Economics-XII Exam Handbook 2025 Sample PDF

iv ECONOMICS XII Exam Handbook Shree Radhey Publications (Subhash Dey)
Contents
Notes/Synopsis for 2025 Examination 5-42
Question Bank 43-170
Multiple Choice Questions (MCQs) (Stand-alone, Matching, Fill-ups, Case-Based)
Assertion-Reasoning and Statements Based MCQs (Chapter-wise)
Competency Based Questions for CBSE 2025 Examination (Chapter-wise)
MACROECONOMICS
Unit 1 National Income and Related Aggregates43-54
Unit 2 Money and Banking55-65
Unit 3 Determination of Income and Employment66-76
Unit 4 Government Budget and the Economy77-89
Unit 5 Balance of Payments90-104

INDIAN ECONOMIC DEVELOPMENT
Unit 6 Development Experience (1947-1990) and Economic Reforms since 1991

Chapter 1: State of Indian economy on the eve of independence 105-115
Chapter 2: Indian Economy (1950-1990) 116-129
Chapter 3: Economic Reforms Since 1991 130-138
Unit 7 Current Challenges facing the Indian Economy

Chapter 4: Human Capital Formation 139-147
Chapter 5: Rural Development 148-155
Chapter 6: Employment 156-161
Chapter 7: Sustainable Economic Development 162-164
Unit 8 Development Experiences of India: A Comparison with Neighbours

Chapter 8: A Comparison with Neighbours 165-170
CBSE Sample Question Paper 2024-25 (with Answers) 171-184
30 Sample Papers for Practice (with Answers/Hints) 185-352

NOTES for 2025 Exam
Macroeconomics
Unit 1 10 Marks
National Income and

Related Aggregates
1.1 Some Basic Concepts

Macroeconomics is the study of the economic behaviour of the Top Tip
economy as a whole, e.g. aggregate demand, aggregate supply, Unplanned inventories (stock) refer to the unanticipated
levels of income, employment and price in the economy. change in stock due to unexpected fall in sales.
Final Goods and Intermediate Goods
Goods are classified as final goods and intermediate goods on Gross Investment (or Gross Domestic Capital Formation) refers to
the basis of their end use. ‘addition to the stock of fixed assets’ (e.g. machinery) and ‘addition to
Final goods are those goods which are used for final the stock of inventory’ (unsold finished goods, semi-finished goods,
consumption or for investment purpose, i.e., these are the goods raw material) in the hands of producers during an accounting year.
which have crossed the production boundary. Examples: (i) Milk Gross investment = Fixed investment + Inventory investment
or bread purchased by households, (ii) Machine purchased by a • Fixed investment refers to addition to the stock of fixed
firm for installation in factory, etc. assets (e.g. machinery) in the hands of producers during an
Intermediate goods (also called ‘Single-use producer accounting year.
goods’) are those goods which are purchased during the year • Inventory investment is addition to the stock of inventory
by a firm from another for further production purposes in the (unsold finished goods, semi-finished goods, raw material)
same year or for resale. Examples: (i) Raw materials such as with the producers during an accounting year.
steel sheets used for making automobiles and copper used for
Depreciation is the continuous fall in the value of fixed
making utensils, (ii) Mobile sets purchased by a mobile dealer, etc.
assets due to normal wear and tear, passage of time, expected
Intermediate goods are generally non-durable in nature. They are
obsolescence or change in technology over a period of time.
the goods used as raw material and they lose their identity in the
production process for the creation of a new commodity.
Top Tip
Top Tip Depreciation is also called:
Distinction between final and intermediate goods is needed to • Consumption of fixed capital or Value of capital consumption
estimate the correct value of Gross Domestic Product (GDP). In • Annual allowance for normal wear and tear and
the absence of this distinction, GDP may be over-estimated and foreseen obsolescence of fixed capital assets
may lead to problem of double counting. • Current annual replacement cost of fixed capital assets
Consumption Goods and Capital Goods (to keep their value constant)
Consumption goods (or consumer goods) are the final • Expenditure on running and maintenance of existing
goods which are used by the ultimate consumers or meet the capital goods
immediate need of the consumers, e.g., food, clothing, TV sets, • Part of capital stock used up in each year’s production
refrigerators, etc. It may include services as well.
Annual Depreciation is calculated as follows:
Capital goods (or investment goods or durable use
producer goods) are those final goods which help in further
production of other goods and services, e.g. machinery. They are
bought not for meeting immediate needs of the consumers.
Stocks and Flows Example:
Stocks are economic variables whose quantity is measured at i. Capital value of the asset 1,000
a particular point of time, e.g. Capital, Wealth, Money supply,
ii. Estimated life of the asset 20 years
Inventories, Buildings and machines in a factory, Balance in a
bank account, etc. Whereas, flows are economic variables whose iii. Scrap Value Nil
quantity is measured over a period of time, e.g., National income Depreciation on capital asset
or GDP or Production or Output, Sales, Savings, Expenditure,
Profits, Losses, Exports, Imports, Gross/Net capital formation = = 50
or Investment, Depreciation, Interest, Change in inventories,
Change in money supply or money creation, Value addition, etc. Top Tips
Inventory and Change in Inventories
The stock of unsold finished goods, or semi-finished goods, or 1. Depreciation does not include ‘Capital Loss’, which
raw materials which a firm carries from one year to the next is refers to loss in value of the fixed assets due to
called inventory. unforeseen obsolescence, natural calamities, thefts,
(Net) Change in inventories is the excess of Closing inventory accidents, etc.
over Opening inventory (= Closing inventory – Opening 2. Depreciation on capital assets is not included in national
inventory). It refers to Net increase/additions to stock of income as it is a mere accounting entry that is needed to
unsold finished goods, or semi-finished goods, or raw materials accommodate regular wear and tear of capital. Obviously,
during a fiscal year. depreciation cannot become anybody’s income.
6 ECONOMICS XII Exam Handbook Shree Radhey Publications (Subhash Dey)
Net Investment Domestic Income and National Income

Net investment means new addition to capital stock in an economy. Domestic Income is the money value of all the final goods
(Net Investment = Gross investment – Depreciation) and services produced within the domestic territory by residents/
non-residents of a country during an accounting year.
Top Tip Alternately, Domestic Income is the sum total of income earned
by the factors of production (wages, profits, rent, interest) within
Gross investment is addition to stock of capital before the domestic territory by residents/non-residents of a country
making allowance for depreciation. Thus, it is greater than during an accounting year.
net investment because gross investment also includes
National Income refers to money value of all the final goods
depreciation. However, if the value of depreciation is zero,
and services produced by the normal residents residing within/
then gross investment will be equal to net investment. But
outside a country, during an accounting year.
gross investment can never be less than net investment
as depreciation can’t be negative. Alternately, National income is the sum total of factor incomes
earned by the normal residents of a country during an accounting
Indirect Tax and Subsidy year, irrespective of whether earned within or outside the
Indirect tax is a tax imposed by government on production and domestic territory.
sale of goods and services. Examples: Goods and services tax Net factor Income from Abroad (NFIA)
(GST), excise duty, etc. Indirect taxes increase market prices of It is the excess of factor incomes (rent, wages, interest, profit)
goods and services. earned from abroad over factor incomes paid to abroad.
Subsidy is a form of financial/economic assistance given by
the government to the firms and households, with a motive of NFIA = Factor income from abroad – Factor income to abroad
general welfare. Examples: Cash grants, Interest-free loan to NFIA is negative when factor income from abroad is less than
the firms, Subsidy on price of cooking gas to the households, factor income paid to abroad.
Fertiliser subsidies received from the government, etc. Components of NFIA:
Subsidies reduce the market prices of goods and services. 1. Net compensation of employees
Net indirect tax = Indirect taxes – Subsidies 2. Net income from property and entrepreneurship
Factor Cost and Market Price 3. Net retained earnings of resident companies abroad
Factor cost refers to all factor payments made by the production Domestic Product and National Product — Relationship
units to the factors of production for rendering their productive National product = Domestic Product + NFIA
services. Factor cost is what is actually available to production units. Or, National product = Domestic Product +
Market price is the price at which a commodity is sold in the Factor income from abroad – Factor income to abroad
market. Market price is what the buyers pay. • Factor income received from abroad is added to domestic
Market price = Factor cost + Net indirect taxes product to calculate national product because this factor income
is earned by residents, though outside the domestic territory.
Factor Income and Transfer Income
• Factor income paid to abroad is subtracted because this factor
Factor income is the income received by the factors of
income is not earned by residents.
production for rendering their services to the firms. E.g. wages
and salary, rent, interest and profit. When NFIA is negative, domestic income/product will be
Transfer income is unilateral income received without rendering greater than national income/product.
any goods and services. E.g. Gifts, donations, charity, etc. Circular flow of income in a two-sector economy
Primary, Secondary and Tertiary Sectors In a two-sector economy model, households and firms co-exist
Primary sector includes production units exploiting natural in the economy. Households render factor services to the firms
resources like land, water, subsoil assets, etc. Growing crops, and receive factor income, which will be spent on purchase of
catching fish, extracting minerals, animal husbandry, forestry, goods and services produced by the firms.
etc. are some examples. It is primary because it is a source of Income received from the sale of goods and services becomes
basic raw materials for the secondary sector. equal to factor payments made to the factors of production.
Secondary sector includes production units which are engaged Thus, we may say that the circular flow of income model is based
in converting raw materials into finished goods, i.e. manufacturing on the assumption that one’s expenditure is other’s income.
activity. Factories, construction, power generation, water supply,
etc. are some examples. It is called secondary because it is Three phases:
dependent upon the primary sector for raw materials. • Firms hire factor services
Tertiary sector includes production units engaged in producing from the households.
• Households receive factor
services like transport, education, hotels and restaurant, finance,
income for rendering their
government administration, etc. This sector finds third place services to the firms.
because its growth is mainly dependent on the primary and • Households spend factor
secondary sectors. income earned on purchase
Domestic Territory and Resident of final goods and services
produced by firms, thereby
Domestic territory (or Economic territory) is the territory
completing the circular flow.
administered by a government within which persons, goods and
capital circulate freely, e.g. Indian embassy in America, Branch
of an American Bank in India, etc. 1.2 Estimation of National Income
Normal Resident refers to an individual or an institution who Production Method (or Value Added Method)
ordinarily resides in a country and whose centre of economic Step 1: Estimation of value of output produced by each
interest also lies in that country. firm in all the sectors of the economy during the year.
Notes, Question Bank, CBSE SQP & 30 Practice Papers ECONOMICS XII Exam Handbook 7
(Final) Value of output is the estimated money value of Step 4: Calculation of National Income (NNPfc)
all final goods and services, inclusive of change in stock and National income (NNPfc) = NDPfc + NFIA
production for self-consumption. It also includes procurement
of final output by the government. Precautions in calculating national income by
production method (or value added method)
Value of output = Output produced (in units) × Market price per unit
1. Avoid double counting. Value of intermediate goods is
(a) If a firm had no initial unsold stock in the beginning of the not included in the estimation of National Income to avoid
year: Value of output = Sales + Value of unsold stock problem of double counting.
Sales = Output sold (in units) × Market price Problem of double counting refers to the counting of
Or, Sales = Sale of goods and services to domestic buyers + Exports the value of a good or service, more than once in the
Exports refers to the value of the goods and services sold by an estimation of national income. This leads to overestimation
economy to the rest of the world. of the value of goods and services produced in the economy.
Two approaches to correct the problem of double
(b) If a firm had some unsold stock in the beginning of the year: counting are:
Value of output = Sales + Change in stock (i) Final output Method: According to this method, value
Step 2: Calculation of Value Added (VA) and Gross of only the final goods and services should be added to
Domestic Product at market price (GDPmp) determine the national income.
Value added/Value addition/Gross Value Added at Market Price (ii) Value Added Method: According to this method, sum
(GVAmp) of a firm is the excess of value of output over the total of the value added by each producing unit should
value of intermediate consumption. only be taken in consideration. It means the value of
Value added = Value of output – Intermediate consumption
intermediate consumption should not be considered.
2. Do not include sale of second hand goods. Value of
Intermediate consumption refers to the value of goods and second hand goods being sold should not be included in
services used up during the production process. It includes national income as their value was accounted for at the
purchase of raw materials and other non-factor inputs from time of first production.
the domestic market and *imports of raw materials etc. However, any brokerage or commission paid to sell the
Note: Intermediate consumption does not include purchase second hand goods is a fresh production activity, so
of factor inputs. *Imports refers to purchase of goods and brokerage or commission is included.
services by a country from the rest of the world. 3. Imputed value of Self-consumed output must be
included in National Income, as it adds to current flow of
Example: Suppose that there are only two producers in the goods and services, E.g. farmer consuming his own produce.
economy – farmer and baker. Farmer grows wheat worth `100 Income Distribution Method
with no intermediate costs. He sells `50 worth of wheat to the Step 1: Estimate the factor payments by each firm in the
baker, who produces `200 worth of bread. Value added by economy. The sum of factor payments equals Net Value
farmer (GVAmp) = Value of wheat produced – Intermediate Added at Factor Cost (NVAfc) of a firm.
costs = 100 – 0 = `100. Value added by baker (GVA) = Value Step 2: Take the sum total of NVAfc by all firms to arrive at
of bread produced – Cost of wheat used = 200 – 50 = `150. Domestic Income (NDPfc).
Sum of Gross Value Added at market prices (GVAmp) by all Domestic Income (NDPfc) = Compensation of
the producing units/firms in an economy, during an accounting employees + Operating surplus + Mixed income
year is Gross Domestic Product at market prices (GDPmp).
1. Compensation of employees is the sum total of
GDPmp is the market value of all final goods and services remuneration paid by employers, to their employees, in the
produced/added by all the firms in all the sectors of the form of cash/ kind/social security contributions. It includes:
economy within the domestic territory of the country (a) Wages and salaries in cash and in kind, e.g. Bonus,
during a fiscal year, inclusive of depreciation. Free medical facilities, free meals and rent free
accommodation to employees, etc.
Top Tip (b) Social security contributions by the employers, e.g.,
Why GDPmp is called ‘Gross’ and ‘at market price’? provident fund or insurance premium paid by employers.
2. Operating surplus/Income from property and
GDPmp is what buyers pay, not what production units
entrepreneurship/Non-wage income is the income
actually receive. Out of GDPmp production units have which arises from ownership of physical/financial/
to make provision for depreciation and payment of intellectual property and reward to the entrepreneur for his
indirect taxes and receive subsidy from government. contribution to the production of goods and services in the
• GDPmp is called ‘gross’, because no provision has form (i) Rent (ii) Royalty (iii) Interest (iv) Profit.
been made for depreciation yet. • Rent is defined as the amount receivable by a landlord from
• GDPmp is called ‘at market price’ because it includes a tenant for the use of land.
net indirect taxes (indirect taxes – subsidies). • Royalty is defined as the amount receivable by the landlord
Step 3: Calculation of Net Domestic Product at factor for granting the leasing rights of sub-soil assets.
cost (NDPfc), called Domestic Income • Interest is defined as the amount payable by a production
unit to the owners of financial assets in the production unit.
NDPfc (domestic factor income) The production unit uses these assets for production and in
= GDPmp – Depreciation – Net indirect taxes turn makes interest payment, imputed or actual.
NDPfc is what production units actually receive and hence, • Profit is a residual factor payment by the production unit to
distributed as wages and salaries, interest, rent, profits, etc. the owners of the production unit.
Profit = Corporation tax + 2. Government final consumption expenditure (GFCE)

