INTRODUCTORY MACROECONOMICS (Questions 2023-24)

Macroeconomics Important Questions (Class XII)
INTRODUCTORY MACROECONOMICS
1 Mark Questions
1. Commercial banks create money by way of :
(a) Time deposits (b) Demand deposits
(c) Treasury bills (d) Bills of exchange.
2. Maximum credit that the commercial banks can legally create depends on :
(a) Gold reserves (b) Cash reserves with the RBI
(c) Statutory liquidity ratio (d) Term Deposits
3. The following can be categorized as revenue expenditure :
(a) Expenditure on purchasing computers.
(b) Expenditure on Scholarships.
(c) Purchase of machinery for construction of flyovers.
(d) Repayment of loans.
4. Identify the incorrect statement from the following :
(a) Depreciation and appreciation of the domestic currency means the same.
(b) Purchase of financial assets abroad is a source of supply of foreign exchange.
(c) Demand for foreign currency rises when it‘s price falls.
(d) Both a and b.
5. Which of the following is not a component of aggregate demand in closed economy?
(a) Aggregate consumption (b) Net exports
(c) Aggregate investment (d) Public investment.
6. If inflation is to be combated, the RBI:
(a) Raises SLR and lowers CRR
(b) Lowers SLR and CRR
(c) Raises both SLR and CRR
(d) Lowers both SLR and CRR
7. Identify the correct pair of statements from Column I & Column II :
Column I Column II
B. Revenue receipts (i) Recovery of loans
C. Revenue expenditure (ii) Wage bill
D. Capital receipts (iii) Tax receipts
E. Capital expenditure (iv) subsidies
(a) A – (i) (b) B – (ii) (c) C – (iii) (d) D – (iv)

8. Read the following statements – Assertion (A) and Reason (R). Choose one of the
correct alternatives given below : (1)
MARKWIN INSTITUTE : 316, 2nd Floor, Jaipuria Plaza, Sec – 26, Noida pg. 1
Assertion (A) : the problem of involuntary unemployment restricts the economy

from reaching full employment equililbrium.
Reason (R) : Planned output is lower than the potential output in case involuntary
unemployment exists.
(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 and Reason (A) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
9. If the balance of trade shows a deficit of Rs. 3,000 cr. And the value of imports is
Rs. 9,000 cr., the value of exports is :
(a) Rs. 3,000 cr. (b) Rs. 4,000 cr.
(c) Rs. 6,000 cr. (d) Rs. 9,000 cr.
10. Read the following statements carefully:
Statement 1: APC falls continuously with the increase in income because the
proportion of income spent on consumption keeps on decreasing.
Statement 2: Induced investment is income elastic as it increases with the
increase in income.
In the light of the given statements, choose the correct alternative 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
11. If deflation is to be combated, the RBI :
(a) Raises SLR and lowers CRR (b) Lower both SLR and CRR
(c) Raises both CRR as well as SLR (d) None of these
12. India‘s foreign exchange reserves have jumped high. The reason may be:
(a) Inflow of foreign exchange
(b) Outflow of foreign exchange
(c) Autonomous payments over Autonomous Receipts
(d) All the above
13. The operation of future delivery in the foreign exchange market is known as ______.
(a) Spot market (b) Current market
(c) Forward market (d) Domestic market

Statement 1 : Capital is a flow concept.
Statement 2 : Demand is also a stock variable.
following :
15. Money supply in India may decrease if ___________ (choose the correct alternative)
(i) RBI sell bond to private individual and institution.
(ii) Fall in bank rate.
(iii) RBI increases the reserve ratio
(iv) Outright sale of securities by RBI in an open market.
Alternatives :
(a) 1, 2 and 3 are correct (b) 2, 3 and 4 are correct
(c) 1, 3 and 4 are correct (d) 1, 2 and 4 are correct
16. Disinvestment are capital receipts of the government. T/F. Give reason for your
answer.
17. Read the following statements carefully :
―Sale of shares of an Indian company to a Chinese customer will be recorded on the
credit side of the current account‖ State true/false and give reasons for your
answer.
18. Mention any two sources of supply for foreign exchange.
19. Purchase of second-hand machinery from abroad. In which sub account and on
which side of the balance of payments account such transaction is recorded? Give
reasons.
20. What does a zero primary deficit indicate in the union budget?
Statement 1: APS can have values of more than one.
Statement 2 : MPS can have a negative value due to disserving.
following :
22. Read the following statement-Assertion (A) and Reason (R). Choose one of the
correct alternatives given below :
Assertion (A) : Credit creation leads to an increase in national income.
Reason (R) : Commercial Bank's lending money to investors increases.
(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, and Reason (R) is not the correct
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Statement 1 : Investment by Boeing in India will be recorded in the credit side of
the Current Account.
Statement 2 : Import of Oil from Russia will be recorded in the credit side of the
current account.
In the light of the given statements, choose the correct alterative from the following:
(a) Statement l is true and statement 2 is false
(c) Both statements l and 2 are true
(d) Both statements l and 2 are false
Statement 1 : Capital is a stock concept
Statement 2 : Capital formation is a flow concept
25. If the money created by the banking system is Rs. 1,000 and the primary deposit is
Rs. 250, then the value of the deposit multiplier is __________ and the legal reserve
ratio is _______________.
(a) 750, 20% (b) 4, 25% (c) 750, 50% (d) 3, 25%
26. The consumption function of the economy is C = 100 + 0.8Y
In this economy, national income increases by Rs. 500 cr., what is the increase in
autonomous consumption expenditure in the economy?
(a) Rs. 200 crores (b) Rs. 500 crores
(c) Rs. 600 crores (d) Remains unchanged
27. When the price of domestic currency rises, other things remaining fixed, the likely
impact of this will be:
(a) Exports will become cheaper
(b) Imports will become cheaper
(c) Imports will become more expensive
(d) Both b and c
28. Read the following figure carefully and choose the correct pair from the alternative
given below:
GDP at MP GNP at FC NNP at FC
(a) Plus, Net Factor Income from Abroad, minus Net indirect Tax, minus
depreciation.
(b) Minus Net Factor Income from Abroad, minus Net indirect Tax, minus
depreciation
(c) Plus, Net Factor Income from Abroad, add Net indirect Tax, minus
depreciation
(d) Minus Net Factor Income from Abroad, minus Net indirect Tax, add
depreciation
29. The sum of factor payments is equal to ___________.
(a) Domestic Income (b) National Income
(c) Per Capita Real Income (d) Per Capita Nominal Income.
30. The following information is given for an imaginary country.
Capital Account Amount in (Rs. 000 crore)
Lending to abroad 10
Borrowing from IMF 2
Income Receipt 6
Unilateral Transfers 5
FII 12
Net change in foreign exchange reserve 6
Net investments from abroad 3
Balance on Capital Account will be _____________.

