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Economics IX Section A (40 Marks) Question 1. a) Quantitative Methods: It influences the total volume of credit without differentiating between essential and non essential uses of credit, it affects the lenders, it includes bank rate, open market operations, cash reserve ration and statutory liquidity ratio. Qualitative Methods: It is discriminatory in nature, the methods are more direct, it affects both borrowers and lenders, it includes margin requirements, moral suasion and rationing of credit. (2) b) It buys and sells foreign currencies in the open market, key currencies and bullion is kept i n reserve in its custody. (2) c) Necessary for trade and industry, distribution of funds, promote capital formation, encourages right type of industries, useful to underdeveloped countries, growth of priority sectors. (2) d) Political pressure, inefficiency of banks, trade unions, possibility of losses, check on growth of private sector. (2) e) The creation of secondary deposits is called the creation of credit. (Explain it) (2) Question 2. a) Demand Deposits: Known as current deposits, deposits can be withdrawn at any time, no or less interest paid. Fixed Deposits: Can be withdrawn only after certain fixed period, not chequable, carry high rate of interest. (2) b) Collection and Making payments for credit instruments, collection of dividends on shares, purchase and sale of securities, trustee and executor, transfer of funds. (Explain two) (2) c) (The students have to present their own views and justify them) (2) d) Demand pull inflation: refers to a situation in which prices rise because the demand for goods and services exceeds their total supply available at current prices. Cost push inflation: It emerges due to increase in the costs. (2) e) Standard Money: It is legal tender money, it is of two types currency notes and coins. Bank Money: Refers to bank deposits which can be withdrawn by means of bank cheques and bank drafts. (2) Question 3. a) Legal: Anything which the government declares as money is money. It is issued by the central bank of the country. Functional: Anything that is generally acceptable as a means of exchange. (2) b) Animal money, commodity money, metallic money, paper money, bank money. (2) c) Debt trap, inflation, will affect growth. (2) d) Internal and External Debts, Productive and Unproductive Debts, Funded and Unfunded Debts, Gross and Net Debts, Voluntary and Compulsory Debts. (2) e) Primary Expenditure: Includes defence, law and order, civil administration, debt services. Very essential for the state. Secondary Expenditure: Includes health, education, famine, insurance. (2) Question 4. a) Unpopular, inconvenience, possibility of evasion, uneconomical (Explain any two) (2) b) Raising revenue, protection of domestic industries, reducing income inequalities. (2) c) Same objective, based on rationality, limited resources, income and expenditure, efficient management. (Any two) (2) d) Should possess courage and ability to tackle problems, should be able to take quick decisions, should have complete knowledge about his business, quality of farsightedness. (Any two) (2) e) Fare payment of wages, improved working conditions, social security measures, technical education. (Any two) (2) Section B (40 Marks) Answer any 4 questions. Question 5. a) Creeping inflation, walking or trotting inflation, running inflation, hyper inflation. (Explain all) (5) b) Monetary measures, fiscal measures and other measures (Explain them) (5) Question 6. a) Primary: Medium of exchange, measure of value. Secondary: Standard of Deferred payments, store of value, transfer of v alue. (Explain) (5) b) Money and consumption, money and production, money and exchange, distribution, public finance. (Explain) (5) Question 7. a) Larger employment opportunities, ends private monopolies, increases growth rate, lessens inequality of income and wealth, encourages private enterprises, brings regional balance. (Explain) (5) b) Political Causes: growth of democracy, increase in defence expenditure. Social Causes: Social service, social security measures. Economic Causes: Rise in prices, growth of public sector, economic assistance to private sector, development programmes, growing trend of urbanisation. (Explain) (5) Question 8. a) Receives deposits from the government, makes purchases and sales of government securities, provides cash to the government, advances short term loans to the government, supplies foreign exchange. (Explain them) (5) b) i) Bank Rate: It is the rate at which a central bank lends money to member commercial banks against approved securities or eligible bills of exchange. ii) Cash Reserve Ratio: Commercial banks are required under law to keep with central bank a minimum percentage or proportion of their deposits as cash reserve. iii) Statutory Liquidity Ratio: Banks are required to keep a specified percentage of their demand and time deposits. iv) Moral Suasion: Means persuasion by the central bank to its other member banks to expand or contract credit. v) Open market operations: Refers to buying and selling of government securities by the central bank from/to the public and banks. (5) Question 9. a) It is man made, durable, passive factor of production, mobile factor, elastic, subject to depreciation, result of past savings, different from wealth. (Explain them) (5) b) Right man at the right job, efficiency of labour, saving of time and tools, production of superior goods, inventions, less cost of production, mobility of labour, cooperation among workers, advantages to the society. (Explain) (5) Question 10. a) Resources for development, public welfare, check concentration of economic power, prevent misuse of bank s funds, expansion of banking facilities, public confidence, creating credit facilities to agriculture. (Explain) (5) b) (Views of the students with justification) (5)

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