DEY'S ECONOMICS-XII - Exam Handbook For 2024 Exam

Chapter-wise NOTES
for
CBSE Examination 2024
(Strictly Based on NCERT Books 2023-24
and CBSE Papers Marking Scheme)
NOTES for 2024 Exam
Macroeconomics
Unit 3 12 Marks
Determination
of Income and
Employment
Savings Function
3.1 Consumption and Savings Functions Savings function refers to the functional relationship
Ex-ante and Ex-post Measures between Savings (S) and Income (Y). There exists a positive
Planned values of the variables—consumption, investment, relation between income and savings, i.e., higher the income,
savings etc.—are called their ex-ante measures. higher shall be the savings.
• Ex-ante consumption refers to planned consumption expenditure If all the people of the economy increase the proportion of income they
on final goods and services at different levels of income. save, the total value of savings in the economy will not increase – it will either
• Ex-ante investment refers to planned investment expenditure decline or remain unchanged. This result is known as the Paradox of Thrift.
on final goods in the economy during an accounting year. Savings is that part of income which is not consumed. In other
• Ex-ante savings refers to the planned savings of an economy at
words, S = Y – C. Substituting C = c + bY, we get:
different levels of income.
S = Y – ( c + bY) ⇒ S = – c + (1 – b)Y
The ex-ante variables (ex-ante consumption and ex‑ante This is the equation of savings function, where – c is the
investment) are the basis of determination of national income. dissavings. Since even at zero level of income, there will be
Actual or realised value of the variables is called their some minimum amount of consumption (i.e. autonomous
ex-post measures. consumption) for survival, therefore at zero level of income,
Consumption Function there will be dissavings.
Consumption Expenditure refers to total expenditure incurred Significance of dissavings: Dis-savings occur when
by households and non-profit institutions on purchase of goods Consumption (C) is greater than Income (Y). This signifies that
and services during an accounting year. There exists a positive spending for basic needs which are necessary for survival is
relation between income and consumption expenditure, i.e., financed by past savings and borrowings.
higher the income, higher shall be the consumption expenditure. Marginal Propensity to Save (MPS)
Consumption function refers to the functional In the savings function, S = – c + (1 – b)Y,
relationship between Consumption (C) and Income (Y). (1 – b) is Marginal Propensity to Save (MPS).
MPS is the ratio of change in total savings and change in
Consumption Function Equation: C = c + bY total income in an economy. (MPS = ∆S/∆Y)
Consumption function has two components: MPS is equal to 1 – MPC (since MPS = 1 – b = 1 – MPC)
(i) Autonomous consumption (c): It refers to that The sum of MPC and MPS is equal to 1.
consumption expenditure which is undertaken at zero level Explanation: Since S = Y – C, therefore:
of income. It is called autonomous consumption because DS D ( Y - C) DY DC
the consumption expenditure does not depend upon the MPS = = = - = 1 - MPC
DY DY DY DY
level of income.
(ii) Induced consumption (bY): It refers to that Concept of Slope of a Function
consumption expenditure which is directly determined Slope of a function is defined as — “Change in dependent
by the level of income. Clearly, bY shows dependence of variable due to a given change in independent variable.”
consumption on income.
Example: In consumption function C = 100 + 0.8Y, c = 100 D (dependent variable)
Slope of a function =
and MPC = 0.8, so if income rises by `100, induced consumption D (independent variable)
rises by `80 (0.8 × 100). • In the consumption function C = c + bY, consumption (C)
Marginal Propensity to Consume (MPC) depends on income (Y). Therefore, slope of the consumption
MPC is the change in total consumption due to change in function = DC/DY, which is nothing but Marginal Propensity
total income in an economy. It is denoted by ‘b’ and is equal to Consume (MPC). Thus, MPC represents the slope of the
to DC/DY. consumption function as it represents change in consumption
due to a given change in income. (MPC = DC/DY)
MPC ranges from 0 to 1 (i.e. inclusive of both values).
• When in an economy the consumers do not increase • Similarly, MPS represents the slope of the savings function
as it represents change in savings due to a given change in
consumption with increase in income, MPC = 0. income. (MPS = DS/DY)
• When in an economy the consumers use entire change in Note: • Slope of a line y = c + mx is given by ‘m’. Thus, the
income on consumption, MPC = 1. slope of consumption function C = c + bY is b, i.e. MPC.
• The realistic situation is when in an economy the consumers • If two lines are parallel, their slopes are equal. Thus, in an
use a part of the change in income for changing consumption. economy if the consumption and savings curves are parallel to
Thus, in reality MPC lies between 0 and 1, i.e. 0 < MPC < 1. each other, their respective slopes, i.e. MPC and MPS will be equal.
When income changes, change in consumption (DC) can • If a line is parallel to the X-axis, the slope of the line will
never exceed the change in income (DY). Therefore, the be zero, since the slope of X-axis (a horizontal line) is zero.
maximum value of MPC can be 1. MPC can never be greater Thus, in an economy if the consumption curve is parallel to
than 1. X-axis, then MPC = 0. Similarly, if the savings curve is parallel
to X-axis, then MPS = 0.
CHAPTER NOTES for CBSE 2024 Examination ECONOMICS XII EXAM HANDBOOK
xiii
Average Propensity to Consume and Save • APC < 1, when the total consumption is less than total
Average propensity to consume (APC) is the ratio of total income (C < Y) after break-even level of income. This is
consumption and total income in an economy. because at higher level of income after break-even point,
APS = Total consumption/Total income = C/Y owing to the psychological behaviour of a consumer
Average propensity to save (APS) is the ratio of total savings (rational), people tend to consume less.
and total income in an economy. • However, APC can never be zero even at zero level
APS = Total saving/Total income = S/Y of income, there will be some minimum amount of
Relationship between APC and APS: The sum of APC and consumption (i.e. autonomous consumption) for survival.
APS is equal to one. The value of APS can be zero, positive and negative.
Consumption and savings are the functions of income i.e., • APS = 0 at Break-even point, where total savings will
Y=C+S be zero since the total consumption and total income are
Dividing both sides of the equation by Y, we get equal.
Y/Y = C/Y + S/Y ⇒ 1 = APC + APS. • APS is negative (i.e. APS < 0) when total savings
Therefore, APS = 1 – APC and APC = 1 – APS. will be negative before break-even point where total
Consumption and Saving curves/functions complement consumption is greater than total income.
each other and can be derived from each other. • APS is positive (i.e. APS > 0) when savings will be
Consumption and savings are the functions of income (i.e., Y = positive after break-even point where total consumption is
C + S). The major portion of income is spent on consumption less than total income.
of goods and services and the remaining portion is saved i.e.
saving and consumption are interdependent (curve/function). Top Tips
This means that income is either consumed or saved.
Derivation of savings curve from consumption curve: 1. Rich people have lower Marginal Propensity to
Step 1: Draw a 45° line from the origin in the upper part of the Consume (MPC) as compared to poor people.
diagram. Determine the break even point (B) where the given At a lower level of income, a consumer spends a
consumption curve intersects the 45° line. Draw perpendicular larger proportion of his/her income on consumption
from the break even point intersecting the X-axis at point D. expenditure (basic survival requirements). As the
Step 2: Take OS1 equal to OC which is the starting point of the income increases, owing to the psychological behavior
saving curve, which represents dis-savings. of a consumer (rational), people tend to consume less
Step 3: Join S1D and extend it by a straight line to get the and save more for future uncertainty.
saving curve S1S. Hence, at higher levels of income people generally
Derivation of consumption curve from savings curve: have lower Marginal Propensity to Consume (MPC) and
Step 1: Draw a 45° line from origin. higher Marginal Propensity to Save (MPS).
Step 2: Given the savings curve S1S, take OC = OS1 because 2. Consumption curve of an unemployed person
in the economy the autonomous consumption is exactly equal starts from positive level on Y-axis, as Autonomous
to dissavings at zero income. Consumption is independent of level of income.
Step 3: At point D, savings = 0. We draw a perpendicular Autonomous Consumption signifies the minimum
from B1 till it intersects the 45° line at B. level of consumption which is essential for survival.
Step 4: Join C and B and extend it by a straight line to get the
consumption curve CC. 3.2 Investment Function
Investment expenditure refers to the addition to the
stock of physical capital and change in inventories of a
firm in an economy.
Investment decisions by firms,
such as whether to buy a new
machine, depend, to a large extent,
on the market rate of interest.
(Break-even-point) For simplicity, we assume that
firms plan to invest the same
amount every year.
Ex-ante investment is denoted
I, a positive constant which represents the autonomous
investment — the investment expenditure which is independent
of income in the economy in a given year. So, investment curve
D will be a horizontal straight line parallel to X-axis.
3.3 Aggregate Supply & Aggregate Demand
The value of APC can be equal to one or greater than Aggregate Supply (AS) is the sum total of all the final goods
one or less than one. However, APC can never be zero. and services produced in an economy during an accounting
• APC = 1 at Break-even point — the point at which year. It refers to the ex-ante, i.e. planned aggregate
total consumption is equal to total income i.e., C = Y. output in the economy. It is equal to the National Income
• APC > 1, when the total consumption is more than total (Y) and is represented by a 45 degree line from origin because
income (C > Y) before break-even level of income (at OD at every point on a 45 degree line, AS = Y.
level in figure). Total consumption can be greater than total Aggregate Demand (AD) is the planned expenditure on all the
income, due to the existence of autonomous consumption. final goods and services in an economy in an accounting year.
ECONOMICS XII EXAM HANDBOOK Shree Radhey Publications (Subhash Dey)
xiv
Components of Aggregate Savings-Investment Approach: Derivation from C+I Approach

Demand (AD): Under C + I approach,
(i) Consumption Expenditure equilibrium level of
(ii) Investment Expenditure income is determined
(iii) Government’s final where AD = Y
expenditure or, Y = C + I ... (i)
(iv) Net exports Also, we know that:
In a two sector economy, there Y=C+S ...(ii)
are only two components of From (i) and (ii), we
aggregate demand, viz. have:
(i) Consumption Expenditure(C) C+S=C+I
(ii) Investment Expenditure(I). ⇒S=I
Thus, in a two sector economy, AD = C + I Equilibrium level of income/output is that level of income
Substituting C = c + bY, we get: at which ex-ante (planned) savings and ex-ante (planned)
AD = C + bY + I investment are equal.
⇒ AD = (C + I) + bY • When ex-ante (or planned) savings exceeds ex-ante
(or planned) investments (S > I), it means households
AD = A + bY, where A = C + I = Total autonomous
are planning to consume less than what the firms
expenditure, i.e. the sum total of autonomous consumption and
expected them to consume. unplanned accumulation
autonomous investment.
of inventories. To bring back the inventories to the
desired level, producers may contract production (AS).
Top Tip This mechanism will continue till the equilibrium is
The slope of aggregate demand function AD = A + bY reinstated where AS = AD, and hence S = I. Thus, the
is given by ‘b’, i.e. MPC. Thus, the aggregate demand level of output, employment and income will decrease in
curve is parallel to the consumption curve since they the economy.
have the same slope. • When ex-ante (or planned) savings are less than
ex-ante (or planned) investments (S < I), it means
3.4 Equilibrium Level of Income/Output that the buyers are intending to buy more than what
the producers are intending to produce. This will lead to
C + I approach or AD-AS approach unplanned decumulation (fall) of inventories. To
Equilibrium income/ restore the desired level of inventories, producers may
output refers to that expand production (AS). This mechanism will continue till
level where ex-ante the equilibrium is reinstated where AS = AD, and hence S
aggregate demand is = I. Thus, the level of output, employment and income will
equal to the ex-ante increase in the economy.
aggregate supply, i.e. AD What is Effective Demand? Discuss with the help of
= AS. imaginary numerical example.
Since we know that AS = Effective demand refers to that level of aggregate
Y, therefore the economy is demand which is fully met by the corresponding supply
in equilibrium if Y = AD ⇒ in the economy.
Y = C + I (the equilibrium Numerical Example:
condition in a two sector Determination of Equilibrium Income or Output
economy) (C = 100, MPC = 0.8 and I = 300) = 100, MPC = 0.8
In Fig., at point E, C + I curve intersects the 45° line. At point and I = 300)
E, Y = AD. Equilibrium level of income/output is OY.
Income Consumption Savings Investments Aggregate Aggregate
• When ex-ante Aggregate Demand is less than ex-ante (Y) (C) (S = Y –C) (I) Demand Supply
Aggregate Supply (AD < AS), it means that households (AD = C + I) (AS = Y)
are planning to consume lesser than what the firms expect 0 100 –100 < 300 400 > 0
them to. This may lead to the unplanned accumulation 1000 900 100 < 300 1200 > 1000
of inventories. To bring back the inventories to the 2000 1700 300 = 300 2000 = 2000
desired level, producers may contract production (AS). This 3000 2500 500 > 300 2800 < 3000
mechanism will continue till the equilibrium is reinstated 4000 3300 700 > 300 3600 < 4000
where AS becomes equal to the AD. Thus, the level of output,
At Y = 0, and Y = 1,000; AD > AS. This causes fall in planned
employment and income will decrease in the economy.
inventories below the desired level, inducing producers to
• When ex-ante Aggregate Demand is more than ex-ante
produce more output.
Aggregate Supply (AD > AS), it means that households
At Y = 2,000; AD = AS. This keeps the inventory level unchanged.
are planning to consume more than what the firms expect
Thus, Effective Demand (AD = AS) is obtained at `2,000
them to. This will lead to unplanned decumulation (fall)
crores level of income/output which is the equilibrium level of
of inventories. To restore the desired level of inventories,
income/output.
producers may expand production (AS). This mechanism will
At Y = 3,000 and Y = 4,000; AD < AS. This causes unplanned
continue till the equilibrium is reinstated where AS becomes
increase in inventory of unsold goods, inducing producers to
equal to the AD. Thus, the level of output, employment and
produce less.
income will increase in the economy.
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Involuntary unemployment is distinguished from voluntary

3.5 Investment Multiplier unemployment which refers to a situation where an able-
Investment Multiplier (k) is a measure of the effect of an initial bodied person is not willing to work at the prevailing wage rate.
increase in investment on increase in final income based on MPC Full employment
since k = 1/(1 –MPC). Full employment refers to a situation where all the resources
Investment Multiplier is the ratio of the change in final income are fully and efficiently employed. Full employment
due to a given change in initial investment, i.e. k = DY/DI. refers to, absence of involuntary unemployment because
Relationship between MPC and investment multiplier: under full employment situation, all those who are willing and
1 able to work at the prevailing wage rate, are getting work.
Since k = , therefore, there is a direct/positive
1 - MPC
relation between MPC and investment multiplier (k). Top Tip
If MPC rises, value of multiplier increases and vice-versa. Equilibrium level of income/output determined by the
For example, if MPC of an economy increases from 0.6 to 0.8, equality, AD = AS does not necessarily mean the full
value of multiplier increases from k = 1/(1–0.6) = 1/0.4 = 2.5 to employment level of income/output. It may be less or
k = 1/(1–0.8) = 1/0.2 = 5. Thus, investment multiplier carries more than the full employment level of income/output.
direct relation with rate of growth in an economy. • If the equilibrium level of income/output is less than
Relationship between MPS and investment multiplier: the full employment level, it is due to the fact that
1 1 aggregate demand is not enough to employ all factors
Since k = and 1 – MPC = MPS, therefore, k = . of production. This situation is called the situation of
1 - MPC MPS
Thus, there is Inverse/Negative relation between MPS deficient demand.
and investment multiplier (k). If MPS rises, value of • On the other hand, if the equilibrium level of income
multiplier decreases and vice-versa. is more than the full employment level, it is due to the
For example, if MPS of an economy increases from 0.2 to 0.5, fact that aggregate demand is more than the level of
value of multiplier decreases from k = 1/0.2 = 5 to k = 1/0.5 = 2. output produced at full employment level. This situation
Thus, rising MPS hampers the rate of growth in the economy. is called the situation of excess demand.
That is why, economists are concerned with rising MPS.
Minimum and maximum value of investment multiplier: 3.7 Deficient demand and deflationary gap
Minimum value of investment multiplier is 1 when MPC = 0 since In an economy, when aggregate demand is less
k = 1/(1 – MPC) = 1/(1–0) = 1/1 = 1. than the aggregate supply, corresponding to the full
Maximum value of multiplier can be ∞ (infinity/not defined) employment level, it is a situation of deficient demand.
when MPC = 1 since k = 1/(1 – MPC) = 1/(1–1) = 1/0 = ∞. Deficient demand gives rise
However, in reality 0 < MPC < 1, therefore, 1 < k < ∞, i.e. to deflationary gap, which
Investment multiplier ranges between one and infinity. refers to the amount by
1 < k < ∞ implies k > 1 which the aggregate demand
Since k = DY/DI, therefore, k > 1 means DY/DI > 1 ⇒ DY > DI. is less than the aggregate
Thus, change in final income is greater than initial change in supply, corresponding to
investment since k >1. That is why, an initial change in the full employment level.
investment causes a multiple change in final income. In figure, aggregate demand
Working of Investment Multiplier: is GQ, which is less than FQ,
Suppose initial increase in investment by government for a i.e. full employment level
bullet train project, DI = `1000 crore and MPC = 0.8. of aggregate supply. The
In Ist round, this additional deflationary gap is FG.
DY DC DS
investment will generate an extra The dotted lines show the required increase in aggregate
I Round 1000 800 200 income of `1000 crore. Since MPC demand (FG, i.e. deflationary gap) by additional investment
is 0.8, people will spend `800 of DI amount to establish the full employment equilibrium
II Round 800 640 160 crores (0.8 × 1000), which in level of income/output, i.e. OQ in the economy.
return becomes additional income In situation of deficient demand, the economy will be operating
III Round 640 512 128 of other people during second
at under-employment equilibrium level. When aggregate
... ... ... ... round (as one man’s expenditure is demand and aggregate supply are equal at below full
another man’s income). Similarly, employment level, it is called under-employment equilibrium.
Total 5000 4000 1000
in third round `640 crores of Impacts of deficient demand and deflationary gap:
additional income is generated. • Impact on output, employment and income: Deficient
This process will go on infinitely till the total increase in income demand may have an adverse impact on output, employment
(DY) is equal to multiplier (K) times the initial investment, i.e. and income level. This is because as aggregate demand is
Ê 1 ˆ Ê 1 ˆ 1 less than aggregate supply at full employment level, this may
DY = DI ◊ Á = 1000 ¥ Á = 1000 ¥ = 1000 ¥ 5 = `5000 crores
Ë 1 - MPC ˜¯ Ë 1 - 0.8 ˜¯ 0.2
lead to unplanned accumulation of inventories. To restore
Here, Value of investment multiplier, k = DY/DI = 5000/1000 = 5 desired/intended level of inventories, producers may contract
Involuntary unemployment and Full employment production which in turn may reduce the employment,
3.6 output, and income level in the economy.
Involuntary unemployment • Impact on price level: Deficient demand for goods and
Involuntary unemployment refers to a situation where services may also lead to a fall in the general price level in
an able-bodied person who is willing to work at the the economy. Deflationary gap is called deflationary because
prevailing wage rate, is not getting work. it leads to decline in prices in the long run.
xvi
Remedy to correct the situation of deficient demand The dotted lines show the required decrease in
and deflationary gap: The aggregate demand must be aggregate demand (GF, i.e. inflationary gap) by
increased by an amount equal to the deflationary gap. decreasing investment of DI amount, to establish the
Fiscal policy measures: Fiscal policy is the budgetary full employment equilibrium level of income, i.e. OQ in
policy, i.e. expenditure and taxation policy of the government. the economy.
• Increase in government expenditure: To control Impact of excess demand in the economy:
deflation, the government may raise public expenditure. • On employment: There is no further possibility/scope of
This step may result in an increase in the level of Aggregate creating more employment opportunities because at full
Demand in the economy by raising the income of people. employment level, all the resources are already fully and
• Decrease in taxes: To control deflation, the government may efficiently employment.
reduce the tax rates. This step may increase the disposable • On output and income: Output (i.e. real income) cannot
income (purchasing power) in the hands of the general increase because full employment level of output is the
public. Consequently, it may lead to a rise in Aggregate largest output that the economy is capable of producing
Demand, thereby controlling the situation of deflation. since all resources are fully employed. However, nominal
Monetary policy measures — Increase in money supply: income (i.e. money income) increases due to rise in general
Central bank through its expansionary monetary policy can price level.
increase the money supply in the economy. Central bank can • On general price level: Since production cannot be
use tools like bank rate, cash reserve ratio, repo and reverse increased beyond the full employment level, therefore,
repo rates etc. to ensure greater money in the hands of general increase in aggregate demand here onwards, will only
public, which would in turn increase the aggregate demand increase the general price level. Inflationary gap is called
in the economy and be helpful in reducing/removing the inflationary because it leads to rise in general price level.
deflationary gap. (already discussed in ‘Money and Banking’) Remedy to correct the situation of excess demand and
inflationary gap: The aggregate demand must be decreased
3.8 Excess demand and inflationary gap by an amount equal to the inflationary gap.
In an economy, when aggregate demand is more Fiscal policy measures:
than the aggregate supply, corresponding to the full • Reduction in Government Expenditure: To curb the
employment level, it is a situation of excess demand. inflationary gap the government may reduce its non-
Excess demand gives developmental expenditure. This may reduce the purchasing
rise to inflationary power in the hands of the people which in turn will reduce
gap, which refers to the the AD in the economy to bring it equal to the AS
amount by which the • Increase in taxes: The government may raise the existing
aggregate demand exceeds taxes rates/levy new taxes to reduce the disposable income
the aggregate supply, in the hands of general public. This will help to manage
corresponding to the full inflationary situation in the economy.
employment level. Monetary policy measures — Decrease in money supply:
Aggregate demand is GQ, Central Bank can decrease the money supply in the economy by
which is more than FQ, using tools like bank rate, cash reserve ratio, repo and reverse
i.e. full employment level repo rates etc. to ensure lesser money in the hands of general
of aggregate supply. The public, which would in turn decrease the aggregate demand
inflationary gap is GF. in the economy and be helpful in reducing/removing the
inflationary gap. (already discussed in ‘Money and Banking’)
NOTES for 2024 Exam
Macroeconomics
Unit 4 6 Marks
Government
Budget and
the Economy
are injurious to health (e.g. liquor, cigarettes, tobacco,

