CBSE XII | ECONOMICS

MOST IMPORTANT QUESTIONS

CBSE XII
Indian Economic Development

Note:
 Questions in this document have been created based on analyses of previous years’
board papers.
 Solutions can be used as a guideline to enable students to prepare effectively and to
help them score more marks.
 Please write the answers in your exams as per the question and the marks allotted.
 Answers provided here will also help you answer objective-based questions.

Development Experience (1947-90)

1. When was the Planning Commission set up? Who was its Chairperson? [1 M]

2. Name the committee that emphasised the role of small-scale industries in promoting rural
development. What was the committee also known as? [1 M]

3. Who was Professor PC Mahalanobis? What was his contribution? [1 M]

4. Name the two measures undertaken to promote growth in the agricultural sector during
economic reforms. [1 M]

5. Name some notable economists who estimated India’s per capita income during the
colonial period. [1 M]

6. Mention the period covered by the First Five-Year Plan. [1 M]

7. Explain the following concepts: [1 M]

a) Land ceiling
b) Land reforms
c) Marketed surplus

8. What was the primary motive behind the economic policies pursued under the colonial
government in India? [1 M]

9. What was the most important contribution made by the British to India? [1 M]

10. When was the first census of India taken? [1 M]

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MOST IMPORTANT QUESTIONS

11. How did the construction of the railways affect the structure of the Indian economy? [3 M]

12. Explain the factors responsible for the stagnation of India’s agricultural sector under the
British colonial rule. [4/6 M]

13. ‘The Indian economy had been exploited under the British rule’. Highlight the state of the
Indian economy in the pre-independence period. [6 M]

14. Briefly discuss the state of India’s foreign trade at the time of independence. [3/4 M]

15. ‘A plan should have some specific goals that need to be achieved.’ With reference to the
statement, answer the following questions. [3 x 3 = 6 M]
a) State the goals of the Five-Year Plans that was adopted by India.
b) Analyse the interdependence of the goals of the Five-Year Plans.

16. ‘Stagnation of the agricultural sector was broken by the Green Revolution.’ Highlight the
achievements and failures of the Green Revolution on the Indian economy. [6 M]

17. Bring out the principal elements of the Industrial Policy 1956 which was adopted by India.
[4 M]

18. How are economies classified in an economic system? [3 M]

19. What is the objective behind the policy of ‘land to the tiller’? How would it benefit
cultivators? [3 M]

20. Explain how the policy of import substitution protects domestic industries. Why do
countries adopt this strategy? [4 M]

21. Explain ‘Growth with Equity’ as a planning objective. [3 M]

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 CBSE XII | ECONOMICS

MOST IMPORTANT QUESTIONS

Economic Reforms since 1991

1. What is demonetisation? When did the Indian government decide to demonetise the 500
and 1000 rupee notes? [1 M]

2. What are quantitative restrictions or quotas? [1 M]

3. Explain the term ‘disinvestment’. [1 M]

When was the New Economic Policy announced? [1 M]

4. What is meant by devaluation of the rupee? [1 M]

WTO was established in the year __________. [1 M]

5. What is GST? Name the taxes which are subsumed in the goods and services tax (GST).
[1 M]

6. When did the goods and services tax (GST) come into effect in India? [1 M]

7. Explain the term Outsourcing. [1 M]

8. How much loan was taken by India from international agencies to overcome the
financial crisis in the 1980s? Who did India approach to avail the loan? [1 M]

9. Prior to the reform policies, the Indian industrial sector was highly regularised. Analyse
the reform policies that were introduced in the industrial sector. [3 M]

10. With a view to improve the performance of the public sector, the policy of privatisation
was adopted in 1991. Elaborate. [3/4 M]

11. ‘Outsourcing is one of the outcomes of the globalisation policy.’ Explain the statement.
Also, what makes India a favourable destination for outsourcing? [4 M]

12. What made India introduce reform policies in 1991? [4/6 M]

13. ‘The major aim of the financial sector reforms was to shift the role of the RBI from ‘a
regulator’ to ‘a facilitator’ of the financial sector’. Why? [3 M]

14. Identify the key objectives of the World Trade Organization (WTO). [3 M]

15. Evaluate the trade policy reforms under the New Economic Policy. [6 M]
16. Explain in brief the Foreign Exchange Reforms in 1991. [3 M]
17. Identify the areas where major reforms were undertaken under the liberalisation policy.
Briefly explain each area. [6 M]

