Download SECTION -A Ans. (a) Cash Credit

SECTION -A
Q 1 (a) What are the chief methods of lending available to commercial banks?
Ans. (a) Commercial banks can lend money in various ways such as :(i) Cash Credit : Where debtor is allowed to with draw a certain amount on a given
security and interest is charged only on the amount actually withdrawn.
(ii) Over Draft : Where clients having current account with the bank are allowed to
withdraw more money than is lying in their account.
(iii) Loans : Where clients are allowed to withdraw a fixed amount any time and interest
is charged on whole amount.
(iv) Discounting of Bill of Exchange : Where banks give advance to their client on the
basis of maturity of bill of exchange and charges discount.
Q 1 (b) Give two characteristics of the Green Revolution.
Ans. (b) A Green revolution is a revolution both in quantum of agricultural input and
output.
(i) Increase in Production : There is significant increase in production of food grains at
a very fast rate and production came to 950 Lac tons in the year 1955-56.
(ii) Economic Development : Before Green Revolution the important of agriculture in
economic development was not realized. But Green Revolution wiped out all these
illusions.
Q 1 (c) Define the role of capital in production.
Ans. (c) Capital is the produced means of production. Capital plays an important role in
production which can be explained as below :(i) Economic development is not possible without sufficient capital stock such as
machinery, factory, equipment etc.
(ii) Capital helps in providing employment to the people.
(iii) Production in not possible without capital. Capital helps in increasing the production.
Q 1 (d) Mention two features of a mixed economy.
Ans. (d) Mixed economy is an economy where features of socialistic and capitalistic
economy co-exist.
Features :(i) Both Government and Private Sector :- In this economy both the sector private and
public are engaged in production and other economic activities. Some areas are reserved
only for the Government but in some areas any sector can work.
(ii) Control and Relaxation :- In some areas entrepreneurs are free to produce what ever
they like and charge any price, they want. But in some areas government makes use of
strict controls over product, price, distribution etc.
Q 2 (a) Distinguish between Simple and Complex Division of Labour.
Ans. (a) Division of labour is a technique to divide the complicated work into smaller
parts. It may be of two types :(i) Simple : In this type of division of labour, the labourer does only one kind of job and
depends on others for meeting other requirements. Such as - teachers, lawyers etc.
(ii) Complex : In this type of division of labour, a particular job is further divided into
many processes and each process is carried on by different workers. such as Manufacturing of a car is subdivided into many activities.
Q 2(b) Explain how division of labour is limited by the extent of the market.
Ans. (b) Division of labour is limited by the extent of market. If the size of market of a
product is small, demand for product will be less and so as the production. In such a case,
it will not be possible to go for complex division of labour as it may be expensive for
entrepreneur. But if the size of market of product is large, demand for product will be
high and so as the production. In such a case, production is done on large scale and it is
both - possible and profitable to go for complex division of labour.
Q 2 (c) How does rapid growth of population aggravate the food problem ?
Ans. (c) Food problem arises only when the supply of food grains falls short of demand
for food grains.Rapid growth of population aggravates the food problem. During the last
forty years, population has increased at a faster pace than production. As a result there are
crores of people looking for their life on handful crops. The continuous growth of
population is posing a serious threat to the country because this is main cause of food
shortage in India.
.
Q 2(d) Mention two causes for the low productivity of Indian agriculture.
Ans. (d) In India agricultural productivity is very low. Some of the factors responsible for
the low productivity can be explained as below :(i) Lack of Irrigation Facilities : In spite of vigorous programme of major and minor
irrigation works during the plans, only 29% of total sown area has the benefit of assured
irrigation.
(ii) Old Techniques of Production : Indian farmers are conservative, they are still using
old techniques of production which are inefficient. They do not adopt modern methods
which otherwise can enhance the productivity.
Q 3 (a) State the factors which determine the creation of savings in a country.
Ans. (a) "Saving is basically the non-consumption of income." - Peterson
Factors :(i) Will to save : When people have intense desire to save, they will save more and those
who do not want to save, will either save nothing or save very less.
(ii) Power to save : Power to save is the capacity to save and it depends on income
Higher the capacity to save, higher the chances of saving.
(iii) Facilities to save : If people have money to save and are ready to save but they do
not know where and how to save, they will not be encouraged to save. If the facilities to
save such as banking etc. are wide spread, people will be motivated to save.
Q 3 (b) Mention two factors which determine the supply of labour in a country.
Ans. (b) Supply of labour means number of people who are ready to work at a given
wage level.