After-tax profit (Dividend + Retained earnings) is the consumption expenditure that the government
• Dividend is that part of after-tax profit which is distributed makes on the final goods and services produced by firm,
among the shareholders. e.g. free services provided on education, heath, police
• Corporation tax is a direct tax on the income of firms. service, defense services, etc.
• Retained earnings/Undistributed profits refer to that part 3. Gross domestic capital formation (GDCF) = Gross domestic
of the profit which the firms keep as reserve after paying the fixed capital formation + Net change or addition in stock
corporate tax and dividends. OR, GDCF = Net domestic fixed capital formation + Depreciation +
3. Mixed income of self-employed is the combined Closing stock – Opening Stock
income earned by self-employed people rendering their 4. Net exports: Net Export refers to the excess of the value
productive services. It refers to the income of people who of exports of goods and services over the value of imports
own and operate a business enterprise using their own of goods and services of an economy, during an accounting
factor services (land, labour, capital and entrepreneurship). year. (Net exports = Exports – Imports).
Mixed income cannot be separated into rent, wages, • Exports, though purchased by non-residents, are produced
interest and profits. E.g., income earned by a chartered within domestic territory, hence included in GDPmp.
accountant running his firm from his own residence. • Imports are deducted because imports are not produced
Step 3: National income (NNPfc) = NDPfc + NFIA within the domestic territory of the country.
GDPmp = Private final consumption expenditure +
Top Tip Government final consumption expenditure + Gross
Components of National income: domestic capital formation + Net exports (or – Net imports)
1. Compensation of employees Step 2: NDPfc = GDPmp – Depreciation – Net indirect taxes
2. Operating surplus Step 3: National income (NNPfc) = NDPfc + NFIA
3. Mixed income of self employed Precautions in making estimates of national income by
4. Net Factor Income from Abroad (NFIA) expenditure method
Precautions in making estimates of national income by 1. Avoid intermediate expenditure. Expenditure on
income method ‘intermediate goods’ like that on raw materials, etc. should
1. Avoid transfers. National income includes only factor not be included, to avoid the problem of double counting
payments/income. Transfers are not a production activity; of value of goods and services. Only final expenditures, i.e.
it should not be included in national income. expenditure on consumption and investment are included
2. Avoid capital gain. Capital gain refers to the income from in national income.
the sale of second hand goods and financial assets. 2. Do not include expenditure on second hand goods
• Income from sale of old cars, old house, etc. is not and financial assets. Buying second hand goods is not a
included since these are not production transactions. fresh production activity of the current year.
• Income from sale of financial assets, e.g., shares, bonds, Similarly, buying financial assets is not a production activity
debentures, etc. are not included as such transactions because financial assets are neither goods nor services.
are mere paper claims and do not lead to value addition. Therefore they should not be included.
There is no corresponding flow of goods and services. 3. Avoid transfer expenditures. Expenditure on transfer
3. Include income from self-consumed output, e.g. payments (e.g. Charities, donations, gifts, scholarships, etc.)
when a house owner lives in that house, he does not pay should not be included, as these are unilateral in nature.
any rent. But in fact he pays rent to himself. So, imputed 4. Include the self use of own produced final products.
rent should be included in national income since the house For example, a house owner using the house for self.
provides housing services. Rent is a factor payment. Although explicitly he does not incur any expenditure,
4. Include free services provided by the owners of the implicitly he is making payment of rent to himself. Since
production units. For example, owners work in their own the house is producing a service, the imputed value of this
units but do not charge salary. Owners provide finance but service must be included in national income.
do not charge any interest. Owners do production in their 1.3 Real and Nominal GDP; GDP and Welfare
own buildings but do not charge rent. Although they do not
charge, yet the services have been performed. The imputed Nominal GDP is defined as the money value of final
value of these must be included in national income. goods and services produced in the domestic territory of
5. Windfall gains (e.g. prizes won in a lottery) will not an economy, measured at current year prices.
be included as there is no corresponding flow of goods Nominal GDP is measured as the product of current year’s output
and services. (Q1) of final goods and services and their current year’s price (P1).
Expenditure Method Nominal GDP may increase even if there is no increase in the
Step 1: Calculation of GDPmp output of goods and services produced in the economy, due to
Gross Domestic Product (GDP) by expenditure method refers to rise in general price level during the current year.
the aggregate final expenditures on consumption and investment Real GDP is defined as the money value of all the final
in the domestic territory of the country, whether incurred by the goods and services produced in the domestic territory
residents or non-residents, during an accounting year. of an economy, measured at *base year prices.
Components of GDPmp: *Base year is the year whose prices are used to calculate the real GDP.
1. Private final consumption expenditure (PFCE)/ Real GDP is measured as product of current year output (Q1)
Household consumption expenditure refers to the and their base year’s price (P0).
expenditure incurred by the household sector on all types Real GDP will increase only if the current flow of output of
of consumer goods. E.g. purchase of a car by a household, goods and services produced in the economy is increasing.
expenditure on education of children by a family, etc.
Limitations of GDP a perfect index of economic welfare

1. Distribution of GDP/National Income: A rise in GDP
Top Tip may not benefit all sections of society in the same dimension.
Real GDP is a better indicator of economic growth and The benefit of increase in GDP may be concentrated in the
welfare of people of the country as it is not affected by hands of a few individuals while the majority of people
changes in general price level. may remain deprived of such benefits. This may lead to
Given Nominal GDP, we can find Real GDP by inequitable distribution of income. Increase in inequalities
eliminating the effect of change in prices between the means that rich become richer and poor become poorer.
base year and the current year in the following way: Since utility of money is higher among poor and lower among
the rich, therefore, if the distribution of GDP is not uniform,
inequalities may not lead to increase in welfare of people.
2. Non-monetary exchanges (or non-monetary
Suppose Nominal GDP = `288 and Price index = 120. Real GDP production) refer to the goods and services produced but
= Nominal GDP/ Price Index × 100 = 288/120 × 100 = `240 not exchanged for any monetary value. For example, value
GDP Deflator: The ratio of Nominal GDP to Real GDP of of household chores (cooking, washing, cleaning etc.) by a
current year is a well known price index, called GDP Deflator. millions of home-makers is not included in GDP because it
is difficult to ascertain their market value. Such transactions
are not undertaken for any monetary consideration. Similarly,
Significance/Importance of GDP Deflator: barter exchanges are not included as these are not evaluated
• GDP Deflator is a tool that shows changes in the price level in terms of money due to non-availability of data.
of the economy between the base year and current year. Since GDP does not include non-monetary exchanges, it is
• It is a tool which is used to eliminate the effect of price major cause of undervaluation of GDP in the economy. As
fluctuations in the economy and to determine the real result, welfare of the people is also underestimated.
change in physical output of current year. 3. Externalities: Externalities refer to benefits (positive
• GDP deflator helps in comparison of growth rate of the externalities)/ harms (negative externalities) which are
economy. caused by one entity to another without being paid/
Numerical Example: penalised for it. Example: A new park developed by the
municipal corporation raises the welfare of the locality, is
Goods Price of Price of Quantity Nominal Real GDP
Current Base Year of Current GDP (P0Q1)
an example of positive externalities. The use of the same
Year (P1) (P0) Year (Q1) (P1Q1) park by people for anti-social activities leading to insecurity
A 20 10 100 2,000 1,000
among the residents, is an example of negative externalities.
Negative externalities: Negative externalities refer to
B 10 5 200 2,000 1,000
social harms caused by one entity to another without being
C 30 20 50 1,500 1,000 penalized for it. E.g. (i) Air pollution caused by vehicles and
5,500 3,000 smoke out of chimneys of factories (ii) Traffic jams.
Nominal GDP = SP1Q1 = 5,500; Real GDP = SP0Q1 = 3,000 Negative externalities reduce welfare of people or general
The difference between Nominal GDP and Real GDP = 5,500 – public. However, GDP does not account for negative
3,000 = 2,500. This is only the monetary difference (due to the externalities. Thus, GDP overestimates the actual welfare.
change in the prices in the economy) as the quantity sold in Positive externalities: Positive externalities refer to social
the market remains unchanged. benefits caused by one entity to another, without being
paid for it. E.g. (i) Introduction of metro rail (ii) Better
roads Positive externalities increase welfare of people or
general public. However, GDP does not account for positive
GDP Deflator/Price index of 183.33% implies that the prices have
externalities. Thus, GDP underestimates the actual welfare.
risen by 83.33% between the base year and the current year. Treatment in estimating national income:
Real GDP can be less than/more than/equal to Nominal GDP: 1. Payment of indirect taxes by a firm is not included in national
• Generally, real GDP is less than nominal GDP when base year’s income because it is a transfer payment as no good or service is
prices were less than the current year’s prices. provided in return.
• However, real GDP can be greater than nominal GDP when base 2. Payment of interest on a loan taken by an employee from the
year’s prices were higher than the current year’s prices. employer/Payment of interest by an individual to a bank/
Interest received on loan given to a friend for purchasing a car
• Real GDP can be equal to nominal GDP when base year’s prices and
is not included in national income because the individual is a consumer,
the current year’s prices are same/equal.
and the loan is taken to meet consumption expenditure. There is no
GNP deflator: Like GDP deflator, we can have GNP deflator as well. contribution to production of goods and services. Therefore, it is not a
factor payment.
3. Payment of interest by banks to individuals or depositors/
Consumer Price Index (CPI): CPI is another way to measure Payment of interest by a firm to households is included in
change of prices in an economy between the base year and the current national income because it is a factor income paid by a production unit
year. CPI is the index of prices of a given basket of commodities which (bank or firm). Banks borrow for carrying out banking services/The
are bought by the representative consumer. firms borrow money for carrying out production.
Nominal and Real Income: When national income (product) of the 4. Payment of interest by a firm (government firm or a private
current year is estimated on the basis of prices of current year, it is firm) to a bank is included in national income because it is a factor
called nominal national income (or national income at current payment by the firm. The firm borrows money for carrying out
prices) whereas when national income (product) of the current year is production of goods and services.
estimated on the basis of prices prevailing in the base year, it is called 5. Payment of interest on borrowings by general government
will not be included because it is a non-factor payment as general
real national income (or national income at constant prices).
government borrows only for consumption purpose.
6. Interest received on loan given to a foreign company in India Consumption of fixed capital assets, i.e. Depreciation.
will be included in the national income as it is a part of factor income 20. Transport expenses by a firm/ Expenditure on advertisement
from abroad. and scientific research by a firm will not be included as it is an
7. Expenditure by a firm on payment of fees to a chartered intermediate expenditure.
accountant will not be included in the national income as it is an 21. Compensation to the victims of a cyclone is not included in
intermediate cost to the firm. estimation of national income as it is a transfer payment which does
8. Money received by a family in India from relatives working not lead to corresponding flow of goods and services.
abroad, i.e., remittances from abroad/Scholarship given to 22. Expenditure by government on providing free educational
Indian students studying in India by a foreign company/Free services is included because it is government final consumption
meals to beggars/Financial help received by flood victims/ expenditure.
Expenditure on old age pensions by government/Pension to 23. Services of a ‘School Teacher’ will be included as it contributes to
senior citizens/Gift received from employer, e.g. festival gift, the current flow of services in the economy.
gifts on independence day, etc. will not be included in the national 24. Wages received by an Indian working in the British Embassy
income as it is a transfer income or transfer payment, which is received in India will be included as it is factor income from abroad.
or paid without any contribution to production of goods and services. It 25. Financial aids received from abroad after ‘‘Fani cyclone’’ is not
is not a factor income or factor payment. included as it is a transfer income. No factor service is provided in
9. Free medical facilities or free meals or house rent allowance or return.
leave travel allowance paid by the employer/Rent-free house 26. Purchase of second hand machinery from abroad is not included
given to an employee by an employer/Expenditure on medical it is an import, which is deducted while estimating GDP.
treatment of employee’s family/Payment of bonus by a firm to 27. Free uniform to defence personnel/ Salaries to the Members of
its employees/ Contribution to provident fund by employer it Parliament is included as it is a factor payment.
will be included as it is a part of the compensation of employees. 28. Government spending on child immunization programme is
10. Contribution to provident fund or insurance premium paid by included as it is government final consumption expenditure.
employees is not included because it is paid out of compensation of 29. Wheat growth by a farmer but used entirely for family’s
employees, which is already included. consumption is included because self consumed output is a part
11. Compensation given by insurance company to an injured of total output and therefore, accounted for through the production
worker will not be included as compensation is given to the employee method.
by insurance company, not by employer. 30. Earnings of the shareholders from the sale of shares is not
12. Purchase of shares of Sethi Ltd. by an investor in the Bombay included because it is not production of goods or services, but mere
Stock Exchange will not be included in the national income as it is a paper claims.
financial transaction, which is a mere paper claim and do not lead to 31. Dividend received by an Indian from his investment in shares
any value addition. of a foreign company/Profits earned by a branch of an Indian
13. Salaries paid by Indian Embassy situated at Japan, to the local bank in Canada will be included as it is factor income from abroad.
workers will not be included as it is a factor income paid to non- 32. Tomatoes grown by Ms. Vrinda in her kitchen garden will not be
residents. included because it is difficult to ascertain their market value. Moreover,
14. Dividend received by shareholders will be included in the national such transactions are not undertaken for any monetary consideration.
income as it is a part of the profits of production units, which is 33. Fees to a mechanic paid by a firm is not included because it is an
distributed to the owners. Hence, it is a factor income. intermediate cost of the firm.
15. Rent received by Indian residents on their buildings rented out 34. Expenditure on purchasing a car for use by a firm is included
to foreigners in India will be included in the national income as it is because it is an investment expenditure, a final expenditure.
a factor income earned by the residents. 35. Addition to stocks during a year is included because it is inventory
16. Royalty will be included in the national income as it is a productive investment, a part of Gross Domestic Capital Formation.
income. 36. Expenditure on providing police services by the government is
17. Fees received from students will be included in the national income included because it is government’s final consumption expenditure.
as it is a part of the private final consumption expenditure. 37. Expenditure on fertilizers by a farmer is not included because it
18. Purchase of goods by foreign tourists is included as these are exports is intermediate cost for the farmer and deducted from value of output
produced in the domestic territory, an item of final expenditure. while arriving at national income.
19. Expenditure on running and maintenance of machinery, factory 38. Purchase of tractor by a farmer is included because it is a final
building etc. by a firm will not be included in the national income as it is expenditure, a part of Gross Domestic Capital Formation.
Macroeconomics
Unit 1
National Income and
Related Aggregates
(c) Gross National Product (GNP) at Market price =

