What is the difference between direct tax and indirect tax? Explain the role of government budget in influencing allocation of resources. from Economics Class 12 CBSE Year 2016 Free Solved Previous Year Papers

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Economics

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CBSE Class 12

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CBSE Economics 2016 Exam Questions

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31. Find Gross National Product at Market Price and Private Income:  (Rs in crore)
(i) Private final consumption expenditure                                      800
(ii) Net Current transaction to abroad                                            20
(iii) Net factor income to abroad                                                  (-) 10
(iv) Government final consumption expenditure                             300
(v) Net indirect tax                                                                     150
(vi) Net domestic capital formation                                              200
(vii) Current transfer to government                                            40
(viii) Depreciation                                                                      100
(ix) Net imports                                                                         30
(x) Income accruing to government                                            90
(xi) National debt interest                                                           50

GDP subscript MP space equals space Private space Final space Consumption space expenditure space plus space Government space Final space Consumption space Expenditure plus left parenthesis Net space domestic space capital space formation plus space depreciation right parenthesis minus Net space imports
space space space space space space space space space space space space equals 800 plus 300 plus left parenthesis 200 plus 100 right parenthesis minus 30 space equals space 1.370
space space space space space space space space space space space space equals Rs space 1.370 space crore
GNP subscript MP space equals space GDP subscript MP minus Net space factor space income space to space abroad
space space space space space space space space space space space equals 1 comma 370 minus left parenthesis negative 10 right parenthesis equals 1380

           = Rs, 1380 crore.

Private Income = GDPMP - Net indirect taxes - Depreciation - Income accruing to government - Net factor income to abroad + Current transfers from Government - Net Current transfers to abroad + National debt interest. 
 = 1370 - 150 - 100 - 90- (-10)+ 40 -20 + 50 = Rs 1,110 crore. 




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32.

What is the difference between direct tax and indirect tax? Explain the role of government budget in influencing allocation of resources.


Direct Tax Indirect Tax
It is imposed on the income of a person based on the principle of ability to pay. The income tax burden is equitably distributed on different people and institutions. Thereby the tax burden falls more on the rich than on the poor. It is imposed on an individual but is paid by another person either partly or wholly. Hence, the impact and incidence of taxes are on different persons.
Tax burden cannot be shifted to another person. Tax burden can be shifted to another person.
Prices are not affected. Prices are affected because the price of the product is inclusive of tax.
Examples: Income and property tax Examples: Union excise duties and custom duties

Through the budgetary policy, the government can reallocate resources so that social and economic objectives can be met in the following ways:
i. The government ensures productive expenditure to maximise the welfare of the nation with minimum level of profit.
ii. The government regularises the activities of the private sector to provide social benefit to the poor.
iii. The government imposes taxes on socially unsafe goods such as alcohol and tobacco to shift resources to the production of socially essential goods.
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33.

Given saving curve, derive consumption curve and state the steps in doing so. Use diagram.


In the diagram, the supply curve is given as the SS curve and –C represents negative savings. At the breakeven Point B, we find that Y = C and S = O.
Derivation of the consumption curve from the saving curve: Given the SS curve, let us consider OS = OC. At Point B, draw a perpendicular 45° line towards Point A. Points C and A are joined to produce a straight line upward sloping consumption curve CC.


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34.

Indian investors lend abroad. Answer the following questions:
(a) In which sub-account and on which side of the Balance of Payments Account such lending is recorded? Give reasons.
(b) Explain the impact of the lending on market exchange rate.


Indian investors lending abroad leads to an outward flow of foreign exchange and is hence treated as a negative item in the capital account of balance of payments.
b. This will reduce the supply of foreign currency from SS to S′S. Hence, the new equilibrium is reached at Point E′ with a new exchange rate OR1.

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