case study on government budget class 12

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Class 12 Economics Case Study Questions

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In this article, we will discuss how to download CBSE class 12 Economics Case Study Questions from the myCBSEguide App and our Student Dashboard for free. For the students appearing for class 12 board exams from the commerce/ humanities stream, Economics is a very lucrative and important subject. It is a very high-scoring subject that aids the students to increase their percentile and excel in academics.

The exam is divided into 2 parts:

• Macro Economics
• Indian Economics Development

12 Economics Case Study Questions

CBSE introduced case-based questions for class 12 in the year 2021-22 to enhance critical thinking in students. CBSE introduced a few changes in the question paper pattern to enhance and develop analytical and reasoning skills among students. Sanyam Bharadwaj, controller of examinations, CBSE quoted that the case-based questions would be based on real-life situations encountered by students.

The purpose was to drift from rote learning to competency and situation-based learning. He emphasized the fact that it was the need of the hour to move away from the old system and formulate new policies to enhance the critical reasoning skills of students. Introducing case study questions was a step toward achieving the goals of the National Education Policy (NEP) 2020.

What is a Case Study Question?

As part of these questions, the students would be provided with a comprehensive passage, based on which analytical questions will have to be solved by them. The students will have to read the given passage thoroughly before attempting the questions. In The current examination cycle (2021-22), case-based questions have a weightage of around 20%.

Types of Case Study Questions in Economics

CBSE plans to increase the weightage of such questions in the following years, so as to enhance the intellectual and analytical abilities of the students. Case-based questions are predominantly of 3 types namely:

• Inferential

Local questions

Local questions can be easily solved as the answers are there in the given passage itself.

Global Questions

For Global questions, the students will have to read the passage in depth, analyze it and then solve it.

Inferential questions

Inferential questions are the ones that would require the student to have complete knowledge of the topic and could be answered by application of the concepts. The answers to such questions are tricky and not visible in the given passage, though the passage would highlight the concept on which the questions would be asked by CBSE.

HOTS Questions in Class 12 Economics

Personally, the concept of case-based questions is not new since CBSE has always included questions based on Higher Order Thinking Skills (HOTs). Though now we will have an increased percentage of such questions in the question paper.

Advantages of Case-based Questions

Class 12 Economics has two books and CBSE can ask Case study questions from any of them. Students must prepare themselves for both the books. They must practice class 12 Economics case-based questions as much as possible.

Case study questions:

• Enhance the intellectual and analytical abilities of the students.
• Provide a complete and deeper understanding of the subject.
• Inculcate intellectual reasoning and scientific temperamental in students.
• Help students retain knowledge for a longer time.
• Would definitely help to discard the concept of memorizing insanely and cramming without a factual understanding of the content.
• The questions would help to terminate the existing system of education in India that promotes rote learning.

Sample case study questions (Economics) class 12

Here are some case study questions for CBSE class 12 Economics. If you wish to get more case study questions and other related study material, download the myCBSEguide App now. You can also access it through our Student Dashboard.

Case Study 1

Keeping in view the continuing hardships faced by banks in terms of social distancing of staff and consequent strains on reporting requirements, the Reserve Bank of India has extended the relaxation of the minimum daily maintenance of the CRR of 80% for up to September 25, 2020. Currently, CRR is 3% and SLR is 18.50%.

“As announced in the Statement of Development and Regulatory Policies of March 27, 2020, the minimum daily maintenance of CRR was reduced from 90% of the prescribed CRR to 80% effective the fortnight beginning March 28, 2020 till June 26, 2020, that has now been extended up to September 25, 2020,” said the RBI.

Q.1 The full forms of CRR and SLR are:

• Current Reserve Ratio and Statutory Legal Reserves
• Cash Reserve Ratio and Statutory Legal Reserves
• Current Required Ratio and Statutory Legal Reserves
• Cash Reserve Ratio and Statutory Liquidity Ratio (ans)

Q.2 What will be the value of the money multiplier?

• None of these

Q.3 SLR implies:

• a) Certain percentage of the total banks’ deposits has to be kept in the current account with RBI
• b) Certain percentage of net total demand and time deposits have to be kept by the bank themselves (ans)
• c) Certain percentage of net demand deposits has to be kept by the banks with RBI
• d) None of the above

Q.4 Decrease in CRR will lead to __.

• a) fall in aggregate demand in the economy
• b) rise in aggregate demand in the economy (ans)
• c) no change in aggregate demand in the economy
• d) fall in the general price level in the economy

Case Study 2

An important lesson that the COVID-19 pandemic has taught the policymakers in India is to provide greater impetus to sectors that make better allocation of resources and reduce income inequalities. COVID-19 has also taught a lesson that in crisis the population returns to rely on the farm sector. India has a large arable land, but the farm sector has its own structural problems. However, directly or indirectly, 50 percent of the households still depend on the farm sector. Greater support to MSMEs, higher public expenditure on health and education and making the labour force a formal employee in the economy are some of the milestones that the nation has to achieve.

One of the imminent reforms to be done in the country is labour reforms. Labour laws are outmoded in India, and some of these date back to the last century.

India’s complex labour laws have been blamed for keeping manufacturing businesses small and hindering job creation. Industry hires labour informally because of complex laws and that is responsible for low wages.

• Which types of structural problems are faced by the agricultural sector?
• “It is necessary to create employment in the formal sector rather than in the informal sector.’’ Defend or refute the given statement with valid argument.
• Hired labour comes in …………………. (Informal organisation / formal organisation)
• What do you mean by MSMEs?

Case Study 3

People spend to acquire information relating to the labour market and other markets like education and health. This information is necessary to make decisions w.r.t investment in human capital and its efficient utilization. Thus, expenditure incurred for acquiring information relating to the labour market and other markets is also a source of human capital formation.

Q1. Which of the following is the source of human capital formation in India?

• Acquiring information
• All of these (ans)

Q2. Education provides

• Private benefit
• Social benefit
• Both 1) and 2) (ans)

Q3. __ persons contribute more to the growth of an economy.

Q4. Training given by a company to its employees is generally__________

• Investment (ans)
• Social wastage
• Both 1) and 2)

Tips to Solve Case Study Questions in Economics

Let’s understand how you can solve case study questions in class 12 Economics. The two books are Macroeconomics and Indian Economic Development.

• Read the passage thoroughly
• Can follow a reversal pattern, especially macroeconomics questions, i.e. read questions first and then look for the answers in the passage.
• In case the question asked is about Indian Economic Development, read the passage very carefully as most of the answers would be hidden in the passage itself.
• Macro Economics questions will be more application-based and would test your conceptual clarity.
• Answer briefly and precisely.

Important Chapters – Economics Case Study Questions

Following are some of the very important topics that need to be prepared very thoroughly under CBSE class 12 Economics. We expect that CBSE will certainly ask case-based questions from these chapters.

• National income and its aggregates
• Government budget
• Current challenges faced by the Indian economy

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Case Study Chapter 5 Government Budget and Economy

Please refer to  Case Study Chapter 5 Government Budget and Economy  with answers provided below. These case study based questions are expected to come in the upcoming Class 12 Economics examinations. We have provided  economics case studies with answers class 12  for all chapters on our website as per the latest examination pattern issued by CBSE, NCERT, and KVS.