Factors :(i) Size and Growth of Population : When in a country birth rate is very high and depth
rate is very low, then population will grow faster and supply of labour will increase.
(ii)Migration and Immigration : When the tendency of migration and immigration
increases, supply of labour decreases.
Q 3 (c) State any two drawbacks of State enterprises.
Ans. (c) State enterprises are those enterprises which are owned by state.
Drawbacks :(i) Bureaucracy : The administration of public enterprises remains in the hands of paid
officials who shirk responsibility and are influenced by political persons, they work in a
bureaucratic manner.
(ii) Red Tapism : State enterprises do not get any share out of profit of the enterprise,
these are rot with worst type of Red tapism , corruption, favoritism etc. which hinder the
progress of these enterprises.
Q 3 (d) Give two features of sole proprietorship.
Ans. (d) When a business unit is owned and managed by a single individual, its owner, is
known as the sole proprietor.
Features :(I) Entity : In sole proprietor there is no difference between ownership and management
as the owner himself manages the business.
(ii) Unlimited Liability : In sole proprietor, the liability of proprietor is unlimited. In
case, there is loss in business, he may have to sell his property to clear the debt and other
obligations of business.
Q 4 (a) Differentiate between Sunk Capital and Floating Capital.
Ans.4 (a) Capital is the produced mean of production.
(I) Sunk capital is the capital which can produce only one commodity and can't be put to
various uses. Such as :-In the ice factory, machines and buildings used to produce ice
can't be used in production of anything else. So, these are sunk capital.
(ii) Floating capital is the capital which can be put to alternative uses. such as :- money,
fuel, etc.
Q 4 (b) Give two factors that show the importance of agriculture for industrial
development.
Ans. (b) Agriculture plays on important role in industrial development which can be
explained as below :(I) For industrial development, there is need to buy latest machinery etc. from foreign
countries. For this foreign exchange is required which can be acquired through export of
agricultural goods.
(ii) More over some of the industries use agricultural products as inputs. such as : Textile
industry is based on cotton, Sugar industry is based on sugar cane which are agricultural
products.
Q 4 (c) Mention two advantages of a bank account.
Ans.4 (c) Bank accounts are just like having money in hand as one can withdraw money
whenever required and make use of it, More over bank interest is additional advantage to
have money in bank account. Additional facilities, such as : Bank overdrafts etc. are to be
provided only to the industrialists having bank account . So, it is better to have a bank
account.
Q 4 (d) Examine any two major problems of the Jute Industry in India.
Ans.4 (d) Jute industry is facing many problems in India. Some of them can be
explained as below :(I) Shortage and irregular supply of raw material : Raw material of jute industry is
agricultural product which requires special environment to grow. It is being sown only in
selective areas in India. But demand for jute is very high. Shortage of good quality of jute
hampers the growth of jute industry.
(ii) Competition : Jute industry is also facing a problem of world wide competition not
only from other producers of jute but also from it's substitutes. Such as - Artificial fiber.
SECTION - B
Answer any four questions from this Section.
Q 5 (a) What is the meaning of "land" in economic terms ? Discuss any four
peculiarities of land as a factor of production.
Ans. 5 (a) Land is the primary factor of production because land is needed for starting
any type of production.
Definition :"By land means the material goods and the resources which 'nature' gives freely for
man's aid, in land and water, in air and light and heat"- Marshall
Peculiarities :(I) Fixed supply : Total land supplied by nature can not be increased. The only way to
increase its supply is to make intense use of land.
(ii) Free gift of nature : Land is free gift of nature. Man has paid nothing to God for this.
(iii) Indestructible factor : Land cannot be destroyed, but its shapes can be changed and
its productivity can also change.
(iv) Passive factor : Land is a passive factor of production because it cannot produce any
thing by itself and man has to invest money and apply labour to get production from it.
Q 5(b) Discuss the importance of Small Scale Industries and Cottage Industries in
the Indian economy.
Ans. Cottage and small scale industries play an important role in Indian economy which
can be explained as below :
(i) Equitable Distribution of Wealth : Growth of cottage and small scale industries has
resulted in a rise in the income of many people by providing them employment .It leads
to equitable distribution of wealth.
(ii) Labor intensive : These industries are labor intensive industries and provide
employment to a large number of people.
(iii) Mobilization of savings: Idle savings of Indians can be utilized in these productive
activities. These industries prove to be good means of mobilization of growing savings,
talent and skill.
(iv) Promote regional development : These industries can be started in all parts of the
country and these play a major role in bringing about the proper regional development in
the country and the country needs it.