GDP at Market price plus Net factor income from
abroad.
Multiple Choice Questions (MCQs) (d) Net National Product (NNP) at factor cost =
National Income.
1. Inventory is a ________ concept whereas the change in 9. Which of the following is not a factor payment?
inventory is a ________ concept. (a) Free uniform to defence personnel
(a) stock, flow (b) flow, stock (b) Rent paid to the owner of a building
(c) stock, stock (d) flow, flow (c) Salaries to the Members of Parliament
2. If in an economy the value of Net Factor Income from (d) Scholarship given to the students
Abroad is `200 crores and the value of Factor Income 10. Net Domestic Fixed Capital Formation + Change in
to Abroad is 40 crores. Identify the value of Factor stock = ________.
Income from Abroad. (a) Gross Domestic Capital Formation
(a) `200 crore (b) `160 crore (b) Net Domestic Capital Formation
(c) `240 crore (d) `180 crore (c) Gross Domestic Fixed Capital Formation
3. GNP defiator is represented by which of the following (d) National Income
formula? 11. Rent and Royalty + Interest + Profit = ________.
(a) Nominal GNP/Real GNP × 100 (a) Operating surplus
(b) Real GNP/Nominal GNP ×100 (b) Income from property and entrepreneurship
(c) Real GNP/ Change in rate of inflation × 100 (c) Mixed Income of Self-Employed
(d) Change in rate of inflation/ Real GNP × 100 (d) Domestic Factor Income
4. A car purchased by a household is a ________. 12. If tea leaves are used in a restaurant for tea brewing ,
(a) Single use capital good and the drinkable tea is sold to the customers, then the
(b) Single use consumer good tea leaves will be ________.
(c) Durable consumer good (a) Final goods (b) Intermediate good
(d) Semi-durable consumer good (c) Consumption goods (d) Capital goods
5. `2,000 note lying in wallet of Rohini, a student, is an 13. Which of the following does not explain the concept of
example of ________ variable. depreciation?
(a) Stockv (b) Flow (a) An annual allowance for wear and tear of a capital
(c) Fixed (d) None of these good.
6. The sum of factor payments is equal to ________. (b) Cost of the capital good (minus scrap value) divided
(a) Domestic Income by number of years of its useful life.
(b) National Income (c) Unexpected or sudden destruction or disuse of
(c) Per Capital Real Income capital as can happen with accidents, natural
calamities etc.
(d) Per Capital Nominal Income
(d) Maintenance and replacement cost of existing
7. When Nominal Gross Domestic Product (GDP) is
capital goods.
`840 crores and price Index is 120, then the Real Gross 14. A firm produces `100 worth of goods per year, `20 is
Domestic product (GDP) will be ________. the value of intermediate goods used by it during the
(a) `700 crores (b) `900 crores year and `10 is the value of capital consumption. The
(c) `800 crores (d) `500 crores net value added will be:
8. Which of the following statement is incorrect? (a) `100 (b) `80 (c) `70 (d) `130
(a) Gross Domestic Product (GDP) at Market price = 15. Production of a firm during a year – Sale of the firm
GDP at factor cost plus Net Indirect taxes. during the year = ________ ?
(b) Net National Product (NNP) at Market price = (a) Change in inventories of the firm during a year
NNP at factor cost. (b) Value added
(c) Value of output 24. Which of the following is a flow concept?

(d) Intermediate consumption (a) Foreign exchange reserves
16. Market prices include: (b) Inventory
(a) Subsidies (c) Capital
(b) Indirect taxes (d) Exports
(c) Intermediate consumption
25. Which of the following will be included in gross
(d) Depreciation
national product of India?
17. That part of NNP which actually accrues to the owners
of factors of production is called ________ . (a) Profits earned by a foreign company in India
(a) National Income (b) Salary paid to Americans working in Indian
(b) National Disposable Income Embassy in America
(c) Domestic Factor Income (c) Earnings from sale of bonds to the investors
(d) Mixed Income (d) None of the above
18. ________ is the income earned by the factors of 26. Which of the following will be included in national
production in the form of wages, profits, rent, interest, income?
etc, within the domestic territory of a country. (a) Money receipt from sale of old car
(a) Net National Product at factor cost (b) Scholarships received by students
(b) Net Domestic Product at factor cost (c) Remittances from abroad
(c) Gross Domestic Product at factor cost (d) Free services of owner occupied building
(d) Gross National Product at factor cost 27. Losses are classified as:
19. ________ is the value of all the final goods and services (a) Stock variable (b) Flow variable
that are produced by the normal residents of India and (c) Either (a) or (b) (d) Neither (a) nor (b)
is measured at the market prices, in a year, regardless of 28. Unforeseen obsolescence of fixed capital assets during
whatever they are located within the economic territory or production is:
abroad. (a) Consumption of fixed capital
(a) GDP at market prices (b) NDP at factor cost (b) Capital loss
(c) GNP at market prices (d) National Income (c) Income loss
20. Suppose a country produces bread only. In the year (d) None of these
2020‑21 it had produced 1,000 units of bread, price 29. Foreign embassies in India are a part of India’s:
was `10 per bread. In 2021‑22, it produced 1100 units (a) Economic territory (b) Geographical territory
of bread at price of `12 per bread. In 2021-22, the (c) Both (a) and (b) (d) None of these
nominal and real GDP are: 30. Goods purchased for the following purpose are final
(a) `10,000 and `10,000 goods:
(b) `10,000 and `11,000 (a) For satisfaction of wants
(c) `13, 200 and `10,000 (b) For investment in firm
(d) `13,200 and ` 11,000 (c) Both (a) and (b)
21. The ratio of nominal to real GDP is a well-known (d) None of these
index of prices, called ________. 31. Market price and factor cost will be equal when
(a) Consumer price index ________.
(b) Producer price index (a) Depreciation is zero (b) Indirect tax is zero
(c) subsidy is zero (d) Net indirect tax is zero
(c) GNP deflator
32. Which of the following transactions is not included in
(d) GDP deflator
national income?
22. If the GDP deflator is 150% and real GDP is `1,100
(a) Payment of interest by a private firm
the nominal GDP will be:
(b) Payment of interest by banks on deposits
(a) `733 (b) `1,650
(c) Interest paid by an individual on a car loan taken
(c) `1,100 (d) `2,750
from a bank
23. A representative consumer had to spend `1,400 on
(d) None of the above
purchase of a given basket of commodities in the year
33. Which of the following transactions is not included in
2017-18. Due to inflation, CPI of the year 2021-22 national income?
(taking 2017-18 as base year) was 120. How much (a) Brokerage paid to broker for facilitating sale of
amount the consumer had to spend on purchase of the second hand goods
same basket of commodities in the year 2021-22? (b) Payment of corporation tax by firms to the
(a) `1,167 (b) `1,680 (c) `1,520 (d) `1,280 government
(c) Interest paid by productions units to households (c) Change in stock

