UP Board Class 12 Economics Question Paper with Answer Key and Solutions PDF (March 1, Code 329 BG)

Step 1: Understanding the Concept:

An economic activity is any action that involves producing, distributing, or consuming goods or services. The primary purpose of economic activities is to satisfy human wants and needs, and they typically involve the exchange of money.


Step 2: Detailed Explanation:

Let's analyze the given options:

(a) Consumption: This is the act of using goods and services to satisfy wants. It is the final stage of economic activity.

(b) Production: This is the process of creating goods or providing services. It's the starting point of most economic cycles.

(c) Exchange: This refers to the process of trading goods or services, usually for money. It connects production and consumption.


All three—production, exchange, and consumption—are fundamental components of the economic process. Therefore, they are all considered economic activities.


Step 3: Final Answer:

Since Consumption, Production, and Exchange are all core economic activities, the correct option is (D) All of these. Quick Tip: In economics, remember the three core activities: Production (creating), Exchange/Distribution (moving), and Consumption (using). If a question asks to identify an economic activity, look for options that fall into one of these categories.

Step 1: Understanding the Concept:

The law of demand describes the relationship between the price of a good and the quantity demanded by consumers. For normal goods, this relationship is inverse: as the price of a good increases, the quantity demanded decreases, and vice versa, assuming all other factors remain constant (ceteris paribus).


Step 2: Detailed Explanation:

A demand curve is a graphical representation of this relationship, with price plotted on the vertical (Y) axis and quantity demanded on the horizontal (X) axis.

- An increase in price (a move up the Y-axis) leads to a decrease in quantity demanded (a move to the left on the X-axis).

- A decrease in price (a move down the Y-axis) leads to an increase in quantity demanded (a move to the right on the X-axis).

When you connect these points on a graph, the resulting line slopes downwards from left to right. A downward-sloping line has a negative slope.


Step 3: Final Answer:

Therefore, the demand curve for normal goods shows a negative slope, reflecting the inverse relationship between price and quantity demanded. The correct option is (B). Quick Tip: Remember "Demand Down": The Demand curve for normal goods is always Downward sloping. This visual cue helps to quickly recall the negative relationship between price and quantity demanded.

Step 1: Understanding the Concept:

Indifference curve analysis is a tool in microeconomics used to study consumer behavior. It shows various combinations of two goods that provide a consumer with an equal level of satisfaction or utility.


Step 2: Detailed Explanation:

The concept of indifference curves was originally developed by Francis Ysidro Edgeworth in 1881 and later refined by Vilfredo Pareto in 1906. However, the modern, comprehensive form of indifference curve analysis was propounded and popularized by Sir John R. Hicks and R.G.D. Allen in the 1930s. Among the given options, Hicks is the correct choice as he was a key figure in developing this theory into its current form.

- Alfred Marshall is known for the cardinal utility approach.

- A.C. Pigou is known for his work in welfare economics.

- Lionel Robbins is known for his definition of economics based on scarcity.


Step 3: Final Answer:

Given the options, J.R. Hicks is the economist credited with propounding the modern indifference curve analysis. Thus, option (C) is correct. Quick Tip: Associate economists with their major contributions. For indifference curves, the key names to remember are Hicks and Allen, who developed the modern ordinal utility approach, as a refinement of earlier work by Edgeworth and Pareto.

Step 1: Understanding the Concept:

Factors of production are the inputs or resources used in the production process to create goods and services. These are the fundamental building blocks of an economy.


Step 2: Detailed Explanation:

Classical and neoclassical economics identify four main factors of production:

1. Land: This includes all natural resources, such as land itself, minerals, forests, and water. The payment for land is rent.

2. Labor: This refers to the human effort—physical and mental—used in production. The payment for labor is wages.

3. Capital: This includes man-made goods used to produce other goods, such as machinery, tools, and buildings. The payment for capital is interest.

4. Entrepreneurship: This is the skill of combining the other three factors to create a business, innovate, and take risks. The reward for entrepreneurship is profit.


While some modern theories suggest additional factors like technology or information, the standard and most widely accepted answer in economics is four.


Step 3: Final Answer:

There are four primary factors of production. Therefore, option (B) is the correct answer. Quick Tip: A simple acronym to remember the four factors of production is \textbf{CELL}: Capital, Entrepreneurship, Land, and Labor. This helps recall them quickly during an exam.

Step 1: Understanding the Concept:

In business and economics, costs are divided into two main categories: fixed costs and variable costs.
Fixed Costs are expenses that do not change with the level of production or sales. They have to be paid even if the company produces nothing. Examples include rent, salaries of administrative staff, insurance, and interest payments on loans.

Variable Costs are expenses that change in direct proportion to the level of production. Examples include raw materials, direct labor wages, and electricity used for production.


Step 2: Detailed Explanation:

Let's analyze the options:

(A) Electricity bill: This is typically a variable cost (or semi-variable) because more production usually requires more electricity.

(B) Expenses on raw material: This is a classic variable cost. The more you produce, the more raw materials you need.