31. The balance of Trade shows a surplus of Rs. 500 Crores and import of goods is
3/4th the export of goods. The value of the export of goods is.
(a) Rs. 1,000 crores (b) Rs. 2,000 crores
(c) Rs. 3,000 crores (d) Rs. 4,000 crores
32. What do you mean externalities?
33. _____________ demand for money refers to the demand for money to cover the needs
of an individual.
(a) Transaction (b) Precautionary
(c) Speculative (d) None of these
34. Subsidies are __________ in government budget.
(a) Revenue expenditure (b) Capital expenditure
(c) Revenue receipt (d) Capital receipt
35. Export of machinery to Germany will be recorded in the :
(a) Debit side of current account of BOP
(b) Credit side of current account of BOP
(c) Debit side of capital account of BOP
(d) Credit side of capital account of BOP
36. Look at the figure carefully and answer the following question :
Barter is a system of exchange by which goods or services
are directly exchanged for other goods or services without
using a medium of exchange, such as ______.
(a) Note (b) Money
(c) Goods (d) None of the above
37. The difference between fiscal deficit and interest payments is known as :
(a) Primary deficit (b) Revenue deficit
(c) Budget deficit (d) Borrowing deficit
38. In which account of BOP, tourism services to tourist are included?
(a) Current account (b) Capital account
(c) Unilateral transfers (d) None of these
39. Money supply constitutes money held by public and ________.
(a) Demand deposits (b) Interbank deposits
(c) Time deposits (d) Both (b) and (c)
40. Autonomous consumption = Rs. 100
Marginal propensity to consume = 0.70
National income = Rs. 1000
From the following above data, the consumption expenditure will be :
(a) 600 (b) 100 (c) 800 (d) 1200
41. If in an economy, Marginal propensity to consume (MPC) = 0.8.
Change in initial investment (∆I) = Rs. 4,000 crores. The value of investment
multiplier is ______________.
(a) 5 (b) 7 (c) 9 (d) 12
42. Identify the correct formula from the following :

1 1
(a) Money creation = LRR
(b) money multiplier = LRR
1 LRR
(c) Initial deposit = LRR
(d) Credit creation = Initial deposits
× 100
43. Read the statements carefully and choose the correct alternative from the following:
Statement 1 : High revenue deficit leads to inflationary situation in the economy.
Statement 2 : The revenue deficit is managed by borrowings or disinvestment.
Alternative :
(a) Both the statement are true
(b) Both the statement are false.
(c) Statement 1 is true and statement 2 is false.
(d) Statement 2 is true and statement 1 is false.
44. In India, coins are issued by ____________.
(a) State Bank of India (b) Reserve Bank of India.
(c) Ministry of Finance (d) Ministry of HRD
Statement 1 : Theory of money comes under the scope of microeconomics.
Statement 2 : Study of depression is a subject matter of macroeconomics.
following:
46. Primary Deficit in a government budget will be zero, when ____________.
(a) Revenue Deficit is zero.
(b) Net interest payments are zero.
(c) Fiscal Deficit is zero.
(d) Fiscal Deficit is equal to interest payment.
Statement 1: Investment by TATA industries in Singapore will be recorded in the
credit side of the Capital Account.
Statement 2: Import of Second-hand locomotives from Israel will be recorded in
the credit side of the current account.

