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CBSE Class 12 Board Exam Economics Paper 2018 2019 2020 With Solutions

Here we are providing CBSE Previous Year Question Papers Class 6 to 12 solved with soutions CBSE Class 12 Board Exam Economics Paper 2018 2019 2020 with Solutions Economics sample paper class 12, Economics previous year question paper class 12, cbse class 12 Economics sample paper, cbse class 12 Economics sample paper 2020, Economics sample paper class 12 2020, cbse sample paper 2020 class 12 Economics, class Practice of previous year question papers and sample papers protects each and every student to score bad marks in exams.If any student of CBSE Board continuously practices last year question paper student will easily score high marks in tests. Fortunately earlier year question papers can assist the understudies with scoring great in the tests. Unraveling previous year question paper class 12 Economics is significant for understudies who will show up for Class 12 Board tests.

Class 12 Subject Economics Paper Set 1 with Solutions


(Macro Economics)

Question 1: (Marks 1)

In order to control the money supply in the economy, the Central Bank may ________. (Choose the correct alternative)

(A) buy securities in the open market

(B) sell securities in the open market

(C) reduce cash reserve ratio

(D) reduce repo rate

Answer :

One mark to be allotted for any given option (A), (B), (C) or (D).

Question 2: (Marks 1)

State whether the following statement is true or false : ‘‘Government Budget is an important monetary policy instrument.’’


Disinvestment is a ________ (capital/revenue) receipt of the government. (Choose the correct alternative)

Answer :




Question 3: (Marks 1)

Effective demand is defined as ________. (Fill in the blank with the suitable definition)

Answer :

that level of output and employment where Aggregate Demand is equal to Aggregate supply.

Question 4: (Marks 1)

Two components of money supply are ________ and ________. (Fill in the blanks with correct answers)

Answer :

(i) Currency held with public

(ii) Demand deposits with commercial banks

Question 5: (Marks 1)

State whether the following statement is true or false : ‘‘Expected obsolescence is included in depreciation.’’

Answer :


Question 6: (Marks 1)

Fiscal deficit can be estimated using the formula ________. (Fill in the blank with the correct formula)

Answer :

Total Expenditure ─ Total Receipts except borrowing

Question 7: (Marks 1)

According to the theory of Keynesian Economics, the value of Average Propensity to Consume can never be ________. (Choose the correct alternative)

(A) zero

(B) unity (1)

(C) more than one

(D) less than one

Answer :

(A) Zero

Question 8: (Marks 1)

________ is one of the most important sources of demand for foreign currency. (Fill in the blank with the correct answer)

Answer :

Import of goods and services

Question 9: (Marks 1)

State whether the following statement is true or false : ‘‘As per Keynesian theory in an economy, full employment can never exist.’’

Answer :


Question 10: (Marks 1)

Define ‘Trade Surplus’.

Answer :

Trade Surplus refers to the excess of the receipts of exports of visible items over the value of payments for imports of visible items.

Question 11: (Marks 3)

‘‘Final goods include only those goods which are consumed by the households.’’ Defend or refute the given statement with valid reason.


‘‘Circular flow principle is based on the assumption that one’s expenditure will become other’s income.’’ Explain the given statement.

Answer :

The given statement is refuted as final goods include those goods which are either consumed by the households or purchased by a producer for investment purposes.


In a two sector economy households and firms exist to run the economy. Households render factor services to the firms and earn factor incomes from them. Whereas; firms produce and sell goods and services to households and earn their income by an equal magnitude. Thus, in a circular income mode, the axiom that one’s expenditure is other’s income holds true.

Question 12: (Marks 3)

Justify the following statement, with valid reason.

‘‘Ex-ante Aggregate Demand is always equal to Ex-ante Aggregate Supply.’’

Answer :

Ex-ante Aggregate Demand is equal to Ex-ante Aggregate Supply only when the economy is in equilibrium. At under-employment equilibrium level, when Ex-ante Aggregate Demand falls short of Ex-ante Aggregate Supply, it will lead to accumulation of unplanned inventories. Hence the producer will reduce employment leading to reduction in output and income till the two forces becomes equal to each other and vice versa.

Question 13: (Marks 4)

Using a hypothetical numerical example, explain the process of credit creation by a commercial bank.


