Class 12 Economics Practice Paper Set 5 with Solutions

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Class 12 Economics · Practice Paper SET-5 with Solutions

CBSE PRACTICE PAPER 2026–27 · ECONOMICS (SET – 5)

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CLASS : XIISUBJECT : ECONOMICS (030)ROLL NO. : ..................

Time : 3 Hrs.Session : 2026–27M.M. : 80

General Instructions

1. This question paper contains 34 questions. All questions are compulsory. (Theory : 80 marks; Project : 20 marks is assessed separately.)
2. The paper is divided into two sections : Section A – Introductory Macroeconomics (40 marks) and Section B – Indian Economic Development (40 marks).
3. 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.
4. Q. 11, 12 (Section A) and Q. 28, 29 (Section B) are short answer questions of 3 marks each. Answer in about 60 words.
5. 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.
6. Q. 16, 17 (Section A) and Q. 33, 34 (Section B) are long answer questions of 6 marks each. Answer in about 120 words.
7. Internal choice (OR) is provided in some questions. Use of a calculator is not permitted. Show the working in numerical questions.
8. 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. Which of the following will be included in the domestic product of India?

(a) Salary earned by an Indian engineer working in Germany(b) Value of the goods produced in India by a Japanese company(c) Value of a second-hand car sold in India(d) Pension received by retired government employees

2. The rate at which the Reserve Bank of India provides long-term loans to the commercial banks is called the

(a) reverse repo rate(b) prime lending rate(c) statutory liquidity ratio(d) bank rate

3. A fall in the cash reserve ratio will

(a) increase the credit creation capacity of the commercial banks(b) reduce the credit creation capacity of the commercial banks(c) have no effect on the credit(d) raise the repo rate

4. The marginal propensity to consume is 0.5. When the income rises from ₹ 400 crore to ₹ 600 crore, the increase in saving is

(a) ₹ 200 crore(b) ₹ 300 crore(c) ₹ 100 crore(d) ₹ 50 crore

5. In an economy, autonomous consumption is ₹ 100 crore and the marginal propensity to consume is 0.8. The saving at the income of ₹ 1,000 crore is

(a) ₹ 200 crore(b) ₹ 100 crore(c) ₹ 800 crore(d) ₹ 900 crore

6. A government budget in which the estimated expenditure is equal to the estimated receipts is called a

(a) surplus budget(b) deficit budget(c) zero-based budget(d) balanced budget

7. A system in which the exchange rate is determined by the market forces, but the central bank intervenes occasionally, is called

(a) managed floating exchange rate(b) fixed exchange rate(c) pegged exchange rate(d) purchasing power parity

8. The marginal propensity to consume is 0.75. The full employment level of income is ₹ 2,000 crore and the equilibrium level of income is ₹ 1,600 crore. The deficiency of aggregate demand is

(a) ₹ 400 crore(b) ₹ 300 crore(c) ₹ 100 crore(d) ₹ 25 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): Taxes are compulsory payments made by the citizens to the government.
Reason (R): Taxes are paid in return for a specific service provided by the government to the taxpayer.

10. Assertion (A): A rise in the exchange rate from ₹ 75 to ₹ 80 per US dollar means an appreciation of the rupee.
Reason (R): A rise in the exchange rate means that more rupees are required to buy one US dollar.

11. Distinguish between gross domestic product and gross national product. State the relationship between them.(3)

12. Explain the meaning of aggregate demand and state its components in a closed economy.(3)

OR

Distinguish between a full employment equilibrium and an under-employment equilibrium.

13. Explain any four quantitative instruments that the Reserve Bank of India uses to control the credit.(4)

OR

Distinguish between a central bank and a commercial bank on any four points.