Chapter 5 Government Budget and Economy Economics Case study with Answers Class 12

Case Based Questions :

Finance Minister Nirmala Sitharaman has pegged fiscal deficit for the coming year 2021-22 at 6.8% of GDP and aims to bring it back below the 4.5% mark by 2025-26. The original fiscal deficit target for 2020-21 was 3.5%. However, in reality, the deficit shot up to a high of 9.5% of GDP due to the double impact of the COVID-19 pandemic- low revenue flows due to the lockdown and negative economic growth clubbed with the high government spending to provide essential relief to the vulnerable sections of the society, as well as a stimulus package aimed at reviving domestic demand.

Question. Fiscal deficit is financed through:    (a) Borrowings (b) Tax revenue receipts (c) Disinvestment (d) All of the above

Question. If fiscal deficit is ₹4000 crore and interest payments is ₹500 crore, then primary deficit is:  (a) ₹4,500 crore (b) ₹ 3,500 crore (c) ₹ 5,000 crore (d) ₹ 4,200 crore

Question. Deficit budget refers to a situation when:    (a) government’s budget expenditure is less than its budget receipts (b) government’s budget expenditure is more than its budget receipts (c) government’s budget expenditure is equal to its budget receipts (d) government’s budget receipts are more than its budget expenditure

Question. Fiscal deficit is equal to:  (a) Total expenditure -Total receipts other than borrowings (b) Capital expenditure – Capital receipts (c) Revenue expenditure – Revenue receipts (d) Revenue expenditure + Capital expenditure – Revenue receipts

Presenting the Union Budget for 2021-22, Finance Minister Nirmala Sitharaman said that the budget proposals for this financial year rest on six pillars – health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R &D, and ‘Minimum Government, Maximum Governance’. Significant announcements included a slew of hikes in customs duty to benefit Make in India, proposal to disinvest two more public sector banks (PSBs) and a general insurance company, and numerous infrastructure pledges to poll- bound states.

Question. Which of the following is not an objective of government budget?  (a) Reallocation of resources (b) Increasing regional disparities (c) Economic Stability (d) Economic Growth

Question. In which of the following taxes, the impact and incidence of the tax lies on different person?  (a) Goods and service tax (b) Custom duty (c) Income tax (d) both (a) and (b)

Question. Disinvestment of a general insurance company is an example of:  (a) revenue receipt (b) revenue expenditure (c) capital receipt (d) capital expenditure

Question. Expenditure on infrastructure is a capital expenditure because:  (a) It creates liability of the government (b) It reduces assets of the government (c) It increases assets of the government (d) It neither creates any liability nor reduces any asset of the government

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NCERT Solutions for Class 12 Macro Economics Chapter 5 Government Budget and the Economy

NCERT Solutions for Class 12 Economics Chapter 5 Government Budget and the Economy – Macroeconomics designed and developed for session 2024-25023. Along with the solutions, student can get here class 12 Macroeconomics chapter 5 MCQ, Case Studies and extra question answers.

Class 12 Macroeconomics Chapter 5 Macroeconomics Government Budget and the Economy Question answers

• Class 12 Macroeconomics Chapter 5 Solutions
• Class 12 Macroeconomics Chapter 5 MCQ
• Class 12 Macroeconomics Chapter 5 Case Studies
• Class 12 Macroeconomics NCERT Books PDF
• Class 12 Economics all Chapters Solutions
• Class 12 all Subjects NCERT Solutions

There is a constitutional demand in Republic of India to present before the Parliament, an announcement of calculable receipts and expenditure of the govt in respect of each financial year which runs from 1st April to 31st March. This ‘Annual Financial Statement’ represent the primary budget document of the govt. The govt plays an awfully vital role in increasing the welfare of the people. Government provides certain goods and services that can’t be provided by the market mechanism, i.e.; by exchange between individual shoppers and producers.

Example of such merchandise are national defence, roads, government administration, etc., that are noted as public goods. To grasp why public merchandise, got to be provided by the govt, we must understand the difference between non-public merchandises such as garments, cars, food items, etc. and public merchandise. The benefit of public goods is available to all and not restricted to one particular user. Think about a public park or measures to scale back pollution, the advantages are obtainable to all or any. Just in case of personal merchandise, anyone who does not pay to obtain the product, can be excluded from enjoying its advantages. Like, if you don’t buy a ticket of the movie, you may not be allowed to enter the cinema hall.

However, in case of public merchandise, there is no possible approach of excluding anyone from enjoying the advantages of the product. That is why public merchandise is known as non-excludable. Even if some users do not pay, it’s tough and typically not possible to gather fees for the general public merchandise. These non-paying users are known as ‘free-riders’. There is, however, a distinction between public provision and public production. Public provision implies that they’re finances through the budget and may be used with none direct payment. Public merchandise could also be created by the govt or the non-public sector. When goods are created directly by the govt, it is known as public production.

Revenue receipts : These receipts are those receipts that don’t lead result in a claim on the govt. They’re thus termed non-redeemable. They’re divided into tax and non-tax revenues. Taxation, a vital element of revenue receipts, have for long been divided into direct taxes and companies, and indirect taxes like excise taxes, custom duties and service taxes. Alternative direct taxes like wealth tax, gift tax and state duty haven’t brought in a great deal of revenue and therefore are remarked as paper taxes. The distribution objective is wanted to be achieved through progressive financial gain taxation, within which higher the financial gain, higher is that the rate. Companies are taxed on a proportional basis, wherever the rate could be an explicit proportion of the profits.

With respect to excise taxes, requirements of life are exempted or taxed at low rates, comforts and semi-luxuries are moderately taxed and luxuries, tobacco and fossil fuel merchandise are taxed heavily. Non-tax revenue of the central government primarily consists of interest receipts on account of loans by the central government, dividends and profits on investments created by the govt, fees and alternative receipts for services rendered by the govt. Money grant-in-aid from foreign countries and international organisations are enclosed. The estimate of revenue receipts takes into accounts the consequences of tax proposal created within the finance bill.

Capital receipts The govt additionally receives cash by means of loans or from the sale of its assets. Loans can need to be returned to the agencies from that they have been borrowed. Thus, they produce liability. Sale of presidency assets, like sale of shares in Public Sector Undertakings, that is remarked as PSU withdrawal, cut back the whole quantity of monetary assets of the govt. All those receipts of the govt that produce liability or cut back monetary assets are termed as capital receipts.

Revenue expenditure : It is an expenditure incurred for purposes other than the creation of physical or financial assets of the central govt. It relates to those expenses incurred for the normal functioning of the govt departments and various services, interest payment on debt incurred by the govt, and grants given to state govt and other parties. Budget documents classify total expenditure into planned and non-planned expenditure. By this classification, planned revenue expenditure relates to the central plans and central assistance for state and union territory plans.

Non-plan expenditure, covers a vast range of general, economic and social services of the govt. The main items of non-plan expenditure are interest payments, defence services, subsidies, salaries and pensions. Interest payments on market loan, external loans and from various reserve funds constitute the single largest component of non-plan revenue expenditure. Defence expenditure, is committed expenditure in the sense that given the national security concerns, there exists little scope for drastic reduction. Subsidies are an important policy instrument which aims at increasing welfare. Apart from providing implicit subsidies through under-pricing of public goods and services like education and health, the government also extends subsidy explicitly on items such as exports, interest on loans, food and fertilisers.

Capital expenditure There are expenditure of the govt which result in creation of physical or financial assets or reduction in financial liabilities. This includes expenditure on the acquisition of land, building, machinery, equipment, investment in shares, and loan and advances by the central govt to state and union territory govts, PSUs and other parties. Capital expenditures are also categorised as plan and non-plan in the budget documents. Plan capital expenditure, like its revenue counterpart, relates to central plan and central assistance for states and union territory plans. Non-plan capital expenditure covers various general, social and economic services provided by the govt.

