ICSE Class 10 Economic Applications Sample Paper 2022 with Solutions

SECTION A

(Attempt all questions)

Question 1

Choose the correct answers to the questions from the given options. (Do not copy the question, Write the correct answer only.) [10]

(i) Which of these is the apex bank of the Indian Banking System? [1 Mark]
(a) State Bank of India
(b) Central Bank of India
(c) Reserve Bank of India
(d) Canara Bank

Answer: (c) Reserve Bank of India

The Reserve Bank of India is the central bank and apex financial institution of the country.

Teacher's Note:
a) The apex bank regulates the entire banking structure and holds the monopoly of note issue.
b) Students must not confuse commercial banks like SBI or Central Bank of India with the central banking authority.

(ii) SLR stands for: [1 Mark]
(a) Statutory Limit Rationing
(b) Standard Liquid Requirement
(c) Statutory Liquidity Ratio
(d) Standard Limit Rationing

Answer: (c) Statutory Liquidity Ratio

SLR is the minimum percentage of deposits that a commercial bank must maintain in liquid form.

Teacher's Note:
a) Remember that SLR is distinct from CRR (Cash Reserve Ratio), though both are instruments of credit control.
b) Pay close attention to exact terminology to avoid losing marks in matching options.

(iii) The policy of converting public ownership of an asset to private ownership is ____________. [1 Mark]
(a) Nationalisation
(b) Liberalisation
(c) Globalisation
(d) Privatisation

Answer: (d) Privatisation

Privatisation involves transferring ownership from the government to private entities.

Teacher's Note:
a) Nationalisation is the exact opposite process where private assets are taken over by the state.
b) Be thorough with the components of the New Economic Policy (Liberalisation, Privatisation, Globalisation).

(iv) Which of these is generally a short term loan? [1 Mark]
(a) Cash credit
(b) Home loans
(c) Overdraft
(d) Car loans

Answer: (a) Cash credit

Cash credit is a short-term credit facility extended to businesses for working capital needs.

Teacher's Note:
a) Home loans and car loans are long-term capital or instalment loans.
b) Understand the difference between various commercial bank credit facilities.

(v) Which of the following is a selective/qualitative method of credit control: [1 Mark]
(a) Bank Rate
(b) Cash Credit Ratio
(c) Open Market Operations
(d) Moralsuasion

Answer: (d) Moralsuasion

Moral suasion is a qualitative tool used by the central bank to persuade commercial banks.

Teacher's Note:
a) Bank rate, cash credit ratio, and open market operations are quantitative tools affecting total volume.
b) Learn the classification of monetary policy tools into quantitative and qualitative categories.

(vi) Identify the type of taxation shown in the figure below: [1 Mark]
(a) Progressive taxation
(b) Regressive taxation
(c) Proportional taxation
(d) Degressive taxation

[Figure: Line graph showing an upward sloping straight line starting from point T on the vertical axis representing Rate of tax, against the horizontal axis representing Tax Base.]

Answer: (a) Progressive taxation

The tax rate increases continuously as the tax base or income increases.

Teacher's Note:
a) In progressive taxation, the rate of tax varies directly with income levels.
b) Practice interpreting economic graphs and diagrams correctly.

(vii) Study the relationship in the first pair of words and complete the second pair: [1 Mark]
Creeping inflation : 2% to 3%
Running inflation : __________
(a) 8% to 9%
(b) 8% to 20%
(c) 3. 3% to 8%
(d) 20% to 40%

Answer: (b) 8% to 20%

Running inflation is characterised by a rapid price rise ranging between 8 to 20 percent per annum.

Teacher's Note:
a) Memorise the classification of inflation based on speed and rate of price rise.
b) Creeping, walking, running, and galloping represent different inflationary speeds.