14. In a government budget, the fiscal deficit is ₹ 90,000 crore, the revenue deficit is ₹ 45,000 crore, the interest payments are ₹ 25,000 crore and the GDP is ₹ 9,00,000 crore. Calculate (i) the fiscal deficit as a percentage of the GDP, (ii) the primary deficit, and (iii) the percentage of the borrowings used to meet the revenue expenditure. (iv) State why the result in (iii) is a cause of concern.(4)

15. Read the data and answer the questions.
The following table gives the illustrative demand for and supply of US dollars in the foreign exchange market of a country :

Exchange rate (₹ per $)	Demand for $ (million)	Supply of $ (million)
70	120	40
72	100	60
74	80	80
76	60	100
78	40	120

(i) Find the equilibrium exchange rate under a flexible exchange rate system. (1)

(ii) At the exchange rate of ₹ 72 per dollar, is there an excess demand or an excess supply of dollars? State the pressure on the exchange rate. (1)

(iii) The central bank wants to hold the rate at ₹ 72. How many dollars must it buy or sell? (1)

(iv) Name the exchange rate system followed in (iii) and state one limitation of it. (1)

(4)

16. From the following data (₹ crore), (i) identify the items that should not be included in the national income and give a reason for each, (ii) calculate the gross domestic product at market price, and (iii) calculate the national income :

Item	₹ crore
Compensation of employees	1,800
Operating surplus	1,200
Mixed income of self-employed	700
Net indirect taxes	300
Consumption of fixed capital	250
Net factor income from abroad	(−) 60
Old-age pension paid by the government	90
Sale of a second-hand car	40
Purchase of shares of a company	150

(6)

OR

The net national product at market price of an economy is ₹ 7,000 crore, net indirect taxes are ₹ 600 crore, consumption of fixed capital is ₹ 400 crore and net factor income from abroad is ₹ 50 crore. Calculate (i) national income, (ii) gross domestic product at market price and (iii) gross national product at market price.

17. The following table gives the consumption schedule of an economy (₹ crore). Investment is autonomous at ₹ 50 crore.

Income (Y)	0	100	200	300	400	500
Consumption (C)	30	90	150	210	270	330

(i) Find the equilibrium level of income. (ii) Verify it by the saving–investment approach and find the marginal propensity to consume. (iii) If the investment rises by ₹ 20 crore, find the new equilibrium income with the help of the multiplier.(6)

OR

Explain the inflationary gap and the deflationary gap with a numerical example for each, and suggest one measure to correct each of them.

SECTION B — INDIAN ECONOMIC DEVELOPMENT (40 Marks)

Q. 18 to Q. 27 : Multiple Choice Questions (choose the correct option)

18. The “Hindu rate of growth” refers to the average annual growth rate of the Indian economy of about

(a) 6% per annum(b) 8% per annum(c) 3.5% per annum(d) 1% per annum

19. Which of the following was a trade policy reform undertaken after 1991?

(a) Removal of the quantitative restrictions on imports(b) Increase in the import tariffs(c) Ban on the import of capital goods(d) Restrictions on foreign investment

20. Out of 50 crore workers in a country, 24 crore are employed in agriculture and 11 crore in industry. The share of the services sector in the total employment is

(a) 70%(b) 48%(c) 22%(d) 30%

21. Global warming is caused mainly by the increase in the concentration of

(a) oxygen(b) greenhouse gases such as carbon dioxide(c) nitrogen(d) argon

22. The Human Development Report is published by the

(a) IMF(b) World Bank(c) WTO(d) UNDP

23. A village has a population of 5,000, of whom 1,000 are children below 7 years of age. If 2,800 persons are literate, the literacy rate of the village is

(a) 70%(b) 56%(c) 40%(d) 80%

24. The Pradhan Mantri Jan Dhan Yojana aims at

(a) waiver of farm loans(b) guarantee of employment(c) financial inclusion(d) construction of rural houses

25. In a village, the introduction of tube-wells and high-yielding variety seeds raised the yield, but the poor farmers could not afford them. This suggests that

(a) the technology failed on all farms(b) the benefits of the new technology were mainly enjoyed by the larger farmers, which widened the inequality(c) the poor farmers refused to use the technology voluntarily(d) the inequality in the village fell

26. Which of the following changes shows that the growth of a country has become more inclusive?

(a) The share of the poorest groups in income and employment rose along with the GDP(b) The GDP rose but the poverty remained the same(c) The employment fell while the GDP rose(d) The income inequality widened

27. In which year did China start its economic reforms?

(a) 1949(b) 1988(c) 1991(d) 1978

28. Explain any three functions of the environment.(3)

29. Explain any three features of the reforms undertaken in the rural areas of China after 1978.(3)

OR

Explain the “dual pricing” system followed in the reforms of China.