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MOST IMPORTANT QUESTIONS

18. State the arguments in favour and against the New Economic Policy [NEP]/Economic
Reforms.

OR

Critically evaluate the New Economic Policy [NEP]. [6 M]

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MOST IMPORTANT QUESTIONS

Poverty

1. Define Poverty. [1 M]

2. Which organisation collects data on poverty and how is it estimated? [1 M]

3. Who was the first person to highlight the concept of poverty line? [1 M]

4. A person in urban India is considered below the poverty line if his daily intake of
calories is less than ______________. [1 M]

5. A person in rural India is considered below the poverty line if his daily intake of calories
is less than _____________. [1 M]

6. What is ‘Head Count Ratio’? [1 M]

7. Define Poverty Line. [1 M]

8. Name two measures to determine the extent of poverty. [1 M]

9. Name the scheme which was launched by the government to provide at least 100 days
of guaranteed wage employment. [1 M]

10. What is meant by relative poverty? [1 M]

11. What is meant by absolute poverty? How do we measure absolute poverty? [1 M]

12. Name the programmes initiated by the government to improve the food and nutritional
status of the poor. [1 M]

13. The scheme Pradhan Mantri Jan-Dhan Yojana was announced in ________. [1 M]

14. Do you agree that urban poverty is a consequence of rural poverty in India? Explain.[4 M]

15. Highlight the causes of poverty. [4/6 M]

16. Discuss the poverty alleviation programmes adopted by the government to alleviate
poverty. [6 M]

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MOST IMPORTANT QUESTIONS

17. ‘The government’s approach to poverty reduction was of three dimensions.’ Explain
each in one sentence. [4/6 M]

18. Critically evaluate the poverty alleviation programmes by the government. [4/6 M]

19. Match the following: [3 M]

Column I Column II
Task force on projections of 1962
minimum needs and effective
consumption demand
Experts group August 2005
Amartya Sen 1979
MGNREGA 1989
Study group Sen Index

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MOST IMPORTANT QUESTIONS

Rural Development

1. According to Mahatma Gandhi, the real progress of India is [1 M]

a) Growth of industries in cities
b) Expansion of urban areas
c) Increase in rural-urban migration
d) Development of villages

2. In India, the buffer stock of wheat and rice is maintained by _________________. [1 M]

3. Which community-based poverty reduction programme for women was

implemented in Kerala? [1 M]

4. NABARD was set up in ___________. [1 M]

a) 1980
b) 1982
c) 1979
d) 1990

5. What is agricultural marketing? [1 M]

6. Which of the following is not a non-institutional source of credit? [1 M]

a) Money lenders
b) Friends
c) Commercial banks
d) All of these

7. Self-Help Groups (SHGs) have bridged the gap of the formal credit system. Justify. [3/4 M]

8. What are the alternative marketing channels available for agricultural marketing?
Cite few examples. How will these marketing channels benefit farmers? [3 M]

9. Match the items given in Column I with Column II. [3 M]

Column I Column II
Self-Help Groups (SHGs) TANWA
Operation Flood or White Revolution Fixed by the government
NABARD Dairying
Minimum Support Price (MSP) Apex body in rural financing
Project initiated in Tamil Nadu that trains Microfinance
women in latest agricultural techniques

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MOST IMPORTANT QUESTIONS

10. ‘Diversification towards new areas is necessary to reduce the risk from the
agricultural sector’. Justify. [3/4 M]

11. Discuss the measures initiated by the government to improve agricultural

marketing [4 M]
12. What is rural development? Bring out the key issues faced in rural India. [4 M]

13. What is organic farming? Highlight the advantages/benefits and

disadvantages/limitations of organic farming. [6 M]

14. Highlight animal husbandry, fisheries and horticulture as alternative options for
employment for rural development. [6 M]

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MOST IMPORTANT QUESTIONS

Human Capital Formation

1. Define human capital. What do you mean by human capital formation? [1 M]

2. Name the sources of human capital formation. [1 M]

3. What are the general indicators of educational achievements in a country? [1 M]

4. Which Five-Year Plan recognised the importance of human capital? [1 M]

5. Expenditure by the government is expressed as [1 M]

a) Percentage of total government expenditure
b) Percentage of GDP
c) Both (a) and (b)
d) Neither (a) nor (b)