(d) Interest paid by banks on deposits by individuals (d) Residential construction investment
34. Which one of the following is not a part of a country’s 43. Depreciation is also known as:
Net Domestic Product at market price’? (a) Capital loss (b) Unforeseen obsolescence
(a) Depreciation (b) Indirect tax (c) Capital allowance (d) Both (a) and (b)
(c) Net exports (d) Net change in stocks 44. If Net factor income to abroad is (–) `120 crores,
35. Which one of the following is an intermediate factor income from abroad is `150 crores and domestic
expenditure? income is `4,500 crores, National Income will be:
(a) Expenditure on purchase of furniture by a firm for (a) `4,380 croresv (b) `4,620 crores
its own use
(c) `4,700 crores (d) `4,300 crores
(b) Expenditure on maintenance by a firm
(c) Expenditure on purchase of tractor by a firm for its 45. If GDPmp is `5,000 crores, intermediate consumption
own use is `2,500 and the ratio of sales to change in stock is
(d) Machine bought by a household 2 : 1, then sales will be:
36. National income is the sum of factor incomes accruing (a) `4,000 (b) `5,000 (c) `3,000 (d) `2,000
to: 46. While calculating gross domestic capital formation,
(a) Nationals exports are included because:
(b) Economic territory (a) Exporters are paid for it.
(c) Residents (b) It is an expenditure on domestic product.
(d) Both residents and non-residents (c) It is a final expenditure by the buyers.
37. Gross domestic capital formation is less than gross fixed (d) Exports result in expenditure.
capital formation when ________ . 47. Match the following:
(a) there is no depreciation (A) Value addition (i) Net factor income
(b) net change in stock is zero from abroad
(c) Net change in stock is negative (B) Income from property (ii)Excess of value of
(d) Net change in stock is positive and entrepreneurship output over the
38. GDP can be greater than GNP when ________. value of intermediate
(a) Net factor income from abroad is negative consumption
(b) Net factor income from abroad is negative (C) Excess of factor (iii) Operating
(c) Net change in stock is negative incomes (rent,wages, surplus
(d) Net change in stock is positive interest, profit) earned
39. National income at current prices is higher than from abroad over factor
national income at constant prices during a period of: incomes paid to abroad.
(a) Rising prices (b) Falling prices (D) Excess of the value of (iv) Net exports
(c) Constant prices (d) Both (a) and (b) exports over the value of
40. Nominal GDP can be less than Real GDP when imports of a country in
________. an accounting year.
(a) Prices in the current year are less than the prices in (a) (A)-(i); (B)-(iii); (C)-(ii); (D)-(iv)
the base year (b) (A)-(ii); (B)-(i); (C)-(iii); (D)-(iv)
(b) Prices in the current year are more than the prices in (c) (A)-(ii); (B)-(iii); (C)-(iv); (D)-(i)
the base year (d) (A)-(ii); (B)-(iii); (C)-(i); (D)-(iv)
(c) there is no depreciation 48. Identify the correct pair by matching column (I) and
(d) Net factor income from abroad is negative column (II):
41. Net value added at factor cost = `100 crores, (A) Purchase of food products by (i) Intermediate
Depreciation = `30 crores, Subsidies = `15 crores and household goods
Intermediate Consumption = `185 crores, then “Gross (B) Milk purchased by a tea-seller (ii) Final goods
value of output” is: (C) Market value of goods and services (iii) Value of
(a) `300 crores (b) `330 crores produced by a firm during an output
(c) `130 crores (d) `230 crores accounting year.
42. Construction of a school building by the government (D) Money value of all final goods (iv) Domestic
will be part of: and services produced in an Income
(a) Domestic fixed capital formation economy during an accounting
(b) Government final consumption expenditure year.
(a) (A)-(i) (b) (B)-(ii) (c) (C)-(iii) (d) (D)-(iv) (a) Exports, included (b) Imports, included
49. According to a report forwarded by the Reserve Bank (c) Exports, not included (d) Imports, not included
of India, there was a fall in rate of inflation as measured 57. Which of the following will be included in national
by Consumer Price Index (CPI) on year-on-year basis income?
to 5% from 8% in the previous year. Which of the (a) Money receipt from sale of old car
following statements represents the situation? (b) Scholarships received by students
(a) CPI has fallen. (c) Remittances from abroad
(b) CPI has risen at a rate lower than the preceding (d) Free services of owner occupied building
year. 58. Which of the following transactions is not included in
national income?
(c) CPI is constant.
(a) Payment of interest by a private firm
(d) None of the above
(b) Payment of interest by banks on deposits
50. ________ is the market value of the final goods and (c) Interest paid by an individual on a car loan taken
services produced within the domestic territory of a from a bank
country during an accounting year, as estimated at the (d) Interest on finance provided by the owners of the
current year prices. production units
(a) Nominal GDP (b) Real GDP 59. Which one of the following is not included in
(c) National Income (d) Domestic Factor Income compensation of employees?
51. Which of the following formula is correct? (a) House rent allowance by the employer
(a) Real GDP = Price Index ´100 (b) Payment of bonus by a firm to its employees
Nominal GDP
Nominal GDP
(c) Free medical facilities by the employer
(b) Real GDP = ´100 (d) Festival gift from an employer
Price Index
60. Which of the following is not included in compensation
(c) Nominal GDP = Real GDP ´100 of employees?
Price Index
Price Index (a) Wages and salaries in cash
(d) Nominal GDP = ´100 (b) Wages and salaries in kind
Real GDP
52. If the GDP deflator is 150 % and real GDP is `1,100 (c) Employees’ contribution to social security schemes
the nominal GDP will be: (d) Employers’ contribution to social security schemes
(a) `733 (b) `1,650 (c) `1,100 (d) `2,750 61. Broker’s commission on sale and purchase of second
53. ________ takes into account all the goods and services hand goods is included in national income because:
produced in a country. (a) It is a part of compensation of employees
(a) GDP deflator (b) Consumer Price Index (b) It is a part of gross domestic capital formation
(c) Producer Price Index (d) Wholesale Price Index (c) It is an income earned for rendering productive services
54. Which one of the following is an intermediate (d) None of these
expenditure? 62. Which of the following will be included in national
(a) Expenditure on purchase of furniture by a firm for income?
its own use (a) Financial transactions
(b) Expenditure on maintenance by a firm (b) Sale of old goods
(c) Expenditure on purchase of tractor by a firm for its (c) Illegal activities
own use (d) Production of goods and services
(d) Machine bought by a household 63. Which of the following transactions is not included in
55. Which one of the following is not included in national national income?
income? (a) Brokerage paid to broker for facilitating sale of second
(a) Payment of indirect tax by a firm hand goods
(b) Bonus paid to employees (b) Payment of corporation tax by a firm
(c) Addition to stocks during a year (c) Interest on finance provided by the owners of the
(d) Purchase of taxi by a taxi driver production units
56. ________ (Exports/Imports), which denotes aggregate (d) Interest paid by banks on deposits by individuals
expenditure incurred by the foreigners on the final 64. ________ is what production units actually receive for
goods and services produced in the domestic territory distribution of income among the owners of factors of
of the country is ________ (included/not included) in production.
national income. (a) GDPmp (b) NDPfc (c) NNPfc (d) NNPmp
65. In a simple economy, suppose there are only two (a) Profits earned by a foreign company in India
producers/firms — the farmers who produce wheat (b) Salary paid to Americans working in Indian
and the bakers, i.e. the bread makers. The total value of Embassy in America
wheat produced by the farmers is `100, for which they (c) Salaries received by Indians working in Russian
do not need any input other than human labour. Out Embassy in India
of this, the farmers have sold `50 worth of wheat to (d) Salaries received by Indians working in Indian
the bakers, who have used it completely during the year Embassy in Korea
and have produced `200 worth of bread. The aggregate 73. Which of the following will be included in Gross
value of final goods produced by this simple economy Domestic Product (GDP) of India?
will be: (a) Rent received by an Indian resident from his property
(a) `300 (b) `250 (c) `350 (d) `200 in Singapore
66. A firm produces `100 worth of goods per year, `20 is (b) Salaries received by Indian residents working in
the value of intermediate goods used by it during the Russian embassy in India
(c) Profits earned by a branch of State Bank of India in
year and `10 is the value of capital consumption. The
Japan
net value added will be:
(d) Profits earned by standard Chartered Bank in India
(a) `100 (b) `80 (c) `70 (d) `130 74. Factor income earned by the domestic factors of
67. A firm wants to raise the inventories from 100 to 200 production employed in the rest of the world – Factor
shoes during the year. Expecting sales of 1,000 shoes income earned by the factors of production of the rest
during the year, the firm produces 1,100 shoes. The of the world employed in the domestic economy = ?
sales are actually 1,000 shoes and the firm ends up with (a) Net exports
an inventory of 200 shoes. This rise in inventories is (b) Net factor income from abroad
called ________. (c) Net compensation of employers
(a) Planned accumulation of inventories (d) Net retained earnings
(b) unplanned decumulation of inventories 75. If tea leaves are used in a restaurant for tea brewing ,
(c) Unplanned accumulation of inventories and the drinkable tea is sold to the customers, then the
(d) unplanned decumulation of inventories tea leaves will be ________.
68. A firm produces computers. It has opening inventory (a) Final goods
of 100 computers. During the coming year it expects (b) Intermediate good
to sell 1,000 computers. Hence, it produces 1,000 (c) Consumption goods
computers expecting to keep an inventory of 100 at the (d) Capital goods
end of the year. But the sales during the year is 1,050 76. Final goods are:
computers. The reduction in inventory by ________ (a) Consumption goods (b) Capital goods
computers is called ________ of inventories. (c) Both (a) and (b) (d) Intermediate goods
(a) 50, Planned accumulation of inventories 77. The durable goods which undergo wear and tear with
(b) 100, unplanned decumulation of inventories gradual use, and thus are repaired or gradually replaced
(c) 100,Unplanned accumulation of inventories over time are:
(d) 50, unplanned decumulation of inventories (a) Intermediate goods (b) Capital goods
69. Market prices include: (c) Consumer durables (d) Both (b) and (c)
(a) Subsidies 78. Which of the following does not explain the concept of
(b) Indirect taxes depreciation?
(c) Intermediate consumption (a) An annual allowance for wear and tear of a capital
(d) Depreciation good.
70. Which of the following is within the domestic territory (b) Cost of the capital good (minus scrap value) divided
of India? by number of years of its useful life.
(a) State Bank of India in UK (b)Google office in India (c) Unexpected or sudden destruction or disuse of
(c) Office of Tata Motors in USA (d) capital as can happen with accidents, natural
Russian Embassy in India calamities etc.
71. Foreign embassies in India are a part of India’s: (d) Maintenance and replacement cost of existing
(a) Economic territory (b) Geographical territory capital goods.
(c) Both (a) and (b) (d) None of the above 79. Which of the following define ‘investment’ in
72. Which of the following will be included in gross Economics?
national product of India? (a) Purchase of share or property.
(b) Having an insurance policy. (b) increase in the general price level
(c) Using money to buy physical or financial assets. (c) increase in flow of goods and services
(d) Capital formation ,i.e. a gross or net addition to (d) decrease in aggregate demand
capital stock. ANSWER KEY
80. Total final output produced in an economy in a given
year are used: 1. (a) 2. (c) 3. (a) 4. (c) 5. (a) 6. (a)/(b)
(a) To substain the consumption of the entire 7. (a) 8. (b) 9. (d) 10. (b) 11. (a)/(b)12. (b)
population of the economy. 13. (c) 14. (c) 15. (a) 16. (b) 17. (a) 18. (b)
(b) For maintenance and replacement of the existing 19. (c) 20. (d) 21. (d) 22. (b) 23. (b) 24. (d)
capital stock. 25. (d) 26. (d) 27. (b) 28. (b) 29. (b) 30. (c)
(c) For new addition to the capital stock. 31. (d) 32. (c) 33. (b) 34. (a) 35. (b) 36. (c)
(d) All of the above 37. (c) 38. (a) 39. (a) 40. (a) 41. (a) 42. (b)
81. Unforeseen obsolescence of fixed capital assets during 43. (c) 44. (b) 45. (b) 46. (b) 47. (d) 48. (c)
production is: 49. (b) 50. (a) 51. (b) 52. (b) 53. (a) 54. (b)
(a) Consumption of fixed capital 55. (a) 56. (a) 57. (d) 58. (c) 59. (d) 60. (c)
(b) Capital loss 61. (c) 62. (d) 63. (b) 64. (b) 65. (b) 66. (c)
(c) Income loss 67. (a) 68. (d) 69. (b) 70. (b) 71. (b) 72. (c)
(d) Revenue Loss 73. (d) 74. (b) 75. (b) 76. (c) 77. (d) 78. (c)
82. Identify, flow variable from the following: 79. (d) 80. (d) 81. (b) 82. (b) 83. (a) 84. (b)
(a) Distance between Delhi and Amritsar 85. (c)
(b) Annual expenditure of a school
(c) Bank balance of Mr. Mukesh as on 31st March, 2022
(d) Investments of Mr. Mohit as on 31st December, 2021 Multiple Choice Questions (MCQ)
on Assertion-Reasoning Type/ Statements
83. From the statements given in Column I and Column
II, choose the correct pair. 1. Assertion (A): Purchase of car by a household is a part
Column I Column II of gross domestic capital formation.
A. Vegetable grown in the Personal (i) Non marketing Reason (R): It is a private final consumption
garden activity expenditure.
B. A car used as a taxi (ii) Consumer good (a) Both Assertion (A) and Reason (R) are true and
C. An air-conditioner used by (iii) Capital good Reason (R) is the correct explanation of Assertion (A).
household (b) Both Assertion (A) and Reason (R) are true,
D. Scholarship given to students (iv) Factor income but Reason (R) is not the correct explanation of
by government Assertion (A).
(a) A-(i) (b) B-(ii) (c) Assertion (A) is true, but Reason (R) is false.
(c) C-(iii) (d) D-(iv) (d) Assertion (A) is false, but Reason (R) is true.
84. Complete the table: 2. Statement I: Industrial waste driven into rivers is an
example of positive externality.
Intermedi-
Value of Value Add- Statement II: Inventory is a stock variable.
Producer ate Con-
output ed (a) Both the statements are true.
sumption
(b) Both the statements are false.
Farmer 2000 - 2000 (c) Statement I is true, Statement II is false.
Baker __(i)___ 2000 2000 (d) Statement II is true, Statement I is false.
Retail Seller 4,400 __(iii)___ 400 3. Statement I: Expected obsolescence is included in
Total __(ii)___ 6,000 __(iv)___ depreciation.
(a) 4000, 10400, 4000, 4000 Statement II: Wages earned by a citizen of India
(b) 4000, 10400, 4000, 4400 working is Saudi Arabia will be included in GDP of
(c) 2000, 6000, 6000, 4400 India.
(d) 4000, 10400, 6000, 4000 (a) Both the statements are true.
85. Increase in Real Gross Domestic Product (GDP) (b) Both the statements are false.
implies _______ in the economy. (c) Statement I is true, Statement II is false.
(a) increase in the level of income (d) Statement II is true, Statement I is false.
4. Statement I: Unexpected obsolescence is a component of 9. Assertion (A): Prizes received by the household from
depreciation. government and firms are included in National Income.
Statement II: Purchase of machinery by a producer is Reason (R): It is a transfer payment.
an intermediate good. (a) Both Assertion (A) and Reason (R) are true and
(a) Both the statements are true. Reason (R) is the correct explanation of Assertion (A).
(b) Both the statements are false. (b) Both Assertion (A) and Reason (R) are true,
(c) Statement I is true, Statement II is false. but Reason (R) is not the correct explanation of
(d) Statement II is true, Statement I is false. Assertion (A).
5. Statement I: Combined factor income, which can’t be (c) Assertion (A) is true, but Reason (R) is false.
separated into various factor income components is (d) Assertion (A) is false, but Reason (R) is true.
known as Mixed income of self employed. 10. Statement I: GDPmp includes market value of all final
Statement II: All the capital goods produced in a year goods and services produced by the normal residents or
do not constitute net addition to the capital stock already the non-residents in a country.
existing. Statement II: If the nominal GDP of the current year is
(a) Both the statements are true. double the nominal GDP of the base year, the volume
(b) Both the statements are false. of production of the country must have doubled.
(c) Statement I is true, Statement II is false. (a) Both the statements are true.
(d) Statement II is true, Statement I is false. (b) Both the statements are false.
6. Statement I: The profits earned by the Korean-owned (c) Statement I is true, Statement II is false.
Hyundai car factory in India will be included in the (d) Statement II is true, Statement I is false.
National income of India. 11. Assertion (A): National income is always more than the
Statement II: Market price is less than factor cost if domestic income.
subsidy is more than indirect taxes. Reason (R): National income can be less than domestic
(a) Both the statements are true. income when net factor income from abroad (NFIA) is
(b) Both the statements are false. negative. National income can also be equal to domestic
(c) Statement I is true, Statement II is false. income if NFIA is zero.
(d) Statement II is true, Statement I is false. (a) Both Assertion (A) and Reason (R) are true and
7. Assertion (A): Depreciation is deducted from GDP Reason (R) is the correct explanation of Assertion (A).
while calculating national income. (b) Both Assertion (A) and Reason (R) are true,
Reason (R): Depreciation does not become part of but Reason (R) is not the correct explanation of
anybody’s income. Assertion (A).
(a) Both Assertion (A) and Reason (R) are true and (c) Assertion (A) is true, but Reason (R) is false.
Reason (R) is the correct explanation of Assertion (d) Assertion (A) is false, but Reason (R) is true.
(A). 12. Assertion (A): Free services provided by the government
will be included in national income.
(b) Both Assertion (A) and Reason (R) are true,
Reason (R): It will be included in national income as it
but Reason (R) is not the correct explanation of
is government final consumption expenditure.
Assertion (A).
(a) Both Assertion (A) and Reason (R) are true and
(c) Assertion (A) is true, but Reason (R) is false.
Reason (R) is the correct explanation of Assertion (A).
(d) Assertion (A) is false, but Reason (R) is true. (b) Both Assertion (A) and Reason (R) are true,
8. Assertion (A): Indirect taxes are deducted from NNP
at market prices to calculate national income.
Assertion (A).
Reason (R): Indirect taxes accrue to the government. It
is a transfer payment, not a factor payment.
(d) Assertion (A) is false, but Reason (R) is true.
13. Statement I: NDPmp is the sum up of operating surplus,
Reason (R) is the correct explanation of Assertion compensation of employees, mixed income and Net Indirect
(A). Tax.
(b) Both Assertion (A) and Reason (R) are true, Statement II: Salary of an Indian working in Russian
but Reason (R) is not the correct explanation of embassy in India is included in National Income of
Assertion (A). India.
(c) Assertion (A) is true, but Reason (R) is false. (a) Both the statements are true.
(d) Assertion (A) is false, but Reason (R) is true. (b) Both the statements are false.
(c) Statement I is true, Statement II is false. (a) Both Assertion (A) and Reason (R) are true and
(d) Statement II is true, Statement I is false. Reason (R) is the correct explanation of Assertion (A).
14. Statement I: Raw materials or non-factor inputs (b) Both Assertion (A) and Reason (R) are true,
purchased for producing goods are intermediate goods. but Reason (R) is not the correct explanation of
Statement II: Printer purchased by a lawyer for office Assertion (A).
use is a final product. (c) Assertion (A) is true, but Reason (R) is false.
(a) Both the statements are true.
20. Statement I: That part of final output which comprises
(c) Statement I is true, Statement II is false.
capital goods constitutes gross investment of an economy.
(d) Statement II is true, Statement I is false.
Statement II: Depreciation is an annual allowance for
15. Assertion (A): Mobile sets purchased by a mobile dealer
normal wear and tear and foreseen obsolescence of a
are final products.
fixed capital asset.
Reason (R): Because these are purchased for resale.
21. Statement I: A part of the capital goods produced this year
Assertion (A).
goes for maintenance or replacement of existing capital
goods, called capital loss.
Statement II: Depreciation does not take into account
16. Assertion (A): Steel sheets used for making automobiles
and copper used for making utensils are intermediate unexpected/unforeseen obsolescence or sudden
goods. destruction or disuse of capital as can happen with
Reason (R): They are purchased with the purpose accidents, natural calamities or other such extraneous
of using them completely during the same year for circumstances.
production of steel gates/utensils. (a) Both the statements are true.
(a) Both Assertion (A) and Reason (R) are true and (b) Both the statements are false.
Reason (R) is the correct explanation of Assertion (A). (c) Statement I is true, Statement II is false.
(b) Both Assertion (A) and Reason (R) are true, (d) Statement II is true, Statement I is false.
but Reason (R) is not the correct explanation of 22. Assertion (A): Inventory is a stock variable.
Assertion (A). Reason (R): It is measured at a given point of time.
(c) Assertion (A) is true, but Reason (R) is false. (a) Both Assertion (A) and Reason (R) are true and
(d) Assertion (A) is false, but Reason (R) is true. Reason (R) is the correct explanation of Assertion (A).
17. Statement I: National income includes the value of (b) Both Assertion (A) and Reason (R) are true,
final goods only. but Reason (R) is not the correct explanation of
Statement II: Capital goods are also called durable use Assertion (A).
producer goods. (c) Assertion (A) is true, but Reason (R) is false.
(a) Both the statements are true. (d) Assertion (A) is false, but Reason (R) is true.
(b) Both the statements are false. 23. Statement I: Inventory is treated as capital. So, it is a
(c) Statement I is true, Statement II is false. stock variable.
(d) Statement II is true, Statement I is false. Statement II: Change in the inventory of a firm is
18. Statement I: Stocks are economic variables measured at treated as investment. So, it is a flow variable.
a given point of time. (a) Both the statements are true.
Statement II: Flows are economic variables measured (b) Both the statements are false.
over a period in time. (c) Statement I is true, Statement II is false.
(a) Both the statements are true. (d) Statement II is true, Statement I is false.
(b) Both the statements are false. 24. Statement I: National income includes only factor
(c) Statement I is true, Statement II is false. payments which are received in return for the factor
(d) Statement II is true, Statement I is false. services provided in production of goods and services.
19. Assertion (A): The value of intermediate goods is Statement II: The stock of unsold finished goods,
included in the national income estimates. or semi-finished goods, or raw materials which a firm
Reason (R): Including intermediate goods separately carries from one year to the next is called change in
will inflate or overestimate the national income. inventory.
(a) Both the statements are true. (a) Both the statements are true.
(b) Both the statements are false. (b) Both the statements are false.
(c) Statement I is true, Statement II is false. (c) Statement I is true, Statement II is false.
(d) Statement II is true, Statement I is false. (d) Statement II is true, Statement I is false.
25. Assertion (A): Transfer payment is not included in 30. Statement I: The concept of national product is based
national income. on the production units located within economic
Reason (R): Any payment for which no service is territory, operated both by residents and non-residents.
rendered is called a transfer payment. Statement II: The concept of domestic product is
(a) Both Assertion (A) and Reason (R) are true and based on residents, and includes their contribution
Reason (R) is the correct explanation of Assertion (A). to production both within and outside the economic
(b) Both Assertion (A) and Reason (R) are true, territory.
but Reason (R) is not the correct explanation of (a) Both the statements are true.
Assertion (A). (b) Both the statements are false.
26. Statement I: Capital goods purchased by business
31. Statement I: The residents’ contribution outside the
enterprises such as machines make production of other
economic territory is called factor income received
goods feasible, however, they themselves don’t get
from abroad and the non-residents’ contribution inside
transformed in the production process.
the economic territory is called factor income paid to
Statement II: Depreciation is an accounting concept.
residents.
No real expenditure may have actually been incurred
Statement II: ‘Factor income received from abroad’ is
each year yet depreciation is annually accounted for.
added to domestic product because this contribution of
residents is in addition to their contribution to domestic
product.
27. Statement I: The U.S. embassy in India is a part of
economic territory of India.
Statement II: Branch of an American Bank in India is
32. Statement I: Nominal Flow is the flow of factor
included in the domestic territory of India
payments and payments for goods and services between
households and firms.
Statement II: Real Flow is the flow of goods and
(d) Statement II is true, Statement I is false. services only between households and firms.
28. Assertion (A): Indians working in the office of the (a) Both the statements are true.
United Nations Organisation (UNO) in India are (b) Both the statements are false.
normal residents of India. (c) Statement I is true, Statement II is false.
Reason (R): They live in India and their centre of (d) Statement II is true, Statement I is false.
economic interest also lies in India. 33. Statement I: The value of output of a firm is distributed
(a) Both Assertion (A) and Reason (R) are true and among its four factors of production, namely, labour,
Reason (R) is the correct explanation of Assertion (A). capital, entrepreneurship and land.
Statement II: The term that is used to denote the net
contribution made by a firm is called its ‘value added’.
Assertion (A).
29. Statement I: A person can be a citizen of one country
and at the same time a resident of another country. 34. Statement I: The sum of factor payments equals Gross
Statement II: National product includes production Value Added at Factor Cost (GVAfc) of a firm.
activities of residents and non-residents irrespective of Statement II: The components of National Income
whether performed within the economic territory or are compensation of employees, operating surplus and
outside it. mixed income.
(a) Both the statements are true. included in profits. Corporate tax accrues to the
(b) Both the statements are false. government. It is not received by the owners of factors of
(c) Statement I is true, Statement II is false. production. Hence, it is not a factor income.
(d) Statement II is true, Statement I is false. (a) Both Assertion (A) and Reason (R) are true and
35. Statement I: Contribution to provident fund or Reason (R) is the correct explanation of Assertion (A).
insurance premium paid by employees is not included in (b) Both Assertion (A) and Reason (R) are true,
national income because it is paid out of compensation but Reason (R) is not the correct explanation of
of employees, which is already included. Assertion (A).
Statement II: Gifts received from employer, e.g. festival (c) Assertion (A) is true, but Reason (R) is false.
gift, gifts on independence day, etc. is not included in (d) Assertion (A) is false, but Reason (R) is true.
40. Statement I: Expenditure on advertisement and scientific
national income as it is a transfer payment.
research by a firm is an intermediate expenditure.
Statement II: Expenditure by a firm on payment of fees
(b) Both the statements are false. to a chartered accountant is a final expenditure.
(c) Statement I is true, Statement II is false. (a) Both the statements are true.
(d) Statement II is true, Statement I is false. (b) Both the statements are false.
36. Statement I: Operating surplus is defined as the sum of (c) Statement I is true, Statement II is false.
rent, royalty, interest and profits. (d) Statement II is true, Statement I is false.
Statement II: Operating surplus can also be termed 41. Assertion (A): Real GDP is a better indicator of
as ‘Income from property and entrepreneurship’, i.e. economic growth and welfare of people of the country
incomes earned by property owners. than Nominal GDP.
(a) Both the statements are true. Reason (R): Real GDP is not affected by changes in
general price level. Secondly, because increase in real
GDP means more goods and services are available to the
society during the year, thus, welfare increases.
37. Assertion (A): Payment of interest by banks to its
depositors is included in national income.
Reason (R): It is factor payment. The borrowed money
is used for carrying out production of goods and
services.
Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, (d) Assertion (A) is false, but Reason (R) is true.
but Reason (R) is not the correct explanation of 42. Assertion (A): GDP Deflator gives the change in price
Assertion (A). level between the base year and current year.
(c) Assertion (A) is true, but Reason (R) is false. Reason (R): This is because in the calculation of real
(d) Assertion (A) is false, but Reason (R) is true. and nominal GDP of the current year, the volume of
38. Assertion (A): Payment of interest on a loan taken by production is fixed. Therefore, if these measures differ it
an employee from the employer will be included in is only due to change in the price level between the base
national income. year and the current year.
Reason (R): There is no contribution to production of (a) Both Assertion (A) and Reason (R) are true and
goods and services. Therefore, it is not a factor payment. Reason (R) is the correct explanation of Assertion
(a) Both Assertion (A) and Reason (R) are true and (A).
Reason (R) is the correct explanation of Assertion (A). (b) Both Assertion (A) and Reason (R) are true,
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of
but Reason (R) is not the correct explanation of Assertion (A).
Assertion (A). (c) Assertion (A) is true, but Reason (R) is false.
(c) Assertion (A) is true, but Reason (R) is false. (d) Assertion (A) is false, but Reason (R) is true.
(d) Assertion (A) is false, but Reason (R) is true. 43. Statement I: If the GDP of the country is rising, the
39. Assertion (A): Payment of corporate tax by a firm is welfare may not rise as a consequence, if the rise in
also not included in national income. GDP may be concentrated in the hands of very few
Reason (R): It is a transfer payment and is already individuals or firms.

