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CBSE PRACTICE PAPER 2026–27 · ECONOMICS (SET – 4)
General Instructions
- This question paper contains 34 questions. All questions are compulsory. (Theory : 80 marks; Project : 20 marks is assessed separately.)
- The paper is divided into two sections : Section A – Introductory Macroeconomics (40 marks) and Section B – Indian Economic Development (40 marks).
- Q. 1–10 (Section A) and Q. 18–27 (Section B) are multiple choice questions of 1 mark each. Q. 9, 10 are Assertion–Reason questions.
- Q. 11, 12 (Section A) and Q. 28, 29 (Section B) are short answer questions of 3 marks each. Answer in about 60 words.
- Q. 13–15 (Section A) and Q. 30–32 (Section B) are short answer / case-based questions of 4 marks each. Answer in about 80 words.
- Q. 16, 17 (Section A) and Q. 33, 34 (Section B) are long answer questions of 6 marks each. Answer in about 120 words.
- Internal choice (OR) is provided in some questions. Use of a calculator is not permitted. Show the working in numerical questions.
- The paper follows the CBSE 2025–26 design : typology 40% remembering and understanding, 30% applying, 30% analysing, evaluating and creating. The answer key with the marking scheme is given at the end of this paper.
SECTION A — INTRODUCTORY MACROECONOMICS (40 Marks)
Q. 1 to Q. 8 : Multiple Choice Questions (choose the correct option)
1. The nominal GDP of an economy is ₹ 2,400 crore and the price index (base year = 100) is 120. The real GDP of the economy is
(a) ₹ 2,000 crore(b) ₹ 2,880 crore(c) ₹ 2,520 crore(d) ₹ 1,800 crore
2. The Reserve Bank of India was established in the year
(a) 1949(b) 1947(c) 1935(d) 1969
3. If the legal reserve ratio is LRR, the money multiplier (credit multiplier) is equal to
(a) LRR(b) 1 − LRR(c) LRR ÷ (1 − LRR)(d) 1 ÷ LRR
4. The consumption function of an economy is C = 200 + 0.5Y. The average propensity to consume at the income of ₹ 1,000 crore is
(a) 0.5(b) 0.7(c) 0.2(d) 1.2
5. If the marginal propensity to consume is 0.9, the value of the investment multiplier is
(a) 10(b) 9(c) 1.1(d) 0.1
6. Which of the following is a non-tax revenue receipt of the government?
(a) Corporation tax(b) Goods and Services Tax(c) Income tax(d) Fees and fines
7. Which of the following is an invisible item of the current account of the balance of payments?
(a) Export of machinery(b) Import of crude oil(c) Receipts from tourism(d) Export of tea
8. In an economy, investment is ₹ 100 crore and the saving function is S = −50 + 0.2Y. The equilibrium level of income is
(a) ₹ 500 crore(b) ₹ 750 crore(c) ₹ 250 crore(d) ₹ 1,000 crore
Q. 9 and Q. 10 : Assertion–Reason Questions
Options: (a) Both A and R are true and R is the correct explanation of A. (b) Both A and R are true but R is not the correct explanation of A. (c) A is true but R is false. (d) A is false but R is true.
9. Assertion (A): A high revenue deficit is a cause of concern for the government.
Reason (R): A revenue deficit means that the government is dissaving and is borrowing to meet its consumption expenditure.
Reason (R): A revenue deficit means that the government is dissaving and is borrowing to meet its consumption expenditure.
10. Assertion (A): The depreciation of the rupee makes the imports of the country costlier.
Reason (R): The depreciation of the domestic currency makes the exports of the country cheaper for the foreign buyers.
Reason (R): The depreciation of the domestic currency makes the exports of the country cheaper for the foreign buyers.
11. Explain the circular flow of income in a two-sector economy.(3)
12. Explain the concept of deficient demand. State any two of its effects on the economy.(3)
OR
Explain how a rise in the repo rate helps in controlling the excess demand in the economy.
13. Explain any four measures of money supply (M1, M2, M3 and M4).(4)
OR
Explain the transactions motive and the speculative motive of the demand for money.
