CBSE Class 12 Board Exam Economics Syllabus

What is market equilibrium price?

The price at which quantity demanded equals quantity supplied (Qd = Qs). There is neither excess demand nor excess supply; it is determined at the intersection of demand and supply curves.

What is the effect of an increase in demand (with supply constant) on equilibrium price and quantity?

Both equilibrium price and equilibrium quantity rise.

Differentiate between a price ceiling and a price floor.

A price ceiling is a government-imposed maximum price below the equilibrium (causes shortage/excess demand, e.g., rent control). A price floor is a minimum price above equilibrium (causes surplus/excess supply, e.g., minimum support price).

Define Gross Domestic Product (GDP) at market price.

GDP at MP is the total market value of all final goods and services produced within the domestic territory of a country during an accounting year.

What is the relationship between GDP and GNP (National Income aggregates)?

GNP = GDP + Net Factor Income from Abroad (NFIA). NFIA = factor income earned by residents abroad − factor income earned by non-residents domestically.

Distinguish between National Income at market price and at factor cost.

At factor cost = at market price − Net Indirect Taxes (NIT). NIT = Indirect Taxes − Subsidies. Factor cost reflects income received by factors of production.

What is the difference between Gross and Net measures of national income?

Net = Gross − Depreciation (Consumption of Fixed Capital). Net measures account for the wear and tear of capital assets used in production.

State the three methods of measuring National Income.

(1) Value Added (Product) Method, (2) Income Method, and (3) Expenditure Method. All three yield the same national income.

What are the components of National Income under the Income Method?

Compensation of Employees + Operating Surplus (Rent + Interest + Profit) + Mixed Income of Self-Employed = NDP at factor cost; add NFIA to get NNP at FC (National Income).

Distinguish between real GDP and nominal GDP.

Nominal GDP is measured at current year prices; real GDP is measured at constant (base year) prices. Real GDP reflects actual output changes by removing the effect of price changes.

Define money supply and list its main components in India (M1).

Money supply is the total stock of money held by the public at a point in time. M1 = Currency with public + Demand deposits with banks + Other deposits with RBI.

What are the primary functions of money?

Medium of exchange and measure of value (unit of account). Secondary functions include store of value and standard of deferred payments.

Explain the process of credit (money) creation by commercial banks.

Banks keep a fraction of deposits as reserves (LRR) and lend the rest. Loans return as deposits, which are lent again. Total deposits = Initial deposit × Money Multiplier (1/LRR).

What is the formula for the money multiplier?

Money Multiplier = 1 / LRR (Legal Reserve Ratio). It shows the total credit created from an initial deposit; higher LRR means lower credit creation.

List the central bank's (RBI's) main functions.

Bank of issue (currency), banker to the government, bankers' bank and supervisor, custodian of foreign exchange reserves, lender of last resort, and controller of money supply/credit.

Differentiate between CRR and SLR.

CRR (Cash Reserve Ratio) is the percentage of deposits banks must keep as cash with the RBI. SLR (Statutory Liquidity Ratio) is the percentage of deposits banks must keep with themselves in liquid form (cash, gold, approved securities).

Define Repo rate and Reverse Repo rate.

Repo rate is the rate at which the RBI lends to commercial banks against securities. Reverse Repo rate is the rate at which the RBI borrows from commercial banks. Raising them reduces money supply.

What is the consumption function and its formula?

It shows the relationship between consumption and income: C = c̄ + b(Y), where c̄ is autonomous consumption and b is the Marginal Propensity to Consume (MPC).

Define MPC and MPS and state their relationship.

MPC = ΔC/ΔY (fraction of additional income consumed). MPS = ΔS/ΔY (fraction saved). MPC + MPS = 1.

What is the investment multiplier and its formula?

The multiplier (K) measures the change in income due to a change in investment. K = ΔY/ΔI = 1/(1−MPC) = 1/MPS.

What is the condition for equilibrium level of income in a two-sector economy?

Equilibrium occurs where Aggregate Demand = Aggregate Supply (AD = AS), or equivalently where planned Saving = planned Investment (S = I).

Distinguish between deficient demand and excess demand.

Deficient demand occurs when AD < AS at full employment, causing a deflationary gap and unemployment. Excess demand occurs when AD > AS at full employment, causing an inflationary gap and rising prices.

What fiscal and monetary measures correct deficient demand?

Fiscal: increase government spending, reduce taxes. Monetary: reduce CRR, SLR, repo rate, and buy securities (open market operations) to increase money supply.

Define government budget and its two main components.

A government budget is an annual statement of estimated receipts and expenditure of the government. Its two components are the Revenue Budget and the Capital Budget.

Distinguish between revenue receipts and capital receipts.

Revenue receipts neither create liabilities nor reduce assets (e.g., taxes). Capital receipts either create liabilities (borrowing) or reduce assets (disinvestment).

Define fiscal deficit and what it indicates.

Fiscal Deficit = Total Expenditure − Total Receipts (excluding borrowings). It indicates the total borrowing requirement of the government.

Differentiate between direct tax and indirect tax.

A direct tax is levied on income/wealth and its burden cannot be shifted (e.g., income tax). An indirect tax is levied on goods/services and its burden can be shifted to the consumer (e.g., GST).

Distinguish between the current account and capital account of the Balance of Payments.

The current account records exports/imports of goods and services, income, and transfers. The capital account records international capital flows like borrowings, lending, and investments that affect assets and liabilities.

What were the three main components of the 1991 New Economic Policy (LPG reforms)?

Liberalisation (removing restrictions/licensing), Privatisation (greater private/disinvestment role), and Globalisation (integrating the economy with the world). Triggered by a balance of payments and fiscal crisis.

Compare the development paths of India, China and Pakistan since the late 20th century.

China reformed first (1978) achieving the fastest GDP growth via manufacturing and one-child policy demographics. India began reforms in 1991 with strong service-sector growth. Pakistan's growth has been slower and more volatile due to political instability and reliance on agriculture and remittances.