30. The government sold 30% of its shares in a profit-making public sector company to private investors. Name the policy involved, explain any two of its objectives and state one criticism of it.(4)

31. Explain how the regulated markets and the electronic national agriculture market (e-NAM) can help a small farmer to get a better price for his produce. State any two limitations of such reforms.(4)

OR

Explain how the Public Distribution System helps the poor and state any two problems in its working.

32. Read the data and answer the questions.
The table gives illustrative data on the human development indicators of three countries :

Indicator	Country A	Country B	Country C
Life expectancy at birth (years)	77	67	71
Mean years of schooling	8.0	7.0	5.0
Per capita gross national income ($)	17,000	6,500	5,700

(i) Which country has the highest per capita income? (1)

(ii) By how many years does the mean schooling in Country A exceed that in Country C? (1)

(iii) Country C has a lower income than Country B but a better life expectancy. What does this show? (1)

(iv) Suggest one policy priority for Country B. (1)

(4)

33. Explain any six features of the industrial policy of 1991.(6)

OR

Explain any three trade policy reforms and any three foreign investment policy reforms undertaken in India after 1991.

34. Examine any three causes of environmental degradation in India and suggest any three measures to control it.(6)

OR

Evaluate the role of infrastructure in the development of a country with any three benefits and any three problems of the Indian infrastructure.

ANSWER KEY & MARKING SCHEME · ECONOMICS PRACTICE PAPER (SET – 5)

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CLASS : XIISUBJECT : ECONOMICS (030)ROLL NO. : ..................

Time : 3 Hrs.Class XII · Session : 2026–27M.M. : 80

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	(b)	Q.2	(d)	Q.3	(a)	Q.4	(c)	Q.5	(b)
Q.6	(d)	Q.7	(a)	Q.8	(c)	Q.9	(c)	Q.10	(d)

Reasoning for Q.1–10. (1) The domestic product includes all the production within the domestic territory, whoever produces it; the foreign salary is factor income from abroad, a second-hand sale is not current production and a pension is a transfer payment. (2) The bank rate is the rate for the long-term loans of the RBI to the banks. (3) A fall in the CRR leaves the banks with more lendable funds. (4) ΔC = 0.5 × 200 = 100; ΔS = 200 − 100 = ₹ 100 crore. (5) C = 100 + 0.8 × 1,000 = 900; S = 1,000 − 900 = ₹ 100 crore. (6) Balanced budget. (7) Managed floating exchange rate. (8) Gap in income = 2,000 − 1,600 = 400; multiplier = 4; deficiency of AD = 400 ÷ 4 = ₹ 100 crore. (9) (c) : A is true; R is false – taxes are paid without a direct return of a specific service. (10) (d) : A is false – a rise in ₹ per $ means the depreciation of the rupee; R is true.

SECTION A — Marking Scheme (Q. 11–17)

11.

Value points	Marks
GDP : the market value of the final goods and services produced within the domestic territory of a country in a year	1
GNP : the market value of the final goods and services produced by the normal residents of a country, anywhere in the world, in a year	1
Relationship : GNP = GDP + Net factor income from abroad	1

12.

Value points	Marks
Aggregate demand : the total planned expenditure on the final goods and services in an economy during a year	1
Components in a closed economy : private consumption expenditure (C), investment expenditure (I) and government expenditure (G); AD = C + I + G	2

OR

Value points	Marks
Full employment equilibrium : AD = AS at the full employment level of output; there is no involuntary unemployment	1½
Under-employment equilibrium : AD = AS at a level below the full employment output, so the involuntary unemployment exists (caused by deficient demand)	1½

13.

Value points	Marks
Any four instruments (1 mark each, name + explanation) : (1) Bank rate – raised to make the borrowing costlier and reduce the credit; (2) Repo rate – the rate at which the RBI lends short-term to the banks; (3) Reverse repo rate – the rate at which the RBI borrows from the banks; (4) Open market operations – sale/purchase of the securities; (5) CRR and (6) SLR	4

OR

Basis	Central bank	Commercial bank
Note issue	Issues the currency notes	Cannot issue the notes
Dealing	Deals with the government and the banks	Deals with the public
Objective	Public welfare and the monetary stability	Profit motive
Credit	Controls the credit	Creates the credit
Role	Banker’s bank, lender of last resort	Accepts deposits and gives loans

(Any four points, 1 mark each)

14.

