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CBSE Class 12 Economics Previous Year Question Paper

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CBSE Previous Years’ Question Paper for the subject of Economics is an essential learning source for the preparation of Class 12 Board Examinations. Students can refer to the pattern of below question paper, for understanding the question paper pattern. The previous years’ question papers can be collected and practiced by the students during the revision. Certain key concepts related to the question paper patterns and marking schemes are cleared by the question paper.

With the help of CBSE Previous Years’ Question Paper for Economics, students will understand if they are prepared for the examination completely or not and will be able to examine their knowledge about the subject and gain more confidence in answering the question paper. If any mistake is made while formulating the answers, they can concentrate more on such types of questions; so that mistakes can be reduced in the final examinations.

CBSE Class 12 Economics Previous Year Question Paper With Solutions

Time Allowed: 2 Hours                                                                    Maximum Marks: 40 Marks


Question 1(A) Using a suitable example, distinguish between positive externalities & negative externalities. (2 marks)


  1. Positive externalities refer to the benefits which are caused by one entity to another, without the provision of being paid.
  2. Negative externalities refer to the harm which is caused by one entity to the other, without the provision of being penalized for it.
  3. For Example, A new nursing home created by the municipal corporation raises the welfare of the locality and is an example of positive externalities. Whereas, if the nursing home is used for illegal activities and corruption, leading to insecurity among the people involved, it is an example of negative externalities.


(B) Using a suitable example, distinguish between stock variables & flow variables. (2 marks)


  • Stock variables refer to those variables whose quantity is measured at a particular point in time.
  • Flow variables refer to those variables whose quantity is measured over a period of time.
  • For example, Bank deposit is an example of a stock variable and National Income is an example of a flow variable.

Question 2: Justify the following statement with a valid argument:

‘At higher levels of income people generally have lower Marginal Propensity to Consume (MPC).'(2 marks)


Marginal propensity to consume is a figure that represents the percentage of an increase in income that an individual spends on goods and services. When the income is lower, a consumer would generally spend a larger proportion of his/her income on consumption expenditure. As income increases, the psychological tendencies of a rational consumer tend to save more. Hence, at a higher level of income people generally have a lower Marginal Propensity to Consume.

Question 3(A): State any 2 harmful effects of global warming. (2 marks)


The harmful effects of global warming are as follows:

  • With global warming, there are more instances of melting of polar ice, which results in the rise of sea levels and coastal flooding.
  • With increase instances of global warming leads to an increase in incidences of tropical diseases.
  • Global warming would also have a negative impact on agricultural productivity.


(B) State any two advantages of ‘Sustainable Development.'(2 marks)


Advantages of Sustainable Development:

  • Minimizes the expenditure of natural resources while creating new developments.
  • Creates an environment that can be maintained & sustained without destroying the environment.
  • Provides a method for rebuilding existing developments to make them eco-friendly facilities & projects.

Question 4(A): Calculate the equilibrium level of income for  a hypothetical economy, for which it is given that:

(i) Autonomous Investments (Io)  = ₹ 2500 crores and

(ii) Consumption Function; C= 1000+ 0.8 Y

where C= Consumption & Y= Income


Given, C = 1,000+0.8Y

I = ₹ 2,500 crores

At the equilibrium level, Y= C+I


Y = 1000 + 0.8Y +  2500

Y – 0.8Y = 1000 + 2500

0.2Y = 3500

Y = 3500 / 0.2

Y = 17500

Equilibrium level of Income (Y)= ₹ 17,500 crore


(B) Calculate, the change in income (ΔY) for a hypothetical economy, for which it is given that:

(i) Marginal Propensity to Consume (MPC) = 0.75 and

(ii) Change in Investments (ΔI)= ₹ 20, 000 crores.



(ΔI)= ₹ 20, 000 crores.

MPC  = 0.75

We know that,

Multiplier (K) = 1 / (1 – MPC)

K = 1 / (1 – 0.75)

K = 1 / 0.25

K = 4

We know,

K = ΔY/Δl

4 = ΔY / 20000

ΔY = 4 × 20000

ΔY = 80000

Change in Income (ΔY ) = 80,000 crore

Question 5: ‘In any country, as the income rises the composition of infrastructure requirements changes  significantly.’ 

 Do you agree with the given statement? Support your example with a suitable argument. (2 marks)  


Yes, I agree with the statement that as income rises, the composition of infrastructure requirements changes significantly.

  1. In the case of low-income countries, the most basic infrastructure like irrigation, transport, and power are kept as the priority.
  2. As the economy of a country develops, most of the demands for basic needs are met, the share of agriculture in the economy reduces and more service-related infrastructure is required.
  3. A few examples are Transportation, Telecommunication, and IT-related infrastructure are needed more in high-income countries.

Question 6(A): Estimate the value of Gross Domestic Product (GDP) for a hypothetical economy. The values of Real GDP & Price Index are given as ₹ 500 crores & 125 respectively. (3 marks)



Real GDP= Rs 500 crore

Price Index= 125

Price Index= Nominal GDP/ Real GDP*100


125= Nominal GDP/500* 100

Nominal GDP= 125*500/100

Nominal GDP= Rs 625 crore


(B) Giving valid reasons explain, which of the following will not be included in the estimation of the National Income of India. (3 marks)

     (i) Purchase of shares of Sethi Ltd. by an investor in the Bombay Stock Exchange.

