# Plus Two Economics Model Question Paper 2

## Kerala Plus Two Economics Model Question Paper 2

Time: 2½ Hours
Cool off time : 15 Minutes

General Instructions to candidates:

• There is a ‘cool off time’ of 15 minutes in addition to the writing time of 2½ hrs.
• Your are not allowed to write your answers nor to discuss anything with others during the ‘cool off time’.
• Use the ‘cool off time’ to get familiar with the questions and to plan your answers.
• Read questions carefully before you answering.
• All questions are compulsory and only internal choice is allowed.
• When you select a question, all the sub-questions must be answered from the same question itself.
• Calculations, figures and graphs should be shown in the answer sheet itself.
• Malayalam version of the questions is also provided.
• Give equations wherever necessary.
• Electronic devices except non programmable calculators are not allowed in the Examination Hall.

Answer all questions from 1 to Qno 14

Question 1.
Who is known as the father of modem macro economics

b. J.M Keynes
c. Alfred marshall
d. J.B say

Question 2.
If the demand curve is a rectangular hyperbola, elasticity is

a. Zero
b. One
c. Less than one
d. Infinity

Question 3. Observe the diagram

Commend on the given demand curve

Question 4.
Which of the following cost will be zero when production is stopped?

a. Average Fixed Cost
b.Total Cost
c. Fixed Cost
d. Variable Cost

Question 5.
Match column A with column B

Question 6.
The Elasticity of Demand for a product is found at ‘A’, State which degree of elasticity is this. Justify your answer.

Question 7.
The market demand function and market supply functions are given as find the equilibrium price and equilibrium quantity.

Question 8.
How is GNP deflater calculated? If the real GNP and nominal GNP are RS 5000 crores and 7000 crores respectively. Calculate the GNP deflators.

Question 9.
Classify the followings into tax revenue and non-tax revenue. Personal income tax, Excise duty, Import duty, License fee, Surplus from public enterprise, Escheat.

Question 10.
Fill in the blanks:
I.____= Revenue Expenditure – Revenue Receipts.
II. Primary Deficit = _______Net Interest Liabilities.

Question 11.
Write the economic term for the following:
a. The situation when people become more thrifty, the economy will end-up savingless.
b. The receipts of the Govt.which create liability or reduce financial assets.

Question 12.
Provide appropriate terms for the following statements.
a. Upper limit on the price of a good imposed by government.
b. The government imposed lower limit on the price of a good.

Question 13.
Identify the following curve

Question 14.
Draw the demand curve of a firm under monopolistic competition.

Write any Six Questions from Q.No 15 to 21, Each carry 3 score.

Question 15.

The digraph shows the aggregate demand in an open economy. Derive the findings from the diagram

Question 16.
Find the odd man out and justify your answer
a. Homogeneous products, free entry and exit, perfect knowledge about market condition, price maker.
b. Hemogeneous product, freedom of entry and exit, large number of buyers and sellers, product differentiation.
c. MC = MR, MR = AFC, MC cuts MR from below, P=AC
d. Technological progress, input price, unit tax, income tax

Question 17.
Two different production possibility curves at two different situations are given below. The first one is supposed to be the PPC of India just before Kargil war. The second one is the PPC of Indonesia just before Tsunami 2004.

a. Draw the change in PPC of India during Kargil War.
b. Draw the changes in PPC of Indonesia after Tsunami.
c. Give reasons for both changes.

Question 18.
Short run MC and AC curves are U-shaped. Write down any three relationships between MC and AC.

Question 19.
Write down the national income identify for an open economy with due explanation of the terms used.

Question 20.
Under oligopoly the output decision of any one firm necessarily affect the price and quantity sold by other firms. Hence the rivals may react to protect the profit. List the three different ways in which oligopoly firms may behave.

Question 21.
Complete the following table and plot TVC, TFC, TC curves.

Answer any 4 questions from Q.No 22 to 27 Each Questions carry 5 Score.

Question 22.
The market price of a goods changes from Rs. 5 to 20. As a result the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output level of the firm.

Question 23.
Compute the total revenue, marginal revenue and average revenue schedules in the following table. Market price of each unit of the good is Rs.10.

Question 24.
Distinguish between the nominal exchange rate and real exchange rate. If you were to decide whether to buy domestic goods or foreign goods, which rate would be more relevant? Explain.

