\quad \therefore \quad K=\frac { \Delta Y }{ \Delta I } \quad \)
Aggregate Supply (AS). AS refers to the money value of goods and services that all the producers are willing to supply in an economy in a given time period. Also the value of total output is distributed amongst factors of production in the form of rent, wages, interest and profit. The sum total of these factor incomes at domestic and national level is called National Income.
Aggregate Supply = National Income
Or
Give the meaning of aggregate demand arid full employment.
Answer. Aggregate Demand (AD). AD refers to the total value of final goods and services which all the sectors of an economy are planning to buy at a given level of income during a period of time. It also refers to the planned aggregate expenditure in the economy.
Full employment Full employment refers to a situation in which all those people who are willing and able to work at the existing wage rate, get work without any undue difficulty. In other words, where the number of job seekers is nill.

Question.21. Explain the effect of rise in price of foreign currency on exports.
Answer. Rise in price of foreign currency implies that the domestic currency has depreciated. It means that one unit of foreign currency is worth more rupees than earlier. So one unit of foreign currency can now buy more goods and services from India, which will increase our exports.

Question.22. Calculate equilibrium level of income:
(a) Autonomous consumption = 200
(b) Marginal propensity to consume = 0.9
(c) Investment expenditure = 1000
Answer.

Question.29. Calculate (a) national income and (b) net national disposable income.

Answer.

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