What are the important topics of class 12 Macroeconomics chapter 5?

Class 12 Macroeconomics chapter 5 carries 6 marks according to CBSE board- split into two sub topics namely Foreign exchange and balance of payment. There are three systems of Foreign exchange determination. India follows the managed floating system. We study the merits and demerits of the fixed exchange system and the flexible exchange system. We try to understand what determines the demand and supply of foreign exchange in a flexible exchange rate system, We can also understand and appreciate the benefits/consequences of devaluation/ depreciation of currency. In the topic Balance of Payment (which is the concluding chapter of macroeconomics), we study the components of BOP namely the current account and the capital account. The current account deficit (CAD) can and does have adverse consequences on the overall BOP possession and foreign exchange rate (particularly the US Dollar). Numerical on calculation on BOT, current account deficit, devaluation of currency can also be asked in the Board examination- though the marks allotted would be 1 or 2. Students should note that these two sub-topics namely Balance of Payment and Foreign exchange are interrelated. Any deficit in BOP affects the foreign exchange rate adversely. Hence, these two have been combined into one unit.

What are the main concepts to prepare 12th Macroeconomics chapter 5?

The important concepts in the topic determination of foreign exchange are- Foreign exchange rate, Foreign exchange market, Devaluation, Depreciation, Revaluation and Appreciation of currency, Speculation, demand for foreign currency and supply of foreign currency. The important concepts in BOP are current account, Capital account, BOT, Autonomous items, accommodating items, disequilibrium in BOP, surplus or deficiting BOP, visible and invisible items in current account, Unilateral transfers.

Which questions, in chapter 5 of 12th Economics, are considered as most important for examination perspective?

• Discuss the concepts of: (2 marks each) (a) Fixed exchange rate system (b) Flexible exchange rate system (c) Managed floating rate system.
• Discuss the major reasons for demand (outflow) and supply (inflow) of foreign exchange. (4 marks)
• Distinguish between: (2- 3 marks each) (a) Devaluation and depreciation of domestic currency (b) Revaluation and Appreciation of Domestic Currency.
• What is the meaning of balance of payments? State its main components (3 marks)
• Distinguish between Autonomous items and Accommodating items. (3 marks)
• What is meant by deficit in balance of payments? How is it corrected? (3 marks)

What are the main Abbreviations in class 12 Macroeconomics chapter 5 to learn?

• BOP = Balance of payment
• BOT = Balance of trade
• CAD = Current account deficit
• NRI = Non – resident Indian
• CAS = Current account Surplus
• TCS = Tata consultancy services
• MNC = Multi-national corporations

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• Economics /

Government Budget And The Economy Class 12

• Updated on  
• Mar 19, 2021

Every new year, the whole country eagerly waits for the new fiscal or the nation’s budget that the government presents in the parliament. Almost every news channel covers and telecasts this important day before the country. Class 12 Macroeconomics covers many such new topics that we have never discussed before in earlier classes. The chapter of Government Budget and the Economic is one such chapter that will make you understand the importance and need of government budget. It is an important part of class 12 economics . This blog will cover the study notes on the chapter Government Budget and the economy class 12. 

This Blog Includes:

What is the government budget , objectives of the government budget, components of government budget , budget receipts , revenue receipts vs capital receipts , tax revenues vs non-tax revenues , budget expenditure , plan expenditure vs non-plan expenditure, types of budget, implications of revenue deficits and fiscal deficits, measures to reduce or correct different deficits.

According to the chapter government budget and the economy class 12, the government budget is basically an annual final statement which shows item wise expenditures of the government or a ruling entity during a fiscal year. It also presents the anticipated tax revenues and proposed spending or expenditures in areas like Healthcare, Defence, Education, Infrastructure, Banks, State Benefits, etc. The fiscal year is taken into account from 1st April to 31st March. 

As per the chapter on Government Budget and the Economy class 12, the main purpose or the main objectives of the government budget is as follows:

• Reallocation of resources 
• Redistribution of activities 
• Stabilizing economic activities 
• Management of public enterprises 
• Economic growth 
• Generation of employment 

According to Government Budget and the Economy class 12, there are 2 components of the budget. These are:

• Revenue Receipts 
• Revenue Expenditure 
• Capital Receipts 
• Capital Expenditure 

According to the chapter government budget and the economy class 12, the budget receipts refer to the estimated receipts/revenue or money receipts that the government may earn from all the sources during a fiscal year. Receipts can be of 2 types, i.e. revenue receipts and capital receipts. 

Government budget and the economy class 12 chapter gives the various differences between revenue receipts and capital receipts. They are tabulated below: 

As we have discussed above in this blog of Government Budget and the Economy class 12 study notes, the revenue receipts are divided into 2 categories which are tax revenue receipts and non-tax revenue receipts. The tax revenue receipts can further be divided into 2 categories:

• Direct taxes 
• Indirect taxes 

On the other hand, the non-tax revenues, which is the second type of revenue receipts which government may receive from all other sources other than taxes are:

• Commercial Revenue
• Dividends and Profits
• External Grants
• Administrative Revenues
• License Fee
• Fines and/or Penalties
• Cash grants-in-aid from foreign countries and international organisations or the World Bank

The second component of the government budget is, of course, the government budget expenditure. As we have discussed above, these are of two types, the revenue expenditure and the capital expenditure. Let us understand the difference between these two according to Government Budget and the Economy class 12. 

According to the chapter on Government Budget and the Economy class 12, expenditures can be of 2 types:

• Plan expenditures : all those expenditures of the government that are to be incurred during the fiscal or the financial year on things like development and investment programs are termed as plan expenditures. 
• Non-plan expenditures : all those expenditures of the government that are not included in the current five year plan are termed as non-plan expenditures. 

According to the chapter on Government Budget and the Economy class 12, we can bifurcate the government budget into 3 major types:

• Balanced Budget: when estimated receipts are equal to the government estimated expenditures. 
• Surplus Budget: when government estimated receipts are shown more than the government estimated expenditures.
• Deficit Budget: when government estimated receipts are shown less than the government estimated expenditures. This implies an increase in the government liabilities and fall in the reserves. 

Deficit can be of 3 types:

• Revenue Deficit: Total Revenue Expenditure – Total Revenue Receipts
• Fiscal Deficit: Total Budget Expenditure – Total Budget Receipts excluding borrowings

Fiscal Deficit = Borrowings

• Primary Deficit: Fiscal Deficit Interest Payment

Moving further in the government budget and the economy class 12, it mentions the implications of revenue deficits and fiscal deficit. They are tabulated below.

As per the chapter on Government Budget and the Economy class 12, the measures that can be adopted to reduce or correct different deficits in the economy are:

• Borrowing from international monetary institution and other countries
• Lowering government expenditure
• Increasing government revenue
• Monetary expansion
• deficit financing
• Borrowing from public
• Disinvestment

So we end this blog on Government Budget and the Economy class 12 chapter of macroeconomics hoping that this may prove to be helpful for that last moment revision for your exams. If you want to study abroad after 12th commerce or want to know more about the courses after 12th commerce , reach out to our experts at Leverage Edu . Sign up for a free session today! 