Question 25.
The following table shows the total cost schedule of a firm. Calculate TVC, AFC, AVC, SAC and SMC schedules.

(Hints: TVC = Total Variable Cost, AFC = Average Fixed Cost, AVC = Average Variable Cost, SAC= Short run Average Cost, SMC= Short run Marginal Cost.)

Question 26.
C = a + by is the consumption function, where C is aggregate consumption, a is autonomous consumption, b is MPC and Y is income. Suppose a = 20, b = Rs.0.8 a. Constant consumption function line in a graph at various income levels is given below.

b. Show where consumption equals income (break even point).
c. Mark negative saving and positive saving in the graph

Question 27.
Examine the diagram given below. Identify the mistake and redraw the diagram. What is the relation between Total Revenue and Marginal Revenue as the firm expands its output?

Question 28.
a. “Government interference on product price may create problem”. Do you agree with this statement. Substantiate your answer.
b. What will happen if the price prevailing in the market is : (a) above the equilibrium price (b) below the equilibrium price>

Question 29.
a. Given the reaction between business process re-engineering (BPR) and enterprise resource planning (ERP)
b. What is SCM
c. List the advantages of ERP implementation in an enterprises

Question 30.
a. Write a short note on commercial banking system in India
b. Briefly explain functions of commercial banks

J.M Keynes

One

Shift in demand/increase in demand

d) Variable Cost

Hint: e >1, Point A is above the mid point of the demand curve

Equilibrium price

200-p = 120+p
2p = 80
P = 80/2
P = 40

GNP Deflators

I. Revenue deficit
II. Fiscal deficit

a. Paradox of thrift
b. Capital receipts

a. Price ceiling
b. Price floor

i. TC Curve
ii. TVC Curve
iii. TFC Curve

• In the diagram AD is aggregate demand and AA is the import line.
• Import line AA is positively sloped showing that import increases with income.
• AA is flater than AD because as income increase some of the additional domestic demand falls on foreign goods
• Net exports are a decreasing function of income
• At ytb (‘tb’ stands for trade balance), the level of income at which the value of imports is equal to the value of exports.

a. Price maker, All others are features of perfect competition.
b. Product differentiation – All others are features of perfect competition.
c. MR = AFC. All others are conditions for firms equilibrium under perfect competition.
d. Income tax – All others are determinants of a firms supply curve

c. Puring the Kargil War India needed more 1 guns than butter. After Tsunami Indonesia needed more butter than guns.

i. When marginal cost (MC) is above average cost (AC), the average cost rises, that is, the marginal cost (MC) pulls the average cost (AC) upwards.
ii. When marginal cost (MC) stands equal to the average cost (AC), the average cost remains the same, that is the marginal cost pulls the average cost horizontally.
iii. If the marginal cost (MC) is below the average cost (AC); average cost falls, that is, the marginal cost pulls the average cost downwards.

National income identify for an open economy
In a closed economy, there are three sources I of demand for domestic goods – Consumption
I (C), government spending (G), and domestic investment (I).
We can write
Y = C + I + G
In an open economy, exports (X) constitute an additional source of demand for domestic goods and service that comes from abroad and therefore must be added to aggregate demand. Imports (M) supplement supplies in domestic markets and constitute that part of domestic demand that falls on foreign good and services. Therefore,the national Income identify for an open economy is
Y + M = C + I + G + X
Rearranging, we get
Y = C + I + G + X – M
or
Y = C + I + G + NX
Where, NX is net exports (exports – Imports).
A positive NX (with exports greater than imports) implies a trade surplus and a negative NX (with imports exceeding exports) implies a trade deficit.

If the market of a particular commodity consists of more than one seller but the number of sellers is few, the market structure is termed oligopoly. The special case of oligopoly where there are exactly two sellers is termed duopoly. We shall explain the different ways in which the oligopoly firms may behave.
Firstly duopoly firms may collude together and decide not to compete with each other and maximize total profits of the two firms together. In such a case the two firms would behave like a single monopoly firm that has two different factories producing the commodity.
Secondly, take the case of duopoly where each of the two firms decide how much quantity to produce by maximizing its own profit assuming that the other firms would not change the quantity that it is supplying.We can examine the impact using a simple example where both the firms have zero cost.
Thirdly, some economists argue that oligopoly market structure makes the market price of the commodity rigid, i.e. the market price does not move freely in response to changes in demand