Statement 1 : Supply of money is a stock concept
Statement 2 : Stock of money with the Central bank is a part of money supply.
Statement 1 : If investment increases by 100 cr. and MPC is 0.5, the increase in
income will be two times the increase in investment.
Statement 2 : Multiplier action is forward when there is a multiple increase in
income caused by an increase in investment.
50. On the basis of the below mentioned information answer the following :
Income (in Cr.) Consumption (in Cr.)
100 60
200 140
Identify the slope of MPS.
(a) 0.2 (b) 0.4 (c) 0.6 (d) 0.8
51. Read the following statement -Assertion (A) and Reason (R). Choose one of the
correct alternatives given below:
Assertion (A) : Deflation is corrected by buying the securities and releasing
liquidity into the economy.
Reason (R) : When the bank rate is increased, market rate of interest decreases.
(c) Assertion (A) is true, but Reason(R) is false.
(d) Assertion (A) is false, but Reason(R) is true.
52. Due to rise in exports, AD ___________ in a closed economy.
(a) Increases (b) Decreases
(c) Remain constant (d) None of these
53. Read the following statement-Assertion (A) and Reason (R). Choose one of the
Assertion (A) : National Income at current prices can increase even when the
quantum of goods and services produced during the year remains constant.
Reason (R) : National Income at market price is always greater than national
income at factor cost.
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true
54. When the level of Saving increases by 500, income increases by 2000, the value of
multiplier will be :
(a) 0.25 (b) 0.33 (c) 4 (d) 5
55. Read the following statements carefully and choose the correct alternatives given
below :
Statement 1 : Institutional agents include consumers and producers.
Statement 2 : Individual economic agents focus on the maximisation of social
welfare.
(b) Statement l is false and statement 2 is true
56. Fiscal deficit is an estimate of _______________.
(a) Instability of the economy
(b) Growth of the economy
(c) Borrowings by the government
(d) All of these
57. Propensity to consume is equal to ____________.

(a) Change in income to change in consumption
(b) Ratio between consumption and income
(c) Ratio between consumption and saving
(d) None of these
below :
Statement 1 : Aggregate supply is that level of GDP that the producers wish to
produce during an accounting year.
Statement 2 : Equality between AS and AD implies the equality between Y and AD.
(a) Statement 1 1s true and statement 2 is false.
(b) Statement 1 is false and statement 2 is true.
59. On the basis of the below diagram answer the following question:
Identify the level of income at which savings are equal to zero.

(a) 20 (b) 40 (c) 60 (d) 80
below :
Statement 1 : Static functions of money include the primary and secondary
functions of money.
Statement 2 : By performing only the primary functions, money helps in
regulating the economic system.
(a) Statement 1 1s true and statement 2 is false.
(b) Statement 1 is false and statement 2 is true.
(c) Both statements l and 2 are true.
(d) Both statements l and 2 are false.
61. Money that is issued by the authority of the government is called :

(a) Full bodied money (b) Credit money
(c) Fiat money (d) Fiduciary money
62. If MPS = 0, the value of multiplier is :
(a) 0 (b) 1 (c) ∞ (d) none of these
63. Planned AD is short of its full employment level in a situation of ______________.
(a) Excess demand (b) Deficient demand
(c) Inflationary gap (d) None of these
64. If the value of average propensity to save (APS) is 0.2 and national income is `4,000
crore, then consumption will be ____________.
(a) `4,000 crore (b) `3,200 crore
(c) `3,800 crore (d) `2,600 crore
65. Read the following hypothetical information carefully and answer the questions 1-6
on the basis of the same:
Income (`) Saving (`)
0 – 50
100 0
200 50
300 100
400 150
APS at income level `300 will be ___________. (Fill up the blank with correct
alternative)
(a) 0.33 (b) 0.67 (c) 1.5 (d) 3
66. Read the following statement—Assertion (A) and Reason (R). Choose one of the
Assertion (A) : Fiscal deficit is zero in case there is no provision for borrowing in
the government budget.
Reason (R) : Higher revenue deficit always leads to higher fiscal deficit.
Alternatives:
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
Assertion (A) : Commercial banks lend money many times more than their cash
reserves with the RBI.
Reason (R) : Demand deposits are equal to cash deposits with the commercial
banks.
Alternative :
68. Money is a __________.
(a) Static factor (b) Dynamic factor
(c) Contingent factor (d) All of these
below :
Statement 1 : Demand is said to be deficient when it is lower than what is
required for the fuller utilisation of resources.
Statement 2 : Excess capacity in the economy implies deficient demand.
(d) Both statements 1 and 2 are false 2.
70. Suppose in a hypothetical economy, the income rises from `5,000 crore to `6,000
crore. As a result, the consumption expenditure rises from `4,000 crore to `4,600
crore. Marginal propensity to consume in such a case would be __________.
(a) 0.8 (b) 0.4 (c) 0.2 (d) 0.6
71. Borrowing by the government is a _______________.
(a) Revenue receipt (b) Capital receipt
(c) Revenue expenditure (d) Capital expenditure
below :
Statement 1 : Gross fiscal deficit shows estimated borrowings by the government
to cope with its expenditure during the year.
Statement 2 : Gross fiscal deficit is often expressed as a percentage of GDP.
73. CRR in India is fixed by ______________.