‘‘Central Bank acts as the banker to the government.’’ Elaborate the given statement.

Answer :

Credit multiplier measures the amount of money that the banks are able to create in the form of deposits with every initial deposit. The credit creation is inversely related to LRR. Higher the credit multiplier, higher will be the total credit created and vice - versa.

The credit creation by commercial banks is determined by :

1. The amount of the initial deposit.

2. The Legal Reserve Ratio (LRR).

Suppose the initial deposits are ₹ 1000 and LRR is 10%, the banks will keep 10% of the deposits i.e. ₹ 100 as reserves and will lend the remaining amount of ₹ 900. Those who borrow will spend the money for making payments.

It is assumed that the entire ₹ 900 comes back as secondary deposits to the banking system. Now the banks will again keep 10% of ₹900 i.e. ₹ 90 as reserve and lend out ₹ 810. This process continues till total reserves become equal to initial reserves.

Using a hypothetical numerical example, explain the process of credit


Answer: The central bank acts as the banker to the Government, maintain accounts of government for the purpose of accepting deposits and advancing loans. The central bank purchases and sells government securities in the open market on behalf of the government. It may also advise the government on policy matters, if solicited.

Question 14: (Marks 4)

‘‘India is taking huge leaps in the index of Ease of Doing Business, as a result many MNCs are shifting their production base to India.’’ In the light of the above statement, comment upon the flow of foreign exchange and its likely impact on the Indian Economy.

Answer :

India, with greater ease of doing business, may attract many more MNC’s to shift their production base to India, thereby increasing the inflow of foreign exchange (say $) to the Indian economy. This increase in foreign direct investments (FDI) by MNCs will lead to increase in the supply of foreign exchange in India leading to a fall in the rate of foreign exchange, i.e. Indian Rupee (₹) may appreciate. Increase in FDI will result in increase in production and hence may also generate employment opportunities in the Indian economy.

Question 15: (Marks 4)

(a) Define ‘Revenue Expenditure’.

(b) Distinguish between Direct tax and Indirect tax.

Answer :

(a) Revenue Expenditures are those expenditures of the government that neither create any assets nor reduce any liabilities of the government.

(b) Direct taxes are those taxes in which the impact and incidence of the tax lie on the same entities. The burden of direct taxes cannot be shifted on any other entity like Income tax. Where as,

Indirect taxes are those taxes in which the impact and incidence of the tax lie on different entities. The burden of indirect taxes can be shifted on other entities like GST.

Question 16: (Marks 6)

(a) Calculate the value of ‘Change in Stock’ from the following data :

(a) Calculate the value of ‘Change in Stock’ from the following data :

(b) Define Real Gross Domestic Product.


(a) Discuss briefly the three components of ‘Income from Property and Entrepreneurship’.

(b) What are ‘externalities’ ? State its types with suitable examples.

Answer :

(a) Change in stock = (ii) +(vi)+(v)-(iii)-(i)

= 200+100+40-10-400

= (-) ₹70 Crores.

(b) Real Gross Domestic product is the sum total of the money value of all final goods and services produced in an economy during the year estimated at some given base year’s prices.


(a) Income from property and entrepreneurship (operating surplus) includes:

i. Rent/Royalties

ii. Interest

iii. Profit

(b) Externalities refer to the benefits/harms caused by a firm/individual to the society in general, without being penalised.

There are two types of externalities :-

(i) Positive externalities – Social benefits. E.g. saving of time/fuel with construction of better roads in a country

(ii) Negative externalities - Social harms for example pollution caused by stubble burning in some states of India.

Question 17: (Marks 6)

In an economy, if initial investments are increased by ₹ 100 crores, discuss the working of investment multiplier presuming marginal propensity to consume is 0·8.

Answer :

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

In an economy, if initial investments are increased by < 100 crores


(Indian Economic Development)

Question 18: (Marks 1)

During India’s first seven five-year plans, the Government of India adopted ________ policy to protect domestic industries. (Fill up the blank with correct answer)

Answer :

Import Substitution

Question 19: (Marks 1)

Mention any one advantage of Organic farming.

Answer :

Safe and Healthy food

Question 20: (Marks 1)

State whether the following statement is true or false :

‘‘In the past few decades, primary sector has created maximum jobs in India.’’

