CBSE Class 12 Economics Sample Paper 2023 Set 01

SECTION A

1. Read the following statements carefully:
Statement 1: The consumption curve is an upward sloping straight line curve due to the direct relationship between income and consumption and the assumption of constant
Marginal Propensity to Consume.
Statement 2: Aggregate Demand curve and Consumption curve are parallel to each other.
In the light of the given statements, choose the correct alternative from the following:
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

Answer: C

2. ‘Owing to the Russia-Ukraine crisis, the world is experiencing rising crude prices due to supply-side issues.’
Identify the most likely impact on the Balance of Payment situation of the Indian economy from the following:
a) Production of cars in India will rise.
b) Production and sale of cycles in India will rise.
c) Inflow of US Dollars in India will rise.
d) Outflow of US Dollars from India will rise.

Answer: D

3. _________ is an institution that accept deposits for lending purposes. (Fill up the blank with correct alternative)
a) Commercial Banks
b) Life Insurance Corporation
c) Reserve Bank of India
d) Government of India

Answer: A

4. Read the following statements carefully:
Statement 1: Export of financial services by India will be recorded on credit side of current account.
Statement2: Foreign Direct Investments in India will be recorded on credit side of capital account.
In the light of the given statements, choose the correct alternative:
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

Answer: C

5. Read the following statements carefully:
Statement 1- Net investment is a stock concept.
Statement 2- Capital is a flow concept.
In the light of the given statements, choose the correct alternative from the following:
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

Answer: D

OR

Read the following figure carefully and choose the correct pair from the alternatives given below: 

Alternatives:
a) Output, Production
b) Value added, Production
c) Output, Disposition
d) Wealth, Development 

Answer: C

6. If in an economy, the value of investment multiplier is 4 and Autonomous Consumption is ₹ 30 Crore, the relevant consumption function would be :
a) C=30+0.75 Y
b) C=(-)30+0.25Y
c) C=30-0.75Y
d) C=30-0.25Y

Answer: A

OR

If increase in National Income is equal to increase in consumption, identity the value of Marginal Propensity to Save :
a) Equal to unity
b) Greater than one
c) Less than one
d) Equal to zero

Answer: D

7. Money supply in India may increase if, ________________(Choose the correct alternative)
1. Reserve Bank of India(RBI) injects more money in circulation
2. the commercial banks expand their credit operation
3. tax rates are reduced by the Central Government
4. Reserve Bank of India increases the Bank Rate
Alternatives:
a) 1,2 and 3 are correct
b) 2,3 and 4 are correct
c) 1,3 and 4 are correct
d) 1,2 and 4 are correct

Answer: A

8. Suppose, following data is presented, for an imaginary economy: (all figures in ₹ ‘000 Crore) 

Identify, which of the statement about the period 2010 to 2020 is correct?
a) Improvement in balance of trade
b) Increase in trade deficit
c) Improvement in balance in invisibles items
d) Deterioration of balance of trade

Answer: A

OR

The following information is given for an imaginary country: 

Balance on current account will be ____________ of ₹ ______ thousand Crore.
a) deficit, 10
b) surplus,5
c) deficit, 5
d) surplus, 10

Answer: B

9. Read the following statement -Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Ex-post Investments represent planned Investments; whereas ex-ante Investments represent actual level of investments.
Reason (R): At equilibrium level, Ex-ante Savings and Ex-ante Investments are always equal.
Alternatives:
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.

Answer: D

10. Read the following statement -Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Saving curve makes a negative intercept on the vertical axis at zero level of income.
Reason (R): Saving function refers to the functional relationship between saving and income.
Alternatives:
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.

Answer: B

11. Suppose in a hypothetical economy there are only two Firms A and B, Firm A sold goods for ₹ 2,000 to Firm B and purchased goods for ₹ 1,000. Firm B exported goods for ₹ 2,500 and had domestic sales of ₹ 1,500. Calculate Net Domestic Product at market price, if consumption of fixed capital is ₹ 200.
Answer: 

Net Domestic Product at MP = Gross Domestic Product at Market price – Consumption of Fixed Capital = 3,000 – 200 = ₹ 2,800

12. Explain, how exchange rate is determined under a free market exchange rate system.
Answer: Equilibrium rate of exchange is established at a point where the quantity demanded and quantity supplied of foreign exchange are equal. In the foreign exchange market, if disequilibrium occurs, it may lead to a situation of excess demand or excess supply.
The market mechanism will drive the exchange rate back to the equilibrium level. This implies that the free market forces of demand and supply will operate in such a manner that the equilibrium rate of exchange is automatically restored.

