EXAMINATION REFERENCE MATERIAL
2025-26
GRADE: 12 SUBJECT: ECONOMICS
BHOPAL
National Income
(i) Circular flow of Income. A simple model explaining the circular flow of income with two, three and four
sector models with leakages and injections.
(ii) Concepts and definition of NY, GNP, GDP, NNP, private income, personal income, personal disposable
income, National Disposable Income and per capita income; relationship between the income concepts. A
brief understanding of the mentioned national income aggregates is needed. The concepts of GNP and
NNP should be explained both at factor cost and market prices, real GDP and nominal GDP, National
Disposable Income (Gross and Net), GDP and Welfare, GDP as an indicator of Economic welfare.
(iii) Methods of measuring National Income: product or value-added method; income method and expenditure
method with simple numerical based on them. Simple numerical based on all the methods to be covered
for better understanding of the concept. Precautions and difficulties of measuring National Income for
each method.
MCQ
1. Demand for intermediate consumption arises in——————.
(a) consumer households (b) government enterprises only
(c) corporate enterprises only (d) all producing sectors of an economy
2. Which one of the following statements is correct?
(a) If national income rises, per capita income must also rise
(b) If population rises, per capita income must fall.
(c) If national income rises, welfare of the people must rise.
(d) None of them
3. Which of the following is an example of normal resident of India?
(a) Foreign worker working in WHO located in India
(b) The German working as director in IMF office located in India
(c) Ambassador in India from rest of the world
(d) Ambassador of India in rest of the world
4. Welfare of the people of country is determined by:
(a) Nominal GDP (b) Real GDP
(c) Per capita real GDP (d) Per capita real GDP and host of others factors
5. Which of the following causes unexpected obsolescence?
(a) Change in technology (b) Change in demand
(c) Natural calamities (d) None of these.
6. Which one of the following statements is incorrect?
(a) GDP at market price = GDP at factor cost plus net indirect taxes.
(b) NNP at factor cost = NNP at market price minus indirect taxes.
(c) GNP at market price = GDP at market price plus net factor income from abroad.
(d) None of them
7. National income differs from net national product at market price by the amount———–.
(a) current transfers from the rest of the world (b) net indirect taxes
(c) national debt interest (d) it does not differ
Assertion and reason questions
Options:
(a) Both (A) and (R) true and (R) is correct explanation of (A).
(b) Both (A) and (R) true but (R) is not correct explanation of (A).
(c) (A) is true but (R) is false.
(d) (A) is false but (R) is true
EXAMINATION REFERENCE MATERIAL
2025-26
GRADE: 12 SUBJECT: ECONOMICS
BHOPAL
1. Assertion (A): Real GDP is better indicator of economic growth than nominal GDP.
Reason (R): Real GDP eliminates the change in prices.
2. Assertion (A): Higher level of GDP does not ensure higher level of social welfare. Reason (R): Level of
GDP does not focus on the composition and distribution of income.
3. Assertion (A): GDPmp is the sum total of market value of all final goods and services produced in the
domestic territory during an accounting year.
Reason (R): GNPfc is the sum total of market value of final goods and services produced by the normal
residents of a country during an accounting year.
4. Assertion (A): Gross Domestic Capital Formation can be less than Gross Fixed Capital Formation.
Reason (R) : If change in Stock is negative.
5. Assertion (A) : A change in taste and preference of Indian consumer towards MNCs and imported goods
leads to decrease in GDP
Reason (R) : expenditure on imports of goods is subtracted from final expenditure in order to estimate
GDP.
6. Statement (A): Higher level of GDP does not ensure higher level of social welfare.
Reason (R): Level of GDP does not focus on the composition and distribution of income.
HOTs
1. “The economic growth of a country is rising but most of the people are still poor & there is a huge
environmental pollution.” Explain.
2. In the determination of social welfare what matter is the quantum of output rather than the composition of
output? Defend or refute.
3. Why are exports included in the estimation of domestic income?
4. Is brokerage paid to real estate agents only on the sale and purchase of new houses includes in the national
income?
4. In the estimation of GDP (using expenditure method), we focus only on expenditure by the resident of a
country. Is it true?
5. “Machine purchased is always a final good”. Do you agree? Give reasons for your answer.
6. Should purchase of wheat in the wholesale market be treated as the purchase of final goods?
7. Classify the following expenditures as intermediates consumption expenditures and finals consumption
expenditures.
(i) Expenditure on research and development by TATA on Nano car.
(ii) Insurance premium paid by a firm to an insurance company.
(iii) Insurance premium paid by households to an insurance company.
(iv) Expenditure on repairs and maintenance of plant and machinery.
(v) Expenditure incurred by a firm on purchase of equipment.
(vi) Advertising expenditure incurred by Airtel on promotion of its product.
(vii) Business expenses of employees on tour and entertainment.
8. Firm A buys from X inputs worth Rs.500 crores and sells to firm B goods worth Rs.1000 crores and to
firm C goods worth Rs.700 crores. Firm B buys from Y inputs worth Rs.200 crores and sells to firm C
goods worth Rs.1500 crores and finished goods worth Rs.2000 crores to households. Firm C buys from Z
inputs worth Rs.150 crores and sells finished goods worth Rs.4,150 crores to households. Calculate value
added by firms A, B and C and GDPMP.
9. In the determination of social welfare what matters is the quantum of output rather than the composition
of output? Defend or refute.
10. In the estimation of GDP (using expenditure method), we focus only on expenditure by the resident of a
country. Is it true? Give reason for your answer.