4.1 Government Budget – Objectives
etc.) may be discouraged through taxation policy.
Government Budget is a financial statement of • Subsidies/Tax concessions: Production of goods of
estimated receipts and estimated expenditure of the socially beneficial nature may be encouraged through
central government during the upcoming fiscal year. subsidies.
Objectives/Functions of Government Budget are: • Expenditure policy/Direct participation in
1. Allocation of resources (Allocation function): production: If the private sector does not take initiative
Government seeks to allocate resources with a view to in certain activities (Public Goods), the government may
balance the goals of all sections of the society. directly control them like water supply, sanitation, law
• Taxation policy: Production of goods and services which and order, national defence, etc.
INDIAN ECONOMIC DEVELOPMENT
NOTES for 2024 Exam

Unit 8 8 Marks
Development
Experiences of India:
A Comparison with
Neighbours
Definitions 2. All the three countries adopted economic planning as

their core development strategies.
• ‘Township and village enterprises’ are those enterprises
which were owned and operated by local collectives.
• India announced its first Five Year Plan for 1951–56 in
• State Owned Enterprises (SOEs) are the enterprises owned 1951. Until March 2017, India had been following ‘Five
by government in China, which we, in India, call Public Sector Year Plan’ based development model.
Enterprises. • Pakistan announced its first five year plan, now called
• Gender Ratio (or sex ratio) means the proportion of females per the Medium Term Development Plan, in 1956. Since
1000 males. 2018, Pakistan is working on the basis of 12th Five Year
• Fertility Rate means the number of kids per female. Development Plan (2018–23).
• HDI (Value): HDI is an important indicator of socio-economic
• China announced its First Five Year Plan in 1953. Presently,
development. Higher value of HDI shows higher level of growth
and development of a nation.
China is working on 14th Five Year Plan (2021–25).
• HDI (Rank) : HDI values are used to create ranking of 3. Till the 1980s, all the three countries had similar
different countries. Higher rank indicates lower socio-economic growth rates and per capita incomes.
development and vice-versa. Post-1947 India and Pakistan adopted similar
• Income indicators: Gross National Income per capita, developmental strategies for their respective
Proportion of population below poverty line, etc.
• Health indicators: Mortality Rates (Infant Mortality Rate and
development paths.
Maternal Mortality Rate), Access to Sanitation, Literacy, Life 1. Both the countries had started planning their development
Expectancy, Malnourishment, etc. strategies in similar ways — using five-year plans.
2. Both the nations have followed the path of mixed economic
India Pakistan China structure involving the co-existence of public and private
largest democracy of Militarist political The command sectors.
the world, a secular power structure; economy; recently
3. India and Pakistan adopted similar strategies, such as
state with deeply recently started started moving
liberal Constitution. moving towards a towards a more creating a large public sector and raising public expenditure
democratic system. liberal economic on social development.
restructuring. 4. Both India and Pakistan adopted import substitution policy
Economic reforms Introduction of China introduced in order to protect their domestic industries from foreign
were initiated in economic reforms structural reforms in competition.
India in 1991. in Pakistan took 1978. Appraisal of the developmental journey of Pakistan since
place in 1988. 1947
India’s GDP (PPP) Pakistan’s GDP (PPP) China has the second • In the late 1950s and 1960s, Pakistan introduced import
is $9.03 trillion, is $ 0.94 trillion, largest GDP (PPP) of
substitution policy based industrialisation for protection
roughly about 41% roughly about 11% $22.5 trillion in the
China GDP. of India’s GDP. world. their domestic industries from foreign competition. The
Nations have been primarily trying to adopt various means introduction of Green Revolution led to mechanisation
which will strengthen their own domestic economies. and a rise in the production of foodgrains. This changed the
1. Formation of regional and global economic groupings agrarian structure dramatically.
such as the SAARC, European Union, ASEAN, G-7, G-8, G-20, • In the 1970s, nationalisation of capital goods
BRICS etc. Out of these, India is also a member of SAARC, industries was undertaken, whereas this policy was reversed
G-20 and BRICS. in the late 1970s and 1980s when the major thrust areas
2. Increasing eagerness to try and understand were denationalisation and encouragement of private
the developmental processes pursued by their sector. During this period, Pakistan received foreign aid
neighbouring nations. It allows them to better comprehend and remittances, which helped the country in stimulating
their own strengths and weaknesses vis-à-vis their neighbours. economic growth.
• In 1988, economic reforms were initiated in the country.
Developmental strategies of India, Pakistan and However, there had been a decline in economic growth.
I China in their respective development paths— Reasons for the slowdown of economic growth and re-
An Appraisal emergence of poverty in Pakistan’s economy
India, Pakistan and China have many similar 1. Volatile performance of the agricultural sector: In
developmental strategies in their respective Pakistan, agricultural growth and food supply situation were
development paths. not based on an institutional process of technical change but
1. All the three nations have started towards their on good harvest.
developmental path at the same time. While India 2. Over-dependence on remittances and foreign aid/
and Pakistan became independent nations in 1947, People’s loans: In Pakistan most foreign exchange earnings came
Republic of China was established in 1949. from remittances from Pakistani workers in the Middle-east.
xxxix
There was also growing dependence on foreign loans, and The reasons for the economic reforms in China were:
difficulty in paying back the loans. 1. The new leadership at that time in China was not happy with
3. Political instability: Political instability in Pakistan over a the slow pace of growth and lack of modernisation in
long period of time is one of the main reasons behind the the Chinese economy under the Maoist rule.
declining GDP growth rate in Pakistan. 2. They felt that Maoist vision of economic development based
During the last five years, Pakistan has recovered its economic on decentralisation, self-sufficiency and shunning
growth. In 2017-18, the Annual Plan 2019-20 reports that, the of foreign technology, goods and capital had failed.
GDP registered a growth of 5.5%, highest when compared to Despite extensive land reforms, collectivisation, the Great
the previous decade. While agriculture recorded growth rate Leap Forward and other initiatives, the per capita grain
far from satisfactory level, industrial and service sectors grew output did not increase.
at 4.9% and 6.2% respectively. Various factors that led to the rapid growth in economic
development in China
Development Journey of China since 1949 1. Establishment of infrastructure in the areas of education
• In 1949, after the establishment of People’s Republic and health even before the introduction of reforms.
of China under one-party rule, all critical sectors of the 2. Land reforms — Through the commune system, individual
economy, enterprises and lands owned and operated by households were allowed to keep all income from the land
individuals were brought under government control. after paying stipulated taxes. There was more equitable
• In 1953 China announced its first Five Year Plan. distribution of food grains.
• In 1958, the Great Leap Forward (GLF) campaign was 3. Long existence of decentralised planning — each
initiated, aimed at industrialising the country on a massive reform measure was first implemented at a smaller level
scale. Urban people were encouraged to set up industries and then extended on a massive scale. This enabled the
in their backyards, whereas, in rural areas, communes government to assess the economic, social and political costs
were established. Commune refers to a system of collective of success or failure. For instance, when reforms were made
farming in China under which people were made to cultivate in agriculture, by handing over plots of land to individuals for
farm lands collectively. cultivation, it brought prosperity to a vast number of poor
Problems faced by GLF campaign: people. It built up a strong support base for more reforms.
(i) A severe drought caused havoc in China killing about 30 India, Pakistan and China have travelled seven decades
million people. of developmental path with varied results.
(ii) When Russia had conflicts with China, it withdrew its • Till the late 1970s, all of the three countries — were
professionals from China. These experts were earlier sent maintaining the same level of low development.
to China to boost/support the industrialisation process. • The last four decades have taken these countries to different
• In 1965, Mao introduced the Great Proletarian Cultural levels.
Revolution (1966–76). Students and professionals India: India, with democratic institutions, performed
were asked to work and learn from the real life situations moderately. India’s GDP growth rate increased from 5.7% p.a.
prevailing in the countryside of China. to 7.3% p.a. during 1980-2018. But a majority of its people in
• The present day fast industrial growth in China can India still depend on agriculture. Infrastructure is lacking and
be traced back to the reforms introduced in 1978. more than 20% of its population still live below poverty line.
(i) China introduced reforms in phases. Pakistan: There has been a decline in the annual growth of
Initial phase: Reforms were initiated in agriculture, GDP in Pakistan due to political instability, over-dependence
foreign trade and investment sectors. In agriculture, on remittances and foreign aid and volatile performance of
for instance, commune lands were divided into small agriculture sector. Yet, last five years, many macroeconomic
plots, which were allocated (for use not ownership) to indicators began showing positive and moderate growth
individual households. They were allowed to keep all rates reflecting the economic recovery.
income from the land after paying stipulated taxes. China: China used the ‘market system without losing political
Later phase: Reforms were initiated in the industrial commitment’ and succeeded in raising the level of growth
sector. Private sector firms and Township and Village along with alleviation of poverty. By retaining collective
enterprises were allowed to produce goods. At this ownership of land and allowing individuals to cultivate lands,
stage, State Owned Enterprises (SOEs) were made to China has ensured social security in rural areas.
face competition.
(ii) The reform process also involved ‘Dual Pricing’ India, China and Pakistan — Comparison
concept. This means fixing the prices in two ways; of Issues: Economic Growth, Sectoral
II
farmers and industrial units were required to buy and Development, Demographic Indicators and
sell fixed quantities of inputs and outputs on the basis Human Development Indicators
of prices fixed by the government and the rest were Economic Growth (Growth Rate of Gross Domestic Product)
purchased and sold at market prices. Over the years, as • When many developed countries were finding it difficult to
production increased, the proportion of goods or inputs maintain a growth rate of even 5% p.a., China was able
transacted in the market also increased. to maintain near double-digit growth (10.3% p.a.) during
(iii) In order to attract foreign investments and technology, 1980s.
Special Economic Zones (SEZs) were set up. Thus, • In the 1980s, Pakistan was ahead of India with 6.3% p.a.
China adopted the ‘Open Door Policy’. SEZs policy has GDP growth rate, whereas India was at the bottom having
led to huge FDI flow into China. annual growth rate of 5.7% p.a. only.
Why did China introduce structural reforms in 1978? • During 2015-2017, there has been a decline in Pakistan and
China did not have any compulsion to introduce reforms as China’s growth rates, whereas, India was at the top with
dictated by the World Bank and IMF to India and Pakistan. moderate increase in growth rate of 7.3% p.a.
xl
Sectoral Share of Employment and GVA (%) Density (per sq. km): Though China is the largest nation
Contribution to GVA Distribution of Workforce and geographically occupies the largest area among the three
Sector
India China Pakistan India China Pakistan nations, its density is the lowest.
Agriculture 16 7 24 43 26 41 Gender Ratio (or Sex Ratio): Gender ratio is low and
Industry 30 41 19 25 28 24 biased against females in all three countries — India, China and
Services 54 52 57 32 46 35 Pakistan. Scholars cite ‘Son Preference’, i.e. preference for a
Total 100 100 100 100 100 100 male child prevailing in all these countries also as the reason for
Agricultural sector: In China, with 26% of its workforce low sex ratio. Scholars point out the ‘One-Child’ norm introduced
engaged in agriculture, its contribution to the GVA is 7%. In both in China led to a decline in the sex ratio. However, amongst the
India and Pakistan, the contribution of agriculture to GVA were three countries, India has most skewed data sex ratio or gender
16% and 24%, respectively, but the proportion of workforce that ratio(924 female per 1000 male).
works in this sector is more in India. Fertility rate: China has a lower fertility rate than its neighbours
Industrial sector: In India, industry workforce account for which can be attributed to its One-Child policy. Pakistan has the
25% but produces goods worth 30% of GVA. 24% of Pakistan highest fertility rate amongst the three countries.
workforce is engaged in industry but it produces 19% of GVA. Due to ‘One-Child’ norm introduced in China in the late 1970s
In China, industries contribute to GVA at 41%, and employ 28% after a few decades, in China, there will be more elderly people
of workforce. in proportion to young people. This led China to allow couples
Services/tertiary sector: In all the three countries the to have two children.
service sector is emerging as a major player of development
Urbanisation: Amongst the three countries urbanisation is
and a prospective employer. China has the largest workforce in
highest in China, i.e. a greater % of population in China would
its service sector as compared to India and Pakistan. However,
have access to social infrastructure, improved transport and
the contribution of the service sector to GVA is the highest in
communication networks. Pakistan is ahead of India.
Pakistan.
Indicators of Human Development, 2017-2019
Trends in Output Growth in Different Sectors, 1980–
Item India China Pakistan
2018(%) Human Development Index (HDI) Value 0.645 0.761 0.557
1980–1990 2014-2018 Rank (based on HDI) 130 87 154
Country
Agriculture Industry Service Agriculture Industry Service Income Indicators
India 3.1 7.4 6.9 3.1 6.9 7.6 • Gross National Income per capita (PPP US$) 6,681 16,057 5,005
China 5.9 10.8 13.5 3.1 5.3 7.1 • Percentage of People living Below Poverty Line (National) 21.9 1.7 24.3
Pakistan 4 7.7 6.8 1.7 4.8 5.0 Health Indicators
Agricultural sector: During the period 1980-2018, the output • Life Expectancy at Birth (years) 69.7 76.9 67.3
• Infant Mortality Rate (per 1000 live births) 29.9 7.4 57.2
growth of agricultural sector in India remained the same (3.1% • Maternal Mortality Rate (per 1 lakh births) 133 29 140
p.a.). Even after 70 years of planned development, majority of • Population using at least basic Sanitation (%) 60 75 60
• Mean years of Schooling (% aged 15 and above) 6.5 8.1 5.2
the workforce in India depends on agriculture. However, the • Population using at least basic drinking Water Source (%) 93 96 91
growth of agricultural sector of China and Pakistan has declined. • Percentage of Undernourished/Malnourished Children 37.9 8.1 37.6
Industrial sector: In the industrial sector, during this period, China is moving ahead of India and Pakistan. This is
all the three countries — India, China and Pakistan have shown true for many indicators — Income indicators or Health
deceleration, i.e. decline in growth rates. indicators.
Services/tertiary sector: In case of service sector, China was • China and India are ahead of Pakistan in reducing proportion
able to maintain a double-digit growth rate of 13.5% p.a. during of people below the poverty line. China has the smallest
1980-1990, which declined to just 7.1% p.a. during 2014-2018. share of poor among the three countries.
There was a positive and increasing growth of India’s service • India and Pakistan have not been able to save women from
sector output, which increased from 6.9% p.a. to 7.6% p.a. maternal mortality, where for one lakh births, about 133 and
during this period. In Pakistan, there was a declining trend in 140 women die respectively. Whereas, in China, for one lakh
growth of service sector output, which declined to 5.5% p.a. births, only 29 women die.
from 6.8% p.a. during this period. • China is also ahead of India and Pakistan to improve its
India’s economic growth is contributed by the service performance in sanitation.
sector and China’s economic growth is contributed by the • Surprisingly all the three countries report providing improved
manufacturing and service sectors. drinking water sources for most of its population.
Demographic Indicators , 2017-18 Liberty Indicators
Estimated Annual Density Sex Fertility Urbanisation
Liberty Indicator may be defined as the measure of the
Country Population Growth of (per sq. Ratio Rate extent of demographic participation in the social and
(in million) Population km) political decision making.
India 1352 1.03 455 924 2.2 34 Although Human Development Indicators are all extremely
China 1393 0.46 148 949 1.7 59
Pakistan 212 2.05 275 943 3.6 37
important indicators; but these are not sufficient. Along with
these, we also need to add ‘liberty indicators’. Some obvious
Annual Growth of Population: The annual growth rate of
‘liberty indicators’ have not even been introduced so far, such as:
population is maximum in Pakistan standing at 2.05%, whereas,
• Measures of ‘the extent of Constitutional protection given to
the same stands at a meager 0.46% in case of China. The annual
rights of citizens’, or
population growth rate of India (1.03%) is in the danger zone
• Measures of ‘the extent of constitutional protection of the
of more than 1% p.a. India will be overtaking China as the most
Independence of the Judiciary and the Rule of Law’.
populous country in the world in near future. China could arrest
Without including liberty indicators, and giving them overriding
its annual population growth rate with the implementation of
importance in the list, the construction of a Human Development
some stringent measure in late 1970’s, like the introduction of
Index (HDI) may be said to be incomplete and its usefulness limited.
‘One Child Norm’.
Multiple Choice Questions
(Chapter-wise)
(Strictly as per CBSE Standards and
Expectations for 2024 Examination)
Determination of Income and Employment ECONOMICS XII Exam Handbook 51
(for CBSE Examination 2024)
Determination
of Income and
Employment
Multiple Choice Questions (MCQs)
1. To control recession, which of the following can be appropriate:

(a) Reducing Repo Rate (b) Reducing CRR
(c) Both (a) and (b) (d) None of (a) and (b)
2. The central bank can combat deflationary situation in the economy by increasing availability of credit through:
(a) Raising repo rate (b) Raising reverse repo rate
(c) Buying government securities (d) Selling government securities
3. To soak the liquidity from the market:
(a) Government securities should be purchased
(b) Government securities should be sold
(c) Repo rate should be decreased
(d) Cash reserve ratio should be decreased
4. In order to encourage investments in the economy, the Central Bank may __________.
(a) Reduce Cash Reserve Ratio
(b) Increase Statutory Liquidity Ratio
(c) Sell Government Securities in Open Market
(d) Increase Bank Rate
5. ______________ (Aggregate Demand/Aggregate Supply) refers to total ex-ante expenditure in an economy during
an accounting year.
(a) Aggregate Demand (b) Aggregate Supply
(c) National Income (d) None of these
6. If Marginal Propensity to Save (MPS) is equal to zero, it indicates that the National Income of the economy will be
______________ .
(a) 0 (b) 1
(c) < 1 (d) not defined (∞)
7. The process of buying and selling of securities by the Central Bank of a country is known as ____________ .
(a) Margin Requirement (b) Open Market Operations
(c) Cash Reserve Ratio (d) Statutory Liquidity Ratio
8. Cut in Repo rate by RBI is likely to _________________ the demand for goods and services in the economy.
(a) increase (b) decrease
(c) double (d) None of these
52 ECONOMICS XII Exam Handbook Shree Radhey Publications (Subhash Dey)
9. Decrease in Cash Reserve Ratio will lead to _________.

(a) fall in aggregate demand (b) no change in aggregate demand
(c) rise in aggregate demand (d) fall in general price level
10. The difference by which actual Aggregate Demand exceeds the Aggregate Demand, required to establish full
employment equilibrium is known as ___________.
(a) deflationary gap (b) inflationary gap
(c) full employment equilibrium (d) under employment equilibrium
11. The impact of ‘Excess Demand’ under Keynesian theory of income and employment, in an economy are:
(a) decrease in income, output, employment and general price level
(b) decrease in nominal income, but no change in real output
(c) increase in income, output, employment and general price level
(d) no change in output/employment but increase in general price level.
12. Average Propensity to Consume can never be:
(a) positive (b) zero
(c) more than one (d) less than one
13. The monetary policy generally targets to ensure _______.
(a) price stability in the economy (b) employment generation in the country.
(c) stable foreign relations. (d) greater tax collections for the government.
14. In an economy, break-even point and equilibrium point may lie at the same level of income, if ex-ante investments
are ___________.
(a) equal to ex-ante savings (b) equal to national income
(c) Zero (d) None of these
15. In case of an underemployment equilibrium, which of the following alternative is not true?
(a) Aggregate demand is equal to Aggregate supply
(b) There exist excess production capacity in the economy
(c) Resources are not fully and efficiently utilised
(d) Resource are fully and efficiently utilised
16. In order to control the money supply in the economy, and thereby the situation of excess demand, the Central
Bank may __________.
(a) buy securities in the market (b) sell securities in the market
(c) reduce cash reserve ratio (d) reduce repo rate
17. Suppose in a hypothetical economy, the income rises from `500 crores to `600 crores. As a result, the consumption
expenditure rises from `400 crores to `500 crores. Marginal propensity to consume in such a case would be
____________ .
(a) 0.8 (b) 0.4
(c) 1.0 (d) 0.6
18. If the entire additional income of an economy is consumed, the value of investment multiplier will be __________.
(a) Zero (0) (b) Not defined (∞)
(c) One (1) (d) Ten (10)
19. If the value of Average Propensity to Consume (APC) is 0.8 and National Income is `4,000 crore, the value of
savings will be ___________.
(a) `100 crores (b) `200 crores
(c) `800 crores (d) `500 crores
20. Under Statutory Liquidity Ratio, commercial banks are required to keep a fraction of _____ in the form of liquid assets.
(a) Total deposits (b) Term deposits
(c) Net total demand and term deposits (d) Current deposits
21. The main aim of monetary policy is ___________.