6. Government of India levies a ____% ‘Education Cess’ on all Union taxes for spending
on elementary education. [1 M]

7. Discuss how the following act as a source of human capital formation. [6 M]

a) On-the-job training
b) Expenditure on migration
c) Expenditure on information

8. State any three areas where the government has taken steps towards the
development of education in India. [3 M]

9. Health expenditure directly increases the supply of healthy labour force. Comment.
[3 M]
10. Due to the absence of a standard measurement, it is difficult to measure human
capital formation. Comment. [3 M]

11. ‘Education Commission 1964-66 had recommended that at least 6% of GDP must be
spent on education.’ How far has India been able to achieve the said goal? [3 M]
[Sample Paper 2019]

12. Human capital and human development sound similar, but there is a clear
distinction between them. State the differences between the two. [6 M]

13. Differentiate between physical capital and human capital. [3/4 M]

14. Trace the relationship between human capital and economic growth.
OR
Explain the role of human capital formation in economic growth. [6 M]

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MOST IMPORTANT QUESTIONS

Employment – Growth, Informalisation and Other Issues

Note: Data/figures used in the answers are as per the NCERT book (2019–20 edition).

1. ______________ is an indicator which is used for analysing the employment situation of

a country. [1 M]

2. All public and private establishments which employ 10 or more hired workers are
called ___________________ establishments (informal sector/formal sector). [1 M]

3. ‘It promises 100 days of guaranteed wage employment to all rural households who
volunteer to do unskilled manual work’. Name the scheme highlighted in the given
statement. [1 M]

4. Name three sources that provide data on employment. [1 M]

5. Define worker–population ratio. How is it calculated? [1 M]

6. Answer the following: [3 M]
a) How is a hired worker different from a casual worker?
b) How are self-employed workers different from hired workers?

7. ‘The nature of India’s employment is multifaceted’. Comment. [3/4 M]

8. Various policies and schemes of the government aim to alleviate poverty through
employment generation. Explain the role of the government. [6 M]

9. Write three observations with reference to the distribution of workforce in rural and
urban areas. [3 M]

10. From the viewpoint of employment, differentiate between formal sector workers
and informal sector workers. [4 M]

11. Study the following chart showing the growth of employment and gross domestic
product and analyse the trend of the two variables from 1990 to 2012. [6 M]
[Sample Paper 2019]

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MOST IMPORTANT QUESTIONS

OR

‘There is an imbalance between GDP growth and employment growth in India’.

Justify this statement. (Use relevant data/figures to support your answer)

12. Analyzed the sectoral distribution of workforce of India. Highlight relevant data to
explain your answer. [4 M]

13. Match the following: [3 M]

COLUMN I COLUMN II
Increase in the proportion of the workforce in Jobless growth
the informal sector to the total workforce
More people engaged in work than actually Formal sector
required
A situation when the economy produces more Mahatma Gandhi National Rural
goods and services without a proportionate Employment Guarantee Act, 2005
increase in employment opportunities
All public and private enterprises which Informalisation of workforce
employ more than 10 workers
Employment generation programme Disguised unemployment

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MOST IMPORTANT QUESTIONS

Infrastructure

Note: Data/Figures used in the answers are as per the NCERT book (2019-20 edition)

1. Explain the term ‘infrastructure’. What are the two categories into which
infrastructure is divided? [1 M]

2. Elements of economic change which serve as a foundation for the process of

economic growth (such as energy transportation and communication) are
Called [1 M]
a) Social infrastructure
b) Investment
c) Economic infrastructure
d) Service infrastructure

3. ‘The Indian systems of medicine (ISM) consist of six systems’. Name these systems.
[1 M]
4. Which of the following is considered social infrastructure? [1 M]
a) Energy
b) Hospitals
c) Transport
d) Communication

5. Answer the following: [1 M]

a) Define the term ‘Health’.
b) What is global burden disease (GBD)?