OR

Distinguish between autonomous and accommodating transactions in Balance of Payments Accounts.
Answer: Autonomous transactions are those international economic transactions which are independent of the state of Balance of Payments (BOP). These transactions generally take place with ‘economic motive’. These transactions are called ‘above the line’ transactions in the Balance of Payments account. Whereas;
Accommodating transactions are those international economic transactions which are undertaken (by competent authorities) to cover the surplus or deficit in Balance of Payments. These transactions are independent of any economic motive and are called ‘below the line’ transactions in the Balance of Payments account.

13. If an economy plans to increase its income by ₹ 2,000 crore and the Marginal Propensity to Consume is 75%. Estimate the increase in investment required to achieve the targeted increase in income.
Answer: Given, MPC = 0.75, ΔY = ₹ 2,000 Crore
K = 1/1−𝑀𝑃𝐶 = 1/1−0.75 = 1/0.25 = 4
According to the question:
K = ΔY/ΔI
4 = 2000/ΔI
ΔI = 2000/4 = ₹ 500 Crore 
Therefore, increase in investment (ΔI) required = ₹ 500 Crore

14. As per the following news published in The Economic Times on 26th December, 2021:
‘Reserve Bank of India has sold government securities worth ₹ 8,710 crore in the secondary market, over the last four weeks, to drain out excessive liquidity’.
Identify the likely cause and the consequences behind, this type of action plan of the Reserve Bank.
Answer: The given instance where, Reserve Bank of India has sold government securities in the secondary market indicates towards inflation as a possible cause behind the action taken by RBI.
By selling off the government securities, RBI withdraws money from circulation and thereby reducing the lending capacity of the commercial banks. In this process, the economy will experience contraction of credit, leading to reduction in consumption and investment demand. Consequently, the inflationary pressure in the economy will get eased out.

15. Read the following text carefully, discuss briefly the relevant function of the Central Bank, indicated :
Recently, Reserve Bank of India (RBI) conducted a statutory inspection for supervisory evaluation against a Commercial Bank. The commercial bank was imposed with stringent penalties, owing to deficiencies in regulatory compliances.
As per the Central Bank, the inspection revealed non-compliances vis-à-vis different directions issued by RBI, on the following fronts:
i. ATM Card frauds
ii. Ensuring integrity and quality of data
iii. Loans to small borrowers (adapted/moderated -livemint.com)
Answer: The given text indicates the ‘supervisory function’ of the Central Bank, under which the Reserve Bank of India (RBI) regulates and supervises routine functioning of the commercial banks.
Under this function, the RBI may exercise periodic inspections/audits of commercial banks, filing of reports by commercial banks and other statutory compliances. Central bank may take necessary corrective and punitive actions against the banks owing to deficiencies in regulatory compliances.

OR

‘Reserve Ratio and Credit Creation are inversely related.’ Do you agree with the given statement? Justify your answer with a suitable numerical example.
Answer: Yes, there exists an inverse relation between Reserve Ratio and Credit Creation in the economy.
We know that:
Money Multiplier = 1/𝑅𝑒𝑠𝑒𝑟𝑣𝑒 𝑅𝑎𝑡𝑖𝑜
Credit Creation = Initial Deposits x Money Multiplier
Assuming that the value of initial deposits is ₹ 10,000 crore. 

From the above calculation, we can conclude that higher the reserve Ratio, lesser credit will be created by Commercial Banks in the economy.

16. a) Define Gross Domestic Product (GDP) deflator and discuss its importance.
b) State and discuss any two precautions to be considered while estimating national income by Expenditure Method.
Answer: a) GDP Deflator is the ratio of Nominal to Real GDP. It is a tool which is used to eliminate the effect of price fluctuations in the economy and to determine the real change in physical output of current year. GDP deflator helps in comparison of growth rate of the economy.
b) i) Expenditure on second hand goods is not to be included in the final consumption expenditure as the production of these goods might not be attributed to the current year.
ii) Expenditure on ‘intermediate goods’ are not to be taken into account, to avoid the problem of double counting of value of goods and services.