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• NCERT Solutions
• NCERT Class 12
• NCERT Class 12 Economics
• NCERT Class 12 Macro Economics
• Chapter 5: Government Budget And Economy

NCERT Solution for Class 12 Macroeconomics Chapter 5 - Government Budget and Economy

NCERT Solutions are considered one of the best study materials while preparing for the CBSE Class 12 Economics Board examinations. These Solutions of NCERT are collated by the subject matter experts to help students improve their understanding of economic concepts.

Download the PDF of NCERT Solutions for Class 12 Economics Chapter 5 – Government Budget and Economy

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Access NCERT Solutions for Class 12 Economics Chapter 5

NCERT Macroeconomics Solutions Class 12 Chapter 5

1. Explain why public goods must be provided by the government.

Public goods are those goods where there is no competition, and the use of goods is not restricted to only one individual. These goods are for use by all individuals in society. Such goods are used for the welfare of society.

Therefore, the government should provide public goods for the following reasons:

1. So that benefits of the public goods can be enjoyed by all members of the society.

2. So that the consumption of these goods will not impact the consumption of any other individual.

2. Distinguish between revenue expenditure and capital expenditure.

3. ‘The fiscal deficit gives the borrowing requirement of the government.’ Elucidate.

A fiscal deficit is referred to as a shortfall in the government’s income as compared to its spending. A high fiscal deficit means that the government is borrowing more money than it is earning. A higher fiscal deficit creates a burden of loan and interest payments for the future generation.

Fiscal deficit is determined by

Total Expenditure – Total Receipts excluding borrowings

4. Give the relationship between the revenue deficit and the fiscal deficit.

A revenue deficit is referred to as an excess of revenue expenditure as compared to earnings by revenue receipts of the government. A fiscal deficit is a bigger phenomenon where the difference is between the total expenditure and total receipts obtained by the government. When the revenue deficit increases correspondingly, the fiscal deficit also increases.

5. Suppose that for a particular economy, investment is equal to 200, government purchases are 150, net taxes (that is, lump-sum taxes minus transfers) is 100 and consumption is given by C  = 100 + 0.75 Y  (a) What is the level of equilibrium income? (b) Calculate the value of the government expenditure multiplier and the tax multiplier. (c) If government expenditure increases by 200, find the change in equilibrium income.

6. Consider an economy described by the following functions:  C  = 20 + 0.80Y,  I  = 30,  G  = 50,  TR  = 100 (a) Find the equilibrium level of income and the autonomous expenditure multiplier in the model. (b) If government expenditure increases by 30, what is the impact on equilibrium income? (c) If a lump-sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?

7. In the above question, calculate the effect on the output of a 10 per cent increase in transfers and a 10 per cent increase in lump-sum taxes. Compare the effects of the two.

8. We suppose that  C  = 70 + 0.70 Y D, I  = 90,  G  = 100,  T  = 0.10 Y  (a) Find the equilibrium income. (b) What are tax revenues at equilibrium Income? Does the government have a balanced budget?

9. Suppose the marginal propensity to consume is 0.75, and there is a 20 per cent proportional income tax. Find the change in equilibrium income for the following (a) Government purchases increase by 20 (b) Transfers decrease by 20.

Therefore, the change in equilibrium income is 20.

10. Explain why the tax multiplier is smaller in absolute value than the government expenditure multiplier.

The tax multiplier always has a negative value and therefore is smaller in absolute value than the government expenditure multiplier. Government expenditure creates an impact on the total expenditure and the taxes through the multiplier. It also influences disposable income, which impacts the overall consumption level.

The following example will help in understanding the tax multiplier better.

Assume MPC be to 0.50.

Now, the government expenditure multiplier = 1 / 1 – c

= 1 / 1 – 0.50

Tax multiplier = – c / 1- c

= -0.50 / 1 – 0.50

This shows that the government expenditure multiplier is always more than the tax multiplier.

11. Explain the relation between government deficit and government debt.

A government, in order to adjust the government deficit, which is created due to borrowings by the government, seeks more borrowings; these borrowings create further debt for the government in the form of interest payments. Therefore, an increase in the deficit will lead to an increase in debt.

12. Does public debt impose a burden? Explain.

Public debt is referred to the amount of money that a government owes to banks, financial institutions and other sources of finance. It is known to impose a burden on the economy in the following ways:

1. Government may impose taxes or print new money to repay the existing debts. Such a situation will hamper the productivity of the nation.

2. A high level of debt creates a burden on future generations in the form of interest and taxes being levied on the younger generation, which will result in lower consumption and savings.

3. More investments are attracted by the government by raising the interest rates on bonds and securities. Therefore, citizens’ money is utilised by the government and hence less private investment.

4. Wealth of the nation is depleted when loans are repaid to foreign institutions and countries.

13. Are fiscal deficits inflationary?

A fiscal deficit will not always result in inflation. If a situation arises when government expenditure increases and tax reduction is seen, it will cause a deficit in the government, which leads to an increase in aggregate demand. Firms will not be able to meet the demand thus generated, which will result in a price increase. Therefore, fiscal deficits can become inflationary, but they will not be inflationary in the case when resources are less utilised due to insufficient demand and less output. Then, if the government is spending more also, more resources will be employed in order to meet the growing demand, and there will be no pressure on price rise. In such a situation, a high fiscal deficit, along with high demand and greater output, will not create an inflationary situation.

14. Discuss the issue of deficit reduction.

Government can reduce the budget deficit by the following methods:

1. Decreasing expenditure

2. Increasing Revenue

Decreasing Expenditure can be achieved by

a. More planned activities should be undertaken by the government to reduce expenditure.

b. Encouraging the private sector to contribute to some major capital projects will help reduce expenditure.

An increase in revenue can be obtained by

a. Raising taxes or introducing new taxes can contribute to an increase in revenue.

b. By selling stakes in PSU, the process called divestment can bring in more revenue.

NCERT Solution for Class 12 Economics Chapter 5 – Government Budget and Economy.  This chapter explains, in brief, a manner about how the budget and employment are determined.

Chief concepts of this chapter –

• Government Budget
• Objectives of Government Budget
• Public goods
• Revenue receipts
• Capital receipts

NCERT Solutions for Class 12 Economics Chapter 5 provide many illustrative examples, which help the students to comprehend and learn quickly. The above-mentioned are the illustrations for the Class 12 CBSE syllabus. For more solutions and study materials of NCERT Solutions for Class 12 Economics, visit BYJU’S website or download the app.

Also, explore – 

NCERT Solutions for Class 12 Macroeconomics

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CBSE Class 12 Economics Important Case Study Based Questions for 2023 Board Exams

Cbse class 12 economics important case study based questions: class 12th economics exam is just a few hours away. get important case study questions to practice before cbse class 12 economics board examinations scheduled to be conducted on march 17, 2023. .

Important Case Study Based Questions for CBSE Class 12 Economics Board Exam 2023

Read the following case study paragraph carefully and answer the questions on the basis of the same..

Q1 The central bank of India i.e. Reserve Bank of India, is the apex institution that control the entire financial market. It's one of the major functions is to maintain the reserve of foreign

exchange. Also, it intervenes in the foreign exchange market to stabilise the excessive fluctuations in the foreign exchange rate.

In other words, it is the central bank's job to control a country's economy through monetary policy; if the economy is moving slowly or going backward, there are steps that central bank can take to boost the economy. These steps, whether they are asset purchases or printing more money, all Involve injecting more cash into the economy. The simple supply and demand economic projection occur and currency will devalue.

When the opposite occurs, and the economy is growing, the central bank will use various methods to keep that growth steady and in-line with other economic factors such as wages and prices.

Whatever the central bank does or in fact don't do, will affect the currency of that country.