(C) Wages: This can be either fixed (e.g., monthly salaries for managers) or variable (e.g., hourly wages for production workers). However, it is not always a purely fixed cost.

(D) Interest on fixed capital: Fixed capital refers to assets like machinery and buildings. The interest on loans taken to purchase this capital is a fixed payment that must be made regardless of production levels. This makes it a clear example of a fixed cost.


Step 3: Final Answer:

Among the given options, interest on fixed capital is the clearest and most definitive example of a fixed cost. The correct option is (D). Quick Tip: To identify a fixed cost, ask yourself: "Does this cost have to be paid even if the company shuts down production for a month?" If the answer is yes (like rent or interest on a loan), it's a fixed cost.

Step 1: Understanding the Concept:

In a federal system like India, the power to levy taxes is divided between the central, state, and local governments as defined by the Constitution. Direct taxes, such as income tax, and indirect taxes form the main sources of government revenue.


Step 2: Detailed Explanation:

In India, the authority to levy income tax (on income other than agricultural income) is vested with the Central Government. This is specified under the Constitution of India. The Income Tax Act, 1961, governs the imposition of income tax. The Central Board of Direct Taxes (CBDT), which is a part of the Ministry of Finance, is responsible for the administration of direct taxes, including income tax.

- State Governments have the power to levy taxes on agricultural income, stamp duty, state excise, etc.

- Local Governments (like municipalities) levy property taxes, water taxes, etc.


Step 3: Final Answer:

Therefore, the income tax is imposed by the Central Government. The correct option is (A). Quick Tip: Remember that major, nationwide taxes like Income Tax and Goods and Services Tax (GST, with its dual components) are primarily under the control of the Central Government in India, while states handle more localized taxes like VAT on alcohol and stamp duty.

Step 1: Understanding the Concept:

The Bank Rate (or discount rate) is the interest rate at which a nation's central bank (like the Reserve Bank of India) lends money to commercial banks. It is a key tool of monetary policy used to manage the money supply, control credit, and stabilize prices. Inflation refers to a sustained increase in the general price level of goods and services in an economy.


Step 2: Detailed Explanation:

To control high inflation, the central bank aims to reduce the money supply and curb spending in the economy. This is achieved through a contractionary (or tight) monetary policy.

- The central bank increases the Bank Rate.

- This makes borrowing from the central bank more expensive for commercial banks.

- Commercial banks, in turn, increase their own lending rates for loans to businesses and individuals.

- Higher borrowing costs discourage spending and investment, reducing the overall demand for goods and services.

- This reduction in demand helps to slow down the rate at which prices are rising, thereby controlling inflation.


Conversely, to combat a recession, the central bank would decrease the bank rate to encourage spending.


Step 3: Final Answer:

To control inflation, the central bank increases the Bank Rate. The correct option is (A). Quick Tip: Think of it this way: \textbf{Inflation is like an overheating engine}. To cool it down, you need to apply the brakes. Increasing the bank rate is like applying the brakes on the economy—it slows down borrowing and spending.

Step 1: Understanding the Concept:

In Keynesian economics, any change in disposable income (\( \Delta Yd \)) is either consumed or saved.
- Marginal Propensity to Consume (MPC) is the proportion of an additional unit of income that is consumed. \( MPC = \frac{\Delta C}{\Delta Yd} \).
- Marginal Propensity to Save (MPS) is the proportion of an additional unit of income that is saved. \( MPS = \frac{\Delta S}{\Delta Yd} \).


Step 2: Key Formula or Approach:

The sum of the MPC and the MPS is always equal to 1, because the entire additional income is either spent or saved. \[ MPC + MPS = 1 \]

Step 3: Detailed Explanation:

We are given the value of MPS: \[ MPS = 0.4 \]
Using the formula from Step 2, we can find the MPC: \[ MPC + 0.4 = 1 \] \[ MPC = 1 - 0.4 \] \[ MPC = 0.6 \]
To express this as a percentage, we multiply by 100: \[ MPC = 0.6 \times 100% = 60% \]

Step 4: Final Answer:

If MPS is 0.4, then MPC will be 0.6, which is equivalent to 60%. The correct option is (C). Quick Tip: Remember that MPC and MPS are two sides of the same coin (an extra dollar of income). They must always add up to 1 (or 100%). If you know one, you can instantly find the other by subtracting it from 1.

Step 1: Understanding the Concept:

The Reserve Bank of India (RBI) is India's central bank and regulatory body responsible for the regulation of the Indian banking system. Its headquarters, also known as the Central Office, is where the Governor sits and where policies are formulated.


Step 2: Detailed Explanation:

The Reserve Bank of India was established on April 1, 1935. Its Central Office was initially established in Calcutta (now Kolkata). However, it was permanently moved to Bombay (now Mumbai) in 1937.

Therefore, the current headquarters of the RBI is in Mumbai, Maharashtra.


Step 3: Final Answer:

The headquarters of the Reserve Bank of India is located in Mumbai. The correct option is (B). Quick Tip: Mumbai is known as the financial capital of India. It makes sense that the headquarters of the country's central bank, the RBI, is located there. Associate RBI with Mumbai for quick recall.