6. Differentiate between social and economic infrastructure. [3 M]

7. ‘Economic and social infrastructure are complementary to each other; one

reinforces the other’. Explain. [3/4 M]

8. Highlight the importance/significance of infrastructure in the economic

development of a country. [6 M]

9. ‘Health is an important component of social infrastructure’. State the effects of

infrastructure on health. [4 M]
10. Discuss the trends in the sectoral pattern of commercial energy consumption. Use
relevant dates/figures to support your answer. [4 M]

11. What are the challenges faced by the Indian power sector? [6 M]

12. The inability of the public sector in delivering health services has led to the
dominant role of the private sector in the health infrastructure of India. Do you
agree? Give reasons to explain your answer. [6 M]

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MOST IMPORTANT QUESTIONS

13. ‘In spite of the increase in public health expenditure, the Indian health system is an
ailing system in itself’. Defend the statement citing any three major problems of the
health sector in India. [6 M]
[Sample Paper 2019]

14. State the differences between commercial and non-commercial sources of energy.
[4 M]
15. Who regulates the power management in the capital? [3 M]

Match the following: [3 M]

COLUMN I COLUMN II
Auxiliary nursing midwife Indian systems of medicine
NGO working in the area of healthcare UJALA
Important source of electric power in India SEWA
Power/Electricity Atomic energy
Scheme introduced to replace Most visible form of energy
incandescent bulbs with LED
First person who provides primary
AYUSH healthcare

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MOST IMPORTANT QUESTIONS

Environment and Sustainable Development

1. With the help of __________, solar energy can be converted to energy. (Photovoltaic
cells/lithium cells). Fill in the blank with the correct alternative. [1M]

2. The concept of sustainable development was emphasised by the [1M]

a) World Health Organization (WHO)
b) United Nations Conference on Environment and Development (UNCED)
c) World Trade Organization (WTO)
d) International Monetary Fund (IMF)

3. Define sustainable development. [1M]

4. In accordance with the definition of sustainable development, discuss the role of the
present generation in promoting development without putting risks on the future
generation. [3/4M]

5. Write a brief note on the environmental issue of global warming. [6M]

6. Environmental problems are a recent concern. If so, why? [3 M]

7. In analysing the state of India’s environment, bring out the challenges faced by India. [6M]

8. Outline the strategies for attaining sustainable development in India. [6M]

9. Match the following: [3M]

COLUMN I COLUMN II
CPCB Ozone depletion
Chipko Movement Strategy for sustainable development
Montreal Protocol Global warming
Use of traditional practices Prevent cutting down of trees and
protection of forests
A UN Conference on Climate Change,
held in Kyoto, Japan 1974

10. Extraction is greater than the rate of regeneration of environmental resources

leading to supply-demand reversal. Elaborate. [3/4M]

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MOST IMPORTANT QUESTIONS

Comparative Development Experiences of India and

Its Neighbouring Countries

Note: Data/Figures used in the answers are as per the NCERT book (2019-20 edition)

1. The Great Leap Forward (GLF) campaign in China aimed at [1 M]

a) Industrialisation
b) Development of agriculture
c) Globalisation
d) Poverty alleviation

2. When were reforms introduced in India, China and Pakistan? [1 M]

3. The one-child norm was introduced by _____________. [1 M]

4. Define infant mortality rate. [1 M]

5. What was the alternative name of the First Five-Year Plan in 1956 of Pakistan? [1 M]

6. State any two indicators of human development. [1 M]

7. Write a brief note on the Great Leap Forward (GLF) campaign initiated by China. [3 M]

8. Answer the following pertaining to the economies of India, China and Pakistan: [1 M]
a) Second largest GDP
b) High degree of urbanisation
c) Mixed economy
d) Large population
e) Rank 130 (based on HDI (2016-17)
f) Lowest fertility rate
g) Lowest life expectancy of 66 years (2016-17)

9. Explain ‘Liberty indicators’. State few examples. [3 M]

10. Explain the performance of India, China and Pakistan in human development. Use
relevant data/figures where required. [3/4 M]

11. India, Pakistan and China started towards their developmental path at the same
time. With reference to the statement, analyse their strategy of growth. [6 M]

12. Give a comparison of the sectoral contribution to GDP and employment of India,
Pakistan and China with the help of relevant data/figures. [6 M]

13. Give a comparison of the demographic features of India, China and Pakistan. [6 M]

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 CBSE XII | ECONOMICS

MOST IMPORTANT QUESTIONS

CBSE XII
Macroeconomics

Note:
 Questions in this document have been created based on analyses of previous
years’ board papers.
 Solutions can be used as a guideline to enable students to prepare effectively and
to help them score more marks.
 Please write the answers in your exams as per the question and the marks
allotted.
 Answers provided here will also help you answer objective-based questions.