Sometimes, it is within the central bank's interest to purposefully effect the value of a currency.

For example, if the economy is heavily reliant on exports and their currency value becomes too high, importers of that country's commodities will seek cheaper supply; hence directly effecting the economy.

1 Which of the following tools are used by the central bank to control the flow of money in domestic economy?

(a) Fiscal tools (b) Quantitative monetary tools

(c) Qualitative monetary tools (d) Both (b) and (c)

• a) Tighten the money supply in the economy
• b) Ease the money supply in the economy
• c) Allow commercial banks to work under less strict environment
• d) Both (b) and (c)

3 Which of the following steps should be taken by the central bank if there is an excessive rise in the foreign exchange rate?

(a) Supply foreign exchange from its stock

(b) Demand more of other foreign exchange

(c) Not intervene in the market as the exchange rate is determined by the market forces

(d) Help central government to stabilize the foreign exchange rate.

Answer: 

1(d) Both (b) and (c)

2(a) Tighten the money supply in the economy

3(a) Supply foreign exchange from its stock

Q2 Changes in aggregate demand bring about changes in the level of output, employment, income, and price. These changes are generally cyclical in nature. These changes, more generally, follow a cycle of four different stages namely boom, recession, depression and recovery. The cyclical nature of economic activity is known as trade cycle or business cycle. Boom is a stage of economic activity characterized by rising prices, rising employment, rising purchasing power.

• During the time of ‘excess demand’, Govt. should .................. the public expenditure.
• a) Reduce b) increase c) unchanged d) none of these.
• Investment depends on: a) Supply b) income c) saving d) Both (a) and (c)

Answer: Income.

Q3 In the modern world, govt. aims at maximizing the welfare of the people and the country. It

requires various infrastructure and economic welfare activities. These activities require huge govt. spending through appropriate planning and policy. Budget provides a solution to all these concerns. Budget is prepared by the government at all levels.

Estimated expenditure and receipts are planned as per the objectives of the government. In India, budget is prepared by the parliament on such a day as the president may direct. The parliament approves the budget before it can be implemented. The receipts and expenditures as shown in the budget are only the estimated values for the upcoming fiscal year, and not the actual figure.

• a) Reallocation of resources.
• b) Re distribution of income
• c) Reducing expenditure
• d) Economic stability.

Answer: c) Reducing expenditure

Answer: False

Q4 India’s balance of payments position improved dramatically in 2013-14 particularly in the last three quarters. this moved in large part to measure taken by the government and the Reserve Bank of India (RBI) and eat some part to the overall macro-economic slowdown that fed into the external sector. current account deficit (CAD) declined sharply from a record high of U.S. dollar 88.2 billion (4.7% of GDP) in 2012 -1/3 to U.S. dollars 32.4 billion (1.7% of GDP) in 2013 -14. After staying at perilously unsustainable levels off well over 4.0 percentage of GDP in 2011 -12 and 2012 -13, the improvement in BOP position is a welcome relief, and there is need to sustain the position going forward. This is because even as CAD came down, net capital flows moderated sharply from U.S. dollars 92.0 billion in 2012 -13 do U.S. dollar 47.9 billion in 2013-14, that two after a special swap window of

The RBI under the nonresident Indian (NRI) scheme / overseas borrowings of banks alone yielded U.S. dollar 3 4.0 billion. This led to some increase in the level of external debt, but it has remained at the manageable levels. the large depreciation of the rupee during the course of the year, note with standing sizable accretion to reserve in 2013 – 14, could partly be attributed to frictional forces and partly to the role of expectations in the forex market. the rupiah has stabilized the recently, reflecting an overall sense of confidence in the forex market as in the other financial markets of a change for better economic

prospects there is a need to nurture and build upon this optimism through creation of an enabling environment for investment inflows so as to sustain the external position in an as yet uncertain global milieu. --------- The Hindu, archives

• a) credit, capital account
• b) debit, capital account
• c) credit, current account
• d) debit, current account
• a) current account
• b) revenue account
• c) capital account
• d) official reserves
• a) outward flow of foreign exchange
• b) inward flow of foreign exchange
• c) decrease in the level of external debt
• d) decrease in future claims

Answers: 1.b 2. c 3. b 4. d

Q5 The green revolution for the third agricultural revolution is the set of research technology

e-transfer initiatives earring between GNE E and the late 1960 that increased agricultural

production worldwide beginning most markedly in the late 1960 the initiative resulted in

the adoption of new technologies including high yield varieties of CSR rules of cells

especially does wheat and rice it was associated with chemical fertilizers agrochemicals

and controlled water supply and newer methods of cultivation including machine isolation

National bank for agriculture and rural development is and apex development finance

institution fully owned by government of India the bank has been entrusted with Martyrs

concerning policy planning and operations in the field of credit for agriculture and other

economic activities in rural areas in India.

1 Who among the following is known as the father of green revolution

(a) Dr. M S Swaminathan

(b) Dadabhai Naoroji

(c) Vikram Sarabhai

(d) all of these

2 Green revolution is also known as ..................

(a) Golden revolution

(b) milk revolution

(c) Wheat revolution

(d) None of this

3 Which of the following institutions were setup as the apex body in rural areas to support the small farmers in the adoption of modern farming methods?

4 Green revolution was the ............... set of agricultural reforms brought in India

Answer: 1 (a) 2 (c) 3 (d) 4(c)

• Narasimha Rao. This policy opened the door of the India Economy for the global exposure for the first time. In this New Economic Policy P. V. Narasimha Rao governmentreduced the import duties, opened reserved sector for the private players, devalued the Indian currency to increase the export. This is also known as the LPG Model of growth. New Economic Policy refers to economic liberalization or relaxation in the import tariffs, deregulation of markets or opening the markets for private and foreign players, and reduction of taxes to expand the economic wings of the country. Former Prime Minister Manmohan Singh is considered to be the father of New Economic Policy (NEP) of India. Manmohan Singh introduced the NEP on July 24,1991. Main Objectives of New Economic Policy – 1991, July 24 The main objectives behind the launching of the New Economic policy (NEP) in 1991 by the union Finance Minister Dr. Manmohan Singh are stated as follows:

The main objective was to plunge Indian Economy in to the arena of ‘Globalization and to give it a new thrust on market orientation. The NEP intended to bring down the rate of inflation.

1 New Economic Policy of India was launched in the year 1991 under the

• P. V. Narasimha Rao
• Atal Bihari Bajpayi
• Sharad Pawar
• None of these

2 .................................. is also known as the LPG Model of growth. ((choose

the correct alternative)) (New Economic Policy / New Education Policy)

Answer: New Economic Policy

3 State whether the given statement is true or false:

Former Prime Minister Manmohan Singh is considered to be the father of New Economic Policy (NEP) of India. ((choose the correct alternative))

True / False

Answer: True

Q7 Both forms of capital formation are the outcomes of conscious investment decisions. The decision regarding investment in physical capital is taken on the basis of one’s knowledge in this regard. The ownership of physical capital is the outcome of the conscious decision of the owner the physical capital formation is mainly an economic and technical process.

Human capital formation takes place in one’s life when she/he is unable to decide whether it would maximize her/his earnings. Children are given different types of school education and health care facilities by their parents and society. Moreover, the human capital formation at this stage is dependent upon the already formed human capital at the school level. Human capital formation is partly a social process and partly a conscious decision of the possessor of the human capital.