Moreover it helps in decentralization of urbanization, requires lesser capital and lesser
imports and technical knowledge and these industries provide finished goods in a shorter
period, which are very important in case of an underdeveloped country like India.
Q 6 (a) Explain briefly the meaning of efficiency of labor and state four factors
which determine the efficiency of labor.
Ans. (a) Efficiency of labor is quality or ability of a worker to produce more and better
quality of goods in a specified time under some given conditions.
Definition : "Efficiency of labor means the capacity of worker to produce."
Factors :
(1) Workers of cool temperature regions are more efficient then the workers of tropical
regions having hot and moist climate.
(2) People of some region are more efficient than others. Such as people of Punjab are
more efficient.
(3) A sincere, honest and intelligent worker is more efficient.
(4)Educated workers are more efficient.
(5)Modern and good quality machinery increases the efficiency of workers.
(6)Long hours of work decreases the efficiency of workers.
(7)Healthy working environment increases the efficiency of workers.
Similarly experience, favorable social and political situations, fair wages and timely
payment of wages etc increases the efficiency of labor.
Q 6 (b) What is meant by "agriculture labor" ? Give four reasons for the rapid
growth of agricultural labor in India.
Ans. (b) All those persons who derive a major part of their income as payment for work
performed on the farms of others, can be designated as agricultural labour.
Reasons for Rapid Growth of Agricultural labour :(i) Capitalist Agriculture :- Pricing Policy of Govt., abolition of intermediaries,
expansion of marketing have given rise to capitalist agriculture . A capitalist is in a
position to compel the small holders of land to lower their prices which forced them to
seek employment.
(ii) Increased Population :- During the last decade, population in India has increased at
a fast pace which has given rise to unemployment . The unemployed persons join as
agricultural labour to earn their livelihood
(3) Uneconomic Holdings :- The law of inheritance and decline of joint family system
resulted in sub-division and fragmentation of holdings and uneconomical which forced
small farmers to work on the farm.
(4) Increase in Indebtedness :- There has been increase in indebtedness of small
farmers. As they are unable to return the loan to money lenders, they are forced to work
as tenants or work as agricultural labour.
Q 7 (a) Describe the quantitative method of credit control adopted by the central
bank to control credit.
Ans. 7 (a) Policy of credit expansion and credit contraction is known as credit
creation. Policies of credit control are of two types quantitative and qualitative.
Quantitative Techniques :- Quantitative techniques are method of controlling the total
volume of credit with the help of bank rate , open market operation, change in cash
reserve ratio and Liquidity Ratio .
(1) Bank Rate :- Bank rate is the rate of interest at which the central bank rediscount the
first class securities of other banks. Whenever central bank wants to expand credit it
lowers the bank rate.
(2) Open Market Operations:- Open Market operation refers to the sale and purchase
of Government securities by the Central Bank in open market .When the central bank
wants to contract the credit, it begins to sell the securities in the open market. When the
central bank wants to expand credit, it begins to buy the securities in open market.
(3) Cash Reserve Ratio:- Cash reserve ratio specifies the percentage of their total
deposits, the commercial banks must keep with central bank . Higher the cash reserve
ratio, lower will be the capacity of the commercial banks to create credit . When central
banks wants to contract the credit , it increases the cash reserve ratio and when it wants
to expand the credit, it decreases the cash reserve ratio.
(4)Statutory Liquid Ratio:- This Ratio specifies the percentage of total deposits,
commercial banks must keep in liquid form such as cash. Higher the Ratio, the lesser will
be the capacity of commercial banks to create credit . When central banks wants to
contract the credit , it increases statutory liquid ratio and when it wants to expand credit,
it decreases the statutory Liquid Ratio.
Q 7 (b) What are the co-operative societies? Explain the three different ways in
which is co-operative are organized in India.
Ans. 7 (b) Co-operative societies are based on principle of self help through mutual help
and gave moral and human touch to commercial activities .
Definition:- " Co-operative organization is an association of weak who, gather
together for a common economic need and try to lift themselves from weakness into
strength through business organization." "Talmaki"
Types of co-operatives Societies:(1) Consumer's co-operative:- These societies are to be formed to supply consumer
goods of standard quality to their members at fair prices. The consumers of a locality or
town collect the necessary capital through share and start a consumer co-operative store.
(2) Credit co-operatives:- These societies are formed to render the financial help to their
members at reasonable rate of interest such as agricultural credit co-operative society etc.