National Income and its Related Aggregates

1. In India, the task of estimating national income is entrusted to the ____________. [1 M]

2. Give one example of externality which reduces the welfare of people. [1 M ]

3. Explain the following concepts: [1 M ]

a) Depreciation
b) Consumption goods
c) Intermediate goods
d) Final goods
e) Capital goods

4. Explain the circular flow of income in a two-sector economy. [3 M]

[Modified question asked in 2017]

5. Distinguish between stock and flows with examples. [3/4 M]

[Modified question asked in 2016, 2017, 2019]

6. Explain the classification of goods into final and intermediate goods with examples.
[3M]
[Modified question asked in 2017, 2018, and 2019]

7. Explain the problem of double counting. How can it be avoided? [3 M]

[Modified question asked in 2019]

8. State the limitations of using GDP as an index of welfare of a country. [3/4 M]

[Modified question asked in 2019]

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MOST IMPORTANT QUESTIONS

9. Distinguish between real gross domestic product and nominal gross domestic product.
Which of these is a better index of welfare of the people and why? [3/6 M]

10. What are non-monetary exchanges? Give an example. Explain their impact on the use of
gross domestic product as an index of the welfare of people. [3 M]

11. How will you treat the following while estimating the domestic factor income of India?
Give reasons for your answer. [3 M]
a. Remittances from non-resident Indians to their families in India
b. Rent paid by the embassy of Japan in India to a resident Indian
c. Profits earned by branches of a foreign bank in India

12. Which of the following items will be included in the national income?
Give reasons [3/4M]
a. Dividend on shares
b. Bus fare of a passenger
c. Gains from sale of shares
d. Bonus to employees
e. Free meals to beggars
13. Discuss in brief the precautions to be taken when using the following methods to
estimate national income. [6 M]
[Modified question asked in 2017]
a. Value-added method
b. Income method
c. Expenditure method

Numerical Questions

1. If real GDP is Rs. 200 and price index (with base = 100) is 110, calculate the nominal
GDP. [3 M]

2. Calculate GDPMP by the expenditure method. [6 M]

Items Rs. (in crore)
a) Net factor income from ROW (‒) 15
b) Imports 150
c) Exports 350
d) Government final consumption expenditure 120
e) Indirect taxes 60
f) Gross business fixed investment 90
g) Gross inventory investment 100
h) Subsidies 20
i) Interest on national debt 40
j) Residential construction investment 160
k) Gross public investment 70
l) Depreciation 80

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MOST IMPORTANT QUESTIONS

m) Private final consumption expenditure 640

3. Calculate national income from the following data: [6 M]

S. No. Particulars (Rs in crores)
(i) Private final consumption expenditure 900
(ii) Profit 100
(iii) Government final consumption expenditure 400
(iv) Net indirect taxes 100
(v) Gross domestic capital formation 250
(vi) Change in stock 50
(vii) Net factor income from abroad (-) 40
(viii) Consumption of fixed capital 20
(ix) Net imports 30

4. Given the following data, find the values of ‘Gross Domestic Capital Formation’ and
‘Operating Surplus’. [6 M]
[Question asked in 2019]

Amount
S. No. Particulars
(`in crore)
(i) National Income 22,100
(ii) Wages and Salaries 12,000
(iii) Private Final Consumption Expenditure 7,200
(iv) Net Indirect Taxes 700
(v) Gross Domestic Capital Formation ?
(vi) Depreciation 500
(vii) Government Final Consumption Expenditure 6,100
(viii) Mixed Income of Self-Employed 4,800
(ix) Operating Surplus ?
(x) Net Exports 3,400
(xi) Rent 1,200
(xii) Net Factor Income from Abroad (-) 150

Important concepts for numerical questions:

1. Gross Domestic Capital Formation

2. Net Exports
3. Government Final Consumption Expenditure
4. GNPMP and NNPMP

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MOST IMPORTANT QUESTIONS

Money and Banking

1. What is money supply? [1 M]

2. State the two components of money supply. [1 M]

3. If ‘legal reserve ratio’ is 20%, what will be the value of the money multiplier? [1 M]
[Modified question asked in 2018]
4. What is selective credit control? State the qualitative/selective instruments used by
the central bank to control credit in the economy. [3 M]

5. Explain the main functions of the central bank (RBI).

OR

Questions can be asked on an individual function. [3/4 M]