     (ii) Salaries paid by Indian Embassy situated in Japan, to the local workers.

     (iii) Depreciation on capital assets charged by firms.


(i) Purchase of shares of Sethi Ltd. by an investor in the Bombay Stock Exchange is a form of transaction, a paper claim, and does not lead to any value addition and thus is not included in National Income.

(ii) Salaries paid by Indian Embassy situated in Japan, to the local workers is an income paid to the non-residents and thus will not be included in National Income.

(iii) Depreciation on the capital assets charged by firms is not included as it is an accounting entry that is needed to accommodate the capital.

Question 7: Compare & analyze the health status of India & Sri Lanka, on the basis of any two indicators from the given schedule:(3 marks)

Indicators of  Health in India in Comparison with other Nations 2015-17.

S.No.IndicatorsIndiaChinaUSASri Lanka
(i)Infant Mortality Rate/ 1000 live births3485.77.5
(ii)Under-5, Mortality Rate/1000 live births39.
(iii)Infants Immunised ( DTP) in %88999599
(iv)Government Health spending as a % of GDP3.95.716.83


Analysis and comparison between India and Sri Lanka on the basis of health indicators:

  1. India has a higher Infant Mortality Rate ( 34/1000 live births) as compared to Sri Lanka (7.5/1000 live births) due to the lack of proper medical and health facilities in the context of India.
  2. Infant immunization ( DTP) in % is higher in Sri Lanka (99%) as compared to India (88%) because comparatively less portion of the Indian population utilizes public health services.

Question 8: Using a hypothetical example, elaborate on the working of investment multiplier in an economy. (3 marks)


Investment multiplier refers to an increase in the aggregate income of the economy, due to the investments done by the government in the form of new projects. It is mostly measured as a ratio between the change in income and the change in investment. Let’s take an example, of investment being increased by 2,000 crore rupees.

ParticularsIncrease in Income( Rs. Crores)Change in Consumption ( Rs. Crores)Change in Saving ( Rs. Crores)
First Round1000800200
Second Round800640160
Third Round640512128
All Other Rounds25602048512

In the process of investment multiplier, an increase in income in the first round is always equivalent to additional investment. So, an increase in income in the first round= Rs 2000= Rs 2000 crores.

The savings of Rs 1000 crores indicate that the increase in consumption will be Rs 800 crores in the first round.

Additional consumption of Rs 1800 crores out of an additional income of Rs 1000 indicates that 80% of the income is spent, which is MPC= 0.8. The values of the second and third rounds are calculated on this basis.

The Total Increase in Income= Additional Investment *k*k. So,

Multiplier (k) = 11- MPC

                 (k)   = 11-0.8

                  5(k)= 11-MPC

                  MPC= 5

So, the total increase in Income= Rs.1,000* 5 crores

                                                    = Rs. 5000 crores

Total Increase in Consumption= Total increase in Income* MPC

                                                  = Rs. 5,000*0.8 crores

                                                  =  Rs. 4000 crores

Total Increase in Savings= Total Increase in Income- Total Increase in Consumption

                                        = Rs. 5000- 4000 crores

                                        = Rs. 1000 crores.

Question 9(A)(i): From the following data, calculate the Gross National Product at Factor Cost :(2 marks)

S.NoItemsAmounts in Crores
(i)Compensation of Employees12000
(ii)Rent and Interest1800
(iii)Indirect Taxes1120
(vii)Net Factor Income from Abroad(-)120
(viii)Mixed-Income of Self Employed1,300

Gross National Product= (i)+(ii)+(iv)+(v)+(vii)+(viii)

                                      = Rs. 12,000+1,800+1,500+1,100+ (-) 120+1,300

                                      = Rs. 17,580 crores

(ii) Distinguish between Rent & Royalty.(2 marks)


  1. Rent refers to the factor income earned by the owners for lending their services such as land, building, etc.
  2. Royalty refers to the income earned by a person or an institution for lending Intellectual Property Rights and rights for sub soil assets as well.


(B) (i) Calculate the value of ‘Net Value Added at Factor Cost’ using the given data:(3 marks)

S.No.ItemsAmount in (Rs ‘000)
(i)Sale of Rice in the Market580
(ii)Purchase of Tractor and Thrasher400
(iii)Procurement of Rice by the government20
(iv)Self-consumption of Rice during the year15
(v)Expenditure on running and maintenance of Tractor and Thrasher20
(vi)Fertilizers subsidies3


Net Value Added at Factor Cost = (i)+(iii)-(v)+(vi)

                                                    = 580+20+15-20+3

                                                    = Rs. 598 thousand.

(ii) Distinguish between ‘value of output’ & ‘value addition.'(2 marks)


Value of Output: The goods & services produced by an enterprise during an accounting year constitute its output. It is the market value of all the goods and services produced by an enterprise during an accounting year.