Value points	Marks
(i) Fiscal deficit as % of GDP = 90,000 ÷ 9,00,000 × 100 = 10%	1
(ii) Primary deficit = Fiscal deficit − Interest payments = 90,000 − 25,000 = ₹ 65,000 crore	1
(iii) The fiscal deficit equals the borrowings; the revenue deficit is financed by borrowing; so 45,000 ÷ 90,000 × 100 = 50%	1
(iv) Half of the borrowings is used for the consumption (revenue) expenditure and creates no assets; it only adds to the liabilities and the future interest burden	1

15.

Value points	Marks
(i) Demand = supply (80 = 80) at ₹ 74 per dollar	1
(ii) At ₹ 72 : demand (100) > supply (60) ⇒ excess demand of $ 40 million; the pressure is for the depreciation of the rupee (the rate rises towards ₹ 74)	1
(iii) The central bank must sell $ 40 million from its reserves (100 − 60)	1
(iv) Fixed (pegged) exchange rate system; limitation : the central bank needs to maintain large foreign exchange reserves, which get depleted; it cannot continue indefinitely	1

16.

Value points	Marks
(i) Items not included : old-age pension – a transfer payment, no production; sale of a second-hand car – not a current production (only the commission/ the services are counted); purchase of shares – a financial transaction, not a production	2

Step	Working	₹ crore
NDP at factor cost	1,800 + 1,200 + 700	3,700
NDP at market price	3,700 + 300	4,000
(ii) GDP at market price	4,000 + 250	4,250
(iii) National income (NNP at factor cost)	3,700 + (−60)	3,640

(ii) 2 marks; (iii) 2 marks
OR

Step	Working	₹ crore
(i) National income (NNP at FC)	7,000 − 600	6,400
GNP at market price	7,000 + 400	7,400
(ii) GDP at market price	7,400 − 50	7,350
(iii) GNP at market price	NNP at MP + depreciation	7,400

(2 marks each)

17.

Y	C	I	AD = C + I	S = Y − C
0	30	50	80	(−) 30
100	90	50	140	10
200	150	50	200	50
300	210	50	260	90
400	270	50	320	130
500	330	50	380	170

(i) AD = AS (Y) at Y = ₹ 200 crore (2). (ii) At Y = 200, S = 50 = I ⇒ verified (1); MPC = ΔC ÷ ΔY = 60 ÷ 100 = 0.6 (1). (iii) Multiplier = 1 ÷ (1 − 0.6) = 2.5; ΔY = 20 × 2.5 = 50 ⇒ new Y = ₹ 250 crore (2).
OR

Value points	Marks
Inflationary gap : the excess of the actual AD over the AD needed at full employment; e.g. full employment income ₹ 3,000 crore and AD at that level ₹ 3,200 crore ⇒ gap = ₹ 200 crore	2
Deflationary gap : the shortfall of AD below the AD needed at full employment; e.g. AD at full employment ₹ 2,800 crore against ₹ 3,000 crore ⇒ gap = ₹ 200 crore	2
Measures : inflationary gap – raise the repo rate/CRR or cut the government spending (any one); deflationary gap – raise the government spending or cut the repo rate (any one)	2

SECTION B — Answer Key (Q. 18–27, 1 mark each)

Q.18	(c)	Q.19	(a)	Q.20	(d)	Q.21	(b)	Q.22	(d)
Q.23	(a)	Q.24	(c)	Q.25	(b)	Q.26	(a)	Q.27	(d)

Reasoning for Q.18–27. (18) The Hindu rate of growth was about 3.5% a year. (19) After 1991 the quantitative restrictions on imports were removed. (20) Services = 50 − 24 − 11 = 15 crore ⇒ 15 ÷ 50 × 100 = 30%. (21) Greenhouse gases such as CO₂ cause global warming. (22) The UNDP publishes the Human Development Report. (23) Literacy rate = 2,800 ÷ (5,000 − 1,000) × 100 = 70% (population aged 7 and above). (24) The Jan Dhan Yojana is for financial inclusion. (25) The poor farmers could not afford the inputs, so the benefits went to the larger farmers. (26) Inclusive growth raises the share of the poor in income and employment. (27) China began the reforms in 1978.