14. Classify each of the following as a direct tax or an indirect tax, giving a reason : (i) Income tax paid by an employee; (ii) Goods and Services Tax on a refrigerator; (iii) Property tax on a house paid by its owner; (iv) Customs duty on imported gold.(4)
15. Read the data and answer the questions.
The following table gives the illustrative data of the balance of payments of a country (₹ crore) :
The following table gives the illustrative data of the balance of payments of a country (₹ crore) :
| Year | Balance on current account | Net capital account inflow | Change in foreign exchange reserves |
|---|---|---|---|
| Year 1 | (−) 40 | (+) 90 | (+) 50 |
| Year 2 | (−) 90 | (+) 60 | (−) 30 |
| Year 3 | (−) 30 | (+) 10 | (−) 20 |
(i) In which year did the country have a balance of payments surplus? State what happened to the foreign exchange reserves in that year. (1)
(ii) Calculate the balance of payments deficit in Year 2 and state how it was financed. (1)
(iii) Identify the autonomous and the accommodating items in Year 2. (1)
(iv) In which year was the economy most vulnerable to an external shock? Give one reason from the data. (1)
(4)16. The nominal GDP of an economy was ₹ 6,000 crore in Year 1 (price index = 100) and ₹ 8,400 crore in Year 2 (price index = 120). (i) Calculate the real GDP of Year 2. (ii) Calculate the growth rate of the nominal GDP and of the real GDP in Year 2. (iii) Explain why the two growth rates differ and which of the two shows the true growth in the output.(6)
OR
From the following data (₹ crore) calculate (i) gross domestic product at market price, (ii) net domestic product at factor cost and (iii) national income :
Consumption of fixed capital ₹ 600; net indirect taxes ₹ 500; net factor income from abroad ₹ (−) 100.
| Sector | Value of output | Intermediate consumption |
|---|---|---|
| Primary sector | 3,000 | 800 |
| Secondary sector | 4,000 | 1,500 |
| Tertiary sector | 5,000 | 1,200 |
17. In an economy, the autonomous investment rises by ₹ 200 crore and the marginal propensity to consume is 0.75. (i) Calculate the total increase in income. (ii) Calculate the increase in consumption and the increase in saving, and verify that the increase in saving equals the increase in investment. (iii) Show the first three rounds of the increase in income and explain why the process finally comes to an end.(6)
OR
In an economy, the consumption function is C = 150 + 0.6Y and investment is ₹ 250 crore. (i) Find the equilibrium level of income. (ii) At the income of ₹ 900 crore, find the planned aggregate demand and state whether the income will rise or fall. (iii) Find the saving at the equilibrium and verify that it equals the investment.
SECTION B — INDIAN ECONOMIC DEVELOPMENT (40 Marks)
Q. 18 to Q. 27 : Multiple Choice Questions (choose the correct option)
18. Which of the following was not a goal of the Five-Year Plans in India during 1950–1990?
(a) Self-reliance(b) Equity(c) Modernisation(d) Privatisation
19. The Second Five-Year Plan (1956–61), based on the Mahalanobis model, laid emphasis on the development of
(a) heavy industries(b) agriculture only(c) the services sector(d) consumer goods industries
20. The sex ratio of a village is 940 females per 1,000 males. If there are 1,880 females in the village, the number of males is
(a) 1,767(b) 1,800(c) 2,000(d) 2,128
21. Which of the following is a source of renewable energy?
(a) Coal(b) Solar energy(c) Petroleum(d) Natural gas
22. “Operation Flood” is associated with the development of
(a) milk production(b) fish production(c) wheat production(d) poultry
23. In a district, 800 infants died before completing one year of age out of 20,000 live births in a year. The infant mortality rate is
(a) 25 per thousand live births(b) 4 per thousand live births(c) 80 per thousand live births(d) 40 per thousand live births
24. The Right to Education Act provides free and compulsory education to the children of the age group of
(a) 3 to 18 years(b) 5 to 10 years(c) 6 to 14 years(d) 6 to 16 years
25. Educated unemployment is a serious problem in India mainly because
(a) the education system produces too few graduates(b) there is a mismatch between the skills of the educated youth and the jobs available(c) the educated persons do not want to work at all(d) the government has banned the recruitment of the educated
26. Statement I : Chemical-intensive farming raises the yield in the short run.
Statement II : It degrades the soil and water in the long run.
