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CBSE Board Class 12 Mock Test Question Paper

CBSE Board Class 12 Mock Test Question Paper aids in the assessment. By doing this students get to know whether their understanding in the subject is enough or not. These question papers are developed by keeping in mind the level of real board questions. 

 

 

PRACTICE PAPER, 2020-21 (With Answers)
Class: XII SUBJECT: ECONOMICS (030)

Time Allowed: 1 Hrs.                                                                                                                  Maximum Marks: 40

General Instructions:
1 This question paper contains Macro Economics (40 marks):
2 Marks for questions are indicated against each question.
3 Question No. 1-37 and Question No. 37-40 (including one Case Based Questions) are 1-mark questions and are to be answered in one word/sentence

 

1. One of the other two components of government Revenue in the budget are:

a. Revenue Expenditure
b. Expenditure receipts
c. Capital receipts
d. Budget receipts

Answer.(c) Capital receipts
Explanation: Government revenue is classified as revenue receipts and capital receipts.
Capital receipts are further classified as:
i. recovery of loans
ii. borrowings and other liabilities
iii. other receipts
Capital receipts either create liability or cause a reduction in the assets of the government

2. One of the functions of commercial banks among the following is:

a. Advancing issues
b. Advancing foreign exchange
c. Advancing Loans
d. Advancing securities

Answer. (c) Advancing Loans
Explanation: The primary functions of a commercial bank are accepting deposits and also give loan
facilities.

3. Deficit financing is

a. Taking loans
b. Printing more currency notes
c. Not paying interest on loans
d. None of them

Answer. (b) Printing more currency notes
Explanation: Deficit financing is a budgetary situation where expenditure is higher than the revenue.
The expenditure revenue gap is financed either by printing currency notes or through borrowing.

4. Fiscal deficit is equal to borrowings. It is:

a. False
b. True
c. Can’t say
d. Insufficient information

Answer. (b) True
Explanation: Fiscal deficit indicates the excess of government expenditure over receipts except for
borrowings. For eg. if total expenditure = Rs 100 crores and total receipts = Rs. 100 crores(including
borrowing of Rs. 20 crores)
then fiscal deficit = 100 – (100 -20) = 20
so, we see that fiscal deficit = borrowings.

5. Disequilibrium in the balance of payments leads to:

a. decrease in official reserves with RBI
b. none of these
c. increase in official reserves with RBI
d. both increase and decrease in official reserves with RBI

Answer.(d) both increase and decrease in official reserves with RBI
Explanation: Disequilibrium in the balance of payments leads to both increase and decrease in official
reserves with RBI.

6  The Government can achieve its budget objective of ‘Redistribution of Income’ by____________
(Fill up the blank with correct alternative)

a) managing the General Price Level in the economy to the desired level.
b) increasing the Gross Domestic Products (GDP) of the economy.
c) bringing the production of goods and services under its direct and absolute control.
d) rationalisation of taxes in pro-poor direction.

Answer. d)

7 Balance of Payments of an economy records_____________ for a fiscal year.
. (Fill up the blank with correct alternative)

a) income and expenditure of the government
b) inflow and outflow of funds of the government
c) inflow and outflow of foreign exchange to/from the economy
d) inflow and outflow of loans to/from the rest of the world

Answer.: c)

8 Identify which of the following bank does not interact directly with the general public?
(Choose the correct alternative)

a) Bank of India
b) State Bank of India
c) Central Bank of India
d) Reserve Bank of India

Answer. : d)

9  Identify which of the following is not an example of ‘invisible item’ under Current Account of the
Balance of Payments transactions: (Choose the correct alternative)

a) Air and sea transport
b) Postal and courier services
c) Education-related travel
d) Merchandise linked transactions

Answer.: d)

10  Read the following statements carefully and choose the correct alternative from the following:

Statement 1 – Demonetization was the step taken by the Government of India in order to tackle
the problems of corruption, black money, terrorism and circulation of fake currency in the Indian
Economy.
Statement 2 – Demonetization has ensured improved tax compliance in India over the period of
time.
Alternatives:
a) Both the statements are true.
b) Both the statements are false.
c) Statement 1 is true and Statement 2 is false
d) Statement 2 is true and Statement 1 is false

Answer. : a)

11  Ms. Sakshi, an economics teacher, was explaining the concept of ‘minimum percentage of the
total deposits to be kept by any commercial bank with the Central Bank of the country, as per
norms and statute prevailing in the country’.