(a) The commercial banks
(b) The government
(c) The RBI
(d) Supply-demand forces in the money market
Assertion (A) : Deflationary gap can be corrected by increasing the level of AD.
Reason (R) : Inflationary gap can be corrected by increasing the availability of
credit in the economy.
Alternatives:
75. On the basis of the below chart answer the following question : (1)
Gross Domestic
____ Closing Stock Opening Stock
Capital Formation
Choose the correct alternative to be filled in given blank.

(a) Private final consumption expenditure
(b) Gross domestic fixed capital formation
(c) Business fixed investment
(d) Government fixed investment
below :
Statement 1 : Retirement pensions are included in the estimation of national
income.
Statement 2 : Retirement pensions are a kind of deferred wage.
77. Full employment :
(a) Is consistent with ‗natural rate of unemployment‘
(b) Occurs when demand for labour force = supply of labour force
(c) Is a situation of zero unemployment
(d) Both (a) and (b)
Assertion (A) : Equality between AS and AD does not imply the equality between Y
and AD.
Reason (R) : Equilibrium GDP has nothing to do with actual savings and actual
investment.
Alternatives:
79. The rate at which commercial banks borrow from the Reserve Bank of India to meet
their long term requirements is known as ______________.
(a) Margin requirement (b) Bank rate
(c) Repo rate (d) Reverse repo rate
Statement 1 : Borrowings by a nation from the World Bank to finance Balance of
Payment (BoP) deficit will be recorded in the capital account.
Statement 2 : Autonomous transactions are independent of the condition of
Balance of Payment (BoP) account.
In light of the given statements, choose the correct alternative 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.
81. A situation, in which an able bodied person is not willing to work at the existing
wage rate, is referred to as _____________ situation.
(a) Full employment
(b) Involuntary unemployment
(c) Voluntary unemployment
(d) Disguised unemployment
82. The difference between National Income at market price and National Income at
factor cost is ________.
(a) Net indirect taxes (b) Net factor income from abroad
(c) Consumption of fixed capital (d) Market price
83. Identify which of the following represents only the real flow :
(a)
(b)
(c)
(d)
84. Read the following news report carefully :

―The central bank has imposed fine on Hisar Urban Cooperative Bank Ltd. and
Andaman and Nicobar State Cooperative Bank Ltd. for violation of banking norms.‖
According to the given report, identify the function of the central bank.
(a) Issue of currency (b) Banker to the public
(c) Banker to the Government (d) Banker‘s Bank
85. Suppose that, the Balance of Trade of a nation exhibits a deficit of `50,000 crore.
The import of visible items are five times of the exports of visible items. The value of
exports of visible items would be `_______ crore.
(a) 20,000 (b) 10,000 (c) 12,500 (d) 20,300
86. Gifts and remittances sent abroad are recorded on the _______ side of the _________
account in Balance of Payment.
(a) Credit, capital (b) Debit, capital
(c) Credit, current (d) Debit, current
Statement 1 : Primary deposits are the cash deposits by general public with
commercial banks.
Statement 2 : Secondary deposits are those deposits which arise on account of
credit provided by the commercial banks to the people.
88. If the value of investment multiplier = 4 and Dissavings = (–) 60, identify the correct
Saving function from the following :
(a) S = (–) 60 + 0·25 Y (b) S = (–) 60 + 0·75 Y
(c) S = (–) 60 + 0·20 Y (d) S = (–) 60 + 0·60 Y
89. For the given Consumption function, C = 205 + 0·9 Y, the value of investment
multiplier would be ___________.
(a) 0·09 (b) 10·0 (c) 0·9 (d) 9·0
90. Read the following statements : Assertion (A) and Reason (R). Choose the correct
alternative given below :
Assertion (A) : Before reaching the Break-Even level of income, the value of
Average Propensity to Consume (APC) is greater than one.
Reason (R) : The Average Propensity to Consume (APC) is the ratio of the total
consumption and total income.
Alternatives :
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct
(c) Assertion (A) is true and Reason (R) is false.
(d) Assertion (A) is false and Reason (R) is true.
91. Identify which of the following equations is true?
(a) MPC + MPS = 0 (b) MPC + MPS = 1
(c) MPC + MPS > 1 (d) MPC + MPS < 1

Statement 1 : Savings function can be derived from Consumption function.
Statement 2 : Consumption curve must always start from the point of origin.
93. Keeping other factors constant, if the price of crude oil falls in the international
market, it may lead to ___________.
(a) Increase in trade deficit
(b) Decrease in trade deficit
(c) No change in trade deficit
(d) No change in the foreign exchange reserves
94. If in an economy, the value of Investment Multiplier is 5 and dissavings are (–)100
crore, the relevant savings at income level of `1,400 crore would be `________ crore.
(a) 80 (b) 180 (c) 140 (d) 240
95. The range of value of Investment Multiplier is always between _________ and
__________.
(a) Zero (0), infinity (∞) (b) One (+1), infinity (∞)
(c) Zero (0), one (+1) (d) Minus one (– 1), plus one (+ 1)
alternative given below :
Assertion (A) : Ex-ante savings and Ex-ante investments are never equal to each
other.
Reason (R) : At equilibrium level of income, aggregate demand may not be equal to
the aggregate supply.
Alternatives :
97. Identify, which of the following is not a function of the Reserve Bank of India.
(a) Controller of money supply
(b) Credit provider to commercial banks