(viii) Study the relationship in the first pair of words and complete the second pair: [1 Mark]
Income tax : Direct tax
_____________ : Indirect tax
(a) Property tax
(b) Entertainment tax
(c) House tax
(d) Road tax

Answer: (b) Entertainment tax

Entertainment tax is levied on services or goods and is shifted to consumers, making it an indirect tax.

Teacher's Note:
a) Property tax, house tax, and road tax are examples of direct taxes.
b) The fundamental criterion of distinction is whether the burden of tax can be shifted.

(ix) Which of the following does not belong to the group? [1 Mark]
(a) Accepting deposits
(b) Giving loans
(c) Controlling credit
(d) Creating credit

Answer: (c) Controlling credit

Controlling credit is the exclusive function of the central bank, whereas the others are commercial bank functions.

Teacher's Note:
a) Commercial banks deal with public deposits and credit creation for profit.
b) Always differentiate between central bank functions and commercial bank functions clearly.

(x) A compulsory payment by the citizens of the country to the government without any expectation of corresponding benefits for such payments. This defines: [1 Mark]
(a) Tax
(b) Subsidy
(c) Discount
(d) Concession

Answer: (a) Tax

A tax is a compulsory levy with no direct quid pro quo benefit attached to it.

Teacher's Note:
a) Taxes constitute the primary revenue source for government welfare activities.
b) Note the mandatory nature of tax payments as highlighted in the definition.

SECTION B

(Attempt any four questions from this Section.)

Question 2

(i) Define money. [2 Marks]

Answer:
According to Crowther, money is defined as anything that is generally acceptable as a means of exchange and at the same time acts as a measure and store of value.

Teacher's Note:
a) Standard definitions given by economists carry full credit when quoted accurately.
b) Ensure the key functions of exchange, measurement, and store of value are mentioned.

(ii) State two advantages of a bank account. [2 Marks]

Answer:
1. Secured deposits: Bank accounts provide a safe place to deposit money for short as well as long term, and customers can withdraw funds whenever required.
2. Safe transaction: Through bank accounts, customers can transfer money from one place to another in a simple, easy, and safe manner.

Teacher's Note:
a) Emphasise safety of funds and convenience of transactions as primary banking benefits.
b) Two distinct points are required for full marks.

(iii) Mention any three demerits of Public Sector Enterprises. [3 Marks]

Answer:
1. Lack of initiative: As public enterprises do not face intense market competition, employees often lack motivation towards profit increment, innovation, and cost reduction.
2. Political interference: Due to regular political and bureaucratic interference, frequent transfers hinder smooth administration and operational efficiency.
3. Under-utilisation of capacity: Many public enterprises face losses due to operating below full capacity, leading to increased costs of production.

Teacher's Note:
a) Cover operational inefficiencies, bureaucratic hurdles, and capacity under-utilisation.
b) Heading plus a short explanation ensures complete marks.

(iv) What are direct taxes? State two merits of direct taxes. [3 Marks]

Answer:
Direct taxes refer to those taxes which are imposed on income, wealth, and property, and are paid by the person on whom they are legally levied.
Merits of direct taxes:
1. Economical: The cost of collecting direct taxes is relatively low, making them an economical option for the government.
2. Certainty: Direct taxes are certain as taxpayers know their liabilities and governments can reliably estimate tax revenues.

Teacher's Note:
a) Clearly state the incidence and burden falling on the same person for direct taxes.
b) List two clear economic merits like equity, certainty, or economy.

Question 3

(i) What is Privatization? [2 Marks]

Answer:
Privatisation refers to the transfer of ownership, management, and control of public sector enterprises to the private sector. Its primary objective is to utilise privately owned resources efficiently for economic welfare.

Teacher's Note:
a) Highlight the transfer of management and control to private stakeholders.
b) Mention the objective of improving efficiency and reducing state burden.

(ii) Differentiate between progressive taxation and proportional taxation. [2 Marks]

Answer:

Teacher's Note:
a) Differentiation questions are best answered in a tabular format.
b) Ensure tax rate behaviour relative to income change is clearly contrasted.