EXAMINATION REFERENCE MATERIAL
2025-26
GRADE: 12 SUBJECT: ECONOMICS
BHOPAL
Theory of Income and Employment
Scope of the syllabus:
Basic concepts and determination of Income and Employment
The concept of demand (exante) and effective (expost) demand. Aggregate demand and its components,
propensity to consume and propensity to save (average and marginal), equilibrium output; investment multiplier
(its meaning and mechanism with the help of a diagram). Simple numerical based on the above. Meaning of full
employment. Problems of excess demand and deficient demand; measures to correct them.
Assertion and reason questions
Options:
Alternatives:
(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 explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
1. ASSERTION (A): APS can never be one or more than one.
REASONING (R): APC increases with increase in income.
2. ASSERTION (A): MPC of poor is more than that of rich.
REASONING (R): MPC falls with successive increase in Income.
3. ASSERTION (A): Multiplier explains how many times the income increases as a result of an increase in
the investment.
REASONING (R): There is an inverse relationship between the value of marginal propensity to save and
investment multiplier.
4. ASSERTION (A): Full employment is that situation in the economy when AS = AD along with fuller
utilization of the resources. But it does not mean a situation of zero unemployment in the Economy.
REASONING (R): Full employment means absence of unemployment in the economy.
5. Assertion (A): Higher the value of Marginal Propensity to Consume, higher the value of multiplier and
more chances of economic growth and increase in National Income. This happens when marginal
propensity to save falls and marginal propensity to consume rises.
Reason(R): Investment generates income and this additional income causes a change in consumption.
Additional consumption expenditure generates additional income for producers of goods and services.
This process keeps repeating till the total increase in income equals the product of multiplier and change
in investment: ΔY=Kx ΔI
MCQ
1. Multiplier is estimated as
(a) 1 MPC (b) 1 1 + MPC
(c) 1 1 – MPC (d) 1 1 – MPS
2. Investment which is independent of the level of income is called
(a) Autonomous investment (b) Induced investment
(c) Fixed investment (d) Inventory investment
3. MPC + MPS = ?
(a) – 1 (b) 2
(c) 1 (d) 0 4.
4. The main component of aggregate demand is
(a) Individual consumption (b) Public consumption
(c) Investment (d) All of these
EXAMINATION REFERENCE MATERIAL
2025-26
GRADE: 12 SUBJECT: ECONOMICS
BHOPAL
5. If MPC = 0.5, then multiplier (K) will be
(a) 1/4 (b) 0
(c) 1 (d) 2
6. In Keynesian viewpoint, the equilibrium level of income and employment in the economy will be
established where:
(a) AD > AS (b) AD = AS
(c) AS = AD (d) None of these
7. An increase in aggregate demand of equilibrium level of income and employment causes an increase in
(a) Employment (b) Production
(c) Income (d) All of these
8. Keynesian multiplier establishes a relationship between
(a) Investment and income (b) Income and consumption
(c) Saving and investment (d) None of these
9. Which of the following is correct?
(a) MPC and multiplier have a direct relationship
(b) MPS and multiplier have an inverse relationship
(c) Both (a) and (b)
(d) None of these
10. The important factor influencing the propensity to consume in an economy is
(a) The level of income (Y) (b) The level of investment
(c) The level of consumption (d) The level of savings
Numerical:
1. From the following information about an economy, calculate
(i) Its equilibrium level of national income
(ii) Consumption expenditure at equilibrium.
Consumption function = C = 200 + 0.9 Y and Investment expenditure = Rs.3000crore.
2. In an economy S = (-) 50 + 0.5 Y is the saving function and Investment expenditure is 7000. Calculate
i) Its equilibrium level of national income
ii) Consumption expenditure at equilibrium.
3. Complete the following table-
Income MPC Saving APC
0 -40
100 -20
200 0
300 60
400 120
4. Calculation of APC and MPC given the level of Income and Consumption.
Income Consumption
0 4
10 12
20 20
30 28
40 36
EXAMINATION REFERENCE MATERIAL
2025-26
GRADE: 12 SUBJECT: ECONOMICS
BHOPAL
HOTs
1. Suppose the consumption function is C = 40 + 0.8y. Basing upon it draw consumption curve when
income is equal to 0, 100 Cr, 200 Cr, 300 Cr, 400 Cr, 500 Cr and 600 Cr. Show breakeven point on the
diagram and mention APC value at breakeven level of income.
2. Why can the value of MPC be not greater than 1?
3. Does an excess of AD over AS always imply a situation of inflationary gap?
4. What happens if AD>AS prior to full employment level of employment?
5. In poor countries like India, people spend a high percentage of their income so that APC and MPC are
high. Yet, value of multiplier is low. Why?
6. Show a point on the consumption curve at which APC= 1.
7. In what respect foreign trade will be useful in removing the adverse economic effects of deficient
demand?
8. What happens in an economy, when credit availability is restricted and credit is made costlier?
9. Economists are generally concerned about the rising Marginal propensity to save in an economy. Explain
why?
10. Measure the level of ex-ante aggregate demand when autonomous investment and consumption
expenditure (A) is Rs 50 crores, and MPS is 0.2 and level of income (Y) is Rs 4000 crores. State whether
the economy is in equilibrium or not (cite reasons).
11. Giving reasons, state whether the following statements are true or false.
a. When MPC is zero, the value of investment multiplier will also be zero.
b. Value of APS can never be less than zero
c. When MPC>MPS, the value of investment multiplier will be greater than 5.
d. The value of MPS can never be negative
e. When investment multiplier is 1, the value of MPC is zero.
f. The value of APS can never be greater than 1.