(3) Industrial Co-operative societies :- Producers jointly form industrial co-operative
societies . They raise capital for society, elect the manager, undertake the risks, share
profit and loss.
(4) Co-operatives Housing societies:- These societies are formed to provide cheap
houses to the members.
Q 8 (a) How is a Joint Stock Company formed ? In what four respects does a Joint
Stock Company differ from a Partnership?
Ans. 8 (a) "A Joint Stock Company" is an artificial person created by law , having a
separate entity with a perpetual succession and a common seal."
Companies Act :-Steps in formation of a joint stock company
(1) Preparation of memorandum of association
(2) Preparation of article of association .
(3) Apply for Registration with Registrar of companies
(4) Certificate of Incorporation
Private company can go for commencement of business immediately after getting the
certificate of incorporation. But a public company has to undergo another two steps.
(5) Issue of prospectus.
(6) certificate of commencement of business .
S.No.
Criteria
Joint Stock
company
Liability
Limited
Entity
Separate legal entity
Minimum number
of members
7
1
2
3. .
4
Perpetual
succession
It is not being
affected by death of
its members
Partnership
Unlimited
Partnership and firm
are same thing with
respect to liability
2
It ends with the death
of its members
Q 8 (b) Discuss two objectives of land reform and give a brief account of tenancy
reforms in India.
Ans. 8 (b) Land reform measures are concerned with the abolition of intermediaries
under Zamindari system, improvement in the conditions of tenancy, ceiling on holding of
land and distribution of surplus land and consolidation of the small and scattered pieces
of land.
Objectives:
(1)The agrarian structure should not obstruct the growth of agriculture . It should rather
promote the growth of agriculture.
(2) The old land system should be replaced by a new one . The land system should be
free from exploitation.
Tenancy Reform:- It was being realized that even the abolition of intermediaries does
not necessarily mean abolition of tenants, because these intermediaries do not necessarily
cultivate the land themselves . Realising the seriousness of tenancy problem, elaborate
tenancy, legislation has been passed in almost all the states in recent years such as
mentioned below.
(1) Regulation of Rent :- Rent has been fixed at 1/6 of gross produce by the states of
Rajasthan , Gujrat and Maharashtra , at 1/4 of G.P in Bihar , between 1/4 and 1/6 of
gross product in Kerala etc.
(2) Security of Tenure :- The legislation provided that tenants can't be ejected so long
as they continue paying the rent. Maximum limit is fixed for self cultivation for land
owners.
(3) Conferment of ownership rights to tenant:- Some states have given to the tenants
the right to purchase their holdings to encourage the cultivators to work hard.
Q 9 (a) What is meant by subdivision and fragmentation of holdings ? Describe any
four causes for the subdivision and fragmentation of land holdings .
Ans 9(a) The term sub-division and fragmentation means, The land holdings are divided
into small pieces of agriculture lands scattered at many places" . It increases the cost of
the management of agriculture and makes the occupation of agriculture uneconomical .
The following causes are responsible for the sub-divisional and fragmentation of
land holdings :1) Law of Inheritance:- According to Hindu code bill and Muslim personal law , The
land of the father is distributed among the children equally. The process goes on
resulting in sub-divisional and fragmentation of land holdings.
2) Pressure of Population:- With the increase of population and due to the lack of
earning livelihood by the means other than land, puts pressure on land . Every one
demands his share resulting in subdivision and fragmentation of land holdings.
3) Decline of Joint family:- Every member wants to live separately with his family , so
the land is divided into smaller pieces. This happens due to the downfall of the joint
family system.
4) Rural Indebtedness:- Land is mortgaged to the money-lenders against loan
borrowed . In absence of repayment of loan , the land is taken away by the money
lenders .
Q 9 (b) Examine any four reasons for the importance of good transport in a growing
in economy like that of India .
Ans. 9(b) The good transport system is important for the growing economies like India ,
due to the following four main reasons :1. Movement of raw material, fuels and machinery :-With the help of efficient and
cheap transportation system, raw material, fuels and machinery etc. can be easily carried
to the place of producing units, where these are needed.
2. Increase in the mobility of labour :- A good transport system helps in the mobility
of labour . The underemployed and unemployed labour can get full employment.
3. Helps in national integration and human knowledge :- The good transport system
helps in national integration and human knowledge because people can easily exchange
their views by going from one place to another place.
4. More access to natural resources :- Development of the means of transportation will
make it easy to have a access to the remote places having stock of natural resources. It
will help the nation to grow at a faster pace.