Statement II: Non-monetary exchanges like domestic Ans. Yes. Because it is meant for resale in the same year.
services women perform at home etc. are regiestered as Q.7 Increase in national income always implies increase
part of economic activity. in domestic income. Elucidate.
(a) Both the statements are true. Ans. No. If in an economy the increase in national income
(b) Both the statements are false. is due to an increase in domestic production of final
(c) Statement I is true, Statement II is false. goods and services over the period of time, then
(d) Statement II is true, Statement I is false. it would lead to an increase in domestic income.
ANSWER KEY However, if the increase in National income is due to
1. (d) 2. (d) 3. (c) 4. (b) 5. (a) 6. (d) 7. (a) 8. (a) an increase in net factor income from abroad then it
9. (d) 10. (c) 11. (d) 12. (a) 13. (a) 14. (a) 15. (d) 16. (a) would not lead to an increase in domestic income.
17. (a) 18. (a) 19. (d) 20. (a) 21. (d) 22. (a) 23. (a) 24. (c) Q.8 How should the following be treated in estimating
25. (b) 26. (a) 27. (d) 28. (a) 29. (c) 30. (b) 31. (a) 32. (c) National Income of a Country? Give valid reasons.
33. (d) 34. (b) 35. (a) 36. (a) 37. (a) 38. (d) 39. (a) 40. (c) (i) Profits earned by Foreign Banks in India.
41. (a) 42. (a) 43. (c) (ii) Expenditure on upgradation of fixed asset by a firm.
Ans.(i) Profits earned by foreign banks in India should not
be included in the National Income because it is a
factor income paid to non-residents.
Competency Based Questions (ii) Expenditure on upgradation of fixed asset by a firm
Q.1 In what situation will the Real Gross Domestic should be included in the National Income, as it is
Product be greater than the Nominal Gross a part of capital formation.
Domestic Product? Q.9 Find Net Value Added at Factor Cost (NVAfc):
Ans. When the base year’s prices are higher than the S. Particulars (` in
current year’s prices. No. crore)
Q.2 Defend or refute the following statement, with (i) Sale of rice in the market 58
valid argument:
(ii) Purchase of tractor and thresher 40
“Depreciation is a fall in the value of an asset due
to unexpected obsolescence.” (iii) Procurement of rice by the 20
Ans. The given statement is refuted. (Give the correct government
meaning of depreciation) (iv) Self-consumption of rice during the year 15
Q.3 “National income is always greater than domestic (v) Expenditure on running and 20
income”. Do you agree with the given statement? maintenance of tractor and thresher
Support your answer with a valid reason. (vi) Fertiliser subsidies received from the 3
Ans. No. National income can be less than the domestic government
income in case of negative NFIA. (Explain) Ans. Net Value Added at Factor Cost (NVAfc) = {(i) + (iii)
Q.4 “While estimating Gross Domestic Product + (iv)} – (v) + (vi) = {58 + 20 + 15} – 20 +3 = `76 crores
(GDP) by expenditure method, entire focus is Q.10 On the basis of the data given below for an
on expenditures incurred by the residents of the imaginary economy, estimate the value of Net
country.” Do you agree with the given statement? Domestic Product at factor cost (NDPfc):
Give valid reason in support of your answer. S. No. Items (` in crore)
Ans. No. It takes into account the aggregate spending on all (i) Household Consumption 2,000
the final goods and services in the domestic territory, Expenditure
whether incurred by the residents or non-residents (ii) Government Final 1,500
during a given period of time. Consumption Expenditure
Q.5 “National income exceeds domestic income only (iii) Gross Domestic Fixed Capital 1,000
when exports are greater than imports”. Comment. Formation
Ans. The given statement is incorrect. National income (iv) Net additions to stock 300
exceeds domestic income only when NFIA is positive, (v) Exports 700
irrespective of whether exports are greater than or less (vi) Net Indirect Taxes 350
than imports. (Explain)
(vii) Imports 200
Q.6 Should purchase of wheat in the wholesale market
(viii) Consumption of Fixed Capital 250
be treated as the purchase of intermediate goods?
Ans. Net Domestic Product at Factor Cost (NDPfc) = (i) + (ii)
Explain.
+ (iii) + (iv) + (v) – (vii) – (vi) – (viii) = 2,000 + 1,500 + Firm B 90 210 100 100
1,000 + 300 + 700 – 200 – 350 – 250 = ` 4,700 crores
Net Factor Income from Abroad is (–) `20.
Q.11From the following data show that, Net Value Employee’s contribution to the Social Security Fund
Added at factor cost (NVAfc) is equal to the sum of by Firm A and Firm B is ` 5 and `10 respectively.
factor income: Calculate the National Income.
S. No. Particulars (` in crore) Ans. NDPfc = 50+150+90+210+100+100+100+100 = ` 900
i. Consumption of Fixed 90 National Income = NDPfc + NFIA = 900 + (–) 20=
Capital `880
ii. Imports of raw material 120 Q.13 On the basis of the given data, estimate the value
iii. Change in stock 240 of National Income:
iv. Goods and Services Tax 60 S.No. Items Amount
v. Domestic sales 2,160 (in
vi. Distributed profits 180 `crore)
vii. Retained earnings 120 (i) Government Final Consump- 200
viii. Purchase of raw material 840 tion Expenditure
ix. Exports 240 (ii) Private Final Consumption 300
Expenditure
x. Rent and Royalty 90
xi. Compensation of 720 (iii) Gross Domestic Fixed Capital 80
Formation
employees
(iv) Net Exports (–)20
xii. Interest 540
Ans. Net Value Added at Factor Cost (NVAfc) = v + ix + (v) Increase in stock 20
iii – viii – i – iv (vi) Consumption of Fixed Capital 15
= 2160 + 240 + 240 – 840 – 90 – 60 = ` 1,650 crore (vii) Indirect Taxes 60
Factor income = xi + x + xii + vi + vii
(viii) Subsidies 15
= 720 + 90 + 540 + 180 + 120 = ` 1,650 crore
Q.12Study the table given below which has information (ix) Net Factor Income from (–) 40
about two firms of an economy. Abroad
Wages Profits Interest Rent (in Ans. National Income (NNPFC) = (ii) + (i) + (iii) + (v) +
(in `) (in `) (in `) `) (iv) - (vi) – {(vii) - (viii)} + (ix)
= 300 + 200 + 80 + 20 + (–20) – 15 – 60 + 15 + (–40)
Firm A 50 150 100 100 = ` 480 crore
Sample Question Papers
CBSE Sample Question Paper 2024-25

Maximum Marks – 80 Time – 3 Hours
General Instructions:
I. This question paper contains two sections:
Section A – Macro Economics
Section B – Indian Economic Development
II. This paper contains 20 Multiple Choice Type Questions of 1 mark each.
III. This paper contains 4 Short Answer Type Questions of 3 marks each to be answered in 60 to 80 words.
IV. This paper contains 6 Short Answer Type Questions of 4 marks each to be answered in 80 to 100 words.
V. This paper contains 4 Long Answer Type Questions of 6 marks each to be answered in 100 to 150 words.
SECTION A – MACRO ECONOMICS

Q.1 Read the following statements: Assertion (A) and Reason (R). Choose the correct option from those given below:
Assertion (A): The government can reduce the deflationary gap by purchasing government securities in the open
market.
Reason (R): The Central Bank purchases government securities in the open market to increase the lending
capacity of commercial banks.
(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, but Reason (R) is not the correct explanation of Assertion (A).
(d) Assertion (A) is false, but Reason (R) is true. (1 mark)
Q.2 “The Cabinet led by Prime Minister has decided that the Central Government will provide free food grains to
81.35 crore (approx.) beneficiaries under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) for a period
of five years with effect from 1st January, 2024.”
Source: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1980689
Based on the aforesaid statement, identify the budgetary objective the government is trying to achieve and choose
the correct option: (1 mark)
(a) Reallocation of resources (b) Economic stability
(c) Redistribution of income (d) Economic instability
Q.3 To arrive at the value of Gross Value Added at Market Price (GVAMP) _________ must be added to Gross Value
Added (GVA) at Basic Prices. (1 mark)
(Choose the correct option to fill up the blank)
(a) Product Taxes (b) Net Product Taxes

(c) Production Taxes (d) Net Production Taxes
Q.4 Under the exchange rate system, market forces automatically adjust the surplus and deficit in the Balance of
Payments account. (Choose the correct option to fill up the blank)
(a) fixed (b) flexible
(c) managed floating (d) dirty floating (1 mark)
Q.5 From the given diagrams, identify the correct option that indicates the ‘Reference Line’ passing through the origin
drawn at a particular angle. (1 mark)
(a) (i) (b) (ii)

(c) (iii) (d) (iv)
Q.6 As per the data presented in the Union Budget 2023-24, the total receipts of the government other than borrowings
and the total expenditure are estimated at ` 27.2 lakh crore and ` 45 lakh crore respectively. (1 mark)
The value of the _______ deficit would be ` 17.8 lakh crore. (Choose the correct option to fill up the blank)
(a) revenue (b) fiscal
(c) budgetary (d) primary
Q.7 Read the following statements carefully: (1 mark)
Statement 1: The maximum value of Marginal Propensity to Consume (MPC) can be unity.
Statement 2: As the income of an economy increases, the proportionate increase in the level of consumption is
always more than the increase in the level of income.
In light of the given statements, choose the correct option 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.
Q.8 In a two-sector economy, Aggregate Demand can be determined by adding __________. (1 mark)
(a) Autonomous Consumption, Induced Consumption and Induced Investment
(b) Autonomous Consumption, Autonomous Investment and Induced Investment
(c) Autonomous Consumption and Autonomous Investment
(d) Autonomous Consumption, Induced Consumption and Autonomous Investment
Statement 1: Foreign grants-in-aid receipts do not lead to any claim on the government.
Statement 2: Disposal of equity by the Public Sector Undertakings in the market may lead to a decrease in the
assets of the government.
(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.10 Based on the given diagram: (1 mark)