(a) to bring price stability in the economy (b) employment generation in the country
(c) to increases trade surplus (d) to generate greater tax revenue.
22. To reduce credit availability in the economy, the Central Bank may ________.
(a) buy securities in the open market. (b) sell securities in the open market.
(c) reduce reserve ratio. (d) reduce repo rate.
23. According to the theory of Keynesian Economics, the value of Average Propensity to consume can never be
____________.
(a) Zero (b) Unity
(c) More than one (d) Less than one
24. If income rises from `50,000 to `60,000, consumption increases from `40,000 to `48,000. In this situation, what
will be the value of Marginal propensity to Consume (MPC)?
(a) 0. 80 (b) 0.10
(c) 0.10 (d) 0.90
25. If Marginal Propensity to Save (MPS) is 0.25 and initial change in investment is `250 crores, then the final change
in income would be ________.
(a) `1,000 crores (b) `1,200 crores
(c) `500 crores (d) `3,500 crores
26. If the savings curve of an economy is parallel to x-axis, the consumption curve will:
(a) be parallel to x-axis
(b) be a horizontal line
(c) positively sloped, forming a 45° angle from horizontal line.
(d) None of these
27. In an economy, aggregate demand function is given by:
AD = `160 crore + 0.8Y
Autonomous consumption = `100 crore
The values of autonomous investment and MPS will be:
(a) `100 crore, 0.8 (b) `160 crore, 0.8
(c) `60 crore, 0.8 (d) `60 crore, 0.2
28. If C = Y, the value of multiplier (k) will be:
(a) 1 (b) 2
(c) Infinity (d) None of these
29. If the people of an economy consume only a part of the additional income what can you say about the value of
multiplier?
(a) k = 1 (b) k > 1
(c) k = ∞ (d) None of these
30. If MPC > MPS, value of multiplier will be:
(a) k > 1 (b) k > 2
(c) k > 5 (d) None of these
31. Which of the following represents the rate of growth of an economy?
(a) MPC (b) MPS
(c) Investment multiplier (k) (d) None of these
32. Which of the following carries a direct relationship with the rate of growth of an economy?
(a) APC (b) MPC
(c) APS (d) MPS
33. In real world situations, what is the value of investment multiplier?

(a) k = 1 (b) k > 1
(c) k < ∞ (d) k = ∞
34. In an economy, an initial increase in investment leads to an equal increase in national income. Comment on the
shape of the consumption curve of this economy.
(a) The consumption curve will be upward sloping.
(b) The consumption curve will be downward sloping.
(c) The consumption curve will be a horizontal line.
(d) The consumption curve will be a 45° line from origin.
35. In an economy, aggregate demand function is given by:
AD = 80 + 0.75Y
The value of investment multiplier will be:
(a) 0 (b) 1
(c) 4 (d) 1.33
36. Given the consumption function of an economy:
C = `100 crore + 0.8 Y
The equilibrium level of income is `800 crore.
The values of the two components of the consumption function when the economy is in equilibrium are ______ .
(a) Autonomous Consumption = `100 crore; Induced consumption = `640 crore
(b) Autonomous Consumption = `100 crore; National Income = `700 crore
(c) Autonomous Consumption = `100 crore; Savings = `640 crore
(d) Autonomous Consumption = `100 crore; Induced consumption = `900 crore
37. What causes the Aggregate Demand Curve swing downwards from AD1 to AD2?
(a) Increase in MPC (b) Decrease in MPC

(c) Increase in MPS (d) Decrease in MPS
38. The impact of ‘Excess Demand’ under the Keynesian theory of income and employment, in an economy are:
(a) Decrease in output, income, employment and price level.
(b) Increase in output, income employment and price level.
(c) Rise in the price level and the nominal income but no change in the output and employment.
(d) Increase in output, income and employment; but no change in the price level.
39. In the given figure, what does the gap ‘KT’ represent?
(a) A situation of Deficient Demand (b) A situation of Excess Demand

(c) Full employment equilibrium (d) None of these
40. A change in initial investment causes a change in final income by an amplified amount, which is a multiple of the
change in initial investment and depends upon the value of ____________.
(a) Investment Multiplier (b) Average propensity to consume
(c) Marginal propensity to consume (d) Marginal propensity to save
41. Which of the following is not true for MPC in an economy?
(a) MPC can be zero. (b) MPC may lie between zero and one.
(c) MPC can exceed one (d) Both (b) and (c)
42. As income increases, APC ______while APS _______.
(a) increases, decreases (b) decreases, increases
(c) increases, does not change (d) does not change, increases
43. Which of the following is the equilibrium condition in a two sector economy?
C C
(a) Y = (b) Y =
MPS 1 − MPS
(c) Y = C + I (d) Y = C + I
1 − MPC MPC
44. The consumption function of an economy is given by:
C = `100 crore + 0.8Y
In this economy, national income increases by `500 crore, what is the increase in autonomous expenditure in the
economy?
(a) `100 crore (b) `500 crore
(c) `600 crore (d) Nil
45. If C = 100 + 0.75 Y, then the corresponding Savings Function will be expressed as:
(a) S = 100 + 0.25Y (b) S = –100 + 0.75Y
(c) S = –100 + 0.25Y (d) S = 75 + 0.25Y
46. If the savings function of an economy is given as:
S = –100 + 0.40Y, then MPC is:
(a) 1 (b) 0.40
(c) 0.60 (d) None of these
47. When aggregate demand is greater than aggregate supply, inventories _ _____________ .
(a) fall (b) rise
(c) do not change (d) first fall, then rise
48. Aggregate demand can be increased by:
(a) increasing bank rate (b) selling government securities by Reserve Bank of India
(c) increasing cash reserve ratio (d) none of the above
49. The saving function of an economy is:
S = –10 + 0.20Y
If the planned investment is `100 crores, aggregate demand at income of `300 crores will be:
(a) `550 crores (b) `350 crores
(c) `300 crores (d) `100 crores
50. In which one of the following situation, there will be unplanned increase in inventory of unsold goods?
(a) AD > AS (b) AD = AS
(c) AD < AS (d) None of these
51. At zero level of income consumption is
(a) zero (b) positive
(c) negative (d) zero or negative
52. Break even point occurs when
(a) Y = S (b) S = 0
(c) C > Y (d) Y > C
53. Suppose in a hypothetical economy, the income rises from `5,000 crores to `6,000. As a result, the consumption
expenditure rises from `4,000 crores to `4,600 crores. Marginal propensity to consume in such a case would be
__________.
(a) 0.8 (b) 0.4
(c) 0.2 (d) 0.6
54. If marginal propensity to save is 20% and is constant at all levels of income and the subsistence level of the
consumption in the economy is `100 crore, the consumption function of this hypothetical economy will be:
(a) C = 0. 2Y (b) C = 0.8Y
(c) C = `900 crore + 0.2Y (d) C = `100 crore + 0.8Y
55. The savings function of an economy is given as:
S = – 10 + 0.2Y. If the ex-ante investment are `240 crore, what will be the additional investments needed to double
the present level of equilibrium income?
(a) `500 crore (b) `250 crore
(c) `750 crore (d) `1,000 crore
Answer Key
1. (c) 2. (c) 3. (b) 4. (a) 5. (a) 6. (d) 7. (b) 8. (a)
9. (c) 10. (b) 11. (d) 12. (b) 13. (a) 14. (c) 15. (d) 16. (b)
17. (c) 18. (b) 19. (c) 20. (c) 21. (a) 22. (b) 23. (a) 24. (a)
25. (a) 26. (c) 27. (d) 28. (d) 29. (b) 30. (b) 31. (c) 32. (b)
33. (b)/(c) 34. (c) 35. (c) 36. (a) 37. (b) 38. (c) 39. (a) 40. (c)
41. (c) 42. (b) 43. (c) 44. (a) 45. (c) 46. (c) 47. (a) 48. (d)
49. (b) 50. (c) 51. (b) 52. (b) 53. (d) 54. (d) 55. (b)
Assertion-Reasoning
and
Statements
Based MCQs
(Chapter-wise)
Multiple Choice Questions (MCQ)

on Assertion-Reasoning Type/ Statements
1. Read the following statements - Assertion (A) & Reason (R) carefully & choose the correct alternative:
Assertion (A): To increase the money supply in the economy, Central Bank reduces the margin requirement.
Reason (R): Decrease in margin requirements enhances the borrowing capacity of public, which raises the money
supply in the economy.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation for Assertion (A).
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation for Assertion (A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
2. Read the following statements carefully and choose the correct alternative:
Statement I: Marginal requirement is raised by the Central Bank to control the situation of deficient demand.
Statement II: To reduce inflation, the Central Bank should reduce Cash Reserve Ratio (CRR).
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement I is true, Statement II is false. (d) Statement II is true, Statement I is false.
Statement I: Effective demand is defined as that level of output and employment where Aggregate Demand is
equal to Aggregate Supply.
Statement II: As per Keynesian theory in an economy, full employment can never exist.
Statement I: Deflationary gap indicates deficient demand in an economy.
Statement II: Average propensity to save (APS) is the ratio of total saving and total income.
Statement I: In an economy, the consumption curve is parallel to x-axis. The value of investment multiplier will
be zero.
Statement II: In an economy, the savings curve is parallel to x-axis. The value of investment multiplier will be infinity.
6. There are two statements given below, marked as Assertion (A) and Reason (R). Read the statements and choose
the correct option.
Assertion (A): The value of MPC can exceed one.
Reason (R): When income changes, change in consumption can never exceed the change in income.
(a) A is true but R is false. (b) A is false but R is true.
(c) Both A and R are true and R explains A. (d) Both A and R are true but R does not explain A.
Statement I: The value of MPS ranges from 0 to 1.
Statement II: If in an economy, the consumption and savings curves are parallel to each other, the value of
investment multiplier will be 2.
the correct option.
Assertion (A): Ex-post value of total output is always equal to the ex-post aggregate expenditure in the economy.
Reason (R): Ex-post value of total output (Y) must always be equal to the sum total of ex-post consumption
expenditure (C) and ex-post investment expenditure (I) in the economy.
Assertion (A): The level of output determined by the equality of Y and AD necessarily mean the level of output at
which everyone is employed.
Reason (R): The equilibrium level of output may be greater than the full employment level of output (the situation
of excess demand) or less than the full employment level of output (the situation of deficient demand).
Statement I: In order to understand the determination of national income, we need to know the ex-post values of
the components of aggregate demand.
Statement II: In the Keynesian analysis of determination of equilibrium level of income in the short-run, aggregate
demand curve is parallel to consumption curve because they have the same slope, i.e. MPC.
the correct option.
Assertion (A): As MPC becomes larger the multiplier increases.
Reason (R): There is a direct/positive relation between MPC and value of multiplier. Thus, as MPC rises, the value
of multiplier increases as k = 1/(1 – MPC).
Statement I: The ratio of the total increment in equilibrium value of final goods output to the initial increment in
autonomous expenditure is called Investment multiplier of the economy.
Statement II: Full employment means absence of involuntary unemployment.
Statement I: If the equilibrium level of output is more than the full employment level, this situation is called the
situation of excess demand.
Statement II: There exists direct relationship between marginal propensity to save and investment multiplier.
the correct option.
Assertion (A): The point at which consumption curve intersects the 45 degree line, APS is zero.
Reason (R): Because at this point (called Break-even point), consumption is equal to income and hence, saving is
zero. Therefore, APS = S/Y = 0/Y = 0

Assertion (A): The value of marginal propensity to save can never be negative.
Reason (R): MPS = DS/DY. When income increases (DY is positive), savings also increases (DS is positive); so MPS
is positive. Also, when income decreases (DY is negative), savings also decreases (DS is negative); so MPS is positive.
Statement I: If MPS = 1, change in national income will be exactly equal to change in investment.
Statement II: The savings function of an economy is given as S = –10 + 0.20Y. If the planned investment is `100
crore, the equilibrium level of income in the economy will be `550 crore.
Statement I: If ex-ante investments are greater than ex-ante savings, it will lead to increase in planned inventories.
Statement II: In an economy the equilibrium level of income is `10,000 crore. Due to change in autonomous
expenditure by `1,000 crore, the aggregate demand curve shifts upward parallel to itself with slope remaining the
same at a value of 0.8. The new equilibrium level of income will be `15,000 crore.
Statement I: The slope of the savings curve in an economy is 0.1 and change in final income is `15,000. The
change in initial investment was `1,500 crore.
Statement II: The consumption function of an economy is C = 40 + 0.8Y (amount in ` crores). The level of
income where average propensity to consume will be one is `500 crore.
Statement I: The planned values of the variables are called their ex-post measures; whereas, the actual (or realised
or accounting) values of the variables is called their ex-ante measures.
Statement II: The ex-ante variables (e.g. ex-ante consumption, ex‑ante investment, etc.) are the basis of
determination of national income.
Assertion (A): Ex-ante savings and ex-post savings are always equal.
Reason (R): Ex-ante savings are those which all the households plan to make at different levels of income during a
period, whereas ex-post savings are the actual amount of savings made in the economy during a period.
Statement I: In the consumption function C = a + bY, 'a' is consumption expenditure at zero income and 'b'
represents the slope of the consumption function.
Statement II: Autonomous consumption is called autonomous because the consumption expenditure does not
depend upon the level of income.
Statement I: In the consumption function C = a + bY, 'bY' represents induced consumption.
Statement II: In Keynesian analysis, MPC is assumed to be constant; the consumption curve will be a straight line
parallel to X-axis.
Assertion (A): MPC represents the slope of the consumption function.
Reason (R): MPC represents change in consumption due to a given change in income.
Statement I: In Keynesian analysis, MPC is assumed to be constant.
Statement II: In reality, MPC has a tendency to decline.
the correct option.
Assertion (A): The consumption curve does not start from origin.
Reason (R): There is some minimum level of consumption even at zero level of income, called autonomous
consumption.
Statement I: The consumption curve starts from the negative Y-axis at a distance equal to autonomous consumption
Statement II: The 45° line from origin tells us whether consumption is equal to, greater than, or less than income.
Statement I: Break-even point is the point at which the level of consumption is equal to the income.
Statement II: When the consumption curve lies below the 45° line, APC > 1.
Assertion (A): The value of APC can be greater than one.
Reason (R): It is when total consumption is greater than total income (i.e., C > Y) before break even point, due to
the existence of autonomous consumption.
Statement I: In National Income Accounting, the terms like consumption, investment, income etc. were used in
the accounting sense – denoting actual values of these items.
Statement II: In order to understand the determination of income, we need to know the planned values of different
components of aggregate demand.
Assertion (A): APC is continuously increasing as income increases; and APS is continuously decreasing as income
increases.
Reason (R): As income increases, the proportion of income saved increases and the proportion of income consumed
decreases.
the correct option.
Assertion (A): APC can be zero.
Reason (R): Even at zero income, there has to be a minimum or subsistence level of consumption expenditure,
called autonomous consumption.
Statement I: MPS cannot be negative.
Statement II: The sum of the APC and MPC is always equal to one.
Statement I: APS can be negative, zero or positive.
Statement II: Both MPC and MPS range from 0 to 1.
Assertion (A): In Keynesian analysis, the investment curve always lies at the same height above the X-axis.
Reason (R): We assume that the level of investment demand is the same at every level of income, i.e., autonomous
investment, which is independent of income.
Statement I: MPC is the slope of aggregate demand curve.
Statement II: Aggregate Demand can change if there is change in consumption or/and change in investment.
Statement I: Aggregate demand curve is represented by a 45° line from the origin.
Statement II: In a two sector economy, there are only two components of aggregate demand, viz. Consumption
Expenditure and Investment Expenditure.
Assertion (A): Aggregate demand curve parallel to the consumption curve.
Reason (R): This is because they have the same slope, i.e. MPC.
Statement I: If planned demand falls short of planned output, there will be unplanned accumulation of inventories.
Statement II: Y = AD is a necessary condition for equilibrium level of income or output.
Assertion (A): If planned saving is less than planned investment, there will be unplanned decumulation of inventories.
Reason (R): It implies buyers are planning to buy more goods than producers are planning to produce. Thus, the
inventories in hand with the producers will start falling.
Statement I: In the short-run, we assume that an economy has unused resources – machineries, buildings and
labours. In such a situation, the law of diminishing returns will not apply; hence additional output can be produced
without increasing marginal cost. Accordingly, price level does not change even if the quantity produced changes.
Statement II: If ex-ante demand for final goods falls short of the output of final goods that the producers have
planned to produce in a given year, there will be unintended accumulation of inventories.
Statement I: Ex-ante aggregate supply is equal to ex-ante aggregate demand only when the final goods market, and
hence the economy, is in equilibrium.
Statement II: Ex-post value of total output is always equal to the ex-post aggregate expenditure in the economy.
Case Study Based MCQs
(Chapter-wise)
ANSWER KEY
1. (a) 2. (b) 3. (c) 4. (a) 5. (d) 6. (b) 7. (a) 8. (c)
9. (d) 10. (d) 11. (c) 12. (a) 13. (c) 14. (c) 15. (a) 16. (a)
17. (d) 18. (c) 19. (d) 20. (d) 21. (a) 22. (c) 23. (a) 24. (a)
25. (c) 26. (d) 27. (c) 28. (a) 29. (a) 30. (d) 31. (b) 32. (c)
33. (a) 34. (a) 35. (a) 36. (d) 37. (a) 38. (a) 39. (a) 40. (a)
41. (a)
Case
Study Case-based Multiple Choice Questions (MCQs)
CASE STUDY 1: Read the following News Report and answer Q. 1-4 on the basis of the same:
The Monetary Policy Committee of the Reserve Bank of India kept interest rates on hold Thursday even as it vowed to
keep policy sufficiently loose to help revive the coronavirus-battered economy. Accepting a key demand of lenders and
the corporate sector, the central bank cleared a one-time restructuring of loan accounts to bail out stressed borrowers,
including personal, small and medium loans.
The details of the loan restructuring scheme — expected to kick in after the moratorium on loan repayments ends August
31 — will be worked out by a committee headed by former ICICI Bank Chairman KV Kamath. The RBI also continued
to provide support on the liquidity front and opened a new targeted window for small lenders.
The central bank kept the repo rate unchanged at 4 per cent and reduced the reverse repo rate to 3.35 per cent.
Q.1 Suppose you are a member of the Monetary Policy Committee of the RBI. You have suggested the ________
(restriction/release) of the money supply be ensured to help revive the coronavirus-battered economy.
Q.2 “The Monetary Policy Committee of the RBI kept interest rates on hold...” Which of the following is highlighted
above by the term ‘interest rates’?
(a) Bank Rate and Repo Rate (b) Bank Rate and Lending Rate
(c) Repo Rate and Reverse Repo Rate (d) Bank Rate and Reverse Repo Rate
Q.3 What does the ‘Repo Rate’ mean?
(a) Rate at which banks borrow from the RBI for short-term.
(b) Rate at which banks borrow from the RBI for long-term.
(c) Rate at which banks deposit excess funds with the RBI.
(d) Rate at which banks lend funds to the public.
4. ‘Reduction in Repo Rate by RBI’ is likely to _________ (increase/decrease) the demand for goods and services in
the economy.
The six-member RBI panel expects the real GDP growth to be negative for the year 2020-21 as a whole. “An early
containment of the Covid-19 pandemic may impart an upside to the outlook. A more protracted spread of the pandemic,
deviations from the forecast of a normal monsoon and global financial market volatility are the key downside risks,” the
Monetary Policy Committee (MPC) said.
The RBI panel, which slashed the repo rate, the main policy instrument by 115 basis points to 4 per cent since February
this year, noted that like elsewhere, in India too, economic activity had started to recover from the lows of April-May, but
surges of fresh infections have forced re-clamping of lockdowns in several cities and states. “Consequently, several high
frequency indicators have levelled off,” it underlined.
The RBI Governer, Shaktikanta Das said the economy is experiencing unprecedented stress in an austere global
environment. “Extreme uncertainty characterises the outlook, which is heavily contingent upon the intensity, spread
and duration of the pandemic – particularly the heightened risks associated with a second wave of infections – and the
discovery of the vaccine,” he said.
Q.5 “...The real GDP growth to be negative for the year 2020-21 as a whole.” Which of the following is a fiscal
measure that may be taken by the Government of India to correct the Covid-19 pandemic?
(a) Cut in Repo Rate by the RBI. (b) Decrease the taxes.
(c) Increase in public expenditure. (d) Both (b) and (c)
Q.6 What does negative real GDP growth for the year 2020-21 signify?
(a) Real GDP of the year 2020-21 has decreased as compared to 2019-20.
(b) Real GDP of the year 2020-21 has become negative.
(c) Real GDP of the year 2020-21 is less than Nominal GDP of the same period.
(d) None of the above
Q.7 What will be the impact reduction in Repo Rate in the economy?
(a) Fall in aggregate demand (b) Rise in aggregate demand
(c) Rise in general price level (d) No change in aggregate demand
Q.8 “The RBI panel, which slashed the repo rate, the main policy instrument by 115 basis points to 4 per cent since
February this year...” What was the Repo Rate before February?
(a) 5.15 per cent (b) 4 per cent
(c) 1.15 per cent (d) 2.85 per cent
RBI Monetary Policy 2020
The key indicators of RBI Monetary Policy along with their current rates in the table given below:
Indicator Current Rate
CRR 3%
SLR 18.50%
Repo Rate 4.00%
Reverse Repo Rate 3.35%
Bank Rate 4.65%
On 9th October 2020, RBI has kept the Repo Rate unchanged at 4.00% and reduced reverse repo rate to 3.35%. In
addition to that, the bank rate stands at 4.65%. This has been done to limit the damage to the economy caused by the
Covid-19 and subsequent lockdowns.
Q.9 What does RBI Monetary Policy 2020 mean?
(a) It is the policy formulated by the RBI in 2020 related to expenditure and taxation of the government.
(b) It is the policy formulated by the RBI in 2020 related to money matters of the country,
(c) It is the policy formulated by the RBI in 2020 related to the government budget.
(d) It is the policy formulated by the RBI in 2020 related to the distribution of credit among users as well as the
rate of interest on borrowing and lending.
Q.10 What does the ‘Bank Rate’ mean?
(a) Rate at which banks borrow from the RBI for short-term.
(b) Rate at which banks borrow from the RBI for long-term.
(c) Rate at which banks deposit excess funds with the RBI.
(d) Rate at which banks lend funds to the public.
Q.11 Which of the following is a quantitative credit control technique of RBI?
(a) CRR (b) SLR
(c) Repo Rate (d) All of these
Q.12 Cut in Reverse Repo Rate is likely to __________ (increase/decrease) the demand for goods and services in the
economy during Covid-19 lockdowns.
RBI extends CRR and SLR relaxations for three more months.
Keeping in view the continuing of hardships faced by banks in terms of social distancing of staff and consequent strains on
reporting requirements, the Reserve Bank of India has extended the relaxation of the minimum daily maintenance of the
CRR of 80% for up to September 25, 2020. Currently CRR is 3% and SLR is 18.50%.
“As announced in the Statement of Developmental and Regulatory Policies of March 27, 2020, the minimum daily
maintenance of CRR was reduced from 90% of the prescribed CRR to 80% effective the fortnight beginning March 28,
2020 till June 26, 2020 that has now been extended up to September 25, 2020,” said the RBI.
Q.13 The full forms of CRR and SLR are:
(a) Current Reserve Ratio and Statutory Legal Reserves
(b) Cash Reserve Ratio and Statutory Legal Reserves
(c) Current Required Ratio and Statutory Legal Reserves
(d) Cash Reserve Ratio and Statutory Liquidity Ratio
Q.14 What will be the value of money multiplier?
(a) 33.33 (b) 5.4
(c) 4.65 (d) None of these
Q.15 SLR implies:
(a) Certain percentage of the total bank’s deposits has to be kept in the current account with RBI.
(b) Certain percentage of net total demand and time deposits has to be kept by the bank with themselves.
(c) Certain percentage of net demand deposits has to be kept by the banks with RBI.
(d) None of the above
Q.16 Decrease in CRR will lead to __________.
(a) fall in aggregate demand (b) rise in aggregate demand
(c) no change in aggregate demand (d) fall in general price level
Due to Covid-19, the Reserve Bank of India (RBI), cut Repo Rate to 4.4 % the lowest in at least 15 years. Also, it reduced
the CRR by 100 basis points. Previously, it was 4%. RBI governor Dr. Shaktikanta Das predicted a big global recession
and said India will not be immune. It all depends how India responds to the situation. Aggregate demand may weaken and
ease core inflation.
Q.17 CRR stands for:
(a) Cash Reserve Ratio (b) Current Reserve Ratio
(c) Cash Required Rate (c) Current Required Rate
Q.18 Cut in Repo Rate by RBI is likely to _____________ (increase/decrease) the aggregate demand in the Indian
economy.
Q.19 “... reduced the CRR by 100 basis points. Previously, it was 4%.” Thus, CRR is reduced to ___________.
Q.20 Besides reduction in CRR and Repo Rate, what other measures can be taken by the Government of India through
its budgetary policy to combat recession?
(a) Decrease the bank rate
(b) Sell government securities in the open market
(c) Increase margin requirements on secured loans
(d) Decrease taxes and increase government expenditure
Answer Key
1. release 2. (c) 3. (a) 4. increase 5. (d) 6. (a) 7. (b) 8. (a)
9. (b), (d) 10. (b) 11. (d) 12. increase 13. (d) 14. (c) 4.65 15. (b) 16. (b)
17. (a) 18. increase 19. 3% 20. (d)
Important Questions for
CBSE 2024 Exam
(Chapter-wise)
Some Important Questions