Q 10 (a) What is Economic Planning ? Explain the reasons for the three Annual
Plans of 1966-'68, 1968-'69.
Ans. 10 (a) The planning is the process by which pre-determined goals are achieved by
allocating the available resources within a specific period of time. Therefore in planning
the following three points are emphasized .
•
•
•
The economic goals are determined.
Resources are allocated to achieve these goals in a given period of time .
Distribution
Definition :- "A scheme of economic organization in which individual and separate
units, enterprises and industries are treated as coordinated units of one single
system for the purpose of utilizing available resources to achieve the maximum
satisfaction of the people's need within a given time." Prof Lewis
Reasons for plan holiday:- The three annual plans were implemented after the failure of
the 3rd five year plan from 1966-67, 1967-68 and 1968-69. The main reasons of this plan
holidays are the following :1. Failure of IIIrd Five Year Plan :- The IIIrd five year plan failed badly to achieve its
pre-determined targets .
2. Failure of monsoon in the year 1965-66 :- Due to poor monsoon, the production in
agriculture sector fell down considerably which resulted in inflation in the economy.
3. Foreign exchange crisis :- The country faced the foreign exchange crisis and due to
this , the devaluation of Indian rupee took place in the year 1966.
Due to the above mentioned reasons, the govt .could not implement the fourth five year
plan in time and instead of that it introduced three annual plans.
Q 10 (b) Discuss any four functions of the Government in economic development.
Ans. 10 (b) The four functions of the govt. in economic development are given below :I Reduction in the Inequalities of Income and Wealth :- In most of the economies the
distribution of income and wealth is unequal. It is not a desired goals from the point of
view of the economies of welfare. It is true that the perfect equality of income and
wealth is not possible . The welfare govt. in the modern economies always try to achieve
the goal of equal distribution of income and wealth through the various measures like
taxation on higher income, public distribution in favour of poors. etc.
2. Full employment :- The full employment is that situation in the economy when the
involuntary unemployment is reduced to zero or to a minimum possible level. The govt.
tries to provide employment to all the working population in the economy. For the
achievement of this goal the govt. tries to increase the rate of capital formation which
always results in production oriented employment in the economy.
3. Improvement in the standard of living :- The main objective of the economic
development is welfare of the society. One of the criteria for measurement of the welfare
and economic growth is the improvement in the standard of living of the people for this
the real per capital income should go up in the society.
4. Social security :- People in developing countries have low income and feel insecure
due to this reason. In case of unemployment ,sickness or accident, they feel much
insecure. In case of the death of the earning hand in the family, family members feel
more insecure. The reasons given above forced the govt to come forward . The govt
should follow the method of social insurance schemes to improve social security in the
country specially for lower income people.
Q 11 (a) Discuss any four reasons to show that rapid industrialisation of our
country is essential.
Ans.11(a) Predominantly Indian economy is an agricultural economy therefore the rapid
industrialization is must for the economy due to the following reasons:1. To Increase the National Income :- The industrialization can provide a continuous
and secure basis for the rapid growth of income. Man by putting in more efforts can
increase production and hence income.
2. To Increase the Employment Opportunity :- In India too much population depends
on agriculture . The agriculture sector is marked by the seasonal and disguised
unemployment . The rapid industrialization can provide the employment to the surplus
labour from agriculture sector.
3. Increase the Capital Formation :- Due to increase in the industrialization, the
employment will increase , which resulted in the increase in the income and saving .
Increased saving will lead to increase in capital formation which will further lead to
faster economic growth.
4. Balanced Economy :- The increased industrialization will reduce the dependence on
agriculture. As a result there will be balanced growth of all the sectors in the economy.
Q 11 (b) What is fiscal policy ? How can fiscal policy be used for economic
development .
Ans. 11 (b). The fiscal policy is the budgetary or taxation policy which influences the
public expenditure and public revenue in the economy ,through taxation , public loan and
means of financing, the deficit budget and minting of new currency notes. It is used as a
weapon to stabilize the economy in the face of inflation or deflation.
The fiscal policy can help economic development in the following way :1. It increases the aggregate savings in the economy by applying the cuts in the private
and public consumption. Increase in saving increases capital formation.
2. It helps in directing the resources from less productive use to more productive uses
and from socially less desirable uses to more desirable uses.
3. The fiscal policy helps the economies by safe-guarding it against inflation.
4. The fiscal policy eliminates the sectoral imbalances arising in the economy from time
to time.
5. It helps in reducing the glaring economic inequalities by bringing about an equitable
distribution of income and wealth.