Which of the following is correct?
Statement II : It degrades the soil and water in the long run.
Which of the following is correct?
(a) Only Statement I is correct(b) Only Statement II is correct(c) Both statements are correct(d) Neither statement is correct
27. In which year was the People’s Republic of China established?
(a) 1949(b) 1947(c) 1950(d) 1978
28. Explain any three types of unemployment found in India, with an example of each.(3)
29. Explain the meaning of the Human Development Index and state its three dimensions with one indicator for each.(3)
OR
Explain any three reasons why a comparative study of the development experience of India, China and Pakistan is useful.
30. In the 1970s, a private entrepreneur wanted to set up a cement plant. He had to wait for years to get a licence, and the import of the machinery was restricted. Explain how the policy of industrial licensing and import restrictions affected industrial growth. State any two limitations of such a policy.(4)
31. Explain how (i) rainwater harvesting and (ii) the use of solar energy can promote sustainable development in a village.(4)
OR
Explain any two benefits of the self-help groups to the rural poor women and state any two limitations of the self-help groups.
32. Read the data and answer the questions.
The table gives illustrative demographic data of three countries :
The table gives illustrative demographic data of three countries :
| Indicator | Country X | Country Y | Country Z |
|---|---|---|---|
| Population growth rate (%) | 0.4 | 1.0 | 2.0 |
| Fertility rate (births per woman) | 1.7 | 2.2 | 3.5 |
| Sex ratio (females per 1,000 males) | 940 | 980 | 920 |
| Urban population (%) | 62 | 37 | 35 |
(i) Which country has the highest population growth rate? (1)
(ii) Which country is most likely to face the problem of an ageing population in the future? Give one reason from the data. (1)
(iii) A sample town in Country Z has 4,600 males. Calculate the number of females in the town. (1)
(iv) Suggest one measure to improve the sex ratio in Country Z. (1)
(4)33. Explain any three reforms in the financial sector and any three reforms in the tax system undertaken as a part of the economic reforms of 1991.(6)
OR
Explain any three roles and any three problems of the public sector in India during 1950–1990.
34. Examine any three ways in which human capital formation contributes to economic growth and discuss any three problems faced in human capital formation in India.(6)
OR
Examine any three reasons for the rapid growth of the services sector in India and discuss any three concerns about this growth.
ANSWER KEY & MARKING SCHEME · ECONOMICS PRACTICE PAPER (SET – 4)
Note for evaluators : Award marks for any other relevant and correct point or method. In numerical questions, give full credit for the correct answer with working; award part marks for correct steps even if the final answer is wrong.
SECTION A — Answer Key (Q. 1–10, 1 mark each)
| Q.1 | (a) | Q.2 | (c) | Q.3 | (d) | Q.4 | (b) | Q.5 | (a) |
| Q.6 | (d) | Q.7 | (c) | Q.8 | (b) | Q.9 | (a) | Q.10 | (b) |
Reasoning for Q.1–10. (1) Real GDP = Nominal GDP ÷ Price index × 100 = 2,400 ÷ 120 × 100 = ₹ 2,000 crore. (2) The RBI was established on 1 April 1935. (3) Money multiplier = 1 ÷ LRR. (4) C = 200 + 0.5 × 1,000 = 700; APC = 700 ÷ 1,000 = 0.7. (5) Multiplier = 1 ÷ (1 − 0.9) = 10. (6) Fees, fines and the like are non-tax revenue; the others are taxes. (7) Tourism is a service (invisible); machinery, crude oil and tea are goods (visible). (8) S = I ⇒ −50 + 0.2Y = 100 ⇒ Y = 750. (9) (a) : both true and R explains A. (10) (b) : both true, but R does not explain A.
SECTION A — Marking Scheme (Q. 11–17)
11.
| Value points | Marks |
|---|---|
| Real flow : the households supply the factors of production (land, labour, capital, entrepreneurship) to the firms, and the firms supply the goods and services to the households | 1 |
| Money flow : the firms pay the factor incomes (rent, wages, interest and profit) to the households, and the households spend their income on the goods and services of the firms (the firms’ revenue) | 1 |
| In a two-sector economy (no saving and no government) income = expenditure = value of output, so the flow is continuous | 1 |
12.