• a) Human capital is intangible whereas physical capital is tangible.
• b) Human capital can cope up with the changing technology whereas physical cannot.
• c) Human capital generates both personal and societal benefits whereas physical capital generates only personal benefit.
• d) Human capital gets obsolete with time whereas physical capital does not.
• In the context of the paragraph, it can be argued that human capital depreciates faster than the physical capital. The given statement is:
• c) Partially true
• d) can’t comment due to lack of proper estimation mechanism
• Machines and industrial tools are examples of _
• a) Physical capital
• b) Human capital
• c) Both physical and human capital
• d) Natural capital
• Investment in education by parents is the same as_______
• a) Investment in intermediate goods by companies
• b) Investment in CSR activity by companies
• c) Investment in capital goods by companies
• d) None of the above

Answer: – c) Investment in capital goods by companies

Q8 The central government will spend Rs. 9800 crores on livestock development over the next five years in a bid to leverage almost Rs. 55000 crore of outside investment into the Animal Husbandry Sector. It would do this by merging a slew of schemes of the Department of Animal Husbandry and Dairying into three main programmes, focused on indigenous cows and dairy development, livestock health and infrastructure development, an official statement said. The Cabinet Committee on Economic Affairs approved the implementation of the special livestock sector package by revising and realigning the various components of the existing schemes in order to boost growth and make animal husbandry more remunerative for the 10 crore farmers engaged in it.

1) Livestock production provides ------------- for the family without disrupting other food producing activities

(a)Increased stability in income 

(b) food security

(c)transport and fuel 

Answer: (d) all of these

2) The central bank undertakes to invest on livestock development in ----------- (horticulture/ animal husbandry) sector

Answer: animal husbandry

3) State one limitation of livestock sector in India

Answer: The livestock productivity is quite low as compared to other countries

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Government Budget And The Economy Chapter 4 Notes, QnA 2023

Government budget and the economy, government budget – meaning, objectives and components..

A government budget is an annual financial statement showing item wise estimates of expected revenue and anticipated expenditure during a fiscal year.

Just like your household budget, the government also has a budget of its income and expenditure. In the beginning of every year, the government presents before the Lok Sabha an estimate of its receipts and expenditure for the coming financial year.

The government plans a budget according to its expenditure and then tries to raise funds to meet the proposed expenditure. 

Government earns money broadly from taxes, fees and fines, interest on loans given to states and dividends by public sector enterprises. 

Government spends mainly on: Securing and providing goods and services to citizens, On law and order and Internal security, defence, staff salaries, etc. 

In India there is a constitutional requirement to present a budget before Parliament for the ensuing financial year. The financial (fiscal) year starts on April 1 and ends on March 31 of next year. 

General objectives of a government budget are as under:

• To promote rapid and balanced economic growth to improve the living standard of the people.  
• To eradicate poverty and unemployment by creating employment opportunities and providing maximum social benefits to the poor  
• To reduce inequalities of income and wealth, the government can influence distribution of income through levying taxes and granting subsidies.  
• To reallocate resources so as to achieve social and economic objectives. e.g., public sanitation, rural electrification, education, health, etc.  
• To bring economic and price stability, by controlling fluctuations in general price level through taxes, subsidies and expenditure.  
• To finance and manage public enterprises like railways, power generation and water lines etc.

Components And Classification

There are two main components of the Government Budget. 

Revenue Receipts  

Incomes which are received by the government from all sources in its ordinary course of governance are revenue receipts.

Revenue receipts are further classified as tax revenue and non-tax revenue.

• Tax Revenue

Tax revenue is the income received from different taxes and other duties levied by the government. It is a major source of public revenue. 

Taxes are of two types of tax], viz., Direct Taxes and indirect taxes

Direct taxes are taxes that an individual pays directly to the government, such as income tax, land tax, and personal property tax. Such direct taxes are based on the ability of the taxpayer to pay, higher their capability of paying is, the higher their taxes are.

Indirect taxes are those taxes which are levied on goods and services and affect the income of a person through their consumption expenditure. E.g. Custom duties, sales tax, services tax, excise duties, etc. 

• Non-Tax Revenue

Apart from taxes, governments also receive revenue from other non-tax sources.

Fees : Fees paid for registration of property, births, deaths, etc.

Fines and penalties : Fines and penalties for not following (violating) the rules and regulations.

Profits from public sector enterprises : Many enterprises are owned and managed by the government. It is an important source of non-tax revenue. For example in India, the Indian Railways, Oil and Natural Gas Commission, Air India, etc. 

Gifts and grants : Gifts and grants are received by the government. Citizens of the country, foreign governments and international organisations like the UNICEF, UNESCO, etc. donate during times of natural calamities.

Special assessment duty : It is a type of levy imposed on the people for getting some special benefit. For example, in a particular locality, if roads are improved, property prices will rise. 

Capital Receipts 

Receipts which create a liability or result in a reduction in assets are called capital receipts. They are obtained by the government by raising funds through borrowings, recovery of loans and disposing of assets.

Some more examples:

• Loans raised by the government from the public through the sale of bonds and securities. They are called market loans.
• Borrowings by government from RBI and other financial institutions through the sale of Treasury bills.
• Loans and aids received from foreign countries and other international Organisations like International Monetary Fund (IMF), World Bank, etc.
• Receipts from small saving schemes like the National saving scheme, Provident fund, etc.
• Recoveries of loans granted to state and union territory governments and other parties.

Click Below To Learn Other Chapter Notes

• Unit 1: National Income and Related Aggregates
• Unit 2: Money and Banking
• Unit 3: Determination of Income and Employment  
• Unit 5: Balance of Payments
• Unit 6: Development Experience (1947-90) and Economic Reforms since 1991
• Unit 7: Current challenges facing Indian Economy  
• Unit 8: Development Experience of India

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Classification Of Capital Expenditure And Revenue Expenditure 

Capital Expenditure  

Any projected expenditure which is incurred for creating asset for a long life is capital expenditure. 

Therefore, expenditure on land, machines, equipment, irrigation projects, oil exploration and expenditure by way of investment in long term physical or financial assets are capital expenditure.

The following are the examples of capital expenditure :

Expenditure incurred for :

• Acquisition of fixed tangible assets such as land, building, machinery, furniture, motor vehicle etc.  Improvement or extension of fixed assets such as increasing the seating capacity of a theatre. 
• Bring the fixed assets to the place of their use and expenditure incurred on their installation or erection such as freight on fixed assets, wages paid for purchase of intangible assets such as goodwill, patent rights, and trademarks, copyright, etc. 
• Reconditioning of old fixed assets such as expenditure incurred on repairing or overhealing of secondhand machinery. 
• Major repairs and replacement of plants which increase the efficiency of the plant.

Rules for Determining Capital Expenditure.  

An expenditure is capital expenditure:

• When it is incurred for acquiring a long term asset (having a useful life of more than one year) for use in the business to earn revenue and not meant for sale.
• When it is incurred to put an asset into working condition. For example, the transportation and installation charges are added to the cost of machine, the legal charges like registration and stamp duty is added to the cost of land and building, etc.
• When it incurred for putting an old asset into working condition is treated as capital expenditure and added to the cost of the asset.
• When it is incurred to increase the earning capacity of a business is treated as capital expenditure. For example, expenditure incurred for shifting the factory to convenient site is a capital expenditure.

Revenue Expenditure

When an expenditure is made for running the business with a view to produce the profits is revenue expenditure. Such expenditure benefits the current period only. 

It is incurred to maintain the existing earning capacity of the business. Administrative expenses and selling and distribution expenses are examples of revenue expenditure.