Step 1: Understanding the Question:

The question asks to identify the current Finance Minister of India from the given list of prominent political figures. This is a question of current affairs related to the Indian government.


Step 2: Detailed Explanation:

Let's analyze the roles of the individuals listed:

- Narendra Modi is the Prime Minister of India.

- Amit Shah is the Minister of Home Affairs.

- Rajnath Singh is the Minister of Defence.

- Nirmala Sitharaman has been serving as the Minister of Finance and Minister of Corporate Affairs of the Government of India since 2019. She is India's first full-time female finance minister.


Step 3: Final Answer:

Based on the current cabinet of the Government of India, Nirmala Sitharaman holds the position of Finance Minister. The correct option is (D). Quick Tip: For questions about current government positions, it's crucial to stay updated with current affairs. Key cabinet positions like Finance Minister, Home Minister, and Defence Minister are frequently asked in competitive exams.

N/A Quick Tip: Remember that "micro" means small. Microeconomics deals with the small-scale economic decisions of individuals and businesses, unlike macroeconomics, which looks at the economy as a whole.

N/A Quick Tip: Think of demand as a combination of three things: Desire, Ability to pay, and Willingness to pay. All three must be present for demand to exist in an economic sense.

N/A Quick Tip: Remember "complements complete each other." If you buy one, you are likely to buy the other. Think of peanut butter and jelly—the demand for one is tied to the other.

N/A Quick Tip: Think of the production function as a recipe. It tells you the maximum amount of cake (output) you can bake with a specific combination of ingredients (inputs).

N/A Quick Tip: Full employment doesn't mean 100% of people have jobs. It means everyone who wants a job can find one at the prevailing wage rate, with some natural "in-between jobs" unemployment still existing.

N/A Quick Tip: Remember the three core functions of money with the acronym "M.U.S.": Medium of exchange, Unit of account, and Store of value.

N/A Quick Tip: Think of a government budget like a household budget, but on a massive scale. It's a plan detailing expected income (revenue) and planned spending (expenditure) for the upcoming year.

N/A Quick Tip: The key word is "involuntary." The person wants to work but is forced into unemployment by economic conditions, distinguishing it from "voluntary" unemployment where someone chooses not to work.

N/A Quick Tip: Use the acronym \textbf{TIPSE} to remember the shifters of demand: \textbf{T}astes and Preferences, \textbf{I}ncome, \textbf{P}rices of related goods, \textbf{S}ize of the market (number of buyers), and \textbf{E}xpectations of future prices.

N/A Quick Tip: Remember, "Average" is the total divided by the number of units. "Marginal" means the additional output from one more unit of input. The marginal value is the change between steps.

N/A Quick Tip: Perfect competition is a theoretical benchmark. While few real-world markets are truly "perfect," agricultural markets (like for wheat or corn) are often cited as the closest examples.

N/A Quick Tip: Think of the RBI as the "head of the family" for the Indian financial system. It manages the country's money, advises the government on financial matters, and supervises all other banks to ensure the system is healthy.

N/A Quick Tip: A simple way to remember the components is to think about how you access your money. You have cash in your wallet (Currency), money in your checking/savings account (Demand Deposits), and maybe money in a fixed deposit (Time Deposits). These are the core components of money supply.

N/A Quick Tip: Remember "Direct tax is paid Directly." The person who earns the income pays the tax directly to the government. You can't ask your friend to pay your income tax for you—the burden is non-transferable.

N/A Quick Tip: To explain consumer's equilibrium, always remember the two key conditions: Tangency (MRS = Price Ratio) and Convexity. The diagram is crucial; ensure you clearly label the budget line, indifference curves, and the equilibrium point where tangency occurs.

N/A Quick Tip: When using the percentage method, be careful to use the *original* price and quantity as the base for your percentage calculations. A clear, step-by-step numerical example is the best way to explain this method in an exam.

N/A Quick Tip: The key to the production method is the concept of "Value Added" to avoid the problem of double-counting. Remember the journey from GDP\textsubscript{MP} to NNP\textsubscript{FC}: Subtract depreciation, subtract net indirect taxes, and add net factor income from abroad.

N/A Quick Tip: Remember that Excess Demand = Inflationary Gap. The causes are simply any factors that boost spending in the economy. Think about what would make households (C), firms (I), the government (G), or foreigners (X-M) want to buy more goods and services.

N/A Quick Tip: Remember that in perfect competition, the \textbf{industry} is the price maker, and the \textbf{firm} is the price taker. Use both a schedule and a diagram to clearly illustrate how the interaction of demand and supply determines the equilibrium price, and how surpluses and shortages are automatically corrected by market forces.

N/A Quick Tip: Remember the core difference: APC relates total consumption to total income (\(C/Y\)), while MPC relates a change in consumption to a change in income (\(\Delta C / \Delta Y\)). A schedule is often the clearest way to demonstrate that as income rises, APC falls, and that APC is generally greater than MPC.