P = Rs 5 P1 = Rs. 20
P = P1 – P = 20 – 5 = 15
Q = 15 Units
Es = 0.5, Q = ? and Q1 = ?
$${ E }_{ S }=\frac { \Delta Q }{ \Delta P } \times \frac { P }{ Q }$$
0. 5 = 15/5 x 5/Q Or
0. 5 = 5/Q, 0.5 x Q = 5,
Q1 = 5/0.5 = 10
Q1 = Q + ∆Q
= 10 + 15 = 25
Initial output = 10 units
Final output level = 25 Units

The price of one currency in terms of the other is called the exchange rate. The exchange rate expressed in terms of money is called nominal exchange rate.

Where e is the one currency price of other currency (ie, nominal exchange rate) P and Pf price levels in two countries
Real exchange rate would be more relevant to buy domestic goods or foreign goods. It is because it protect the business partners from inflation in both the countries.

A. No, I do not agree with this statement completely because, there were no consequences if the government avoids the market interference of the outside agencies. However, today’s markets are beyond the controls of government. Therefore, the following adverse consequences on the consumers may happen
a. Each consumer has to stand in long ques to buy the goods from ration shops
b. Since all consumers will not be satisfied by the quantity of the goods that they get from the fair price shop, some of them will be willing to pay higher price for it. This may result in the creation of black market

B.a. In this case, many more firms will enter the market releasing that they can earn higher profit here than else where as a result, prevailing price there will be excess supply in the market. This excess supply will lower the market price and the market price will be equal to equilibrium price.
b. In the case many firms who are incurring losses will exit the industry. As a result at a prevailing prices, there will be excess demand will raise the market price will be equal to equilibrium price.

Before implementing ERP we need to conduct a BPR to determine the changes in the structure of business process. This helps to an enterprise to avoid unnecessary modules in ERP. But all BPR may not lead to the implementation of new ERP.

Supply Chain Management (SCM). It consists of all activities associated with moving goods from the supplier to the customer. It begins with collecting raw material and ends with delivering goods to customer. SCM aim to fast delivery of goods to customers thus increase the customer satisfaction.

1. Improved resource utilization. An enterprise can plan and manage resources effectively by installing ERP software. It reduces the wastage of resources and increases better resource utilization.

2. Better customer satisfaction. Customer satisfaction helps to meet customer needs for a product or service. ERP helps to give customer more importance without spending more time and money.

3. Provides accurate information. ERP provides information needed for future planning and management of enterprise.

4. Decision making capability. Information helps to make decision. This helps to overcome other competitors in business.

5. Increased flexibility. ERP system helps to increase flexibility of an organization. Thus it can adapt to changes. It makes information available without any barrier.

a. A commercial bank is an institution that accepts deposits from public and are with draw able by cheque and used for lending.
b. The function of commercial banks are a follows:
Primary functions, Secondary functions Development functions.
Primary functions .
This is the most traditional and significant function of commercial bank. They normally accept 3 types of deposits from public (1) Demand /current deposit (2) Savings deposit (3) Fixed/term deposits.
Commercial banks lend credit to the needy against security namely physical assets, salary certificates, proof of credit worthiness etc. The various types of credits are cash credit, cash loans, term loan over draft.
Bill of exchange is a short dated security issued to finance foreign trade. The costumer pays an exporter not in cash but with a bill payable within 3 – 6 months. This can be sold to a commercial bank by the exporter. The bank deducts an amount as its commission for encashing the bill immediately.
When commercial banks advance a loan to a customer a credit account is opened in his name to withdraw the required sum by cheques. In this way bank has created an account which is similar to a deposit. How such a deposit helps the process of credit creation in the banking system is explained
Investment
Banks are also required by law to invest a below part of their funds in approved securities and government securities. Such investments are helpful into two ways.
1. Banks can get income from their surplus funds.
2. Encashability of securities is higher than that of loans
Secondary functions
This can be further classified into agency functions and general utility functions, (a) Agency functions are those functions performed by the bank to its customers as their agent for a commission.
Developmental Functions
It includes :
Low interest loans to weaker sections of the society.
Self employment loans for unemployed.
Loans for rural development.
Infrastructure development
Educational purposes.