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(I) Suppose in an… (Class 12 Economics SQP 2025-26, Q16A)

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EconomicsCBSE Class 12 · Sample paper, session 2025-26 · 6 marks · Long answer

CBSE Class 12 Economics sample paper 2025-26: question 16(A)

From the official CBSE sample question paper for 2025-26, section A, question 16(A), for 6 marks. Try it first; the hints and our step-by-step solution are below.

Q16(A) · 6 marks · Long answerCompetency-basedDetermination of Income and Employment

(I) Suppose in an economy, the Marginal Propensity to Consume (MPC) is 0.8. The government introduced an investment project of ₹ 1,000 crore which led to a manyfold increase in National Income (Y) and Consumption Expenditure (C). Estimate:
(a) Value of Investment Multiplier (k)
(b) Missing Values of (i) and (ii)

RoundsChange in Investment (ΔI)Change in Income (ΔY)Change in Consumption (ΔC)Change in Savings (ΔS)
I1,0001,000800200
II800640160
…………
…………
(i)(ii)1,000

(II) “Sum of the Average Propensity to Consume (APC) and Average Propensity to Save (APS) is always equal to one.”
Justify the given statement with the help of a suitable argument.
[Marks: (I) 3, (II) 3]

Source: official sample paper from cbseacademic.nic.in (PDF). See it in the full Sample paper 2025-26.

Hints

Open one hint at a time and try again before the next.

Hint 1

k = 1/(1 − MPC).

Hint 2

The last row of the table holds the totals of every round.

Hint 3

Divide Y = C + S by Y.

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. (I)(a) Investment multiplier k = 1/(1 − MPC)

    ½ mark

  2. = 1/(1 − 0.8) = 5

    ½ mark

  3. (I)(b)(i) Total change in income ΔY = k × ΔI

    ½ mark

  4. = 5 × 1,000 = ₹ 5,000 crore

    ½ mark

  5. (I)(b)(ii) Total change in consumption ΔC = MPC × ΔY

    ½ mark

  6. = 0.8 × 5,000 = ₹ 4,000 crore (check: ΔC + ΔS = 4,000 + 1,000 = 5,000 = ΔY).

    ½ mark

  7. (II) Income is either consumed or saved: Y = C + S. Dividing both sides by Y gives Y/Y = C/Y + S/Y, that is, 1 = APC + APS. So APC + APS is always 1.

    3 marks

Answer: (I) k = 5; (i) ΔY = ₹ 5,000 crore; (ii) ΔC = ₹ 4,000 crore. (II) Y = C + S, so dividing by Y gives APC + APS = 1.

Where the marks are

  • k formula and value (½ + ½)
  • ΔY formula and value (½ + ½)
  • ΔC formula and value (½ + ½)
  • Derivation APC + APS = 1 (3)

Revise the chapter

Practise this chapterBoard-style questions from Determination of Income and Employment, one at a time, marked against the answer key and marking points.Back to the full paperSample paper 2025-26: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.