Rules for Determining Revenue Expenditure. 

An expenditure incurred: 

• For the purpose of acquiring goods purchased for resale, consumable items, etc. Other direct expenses like production and purchase of goods such as wages, power, freight etc. are revenue expenditure.
• For maintaining fixed assets in working order e.g. amount spent on repairs and renewals
• Depreciation on fixed assets 
• On office and administrative and selling and distribution departments in the normal course of business. These include salaries, rent, telephone expenses, electricity, postage, advertisement, travelling expenses, commission to salesmen.
• On non-operating expenses and losses are revenue expenditures. For example, interest on loan taken after commencement of commercial production, loss on sale of a long term asset, loss by theft, loss by fire are revenue expenditures.
• By an enterprise to discharge itself from recurring liability is of revenue nature. For example, a lump sum amount paid to a pensioner by the employer is revenue expenditure.
• For protecting the business is a revenue expenditure. For example, the amount spent on propaganda campaign to oppose the threatened nationalisation of industry is of revenue nature.
• To maintain the existing efficiency or the earning capacity is of revenue type.

Distinction Between Capital Expenditure and  Revenue Expenditure: 

Measures Of Government Deficit

A Deficit is the budgetary situation where expenditure is higher than the revenue. When in a set budget government expenditure exceeds the income amount it is government deficit.

This deficit indicates the financial health of the economy. To reduce this deficit between expenditures and income, the government cut back certain expenditures and also increased revenue-generating activities.

This expenditure revenue gap may be financed by either printing of currency or through borrowing.

Nowadays most governments in the world are having deficit budgets and these deficits are often financed through borrowing. 

Types Of Government Deficits

• Revenue Deficit
• Fiscal Deficit
• Primary Deficit

Revenue Deficit  

It is the surplus of the government’s revenue expenditure over the revenue receipts.

It is the shortfall between the total revenue received to the total revenue expenditure.

Revenue deficit = Revenue expenditure – Revenue receipts

Revenue deficit only incorporates current income and current expenses. A high degree of deficit symbolises that the government should reduce its expenses. 

The government may raise its revenue receipts by raising income tax. Disinvestment and selling off assets is another corrective measure to minimise a revenue deficit.

Fiscal deficit

It is the distinction between the government’s total expenditure and its total receipts, which excludes borrowing.

Gross fiscal deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts)

A fiscal deficit has to be financed by borrowing. Thus, it includes the total borrowing necessities of the government from all the possible sources. From the financing part.

A greater deficit implies more borrowing by the government and the extent of the deficit indicates the amount of expense for which the money is borrowed.

Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad

Fiscal deficit indicates the amount of money that the government will need to borrow during the financial year. 

A disadvantage or implication of fiscal deficit is it may lead to a debt trap or it may lead to unnecessary and wasteful expenditure by the government which may lead to uncontrolled inflation. 

Primary deficit

It is the amount of money that the government requires to borrow from the interest payments on the formerly borrowed loans. 

The aim of quantifying the primary deficit is to concentrate on current fiscal imbalances. 

Gross primary deficit = Gross fiscal deficit – Net interest liabilities

Net interest liabilities comprise interest payments – interest receipts by the government on the net domestic lending.

Difference between Fiscal Deficit and Revenue Deficit

Measures to Reduce Government Deficit

• Increased emphasis on tax-based revenues and appropriate measures to reduce tax evasion.
• Disinvestment should be done where assets are not being used effectively
• Reduction in subsidies by the government will also help reduce the deficit.
• Try to avoid unplanned expenditures.
• Borrowing from domestic sources.
• Borrowing from external sources.
• A broadened tax base 

An uncontrolled government deficit may lead to decline in the financial health of the economy. The agenda of the government should be to plan the revenues and expenditures in such a way that the economy moves towards a balanced budget situation.

Frequently Asked Questions

Q1. What is Government Budget?

Answer : A government budget is an annual financial statement showing item wise estimates of expected revenue and anticipated expenditure during a fiscal year.

Q2. What is revenue receipts?

Answer : Incomes which are received by the government from all sources in its ordinary course of governance are revenue receipts.

Q3. What is Capital receipts?

Answer : Receipts which create a liability or result in a reduction in assets are called capital receipts. They are obtained by the government by raising funds through borrowings, recovery of loans and disposing of assets.

Q4. What is revenue deficit?

Answer : It is the surplus of the government’s revenue expenditure over the revenue receipts. It is the shortfall between the total revenue received to the total revenue expenditure.

Q5. What is Fiscal deficit?

Answer : It is the distinction between the government’s total expenditure and its total receipts, which excludes borrowing.

Q6. What is primary deficit?

Answer : It is the amount of money that the government requires to borrow from the interest payments on the formerly borrowed loans. 

Government Budget and the Economy Unit 4 CBSE, class 12 Economics notes. This cbse Economics class 12 notes has a brief explanation of every topic that NCERT  syllabus has.

You will also get ncert solutions, cbse class 12 Economics sample paper, cbse Economics class 12 previous year paper.

Final Words

From the above article you must have learnt about ncert cbse class 12 Economics notes of unit 4 Government Budget and the Economy. We hope that this crisp and latest Economics class 12 notes will definitely help you in your exam.

Project on Government Budget and its Components – CBSE class 12

Table of Contents

INTRODUCTION

A government budget is an annual statement presenting the government’s proposed revenues and spending for a financial year that is often passed by the legislature, approved by the chief executive or president, and presented by the finance minister to the Nation. The budget is also known as the Annual financial statement of the country. This document estimates the anticipated government expenditures for the ensuing financial year. A project on government budget and its components can help children understand how their country works. For EXAMPLE – Property tax

The budget is the financial plan of the government for a definite period. A budget is a document containing a preliminary approved plan of public resources and expenditure. The government budget is an annual statement showing item-wise estimates of receipts and expenditures during a fiscal year.

IMPACT OF COVID-19 ON GOVERNMENT BUDGET

The government is likely to meet the budget targets for 2020-21 due to the covid-19 crisis but contraction in economic growth may not be as severe as being pointed out by the outside world, economic affairs secretary Tarun Bajaj said. He said the government regularly is monitoring 14-15 parameters which can give early signs of where the economy is heading. This includes E-way bills, power consumption, GST collection, etc. and every parameter is showing promising results, he said.

GRAPHICAL REPRESENTATION OF GDP

BUDGET AT A GLANCE

• The budget is prepared by the government at all levels, i.e., the central government prepares its respective annual budget.
• Estimates expenditures and receipts are planned as per the objectives of the government.
• The budget is presented in the parliament on such a day as the President may direct. By continuous it is presented before it can be implemented.
• It is required to be approved by the parliament.
• Reallocation of resources
• Economic stability
• Reducing inequalities in income and wealth
• Economic growth
• Management of public enterprises

OBJECTIVES OF GOVERNMENT BUDGET

• RELOCATION OF RESOURCES Through the budgetary policy, the government aims to reallocate resources to the economic and social priorities of the country. Tax concessions or subsidies. Directly producing goods and services.
• REDUCING INEQUALITIES IN INCOME AND WEALTH Economic inequality is an internet part of every economic system. The government aims to reduce such inequalities of income and wealth, through its budgetary policy. The government aims to influence the distribution of income by imposing taxes on the rich and spending more on the welfare of the poor.
• ECONOMIC STABILITY The government budget is used to prevent business fluctuation of inflation and deflation to achieve the objective of economic stability. Policies of the surplus budget during inflation and deficit budget during deflation help to maintain the stability of prices in the economy. There is a large number of public sector industries that are established and managed for the social welfare of the public. The budget is prepared with the objective of making various provisions for managing such enterprises.
• ECONOMIC GROWTH The growth rate of a country depends on the rate of savings and investments. For this purpose, the budgetary policy aims to mobilize sufficient resources for investment in the public sector. Therefore the government makes various provisions in the budget.