From the following, choose the correct alternative which specifies towards the concept
explained by her?
a) Cash Reserve Ratio
b) Repo Rate
c) Bank Rate
d) Statutory Liquidity Ratio

Answer.: a)
12  Two friends Mira and Sindhu were discussing the exchange rate systems.

‘Under this system, the exchange rates are determined by the market forces of demand and
supply. However, deliberate efforts are made by the competent authority to keep the exchange
rates within a specific range’.
The above-mentioned statement was given by Sindhu, identify the type of exchange rate system
was she talking about?
a) Fixed Exchange Rate
b) Floating Exchange Rate
c) Managed Floating Exchange Rate
d) Managed Fixed Exchange Rate

Answer. : b)

13 Read the following statements carefully and choose the correct alternative from the following:

Statement 1 – Public goods are those goods and services that are collectively consumed by the
public.
Statement 2 – Public goods are excludable and rivalrous in nature.
Alternatives:
a) Both the statements are true.
b) Both the statements are false.
c) Statement 1 is true and Statement 2 is false
d) Statement 2 is true and Statement 1 is false

Answer.: c)

14  Under the Balance of Payments structure of a nation, the two main categories of accounts for
the classification of the transactions are___ and ___. (Fill up the blank with correct alternative)

i. current account
ii. unilateral transfer account
iii. capital account
iv. loan account

Identify the correct alternatives from the following:
Alternatives:
a) i and ii
b) i and iii
c) iii and iv
d) iv and i

Answer. : b)
15  Identify which of the following is not a function of the Reserve Bank of India?
(Choose the correct alternative)

a) To act as the banker to the Government of India.
b) To act as the custodian of the gold reserve of India
c) To act as the financial advisor to the Government of India
d) To issue coins and one rupee note

Answer. : d)

16 The Government of India has decided to vaccinate the adult population of India (with
Covaxin/Covishield), without any charge. This would be categorized as ____________
(Fill in the blank with correct alternative)

a) revenue nature income
b) capital nature expenditure
c) revenue nature expenditure
d) capital nature income

Answer. : c)

17 In a hypothetical economy, Mr. Neeraj has deposited ₹100 in the bank. If it is assumed that there
is no other currency circulation in the economy, then the total money supply in the economy will
be ________________ (Fill up the blank with correct alternative)

a) zero
b) ₹ 100
c) not defined
d) ₹ 120

Answer. : b)

18 Read the following statements carefully and choose the correct alternatives given below:

Statement 1 – Subsidies do not add any burden on the financial health of a nation.
Statement 2 – Complete removal of subsidies may violate the aim of equitable distribution of
income.
Alternatives:
a) Both the statements are true.
b) Both the statements are false.
c) Statement 1 is true and Statement 2 is false
d) Statement 2 is true and Statement 1 is false

Answer. : d)

19 Suppose in an economy, the initial deposits of ₹ 400 crores lead to the creation of total deposits
worth ₹ 4000 crores.

Under the given situation the value of reserve requirements would be________
(Fill up the blank with correct alternative)
a) 0.01
b) 1
c) 0.1
d) 0.4

Answer. : c)

20 Read the following statements carefully and choose the correct alternatives given below:

Statement 1 – The value of money multiplier is determined by the reserve ratio prevailing in the
monetary system.
Statement 2 – The process of credit creation directly relates to the value of reserve ratio.
Alternatives:
a) Both the statements are true.
b) Both the statements are false.
c) Statement 1 is true and Statement 2 is false
d) Statement 2 is true and Statement 1 is false

Answer. : c)

21 Read the following statements -Assertion (A) and Reason(R), choose one of the correct
alternatives given below:

Assertion (A): Trade of invisible items between two nations is a part of capital account of
Balance of Payment
Reason(R): Transactions that affect the asset-liability status of a country in relation to the rest of
the world are known as Capital Account transaction.
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.

