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Economics · 2026 · 6 marks
CBSE 2026 · Region 2 · Set 2 · Q16
(A) (I) Calculate the value of Ex-ante Aggregate Demand (AD), if autonomous investment and consumption expenditure ( Ā ) = ₹ 50 crore; and Marginal…
(I)
Calculate the value of Ex-ante Aggregate Demand (AD), if autonomous investment and consumption expenditure ($\displaystyle \overline{A}$) = ₹ $\displaystyle 50$ crore; and Marginal Propensity to Save (MPS) is $\displaystyle 0.2$ and level of income is ₹ $\displaystyle 300$ crore.
(II)
“If an economy is facing fall in inventories below the desired level, its often leads to a decrease in Aggregate Demand.”
Defend or refute the given statement with valid arguments.
(I)
Complete the following table :
| Situation | Change in Investment (ΔI) | Change in Income (ΔY) | Marginal Propensity to Consume (MPC) | Investments Multiplier (K) |
| (a) | $\displaystyle 100$ | (i) _______ | $\displaystyle 0.75$ | (ii) _______ |
| (b) | (iii) _______ | $\displaystyle 1000$ | (iv) _______ | $\displaystyle 5$ |
| (c) | $\displaystyle 500$ | (v) _______ | $\displaystyle 0.5$ | (vi) _______ |
(II)
Identify the monetary measure being referred to each of the following and discuss whether the tool would be used during a situation of excess demand or deficient demand.
(i)
Buying government securities (G-Sec) from public.
(ii)
Discourage commercial banks to park their surplus funds with the Reserve Bank of India (RBI).
Marking-scheme solution
(I)
Given,
Autonomous investment and consumption expenditure ($\displaystyle \overline{A}$) = ₹ $\displaystyle 50$ crore
Marginal Propensity to Save (MPS) = $\displaystyle 0.20$
Level of income = ₹ $\displaystyle 300$ crore
Marginal Propensity to Consume (MPC) = $\displaystyle 1$ – MPS
= $\displaystyle 1$ – $\displaystyle 0.2$
= $\displaystyle 0.8$
As we know, ex-ante Aggregate Demand (AD) = C + I
= $\displaystyle \overline{A}$ + (MPC)Y
= $\displaystyle 50$ + ($\displaystyle 0.8$ x $\displaystyle 300$)
= ₹ $\displaystyle 290$ crore
(II)
The given statement is refuted. An unintended decumulation of inventories reflects that the households and firms are planning to consume more than what the firms are planning to produce. Thus, the producers may increase the output to restore the desired stock of inventories.
(I)
| Situation | Change in Investment (ΔI) | Change in Income (ΔY) | Marginal Propensity to Consume (MPC) | Investments Multiplier (K) |
| (a) | $\displaystyle 100$ | $\displaystyle 400$ | $\displaystyle 0.75$ | $\displaystyle 4$ |
| (b) | $\displaystyle 200$ | $\displaystyle 1000$ | $\displaystyle 0.8$ | $\displaystyle 5$ |
| (c) | $\displaystyle 500$ | $\displaystyle 1000$ | $\displaystyle 0.5$ | $\displaystyle 2$ |
(II)
(i)
The monetary measure being referred to in the aforesaid statement is ‘Open Market Operations.’
The Central Bank buys the government securities in the open market to increase the money supply in the economy and correct the situation of deficient demand.
(ii)
The monetary measure being indicated in the above statement is Reverse Repo Rate.
To deal with the situation of deficient demand the Reserve Bank of India (RBI) may decrease the Reverse Repo Rate thereby increasing the lending capacity of the commercial banks, increasing the money supply and Aggregate Demand in the economy.
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CBSE Class 12 Economics past-paper question from the 2026 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.