Answer :


Question 21: (Marks 1)

________ was the predecessor organisation to World Trade Organisation (WTO). (Choose the correct alternative)

(A) International Bank for Reconstruction and Development (IBRD)

(B) International Monetary Fund (IMF)

(C) Reserve Bank of India (RBI)

(D) General Agreement on Tariffs and Trade (GATT)

Answer :

(D) General Agreement on Tariffs and Trade(GATT)

Question 22: (Marks 1)

India is not a member of which of the following regional/global economic grouping ? (Choose the correct alternative)

(A) European Union


(C) G-20



Pakistan introduced its economic reforms in the year ____________ . (Choose the correct alternative)

(A) 1974

(B) 1976

(C) 1978

(D) 1988

Answer :

(A) European Union


(D) 1988

Question 23: (Marks 1)

State whether the following statement is true or false :

‘‘Self-Help Groups (SHGs) are an example of a microcredit organisation.’’

Answer :


Question 24: (Marks 1)

The main aim of ‘Great Leap Forward’ was to ensure rapid increase in ________ (primary/secondary/tertiary) sector in China. (Choose the correct alternative)

Answer :


Question 25: (Marks 1)

State any one outcome of implementation of Economic Reforms in India in 1991.

Answer :

Greater inflow of investment.

Question 26: (Marks 1)

Arrange the following events in chronological order and choose the correct answer from the given alternatives :

(i) Establishment of People’s Republic of China

(ii) Creation of Pakistan

(iii) First Five-Year Plan of India

(iv) First Five-Year Plan of China

Alternatives :

(A) (i), (iv), (ii), (iii)

(B) (iii), (ii), (i), (iv)

(C) (ii), (i), (iii), (iv)

(D) (iv), (iii), (ii), (i)

Answer :

(C) (ii), (i), (iii),(iv)

Question 27: (Marks 1)

First Industrial Policy Resolution of Independent India was announced in the year ________. (Fill in the blank with correct alternative)

(A) 1947

(B) 1948

(C) 1951

(D) 1956

Answer :

(B) 1948

Question 28: (Marks 3)

‘‘Human Capital Formation gives birth to innovation, invention and technological improvements.’’ Do you agree with the given statement ? Support your answer with valid arguments.


Critically evaluate the role of rural banking system in the process of rural development in India.

Answer :

The given statement is correct. Human Capital Formation not only increases the productivity of available human resources but also stimulates innovation and creates ability to adopt new technologies.

Investment in education creates ability to adopt newer technologies, facilitates invention and innovation since educated workforce generally adapts to modern technologies and innovation. (any other valid argument to be allotted marks)


Rapid expansion of the banking system had positive effect on rural farm and non farm output, income and employment. In spite of it, following problems have been faced in the rural banking such as-

 The volume of rural credit in the country is still insufficient in comparison to its demand and institutional sources have failed to cover the entire rural farmers of the country.

 Less attention has been given on the credit requirements of needy (small and marginal farmers) and the problem of overdue in agricultural credit continues.

Question 29: (Marks 3)

Compare and analyse the given data of India and China, with valid reasons :

Compare and analyse the given data of India and China, with valid

Answer :

a) The given data shows that China could arrest its annual population growth rate with the implementation of some stringent measure in late 1970’s like the introduction of one child norm. This step has been instrumental in controlling the growth of population in China. India stands virtually more than double to China at its annual population growth rate of 1.2% as compared to China’s annual population growth rate of 0.5% pa.

b) The social dynamics of both the countries are similar to each other; sex ratio is low and biased in both the countries due to preference for male child. Whereas, India stands at 929 females per 1000 males, China is not far ahead at 941 females per 1000 males.

Question 30: (Marks 4)

‘‘India is often called as outsourcing destination of the world.’’ Discuss the prime reasons for this name given to India.


State the meaning of import substitution. Explain how import substitution can protect the domestic industries.

Answer :

Reasons for India as outsourcing destination-

(i) Availability of skilled manpower- India has vast skilled manpower which enhances the faith of MNCs.

(ii) Favourable Government policies- MNCs get various types of lucrative offers from the Indian government such as tax holidays, tax concessions etc.


Import substitution refers to a policy of replacement or substitution of imports by domestic production.