OR
| Value points | Marks |
|---|---|
| Deficient demand : a situation in which the aggregate demand is less than the aggregate supply at the full employment level | 1 |
| Effects (any two, ½ each + ½ explanation) : fall in the output; fall in the employment (unemployment); fall in the price level; unplanned accumulation of the stocks | 2 |
| Value points | Marks |
|---|---|
| A rise in the repo rate makes the borrowing from the RBI costlier for the commercial banks | 1 |
| Banks raise their lending rates, which reduces the credit, the consumption and the investment demand | 1 |
| Aggregate demand falls towards the aggregate supply and the excess demand (inflation) is controlled | 1 |
13.
OR
| Value points | Marks |
|---|---|
| Any four (1 mark each) : M1 = currency and coins with the public + demand deposits with the banks + other deposits with the RBI; M2 = M1 + savings deposits with the post office savings banks; M3 = M1 + net time deposits of the commercial banks; M4 = M3 + total deposits with the post office savings organisation (excluding the NSC) | 4 |
| Value points | Marks |
|---|---|
| Transactions motive : the demand for money to carry out the day-to-day transactions; it rises with the income | 2 |
| Speculative motive : the demand for money to take the advantage of the changes in the bond prices; it is inversely related to the rate of interest | 2 |
14.
Classification (½) + reason (½) for each.
| Value points | Marks |
|---|---|
| (i) Direct tax – the burden cannot be shifted; the person on whom it is levied pays it | 1 |
| (ii) Indirect tax – the burden is shifted to the consumer in the price | 1 |
| (iii) Direct tax – the owner who is taxed bears the burden | 1 |
| (iv) Indirect tax – paid by the importer, who passes it on to the buyers | 1 |
15.
(i) (1) Year 1 – the foreign exchange reserves increased by ₹ 50 crore. (ii) (1) The deficit of Year 2 = ₹ (−) 90 + 60 = ₹ 30 crore; it was financed by drawing down the foreign exchange reserves. (iii) (1) Autonomous items : the current account and the capital account transactions; accommodating item : the change in the foreign exchange reserves. (iv) (1) Year 2 – the current account deficit was the largest (₹ 90 crore), the capital inflows fell, and the reserves had to be drawn down by ₹ 30 crore.
| Year | Current account + Capital account | Overall BoP |
|---|---|---|
| Year 1 | (−) 40 + 90 | (+) 50 (surplus) |
| Year 2 | (−) 90 + 60 | (−) 30 (deficit) |
| Year 3 | (−) 30 + 10 | (−) 20 (deficit) |
16.
OR
(2 marks each)
| Value points | Marks |
|---|---|
| (i) Real GDP of Year 2 = 8,400 ÷ 120 × 100 = ₹ 7,000 crore | 2 |
| (ii) Growth of the nominal GDP = (8,400 − 6,000) ÷ 6,000 × 100 = 40%; growth of the real GDP = (7,000 − 6,000) ÷ 6,000 × 100 = 16.7% | 2 |
| (iii) The nominal GDP rose partly because of the 20% rise in the prices; the real GDP growth (16.7%) shows the true growth in the output because it removes the price effect | 2 |
| Sector | Value added (output − IC) | ₹ crore |
|---|---|---|
| Primary | 3,000 − 800 | 2,200 |
| Secondary | 4,000 − 1,500 | 2,500 |
| Tertiary | 5,000 − 1,200 | 3,800 |
| Step | Working | ₹ crore |
|---|---|---|
| (i) GDP at market price | 2,200 + 2,500 + 3,800 | 8,500 |
| NDP at market price | 8,500 − 600 | 7,900 |
| (ii) NDP at factor cost | 7,900 − 500 | 7,400 |
| (iii) National income | 7,400 + (−100) | 7,300 |
17.