(c) Central agency preparing the annual budget of the Government
(d) Issuer of currency
Statement 1 : Import of gold from Dubai will be recorded on the debit side of the
current account in Balance of Payments of India.
Statement 2 : Outflow of Foreign Institutional Investment (FII) from Indian stock
markets will be recorded on the credit side of the capital account.
99. If the central bank wants to reduce money supply in the economy, it may
___________.
(i) Increase Bank Rate
(ii) Reduce Cash Reserve Ratio
(iii) Sell securities in the open market
(iv) Buy securities in the open market
Alternatives :
(a) (i) and (iii) (b) (ii), (iii) and (iv)
(c) (i), (iii) and (iv) (d) (i), (ii), (iii) and (iv)
100. Identify, which of the following is not a source of supply of foreign exchange for
India.
(a) Exports of goods and services abroad
(b) Remittances by Indian workers working abroad
(c) Imports of goods and services from abroad
(d) Foreign Direct Investment (FDI) by a German automobile manufacturer.
101. Identify, flow variable from the following :
(a) Distance between Delhi and Amritsar
(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
102. Read the items given in Columns I and II carefully and choose the correct pair of
statements from the given alternatives.
Column I Column II
(i) Export of software by an Indian A. Demand of foreign currency
company B. Profit motive
(ii) Accommodating nature of C. Non-profit motive
transactions
D. Supply of foreign exchange
(iii) Autonomous nature of
transactions
(iv) Loan forwarded to Sri Lanka
during its economic crisis
Alternatives :
(a) (i) – A (b) (ii) – B (c) (iii) – C (d) (iv) – D
alternative given below : (1)
Assertion (A) : The value of Average Propensity to Consume (APC) can never be
zero or negative.
Reason (R) : Average Propensity to Consume (APC) is independent of the level of
income.
Alternatives :
Statement 1 : Stock variables are measured at a point of time.
Statement 2 : Flow variables and stock variables are same.
(1)
3 Marks Questions
1. State whether the following statements are true or false, give reasons:
(a) Commercial banks generate their profit by way of spread.
(b) Loans offered by the commercial banks are apart of the cash reserves of the
commercial banks.
(c) If reverse repo rate is 4%, then the repo rate will be lower than this.
2. Can there be a fiscal deficit without revenue deficit, in case of a developing
economy? Use illustration.
3. What are the functions of foreign exchange market?
4. Define Trade surplus. How is it different from ―current account surplus‖.
5. From the following about the firm Y, Calculate the NVA at MP.
Sales 300
Depreciation 20
Net Indirect Taxes 30
Purchase of intermediate goods 150
Change in stock (-)10
Purchase of machinery 100
6. If real GDP is rupees 1000 and price index (with base = 100) is 120, calculate
nominal GDP.
7. How government budget helps in achieving economic growth?
8. Distinguish between Average propensity to consume (APC) and Average propensity
to save (APS)
9. In an economy, which is in equilibrium, National income = `2,000, Marginal
propensity to save = 0.40 and Investment expenditure = `400
Find out autonomous consumption expenditure.
10. Following is the consumption function in an economy :C = 25 + 0.8Y,
If the investment level in an economy is `600 crores, find out :
(a) Equilibrium level of income
(b) APC at equilibrium level
11. State whether the following statements are included in the estimation of national
income. Give reason :
(a) Recurring cost of loan paid by Mr. Ashok.
(b) Expenditure by Mrs. Ambika on purchase of college prospectus for her son‘s
admission.
(c) Profit earned by the Tyre manufacturing company located in Taiwan which
is owned by an Indian resident.
12. Jan Dhan Yojana led to a rise in bank deposits. How would it impact the national
income of India?
13. If the Nominal GDP is `600 and Price Index (base = 100) is 120, calculate the Real
GDP.
14. Distinguish between cash reserve ratio and statutory liquidity ratio.
15. How does the Central Bank control the credit with the help of ‗Repo Rate‘? Explain.
16. ―Management of water polluting oil refinery says that it (oil refinery) ensures welfare
through its contribution to Gross Domestic Product.‖
Defend or refute the argument of management with respect to GDP as a welfare
measure of the economy.
17. Government raises its expenditure on producing public goods. Explain the
economic value it reflects.
18. How is capital expenditure different from revenue expenditure? Discuss briefly.
19. Distinguish between ‗Value Addition‘ and ‗Final Value of Output‘.
20. Find net value added at factor cost (NVAFC) using the given data :
Particulars Amount
(in ` crore)
(i) Sale of rice in the market 58
(ii) Purchase of tractor and thresher 40
(iii) Procurement of rice by the government 20
(iv) Self-consumption of rice during the year 15
(v) Expenditure on running and maintenance of tractor and 20
thresher
(vi) Fertiliser subsidies received from the government 3
21. ―There exists a positive relation between foreign exchange rate and supply of foreign
exchange.‖ Do you agree with the given statement? Justify your answer with valid
arguments.
22. Justify the following statement :
―Depreciation is a fall in the value of an asset due to expected obsolescence.‖
23. Discuss briefly the determination of exchange rate under the flexible exchange rate
system.
4 Marks Questions
1. State whether the following statements are true or false, give reasons:
(a) Trade deficit is always a great cause of worry for an economy.
(b) Indians investing in assets abroad will be recorded under debit side of capital
account of B.O.P.
2. Recently the government of India has increased the import duty on Gold. What will
be the impact of this change on the foreign exchange rate? Also, what can RBI do to
ease the situation?
3. Explain with the help of a diagram how equilibrium level of income in an economy
is determined by saving and investment curves? Will there always be full
employment at equilibrium level of income?
4. Give reasons, classify the following into intermediate goods and final goods:
(a) Purchase of microwave by a bakery shop.
(b) Pen, paper, etc, purchased by a publication house.
(c) Milk purchased by a household.
(d) An air conditioner purchased by a builder for his office.
5. How much additional income will be generated in an economy with an additional
investment of Rs. 14000 crores and when half of the increase in income is spent on
consumption.
6. ―Inflation has two legs now, Demand and Supply. It needs two prongs for taming,‖
Monetary and Fiscal.
In the light of the above statement, state some measures of fiscal and monetary
policy to counter inflation.
7. Read the following text carefully, discuss briefly the relevant function of the Central
bank, indicated :