(for CBSE 2024 Examination)
Q.1 “To boost the falling demand in the economy during Covid-19, Reserve Bank of India recently reduced Repo
Rate and Reverse Repo Rate.” Elaborate the rationale behind the steps taken by the Central Bank. (4 marks)
Ans. Repo Rate is is the rate of interest at which central bank lends to commercial banks for their short term requirements.
Reverse Repo Rate is the rate of interest at which commercial banks can deposit their surplus funds with the central
bank, for a relatively shorter period of time.
The steps taken by the Central Bank to boost the falling demand in the economy are justified as the reduction in
the Repo rate and Reverse Repo Rate will increase the availability of funds in the market through the commercial
banks.
Rationale: A decrease in Repo/Reverse Repo Rate will push the commercial banks to reduce the lending rate and
will eventually make the borrowings cheaper for the general public. As a result the consumption demand in the
economy may increase.
Q.2 ‘India’s GDP contracted 23.9% in the April-June quarter of 2020-21 as compared to same period of 2019-20,
suggesting that the lockdown has hit the economy hard’. The Hindustan Times, 1st September 2020
State and discuss any two fiscal measures that may be taken by the Government of India to correct the
situation indicated in the above news report.(4 marks)
Ans. The situation suggests that Aggregate Demand is less than Aggregate Supply. Following two fiscal measures may be
taken to control it:
(a) Decrease in Taxes: To curb the situation, the government may decrease the taxes. This may increase the
purchasing power in the hands of the general public. This may increase the Aggregate Demand in the economy
to bring it equal to the Aggregate Supply.
(b) Increase in Government Expenditure: The government may also increase its expenditure. This may increase the
purchasing power in the hands of the general public which in turn may increase the Aggregate Demand in the
economy to bring it equal to the Aggregate Supply.
Q.3 Answer the following questions on the basis of given figure: (6 marks)

(i) What does the shaded area OS1B1 indicate?
(ii) What is the significance of point B?
(iii) At which level of income, Average Propensity to Consume will be equal to one and why?
(iv)
What is the significance of saving curve above the point B1?
(v)At which level of income Average Propensity to Save will be equal to zero and why?
(vi)
What does ‘OS1’ signify with respect to consumption curve?
Ans. (i)The shaded area AOB represents the dis-savings.
(ii)
Point B indicates break-even level of income where Consumption(C) is equal to Income (Y) or Savings (S) are
zero.
(iii) Average Propensity to Consume will be equal to one at point B, as here Average Propensity to Save is zero. The
correspending level of income = OB1
(iv) Point B indicates break-even level of income where Savings (S) are zero. Thus saving curve above the point B
signifies the positive savings at levels of income greater than OB1 level of income.
(v) APS will be equal to zero at point B1 as it indicates break-even level of income where savings (S) are zero or
consumption (C) is equal to Income (Y), i.e. at OB1 level of income.
(vi) ‘OS1’ is the amount of dissavings at zero level of income. Thus, with respect to consumption curve, ‘OS1’ signifies
Autonomous Consumption, i.e. consumption expenditure which is undertaken at zero level of income.
Q.4 Answer the following questions: (3 marks)
(a) Which of the two, average propensity to consume or average propensity to save, can be negative and why?
(b) Value of which of the following can be greater than one and why? Marginal Propensity to Consume
(MPC) or Average Propensity to Consume (APC)
Ans. (a) APC cannot be negative as even at zero level of income, there will be some minimum amount of consumption
(i.e. autonomous consumption) for survival. While, APS can be negative because at zero level of income, there
can be dis-savings.
(b) The value of Average Propensity to Consume (APC) can be greater than one. This is because total consumption
can be greater than total income, due to the existence of autonomous consumption.
Q.5 “An economy facing unintended accumulation of inventories would try to reduce aggregate demand.” Do you
agree with the given statement? Support your answer with valid reasons. (3 marks)
Ans. The given statement is not correct.
The situation of unintended accumulation of inventories arises when ex-ante aggregate demand is lesser than the
ex-ante aggregate supply. This would pile up the stock with the producers, thus to tackle this situation the economy
must increase AD.
Q.6 State which of the following statements are true or false. Give valid reasons. (4 marks)
(a) According to Keynesian theory of employment, the state of full employment is obtained only when the
economy is in equilibrium.
(b) In a two-sector economy, if consumption is equal to income, average propensity to save will be zero.
Ans. (a) The given statement is false – as per Keynesian theory of Employment the economy can be in equilibrium at
less than or more than full employment level also.
(b) The given statement is true – if the consumption and income are equal, the savings will be zero. Hence,
APS = S/Y = 0/Y = zero
(a) According to Keynesian theory of employment, Ex-Ante savings and Expost savings are always equal.
(b) In a two-sector economy if income is zero, consumption will also be zero.
Ans. (a) The given statement is false, as ex-ante savings are those which all the households plan to make at different
level of income during a period, whereas ex-post savings are the actual amount of savings made in the economy
during a period. So, the two may or may not be equal.
(b) The given statement is false, even at zero level of income there is still some minimum consumption
(autonomous consumption) in the economy, as it is essential for survival.
(a) According to Keynesian theory of employment, a state of under-employment can never exist in an
economy.
(b) In a two-sector economy, if income is zero, average propensity to consume will also zero.
Ans. (a) The given statement is false, according to Keynesian theory of employment the state of under employment can
exist. This may occur at that level of income where equilibrium between AD and AS happens at less than full
employment level.
(b) The given statement is false, because when income is zero, autonomous consumption may exist in economy
for survival, thus APC (C/Y) will not be zero.
Q.9 Giving valid reasons, state whether the following statements are true or false: (4 marks)
(a) An excess of aggregate demand over full employment level of aggregate supply represents a situation of
inflationary gap.
(b) If the ratio of Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) is 4 : 1,
the value of investment multiplier will be 4.
Ans. (a) The given statement is true; an excess of aggregate demand over full employment level of aggregate supply
represents a situation of inflationary gap, production cannot be increased beyond this level. Increase in AD
here onwards, will increase only the general price level.
(b) The given statement is false.
Let the value of MPS = x. Therefore, MPC = 4x.
We know that MPC + MPS = 1
x + 4x = 1
5x = 1
MPS (x) = 1/5 = 0.20
Substituting the value of MPS in k = 1/MPS = 1/0.20 = 5
Thus, the value of multiplier is 5 and not 4.
Q.10 Giving valid reasons, state whether the following statements are true or false: (4 marks)
(a) Ex-post investment means fixed capital with production units during a particular period of time.
(b) Marginal propensity to consume represents the slope of the consumption function.
Ans. (a) The given statement is false, as ex-post investment includes both fixed as well as inventory investment with the
production unit during a period of time
(b) The given statement is true, as it represents change in consumption due to a given change in income.
MPC = ΔC/ΔY
Q.11 In an economy C = 200 + 0.5 Y is the consumption function where C is the consumption expenditure and Y is
the national income. Investment expenditure is `400 crores. Is the economy in equilibrium at an income level
`1500 crores? Justify your answer. (4 marks)
Ans. Given, Consumption function (C) = 200 + 0.5Y, Investment (I) = 400, Level of income (Y) = 1500
At Equilibrium level → AD = AS
Y=C+I
thus, = (200 + 0.5Y) + 400 Y – 0.5 Y = 600 Y
= 600/0.5 = `1200 crores.
The equilibrium level of income = `1200 crores.
The given income (`1500 crores) is greater than equilibrium level of income (`1200 crores). Therefore, the
economy is not in equilibrium.
Q.12 Calculate the value of Marginal Propensity to Consume (MPC), if in an economy, autonomous consumption
is `500 crores, ex-ante investments are `4000 crores and equilibrium level of Income of the economy is
`18,000 crores. (3 marks)
Ans. We know that consumption function is: C = c + MPC. Y
At equilibrium level of Income in the economy Y = C + I
Given, Autonomous Consumption (C) = `500 crores and
Ex-ante Investments (I) = `4000 crores
18,000 = 500 + MPC (18,000) + 4,000
MPC (18,000) = 18000 – 4500
MPC = 13,500/18,000
MPC = 0.75
Q.13 In an economy, if initial investment are increased by `100 crores, discuss the working of investment multiplier
presuming marginal propensity to consume is 0.8. (4 marks)
Ans. The working of investment multiplier is based on the principle that one’s expenditure is another’s income.
Given initial investment = `100 crores and MPC = 0.8
Round Change in investment Change in income Change in consumption Change in saving
(ìn crores) (ìn crores) (ìn crores) (ìn crores)
I 100 100 80 20
II – 80 64 16
III – 64 51.2 12.8
– – – –
500 400 100
k = 1/(1 – MPC) ⇒ 1/0.2 = 5 ⇒ ∆Y = k × ∆ I = 5 × 100 ⇒ `500 crores
Q.14 On the basis of following information, identify whether the economy is in equilibrium or not: (3 marks)
S.No. Particulars Amount (in `)
(i) Autonomous Consumption and Investment Expenditure (A) `500 crores
(ii) Marginal Propensity to Save (MPS) 0.2
(iii) National Income `4,000 crores
Ans. The economy is in equilibrium when AD = AS (Y)
AD = A + MPC (Y)
AD = 500 + 0.8 (4,000) (Given Y = `4,000 and MPC = 1 – MPS = 1 – 0.2 = 0.8)
AD = 500 + 3200
AD = `3,700crores Therefore,
AD (`3,700 crores) < AS (`4,000crores), the economy is not in equilibrium.
Q.15 Answer the following questions based on the data given below: (6 marks)
(i) Planned Investments = `100 crore.
(ii) C = 50 + 0.50Y
(a) Determine the equilibrium level of income.
(b) Calculate the value of savings and consumption expenditure at equilibrium level of National Income.
(c) Calculate the value of Investment Multiplier.
Ans. (a) At Equilibrium AD = Y = C + I
Thus, Y = (50 + 0.5Y) + 100
Y – 0.5 Y = 150 ⇒ Y = 150/0.5 = `300 crores
So, equilibrium level of income = `300 crores.
(b) Consumption at equilibrium level of income C = 50 + 0.50 (300) = `200 crores.
Savings at equilibrium level of income S = Y – C = 300 – 200 = `100 crores.
(c) Investment Multiplier = 1/(1 –MPC) ⇒ 1/(1 – 0.5) = 2
Q.16 Calculate autonomous consumption and induced consumption from the following:
National income = `1000 crore, MPS = 0.25 and Consumption expenditure = `850 crore (3 marks)
Ans. C = C + bY, where b = MPC = 1 – MPS = 1 – 0.25 = 0.75
Therefore, 850 = C + 0.75 × 1000
850 = C + 750 ⇒ C = 100
(i) Autonomous consumption C = `100 crore
(ii) Induced consumption, bY = `750 crore
Q.17 Given the consumption function of an economy (4 marks)
C = 100 + 0.8Y
(a) Derive the corresponding savings function.
(b) What is the value of MPS?
(c) Show that in this economy as income increases, APC declines and APS increases.
(d) What is the level of income at Break-Even Point?
Ans. (a) C = 100 + 0.8Y
S = Y – C = Y – (100 + 0.8Y) = –100 + 0.2Y.
(b) From the consumption function, MPC = 0.8. Therefore, MPS = 1 – MPC = 1 – 0.8 = 0.2.
(c)
Y C S APC APS
1000 900 100 0.9 0.1
2000 1700 300 0.85 0.15
3000 2500 500 0.83 0.17
The table shows that as income increases from 1000 to 3000, APC declines from 0.9 to 0.83 but APS increases
from 0.1 to 0.17.
(d) At Break even point, C = Y
100 + 0.8Y = Y ⇒ 0.2Y = 100
Y = 100/0.2 = 500
Break even level of income = `500 crore
Q.18 Complete the following table: (3 marks)
Income APS MPC Consumption
1000 0.50 – 500
2000 0.55 – –
2500 0.60 – –
Ans.
Y DY C DC S APS MPC
1000 – 500 – 500 0.5 –
2000 1000 900 400 1100 0.55 0.4
2500 500 1000 100 1500 0.6 0.2
Q.19 Complete the following table: (4 marks)
Income Consumption APS MPS
400 240 0.4 –
800 440 – –
– 520 0.48 –
Ans.
Y DY C DC S DS APS APC MPS
400 – 240 – 160 – 0.4 0.6 –
800 400 440 200 360 200 0.45 0.55 0.5
1000* 200 520 80 480 120 0.48 0.52 0.6
*APC = C/Y. When APC = 0.52, C = 520
Therefore, 0.52 = 520/Y ⇒ Y = 520/0.52 = 1000
Q.20 Savings function of an economy is S = –200 + 0.25Y. The economy is in equilibrium when income is equal
to `2000 crore. Calculate: (i) Investment expenditure at equilibrium level of income and (ii) Autonomous
consumption. (4 marks)
Ans. (i) Equilibrium level of income Y = `2000 crore, Savings function S = –200 + 0.25Y
Savings at equilibrium level of income
S = –200 + 0.25(2000) = –200 + 500 = `300 crore
At equilibrium, planned savings and planned investment expenditure are equal. So, investment expenditure at
equilibrium level of income I = `300 crore
(ii) From the Savings function S = –200 + 0.25Y, we get dissavings at zero income = `200 crore, which is equal to
autonomous consumption. Therefore, autonomous consumption = `200 crore.
Q.21 Measure the level of ex-ante aggregate demand when autonomous investment and consumption expenditure
(A) is `50 crore, and MPC is 0.8 and level of income (Y) is `4000 crore. State whether the economy is in
equilibrium or not (cite reasons). (3 marks)
Ans. Sum of autonomous investment (I) and autonomous consumption (C) = A = `50 crore, MPC = b = 0.8 and
national income (Y) = `4000 crore
Ex-ante aggregate demand, AD = C + I = C + bY + I = (C + I) +bY = A + bY = 50 + 0.8 × 4000 = `3250 crore
Since AD (`3250 crore) is less than National Income (Y = `4000 crore), therefore, the economy is not equilibrium.
The economy is in equilibrium when AD = Y.
Q.22 In an economy the autonomous investment is ` 60 crore and the marginal propensity to consume is 0.8.
If the equilibrium level of income is ` 400 crore, then the autonomous consumption is ` 30 crore. True or
False? Justify your answer. (3 marks)
Ans. At equilibrium, Y = C + I
Y = C + bY + I ⇒ 400 = C + 0.8 × 400 + 60
400 = C + 320 + 60
Autonomous consumption C = `20 crore
The given value of autonomous consumption (`30 crore) is incorrect.
Q.23 If in an economy savings function is given by:
S = (–) 50 + 0.2 Y and Y = ` 2000 crore; consumption expenditure for the economy would be ` 1650 crore
and the autonomous investment is ` 350 crore and the marginal propensity to consume is 0.8. True or False?
Justify your answer with proper calculations. (3 marks)
Ans. Level of income Y = ` 2000 crore
Savings S = –50 + 0.2Y = –50 + 0.2(2000) = –50 + 400 = ` 350 crore
Consumption expenditure C = Y – S = 2000 – 350 = `1650 crore (Which is true.)
From the savings function equation, MPS = 0.2
MPC = 1 – MPS = 1 – 0.2 = 0.8 (Which is true.)
At equilibrium level of income, Savings = Investment = `350 crore (Which is also true.)
Thus, all the given values are correct.
Q.24 Calculate Marginal Propensity to Consume from the following: (3 marks)
Equilibrium income ` 350
Consumption expenditure at zero income ` 20
Investment ` 50
Ans. Consumption expenditure at zero income (Autonomous consumption) C = 20,
Equilibrium income Y = 350, Investment I = 50
Consumption function equation (C) = C + bY = 20 + 350b
At equilibrium level of national income Y = C + I
350 = 20 + 350b + 50
⇒ 350 = 70 + 350b
350b = 350 – 70 = 280
b = 280/350 = 4/5 = 0.8
\ Marginal propensity to consume = 0.8
Q.25 If in an economy C = 500 + 0.9 Y and I = `1000 crore. (Where C = Consumption expenditure, Y = National
income, I = Investment). Calculate the following:
(i) Equilibrium level of income
(ii) Value of investment multiplier (4 marks)
Ans. (i) Equilibrium level of income will be determined when
Y = C+I
Y = 500 + 0.9Y + 1000
Y – 0.9Y = 1500
Y = 1500/0.10 = `15000 crore.
(ii) From the consumption function C = 500 + 0.9Y, MPC = 0.9