OR
| Value points | Marks |
|---|---|
| (i) Multiplier = 1 ÷ (1 − 0.75) = 4; ΔY = 200 × 4 = ₹ 800 crore | 2 |
| (ii) ΔC = 0.75 × 800 = ₹ 600 crore; ΔS = 800 − 600 = ₹ 200 crore = ΔI (200) ⇒ verified | 2 |
| (iii) Round 1 : ₹ 200 crore; Round 2 : 0.75 × 200 = ₹ 150 crore; Round 3 : 0.75 × 150 = ₹ 112.5 crore, and so on | 1 |
| The process ends because in every round 25% (the MPS) of the additional income leaks into saving, so the further additions get smaller and smaller and finally become nil (total = 800) | 1 |
| Value points | Marks |
|---|---|
| (i) Y = 150 + 0.6Y + 250 ⇒ 0.4Y = 400 ⇒ Y = ₹ 1,000 crore | 2 |
| (ii) At Y = 900 : C = 150 + 0.6 × 900 = 690; AD = 690 + 250 = ₹ 940 crore > 900 ⇒ income will rise | 2 |
| (iii) At Y = 1,000 : C = 750; S = 1,000 − 750 = ₹ 250 crore = I (250) ⇒ verified | 2 |
SECTION B — Answer Key (Q. 18–27, 1 mark each)
| Q.18 | (d) | Q.19 | (a) | Q.20 | (c) | Q.21 | (b) | Q.22 | (a) |
| Q.23 | (d) | Q.24 | (c) | Q.25 | (b) | Q.26 | (c) | Q.27 | (a) |
Reasoning for Q.18–27. (18) The four goals were growth, modernisation, self-reliance and equity; privatisation was not a goal then. (19) The Mahalanobis model emphasised heavy industries. (20) Males = 1,880 × 1,000 ÷ 940 = 2,000. (21) Solar energy is renewable; coal, petroleum and natural gas are exhaustible. (22) Operation Flood was the white revolution in milk. (23) IMR = 800 ÷ 20,000 × 1,000 = 40. (24) The RTE Act covers children of 6–14 years. (25) The skills do not match the available jobs. (26) Both statements are true. (27) The People’s Republic of China was established in 1949.
SECTION B — Marking Scheme (Q. 28–34)
28.
| Value points | Marks |
|---|---|
| Any three types (1 mark each : type ½ + example ½) : Seasonal – a farm labourer without work between sowing and harvesting; Disguised – more workers on a farm than are needed; Educated – a graduate who cannot find a suitable job; Structural/Cyclical/Frictional – a worker changing jobs | 3 |
29.
OR
| Value points | Marks |
|---|---|
| HDI : a composite index that measures the achievement of a country in three basic dimensions of human development | 1 |
| Dimensions with indicators (any two correct pairs ½ + ½, 1 mark each) : a long and healthy life – life expectancy at birth; knowledge – mean/expected years of schooling; a decent standard of living – per capita gross national income | 2 |
| Value points | Marks |
|---|---|
| Any three reasons (1 mark each) : the three countries began their development at about the same time (1947–49); they followed similar strategies in the early years; the comparison shows the effect of the different policies; the countries can learn from each other’s successes and failures; they are neighbours with shared problems | 3 |
30.
| Value points | Marks |
|---|---|
| Industrial licensing meant that the government permission was needed to start, expand or diversify an industry; the entrepreneur’s plan was delayed for years, and the entry of new firms was restricted | 1½ |
| Import restrictions (quotas) limited the supply of the machinery and the raw materials, which delayed the project and raised its cost | 1½ |
| Limitations (any two, ½ each) : delay and corruption (licence–permit raj); lack of competition and poor quality; high costs; scarcity of the goods; low efficiency and slow growth | 1 |
31.
OR
| Value points | Marks |
|---|---|
| (i) Rainwater harvesting – collects and stores the rainwater, recharges the groundwater, assures drinking water and irrigation, and reduces the pressure on the scarce water resources | 2 |
| (ii) Solar energy – a clean and renewable source; reduces the use of the fossil fuels, saves the cost of electricity/fuel (e.g. for pumping), and reduces pollution | 2 |
| Value points | Marks |
|---|---|
| Benefits (any two, 1 mark each) : easy and cheap credit without collateral; reduces the dependence on the moneylenders; women’s empowerment and savings habit; the group support | 2 |
| Limitations (any two, 1 mark each) : small loans, which are not enough for the large needs; the loans are mainly for consumption; lack of the skills and the marketing; limited coverage | 2 |
32.
| Value points | Marks |
|---|---|
| (i) Country Z (2.0%) | 1 |
| (ii) Country X – its fertility rate (1.7) is below the replacement level (about 2.1) and its population growth is only 0.4%, so the share of the old will rise | 1 |
| (iii) Females = 920 ÷ 1,000 × 4,600 = 4,232 | 1 |
| (iv) Any one : strict enforcement against sex-selective abortion; awareness and incentives for the girl child; the girls’ education | 1 |
33.