RBI prescribed broad parameters of banking operations within which the country‘s
banking and financial system functions. The objective of RBI is to maintain public
confidence in the system, protect depositors‘ interest and provide cost-effective
banking services to the public.
8. In an economy, the investment expenditure is 600 and the consumption function
is: C = 90 + 0.7 Y. The economy is in equilibrium at an income level of 2000.
Defend or refute the statement by giving valid explanation.
9. ―To boost the following demand in the economy, the RBI recently reduced the cash
reserve ratio‖. Elaborate the rationale behind the steps taken by the central bank.
10. Explain the functions of lender of last resort and clearing house function of Reserve
Bank of India.
11. Explain the function of central bank as ―banker‘s bank and act as a supervisor‖.
12. Explain the components of legal reserve ration.
13. How the rate of foreign exchange determined? Explain the impact of increase in
investments by FIIs on exchange rate.
14. ―Fiscal deficit implies greater borrowings by the government.‖ Explain the
implications of higher fiscal deficit.
15. What role does government expenditure play to control deficient demand in a three-
sector economy? Explain.
16. Answer the following questions :
(a) In which sub-account and on which side of balance of payments account
will foreign investment in India be recorded? Give reasons.
(b) What will be the effect of foreign investments in India on exchange
rate? Explain.
17. (a) If CRR is scrapped as a legal requirement, do you think the banks can
create unlimited amount of credit?
(b) Explain the role of open market operations in controlling Inflation.
18. If marginal propensity to save is 10% and is constant at all levels of income, and
the autonomous consumption is `200 crore, construct consumption function of the
given hypothetical economy. Explain by using diagram
19. Explain the relevance of C.R.R and reverse Repo Rate in correcting inflation.
20. Read the following case study carefully and answer the question on the basis of the
same :
The government in its 2022-2023 union budget sees India's fiscal deficit to be 6.9%
of GDP in 2021-2022 and 6.4% in 2022-23 as the government aims to boost
spending on transport, infrastructure and construction projects, while it proposes
to trim it down to 4.5% by 2025-2026. Government‘s total expenditure is projected
at 39.45 trillion INR in 2022-23, with 480 billion INR estimated for affordable
housing, 195 billion INR for solar projects and 200 billion INR for highways
expansion. On tax front, unblended fuel will be imposed additional duty from
October 2022 while customs duty would be revoked for stainless steel and steel
products, reduced for chemicals and exemptions extended for steel craps. However,
the budget is not populist and lacked measures to combat the current inflationary
and slowing economy.
Source: Reserve Bank of India
Based on the above figures of fiscal deficit and other government expenditures in
attaining balance budget. What could be the merits and demerits of balance
budget?
21. In an economy, the equilibrium level of income is 800. The autonomous
consumption is 70 and the investment expenditure is 250. Marginal propensity to
consume in this economy will be 0.5.
22. ―To boost the falling demand in the economy, the Reserve Bank of India recently
reduced the minimum margin requirement.‖
Elaborate the rationale behind the steps taken by the Central Bank.
23. Read the following case study carefully and answer the question on the basis
of the same :
It is difficult to carry forward one's wealth under the barter system. Suppose you
have an endowment of rice which you do not wish to consume today entirely. You
may regard this stock of surplus rice as an asset which you may wish to consume,
or even sell off, for acquiring other commodities at some future date. But rice is a
perishable item and cannot be stored beyond a certain period. Also, holding the
stock of rice requires a lot of space. You may have to spend considerable time and
resources looking for people with a demand for rice when you wish to exchange
your stock for buying other commodities. This problem can be solved if you sell
your rice for money. Money is not perishable and its storage costs are also
considerably lower. It is also acceptable to anyone at any point of time. Thus,
money can act as a store of value for individuals. Wealth can be stored in the form
of money for future use. However, to perform this function well, the value of money
must be sufficiently stable. A rising price level may erode the purchasing power of
money. It may be noted that any asset other than money can also act as a store of
value, e.g. gold, landed property, houses or even bonds (to be introduced shortly).
However, they may not be easily convertible to other commodities and do not have
universal acceptability. Source: NCERT, 22-23
What is meant by ‘standard of deferred payment’ function of money? How has
it solved the related problem created by barter?
24. Describe the adjustment mechanism if Aggregate Demand (AD) is less than
Aggregate Supply (AS).
25. Explain the ‗Government‘s Bank‘ function of the central bank.
26. Using a hypothetical numerical example, explain the effect of rise in Reserve Ratio
on credit creation by the commercial banks.
27. Read the following news published on September 26, 2022:
―The central bank has increased the benchmark lending rate by 140 basis points.‖
Identify the likely cause and consequences behind this action taken by the Reserve
Bank of India.
28. Read the following information carefully :
―The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), recently
increased the Repo Rate by 50 basis points. The rate stands today at 5.40%,
whereas Reverse Repo Rate was left unchanged at 3.35%.‖
Answer the following questions :
(i) Identify the nature of the two monetary policy measures mentioned in the
above text.
(ii) Elaborate the likely economic rationale behind the increase in Repo Rate by
the Monetary Policy Committee.
29. Suppose an imaginary economy is facing a situation of deficient demand in the
short run time period.
Discuss briefly, the probable impacts of the same on the economy.
30. Suppose the following information is given about a hypothetical economy :
C = 100 + 0.75 Y (where, C = Consumption and Y = Income)
I0 = 200 (I0 = Autonomous Investment)
Calculate the following on the basis of the given information :
(a) Equilibrium Level of Income.
(b) Aggregate Demand at Equilibrium Level of Income.
(c) Marginal Propensity to Save
31. Using a suitable numerical example, explain the credit creation process of the
banking system, in a hypothetical economy.
6 Marks Questions
1. ‗India‘s GDP contracted 23.9% in the April-June quarter of 2020-21 as compared to

