'Fill in the blanks' exercise assesses whether the child is able to grasp or not. So, 1st option is correct.
CTET Solved Paper MCQ - CTET February 2014 Paper1
Generation of a suitable text to say what the student wants to say are stages of the process of writing.
Use of grammar, punctuation and spelling pertains to text production while writing.
Marks would be deducted for the second speaker as he is not listening actively and is unable to understand and answer speaker 1 's question correctly.