The trade under current account during January 2024 reflects a _______ of USD ______ billion.
(a) surplus, 0.74 (b) surplus, 3.85
(c) deficit, 0.74 (d) deficit, 3.85
Overall Trade (Merchandise + Services)
Source: https://commerce.gov.in/wp-content/uploads/2024/02/PIB-Press-Release-January-2024-1.pdf
Q.11 (A) On the basis of the given data, estimate the value of Domestic Income (NDPFC): (3 marks)
S. No. Items Amount (` in crore)
i. Household Consumption Expenditure 800
ii. Gross Business Fixed Capital Formation 150
iii. Gross Residential Construction Investment 120
iv. Government Final Consumption Expenditure 170
v. Excess of Imports over Exports 20
vi. Inventory Investment 140
vii. Gross Public Investment 500
viii. Net Indirect Taxes 70
ix. Net Factor Income From Abroad (-) 50
x. Consumption of Fixed Capital 40
OR
(B) State the steps pertaining to the estimation of National Income under the income method.
Q.12 “Tax revenue collection of the government may be categorized under two heads.”
State and explain the two heads of tax revenue. (3 marks)
Q.13 (I) ‘Foreign Portfolio Investment (FPI) witnessed a sharp turnaround during 2023-24 with net FPI inflows of
US$ 32.4 billion.’
In which sub-account and on which side of the Balance of Payments account the above transaction will be
recorded? Give reasons in support of your answer.
(II) State the meaning of ‘Balance of Payments Deficit’. (4 marks)
Q.14 (A) “Saving curve can be derived from the consumption curve”
Justify the statement, citing valid steps with the help of a well-labelled diagram. (4 marks)
OR
(B) For two hypothetical economies A and B, the value of Marginal Propensity to Consume (MPC) stands at 0.6
and 0.8 respectively. Assuming for both the economies, Autonomous Consumption (c) to be ` 40 crore and
Investment Expenditure (I) to be ` 100 crore. (4 marks)
Calculate:
(I) Break-even level of income for Economy A
(II) Equilibrium level of income for Economy B
Q.15 Read the following text carefully: (4 marks)
“Union Finance Minister stated, that investments in infrastructure and productive capacity have a large multiplier
impact on growth and employment and in view of this, capital investment outlay is being proposed to increase
steeply in the Budget 2023-24 by 1,000 crore.”
Based on the given text and common understanding, explain the working process of the increase in investment on
the National Income, assuming the Marginal Propensity to Save (MPS) as 20%.
As societies developed from hunters and gatherers, the material needs of human beings increased – to build a
house, wear clothes, make weapons and implements etc. Since these needs could not be produced individually,
people had to purchase them from others. These purchases, for example, were paid initially by barter – a leather
skin cloak for a spear. As barter had its limits – how many cloaks for a spear – barter got standardized in terms of
metals or cowrie shells. Now people knew the value of both the cloak and the spear in terms of bronze or cowrie
shells. This was still barter, as both bronze and shells had intrinsic value (shells were desired for their beauty). This
system evolved over time into metal currencies. Gold and silver coinage were the offshoot of this system where
they had features of barter (both gold and silver had intrinsic value) as well as money (they were standardized
representation of value).
In respect of money two facts emerge historically:
• Money has taken the form of either commodities (which have intrinsic value) or in terms of debt instruments.
• Money is usually issued by a sovereign (or a Central Bank as its representative).
In modern economies, currency is a form of money that is issued exclusively by some competent authority (Central
Bank). It is a liability of the issuing Central Bank and an asset of the holding public. Currency is usually issued in
paper (or polymer) form, but the form of currency is not its defining characteristic.
In the recent past, the Reserve Bank of India, issued Central Bank Digital Currency (CBDC). A CBDC is the
currency issued by a central bank in a digital form. It serves all the purposes of a paper currency in a different
form.
The introduction of CBDC has the potential to provide significant benefits, such as reduced dependency on cash,
lower transaction costs, reduced settlement risk. Introduction of CBDC would possibly lead to a more robust,
efficient, trusted, regulated payments option. There are associated risks such as cyber-attacks and technology
preparedness, but they need to be carefully evaluated against the potential benefits.
Source: https://website.rbi.org.in/web/rbi/-/speeches-interview/central-bank-digital-currency-is-this-the-future-of-money-
1111 (adapted and modified)
On the basis of the given text and common understanding, answer the following questions:
(I) “Over the centuries, money has evolved in various forms.”
In the light of the given statement, state and discuss briefly any two forms of money.
(II) “Various economists have formed a strong opinion that, in the modern times digital currency (like CBDC) is
quite essential. However, it comes with its own benefits and potential risks.”
Do you agree with the given statement, giving valid arguments in support of your answer.
Q.17 (A) (I) On the basis of the following hypothetical data: (all figures in ` crore) (6 marks)
Year Nominal GDP Nominal GDP adjusted to base year prices
2020 3,000 4,000
2023 4,000 4,500
Calculate the percentage change in Real Gross Domestic Product in the year 2023 using 2020 as the base year.
(II) “The public investment on the construction of a multi-lane flyover may reduce traffic congestion.”
On the basis of the above statement, discuss its likely impact on Gross Domestic Product (GDP) and
welfare in an economy.
OR
(B) (I) “Basis of classification of final goods into consumption and capital goods depend on the economic nature
of its use.”
Defend or refute the statement, with the help of a suitable example.
(II) ‘Natural calamities in the hill states of India have led to massive destruction of capital assets.’
Identify the type of loss (depreciation or capital loss) indicated in the aforesaid statement. Give valid
reasons in support of your answer.
SECTION B - INDIAN ECONOMIC DEVELOPMENT

Q.18 Read the given image carefully:
Choose the correct option which indicates the combination of vital functions performed by the environment.
i. Sustains life ii. Provides aesthetic services
iii. Generates waste iv. Provides only renewable resources
(a) (i) and (ii) (b) (ii) and (iii)
(c) (i) and (iv) (d) (i) and (iii) (1 mark)
Statement 1: The British policies led to the collapse of India’s world-famous handicraft industries.
Statement 2: During the colonial rule in India, the contribution of the industrial sector to Gross Value Added
(GVA) increased significantly.
(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.20 Read the following statements: Assertion (A) and Reason (R). Choose the correct option from those given below:
Assertion (A): The Education Commission (1964–66) had recommended that at least 4 % of Gross Domestic
Product (GDP) be spent on education.
Reason (R): The Union and State Governments, have been stepping up expenditures in the education sector over
the years to fulfil the objective of attaining cent per cent literacy.
(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, but Reason (R) is not the correct explanation of Assertion (A).
(d) Assertion (A) is false, but Reason (R) is true. (1 mark)
Q.21 In the post-independence era, the policymakers of India adopted an economic system that fundamentally implies
the coexistence of _______ and _______. (Choose the correct option to fill up the blank)
(a) small and large-scale industries (b) small and medium-scale industries
(c) public and private sector (d) private and foreign sector (1 mark)
Q.22 The institutional structure of rural banking in contemporary India consists of a set of multi-agency institutions,
namely, ______________. (Choose the correct option to fill up the blank)
(i) Regional Rural Banks (ii) Cooperative Banks
(iii) Land Development Banks (iv) Commercial Banks
(a) (i) and (iv) (b) (i), (iii) and (iv)
(c) (i), (ii) and (iii) (d) (i), (ii), (iii), and (iv) (1 mark)
Q.23 Identify, which of the following statements is incorrect about the financial sector reform introduced in 1991?
(Choose the correct option)
(a) Enabled the establishment of private sector banks, Indian as well as foreign
(b) Foreign investment limit in banks was raised to around 74%
(c) Foreign Institutional Investors were allowed to invest in Indian financial markets
(d) Change in the role of the Reserve Bank of India from facilitator to regulator (1 mark)
Q.24 China’s demographic problem of 4-2-1, resulted in a higher proportion of elderly individuals compared to the
younger population. This was primarily due to the implementation of ________.
(a) Great Leap Forward Campaign (b) Great Proletarian Cultural Revolution
(c) One Child Norm (d) Special Economic Zones (1 mark)
Q.25 ______ was setup in 1974 by the Indian government to address two major environmental concerns viz. water and
air pollution. (Choose the correct option to fill up the blank)
(a) State Pollution Control Board (b) Central Pollution Control Board
(c) Brundtland Commission (d) Montreal Protocol (1 mark)
Q.26 “Assuming in a hypothetical economy, Real Gross Domestic Product recorded a growth rate of 9% during a fiscal
year. However, the economy faced a significant challenge in terms of creating an adequate number of employment
opportunities.”
Identify the situation indicated in the given statement and choose the correct option.
(a) Casualisation of workforce (b) Informalisation of workforce
(c) Formalisation of workforce (d) Jobless growth (1 mark)
Q.27 During the period 1951-2016, _____ led to an increase in the milk production in India by about ten times.
(Choose the correct option to fill in the blank)
(a) Green Revolution (b) Golden Revolution
(c) Operation Flood (d) Industrial Revolution (1 mark)
Q.28 (A) Critically appraise the disinvestment policy initiated by the government during the reforms of 1991. (3 marks)
OR
(B) ‘Globalisation is an essential outcome of liberalisation of an economy’.
Justify the given statement with a valid explanation. (3 marks)
Q.29 ‘To measure the extent of development in an economy, liberty indicators should be considered along with other
socio-economic parameters.’
Do you agree with the given statement? Give valid reasons in support of your answer. (3 marks)
Q.30 ‘The reform process implemented in the late 1970s, commonly known as China’s open door policy, encompassed
a wide range of reforms across sectors like agriculture, investment, industry etc. These reforms played a pivotal role
in driving the rapid growth of the Chinese economy over subsequent decades.’
In the light of the given text, discuss any two reforms responsible for the rapid economic growth of China. (4 marks)
Q.31 (A) ‘Under the Delhi Declaration, the G-20 nations pledged to reach global net zero emissions approximately by
mid-century and to triple global renewable energy capacity by 2030.’
Discuss briefly the rationale behind the commitment by G-20 nations in the direction of achieving sustainable
development. (4 marks)
OR
(B) ‘It would be unclear to say that, the growth of human capital lays the ground for economic growth of a
nation.’
Do you agree with the given statement? Support your answer with valid illustrations. (4 marks)
Q.32 (I) Interpret the given picture based on the Saansad Adarsh Gram Yojana (SAGY) initiated by the Government of
India. (3 marks)
(II) State any two examples of allied activities. (1 mark)

Employment generation has remained one of the top challenges of Indian policymakers, and over the years, this
has only become more complex. India has experienced more or less consistent growth in the structure of the
output of the economy, especially after the economic reforms, which is measured by gross value added. However,
the trend in employment did not reveal a consistent and clear pattern.
These complexities have led to a wide variation in the conclusions drawn by experts and various studies on
workforce and employment.
Two major sources of data on the workforce and employment have been the
(i) decennial population census and
(ii) nationwide quinquennial surveys on employment and unemployment by the erstwhile NSSO under the
Ministry of Statistics and Programme Implementation (MoSPI), Government of India.
The nationwide Employment and Unemployment (E&U) surveys have been replaced by the Periodic Labour
Force Survey (PLFS) conducted by the National Statistical Office (NSO) of MoSPI, which started in the year
2017–18.
According to NSO, the PLFS data measure the dynamics in labour force participation, workers to population
ratio and the employment status along with related, important parameters for both rural and urban areas.
Labour force includes persons who were either working (or employed) or those available for work (or unemployed).
Some persons in the labour force are abstained from work for various reasons. Deducting that number from the
labour force gives the number of actual workers. These workers are further categorised as persons who are engaged
in any economic activity as self- employed or regular wage/salaried and casual labour. The difference between the
labour force and the workforce gives the number of unemployed persons.
The size of the labour force in the country has increased from 485.3 million in the year 2017–18 to 497.4 million
in the year 2018–19. The next year, the labour force increased by 8 per cent and reached 537.9 million. This
increase was witnessed across male and female populations as well as rural and urban households.
Source:https://www.niti.gov.in/sites/default/files/2022-04/Discussion_Paper _on_Workforce_05042022.pdf (adapted
and modified)
On the basis of the given text and common understanding, answer the following questions:
(I) State any two major sources of data on the workforce and employment.
(II) ‘The labour force encompasses a broader category than the workforce.’ Defend or refute the statement,
giving valid reasons in support of your answer.
(III) ‘Workers can be categorized into different types depending on their status.’
In the light of the given statement, state any one type of employment.
Q.34 (A) (I) ‘Under the Industrial Policy Resolution (IPR) 1956 in India, the system of industrial licensing was
introduced to promote regional equality.’
Justify the given statement with valid arguments. (3 marks)
(II) Discuss briefly the estimates made by notable scholars regarding the national income and per capita
income during the colonial rule in India. (3 marks)
OR
(B) (I) ‘During the colonial period, India’s foreign trade was characterized by a large export surplus, however, this
did not result in any flow of gold or silver into India.’
Justify the given statement with valid arguments. (3 marks)
(II) Explain the rationale behind choosing ‘Self-reliance’ as a central planning objective in India’s development
strategy. (3 marks)
Answers
SECTION A – MACRO ECONOMICS
Ans.1 (d) Assertion (A) is false, but Reason (R) is true.
Ans.2 (c) Redistribution of income
Ans.3 (b) Net Product Taxes
Ans.4 (b) flexible
Ans.5 (a) (i)
Ans.6 (b) fiscal
Ans.7 (a) Statement 1 is true and Statement 2 is false.
Ans.8 (d) Autonomous Consumption, Induced Consumption and Autonomous Investment
Ans.9 (c) Both Statements 1 and 2 are true.
Ans.10 (c) deficit, 0.74
Ans.11 (A) Domestic Income (NDPFC)= i + iv + ii + iii + vii + vi – v – x – viii
= 800 + 170 + 150 + 120 + 500 + 140 – 20 – 40 – 70 = ` 1,750 crore
OR
(B) Steps pertaining to the estimation of National Income under the Income method:
1. Identify and classify production units into distinct heads namely primary, secondary, and tertiary sector.
2. Estimate and classify the factor payments in different categories as Compensation of Employees, Operating
Surplus, and Mixed Income. The sum of factor payments represents the contribution of the sectors to
Domestic Income (NDPFC).
3. Finally, estimate and add the value of Net Factor Income from Abroad (NFIA) to arrive at National
Income (NNPFC).
Ans.12 Tax revenue collection by the government may be categorized as:

Direct Taxes: It refers to those taxes whose impact and incidence lie on the same entity. In other words, the
liability of paying direct taxes can’t be shifted.
Indirect Taxes: It refers to those taxes whose impact and incidence may lie on different entities. In other words,
the liability of paying indirect taxes can be shifted.
Ans.13 (I) Foreign Portfolio Investments in India in the fiscal year 2023-24 will be recorded on the credit side of the
capital account of the Balance of Payments (BOP) account.
It is recorded on the credit side, as it results in the inflow of foreign exchange. Furthermore, such transactions
are documented in the capital account as they reflect the change in the ownership of financial assets between
the residents of a country and rest of the world.
(II) Balance of Payments deficit occurs when autonomous receipts fall short of autonomous payments during a
given fiscal year in an economy.
Ans.14 (A) Given consumption curve (C) intersecting 45° line at B (Break-even level of income). Steps for derivation of
saving curve from the consumption curve are as follows:
1. Take OA on the negative intercept on Y-axis equals to OC (Autonomous consumption) having positive
intercept on Y-axis, as a starting point of the saving curve.
2. Draw a perpendicular from point B (where, Y = C) intersecting the X-axis at B’ (where S=0) which is
another point on the saving curve.
3. Join point A to point B’ extending the line till point S to get the saving curve (AS).
OR
(B) Given, Autonomous Consumption (c) = ` 40 crore and Investment expenditure (I) = ` 100 crore
For economy A, Marginal Propensity to Consume (MPC) = 0.6
For economy B, Marginal Propensity to Consume (MPC) = 0.8
(I) At break-even level for economy A; Y = C
Y = 40 + 0.6Y
0.4Y = 40
Y = ` 100 crore
(II) Equilibrium level of income for economy B; Y = C + I
Y = c + (MPC) × Y + I
Y = 40 + 0.8Y + 100
Y = ` 700 crore
Ans.15 The working process of the increase in investment on the National Income, is based on the assumption that one’s
expenditure is another’s income.
In Round 1, the investment in infrastructure undertaken by the government of 1,000 crore, will generate an
additional income by the like amount (1,000 crore). Since Marginal Propensity to Save (MPS) is 0.2 i.e. MPC
is 0.8 it will lead to an increase in the consumption expenditure by 800 crore (80% of 1,000) and saving by 200
crore (20% of 1,000).
As one’s expenditure is another’s income, an increase in consumption expenditure results in an increase in income
by 800 crore in the subsequent round. This process continues till the sum of the change in savings becomes equal
to the change in the investment.
Round Increase in investment Increase in income Increase in consumption Increase in savings
(∆I) (in crore) (∆Y) (in crore) (∆C) (in crore) (∆S) (in crore)
1 1,000 1,000 800 200
2 — 800 640 160
3 — 640 512 128
— — — — —
Total 1,000 5,000 4,000 1,000
Investment Multiplier = 1 / (1 − MPC) = 1 / (1−0.8) = 5
Thus, the above schedule indicates that an increase in investment (∆I) of 1,000 crore leads to a total increase in
national income (∆Y) by 5,000 crore, which is 5 times the increase in investment.
Ans.16 (I) The evolution of money has taken place over the centuries in different forms such as:
• Metal currencies: Gold or silver coins (which have intrinsic value) were used for economic transactions as
these were used as standardised representation of value.
• Paper currency: Currency is issued in paper (or polymer) form by the Central Bank. It is a liability of the
issuing Central Bank and an asset of the holding public.
(II) Yes. The introduction of CBDC provides significant benefits such as reduced dependency on cash, lower
transaction costs, and reduced settlement risk. It leads to a more robust, efficient, trusted, and regulated
payment option. However, there are associated risks such as cyber-attacks and technology preparedness, but
they need to be carefully evaluated against the potential benefits.
Ans.17 (A) (I) Percentage change in Real GDP = Change in Real GDP / Real GDP × 100
= (4,500 – 4,000) / 4,000 × 100
= 12.5%
(II) The public investment on the construction of a multi-lane flyover may impact the Gross Domestic
Product (GDP) positively as good quality infrastructure (like an effective transport system) generally
attracts higher investments in an economy and may lead to an increase in employment opportunities. It
may also lead to a reduction in travel time and lower average transportation costs. Consequently, it may
increase the well-being of citizens.
OR
(B) (I) The given statement is defended. Consumption goods are those goods that directly satisfy the wants of
the consumer whereas, capital goods are those final goods that are used for further production.
A good can be considered as a consumption good or a capital good. It depends upon the economic nature
of its use.
For example, machinery purchased by a household can be classified as a consumption good whereas, if it
is purchased by a firm for further production, then as a capital good.
(II) The massive destruction of capital assets caused by the recent natural calamities in the hill states of
Himachal Pradesh and Uttarakhand can be considered as capital loss.
Capital loss refers to the loss in the value of fixed assets due to unforeseen circumstances like natural
disasters, theft, fires, etc.
SECTION B - INDIAN ECONOMIC DEVELOPMENT

Ans.18 (a) (i) and (ii)
Ans.19 (a) Statement 1 is true and Statement 2 is false.
Ans.20 (d) Assertion (A) is false, but Reason (R) is true.
Ans.21 (c) public and private sector
Ans.22 (d) (i), (ii), (iii), and (iv)
Ans.23 (d) Change in the role of the Reserve Bank of India from facilitator to regulator
Ans.24 (c) One Child Norm
Ans.25 (b) Central Pollution Control Board
Ans.26 (d) Jobless Growth
Ans.27 (c) Operation Flood
Ans.28 (A) Disinvestment aimed to boost financial discipline and modernisation. The government exceeded its
mobilisation target but assets of Public Sector Enterprises (PSEs) had been undervalued, resulting in significant
losses to the government. Moreover, the proceeds were primarily used to cover shortfalls of government
revenue instead of investing in social infrastructure or the development of PSE.
OR
(B) Globalisation is indeed an essential outcome of liberalisation of an economy. The removal or reduction of
restrictions in the industrial sector, financial sector, trade and investment policy etc. opened the doors of the
Indian economy to the rest of the world.
Hence, liberalisation acted as a catalyst for globalisation. It fostered international trade integrating the Indian
economy with the global economy.
Ans.29 Yes. Measurement of the development level in an economy is a comprehensive approach where liberty indicators
should be considered along with other socio-economic parameters.
Liberty indicators measure the extent of democratic participation in social and political decision-making. These
indicators are significant as they reflect the degree of civil liberties, political rights and economic freedom within
a society. With the incorporation of liberty indicators, policymakers can gain a more holistic understanding of an
economy’s development status.
Ans.30 The fast-paced economic growth in China can be traced back to the following reforms introduced in 1978:
• In the initial phase, reforms were initiated in agriculture, foreign trade and investment sectors. For instance,
in agriculture commune lands were divided into small plots, which were allocated to individual households.
They were allowed to keep all income from the land after paying stipulated taxes.
• In the subsequent phase, reforms were initiated in the industrial sector. Private sector firms, in general, and
township and village enterprises, in particular, were allowed to produce goods. At this stage, State Owned
Enterprises were made to face competition.
Ans.31 (A) Under the Delhi Declaration, the G-20 member countries have agreed to elevate efforts to limit Global
Warming. To achieve this, these nations have decided to reduce greenhouse gas emissions.
It has been agreed to devise an effective approach to transitioning from conventional sources of energy to
non-conventional sources of energy. Wind energy and solar power serve as good illustrations of environmental
friendly sources of energy that contribute to achieving sustainable development.
OR
(B) An increase in human capital causes economic growth is unclear, owing to the problems pertaining to the
estimation of quantifiable relation between the two. Educational yardsticks like years of schooling, teacher-
pupil ratio, enrolment rates etc. may not reflect educational quality accurately. Whereas, human capital
measures may show convergence between developing and developed nations, however, there’s no empirical
evidence to prove income per capita convergence.
Hence, education may improve, but cannot guarantee similar progress in real income across different countries.
Ans.32 (I) Under the Saansad Adarsh Gram Yojana (SAGY), introduced by the Government of India, Members of
Parliament (MPs) need to identify and develop one village from their constituencies. MPs were to develop three
villages as model villages, covering over 2,500 villages. MPs were expected to facilitate a village development
plan, motivate villagers to take up activities and build infrastructure in the areas of health, nutrition, and
education.
(II) Two examples of allied activities are: • Livestock • Fisheries
Ans.33 (I) Two major sources of data on the workforce and employment:
• decennial population census
• nationwide quinquennial surveys by NSSO
(II) The given statement is defended. Labour force refers to the number of persons who are either employed or
unemployed, whereas, workforce refers to all the people who are actively engaged in economic activities.
Hence, labour force is a wider term than the workforce.
(III) Self-employed are those workers who own and operate an enterprise to earn their livelihood.
Ans.34 (A) (I) Under the Industrial Policy Resolution (IPR) 1956, the policymakers reserved a category of industries for
the private sector, however, the sector was kept under state control through a system of licenses. No new
industry was allowed unless a license was obtained from the government.
It was easier to obtain a license if the industrial unit was established in an economically backward area.
In addition, such units were given certain benefits such as tax holidays and subsidised electricity. The
purpose of this policy was to promote regional equality.
(II) Several notable scholars, such as Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao, and
R.C. Desai, made earnest efforts to calculate national income during the colonial era. Among these
scholars, the estimates provided by V.K.R.V. Rao were considered very significant.
However, the majority of these studies revealed that the country’s overall real output growth during the
first half of the 20th century remained below 2%, with a meagre annual per capita output growth of just
0.5%.
OR
(B) (I) Throughout the colonial period, India’s foreign trade was characterized by a significant export surplus.
However, this surplus had detrimental consequences for the country’s economy. This export surplus did
not bring gold or silver into India. Instead, it was used to cover expenses incurred by an office set up by
the colonial government in Britain, the expenses on the war fought by the British government, and the
import of invisible items, all contributed to the drain of India’s wealth.
(II)
‘Self-reliance’ was adopted as a central planning objective in India’s development strategy by the
policymakers due to the following reasons:
• To reduce the dependence on foreign nations, the stress was laid on mobilising domestic resources.
• It was feared that the dependence on imported food supplies, foreign technology, and foreign capital
may increase foreign interference in our policies.
Practice Question Paper-30