(iii) Briefly explain how Cash Reserve Ratio can be used to control credit. [3 Marks]

Answer:
Cash Reserve Ratio (CRR) refers to the portion of total deposits that commercial banks must keep with the central bank in cash reserves. By changing this ratio, the central bank influences the credit creation capacity of commercial banks. Raising CRR leads to credit contraction by reducing loanable funds, while lowering CRR brings about credit expansion.

Teacher's Note:
a) Define CRR accurately in terms of deposits kept with the central bank.
b) Explain the inverse relationship between CRR changes and credit creation power.

(iv) Explain how money acts as a measure of value. [3 Marks]

Answer:
Money serves as a common unit of measurement in terms of which the values of all goods and services are expressed. Instead of bartering goods at arbitrary exchange ratios, prices state values uniformly in monetary units. For instance, a phone costs Rs. 10,000 and a laptop costs Rs. 30,000, enabling easy comparison and accounting.

Teacher's Note:
a) Mention the elimination of the barter system difficulty of common measure.
b) Use practical pricing examples to make the explanation robust.

Question 4

(i) Name two instruments of Fiscal Policy. [2 Marks]

Answer:
1. Taxation: Transfers income from people to the government, reducing disposable income and helping control inflation.
2. Public Debt: Refers to internal or external loans raised by the government from the public to manage financial resources.

Teacher's Note:
a) Fiscal policy instruments include taxation, public expenditure, and public debt.
b) Brief naming with a short description ensures complete marks.

(ii) Explain why the purchasing power of money falls when price level rises. [2 Marks]

Answer:
Purchasing power refers to the quantity of goods and services that a unit of money can buy. During inflation, prices rise, meaning consumers can buy fewer goods with the same nominal income, reflecting a decline in real purchasing power.

Teacher's Note:
a) Connect rising price levels directly to falling real value of money.
b) Give a simple numerical example (like petrol prices rising) to illustrate the concept clearly.

(iii) State three reasons why privatization is not always desirable. [3 Marks]

Answer:
1. Public interest: Private firms focus primarily on profit motives, making privatisation of essential sectors like healthcare and education undesirable.
2. Loss of government revenue: The government loses long-term dividend earnings from profitable public enterprises.
3. Monopoly creation: Privatisation can lead to private monopolies in sectors like water or rail, requiring strict regulation to protect consumers.

Teacher's Note:
a) Highlight social welfare concerns versus profit motives.
b) Mention loss of state revenue and risk of private monopoly abuse.

(iv) What are Commercial banks? Name one commercial bank in India. [3 Marks]

Answer:
Commercial banks are financial institutions that deal in money and credit, accept public deposits, advance loans, and provide various financial services to individuals and businesses to ensure economic stability.
HDFC Bank is one of the commercial banks in India.

Teacher's Note:
a) Include core functions like accepting deposits and granting credit for profit.
b) Provide any valid scheduled commercial bank name operating in India.

Question 5

(i) Give one difference between qualitative and quantitative credit control. [2 Marks]

Answer:

Teacher's Note:
a) Qualitative tools regulate the direction of credit, while quantitative tools regulate total volume.
b) Tabular presentation helps highlight the core distinction clearly.

(ii) What is galloping inflation? [2 Marks]

Answer:
Galloping inflation occurs when prices rise very fast at double or triple digit rates ranging from 20% to 100% per annum or more. This situation can severely damage the monetary system due to rapid loss of purchasing power.

Teacher's Note:
a) Mention the numerical range (double or triple digit percentage rise).
b) Highlight the disruptive economic consequences of galloping inflation.

(iii) State three differences between a Commercial bank and a Central bank. [3 Marks]

Answer:

Teacher's Note:
a) Contrast profit motive with regulatory authority.
b) Mention note-issuing authority as a definitive distinction.