SECTION B — Marking Scheme (Q. 28–34)

28.

Value points	Marks
Any three functions (1 mark each) : (1) The environment supplies the resources (renewable and non-renewable); (2) It absorbs the waste (assimilates the pollutants); (3) It sustains life – the genetic and biodiversity services; (4) It provides the aesthetic services (scenery, recreation)	3

29.

Value points	Marks
Any three features (1 mark each) : (1) The communes were dismantled and the land was divided among the households; (2) The household responsibility system – farmers could keep the output after giving a fixed amount to the government; (3) Farmers were allowed to sell the surplus output in the market at market prices; (4) The rural industries (township and village enterprises) were promoted	3

OR

Value points	Marks
Dual pricing : the farmers and the industrial units had to buy and sell a fixed quantity of the inputs and the output at the government-determined prices, and the rest at the market prices	1½
It helped the economy to move gradually from the planned system to the market system, protecting the producers from the sudden shock; and it encouraged the producers to raise output for the market	1½

30.

Value points	Marks
Privatisation (through disinvestment)	1
Objectives (any two, 1 mark each) : to raise revenue for the government and reduce the fiscal deficit; to improve the efficiency of the company through private management; to widen the ownership; to reduce the burden of the public sector	2
Criticism (any one) : the shares may be sold below their value; loss of the public control over valuable assets; risk of job losses; the private monopoly	1

31.

Value points	Marks
Regulated markets reduce the exploitation by the traders (fair weighing, open auctions, regulated fees); e-NAM links the markets online so that the farmer can sell to the buyers from other places and gets a better price and transparent bidding	2
Limitations (any two, 1 mark each) : lack of the infrastructure (storage, internet, grading); the small farmers’ lack of awareness; the dominance of the traders; the market far from the village	2

OR

Value points	Marks
PDS gives the food grains and other goods at subsidised prices through the fair price shops; it ensures food security and protects the poor from the price rise	2
Problems (any two, 1 mark each) : the leakage and corruption; the poor quality of grains; the ghost cards and the errors in the identification; irregular supply; heavy burden of the subsidy	2

32.

Value points	Marks
(i) Country A ($ 17,000)	1
(ii) 8.0 − 5.0 = 3 years	1
(iii) The income is not the only determinant of the health outcomes – the public health care, nutrition and sanitation also matter; a higher income does not guarantee a better health	1
(iv) Any one : raise the public spending on health and sanitation; improve the quality of schooling; improve the access to nutrition	1

33.

Value points

Marks

Any six features (1 mark each) : (1) Abolition of the industrial licensing for most of the industries; (2) The reservation of industries for the public sector was reduced to a few; (3) Removal of the MRTP Act restrictions on the expansion of large firms; (4) Foreign direct investment was allowed in many industries (up to 51% automatic approval); (5) Foreign technology agreements were allowed automatically; (6) The import of capital goods was liberalised; (7) The investment limit of the small-scale industries was raised

6

OR

Value points	Marks
Trade policy reforms (any three, 1 mark each) : the removal of the quantitative restrictions on imports and exports; the reduction of the tariffs; the removal of the licensing for imports (except hazardous items); the export duties were removed to make the exports competitive	3
Foreign investment reforms (any three, 1 mark each) : the FDI limit was raised in many sectors; the FIIs were allowed to invest in the Indian market; the automatic approval of foreign technology agreements; the foreign exchange reforms (the rupee was made partially convertible)	3

34.

Value points	Marks
Any three causes (1 mark each) : the population growth and the urbanisation; industrialisation and the pollution; deforestation; the use of the fossil fuels; the chemical-intensive farming; the poor waste management	3
Any three measures (1 mark each) : promote the renewable energy; afforestation; strict enforcement of the pollution laws; public transport and the clean fuels; recycling and the waste management; the environmental awareness	3

OR

Value points	Marks
Benefits (any three, 1 mark each) : raises the productivity of the economy; attracts the investment; reduces the transport and the transaction costs; improves the health and education; creates the employment	3
Problems (any three, 1 mark each) : the shortage of the power and the transport; the poor quality and the maintenance; the regional disparities; the heavy investment needed; the inefficiency of the public provision; the low private participation	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

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