[Modified question asked in 2017, 2019]

6. Explain the process of money creation/credit creation by a commercial bank.

[4/6 M]
[Modified question asked in 2017, 2019]
7. State the various quantitative instruments of monetary policy used by the Reserve
Bank of India (Central Bank). How are they used to control credit in the economy?
[3/4 M]
[Modified question asked in 2016, 2019]

8. Define money supply and explain its components. [3 M]

[Modified question asked in 2019]

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MOST IMPORTANT QUESTIONS

Determination of Income and Employment

1. What is the relationship between marginal propensity to save and marginal propensity
to consume? [1 M]

2. Define the term ‘multiplier’. How is it measured? [1 M]

3. Why does the consumption curve not start from the origin? [1 M]

4. Define the following: [1 M]

a) Marginal propensity to consume
b) Marginal propensity to save
[Modified question asked in 2016, 2017]

5. Give the meaning of [1 M]

[Modified question asked in 2019]
a) Involuntary unemployment
b) Full employment

6. Answer the following: [1 M]

a) The maximum value of the investment multiplier is infinity when MPC is ________.
b) APC can never be _________.
c) Can the value of MPC be more than one?
d) What can be the minimum value of the investment multiplier?

7. If MPC and MPS are equal, what will be the value of the multiplier? [1 M]

8. Briefly state the effect of excess demand and deficient demand on output,
employment and price. [3/4 M]

9. What is meant by aggregate demand or aggregate expenditure? State its various

components. [3 M]
[Modified question asked in 2016, 2019]

10. Explain the deficient demand which takes place in an economy when AD and AS is not
in equilibrium. [4/6 M]

11. Explain national income equilibrium through the aggregate demand and aggregate
supply approach by using a diagram. [4/6 M]

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MOST IMPORTANT QUESTIONS

12. When is an economy in equilibrium? Explain with the help of the saving and
investment approach. Also, explain the changes which take place in an economy
when the economy is not in equilibrium. Use a diagram. [4 M]
[Modified question asked in 2018]
13. In the given figure, what does the gap ‘FE’ represent? State the fiscal measures to
correct the situation. [3 M]
[Modified question asked in 2019]

14. State the treatment of the following measures by the central bank (RBI) during
excess demand and deficient demand. [4/6 M]
a) CRR and SLR (Legal Reserve Ratio)
b) Open Market Operations
c) Bank Rate
d) Credit Rationing
e) Moral Suasion/Lending
OR
State the measures that the RBI will adopt to correct the situation of excess demand
and deficient demand.

15. Discuss the working of the adjustment mechanism in the following situations:
[4/6 M]
a) Aggregate demand is greater than aggregate supply.
b) Ex ante investments are lesser than ex ante savings.
[Modified question asked in 2019]
Note: Question may also be asked when AD < AS and ex ante investments are greater
than ex ante savings.

16. ‘An economy is operating at underemployment level of income’. What is meant by the
given statement? [3 M]

17. Explain and represent the concept of deflationary gap. [4/6 M]

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MOST IMPORTANT QUESTIONS

Numericals for Practice

1. An increase of Rs. 100 crores in investment leads to a rise of Rs. 500 crore in the
national income. Calculate the value of the multiplier. [1 M]

2. An economy is in equilibrium. Find the national income from the following: [4 M]

Autonomous consumption = 100
Marginal propensity to save = 0.2
Investment expenditure = 200

3. If national income is Rs. 90 crore and consumption expenditure Rs. 81 crore, find out
the average propensity to save. When the income rises to Rs. 100 crore and
consumption expenditure rises to Rs. 88 crore, what will be the marginal propensity to
consume and marginal propensity to save? Complete the table. [4 M]

National Consumption APS MPC MPS

income expenditure
90 81 ? ... ...
100 88 ... ? ?