same period of 2019-20, suggesting that the lockdown has hit the economy hard‘.
State and discuss any two fiscal measures that may be taken by the Government of
India to correct the situation indicated in the above news report.
2. (a) Distinguish between real and nominal GDP. Which of the two is a better
index of welfare of the people and why?
(b) Calculate ‗Mixed Income of Self-employed‘ from the following data :
Items (Rs. In crore)
i) Consumption of fixed capital 800
ii) Subsidies 350
iii) Interest 1,600
iv) Compensation of employees 16,500
v) Gross domestic product at market price 25,500
vi) Profits 1,400
vii) Rent 2,000
viii) Indirect taxes 600
3. (a) ―The growth rate of real GDP is often used as an indicator of the general
health of the economy‖ Comment.
(b) State and discuss any two precautions to be considered while estimating
national income by using a value added method.
4. (a) On what basis is government expenditure classified into capital expenditure
and revenue expenditure? Give an example of each.
(b) Government has started spending more on providing free services like
education and health to the poor. Explain the economic value it reflects.
5. (a) All machines are capital goods. Defend or refute the statement with
valid reason.
(b) How are money flow and real flow opposite to each other?
6. (a) Analyse the image given above and state its impact on import and export of
India.
(b) Balance of payments always balances. Does it mean a situation of zero net
financial obligation for a country?
7. Explain the concept of investment multiplier. What is the range of value of