Therefore, value of Investment Multiplier = 1/(1 – MPC) = 1/(1 – 0.9) = 1/0.1 = 10
Q.26. The saving function of an economy is given as:
S = – 250 + 0.25Y
If the planned investment is `2,000 crores, calculate the following:
(a) Equilibrium level of income in the economy.
(b) Aggregate demand of income of `5,000 crores. (6 marks)
Ans. S = –250 + 0.25Y (Given)
(a) Equilibrium level of income in the economy exist when: S = I
Substituting the values of saving and investment,
–250 + 0.25Y = 2000
0.25Y = 2000 + 250
0.25Y = 2250 ⇒ Y = 2250/0.25 ⇒ Y = `9000 crores
(b) C = Y – S ⇒ Y – (–250 + 0.25Y)
C = 250 + 0.75Y
At Y = 5000, C = 250 + 0.75 (5000) = 250 + 3750 = 4000
AD = C + I ⇒ AD = 4000 + 2000 = `6000 crore
Q.27 Consumption function of an economy is : C = 40 + 0.8Y (amount in `crores). Determine that level of income
where average propensity to consume will be one. (3 marks)
Ans. Given, APC = 1, which means that income (Y) is equal to the consumption (C), i.e. Y= C.
C = 40 + 0.8Y ⇒ Y = 40+0.8Y (since Y = C)
Y – 0.8Y = 40 ⇒ 0.2Y = 40 ⇒ Y = `200 crores
Q.28 The saving function of an economy is given as:
S = (–) 10 + 0.20Y
If the ex-ante investments are `240 crores, calculate the following: (i) Equilibrium level of income in the
economy. (ii) Additional investments which will be needed to double the present level of equilibrium income.
(CBSE 2019) (4 marks)
Ans. We know that the equilibrium level of income in an economy is determined when: S = I
–10 + 0.20Y = 240 ⇒ 0.20Y = 250 ⇒ Y = `1,250 crores
To double of the existing income level (DY = 1,250 crores), K = DY/DI = 1/MPS
1250/DI = 1/0.2 ⇒ DI = `250 crores
Q.29 If marginal Propensity to Save is 20% and is constant at all levels of income and autonomous consumption is
`100 crores, construct consumption function of the given hypothetical economy. (3 marks)
Ans. MPS = 20% = 0.2 and c = `100 crore,
MPC = 1 – MPS = 0.8, C = c + MPC(Y) , C = 100 + 0.8Y
Q.30 In an economy, autonomous consumption is `100 crore and autonomous investment is `60 crore. In this
economy, with every increase in income, 80% of it is spent on consumption. Calculate the additional
investment required to reach the full employment level of income `1000 crore. (6 marks)
Ans. Autonomous consumption C = 100, MPC = b = 80% = 0.8, Autonomous investment I = 60
Consumption function equation C = C + bY = 100 + 0.8Y
At equilibrium level of income, Y = C + I
⇒ Y = 100 + 0.8Y + 60 ⇒ Y – 0.8Y = 160
⇒ 0.2Y = 160 ⇒ Y = 160/0.2 = 800
Therefore, equilibrium level of income = `800 crore
Full employment level of income = `1000 crore.
Since equilibrium level of income is less than full employment level of income, it is a situation of deficient demand.
Therefore, required increase in income to combat deflationary gap
DY = 1000 – 800 = `200
k = 1/(1 – MPC) = 1/(1 – 0.8) = 1/0.2 = 5
k = DY/DI ⇒ 5 = 200/DI ⇒ DI = 200/5 = 40

Hence, additional investment required to reach the full employment of level of income = `40 crore
Q.31 In an economy the equilibrium level of income is `800 crore whereas the full employment level of income
is `500 crore. The marginal propensity to consume is 0.75. Calculate the decrease in investment required to
combat the inflationary gap. (4 marks)
Ans. Inflationary gap = 800 – 500 = `300 crore. Thus, required decrease in income DY = (–)`300 crore
k = 1/(1 – MPC) = 1/(1 – 0.75) = 1/0.25 = 4
k = DY/DI ⇒ 4 = –300/DI
⇒ DI = –300/4 = –75
Thus, required decrease in investment required to combat the inflationary gap = `75 crore
Q.32 In an economy, aggregate demand function is given by:
AD = `160 crore + 0.8Y
Autonomous consumption = `100 crore
(a) Calculate the equilibrium level of income.
(b) How much is the total savings at equilibrium level of income? Calculate. (4 marks)
Ans. (a) At equilibrium: AD = Y
160 + 0.8 Y = Y
0.2Y = 160 ⇒ Y = 160/0.2 = 800
Therefore, Equilibrium level of income = `800 crore
(b) From the aggregate demand function, MPC = 0.8
Autonomous consumption (C) = 100
Therefore, Consumption function equation:
C = 100 + 0.8 Y
Substituting Y = 800, we get C = 100 + 0.8 (800) = 100 + 640 = 740
S = Y – C = 800 – 740 = 60
Therefore, Total Savings at equilibrium level of income = `60 crore
Alternately, From AD function, total autonomous expenditure
A = C + I = 160
Given, C = 100. Therefore, I = 160 – 100 = 60
We know that at equilibrium level of income, S = I
Thus, Total Savings (S) at equilibrium = I = `60 crore
Q.33 In an economy, the aggregate demand function is given by: (6 marks)
AD = `200 crore + 0.75Y
The full employment level of income is `500 crore.
(a) Calculate equilibrium level of income.
(b) What is the situation in the economy – inflationary or deflationary? How much is the inflationary gap/
deflationary gap? Give valid reasons in support of your answer.
(c) Calculate the change in investment needed to combat the inflationary/deflationary gap in the economy.
Ans. (a) At equilibrium level of income: AD = Y
200 + 0.75 Y = Y
0.25Y = 200 ⇒ Y = 200/0.25 = 800
Thus, equilibrium level of income = `800 crore
(b) Since equilibrium level of income (`800 crore) is more than the full employment level of income (`500 crore),
therefore, it is a situation of excess demand (inflation) in the economy.
Inflationary gap = Equilibrium level of income – Full employment level of income = 800 – 500 = `300 crore
(c) To combat inflationary gap, income must be decreased by `300 crore, i.e. DY = (–) `300 crore.
From the AD function, MPC = 0.75
Value of investment multiplier, k = 1/(1– MPC) = 1/(1 – 0.75) = 1/0.25 = 4
We know that k = DY/DI i.e. 4 = – 300/DI ⇒ DI = – 75
Thus, Investment must be decreased by `75 crore to combat the inflationary gap.
Q.34 Calculate equilibrium level of income for a hypothetical economy, for which it is given that:
(a) Autonomous Investments =` 500 crores, and
(b) Consumption function, C = 100 + 0.80Y (CBSE SQP 2021-22 Term-II) (2 marks)
Ans. We know, at equilibrium level Y = C + I
Y = 100 + 0.8Y + 500
Y – 0.8Y = 600
0.2Y = 600
Y = `3,000 crores
Q.35 Calculate Change in Income (ΔY) for a hypothetical economy. Given that:
(a) Marginal Propensity to Consume (MPC) = 0.8, and
(b) Change in Investment (ΔI) = `1,000 crores (CBSE SQP 2021-22 Term-II) (2 marks)
Ans. Multiplier (K) = 1/(1 – MPC) = 1/(1 – 0.8) = 1/0.2 = 5 times
We know K = ΔY/ΔI
5 = ΔY/1,000
ΔY = `5,000 crores
Q.36 ‘As the income increases, people tend to save more’. Justify the given statement.
(CBSE SQP 2021-22 Term-II) (2 marks)
Ans. At a lower level of income, a consumer spends a larger proportion of his/her income on consumption expenditure
(basic survival requirements). As the income increases, owing to the psychological behavior of a consumer (rational),
people tend to consume less and save more for future uncertainty.
Q.37 ‘Monetary measures offer a valid solution to the problem of Inflationary gap in an economy’. State and discuss
any two monetary measures to justify the given statement. (CBSE SQP 2021-22 Term-II) (5 marks)
Ans. Two monetary measures which may be used to solve the problem of inflation are:
(a) An increase in Cash Reserve Ratio (CRR) may reduce the credit creation capacity of the commercial banks in
the economy. This may lead to a fall in the borrowings from banks causing a fall in Aggregate Demand in the
economy, and helps to correct the inflationary gap in the economy.
(b) Sale of Government Securities in the open market by the Central Bank will adversely affect the ability of the
Commercial Banks to create credit in the economy. As a result Aggregate Demand in the economy may fall
and correct the inflationary gap in the economy.
MCQs and Competency
Based Questions
including
Pictures and Cartoons
Based Questions
for
CBSE Examination 2024
Extracted from Latest CBSE Annual and
Compartment Papers
New Questions prepared from the NCERT
Books 2023-24
MCQs and Competency Based Questions ECONOMICS XII EXAM HANDBOOK
299
for CBSE 2024 Examination
MCQs and Competency Based Questions for CBSE 2024 Exam
(c) 2000, 6000, 6000, 4400

National Income and Related (d) 4000, 10400, 6000, 4000
Unit 1
Aggregates Q.6 Increase in Real Gross Domestic Product (GDP) implies _______
in the economy.
(a) increase in the level of income
Q.1 On the basis of the figure given below, identify the type of flow
(b) increase in the general price level
indicated by B and D:
(c) increase in flow of goods and services
(d) decrease in aggregate demand
Q.7 In what situation will the Real Gross Domestic Product be greater
than the Nominal Gross Domestic Product?
Q.8 “Many goods and services which may contribute to welfare, but
are not included in estimating Gross Domestic Product (GDP).”
Do you agree with the given statement? Give valid reason in
support of your answer.
Q.9 Defend or refute the following statement, with valid argument:
(a) Real flow (b) Money flow “Depreciation is a fall in the value of an asset due to unexpected
(c) Nominal flow (d) National flow obsolescence.”
Q.2 Identify, flow variable from the following: Q.10 “National income is always greater than domestic income”. Do
(a) Distance between Delhi and Amritsar you agree with the given statement? Support your answer with a
(b) Annual expenditure of a school valid reason.
(c) Bank balance of Mr. Mukesh as on 31st March, 2022 Q.11 “While estimating Gross Domestic Product (GDP) by expenditure
(d) Investments of Mr. Mohit as on 31st December, 2021 method, entire focus is on expenditures incurred by the residents
Q.3. Choose the correct alternative to fill in the blanks (i) and (ii) in of the country.” Do you agree with the given statement? Give
the figure. valid reason in support of your answer.
Q.12 “National income exceeds domestic income only when exports are
greater than imports”. Comment.
Q.13 Should purchase of wheat in the wholesale market be treated as
the purchase of intermediate goods? Explain.
Q.14 Increase in national income always implies increase in domestic
income. Elucidate.
Q.15 “Machine purchased by a firm is always a capital good.” Do
you agree with the given statement? Give valid reasons for your
answer.
Q.16 How should the following be treated in estimating National
Income of a Country? Give valid reasons.
(i) Profits earned by Foreign Banks in India.
(ii) Expenditure on upgradation of fixed asset by a firm.
(a) National, Production (b) Factor, Production
Q.17 Read the following text carefully:
(c) Factor, Consumption (d) National, Consumption
In India, after Covid-19 period, household and private sector
Q.4 From the statements given in Column I and Column II, choose
consumption, as measured by Private Final Consumption
the correct pair.
Expenditure (PFCE), was ` 39.7 trillion in nominal terms in Q1
Column I Column II FY23, compared with ` 28.4 trillion for the same period last year,
A. Vegetable grown in the Personal garden (i) Non marketing activity and ` 39.2 trillion in the fourth quarter (Q4) of 2021-22 (FY22).
B. A car used as a taxi (ii) Consumer good As a percentage of Nominal GDP, PFCE was 61.1 per cent, compared
C. An air-conditioner used by household (iii) Capital good with 55.5 per cent in Q1 FY22. However, in real terms at constant
prices, PFCE grew just 9.88 per cent, compared with Q1 of 2019-
D. Scholarship given to students by (iv) Factor income
20-the year before the Covid-19 pandemic.
government
“Recovery in domestic demand is reflected in the growth rates of PFCE
(a) A-(i) (b) B-(ii) and Gross Fixed Capital Formation (GFCF) over the corresponding
(c) C-(iii) (d) D-(iv) quarter of the previous year,” said D.K. Srivastava. GFCF came
Q.5 Complete the table: in at ` 19 trillion in Q1 FY23, compared with ` 14.4 trillion in
Producer Value of Intermediate Value Added Q1 FY22. However, it was slightly lower than `20.2 trillion in
output Consumption Q4 FY22. In the media briefing after the GDP numbers, Finance
Farmer 2000 - 2000 Secretary T.V. Somanathan said this trend was expected as GFCF in
present Q1 was usually lower than the previous year’s Q4.
Baker __(i)___ 2000 2000 (a) Compare and analyse the trends of change in PFCE as a
Retail Seller 4,400 __(iii)___ 400 percentage of GDP, both in real and nominal terms.
Total __(ii)___ 6,000 __(iv)___ (b) “Private Final Consumption Expenditure is an important
factor determining Gross Domestic Product at Market Price.”
(a) 4000, 10400, 4000, 4000 Justify the given statement.
(b) 4000, 10400, 4000, 4400
300
Q.18 Find the Value Added by Firm A, from the following information: Q.23 The value of the nominal GDP of an economy was `3,000 crores
S. No. Particulars (` in crore) in a particular year. The value of GDP of that country during the
same year, evaluated at the prices of same base year, was `3,500
(i) Purchase of factor inputs by Firm A 5
crores. Factor income earned by the factors of production of the
(ii) Purchase of non-factor inputs by Firm A 2 rest of the world employed in the domestic economy was `1,500
(iii) Sales by Firm A to other firms in the 10 cores, whereas factor income earned by the domestic factors of
domestic economy production employed in the rest of the world was `1,000 crores.
(iv) Import of raw materials by firm A from 50 Calculate the value of the GNP deflator.
rest of the world
(v) Excess of opening stock over closing 3 Answers/Hints
stock 1. (a) 2. (b) 3. (c) 4. (a) 5. (b) 6. (c)
Q.19 Find Net Value Added at Factor Cost (NVAfc): 7. When the base year’s prices are higher than the current year’s prices.
S. No. Particulars (` in crore) 8. Yes, Non-market transactions/non-monetary exchanges (Explain)
(i) Sale of rice in the market 58 9. The given statement is refuted. (Give the correct meaning of
(ii) Purchase of tractor and thresher 40 depreciation)
(iii) Procurement of rice by the government 20 10. No. National income can be less than the domestic income in case
of negative NFIA. (Explain)
(iv) Self-consumption of rice during the 15
11. No. It takes into account the aggregate spending on all the final
year
goods and services in the domestic territory, whether incurred by
(v) Expenditure on running and 20 the residents or non-residents during a given period of time.
maintenance of tractor and thresher 12. The given statement is incorrect. National income exceeds domestic
(vi) Fertiliser subsidies received from the 3 income only when NFIA is positive, irrespective of whether exports
government are greater than or less than imports. (Explain)
Q.20 On the basis of the data given below for an imaginary economy, 13. Yes. Because it is meant for resale in the same year.
estimate the value of Net Domestic Product at factor cost (NDPfc): 14. No. If in an economy the increase in national income is due to
S. No. Items (` in crore) increase in domestic production of final goods and services over the
(i) Household Consumption Expenditure 2,000 period of time, then it would lead to increase in domestic income.
However, if the increase in National income is due to increase in
(ii) Government Final Consumption 1,500
net factor income from abroad then it would not lead to increase in
Expenditure
domestic income.
(iii) Gross Domestic Fixed Capital Formation 1,000
15. No. Capital goods are those final goods which help in the production
(iv) Net additions to stock 300 of other goods and services. A machine purchased by a firm will be
(v) Exports 700 a capital good when it is used for the production of other goods and
(vi) Net Indirect Taxes 350 services. However, if it is purchased by a firm for resale purposes in
(vii) Imports 200 the same year, it will not be considered as a capital good.
(viii) Consumption of Fixed Capital 250 16. (i) Profits earned by foreign banks in India should not be included
Q.21 From the following data show that, Net Value Added at factor in the National Income because it is a factor income paid to
cost (NVAfc) is equal to the sum of factor income: non-residents.
(ii) Expenditure on upgradation of fixed asset by a firm should
S. No. Particulars (` in crore) be included in the National Income, as it is a part of capital
i. Consumption of Fixed Capital 90 formation.
ii. Imports of raw material 120 17. (a) Household and private sector consumption, as measured by
iii. Change in stock 240 Private Final Consumption Expenditure(PFCE) was at 39.7
iv. Goods and Services Tax 60 trillion in nominal term in Q 1 FY 23 compared with 28.4
v. Domestic sales 2,160 trillion for the same period last year and 39.2 trillion in the
fourth quarter of 2021-22. As a percentage of nominal GDP,
vi. Distributed profits 180
PFCE was 61.1 %, compared with 55.5% in Q 1 FY 22. In
vii. Retained earnings 120 real terms, PFCE grew just 9.88%, compared with Q1 of
viii. Purchase of raw material 840 2019-20.
ix. Exports 240 (b) Private final consumption expenditure (PFCE) refers to the
x. Rent and Royalty 90 expenditure incurred by the household sector on all types
xi. Compensation of employees 720 of consumer goods. It is a measure of total amount spent
by consumers on the purchase of final goods and services.
xii. Interest 540
Therefore, it is an important factor determining Gross
Q.22 Study the table given below which has information about two
Domestic product at Market Price.
firms of an economy.
18. Value added = Value of output – Intermediate consumption
Wages (in `) Profits (in `) Interest (in `) Rent (in `) = (iii) – (v) – (ii + iv) = 10 – 3 –(2+50) = (–) `45 crores
Firm A 50 150 100 100 Thus, the firm A does not contribute to the Gross Domestic
Firm B 90 210 100 100 Product of the economy as it does not earn any value added.
Net Factor Income from Abroad is (–) `20. Employee’s contribution 19. Net Value Added at Factor Cost (NVAfc) = {(i) + (iii) + (iv)} – (v) +
to the Social Security Fund by Firm A and Firm B is ` 5 and `10 (vi) = {58 + 20 + 15} – 20 +3 = `76 crores
respectively. 20. Net Domestic Product at Factor Cost (NDPfc) = (i) + (ii) + (iii) +
Calculate the National Income. (iv) + (v) – (vii) – (vi) – (viii) = 2,000 + 1,500 + 1,000 + 300 + 700
– 200 – 350 – 250 = ` 4,700 crores
310
Q.5 Answer the following questions on the basis of the given picture: Q.4 Read the following statements – Assertion (A) and Reason (R).
Choose one of the correct alternatives given below:
Assertion (A): Human capital is not traded in the market;
however its services are traded.
Reason (R): Human capital is intangible in nature.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is
the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is
not the correct explanation of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Q.5 Identify which of the following does not reflect a direct relationship
Outsourcing: a new employment opportunity in big cities between human capital formation and economic growth.
(i) As a form of economic activity, outsourcing has intensified, in (a) Employability of an educated person is higher than that of an
recent times. Justify the statement. uneducated person.
(ii) What factors have made India a destination for global (b) On-the-job training will reduce the skills of labour.
outsourcing in the post-reform period? (c) Healthy workforce is a boon to the economy.
(d) Digital information helps in taking real time decisions.
Answers/Hints Q.6 Identify, which of the following are associated with the problem
of human capital formation in India?
1. (d) 2. (d) 3. (c)
(i) Brain drain (ii) Low academic standards
4. • Generates more employment and job opportunities
(iii) Rising population (iv) Changes in social outlook
• Increases the overall GDP of the country
(a) (i) and (ii) (b) (ii) and (iii)
• Leads to the formalisation of the employment sector
(c) (i), (ii) and (iii) (d) (i) and (iv)
• Limits the availability of social security measures for the workers
Q.7 Dr. Khurana, a dentist, ran his clinic in an economically
5. (i) Outsourcing has intensified, in recent times, because of
backward area. He was earning a comparatively low income. So,
the growth of fast modes of communication, particularly
he decided to move to a city and spent a huge amount for the
the growth of Information Technology (IT). Many of the
same. Identify and explain the type of expenditure incurred by
services such as voice-based business processes (popularly
Dr. Khurana, which directly contributed to the process of human
known as BPO or call centres), record keeping, accountancy,
capital formation.
banking services, music recording, film editing, etc. are being
Q.8 “Human capital benefits only the owner and not the society”.
outsourced by companies in developed countries to India.
Defend or refute the given statement.
(ii) • Low wage rates • Availability of skilled manpower
Q.9 State, with valid reasons whether, the statements are true or false:
(a) “Higher productivity and production are the outcome of
Current Challenges facing the Indian investment in human resources.”
Unit 7 (b) Rising population is not the cause for quality of human
Economy capital formation.
Q.10 Identify and explain the three kinds of medicines depicted in the
4 Human Capital Formation in India picture.
Q.1 Choose the incorrect statement(s) from following:

Statement 1: Human capital benefits only individuals and not the
society.
Statement 2: There are positive externalities of investment in
human capital as society. (i) (ii) (iii)
Statement 3: Economic growth means the increase in real Q.11 “Economists believe that India should spend at least 6% of its
national income of a country. GDP on Education for achieving desired results.” Justify the
Statement 4: Human capital formation and Human development statement with valid reason.
are one and the same concepts.
(a) Only Statement 1 (b) Only Statement 2 Answers/Hints
(c) Only Statements 1 and 3 (d) Only Statements 1 and 4 1. (d) 2. (d) 3. (d) 4. (a) 5. (b) 6. (c)
Q.2 Which of the following statements is incorrect with respect to 7. Expenditure on migration (Explain)
women education in India? 8. The given statement may be refuted, as the human capital primarily
(a) Education helps to improve economic independence. benefits the owner but in general also yields its advantages to the
(b) Education helps to promote family welfare programmes. society as well. For example, a healthy person, by maintaining
(c) Education enables women to take care of their own health. personal hygiene and sanitation, prevents the spread of contagious
(d) Inappropriate planning of human resource improves human diseases and epidemics.
capital formation. 9. (a) True. Investment in human resource stimulates innovation
Q.3 “Skill India” programme launched by the Government is not an and creates ability to absorb new technology. Technical skills
attempt to increase _______ in India. acquired through sources of human capital formation such as
(a) human capital formation education, training and sound health etc. helps labour supply
(b) efficient utilisation of inputs to make better use of given resources. Hence, productivity and
(c) increase in GDP growth production increases.
(d) inadequate spread of vocational education
Important TIPS for
CBSE Economics XII
2024 Examination
to
Score 100%
CBSE Sample Question Papers
2023-24 and 2022-23 with
20 Sample Papers for Practice
Important Tips for CBSE Economics XII 2024 Examination

 During 15 minutes Reading Time, read all questions carefully. Select the Option to be answered in questions
having internal choice. When reading, underline the key lines in pencil which help you to write answers. Do
calculations for all Numerical Questions during the reading time.
 In Case-based Questions, before reading the whole case study first you must read what is required in the questions.
 Timing is an essential ingredient of success. Attempting the full paper on time with at least 20 minutes Revision
Time in hand to check calculations is necessary to score 100% marks in Economics Paper. Economics paper
is worth 80 marks and must be completed in 180 minutes. Allowing 20 minutes revision time, this leaves 160
minutes or 2 minutes per mark. So, do not spend 10 minutes on a question worth just 3 marks! Do not exceed the
time you have allocated for each question.
The following Time Schedule will help you managing your time when sitting the examination hall.
For each Section: Macroeconomics and Indian Economic Development
Types of Questions Marks Word limit Number of Total Marks Estimated Time
Questions
MCQs 1 – 10 10 10 min.
SA-I 3 60-80 words 2 6 10 min.
SA-II 4 80-100 words 3 12 30 min.
LA 6 100-150 words 2 12 30 min.
10 Minutes – Revision
Total 17 40 90 min.
 The following table shows a list of key directive words which are most likely to occur in CBSE Economics
examination questions. You should read these carefully and understand what each means.
Directive Words The examine is supposed to:
Name/Identify/Which Write the name of the concept/term only
Define Give the exact meaning
State Make clear
Explain Give clear reasons
Describe Give a description of
Illustrate Give example/diagram
Discuss Give the important arguments, for and against
Comment Give your reasoned opinions on
Calculate/Compute Work out using the information provided
Defend/Refute Write whether given statement is correct/incorrect
CBSE Sample Papers and Practice Papers ECONOMICS XII EXAM HANDBOOK
317
 To score 100 per cent in your examination, the presentation of answers is as much important as their content.
 Don’t forget to write Question Number you are answering.
 Answer each question from new page (except 1 mark questions)
 Give answers in points, as far as possible, rather than in paragraphs.
 Leave one line space between the two headings
 Leave at least 2-3 lines space between two answers of 1 mark questions.
 Step by Step Calculation is always appreciable by the examiner.
 Write the main heading in capital letters. (Use dark and bold pen like Pilot V10)
 Underline the headings in pencil.
 Explanation/description from the next line of heading.
 Use bullets while giving explanation.
 Attempt all parts of a question together.
 Write objectively. In other words, do not use ‘I’ or ‘We’ in your answers. For example, do not write —
“I don’t agree with the statement.” Rather you must write — “The given statement is not correct.”
 Take care with sentences and punctuation. In general, try to write short sentences.
 During the last 20 minutes of revision, first of all make sure that you have attempted all the questions and written
Question Number for each answer. If any question(s) is/are left, attempt them first. Don’t leave them even if you
don’t know the proper answer. Remember that writing something is always better than leaving it at all. Then check
the calculations in Numerical Questions one by one. Then, read your answers one by one underlining the key lines
using a pencil.
Economics XII Paper requires a relaxed mind to attempt the Numerical Questions/Applying or Creating or Analysing
based Questions. ‘Study the whole night before the exam.’ is the major cause of under-performance in Economics Paper.
Successful students always have given proper rest to their mental faculty so as to do all calculations correctly and to attempt
Numerical Questions/Applying or Creating or Analysing based Questions when sitting the Examination Hall.
In my teaching career, I’ve seen even good students making calculations as 2 × 3 = 5 or 1/0.2 = 2 who ultimately score 70 or
80 per cent only, just because they had spent the whole night revising the whole syllabus and solving numerical questions.
I hope these tips will help you take CBSE Economics XII Examination 2024 successfully and you will score sky touching marks.
So, good luck in your examination. I hope that you obtain the results you deserve. My advice to you is:
o work hard and give your 100%. Remember: Success will never lower its standard to accommodate you. You have to
T
raise your standard to achieve it. For every bird, God provides food but not in their nests.
Always believe in yourself. Don’t give up. One thing keep in mind: You are something! Because God does not create
garbage.
Always remember God. Without Him, your all efforts are in vain! 0 0 0 0 0 0 0 = 0. But if you put 1 before these zeros,
you get 1 crore (10000000). We human beings are zeros without Him! And 1 is God!
I’ll feel pleasure in resolving any of your queries related to the subject through Whatsapp Number 9810475716
Finally I pray the Supreme Divine to bestow the best of blessings on you!
Regards
Your servant
SUBHASH DEY
B.Com. (Hons.), M.Com. (DSE), M.A. (Economics), PGDBA (Finance), B.Ed, PGD in Labour and Administrative Laws
• Author and Publisher of CBSE Books – Accountancy, Business Studies, Economics, English, Mathematics, Legal Studies, Physical Education
and Entrepreneurship
• M.Com (Delhi School of Economics)– Gold Medalist, Topper of Delhi University
• Consecutive four years’ Economics topper of Delhi University
• Resource Person and Educationist conducting Workshops/Seminars of Teachers and Students in Schools and Colleges
• Founder of ‘Shree Radhey Publications’ and ‘DEY’SEDU.COM’
CBSE Sample Question Papers
2023-24 and 2022-23
with
Marking Scheme
Sample Question Papers
CBSE Sample Question Paper

2023-24 for 2024 Exam
SECTION A – MACROECONOMICS (a) 4,000 (b) 40,000

Q.1 Read the statements and choose the correct alternative: (1 mark) (c) 40,600 (d) 60,400
Statement 1: Consumption function assumes that, consumption Q.10 Read the following chart and choose the alternative: (1 mark)
changes at a constant rate as income changes.
Statement 2: Autonomous consumption is the ratio of total
consumption (C) to total income (Y).
(a) Statement 1 is true and Statement 2 is false.
(b) Statement 1 is false and Statement 2 is true.
(c) Both Statements 1 and 2 are true.
(d) Both Statements 1 and 2 are false.
Q.2 For a closed economy (with no foreign trade), which one of the
following is correct? (1 mark)
(a) GDP = GNP (b) GDP > GNP
(c) GDP < GNP (d) GDP + GNP=0
Q.3 The value of __________ can be greater than one. (1 mark) (a) Interest received on loans (b) Multilateral Loans
(a) MPC (b) APC (c) Portfolio Investment (d) Government Aid
(c) MPS (d) APS Q.11 ‘Current account deficit in an economy must be financed by a
Q.4 As per RBI press report, dated 29th December, 2022: (1 mark) corresponding capital account surplus’. Do you agree with the given
“Net external commercial borrowings to India recorded an outflow of statement? Give valid reason(s) in support of your answer. (3 marks)
US$ 0.4 billion in the second quarter (2022-23)” Q.12 (A) Estimate the value of Domestic Income: (3 marks)
The above transaction will be recorded in the ____ account on
______ side of Balance of payments account of India. S. No. Items ` in crore
(a) current, credit (b) current, debit i. Household Consumption Expenditure 600
(c) capital, credit (d) capital, debit ii. Gross Fixed Capital Formation 200
Q.5 “The value of all goods and services can be expressed in monetary iii. Change in stock 40
units.” On the basis of the given statement, identify the function iv. Govt. Final Consumption Expenditure 200
performed by money: (1 mark) v. Net Exports (–)40
(a) Medium of exchange (b) Store of Value vi. Net Indirect Taxes 120
(c) Unit of account (d) Standard of deferred payments vii. Net Factor Income From Abroad 20
Q.6 Find the missing figures: (1 mark) viii. Consumption of Fixed Capital 40
Round Deposits Loans (80%) Reserve Ratio (20%) OR
I 1,000 800 200 (B) State the meanings of the following: (3 marks)
(i) Externalities (ii) Operating Surplus (iii) Consumption Goods
II 800 ….(i)…. 160
Q.13 For a hypothetical economy, the government incurs an investment
... ... ... expenditure of `1,000 crore. If the value of Marginal Propensity
... ... ... to Save (MPS) falls from 0.25 to 0.10. Calculate the value
of increase in income due to change in the value of Marginal
Total …(ii)… …(iii)… …(iv)…
Propensity to Save (MPS). (4 marks)
(a) 640,1000,4000,5000 (b) 960,5000,4000,1000 Q.14 (A) “In an economy, ex-ante Aggregate Demand is more than ex-ante
(c) 640,4000,1000,5000 (d) 640,5000,4000,1000 Aggregate Supply.” Elaborate the possible impact of the same,
Q.7 Graphically, Aggregate Demand function can be obtained by on the level of output, income and employment. (4 marks)
vertically adding the _____ and _____ function. (1 mark) OR
(a) consumption, saving (b) consumption, investment (B) “With an objective to reduce inflation, Reserve Bank of India
(c) investment, saving (d) aggregate supply, consumption may promote the commercial banks to park their surplus funds
Q.8 Identify the correct reason(s) that may affect the demand for with it.” Discuss the rationale behind the step taken by the
foreign exchange in an economy. (1 mark) Reserve Bank of India. (4 marks)
I. Imports of visibles Q.15 Elaborate the ‘Banker’s Bank and Supervisor’ function performed
II. Exports of invisibles by the Reserve Bank of India. (4 marks)
III. Remittances by residents working abroad Q.16 (A) Calculate the value of: (i) Fiscal deficit (ii) Primary deficit
IV. Purchase of assets abroad
(a) I and II (b) II and III Items (` in crore)
(c) III and IV (d) I and IV (i) Revenue Receipts 20
Q.9 Suppose for a given economy, S = –60 + 0.1Y and I = ` 4,000 (ii) Capital Expenditure 15
crore (Where S = Saving Function, Y = National Income and I = (iii) Revenue Deficit 10
Investment Expenditure). Equilibrium level of Income would be (iv) Non-debt creating capital receipts 50% of revenue receipts
` ______ crore. (1 mark) (v) Interest Payments 4
CBSE Sample Question Paper 2023-24 ECONOMICS XII EXAM HANDBOOK
319
(B) State any two features of public goods. (6 marks) (a) Both Assertion (A) and Reason (R) are true and Reason (R) is
OR the correct explanation of Assertion (A).
(A) Explain ‘Economic Stability’ objective of Govt. Budget. (b) Both Assertion (A) and Reason (R) are true, but Reason (R)
(B) ‘Under the Ayushmaan Bharat Scheme, the Govt. provides free is not the correct explanation of Assertion (A).
medicines to the economically backward section of the society’. (c) Assertion (A) is true, but Reason (R) is false.
Identify and discuss the nature of the govt. expenditure (d) Assertion (A) is false, but Reason (R) is true.
indicated in the given statement. (6 marks) Q.23 Under _________ in China, farmers and industrial units were
Q.17 (a) Giving valid reasons, explain how the following would be required to buy and sell fixed quantities of inputs and outputs
treated while estimating domestic income? on the basis of prices fixed by the government and the rest were
(i) Payment made by American tourist for goods purchased purchased and sold at market prices. (1 mark)
in India. (a) Commune System (b) Great Leap Forward
(ii) Tomatoes grown by Ms. Puja in her kitchen garden. (c) Dual Pricing (d) Great Proletarian Cultural Revolution
(b) “Machine purchased by a firm is always a capital good.” Do Q.24 Micro-credit programmes play a vital role in ensuring overall
you agree with the given statement? Give valid reasons for development of rural economy as they _______. (1 mark)
your answer. (6 marks) (i) provide financial support
(ii) lead to women empowerment
SECTION B – INDIAN ECONOMIC DEVELOPMENT
(iii) enhance the reach of formal credit system
Q.18 Identify the correct combination of the ‘Goals of Indian Five Year
(a) (i) and (ii) (b) (ii) and (iii)
Plans’: (1 mark)
(c) (i) and (iii) (d) (i), (ii) and (iii)
(a) Growth, Equality, Modernisation, Self-Reliance
Q.25 _______ may be defined as the measure of the extent of
(b) Development, Equality, Modernisation, Sustainability
demographic participation in the social and political decision
(c) Good Health, Education, Modernisation, Sustainability
making. (1 mark)
(d) Growth, Equity, Modernisation, Self-Reliance
(a) Economic indicator (b) Liberty indicator
Q.19 ‘China has performed exceedingly well in various health and
(c) Health indicator (d) Demographic indicator
economic indicators.’ Identify which of the following is not a
Q.26 Read the statements and choose the correct alternative: (1 mark)
health indicator? (1 mark)
Statement 1: The nature of unemployment problem in India is
(a) Infant Mortality Rate (per 1000 live births)
uni-faceted.
(b) Life Expectancy at Birth (years)
Statement 2: Worker-Population ratio is an indicator used for
(c) Percentage of people below poverty line (National)
analysing the employment situation in a country.
(d) Maternal Mortality Rate (per 1 lakh births)
(a) Statement 1 is true and Statement 2 is false.
Q.20 The shackles of agriculture during the colonial rule were
(b) Statement 1 is false and Statement 2 is true.
permanently broken by the Green Revolution that resulted from
(c) Both Statements 1 and 2 are true.
the application of ________. (1 mark)
(d) Both Statements 1 and 2 are false.
I. High Yielding Varieties (HYV)
Q.27 Choose the correct pair of statements: (1 mark)
II. Mechanization of Agriculture
III. Chemical Fertilizers and Pesticides Column I Column II
IV. Organic Fertilizers and Pesticides A. Adoption of mixed economic I. The common development
(a) I, II, IV (b) I, II, III system policy of India and China
(c) II, III, IV (d) I, III, IV
Q.21 Study the following picture and answer the given question: B. Introduction of economic II. Imposed by World Bank
reforms in China
C. Great Leap Forward III. Focussed on massive
Campaign industrialization
D. First Five Year Plan of IV. Announced in 1953
Pakistan
(a) A-I (b) B-II
(c) C-III (d) D-IV
Q.28 (A) “During the colonial period, a number of socio-economic indicators
were in a dilapidated state.” List any three such indicators that
led to the worsening of India’s demographic profile. (3 marks)
OR
(B) “The pre-independent India’s occupational structure experienced
Women in rural households take up bee-keeping as an growing regional variation.” Justify the above statement with
entrepreneurial activity. Such kind of activities may be envisaged valid explanation. (3 marks)
under _____ as diversification activity. (1 mark) Q.29 “Ravya was initially working as an office clerk in a firm. In the
(a) Animal husbandry (b) Fisheries pursuit to attain, a higher position and income, she attended a few
(c) Horticulture (d) Poultry on-the-job training sessions. These sessions contributed positively to
Q.22 Read the Assertion (A) and Reason (R) and choose the correct her skills and expertise.” Explain the impact of Ravya’s decision on
alternative: (1 mark) human capital formation. (3 marks)
Assertion (A): In 1991, as an immediate measure to resolve the Q.30 “In the late 1970s, China introduced the One-child policy that led
Balance of Payments crisis, the rupee was devalued against foreign to arrest in the population coupled with skewed sex ratio.” Justify the
currencies. given statement with valid arguments in support of your answer.
Reason (R): Devaluation of currency was eminent, to replenish (4 marks)
the deteriorated foreign exchange reserves.
320
Q.31 (A) State and elaborate whether the following statements are true Answers/Hints
or false, with valid arguments: (4 marks)
1. (c) 2. (d) 3. (a) 4. (c) 5. (d)or(c)
(i) Agricultural marketing is a process that ensures the
transportation of various agricultural commodities only. 6. (a)or(d) 7. (a) 8. (a)or(b) 9. (d) 10. (b)
(ii) Jan-Dhan Yojana has been a crucial step for financial 11. Yes, the statement can be agreed upon since, in accounting sense;
resource mobilization in the Indian economy. Current Account + Capital Account ≡ 0
OR If an economy is facing the situation of current account deficit (CAD),
(B) “Since independence, the government has been playing an important the same must be financed through surplus in capital account.
role in generating employment directly or indirectly.” Discuss. CAD may be set off through net capital inflows. Transactions like
Q.32 Identify the situation depicted in the given image. Suggest the impact selling off assets or borrowing from abroad, may be instrumental
of the indicated situation, on the Indian economy. (4 marks) in balancing CAD in Balance of Payments account.
12. (A) Domestic Income (NDPFC) = (i) + (v) + (ii) + (iii) + (v) – (viii)
– (vi) = 600 + 200 + 200 + 40 + (–40) – 40 – 120 = ` 840 crore
OR
(B) (i) Externalities: Externalities refer to benefits (positive
externalities)/ harms (negative externalities) which are
caused by one entity to another without being paid/
penalised for it.
(ii) Operating Surplus: Operating Surplus is the sum total
of rent, royalties, interest and profits. It is also known as
Q.33 (A) “Green revolution transformed India from a subsistent food grain non-wage income.
economy to a food surplus economy.” Justify the statement, (iii) Consumption goods: Goods which are consumed by the
giving reasons in support of your answer. ultimate consumers or meet the immediate need of the
(B) “In order to protect domestic industries, India followed the consumer are called consumption goods. It may include
regime of restrictions on imports.” Briefly outline and discuss services as well.
such steps taken by the government to promote import 13. Given, Change in Investment (DI) = ` 1,000 crore
substitution policy. (6 marks) MPS Investment Multiplier Change in Income
OR K = 1/MPS (DY = K × DI)
(A) “In India, after 1947 land reforms were introduced on a large
scale.” Discuss any one such land reform. 0.25 1/0.25 = 4 4 × 1,000 = 4,000
(B) “In the post-reform period, the Government of India decided 0.10 1/0.10 = 10 10 × 1,000 = 10,000
to retain profit-making Public Sector Undertakings (PSUs). It Increase in Income (DY) = 10,000 – 4,000 = ` 6,000 crore
provided a special status to PSUs to enable them to expand in 14. (A) When ex-ante Aggregate Demand is more than ex-ante
the global market.” Do you agree with the given statement? Aggregate Supply, it means that households are planning to
Give valid reasons in support of your answer. (6 marks) consume more than what the firms expect them to. This will lead
Q.34 Read the following text answer the following questions: to unintended fall in inventories.
Sustainable development is the development that meets the needs of To restore the desired /intended level of inventories, producers
the present, without compromising the ability of future generations may expand production. As a result, there may be an increase in
to meet their own needs. India is critical in determining the success the level of output, employment and income in the economy.
in a pursuit to achieve sustainable development. The Union Budget OR
2023 presented by Finance Minister Nirmala Sitharaman builds (B) Reverse repo rate is the rate at which commercial banks may park
on India’s commitment to lead the global action against climate their surplus funds with the Central Bank.
change, preserve biodiversity and support sustainable development. In order to decrease inflation in an economy, Reserve Bank of
The government has accelerated the pace of Green Growth as India India (RBI) may increase the reverse repo rate. With the increase in
is facing the grave reality of depleting natural resources, limited reverse repo rate, it becomes lucrative for commercial banks to park
supply of water, minerals, and fossil fuels. In a bid to counter surplus funds with the central bank. Consequently, this may lead to
the climate threat, India has committed to achieving net zero by reduction in their lending capacity. Thereby, fall in the Aggregate
2070; released a low-carbon development strategy; and introduced Demand curbs the level of inflation.
the concept of ‘LiFE’ (Lifestyle for Environment) to promote 15. Central bank accepts the deposits from commercial banks and also
responsible consumption. The Green Growth actions include advances loans to them as and when required. It maintains reserves
several pointed measures that would facilitate the much-needed of all commercial banks and utilizes it to settle inter-bank claims.
steady decarbonization of Indian industries, reduce dependency on Being the supreme authority of the banking system, it acts as the
fossil fuel imports and establish technology and market leadership financier of last recourse to the commercial banks. It forwards short-
in this sunrise sector. For instance: The allocation of `35,000 crore term credit to the commercial banks against approved securities.
of priority capital investment towards achieving net zero by 2070 The Central Bank supervises, regulates and controls the
and clean energy transition ensures the country’s energy security. commercial banks. The regulation of banks may be related to
The outlay of `19,700 crore for the Green Hydrogen Mission their licensing, branch expansion, liquidity of assets, management,
will mobilise a green hydrogen production capacity of 5 metric amalgamation and liquidation.
million tonnes by 2030. Moreover, to encourage the optimal 16. (A) (i) Fiscal Deficit = (iii) + (ii) – (iv)
use of wetlands, enhance biodiversity, carbon stock, eco-tourism = 10 + 15 – (50/100 × 20) = `15 crore
opportunities and income generation for local communities, the (ii) Primary Deficit = Fiscal Deficit – (v) = 15 – 4 = `11 crore
Amrit Dharohar scheme will be implemented over three years. (B) Two features of public goods are:
(i) Define sustainable development. (2 marks) (i) Non-excludable (ii) Non-rivalrous
(ii) Briefly elaborate, any two reasons behind the objective of Green OR
Growth being set up by the Indian Government. (4 marks)
CBSE Sample Question Paper 2023-24 ECONOMICS XII EXAM HANDBOOK
321
(A) The government may need to correct the fluctuations (income, When the output of goods and services from government enterprises
employment and prices) in the economy. These may depend upon increases, then private enterprises which receive raw materials from
the level of Aggregate Demand, which in turn depends upon the government enterprises will also raise their output. Subsequently,
spending decision of households and firms. private enterprises using these output are indirectly benefited with
To stabilize the economy, under the state of inflation/deflation, increase in scale of production. This leads to an increase in the
Government may alter taxes/expenditure, accordingly. number of employment opportunities indirectly in the economy.
(B) Expenditure incurred by the government under Ayushmaan Bharat 32. The given image depicts the drift of the Indian workforce from
Scheme for providing free medicines to the economically backward the formal sector to the informal sector employment. This
section does not lead to any creation of assets or reduction in situation is popularly known as ‘informalisation of the workforce’.
liabilities. Hence, it can be classified as revenue expenditure. In India, informal sector includes millions of farmers, agricultural
17. (a) (i) Yes, it will be included in domestic income as goods labourers, non-farm casual wage labourers, owners of small
purchased by American tourist is the expenditure made by enterprises and the self-employed people. The workforce in the
him in India and will be included as exports. informal sector does not get regular income; they do not have any
(ii) No, it will not be included in domestic income because it protection or regulation from the government. Workers may be
is difficult to ascertain their market value. Moreover, such dismissed without any compensation/notice.
transactions are not undertaken for any monetary consideration. The Government is taking steps to safeguard the interests of the
(b) No. Capital goods are those final goods which help in workers in the informal sector.
the production of other goods and services. A machine 33. (A) Before the advent of Green Revolution, a large proportion of
purchased by a firm will be a capital good when it is used for agricultural produce was consumed by the farmers themselves
the production of other goods and services. However, if it is instead of being sold in the market. Green Revolution led to
purchased by a firm for resale purposes in the same year, it will an increase in the growth of agricultural output.
be considered as an intermediate good and not a capital good. After the Green Revolution, a greater proportion of the agro-
18. (d) 19. (c) 20. (b) 21. (c) 22. (a) produce (wheat and rice) was sold by the farmers in the market.
23. (c) 24. (d) 25. (b) 26. (b) 27. (c) That led to the attainment of marketed surplus and converted
28. (A) India’s demographic indicators were in a dilapidated state India into a food surplus economy from the food scarce one.
during the colonial period as: (B) In order to protect domestic industries, India followed the import
• The overall literacy level was less (below 16%). substitution policy. This policy aimed at substituting imports with
• Life expectancy was very low (32 years). domestic production. The domestic industries were protected
• Alarming infant mortality rate (218/1000). from foreign competition by using the following tools:
OR i. Tariffs: Tariffs are a tax on imported goods thatmake
(B) The pre-independent India’s occupational structure experienced imported goods dearer and discourage their usage.
growing regional variation as: ii. Quotas: Quotas specify the quantity of goods that can be
• Parts of Madras Presidency, Bombay and Bengal witnessed imported.
a decline in the dependence of the workforce on the OR
agricultural sector with a commensurate increase in the (A) Land reforms were inevitable in the post-independence era. The
manufacturing and the services sectors. policy makers of independent India introduced land reforms such
• There had been an increase in the share of workforce in as land ceiling, abolition of intermediaries etc.
agriculture in states such as Orissa, Rajasthan and Punjab. Land ceiling means fixing up the maximum size of landholding
29. On-the-job trainings have become an integral part of work which could be owned by an individual. This step was essential
environment in the recent times as they add to the productive to promote equity in the agricultural sector so as to reduce the
capacity of employees. Firms encourage such trainings, as the concentration of land ownership in a few hands.
benefits outweighs the cost of these trainings. It enables employees (B) Yes. In order to improve efficiency, infuse professionalism and
to develop skills and adapt modern technologies/ideas. enable Public Sector Undertakings (PSUs) to compete more
Thus, Ravya’s decision to attend on-the-job training sessions will effectively in the liberalised global environment, the government
have a positive impact on human capital formation. identified profit making PSUs. Government declared them as
30. China is the most populous country in the world. Its annual Maharatnas, Navratnas and Miniratnas. PSUs were given greater
population growth rate was very high. The one-child norm managerial and operational autonomy, in taking various decisions.
introduced in China in the late 1970s is the major reason for fall As a result, over the years these Maharatnas, Navratnas and
in the population growth rate. However, this measure led to a Miniratnas have performed exceedingly well and established
decline in the sex ratio. The number of females per 1000 males in themselves as market leaders.
China is approximately 949. One-child policy and prevalent son- 34. (i) Sustainable development is the development that meets the
preference is the prime reason behind the skewed sex ratio. need of the present generation without compromising the
31.(A) (i) False: Agricultural marketing is a process that involves ability of the future generations to meet their own needs.
the assembling, storage, processing, transportation, (ii) The Indian Government has accelerated the pace of Green
packaging, grading and distribution of different agricultural Growth as India is:
commodities across the country. • Facing the grave reality of depleting natural resources,
(ii) True: Jan-Dhan Yojana has promoted thrift habits and limited supply of water, minerals, and fossil fuels. This
efficient allocation of financial resources, particularly has created a number of environmental issues in the
in rural areas. Formal banking system has mobilized a recent past in India.
substantial amount under this yojana. • To counter the climate threat, India has committed
OR to achieve net zero target by the year 2070. This will
(B) Various government departments/enterprises employ people facilitate much needed decarbonization of Indian
and increase their output of goods and services, leading to industries, reduce dependency on fossil fuel imports and
direct employment. to become a market leader in the sunrise industry.
20 Sample Papers
for
Practice (with Answers)
127
Sample Paper 20 (for Practice)