OR
| Value points | Marks |
|---|---|
| Financial sector reforms (any three, 1 mark each) : the RBI’s role changed from the regulator to the facilitator; the banks were given freedom to set up the branches and decide their lending policies; the private and foreign banks were allowed; the limit of the foreign investment in banks was raised; the foreign institutional investors were allowed in the capital market; the CRR and SLR were reduced | 3 |
| Tax reforms (any three, 1 mark each) : reduction of the marginal rates of income tax; reduction of the corporate tax rate; simplification of the indirect taxes (leading to GST); reduction in the customs duties; simple procedures and better compliance | 3 |
| Value points | Marks |
|---|---|
| Roles (any three, 1 mark each) : building the infrastructure and the heavy industries; the balanced regional development; creating employment; the basic goods at low prices; self-reliance | 3 |
| Problems (any three, 1 mark each) : the inefficiency and the losses; the political interference; the lack of the accountability; the low return on the investment; the poor quality of goods | 3 |
34.
OR
| Value points | Marks |
|---|---|
| Any three ways (1 mark each) : the higher productivity of the educated and healthy workers; the innovation and the adoption of the new technology; higher incomes and savings; the participation of women; the reduction of poverty and the inequality | 3 |
| Any three problems (1 mark each) : the low public spending on the education and health; the brain drain; the poor quality and the dropouts; the mismatch of the skills and the jobs; the regional and gender gaps | 3 |
| Value points | Marks |
|---|---|
| Any three reasons (1 mark each) : the growth of the demand with rising incomes; the IT and BPO boom after the reforms; the liberalisation and the foreign investment; the rise of the new services such as telecom and banking; the government policy | 3 |
| Any three concerns (1 mark each) : the jobless growth (it does not create enough jobs); the inequality in the incomes; the weak linkage with agriculture and industry; the dependence on the global demand; the concentration in a few cities | 3 |
DESIGN OF THE PAPER — Unit-wise Weightage and Typology (as per CBSE 2025–26)
| Part / Unit | Marks (CBSE) | Marks in this paper | Questions |
|---|---|---|---|
| Part A – National Income and Related Aggregates | 10 | 10 | Q.1, 11, 16 |
| Money and Banking | 6 | 6 | Q.2, 3, 13 |
| Determination of Income and Employment | 12 | 12 | Q.4, 5, 8, 12, 17 |
| Government Budget and the Economy | 6 | 6 | Q.6, 9, 14 |
| Balance of Payments | 6 | 6 | Q.7, 10, 15 |
| Total – Part A | 40 | 40 | |
| Part B – Development Experience (1947–90) and Economic Reforms since 1991 | 12 | 12 | Q.18, 19, 30, 33 |
| Current Challenges facing Indian Economy | 20 | 20 | Q.20–26, 28, 31, 34 |
| Development Experience of India – A Comparison with Neighbours | 8 | 8 | Q.27, 29, 32 |
| Total – Part B | 40 | 40 | |
| Grand total | 80 | 80 |
| Typology of questions | Marks (CBSE) | Marks in this paper | Questions |
|---|---|---|---|
| Remembering and Understanding | 32 (40%) | 32 | Q.2, 3, 6, 7, 11, 12, 13, 18, 19, 21, 22, 24, 27, 28, 29, 33 |
| Applying | 24 (30%) | 24 | Q.1, 4, 5, 8, 14, 16, 20, 23, 30, 31 |
| Analysing, Evaluating and Creating | 24 (30%) | 24 | Q.9, 10, 15, 17, 25, 26, 32, 34 |
| Total | 80 (100%) | 80 |