(iv) What type of tax is Goods and Services Tax? State two features of this type of tax. [3 Marks]

Answer:
Goods and Services Tax (GST) is an indirect tax introduced to unify indirect taxation and boost economic growth.
Features of indirect taxes:
1. Shift of burden: They are paid to the government by one person, but the final burden is borne by the ultimate consumer.
2. Imposition: They are levied on the consumption of goods and services.

Teacher's Note:
a) Identify GST correctly as an indirect comprehensive tax.
b) Mention shiftable burden and imposition on commodities as key features.

Question 6

(i) Give two reasons as to why a Central Bank is needed. [2 Marks]

Answer:
1. Economic stability: It plays a crucial role in ensuring economic and financial stability through banking regulations.
2. Monetary regulation: It regulates monetary policy to achieve stable inflation and support balanced economic growth.

Teacher's Note:
a) Focus on regulatory control and macroeconomic management.
b) Two clear points are required for full marks.

(ii) Mention two important differences between Public Sector and Private Sector. [2 Marks]

Answer:

Teacher's Note:
a) Ownership and objective are the two vital differentiating criteria.
b) Present points clearly in a tabular layout.

(iii) Explain how taxes can bring about equality in income distribution. [3 Marks]

Answer:
Governments use progressive taxation policies to reduce economic inequality. By imposing higher tax rates on the rich and lower taxes or exemptions on essential goods for the lower-income groups, disposable income of the wealthy is curtailed, which is channeled into welfare schemes for the poor, narrowing the income gap.

Teacher's Note:
a) Explain the mechanism of progressive taxation and welfare transfers.
b) Highlight the reduction of wealth disparity between rich and poor.

(iv) What are term/time deposits? Explain any one type of term deposit. [3 Marks]

Answer:
Term or time deposits are bank investments where a lump sum amount is deposited at an agreed rate of interest for a fixed period of time and can be withdrawn only upon maturity.
Type of term deposit:
Short-term deposit: These deposits have a holding period ranging from 1 to 12 months, offering liquidity with fixed interest.

Teacher's Note:
a) Define term deposits based on fixed tenure and maturity withdrawal restrictions.
b) Differentiate between short-term and long-term deposit categories clearly.

Question 7

(i) What is bank rate? [2 Marks]

Answer:
Bank rate is the official interest rate at which the central bank lends funds to commercial banks against approved securities. Changes in the bank rate influence overall market interest rates and serve as a tool for credit control.

Teacher's Note:
a) Specify lending by the central bank to commercial banks.
b) Mention its role as a quantitative monetary policy instrument.

(ii) What are current accounts? [2 Marks]

Answer:
Current accounts are bank accounts where funds can be deposited and withdrawn any number of times without restriction. They are typically opened by business entities conducting frequent transactions and generally do not earn interest, but often feature overdraft facilities.

Teacher's Note:
a) Emphasise suitability for businessmen with frequent transactions.
b) Mention absence of interest and availability of overdraft facility.

(iii) Can inflation lead to economic development? Give a reason for your answer. [3 Marks]

Answer:
Yes, a moderate rate of inflation can stimulate economic development. As demand rises moderately, prices increase, encouraging producers to expand output. Higher production creates employment opportunities and increases labour demand, thus boosting overall economic activity.

Teacher's Note:
a) Distinguish between hyperinflation and moderate (creeping) inflation.
b) Explain how price incentives motivate business expansion and employment creation.

(iv) Explain how an increase in sales tax can cause an increase in price. [3 Marks]

Answer:
Sales tax is an indirect tax that raises the cost of production and supply for firms. When the government increases sales tax, market supply decreases because suppliers shift their supply curve upward and to the left, resulting in a new market equilibrium with a higher final price and lower quantity traded.

Teacher's Note:
a) Relate indirect tax increments directly to increased firm costs.
b) Explain price shifts using supply-demand equilibrium concepts.