investment multiplier?
8. (a) What are the precautions while estimating national income by income
method.
(b) Illustrate the following table and diagram and explain the value added
method.
9. Calculate :
(a) GDPMP by Income method; and
(b) Closing stock.
Items (₹)incr.
Private final consumption expenditure 450
Rent 120
Government final consumption expenditure 50
Indirect taxes 60
Interest 150
Mixed income of self-employed 20
Consumption of fixed capital 30
Opening stock 10
Gross fixed capital formation 300
Compensation of employees 200
Net factor in come from abroad 10
Profit 250
10. Draw a straight-line consumption curve. From it derive a saving curve. Explain the
process of derivation. Show this in diagram :
(a) The point at which the Average propensity to Consume is equal to one;
(b) Any point at which the Average Propensity to Save is negative.
11. (a) When foreign exchange rate in a country is on the rise, what impact is it
likely to have on exports and imports?
(b) Distinguish between ‗Trade Deficit‘ and ‗Current Account Deficit‘.
12. (a) Analyse the image given below and identify which of the following is not an
example of factor income, along with stating the reason for the same. Also
explain the difference between Factor Income and Transfer Income.
(b) Distinguish between domestic income and national income.

13. (a) In the following imaginary economy, no other transactions take place except
the transactions presented below. The final sales are only for private
consumption. Find out the value added by the industry of origin and value of
national product :
(i) Industry A sells for Rs. 600 its semi-finished goods to Industry B, and
Rs. 400 to Industry C.
(ii) Industry B sells the finished goods for Rs. 500 for private
consumption to household and for Rs. 300 to Industry C.
(iii) Industry C sells for Rs. 800 for private consumption to households.
(b) What precautions are necessary while using expenditure method of
measuring national income?
14. State whether the following statements are included in national income. Give
reasons.
(a) Rent paid by a student.
(b) Salary received by an Indian Ambassador starting in U.S.A.
(c) Production of goods for self-consumption.
(d) Purchase of a second hand imported car from Japan.
15. (a) Analyse the image given below and state the possible causes of the
situation depicted above.
(b) Balance of payments always balances. Explain.

16. (a) Explain the main functions of the foreign exchange market.
(b) Distinguish between Current Account Deficit (CAD) and Current Account
Surplus (CAS).
17. (a) From the information given in the diagram, categorize the items into
revenue receipts and capital receipts, stating valid reasons.
(b) Distinguish between Revenue deficit and Fiscal deficit.

18. (a) From the following data, calculate the primary deficit.
Particulars Amount (in ` crore)
(i) Revenue deficit 40
(ii) Non-debt creating capital receipts 190
(iii) Tax revenue 125
(iv) Capital expenditure 220
(v) Interest payments 20
(b) Elaborate ‗Economic stability‘ function of the Government Budget.

19. (a) ―In the estimation of Gross Domestic Product (GDP) using expenditure
method, focus lies only on expenditure by the residents of the country.‖
Do you agree with the given statement? Give valid reasons for your
answer.
(b) ―National income exceeds domestic income only when exports are greater
than imports.‖ Comment.
20. (i) Two friends, Deepak and Krish were discussing the impact of increase in
GST rates on luxury items, as recently undertaken by the Government.
Krish was of the view that most of the luxury items (like foreign travel,
imported cigarettes, etc.) should be taxed exorbitantly, while the items
related to daily consumption of poor and middle class should be tax-free.
Identify and explain the objective of the Government budget Krish is
suggesting.
(ii) State any two examples of non-tax receipts of the Government.
21. (i) ―In the recent times, the Government of India has incurred a lot of
expenditure on acquisition of indigenous defence items under ‗Make-in-
India‘ programme.‖
Identify and discuss the two types of budget expenditures which may be
undertaken by the Government as suggested in the above statement.
(ii) State the meaning of ‗fiscal deficit‘ under the Government Budget.
22. Read the following text carefully :
In India, after Covid-19 period, household and private sector consumption, as
measured by Private Final Consumption Expenditure (PFCE), was `39·7 trillion in
nominal terms in Q1 FY23, compared with `28·4 trillion for the same period last
year, and `39·2 trillion in the fourth quarter (Q4) of 2021 22 (FY22).
As a percentage of Nominal GDP, PFCE was 61·1 per cent, compared with 55·5 per
cent in Q1 FY22. However, in real terms at constant prices, PFCE grew just 9·88
per cent, compared with Q1 of 2019 20 the year before the Covid-19 pandemic.
―Recovery in domestic demand is reflected in the growth rates of PFCE and gross
fixed capital formation (GFCF) over the corresponding quarter of the previous year,‖
said D.K. Srivastave. GFCF came in at `19 trillion in Q1 FY23, compared with
`14.4 trillion in Q1 FY22. However, it was slightly lower than `20.2 trillion in Q4
FY22.
In the media briefing after the GDP numbers, Finance secretary T.V. Somanathan
said this trend was expected as GFCF in present Q1 was usually lower than the
previous year‘s Q4.
On the basis of the given text and common understanding, answer the following
questions :
(a) Compare and analyse the trends of change in PFCE as a percentage of GDP,
both in real and nominal terms.
(b) ―Private Final consumption expenditure is an important factor determining
Gross Domestic Product at Market Price.‖ Justify the given statement.

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Macroeconomics Important Questions (Class XII)

(a) A – (i) (b) B – (ii) (c) C – (iii) (d) D – (iv)

Assertion (A) : the problem of involuntary unemployment restricts the economy

14. Read the following statements carefully:

GDP at MP GNP at FC NNP at FC

Balance on Capital Account will be _____________.

42. Identify the correct formula from the following :

(a) Statement l is true and statement 2 is false

57. Propensity to consume is equal to ____________.

Identify the level of income at which savings are equal to zero.

61. Money that is issued by the authority of the government is called :

73. CRR in India is fixed by ______________.

Choose the correct alternative to be filled in given blank.

84. Read the following news report carefully :

92. Read the following statements carefully :

(b) Credit provider to commercial banks

1. ‗India‘s GDP contracted 23.9% in the April-June quarter of 2020-21 as compared to

7. Explain the concept of investment multiplier. What is the range of value of

(b) Distinguish between domestic income and national income.

(b) Balance of payments always balances. Explain.

(b) Distinguish between Revenue deficit and Fiscal deficit.

(b) Elaborate ‗Economic stability‘ function of the Government Budget.

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