SECTION A – MACROECONOMICS
Q.1 Which of the following transactions is not included in national income? (1 mark)
(a) Payment of interest by a private firm
(b) Payment of interest by banks on deposits
(c) Interest paid by an individual on a car loan taken from a bank
(d) Interest on finance provided by the owners of the production units
OR
Market prices include:
(a) Subsidies (b) Indirect taxes
(c) Intermediate consumption (d) Depreciation
Q.2 Read the following statements carefully and choose the correct alternatives given below: (1 mark)
Statement 1 – The value of money multiplier is determined by the reserve ratio prevailing in the monetary system.
Statement 2 – The process of credit creation directly relates to the value of reserve ratio.
(c) Statement 1 is true and Statement 2 is false. (d) Statement 2 is true and Statement 1 is false.
OR
Read the following statements -Assertion (A) and Reason(R), Choose one of the correct alternatives given below:
Assertion (A): Demand deposits are not legal tenders.
Reason(R): Demand deposits are the deposits which can be easily withdrawable on demand, by cheque or
otherwise, by the depositor from his/her bank account.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
Q.3 Which of the following actions by the Central Bank will INCREASE the money supply in the country? (1 mark)
(a) decreasing the repo rate (b) decreasing the bank rate
(c) increasing the reverse repo rate (d) selling bonds issues by the government in the open market
Q.4 Read the following statements carefully and choose the correct alternative: (1 mark)
Statement I: The slope of the savings curve in an economy is 0.1 and change in final income is `15,000. The
change in initial investment was `1,500 crore.
Statement II: The consumption function of an economy is C = 40 + 0.8Y (amount in ` crores). The level of
income where average propensity to consume will be one is `500 crore.
Q.5 The consumption function of an imaginary country is: C = `80 crore + 0.7Y. Which of the following is true for his
economy? (1 mark)
(a) Even if the country does not have any income, its citizens still consume `80 crore.
(b) People spend 70% of rise in income on consumption.
(c) Both (a) and (b)
(d) Autonomous consumption is `80 crore and people spend 70% of income on consumption.
Q.6 Which one of the following statements is incorrect? (1 mark)
(a) Ex-post value of total output is always equal to the ex-post aggregate expenditure in the economy.
(b) When planned savings is more than planned investment, then national income is likely to rise.
(c) Marginal Propensity to Consume represents the slope of the aggregate demand function.
(d) The value of APC can be greater than one before break even point, due to the existence of autonomous
consumption.
128
Q.7 Which of the following is a capital receipts in the Government Budget? (1 mark)
(a) Income tax (b) Interest receipts
(c) Sale of shares of PSUs (d) Dividends from a public sector undertaking (PSU)
OR
The government has increased the rate of income tax. The objective of government is to:
(a) maintain balanced regional development (b) redistribute income & wealth
(c) reallocate resources (d) ensure economic stability
Q.8 Read the following statements -Assertion (A) and Reason(R), Choose one of the correct alternatives: (1 mark)
Assertion (A): Personal income tax and corporation tax are indirect taxes.
Reason (R): The liability to pay and burden of an indirect tax lie on different persons/entities.
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
Q.9 ______ is the difference between value of export and import of services; transfers payments in a fiscal year. (1 mark)
(a) Balance of trade (b) Net Invisibles (Services)
(c) Trade surplus (d) Current account of BOP
Q.10 A rise in the interest rates at home leads to ________ of the domestic currency. (1 mark)
(a) Depreciation (b) Appreciation
(c) Devaluation (d) Revaluation
Q.11 Read the following News Report and answer the questions that follow: (3 marks)
The six-member RBI panel expects the real GDP growth to be negative for the year 2020-21 as a whole. “An early
containment of the Covid-19 pandemic may impart an upside to the outlook. A more protracted spread of the
pandemic, deviations from the forecast of a normal monsoon and global financial market volatility are the key
downside risks,” the Monetary Policy Committee (MPC) said.
The RBI panel, which slashed the repo rate, the main policy instrument by 115 basis points to 4 per cent since
February this year, noted that like elsewhere, in India too, economic activity had started to recover from the lows
of April-May, but surges of fresh infections have forced re-clamping of lockdowns in several cities and states.
“Consequently, several high frequency indicators have levelled off,” it underlined.
The RBI Governer, Shaktikanta Das said the economy is experiencing unprecedented stress in an austere global
environment. “Extreme uncertainty characterises the outlook, which is heavily contingent upon the intensity,
spread and duration of the pandemic – particularly the heightened risks associated with a second wave of infections
– and the discovery of the vaccine,” he said.
(i) Give the meaning of real GDP. (ii) Given the Nominal GDP, how we can find Real GDP? (iii) What does
negative real GDP growth for the year 2020-21 signify?
Q.12 Answer the following questions on the basis of given figure: (3 marks)
(i) What does the shaded area OS1B1 indicate?

(ii) What is the significance of point B?
(iii) At which level of income, Average
Propensity to Consume will be equal to
one and why?
129
OR
An increase of `250 crore in investment in an economy results in income increasing by three times more than the
increase in investment. Calculate: (i) MPC, (ii) Change in savings and (iii) Value of multiplier.
Q.13 How do Legal reserve requirements affect the money creation by banks and money supply in the economy? (4 marks)
Q.14 Identify and state the meanings of the following components of government budget, with examples of each: (4 marks)
(i) Those receipts of the government that do not lead to a claim on the government, and are termed non-redeemable.
(ii) Expenditure incurred by the central government, which relates to those expenses incurred for the normal
functioning of the government departments and various services.
(iii) Expenditures of the government which result in creation of physical or financial assets.
(iv) Those receipts of the government which reduce financial assets.
OR
Define government budget. State the meaning of Balanced, Surplus and Deficit Budget.
Q.15 According to recent media reports: ‘USA has accused China of currency devaluation to promote its exports’. In the light
of the given media report comment, how exports can be promoted through the Currency devaluation? (4 marks)
Q.16 (a) “India’s GDP is expected to expand 7.5% in 2022-23: World Bank.” Does the given statement mean that
welfare of people of India increase at the same rate? Comment with reason. (2 marks)
(b) Find ‘Government Final Consumption Expenditure’ and ‘Mixed Income of Self Employed’. (4 marks)
S. No. Particulars (` in crore)
(i) National Income 71,000
(ii) Gross Domestic Capital Formation 10,000
(iii) Government Final consumption Expenditure ?
(iv) Mixed Income of self-Employed ?
(v) Net Factor Income from abroad 1,000
(vi) Net Indirect Taxes 2,000
(vii) Profits 1,200
(viii) Wages and Salaries 15,000
(ix) Net Exports 5,000
(x) Private Final Consumption Expenditure 40,000
(xi) Consumption of fixed Capital 3,000
(xii) Operating Surplus 30,000
OR
(a) ‘Circular flow of income in a two sector economy is based on the axiom that one’s expenditure is other’s
income’. Do you agree with the given statement? Support your answer with valid reasons. (2 marks)
(b) Given the following data, find the missing values of ‘Operating Ssurplus’ and ‘Net Exports’. (4 marks)
S. No. Particulars (` in crore)
(i) Mixed Income of Self-Employed 700
(ii) Net Factor Income from Abroad 150
(iii) Private Final Consumption Expenditure 2,200
(iv) Profits 200
(v) Net Indirect Taxes 150
(vi) National Income 5,000
(vii) Gross Domestic Capital Formation 1,100
(viii) Wages and Salaries 2,200
(ix) Net Exports ?
(x) Government Final Consumption Expenditure 1,300
(xi) Consumption of Fixed Capital 200
(xii) Operating Surplus ?
Q.17 (a) What is Consumption Function? State the two components of a linear consumption function. (3 marks)
(b) Discuss the significance of 45-degree line in Keynesian Economics. (3 marks)
130
SECTION B – INDIAN ECONOMIC DEVELOPMENT

Q.18 The country’s growth rate of aggregate real output during the first half of the twentieth century was only (i)
__________ and per capita real output was (ii) __________. (1 mark)
(a) (i) less than 1% per year (ii) about 1% per year
(b) (i) less than 2% per year (ii) about 0.5% per year
(c) (i) less than 3% per year (ii) about 0.25% per year
(d) (i) less than 4% per year (ii) about 5% per year
Q.19 Identify which of the following statement is correct: (1 mark)
(a) British colonial rule made India net importer of raw material.
(b) The real motive behind infrastructure development by Britishers was to serve the people of India.
(c) India generated large export surplus during the British rule.
(d) Indian handicraft industry enjoyed world-wide reputation under the British rule.
OR
From the following, identify the incorrect statement in the light of India’s pre-independence occupational structure.
(a) Agricultural sector accounted for the largest share of workforce.
(b) Industrial and Service sectors grew at a faster rate than the agriculture sector.
(c) Agriculture sector was marked with disguised unemployment.
(d) Unbalanced growth was created due to unequal distribution of workforce.
Q.20 Under the British system of land settlement, the zamindar’s dues to the state were fixed. What did this mean for the
cultivators? (1 mark)
(a) They received investment support to increase production.
(b) They were exploited and forced to pay rent regardless of the produce.
(c) They had the support of the landlords against the oppressive policies of the British.
(d) They were forced to shift from food crops to commercial crops, leading to food scarcity.
Q.21 In 1950, a small-scale industrial unit was one which invested a maximum of __________ while at present the
maximum investment allowed is `1 crore. (1 mark)
(a) `1 lakh (b) `2 lakh
(c) `5 lakh (d) `10 lakh
Q.22 Which of the following is not one of the ways to attain the goal of sustainable development? (1 mark)
(a) Use of cleaner fuels (b) Use of traditional knowledge and practices
(c) Spreading awareness (d) Sticking to methods to promote inequalities.
OR
There are two statements given below, marked as Assertion (A) and Reason (R). Read the statements and choose
the correct option.
Assertion (A): Liquefied petroleum gas (LPG) is a clean fuel.
Reason (R): LPG reduces household pollution to a large extent. Also, energy wastage is minimised.
Statement-I: In order to address two major environmental concerns in India, viz. water and air pollution, the
government set up the Central Pollution Control Board (CPCB) in 1974.
Statement-II: The CPCB has identified 14 categories of industries (large and medium scale) as significantly
polluting.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.24 Unemployed person is one who is not able to get employment of even one hour in half a day. (1 mark)
This definition is given by:
(a) Economists (b) The National Statistical Office
(c) Census of India (d) Directorate general of Employment and Training
131
Q.25 There are two statements given below, marked as Assertion (A) and Reason (R). Read the statements and choose
the correct option. (1 mark)
Assertion (A): Micro-credit can help empower women and make them financially independent.
Reason (R): Micro-credit involves small loans provided at reasonable interest rates that can help people start their
own ventures.
(c) A and R are true and R explains A. (d) A and R are true and R does not explain A.
Statement-I: After the establishment of People’s Republic of China under one-party rule, all critical sectors of the
economy, enterprises and lands owned and operated by individuals were brought under government control.
Statement-II: The Great Leap Forward (GLF) campaign initiated in 1958 in Pakistan aimed at industrialising the
country on a massive scale.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
OR
Read the following statements-Assertion (A) and Reason (R), and select the correct alternative:
Assertion (A): China introduced reforms in phases.
Reason (R): In the initial phase, reforms were initiated in agriculture, foreign trade and investment sectors. In the
later phase, reforms were initiated in the industrial sector.
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A).
Q.27 Arrange the following events of China in chronological order and choose the correct alternative: (1 mark)
(i) Great Proletarian Cultural Revolution (ii) Great Leap Forward campaign
(iii) Introduction of Economic Reforms (iv) Establishment of People’s Republic of China
(a) (ii), (iv), (iii), (i) (b) (iv), (ii), (i), (iii)
(c) (ii), (iv), (i), (iii) (d) (iv), (i), (ii), (iii)
Q.28 Read the following carefully and answer the questions that follow: (3 marks)
10
8.7
9
8
7.8
7
6.1 6.1
5.7 5.8
6
4.8
5
4.2
3.6 3.4
4 3.3
2.8
3
2
0.85 2.28 1.12
0.39 2.03 1.99 1.84 1.73 1.89
1 0.28
1.5
0.98
0
1951-56 1956-61 1961-66 1969-74 1974-79 1980-85 1985-90 1990-92 1997-2000 1999-2005 2005-10 2010-12
GDP Employment
Growth of Employment and Gross Domestic Product (GDP) during 1951-2012 (in %)
(i) During the period 1950–2010, Gross Domestic Product (GDP) of India grew positively and was higher than
the employment growth. However, there was always fluctuation in the growth of GDP. During this period,
what was the rate of growth of employment?
(ii) In the Indian economy, without generating employment, we have been able to produce more goods and
services. What do scholars refer to this phenomenon?
(iii) What is the process of moving from self-employment and regular salaried employment to casual wage work called?
132
Q.29 “Human Capital Formation gives birth to innovation, invention and technological improvements.” Do you agree
with the given statement ? Support your answer with valid arguments. (3 marks)
OR
“The Prime Minister urged to increase the rural income by increasing non-farm activities.”Explain how non-farm
activities can lead to rise in income of people in rural sector.
Q.30 While subsidies encourage farmers to use new technology, they are a huge burden on government finances. Discuss
the usefulness of subsidies in the light of this fact. (4 marks)
OR
Give a quantitative appraisal of India’s demographic profile during the colonial period.
Q.31 “The process of globalisation through liberalisation and privatisation policies has produced positive, as well as,
negative results for India and other countries.” Defend or refute the above statement. (4 marks)
Q.32 The UN formulated 17 Sustainable Development Goals (SDGs) intended to be achieved by the year 2030.
(a) Define Sustainable Development. (1 mark)