Answer. : d)

22 Demand Deposits include______ and _________.(Fill up the blank with correct alternative)

i. Saving account deposits
ii. Fixed deposits
iii. Current Account Deposits
iv. Post Office Savings
Alternatives:
a) i and ii
b) ii and iii
c) i and iii
d) i and iv

Answer.: c)

23 Read the following statements -Assertion (A) and Reason(R), Choose one of the correct
alternatives given below:

Assertion (A): Demand Deposits are considered as a convenient mode of payment for execution
of even the high value transactions.
Reason(R): Demand Deposits are non-withdrawable in nature and cannot be withdrawn against
issue of cheques and other similar instruments of payment.
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

Answer. : c)

24 Suppose that the Balance of Trade (BOT) of a nation, exhibits a surplus of ₹ 20,000 crores. The
import of merchandise of the nation is half of the exports of merchandise to the rest of the
world.
The value of exports would be ₹______ crores. (Fill up the blank with correct
alternative)

a) 30,000
b) 40,000
c) 24,000
d) 35,000

Answer. : c)

25  Read the following statements -Assertion (A) and Reason(R), Choose one of the correct
alternatives given below:

Assertion (A): If the receipts and payments on the current account are equal to each other, it
depicts a situation of Current Account Surplus.
Reason(R): A surplus current account means that the nation is a lender to other countries and a
deficit current account means that the nation is a borrower from other countries.
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.

Answer. : d)

26. What is the fiscal year in India for which government budget is prepared?

a. None of these
b. January-December
c. July-June
d. April-March

Answer:  (d) April-March
Explanation: The financial year in India begins from April 1 and ends on March 31. This period of
accounting income is called the financial year or a fiscal year.

27 . RBI announced the guidelines to issue licenses to new banks of the private sector on:

a. None of these
b. April 1, 1999
c. January 22, 1993
d. March 15, 1995

Answer.:  (c) January 22, 1993
Explanation: RBI announced the guidelines to issue licenses to new banks of the private sector
on January 22, 1993.

28. Cause of BoP imbalance relates to:

a. None of these
b. both autonomous and accommodating items
c. autonomous items
d. accommodating items

Answer.: (c) autonomous items
Explanation: The cause of BoP imbalance relates to autonomous items.
29. Fiscal deficit equals ________.

a. None of these
b. Primary deficit + Interest payments
c. Primary deficit – Interest payments
d. Total budget expenditure – Total budget receipts

Answer.: (b) Primary deficit + Interest payments
Explanation: Primary deficit is the difference between fiscal deficit and interest payment. Fiscal deficit
shows the borrowing requirement of the government inclusive of interest payment on the past loans.

30. Assertion (A): Export and import of services such as banking, insurance, shipping are not included in
the balance of trade.
Reason (R): Expenditure by tourists is included in the balance of trade.

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.

Answer.: (c) A is true but R is false.
Explanation: Export and import of services such as banking, insurance, shipping are not included in
the balance of trade. Expenditure by tourists is not included in the balance of trade.

31. Which of the following is not a non-tax revenue receipt?

a. Disinvestment
b. Goods and Services tax
c. Dividends and profits
d. External grants

Answer.: (b) Goods and Services tax
Explanation: Goods and Services tax. Non-Tax Revenue is the recurring income that is earned from the
sources other than taxes by the government. They are the revenue receipts that are not generated by
taxing the public

32. The primary deficit is the borrowing requirements of the government for making ________. (choose the
correct alternative)

a. Some specific payments
b. All types of payments
c. Other than interest payments
d. Interest payments

Answer.: (c) Other than interest payments
Explanation: Primary deficit shows the borrowing requirement of the government exclusive of
interest payment.
33. Assertion (A): Statutory liquidity ratio is reduced to increase the flow of credit in the economy.
Reason (R): The rate of statutory liquidity ratio is fixed by the central bank which is a fixed percentage of assets in the form of cash or other liquid assets.

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.

 

 

Answer.: (b) Both A and R are true but R is not the correct explanation of A.
Explanation: The statutory liquidity ratio is reduced to increase the flow of credit in the economy. The
rate of statutory liquidity ratio is fixed by the central bank which is a fixed percentage of assets in the
form of cash or other liquid assets.

34. Assertion (A): The government does not make revenues out of Escheat.
Reason (R): There are no claimants of such properties under escheat.

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.

 

Answer.: (d) A is false but R is true.
Explanation: The government makes revenues out of Escheat. There are no claimants of such
properties under escheat

35. Which of the following is not a method of credit control adopted by central bank?

a. Statutory Liquidity Ratio
b. Tax
c. Open Market Operations
d. Bank Rate

 

Answer. : (b) Tax
Explanation: Methods of credit control adopted by Central Bank are bank rate, repo rate, open market
operations, reverse repo rate, cash reserve ratio and statutory liquidity ratio.