SECTION A – MACROECONOMICS Q.5 The range of value of Investment Multiplier is always
between _____ and _______ (1 mark)
Q.1 In order to tackle the problem of rising general price
level in an economy, government may come up with (a) zero (0), infinity (∞)
a surplus budget to achieve the budget objective of (b) one (+1), infinity (∞)
_________. (1 mark) (c) zero (0), one (+ 1)
(i) reallocation of resources (d) minus one (–1), plus one (+ 1)
(ii) price stability Q.6 Read the following statements: Assertion (A) and
(iii) redistribution of income Reason (R). Choose the correct alternative from
Alternatives: those given below. (1 mark)
(a) (i) only (b) (ii) only Assertion (A): Ex-ante savings and Ex-ante
(c) (iii) only (d) (i) and (iii) investments are never equal to each other.
Q.2 In the given figure, what does the gap ‘EF’ represent? Reason (R): At equilibrium level of income,
aggregate demand may not be equal to the aggregate
supply.
(a) Both Assertion (A) and Reason (R) are true.
(b) Both Assertion (A) and Reason (R) are false.
Q.7 The money exchanged in which of the following
situations will not be considered as Invisible items
under the Balance of Payments? (1 mark)
(a) Deflationary gap and under-employment (a) An Indian flying to the US for his medical
equilibrium treatment.
(b) Excess demand and Inflationary gap (b) Oil India Limited (OIL) purchasing crude oil
(c) Deficient demand and Inflationary gap from Iraq.
(d) Full employment equilibrium (1 mark) (c) The Indian diaspora remitting money to their
Q.3 Choose the correct alternative to fill in the blanks families at home
(i) and (ii) in the figure. (1 mark)
(d) Tata consultancy services (TCS) providing cloud
consulting to African nations.
Q.8 Identify the situation that can be certainly deduced
from a “capital and current account equilibrium”?
(1 mark)
(a) The current account deficit is financed by the
selling of foreign exchanges.
(b) There is an inverse relationship between the
current and the capital account.
(c) The capital account has to be equal to the current
account to achieve equilibrium.
(d) The country is running into an economic deficit
(a) National, Production
and requires borrowing from foreign reserves.
(b) Factor, Production
Q.9 “Due to a fall in the value of Indian currency (`) in
(c) Factor, Consumption
the foreign exchange market, the Reserve Bank of India
(d) National, Consumption
Q.4 If the value of investment multiplier = 4 and decides to buy Indian currency (`).”This type of action
Dissavings = (–) 60, identify the correct Saving by the Central Bank is possible under __________
function from the following : (1 mark) exchange rate system. (1 mark)
(a) S = (–) 60 + 0·25 Y (a) Flexible
(b) S = (–) 60 + 0·75 Y (b) Managed floating
(c) S = (–) 60 + 0·20 Y (c) Fixed floating
(d) S = (–) 60 + 0·60 Y (d) Fixed
Q.10 Assuming that, the following data is given for an Q.14 For a hypothetical economy, assuming there is an
imaginary economy: (1 mark) increase in the Marginal Propensity to Consume
(MPC) from 80% to 90% and change in investment
2021 2022
to be `2,000 crore.
(` in Cr.) (` in Cr.)
Using the concept of investment multiplier, calculate
Exports of visibles 1,000 1,100 the increase in income due to change in Marginal
Imports of visibles 800 850 Propensity to Consume (MPC). (4 marks)
The balance of trade from 2021 to 2022 `____ by Q.15 Two friends, Deepak and Krish were discussing the
`____ crore. impact of increase in GST rates on luxury items,
(a) increased, 200 (b) decreased, 200 as recently undertaken by the Government. Krish
(c) increased, 50 (d) decreased, 50 was of the view that most of the luxury items (like
Q.11 Find the Value Added by Firm A, from the following foreign travel, imported cigarettes, etc.) should be
information: (3 marks) taxed exorbitantly, while the items related to daily
consumption of poor and middle class should be
S. Particulars (` in tax-free. Identify and explain the objective of the
No. crore) Government budget Krish is suggesting. (4 marks)
(i) Purchase of factor inputs by Firm A 5 Q.16 Read the following text carefully: (6 marks)
(ii) Purchase of non-factor inputs by 2 In India, after Covid-19 period, household and private
Firm A sector consumption, as measured by Private Final
(iii) Sales by Firm A to other firms in 10 Consumption Expenditure (PFCE), was ` 39.7 trillion
the domestic economy in nominal terms in Q1 FY23, compared with ` 28.4
(iv) Import of raw materials by firm A 50 trillion for the same period last year, and ` 39.2 trillion
from rest of the world in the fourth quarter (Q4) of 2021-22 (FY22).
(v) Excess of opening stock over closing 3 As a percentage of Nominal GDP, PFCE was 61.1
stock per cent, compared with 55.5 per cent in Q1 FY22.
However, in real terms at constant prices, PFCE grew
Or
just 9.88 per cent, compared with Q1 of 2019-20-the
The value of the nominal GDP of an economy was
year before the Covid-19 pandemic.
`3,000 crores in a particular year. The value of GDP
“Recovery in domestic demand is reflected in the growth
of that country during the same year, evaluated at the
rates of PFCE and Gross Fixed Capital Formation
prices of same base year, was `3,500 crores. Factor
(GFCF) over the corresponding quarter of the previous
income earned by the factors of production of the
year,” said D.K. Srivastava. GFCF came in at ` 19
rest of the world employed in the domestic economy
trillion in Q1 FY23, compared with ` 14.4 trillion in
was `1,500 cores, whereas factor income earned by
Q1 FY22. However, it was slightly lower than `20.2
the domestic factors of production employed in the
trillion in Q4 FY22. In the media briefing after the
rest of the world was `1,000 crores.
GDP numbers, Finance Secretary T.V. Somanathan
Calculate the value of the GNP deflator. (3 marks)
said this trend was expected as GFCF in present Q1 was
Q.12 Giving valid reasons, state whether the following
usually lower than the previous year’s Q4.
statements are true or false: (3 marks)
(a) Compare and analyse the trends of change in
(i) Dividend received from investment abroad is
PFCE as a percentage of GDP, both in real and
recorded on the credit side of the capital account.
nominal terms.
(ii) Depreciation of the Indian Currency will lead to
(b) “Private Final Consumption Expenditure is an
promotion of Indian exports.
important factor determining Gross Domestic
Or
Product at Market Price.” Justify the given
Discuss the significance of Current Account Surplus
statement.
in an economy.
Q.13 As per the following news published in “The Hindu”
“After setting up a working group to study the possibility
on 6th August, 2022:
of a Central Bank Digital Currency (CBDC) in India in
“The Monetary Policy Committee (MPC) of the Reserve
2020, the RBI revealed a concept note on digital rupee
Bank of India raised the Repo Rate by 50 basis points.”
(e-Rupee) on 7th October, 2022.” “The e-Rupee will
Identify and explain the likely cause and consequences
provide an additional option to the currency available
behind this type of action taken by the Reserve Bank
forms of money. It is substantially not different from bank
of India. (4 marks)
notes, but being digital it is likely to be easier, faster and (c) Unrestricted flow of foreign capital
cheaper.” RBI said that it broadly defines CBDC as the (d) Land reforms
legal tender issued by a central bank in a digital form. It Q.21 Identify, which of the following are associated with
is akin to paper currency in a different form. the problem of human capital formation in India?
(a) Identify and discuss the function of central bank (i) Brain drain
indicated above text. (ii) Low academic standards
(b) State any two advantages of digital rupee. (iii) Rising population
Or (iv) Changes in social outlook
(a) “As per announcement made by the Governor of (a) (i) and (ii) (b) (ii) and (iii)
Reserve Bank of India (RBI) on May 4, 2022, it (c) (i), (ii) and (iii) (d) (i) and (iv) (1 mark)
has been decided to increase the Cash Reserve Ratio Q.22 Which of the following was NOT the benefit
(CRR) by 50 basis points from 4% to 4.5%.” accruing from ‘Golden Revolution’? (1 mark)
Analyse the impact of this step of RBI on total (a) Increase in the income of the farmers.
credit creation in the economy. (3 marks) (b) Increase in production of milk and related
(b) Justify the following statements with valid products.
arguments: (c) Increase in production and exports of fruits and
Money serves as the ‘medium of exchange’ for vegetables.
transactional purposes in an economy. (3 marks) (d) Employment for women in rural areas.
SECTION B – INDIAN ECONOMIC Q.23 ________ markets were organised to protect the
DEVELOPMENT farmers from malpractices in mandis. (1 mark)
(a) Regulated (b) Periodic
Q.18 From the set of the events given in Column-I and
(c) Daily (d) Weekly
the corresponding year in Column-II, choose the
Q.24 There are two statements given below, marked as
incorrect pair: (1 mark)
Assertion (A) and Reason (R). Read the statements
Column-I Column-II and choose the correct option. (1 mark)
A. Introduction of railways in India (i) 1850 Statement (1): The ratio of employed women in
B. Incorporation of TISCO (ii) 1807 urban areas is generally lower than that of employed
C. First Official Census of India (iii) 1881 women in rural areas.
D. Opening of Suez Canal (iv) 1869 Statement (2): There are a higher number of low-
income employment opportunities available in rural
(a) A - (i) (b) B - (ii)
areas than in urban areas.
(c) C - (iii) (d) D - (iv)
Q.19 Choose the correct alternative from those given (a) Statement 1 is true and Statement 2 is false.
below. (1 mark) (b) Statement 1 is false and Statement 2 is true.
Assertion (A): Post independence, public sector was (c) Both statements 1 and 2 are true
given a prominent role, due to requirement of huge (d) Both statements 1 and 2 are false
investments in the secondary sector. Q.25 Mini-hydel plants are good for the environment
Reason (R): Industrial sector is the backbone of any because: (1 mark)
economy. (i) they generate electricity only for local areas.
(a) Both Assertion (A) and Reason (R) are true and (ii) they do not change the land use pattern.
Reason (R) is the correct explanation of the (iii) they rely on the perennial streams.
Assertion (A). (a) (i), (ii) and (iii) (b) (ii) and (iii)
(b) Both Assertion (A) and Reason (R) are true, but (c) (i) only (d) (i) and (ii)
Reason (R) is not the correct explanation of the Q.26 In an economy, when rate of resource extraction is
Assertion (A). lower than the rate of regeneration of the resource, the
(c) Assertion (A) is true, but Reason (R) is false. environment may operate _____. (1 mark)
(d) Assertion (A) is false, but Reason (R) is true. (a) within its carrying capacity
Q.20 Which of the following is not the feature of economic (b) beyond its absorptive capacity.
policies pursued under economic planning of India (c) beyond its carrying capacity
till 1991? (1 mark) (d) beyond its aesthetic capacity.
(a) Import substitution Q.27 “Multiple reasons for economic slowdown and
(b) Self-reliance re-emergence of poverty in Pakistan may be
enumerated.” Identify which of the following might Q.32 Interpret the given picture, on account of current
not be one of them. (1 mark) environmental challenges: (4 marks)
(i) Rising dependence on foreign loans
(ii) Stable macroeconomic indicators
(iii) Unstable agricultural growth
Alternatives:
(a) (i), (ii) and (iii) (b) (ii) and (iii)
(c) (i) and (iii) (d) Only (ii)
Q.28 “During the colonial period the agricultural sector
showed massive stagnation.”
Do you agree with the given statement? Justify your
answer with valid arguments. (3 marks) Q.33 Give a quantitative appraisal of India’s demographic
Or profile during the colonial period on the basis of the
“Under the liberalisation measures taken by the picture given below and your general knowledge:
Government of India, financial sector reforms were
extremely crucial.” Reject or support the given
statement with valid arguments.
Q.29 What do you mean by ‘Liberty Indicators’? Explain
their usefulness.
(3 marks)
Q.30 Read the following data and answer the question that
follow: (4 marks)
Indicators of Human Development, 2017-2019
Item India China Pakistan A large section of India’s population did not have
• Gross National Income 6,681 16,057 5,005 basic needs such as housing
per capita (PPP US$) Or
• Percentage of People 21.9 1.7 24.3 Answer the following questions on the basis of the
living Below Poverty Line
given picture: (6 marks)
(National)
• Life Expectancy at Birth 69.7 76.9 67.3
(years)
• Infant Mortality Rate (per 29.9 7.4 57.2
1000 live births)
• Maternal Mortality Rate 133 29 140
(per 1 lakh births)
• Population using at least 60 75 60
basic Sanitation (%)
• Mean years of Schooling 6.5 8.1 5.2
(% aged 15 and above) Outsourcing: a new employment opportunity in big cities
• Population using at least 93 96 91
(i) As a form of economic activity, outsourcing has
basic drinking Water
Source (%)
intensified, in recent times. Justify the statement.
• Percentage of 37.9 8.1 37.6 (ii) What factors have made India a destination for
Undernourished/ global outsourcing in the post-reform period?
Malnourished Children Q.34 State whether the following statements are true/false
‘China is moving ahead of India and Pakistan. This with valid arguments: (6 marks)
is true for many indicators — Income indicators (a) Economic participation of women as
or Health indicators.’ Justify the statement. homemakers is not accounted for in the Gross
Q.31 “Economists believe that India should spend at least 6% Domestic Product.
of its GDP on Education for achieving desired results.” (b) Indian economy has shown excellent shift from
Justify the statement with valid reason. (4 marks) informal sector to formal sector in the recent past.
Or (c) Indian economy has showed satisfactory progress
“Human capital benefits only the owner and not the towards formalization of workforce in the recent
society”. Defend or refute the given statement. past.
Answers
1. (b) 2. (a) 3. (c) 4. (a) 5. (b) term in Q 1 FY 23 compared with 28.4 trillion for the
6. (b) 7. (b) 8. (b) 9. (b)10. (c) same period last year and 39.2 trillion in the fourth
11. Value added = Value of output – Intermediate consumption quarter of 2021-22. As a percentage of nominal GDP,
= (iii) – (v) – (ii + iv) = 10 – 3 –(2+50) = (–) `45 crores PFCE was 61.1 %, compared with 55.5% in Q 1 FY
Thus, the firm A does not contribute to the Gross Domestic 22. In real terms, PFCE grew just 9.88%, compared
Product of the economy as it does not earn any value added. with Q1 of 2019-20.
Or (b) Private final consumption expenditure (PFCE) refers
Nominal GDP = `3,000 crores; Real GDP = `3,500 crores to the expenditure incurred by the household sector on
NFIA= 1,000 – 1,500 = (–)`500 crores all types of consumer goods. It is a measure of total
Nominal GNP = Nominal GDP + NFIA = 3,000 + (–500) amount spent by consumers on the purchase of final
= `2,500 cr goods and services. Therefore, it is an important factor
Real GNP = Real GDP + NFIA =3,500 + (–500) determining Gross Domestic product at Market Price.
= `3,000 cr 17. (a) The function being discussed here is the Bank of issue
GNP deflator = Nominal GNP/ Real GNP × 100 or Currency Authority. (Explain)
= 2,500/3,000 ×100 = 83.33% (b) • Easier • Cheaper • Faster (any two)
12. (i) False. Dividend received from investment abroad is Or
recorded on the credit side of current account, as (a) The total amount of credit creation in an economy
neither assets nor liabilities of the country get affected. depends upon the amount of initial deposits and
(ii) True. Depreciation of the Indian currency will lead cash reserve ratio (CRR). An increase in the CRR
to promotion of Indian exports. As Indian exports by RBI may lead to lesser availability of deposits
become relatively cheaper for the rest of the world, with commercial banks. This may curtail the lending
thereby increasing the international competitiveness of capacity of commercial banks. Thus, adversely affecting
Indian exports. the total credit creation in the economy.
Or (b) The medium of exchange function of money is the
Higher employment opportunities since there is an primary role played by money. It acts as a universally
increased demand for domestic goods. acceptable medium for any transaction. Money serves
Increased domestic and foreign investments than other
as a medium for buying/selling goods and services. It
countries since the country is exporting more.
eliminates the limitation of lack of double coincidence
More competitive market, advanced technology, optimum
of want under the barter system by facilitating exchange
utilization of resources Appreciation on the value of the
in the market.
currency
18. (b) 19. (a) 20. (c) 21. (c) 22. (b)
13. Inflation in the economy may be the cause behind the rise
23. (a) 24. (c) 25. (a) 26. (a) 27. (d)
in repo rate by the Monetary Policy Committee (MPC)
28. During British rule, the agriculture sector showed massive
of Reserve Bank of India (RBI). This step may force
stagnation due to the following reasons:
commercial banks to increase the lending rates. It may
• The colonial government introduced the Land
discourage the borrowings by the general public. This may
Settlement system. The zamindars used to exploit
lead to fall in Aggregate Demand and thus may result in fall
in rate of inflation. cultivators by extracting a major portion of the
14. Given, Change in Investment (DI) = ` 1,000 crore produce in the form of rent leading to misery among
the farmers.
MPC Investment Multiplier Change in Income • Lack of irrigation facilities and low level of technology
K = 1/(1 – MPC) (DY) contributed to the dismal level of agricultural
DY = K × DI productivity, which added up to aggravate the plight of
0.80 1/(1 – 0.80) = 1/0.20 = 5 5 × 2,000 = 10,000 the farmers.
Or
0.90 1/(1 – 0.90) = 1/0.10 10 × 2,000 = 20,000 The given statement is supported. The financial sector
= 10
witnessed a major revamp under the economic reform
Hence, with the change in MPC from 0·80 to 0·90, process of 1991 such as redefining the role of RBI from
Increase in income = 20,000 – 10,000 = `10,000 crore regulator to facilitator of the financial sector. It implies
15. Krish is suggesting the objective of ‘Re-distribution of that the financial sector could now take decisions on many
income’ to reduce income inequalities in the economy. matters without consulting the RBI. The reform policies led
(Explain) to the establishment of private sector banks (Indian as well
16. (a) Household and private sector consumption, as foreign).
as measured by Private Final Consumption 29. Refer to page no. 42
Expenditure(PFCE) was at 39.7 trillion in nominal 30. Refer to page no. 42
31. The given statement is appropriate as it was recommended Or

by the Education Commission of 1964-66. The government (i) Outsourcing has intensified, in recent times, because
is spending 4%(app.) of GDP on education, which is of the growth of fast modes of communication,
quite inadequate. Education is an important component particularly the growth of Information Technology
of human capital formation as it helps in increasing the (IT). Many of the services such as voice-based business
availability of skilled and educated labour force in the processes (popularly known as BPO or call centres),
country which may result in greater production and record keeping, accountancy, banking services, music
economic growth. recording, film editing, etc. are being outsourced by
Or companies in developed countries to India.
The given statement may be refuted, as the human capital (ii) • Low wage rates
primarily benefits the owner but in general also yields its • Availability of skilled manpower (Explain)
advantages to the society as well. For example, a healthy 34. (a) True. Activities performed by women as homemakers
person, by maintaining personal hygiene and sanitation, are not recognized as productive work. They are not
prevents the spread of contagious diseases and epidemics. paid for it and hence not accounted for in the Gross
32. Hint: Deforestation (Explain) Domestic Product.
33. Extensive poverty prevailed in India during the colonial (b) False. In the recent years, India has witnessed an
period which contributed to the worsening profile of India’s unprecedented shift of the workforce from the formal
population of the time. sector to informal sector. This may be primarily due to
• The overall literacy level was less than 16%. decline in job opportunities in formal.
• Lack of adequate public health facilities, leading to (c) False. As in the recent years, India has witnessed an
water and air-borne diseases unprecedented shift of the workforce from the formal
• Infant mortality rate was quite alarming – about 218 per sector to informal sector. This may be primarily due to
thousand. decline in job opportunities in formal (both public and
• Life expectancy was also very low – only 32 years. private) sector.
(Explain)

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iv ECONOMICS XII Exam Handbook Shree Radhey Publications (Subhash Dey)

Assertion-Reasoning and Statements Based MCQs (Chapter-wise)

Competency Based Questions for CBSE 2025 Examination (Chapter-wise)

Unit 1 National Income and Related Aggregates43-54

Unit 2 Money and Banking55-65

Unit 3 Determination of Income and Employment66-76

Unit 4 Government Budget and the Economy77-89

Unit 5 Balance of Payments90-104

Unit 6 Development Experience (1947-1990) and Economic Reforms since 1991

Unit 7 Current Challenges facing the Indian Economy

Unit 8 Development Experiences of India: A Comparison with Neighbours

CBSE Sample Question Paper 2024-25 (with Answers) 171-184

30 Sample Papers for Practice (with Answers/Hints) 185-352

National Income and

1.1 Some Basic Concepts

Net Investment Domestic Income and National Income

Profit = Corporation tax + 2. Government final consumption expenditure (GFCE)

Limitations of GDP a perfect index of economic welfare

(c) Gross National Product (GNP) at Market price =

(c) Value of output 24. Which of the following is a flow concept?

(c) Interest paid by productions units to households (c) Change in stock

Sample Question Papers

CBSE Sample Question Paper 2024-25

SECTION A – MACRO ECONOMICS

(a) Product Taxes (b) Net Product Taxes

(a) (i) (b) (ii)

Q.10 Based on the given diagram: (1 mark)

SECTION B - INDIAN ECONOMIC DEVELOPMENT

(II) State any two examples of allied activities. (1 mark)

Ans.12 Tax revenue collection by the government may be categorized as:

SECTION B - INDIAN ECONOMIC DEVELOPMENT

Practice Question Paper-30

31. The given statement is appropriate as it was recommended Or

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Unit 1 National Income and Related Aggregates43-54

Unit 2 Money and Banking55-65

Unit 3 Determination of Income and Employment66-76

Unit 4 Government Budget and the Economy77-89

Unit 5 Balance of Payments90-104

CBSE Sample Question Paper 2024-25 (with Answers) 171-184

30 Sample Papers for Practice (with Answers/Hints) 185-352

Q.10 Based on the given diagram: (1 mark)

(II) State any two examples of allied activities. (1 mark)