4. Assuming that increase in investment is Rs. 800 crore and marginal propensity to
consume is 0.5. Explain the working of the multiplier. [4/6 M]
[Modified question asked in 2018, 2019]

5. If a consumption function of a hypothetical economy is given as C = 100 + 0.6 Y, then

i) What will be the values of marginal propensity to consume and marginal
propensity to save for the economy?
ii) Write the corresponding saving functions. [3 M]
[Question asked in 2018]
Suggested Answer:
i. C = 100 + 0.6 Y (given)
We know, C = 100 + MPC Y
Thus, MPC = 0.6
Now, MPC + MPS = 1
0.6 + MPS = 1 MPS = 1 – 0.6 = 0.4
Hence, the marginal propensity to consume is 0.6 and the marginal propensity to
save is 0.4.
ii. Saving function is S = –100 + 0.4 Y

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 CBSE XII | ECONOMICS

MOST IMPORTANT QUESTIONS

Government Budget and the Economy

1. Explain/Define the following: [1 M each]

[Modified question asked in 2016, 2017, 2019]
a) Revenue receipts
b) Capital receipts
c) Fiscal deficit
d) Revenue deficit
e) Primary deficit

2. Define Government budget. [1 M]

[Modified question asked in 2017, 2018]

3. Classify the following statements as revenue receipts, capital receipts, revenue

expenditure or capital expenditure. [1 M each/4 M]
[Modified question asked in 2019]

1. Salary to army officers

2. Expenditure on the construction of the metro in Mumbai
3. Dividend received by the government from XYZ Company
4. Financial help from an MNC for drought-affected farmers
5. Borrowings from IMF
6. Construction of a school building
7. Provision of scholarships to students
8. Fine for breaking traffic rules
9. 10% shares purchased by the government in a private company
10. Loan given to union territories

Note: If you are asked to write reasons, then you are required to mention the conditions of
revenue receipts, capital receipts, revenue expenditure or capital expenditure.

4. Differentiate between direct taxes and indirect taxes. Give an example of each. [6 M]
[Modified question asked in 2016, 2017]

5. Distinguish between revenue receipts and capital receipts in the government

budget. [4 M/6 M]
[Modified question asked in 2018, 2019]

6. Distinguish between revenue expenditure and capital expenditure in the

government budget. [6 M]
[Modified question asked in 2016, 2018]

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 CBSE XII | ECONOMICS

MOST IMPORTANT QUESTIONS

7. Given the following data about a government budget, estimate the values of revenue
deficit, fiscal deficit and primary deficit. [6 M]
[Modified question asked in 2019]

S. No. Items (Rs.) Amount in Crores

1 Tax revenue 30
2 Revenue expenditure 90
3 Capital receipts 32
4 Non-tax revenue 15
5 Borrowings 40
6 Interest payments 11

8. ‘The government prepares a budget for fulfilling certain objectives’. With reference
to the statement, explain the various objectives of the government budget. [6 M]

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 CBSE XII | ECONOMICS

MOST IMPORTANT QUESTIONS

Balance of Payments

1. Explain the following concepts: [1 M each]

a) Depreciation of domestic currency
b) Appreciation of domestic currency
c) Autonomous transactions in BOP
d) Accommodating transactions in BOP

2. ______________________ is a system in which the exchange rate is determined by the

forces of demand and supply in the foreign exchange market, but the central bank
intervenes to influence the exchange rate and keep it within the desired limit.
Choose the correct alternative.
[1 M]
[Modified question asked in 2019]
a) Flexible exchange rate
b) Fixed exchange rate
c) Managed floating exchange rate
d) Foreign exchange rate

3. Answer the following: [4 M]

[Modified question asked in 2019]

a) Explain the effect of appreciation of domestic currency on imports.

b) Will depreciation of the Indian Rupee against the US Dollar ($) have an impact on
Indian exports? Explain.

4. Explain the concept of deficit in balance of payments. [3 M]

5. What are the accounts in balance of payments? In which sub-account of the balance
of payments is borrowings from abroad recorded and why? [3 M]
[Modified question asked in 2016]

6. How is the exchange rate determined in the foreign exchange market? Explain.
OR

How is the exchange rate determined in a flexible exchange rate system? [4 M]

7. Distinguish between the following:

(a) Current account and capital account
(b) Autonomous transactions and accommodating transactions [6 M]
[Modified question asked in 2017, 2019]

8. Give the sources/reasons for demand (outflow) and supply (inflow) of foreign
exchange. [3/4 M]

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 CBSE XII | ECONOMICS

MOST IMPORTANT QUESTIONS

9. When the price of foreign currency rises, the supply of foreign currency rises. Give
reason. [3 M]

10. Why does a fall in the exchange rate lead to an increase/rise in demand? [3 M]

11. Define balance of payments. Discuss briefly the components of a current account.
[4 M]
[Question asked in Sample Paper 2016]

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