(b) What needs to be done to achieve sustainable development, according to Herman Daly, a leading environmental
economist? Outline the steps involved in attaining sustainable development in India. (3 marks)
Q.33 (a) Compare and analyze the ‘Women Worker Population Ratio’ in Rural and Urban areas based on following
information: (2 marks)
Worker-Population Ratio in India, 2017-2018
Sex Total Rural Urban
Men 52.1 51.7 53.0
Women 16.5 17.5 14.2
Total 34.7 35.0 33.9
(b) ‘Pesticides are chemical compounds designed to kill pests. Many pesticides can also pose health risks to people
even if exposed to nominal quantities.’ In the light of the above statement, suggest any two traditional methods
for replacement of the chemical pesticides. (2 marks)
(c) “Organic farming helps in sustainable development of agriculture and India has a clear advantage in producing
organic products for both domestic and international markets.”
In the light of the above statement, state the benefit of organic farming. What are the major concerns which
need to be addressed apart from an appropriate agriculture policy to promote organic farming. (2 marks)
OR
(a) “Traditionally, Indian agriculture system, healthcare system, housing, transport etc.–– all practices have
been environment friendly. Only recently have we drifted away from the traditional systems and caused
large scale damage to the environment. Now, it is time to go back.” Give examples to support the given
statement. (3 marks)
133
(b) India recognised the importance of human capital in economic growth long ago. The Seventh Five Year Plan
says, “Human capital has necessarily to be assigned a key role in any development strategy, particularly in a
country with a large population. Trained and educated on sound lines, a large population can itself become an
asset in accelerating economic growth and in ensuring social change in desired directions.”
How does investment in human capital contribute to economic growth? Explain by giving examples. (3 marks)
Q.34 CASE STUDY: Read the following and answer the questions that follow the basis of same and common
understanding.
It is common to find developmental strategies of a country as a model to others for lessons and guidance for their
own development. It is particularly evident after the introduction of the reform process in different parts of the
world. In order to learn from economic performance of our neighbouring countries, it is necessary to have an
understanding of the roots of their successes and failures. It is also necessary to distinguish between, and contrast,
the different phases of their strategies. Though countries go through their development phases differently, let us
take the initiation of reforms as a point of reference. We know that reforms were initiated in China in 1978,
Pakistan in 1988 and India in 1991.
China did not have any compulsion to introduce reforms as dictated by the World Bank and International Monetary
Fund to India and Pakistan. The new leadership at that time in China was not happy with the slow pace of growth
and lack of modernisation in the Chinese economy under the Maoist rule. They felt that Maoist vision of economic
development based on decentralisation, self sufficiency and shunning of foreign technology, goods and capital had
failed. Despite extensive land reforms, collectivisation, the Great Leap Forward and other initiatives, the per capita
grain output in 1978 was the same as it was in the mid-1950s. It was found that establishment of infrastructure
in the areas of education and health, land reforms, long existence of decentralised planning and existence of small
enterprises had helped positively in improving the social and income indicators in the post reform period. Before the
introduction of reforms, there had already been massive extension of basic health services in rural areas. Through
the commune system, there was more equitable distribution of food grains. Experts also point out that each reform
measure was first implemented at a smaller level and then extended on a massive scale. The experimentation
under decentralised government enabled to assess the economic, social and political costs of success or failure. For
instance, when reforms were made in agriculture, as pointed out earlier by handing over plots of land to individuals
for cultivation, it brought prosperity to a vast number of poor people. It created conditions for the subsequent
phenomenal growth in rural industries and built up a strong support base for more reforms. Scholars quote many
such examples on how reform measures led to rapid growth in China.
Scholars argue that in Pakistan the reform process led to worsening of all the economic indicators. Scholars using
the official data of Pakistan indicate rising poverty there. The proportion of poor in 1960s was more than 40 per
cent which declined to 25 per cent in 1980s and started rising again in the recent decades. The reasons for the
slow-down of growth and re-emergence of poverty in Pakistan’s economy, as scholars put it, are agricultural growth
and food supply situation were based not on an institutionalised process of technical change but on good harvest.
When there was a good harvest, the economy was in good condition, when it was not, the economic indicators
showed stagnation or negative trends. You will recall that India had to borrow from the IMF and World Bank to set
right its balance of payments crisis; foreign exchange is an essential component for any country and it is important
to know how it can be earned. If a country is able to build up its foreign exchange earnings by sustainable export
of manufactured goods, it need not worry. In Pakistan most foreign exchange earnings came from remittances from
Pakistani workers in the Middle-east and the exports of highly volatile agricultural products; there was also growing
dependence on foreign loans on the one hand and increasing difficulty in paying back the loans on the other.
However, during the last few years, Pakistan has recovered its economic growth and has been sustaining. In 2017‑18,
the Annual Plan 2019-20 reports that, the GDP registered a growth of 5.5 per cent, highest when compared to the
previous decade. While agriculture recorded growth rate far from satisfactory level, industrial and service sectors
grew at 4.9 and 6.2 per cent respectively. Many macroeconomic indicators also began to show stable and positive
trends.
(a) Explain the Great Leap Forward campaign of China as initiated in 1958. (2 marks)
(b) Evaluate any two factors that led to the rapid growth in economic development in China. (2 marks)
(c) Give any two reasons for the slow growth and re-emergence of poverty in Pakistan. (2 marks)
197
34. (a) The use of Compressed Natural Gas (CNG) as fuel (i) Marginal propensity to consume = 3/4 = 0.75
in public transport system has significantly lowered (ii) Change in savings = `250 crore
air pollution and the air has become cleaner. (iii) Value of multiplier = 4
(b) With the help of photovoltaic cells, solar energy can 13. Legal Reserve Ratio (LRR) is the minimum reserves that
be converted into electricity. These cells use special a commercial bank must maintain as per the instructions
kind of materials to capture solar energy and then of the Central Bank. There are two components of Legal
convert the energy into electricity. This technology Reserve Ratio (LRR)– Cash Reserve Ratio (CRR) and
is extremely useful for remote areas and for places Statutory Liquidity Ratio (SLR). CRR is the fraction
where supply of power through grid or power lines of net total demand and time deposits that commercial
is either not possible or proves very costly. This banks must keep as cash reserves with the Central Bank.
technique is also totally free from pollution. SLR is the fraction of net total demand and time deposits
(c) The given statement is true. Owing to the rise in that commercial banks must keep with themselves in the
air pollution, monitoring and maintaining good air form of liquid assets.
quality is the need of the hour. Better air quality • When the Central Bank raises CRR or SLR or
helps to reduce medical issues like asthma and both, less money is left with commercial banks for
other respiratory problems. lending. As lending decreases, the money creation
Sample Paper-20 decreases and money supply in the economy
decreases.
1.(c) OR (b) 2. (c) OR (b) • When the Central Bank reduces CRR or SLR or
3.(b) 4. (c) both, more money is left with commercial banks
5.(c) 6. (b) for lending. As lending increases, the money
7.(c) OR (b) 8. (d) creation increases and money supply in the
economy increases.
9.(b) 10. (b)
14. (i) Revenue Receipts: Revenue receipts are those
11.(i) Real GDP is the market value of the final goods and
receipts of government which neither lead to
services produced within the domestic territory of a
increase in its liabilities nor reduction in its assets.
country during an accounting year, as estimated at
For example: Income tax, profit of PSU, dividends,
the constant prices.
fees and fines etc.
(ii) Given Nominal GDP, we can find Real GDP by
(ii) Revenue Expenditure: Revenue expenditure is that
eliminating the effect of change in prices between
expenditure of the government that neither creates
the base year and the current year in the following
any asset nor reduces any liability, e.g. Interest
way:
payments, Salaries and pensions, Expenditure on
No min al GDP
Real GDP = ¥ 100 education and health, Subsidies, etc.
Price Index (iii) Capital Expenditure: Capital Expenditure is that
(iii) Negative real GDP growth for the year 2020-21 expenditure of the government which either creates
signifies that real GDP of the year 2020-21 has assets or reduces its liabilities, e.g., construction of
decreased as compared to 2019-20. school buildings, hospitals, flyovers etc., repayment
12. (i) The shaded area AOB represents the dis-savings. of loans, investment in shares, loans and advances
(ii) Point B indicates break-even level of income where given to state and UT governments, etc.
Consumption(C) is equal to Income (Y) or Savings (iv) Capital Receipts: Capital Receipts are those receipts
(S) are zero. of government which either lead to increase in its
(iii) Average Propensity to Consume will be equal to liabilities or reduction in its assets. For Example:
one at point B, as here Average Propensity to Save borrowings, receipts from recovery of loans, receipts
is zero. The corresponding level of income = OB1 from disinvestment.
OR OR
Increase in investment DI = 250, Increase in income Government Budget is a financial statement of budgetary
DY = 250 + 3 × 250 = 1,000 receipts and budgetary expenditure of the government
Therefore, investment multiplier k = DY/DI = 1,000/250 = 4 during a fiscal year.
k = 1/(1–MPC) ⇒ 4 = 1/(1–MPC) The government may spend an amount equal to the
revenue it collects. This is known as a balanced budget.
⇒ 1–MPC = 1/4 ⇒ MPC = 1 – (1/4) = 3/4
If it needs to incur higher expenditure, it will have to
MPC = DC/DY ⇒ 3/4 = DC/1,000 raise the amount through taxes in order to keep the
⇒ DC = 3/4 × 1,000 = 750. DS = DY – DC budget balanced.
= 1,000 – 750 = 250
198
When tax collection exceeds the required expenditure, it National Income (vi) = PFCE (iii) + GFCE (x) +
is called a surplus budget. GDCF (vii) + Net Exports (ix) – Consumption of Fixed
The most common feature of government budget is Capital (xi) – Net Indirect Taxes (v) + NFIA (ii)
the situation when expenditure exceeds revenue. This is Net exports = (vi) – (iii) – (x) – (vii) + (xi) + (v) – (ii)
known as a deficit budget. = 5,000 – 2,200 – 1,300 – 1,100 + 200 + 150 – 150
15. In a fixed exchange rate system, when the government = `600 crore
increases the exchange rate (thereby, making domestic 17. (a) Consumption function describes the relation
currency cheaper in terms of a foreign currency) is called between consumption and income. Consumption
Devaluation of domestic currency. function: C = C + bY.
USA has a valid point of argument as devaluation of a Consumption function has two components:
currency encourages exports of a country. As exported (i) Autonomous consumption (C): It refers
goods become cheaper in the international market giving to the minimum level of consumption for
a competitive edge for the goods of domestic country survival even at a zero level of income. It is
(China). called autonomous consumption because the
Devaluation of the value of domestic currency promotes consumption expenditure does not depend
the exports of the country and may adversely impact the upon the level of income.
production and sale of importing country (USA). (ii) Induced consumption (bY): It is directly
16. (a) Generally it is considered that an increase in the determined by the level of income. Clearly, bY
Gross Domestic Product (GDP) of any economy shows dependence of consumption on income.
(India in this case) ensures increase in welfare of (b) • The straight line obtained which will
the people of the country. However, this may not originate from point of origin O forming a
always be correct. GDP is not the best indicator of 45° angle establishes the relation of: Income
the economic welfare of a country. = Consumption + Savings (Y = C + S).
Some of the prime reasons for the same are: (any two) Therefore, the 45° line from origin represents
the aggregate supply curve.
(i) unequal distribution and composition of
GDP, • At any point on the 45° line, consumption
expenditure is exactly equal to income. Thus,
(ii) non-monetary transactions in the economy
the 45° line from origin tells us whether
which are not accounted for in GDP, and
consumption is equal to, greater than, or less
(iii) occurrence of externalities in the economy
than income.
(both positive and negative).
• The 45° line also helps to identify the
(b) Mixed income of self-employed = (i)–[(viii)+(xii)+(v)]
equilibrium level of income/output in the
= 71,000 – (15,000 + 30,000 + 1,000)
economy. At all points on the 45° line, the
Mixed income of self-employed = `25,000 crore aggregate demand equals the level of income/
Government Final consumption expenditure output in the economy. Thus, the point
= (i)–[(x)+(ii)+(v)+(ix)]+(vi)+(xi) where the aggregate demand curve (C + I
= 71,000 –(40,000 + 10,000 + 1,000 + 5,000) + curve) will intersect the 45° line must be the
2,000 + 3,000 equilibrium point because at that point on
the 45° line aggregate demand must be equal
= `20,000 crore
to the income/output in the economy.
OR
18. (b) 19. (c) OR (b)
(a) Yes, the given statement is correct. In a two sector
economy, the firms produce goods and services 20. (b) 21. (c)
and make factors payments to the households. 22. (d) OR (c) 23. (c)
The factor income earned by the households 24. (a) 25. (c)
will be used to buy the goods and services which 26. (c) OR (a) 27. (b)
would be equal to income of firms. The aggregate 28. (i) Not more than 2% per annum.
consumption expenditure by the households in (ii) Jobless growth
the economy is equal to the aggregate expenditure (iii) Casualisation of workforce
on goods and services produced by the firms in
29. The given statement is correct.
the economy (Income of the producers).
• Investment in human capital formation (investment
(b) National Income (vi) = Wages and Salaries (viii) +
in education and health) enhances efficiency/
Operating Surplus + Mixed Income (i) + NFIA (ii)
productivity, skills, capabilities implying economic
Operating Surplus = (vi) – (viii) – (i) – (ii)
growth.
= 5,000 – 2200 – 700 – 150 = `1,950 crore
199
• Technical skills acquired through sources of human (iii) High mortality rates: The overall mortality rate
capital formation such as education, training and was very high and in that, particularly, the infant
sound health etc. provides opportunity to labour mortality rate was quite alarming – about 218 per
supply to make better use of given resources. thousand in contrast to the present infant mortality
• Investment in education creates ability to adopt rate of 33 per thousand.
newer technologies, facilitates invention and (iv) Low life expectancy: Life expectancy was also very
innovation since educated workforce generally low – 32 years in contrast to the present 69 years.
adapts to modern technologies and innovation. 31. The given statement is true to its character.
OR Some scholars argue that globalisation should be seen
Non-farm activities (agro-processing industries, as an opportunity in terms of greater access to global
poultary, craft, handloom) provide alternative avenues markets, high technology and, increased possibilities
for sustainable livelihood and may raise the level of of large industries of developing countries to become
income as the risks due to fluctuations in production important players in the international arena.
and market prices is generally less. Agriculture in India On the contrary, the critics argue that:
is mainly a seasonal occupation, however, during off (i) Globalisation is a strategy of the developed
seasons, it becomes difficult to find employment and countries to expand their markets in other
stabilize farmer’s income. Thus, the Prime Minister has countries. It has increased the income and quality
urged appropriately in the best interest of the farmers of of further consumption of only high income
the rural India. groups.
30 Any new technology is considered as being risky by (ii) Market-driven globalisation has widened the
farmers. Therefore, it was necessary to use subsidies economic disparities among nations.
to provide an incentive for adoption of the new HYV (iii) The growth has been concentrated only in
technology by farmers, especially the small farmers. some select areas in the service sector such as
• Most farmers are very poor and they will not be telecommunication, IT, finance, entertainment,
able to afford the required inputs without subsidies. travel and hospitality services, real estate and trade
• Eliminating subsidies will increase the inequality rather than vital sectors such as agriculture and
between rich and poor farmers and violate the goal industry which provide livelihoods to millions of
of equity. people in the country.
On the other hand, some economists believe that once 32. (a) Sustainable Development: It refers to the
the technology is found profitable and is widely adopted, development process that meets the needs of
subsidies should be eliminated. They are a huge burden present generation without compromising on
on government finances. the ability of the future generations to meet their
• Subsidies are meant to benefit the farmers but a respective needs.
substantial amount of fertiliser subsidy also benefits (b) According to Herman Daly, a leading
the fertiliser industry. environmental economist, to achieve sustainable
• Among farmers, the subsidy largely benefits the development, the following needs to be done:
farmers in the more prosperous regions only. (i) Limiting the human population to a
OR level within the carrying capacity of the
Quantitative appraisal of India’s demographic profile environment. The carrying capacity of the
during the colonial period: environment is like a‘plimsoll line’ of the ship
which is its load limit mark. In the absence
Neither the total population of India nor the rate
of the plimsoll line for the economy, human
of population growth during the second stage of
scale grows beyond the carrying capacity
demographic transition was very high. The various social
of the earth and deviates from sustainable
development indicators were also not quite encouraging.
development.
(i) Low level of literacy: The overall literacy level was
(ii) Technological progress should be input
less than 16%. Out of this, the female literacy level
efficient and not input consuming.
was at a negligible low of about 7%.
(iii) Renewable resources should be extracted on
(ii) Lack of adequate public health facilities: Public
a sustainable basis, that is, rate of extraction
health facilities were either unavailable to large
should not exceed rate of regeneration.
chunks of population or, when available, were highly
(iv) For non-renewable resources, rate of depletion
inadequate. Consequently, water and air-borne
should not exceed the rate of creation of
diseases were rampant and took a huge toll on life.
renewable substitutes.
200
(v) Inefficiencies arising from pollution should • If a healthy person could provide
be corrected. uninterrupted labour supply for a longer
33. (a) The data in the given table reveals that: period of time, then health is also an
(i) Women constitute 16.5% of the total worker important factor for economic growth.
population in the economy. Thus, both education and health, along with many
(ii) The number of women workers in rural areas other factors like on-the-job training, job market
(17.5%) are relatively higher than the women information and migration, increase an individual’s
workers in urban areas (14.2%). Due to the income generating capacity. This enhanced
abject poverty in rural areas, ruralwomen are productivity of human beings or human capital
compelled to work more than their urban contributes substantially not only towards increasing
counterparts. labour productivity but also stimulates innovations
(b) The traditional practices can help in controlling and creates ability to absorb new technologies.
contamination without the use of chemical Education provides knowledge to understand
fertilizers, as follows: changes in society and scientific advancements,
(i) Neem trees and its by products are a natural thus, facilitate inventions and innovations. Similarly,
pest-controller, which has been used since the availability of educated labour force facilitates
ages in India. Recently, the government adaptation to new technologies.
promoted the sale of Neem coated urea as a 34. (a) The Great Leap Forward (GLF) campaign was
measure of natural pest control. initiated in China in 1958, which aimed at
(ii) Large variety of birds should be allowed to industrialising the country on a massive scale.
dwell around the agricultural areas. They can People were encouraged to set up industries in their
clear large varieties of pests including insects. backyards. In rural areas, communes were started.
(c) The organic produce is pesticide-free. As a result, Under the Commune system, people collectively
the demand for organically grown crops is on a cultivated lands. In 1958, there were 26,000
rise, and generates income through exports. communes covering almost all the farm population.
Inadequate infrastructure and the problem of marketing However, GLF campaign met with many
the products are major concerns which need to be problems. A severe drought caused havoc in China
addressed apart from an appropriate agriculture policy killing about 30 million people. When Russia had
to promote organic farming. conflicts with China, it withdrew its professionals
who had earlier been sent to China to help in the
OR
industrialisation process.
(a) • One apt example is in healthcare. India is very
(b) Various factors that led to the rapid growth in
much privileged to have about 15,000 species
economic development in China: (any two)
of plants which have medicinal properties.
• Establishment of infrastructure in the areas
About 8,000 of these are in regular use in
of education and health, land reforms, long
various systems of treatment including the
existence of decentralised planning and
folk tradition. With the sudden onslaught of
existence of small enterprises helped positively
the western system of treatment, we ignored
in improving the social and income indicators
our traditional systems such as Ayurveda,
in the post reform period.
Unani, Tibetan and folk systems. These
• Through the commune system, there was
healthcare systems are in great demand again
more equitable distribution of food grains.
for treating chronic health problems.
• Each reform measure was first implemented
• Now a days, every cosmetic produce — hair
at a smaller level and then extended on a
oil, toothpaste, body lotion, face cream and
massive scale.
what not — is herbal in composition. Not
only are these products environment friendly, • The experimentation under decentralised
they are relatively free from side effects and government enabled to assess the economic,
do not involve large-scale industrial and social and political costs of success or failure.
chemical processing. (c) The reasons for the slowdown of growth and re-
(b) Increase in human capital causes economic growth. emergence of poverty in Pakistan’s economy were:
Economic growth means the increase in real (i) Volatile performance of the agriculture sector
national income of a country. due to lack of institutionalised process of
• Naturally, the contribution of the educated technical change.
person to economic growth is more than that (ii) Over-dependence on remittances and foreign
of an illiterate person. aid.

DEY'S ECONOMICS-XII - Exam Handbook For 2024 Exam

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Chapter-wise NOTES

Components of Aggregate Savings-Investment Approach: Derivation from C+I Approach

Involuntary unemployment is distinguished from voluntary

are injurious to health (e.g. liquor, cigarettes, tobacco,

NOTES for 2024 Exam

Definitions 2. All the three countries adopted economic planning as

Multiple Choice Questions (MCQs)

1. To control recession, which of the following can be appropriate:

9. Decrease in Cash Reserve Ratio will lead to _________.

21. The main aim of monetary policy is ___________.

33. In real world situations, what is the value of investment multiplier?

(a) Increase in MPC (b) Decrease in MPC

(a) A situation of Deficient Demand (b) A situation of Excess Demand

Multiple Choice Questions (MCQ)

(a) A is true but R is false. (b) A is false but R is true.

Some Important Questions

(ii) From the consumption function C = 500 + 0.9Y, MPC = 0.9

k = DY/DI ⇒ 5 = 200/DI ⇒ DI = 200/5 = 40

(c) 2000, 6000, 6000, 4400

Q.1 Choose the incorrect statement(s) from following:

Important Tips for CBSE Economics XII 2024 Examination

CBSE Sample Question Paper

SECTION A – MACROECONOMICS (a) 4,000 (b) 40,000

Sample Paper 20 (for Practice)

(i) What does the shaded area OS1B1 indicate?

SECTION B – INDIAN ECONOMIC DEVELOPMENT

(a) Define Sustainable Development. (1 mark)

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