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Read the following… (Class 12 Economics 2026, Q3)

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EconomicsCBSE Class 12 · Board exam 2026, set 58/1/1 · 1 mark · MCQ

CBSE Class 12 Economics 2026: question 3

Set in the CBSE Class 12 board exam of 2026, paper 58/1/1, section A, question 3, for 1 mark. Try it first; the hints and our step-by-step solution are below.

Q3 · 1 mark · MCQOpen Economy Macroeconomics

Read the following statements carefully :

Statement 1 : Depreciation of currency is an economic action undertaken by the government of a nation under the fixed exchange rate system.

Statement 2 : Under the floating exchange Rate system, authorities actively intervene in the foreign exchange market by way of maintaining foreign exchange reserves.

In the light of the given statements, choose the correct option from the following :

  1. (A)Statement 1 is true and statement 2 is false.
  2. (B)Statement 1 is false and statement 2 is true.
  3. (C)Both statements 1 and 2 are true.
  4. (D)Both statements 1 and 2 are false.

Source: official question paper from cbse.gov.in (PDF). See it in the full 2026 board paper, set 58/1/1.

Hints

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

Hint 1

What is the name for a government-decided fall in the value of a fixed currency?

Hint 2

Who determines the exchange rate under a free float?

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. Statement 1 is false: a deliberate cut in the value of the currency by the government under a fixed exchange rate system is devaluation. Depreciation is a fall in value caused by market forces under a flexible rate.

  2. Statement 2 is false: under a pure floating system the rate is set by demand and supply of foreign exchange; the authorities do not actively intervene with reserves (that happens under fixed or managed floating rates). Option (D).

    1 mark

Answer: (D) Both statements 1 and 2 are false.

Where the marks are

  • Devaluation vs depreciation; no intervention under a floating rate (1 mark)

Revise the chapter

Practise this chapterBoard-style questions from Open Economy Macroeconomics, one at a time, marked against the answer key and marking points.Back to the full paper2026 board paper, set 58/1/1: 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.