Value Addition refers to the addition of value to the raw material (intermediate goods) by a firm by virtue of its productive activities. It is the difference between the value of output and the value of intermediate inputs.

Question 10: ‘India has been dealing with the problem of Deficient Demand’ since the imposition of the Covid lockdown in March 2020. State & discuss any two monetary policy measures to combat the situation of Deficient Demand in India. (5 marks)


A situation when Aggregate Demand falls short of Aggregate Supply at the full employment level of equilibrium is called deficient demand.

Two Monetary measures undertaken to solve the problem of deficient demand in India are as follows:

  1. When there is a situation of deficient demand, the bank rates may be reduced by the Central Bank, which would further decrease the lending rate for commercial banks. This pushes the public to borrow more funds and would lead to an increase in Aggregate Demand.
  2. In the situation of Deficient Demand, the Central Bank purchases securities from the open market. This will lead to an increase in the money supply for the public and enhance the purchasing power and in the end, increase the levels of Aggregate Demand in the economy.

Question 11 (i) ‘In the recent past the Government of India has taken vital steps to revise & popularise the Indian System of Medicine (ISM).’ Do you agree with the given statement? Justify your answer with valid reasons. (2 marks)   


The given statement holds true. Indian System of Medicine has huge potential and can help to solve a large number of health care problems because they are less expensive, safe, and effective methods.

The traditional Indian system of medicine comprises Ayurveda, Yoga, Naturopathy, Unani, Siddha, & Homeopathy (AYUSH), which is a perennially neglected alternative medicine sector. 

  • Loans and subsidies for the establishment of private AYUSH hospitals and clinics. Precautionary medication by government was stressed on.
  • Building institutes of excellence in teaching and research in AYUSH would help in furthering the credibility and awareness of traditional medicine. 

(ii) ‘Casualization of workforce has become a perennial problem of the Indian Economy.’ Justify the given statement with valuable arguments. (3 marks)


The casualization of the workforce has become one of the perennial problems for the Indian Economy because of the following reasons:

  1. This has led to a slower growth rate of employment in the organized sector.
  2. There is an increasing demand for casual laborers due to the rapid expansion of construction and allied activities.
  3. Due to lower earnings in agricultural activities, self-employed small and marginal farmers are becoming more and more casual workers.

Case Study

Read the following test carefully & answer Questions No. 12 & 13, given below:

Chinese Economy Risks Deeper Slowdown than Markets Realise-( Bloomberg, 24th October 2021)            

China’s Economy risks slowdowns faster than global investors realize. It is pushing to cut its dependence on real estate. It has started regulating sectors from education to technology, as it is facing power shortages & the pandemic.

Many economists have warned that the GDP growth rate will fall to 8.2% this year & to below 5% in the next year.

China is now planning to stabilize debt growth, curb inequality & channel resources into hi-tech manufacturing. Data released last week already showed a sharp slowdown in third-quarter GDP growth to 4.9% from 7.9% in the previous quarter. There is more pain likely to come as the electricity shortage persists, while new COVID-19 infections are expected to rise in the coming days.  

Even before the pandemic hit, China was surprising economists with a slower-than-expected growth rate caused by the easing off debt risks. China’s Premier Li Keqiang announced in March a growth target of ” above 6% in the coming financial year.”

China has signaled, in recent weeks that it could loosen some policies like telling banks to pick up the pace of mortgage lending as a short-term stimulus. Governor of the People’s Bank of China Yi Gang, recently said he sees an expansion of about 8% for this year.   

China’s slowdown comes as the global recovery from COVID-19 risks loses momentum. Among those at risk from falling investments in China are commodity exporters like Australia, South Africa, Chile, Peru & Brazil. Slower trades could also hit countries like Malaysia, Singapore & Thailand.

The other risk is that China’s policymakers may struggle to flick the switch back to the growth model if they feel that’s needed. Economists noted that the electricity shortages that are crimping industrial production will make it harder to cushion growth by boosting investment in infrastructure. That kind of policy could only work next year once the power crunch eases.

Question 12: State & discuss any two reasons that exhibit a slowdown in the Chinese economy. (3 marks)


Some important reasons for slowdown in the Chinese economy are as followers:

  • Base Effect: China was in a better position about reviving economic growth post Covid-19 pandemic. This resulted in a situation where, the reference point was the higher levels of growth rate in the quater passed, resulting in a lower growth rate.China is going through a ‘mature’ stage of economic development i.e. an economy that has witnessed double-digit growth for two decades is bound to face a slowdown.
  • Fuel/Power Crisis: A surge in coal prices & a resultant electricity shortage prompted provincial governments to cut power supplies. This fuel/power crisis in China continues to affect factories & units across the country’s industrial heartland in its southeast that have had to curtail output.

Question 13: Discuss briefly any two measures, which you may suggest as an economic advisor to the government of China. (3 marks)


The measures which can be suggested as an economic advisor to the government of China are listed below:

  1. Suggesting for pace up of mortgage lending as a short-term stimulus for the banks.
  2. Reduction in the dependence on real estate and regulate sectors from education to technology in a more planned manner.

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Last Updated : 01 May, 2023
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