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Read the following text… (Class 12 Economics 2026, Q15)

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EconomicsCBSE Class 12 · Board exam 2026, set 58/5/1 · 4 marks · Case-based

CBSE Class 12 Economics 2026: question 15

Set in the CBSE Class 12 board exam of 2026, paper 58/5/1, section A, question 15, for 4 marks. Try it first; the hints and our step-by-step solution are below.

Q15 · 4 marks · Case-basedCompetency-basedMoney and Banking

Read the following text carefully :
"With an objective to improve the growth momentum by stimulating domestic private consumption and investment, the Reserve Bank of India (RBI) announced a reduction in Cash Reserve Ratio (CRR) by 100 basis points (1%)."

Based on the above text and common understanding, answer the following questions :

  1. (i)

    Explain the likely cause behind the step taken by the Reserve Bank of India (RBI).

    2 marks
  2. (ii)

    Briefly explain the impact of the step taken by the Reserve Bank of India (RBI) on the Aggregate Demand (AD).

    2 marks

Source: official question paper from cbse.gov.in (PDF). See it in the full 2026 board paper, set 58/5/1.

Hints

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

Hint 1

Is the RBI trying to raise or reduce spending here?

Hint 2

CRR is the share of deposits banks cannot lend.

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) The likely cause is deficient demand: private consumption and investment were weak, slowing growth. A CRR cut aims to stimulate consumption and investment and so correct deficient demand (deflationary pressure).

    2 marks

  2. (ii) Lower CRR means banks must keep a smaller share of deposits with the RBI, so more funds are available to lend. Their credit-creating capacity rises, loans become easier and cheaper, money supply rises, and consumption and investment spending rise, increasing aggregate demand.

    2 marks

Answer: (i) To remove deficient demand by stimulating consumption and investment. (ii) Lower CRR raises banks' lendable funds and credit, so AD rises.

Where the marks are

  • Cause: deficient demand (2)
  • Impact: more credit, higher AD (2)

Revise the chapter

  • Chapter: Money and Banking (notes, formulas, where marks are lost and every past question)
Practise this chapterBoard-style questions from Money and Banking, one at a time, marked against the answer key and marking points.Back to the full paper2026 board paper, set 58/5/1: 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.