The domestic industries of India were not in a position to compete against the goods produced by developed economies. So, the policy of import substitution helped in protecting them in two ways:

i. The tariff on imported goods, and

ii. Fixation of quotas helped in restricting the level of imports.

As a result, the domestic firms could expand without fear of competition from the foreign market.

Question 31: (Marks 4)

(a) State any one positive contribution made by the British in India.

(b) Indicate the volume and direction of foreign trade of India at the time of Independence.

Answer :

(a) Introduction of Railways

(b) The restrictive policies of commodity production, trade and tariff pursued by the colonial rule adversely affected the volume and direction of India’s foreign trade, as:

i. British maintained monopoly control over India’s exports and imports.

ii. More than half of India’s foreign trade was restricted to Britain while while the rest was allowed with a few other countries like China, Ceylon(Sri Lanka) and Persia (Iran)

iii. India had huge export surplus during the colonial rule.

Question 32: (Marks 4)

Define any two of the following :

(a) Absorptive Capacity of Environment

(b) Carrying Capacity of Environment

(c) Poverty Line (in terms of Calorific values)

Answer :

(Any two of the following)

(a) Absorptive capacity of the environment- It means the ability of the environment to absorb degradation without causing environmental damage.

(b) Carrying capacity of environment – It implies that the resources extraction is not above the rate of regeneration of the resources and wastes generated are within the assimilating capacity of the environment.

(c) Poverty Line is the cut off point which divides the population of the country as poor and the non-poor. It can be determined in terms of calorie intake and monthly per capita expenditure (MPCE). According to this a minimum intake of 2400 calories per person per day in rural areas and 2100 calories person per day in urban areas is needed.

Question 33: (Marks 6)

(a) Why are less women found in regular salaried employment ?

(b) Analyse the recent trends in sectoral distribution of workforce in India :

Trends in Employment Pattern (Sector-wise), 1993 – 2012 (in %)

Answer :

a) (i) Lesser women are found in regular salaried employment in India, as such jobs require skills and high level of literacy.

(ii) Lack of mobility among women in India due to social constraints.

(b) The given data indicates that over the given period, the proportion of workforce in primary sector has gone down rapidly. Whereas, the employment share of both secondary sector and the services sector has increased. While the share of secondary sector has gone up by approximately 9% recently, the corresponding figure for services sector has gone up by approximately 7%.

Question 34: (Marks 6)

(a) ‘‘Ujjwala Yojana has been a game changer for rural India.’’ State any three conventional fuels being targeted under the LPG cylinder distribution scheme (Ujjwala Yojana).

(b) ‘‘Indian Health System needs a stronger dose of public expenditure to cure itself.’’ Justify the given statement with valid arguments.


Critically examine the results of Poverty Alleviation Programmes implemented in India since Independence.

Answer :

(a) The conventional sources of energy causes environmental pollution therefore the government have introduced the ‘Ujjwala Yojna’ as a game changer for rural India by providing free LPG gas cylinders (cleaner fuel) to rural households.

The three conventional fuels targeted under Ujjawala Yojana are:

(i) Agricultural waste and dried dung

(ii) Firewood

(iii) Coal

(b) The statement is defended as the improvement in the health system in India has been unreasonably slow since independence. Indian health system has been a victim of a relatively low public expenditure.

The health expenditure as a percentage of GDP is abysmally low as compared to some of the major developing countries. It stood at around 4.7% of the total GDP in the year 2014-15. Thus, actually Indian health system needs the increased dose of public expenditure to cure itself.


Poverty Alleviation Programmes are the designated programmes to target reduction in/removal of poverty in a country. India, which inherited poverty from British rule, tried her level best to eradicate poverty through various Poverty Alleviation Programmes over the years. As a result, the percentage of absolute poor in some states has fallen well below the national average of poverty. However, the problems of malnourishment, hunger and illiteracy continue to be a common feature in many parts of India, because of the following reasons:

► There has been no radical change in the ownership of assets.

► Due to unequal distribution of land and other assets, benefits from such programmes have been appropriated by the non-poor.

► Inadequate resource allocation for these programmes.

► The Government officials responsible for implementing these programmes were ill motivated and inadequately trained.

To conclude we may say that poverty alleviation programmes were a great step but could not achieve desired results due to improper implementation.

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