17. a) Compare the trends depicted in the figures given below: 

Elaborate the objective of ‘allocation of resources’ in the Government budget.
Answer: a) Considering the data represented in the given diagram, trend of year-on-year deficit (reporting for April to November) may be stated as follows:
(i) Fiscal Deficit in 2020 increased to 10.8 lakh crore from 8.1 lakh crore in 2019. In 2021 it has gone down to 7 lakh crore.
(ii) Primary Deficit in 2020 increased to 6.9 lakh crore from 4.7 lakh crore in 2019. In 2021 it has gone down to 2.4 lakh crore.
(iii) Fiscal Deficit in 2020 increased to 135.1% of Budget Expenditure from 114.8% in 2019. In year 2021, it is 46.2% of Budget Expenditure.
b) Government seeks to allocate resources with a view to balance the goals of all sections of the society.
Production of goods and services which are injurious to health may be discouraged through taxation policy. Similarly, production of goods of socially beneficial nature may be encouraged through subsidies. If the private sector does not take initiative in certain activities (Public Goods), the government may directly control them like water supply and sanitation etc.

OR

a) Distinguish between revenue receipts and capital receipts of the government, with suitable examples.
b) Distinguish between direct and indirect taxes, with suitable examples.
Answer: a) Revenue receipts are those receipts which neither creates any liabilities nor causes any reduction in the assets of the government. For example: taxes, dividends received from public enterprises etc.
Whereas;
Capital receipts are those receipts which either creates liabilities or causes reduction in the assets of the government. For example: borrowings, disinvestments etc.
b) Direct taxes are those taxes whose impact and incidence lies on the same entity. In other words, the liability of paying direct taxes can’t be shifted. For example: income tax.
Whereas;
Indirect taxes are those taxes whose impact and incidence may lie on different entities. In other words, the liability of paying indirect taxes can be shifted. For example: GST.

SECTION B

18. Identify, which of the following indicates the adverse impact of British rule in India.
a) Introduction of communication networks in India
b) Change in composition of India’s foreign trade
c) Introduction of modern administrative system in India
d) Introduction of railways in India

Answer: B

19. __________committee was set up for the development and promotion of small scale industries in India.
a) Karve
b) Tapas Majumdar
c) Mahalanobis
d) TRYSEM

Answer: A

OR

First Industrial Policy Resolution of Independent India was announced in the year______ (Fill in the blank with the correct alternative)
a) 1947
b) 1948
c) 1951
d) 1956

Answer: B

20. _________ and _____ are the reasons for the slowdown of the Pakistan economy since independence.
I. political instability
II. over-dependence on remittances from abroad
III. stable performance of agriculture sector
IV. growth of service sector
Alternatives:
a) I and II
b) II and III
c) III and IV
d) I and IV

Answer: A

OR

‘GLF’ with respect to the People’s Republic of China referred to as ______(Choose the correct alternative).
a) Giant Leap Forward
b) Great Lead Forum
c) Great Leap Forward
d) Giant Lead Forum

Answer: C

21. Identify which of the following is a source of non-institutional credit in the rural areas of India.
a) NABARD
b) Regional Rural Banks
c) Money Lenders
d) Commercial Banks

Answer: C

22. From the set of the events given in column I and corresponding facts given in Column II, choose the correct pair of statement:
COLUMN I                                                                   COLUMN II
i Dual Pricing                                                             A Economic Reforms of 1991
ii Setting up of Special Economic Zones in China    B To attract foreign Direct Investment
iii Commune System                                                 C Backyard based Industrial production units
iv Great Proletarian Cultural Revolution                    D Collective Farming
Alternatives:
a) i – A
b) ii – B
c) iii – C
d) iv - D

Answer: B

23. Read the following statements carefully.
Statement 1: On-the-job trainings help to bridge a gap between theoretical concepts and practical experiences.
Statement 2: On-the-job trainings update the employees, with the latest changes in their work field.
In the light of the given statements, choose the correct alternative:
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

Answer: C

24. Read the following statements carefully.
Statement 1: Both India and Pakistan initiated their economic reforms without any external pressures.
Statement 2: Pakistan has successfully implemented the SEZ policy and reaped its benefits using the Export Promotion policy.
In the light of the given statements, choose the correct alternative:
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

Answer: D

25. _______________is not a cause for environmental degradation.
a) Waste management
b) Deforestation
c) Global warming
d) Guarding green cover

Answer: D

OR

______ is not the strategy for Sustainable Development. (Choose the correct alternative)
a) Use of bio-gas
b) Use of solar power
c) Use of thermal power
d) Use of hydel power

Answer: C

Please click the link below to download full pdf file for CBSE Class 12 Economics Sample Paper 2023 Set A