36. When balance of payments balances:

i. current account + capital account = zero
ii. official reserves account is a part of current account
iii. official reserves account is a part of capital account
a. Only iii
b. Only i
c. Both i and iii
d. Only ii

Answer.(c) Both i and iii
Explanation: Balance of payments balances when current account + capital account = zero and official
reserves account is a part of capital account

 

 

 

 

 

 

 

 

Question No37 to 39 are based on the given text. Read the text carefully and answer the
questions:

Functions of money are basically classified into two categories: primary functions ad secondary
functions. Primary functions include the medium of exchange and measure of value. Secondary
functions include the standard of deferred payments, store of value, and transfer of value.
W.R.L. Coulborn and Paul Einzig have classified all the functions of money into two broad categories,
static functions, and dynamic functions. The static functions of money refer to conventional functions
of money. These basically include the primary ad secondary functions of money: medium of
exchange, a measure of value, the standard of deferred payments, store of value, and transfer of value.
Dynamic functions of money refer to the functions of money which impart stability to the economy ad
push an economy to a higher level of growth and development.

 

 

 

 

 

 

 

 

 

37. Introduction of money has separated the act of sale and purchase is a ________ function of money.

a. secondary
b. all of these
c. primary
d. teritary

Answer. (c) primary
Explanation: primary

38. ________ functions helps to regulate the economic system.

a. demand
b. static
c. dynamic
d. None of these

Answer. : (b) static
Explanation: static

39. Rupees in India, dollars in USA, euro in Europe all these dictates ________ function of money.

a. unit of value
b. Store of Value
c. medium of exchange
d. Standard of Deferred Payments

Answer.(a) unit of value
Explanation: unit of value

40. Government all over the world have tried to control the recession is ________ function of money.

a. demand
b. dynamic
c. static
d. all of these

Answer  (b) dynamic
Explanation: dynamic

41. Money also acts as a convenient unit of account. Which function of money can be inferred in this
statement?

a. Secondary
b. Static
c. Primary
d. Dynamic

Answer (c) Primary
Explanation: The primary function (medium of exchange and measure of value).

42. A company gives gifts cards to its employees every Diwali instead of bonuses. What function of money
does a gift card perform here?

a. primary
b. dynamic
c. secondary
d. static

Answer (c) secondary
Explanation: secondary function (Gift Cards are another form of stored value)

Question No. 43 to 49 are based on the given text. Read the text carefully and answer the
questions:

It is through the sale and purchase of foreign currency in the international money market. When the
exchange rate (say of US) needs to be reduced, the central bank releases the supply of US in the foreign
exchange market. Other things remaining constant, higher supply of US would lower the price of US, as
desired. This would lead to an appreciation of the domestic currency. On the other hand, when the
exchange rate needs to be raised, the central bank increases its demand for the US in the foreign
exchange market. Other things remaining constant, higher demand for the US would raise the price of
US $, as desired. This would lead to the depreciation of the domestic currency. Briefly, managed
floating is an exercise of sale and purchase of foreign currency by the central bank, so that the
exchange rate is managed within the desired limits.

43. Hedging is possible in:

a. all of these
b. spot market
c. forward market
d. managed floating system

Answer (c) forward market
Explanation: forward market
44. Dirty floating is related to:

a. all of these
b. floating system of exchange rate
c. fixed system of exchange rate
d. flexible system of exchange rate

Answer: (d) flexible system of exchange rate
Explanation: flexible system of exchange rate
45. ________ is an exercise of sale and purchase of foreign currency by the central bank.

a. Dirty exchange rate
b. Flexible rate
c. Managed floating
d. Floating exchange rate

Answer:  (c) Managed floating
Explanation: Managed floating

 

46. ________ purchases of foreign exchange by the domestic investors in the international money market impact the floating rate of exchange.

a. Irregular
b. Regular

c. Speculative
d. Regular

Answer: (c) Speculative
Explanation: Speculative

47. Managed floating exchange rate system is a mixture of a ________ exchange rate system and a ________
rate system.

a. flexible; rigid
b. rigid; flexible
c. fixed; flexible
d. flexible; fixed

Answer: (d) flexible; fixed
Explanation: Managed floating exchange rate system is a mixture of a flexible exchange rate system
(the float part) and a fixed rate system (the managed part).

48. The system was the gold standard is an example of ________.

a. rigid exchange rate system
b. fixed exchange rate system
c. mixed exchange rate system
d. flexible exchange rate system

Answer: (b) fixed exchange rate system
Explanation: fixed exchange rate system