COMPONENTS OF BUDGET

Revenue budget.

• Revenue receipts
• Revenue expenditure

CAPITAL BUDGET

• Capital receipts
• Capital expenditure

Components of budget refer to the structure of the budget. Two main components of the budget are

REVENUE RECEIPTS It refers to those receipts that neither create any liability nor cause any reduction in the assets by the government. They are regular and recurring and the government receives them in its normal course of activities Revenue receipts satisfy these conditions

• The receipts must not create a liability for the government.
• The receipt must not cause a decrease in the assets of the government.

SOURCE OF REVENUE There are two types of revenue receipts of the government.

• Tax Revenue- refers to total receipts from taxes and duties imposed by the government. For example, Direct tax & Indirect tax is a compulsory payment, no one can refuse to pay them. Tax receipts are spent by the government for the common benefit of people in the country.
• Direct taxes are those which are imposed on property and the income of individuals and companies is paid directly by them to the government. They are imposed on individuals and companies.
• Indirect taxes refer to those taxes which affect the income and property of individuals and companies through their consumption expenditure.

HOW TO CLASSIFY A TAX AS DIRECT OR INDIRECT?

• A tax is a direct tax if its burden cannot be shifted. For example- income tax is a direct tax as its impact and incidence are on the same person.
• A tax is an indirect tax, if the actual burden of the tax lies on different persons, i.e. its burden can be shifted to the other.

ITEMS CATEGORISED( Gifts and Grants ) AS DIRECT OR INDIRECT TAX ?

• It is a direct tax as its impact and incidence lie on the same person. It is a direct line on the same person.
• Value-added tax is an indirect tax as it is imposed on the seller but beard by the customer.
• Services tax is an indirect tax as its impact and incidence lie on different people.

NON-TAX REVENUE It refers to receipts of the government from all sources there than those of tax receipts.

INTERNET Government receives interest on loans given by it to state government union territories FEES Fees refer to charges imposed by the government to cover the cost of recurring services provided by its conduct fees registration fees impact fees etc LICENSES FEES It is a payment charged by the government to grant permission of keeping a gun or commercial vehicle. FINES AND PENALTIES They refer to those payments that are imposed on lawbreakers, fines for jumping lights, etc. ESCHEATS It refers to claims of government on the property of a person who dies without leaving a will GIFTS AND GRANTS Government receives gifts and grants from the foreign government. FORFEITURES These are in the form of penalties that are imposed by the court for non-compliance with other contracts, etc

REVENUE EXPENDITURE

Revenue expenditure refers to the expenditure that neither creates any liability nor causes a reduction, in any liability of the government. It is recurring in nature. It is incurred on the normal functioning of the government. The expenditure must not create an asset of the government payment of salaries or pension is revenue expenditure as it does not create any asset. Metro is not a revenue expenditure as it leads to the creation of an asset for the government.

The main two components of the capital budget are

CAPITAL RECEIPTS

Those receipts which are either create liability or cause a reduction in the assets of the government. They are non-recurring and non-routine. The receipts must create a liability for the government. Borrowings are capital receipts as they lead to an increase in the liability of the govt.

However, the tax received is not a capital receipt as it does not result in the creation of any liability. The receipts must cause a decrease in the assets, receipts from the scale of share of public enterprises is a capital receipt as it leads to a reduction in assets of the government.

Capital receipts are of three types

BORROWINGS They are the funds raised by the government to meet expenses.

• Government open market
• Reserve bank in India
• Foreign government

RECOVERY OF LOANS Government grants various loans to the state government or union government.

OTHER RECEIPTS These include disinvestment and small savings. Disinvestment refers to the act of selling a part of the whole of shares of selected public sector undertaking held by the government small savings refer to funds raised from the public in the form of post office deposits.

CAPITAL EXPENDITURE

It refers to the expenditure that either creates an asset or reduces any liability of the government. It is non-recurring It adds to the capital stock of the economy and increases its productivity through expenditure.

For example loan to states and union territories is an expenditure on building roads, flyovers, etc. the expenditure must create an asset for the government. As construction of the metro is a capital expenditure as it leads to the creation of assets. However, any amount paid as salaries is not capital in the assets.

BUDGETARY DEFICIT

A budgetary deficit is defined as the excess of total estimated expenditure and our total estimated revenue when the government spends more time it collects than it incurs a budgetary deficit concerning the budget of the Indian government.

• Revenue Deficit
• Fiscal Deficit
• Primary Deficit

R EVENUE DEFICIT

Revenue deficit is concerned with the revenue expenditure and revenue receipts of the government. It refers to an excess revenue expenditure of revenue receipts.

IMPLICATIONS

• It indicates the inability of the government to meet its regular and recurring expenditures in the proposed budget.
• It implies that the government is dissolving, i.e., the government is using up saving from other sectors of the economy to finance its expenditure.

FISCAL DEFICIT

The fiscal deficit presents a more comprehensive view of budgetary imbalances. It is widely used as a budgetary development in India. The extent of the fiscal deficit is an indication hour for gout is spent.

IMPLICATIONS The fiscal deficit indicates the total borrowings requirements of the government.

SOURCES Borrowings It can be met by borrowings from internal or external sources.

PLAN AND NON-PLAN EXPENDITURE

Planned expenditure refers to the expenditure that is incurred for the programs detailed in the current five-year plan. Non-planned expenditure refers to the expenditure other than the expenditure related to the current five-year plan. Plan expenditure is spent on current development and investment outlays non-plan expenditure is spent on the liability of the government. Non-planned expenditure arises only when the plans provide such expenditure.

DEVELOPMENT AND NON-DEVELOPMENTAL

Developmental expenditure refers to the expenditure which is directly related to the economic and social development of the country. Expenditure on such services is not a part of the essential functioning of the government. non-developmental expenditure refers to the expenditure which is incurred on the essential goods and services of the government.

It does not directly contribute to the economic development , but it directly helps in the development of the economy such expenditure is essential from the administration’s view.

MY OPINION ON THE TOPIC

After listening to a long 2 hours speech by the finance minister, I had some equally frustrating and fascinating thoughts moving beyond the usual debate of will this is good economics or bad politics?

The two can co-exist. As a whole, the budget needs to move away from populist and prudent definitions. It needs to be examined on the merit of what it does to different classes of people. It had a huger impact and I had to take a bit of time to properly digest what I heard.

BIBLIOGRAPHY   

• Friends/family
• http://www.hhcpa.com/blogs/non-profit-accounting-services-a-look-into-the-importance-of-budges
• https://en.wikipedia.org/wiki/Union_budget_of_India
• http://www.theunreal.times.com/2015/02/27/budget-criticism101/-the-10-most-common-ways.

ACKNOWLEDGEMENT

Many people helped me through their successful completion of the project. First of all, I thank the Almighty God for his goodness and mercy in giving me the strength to complete this project on government budget and its components for class 12. I hereby express my abundant and sincere gratitude to Dr. Karabai Das, department of economics, Royal Global school, for her valuable guidance, constant encouragement, and creative suggestions rendered during this project.

I thank our principal Mrs. Anubha Goyal for providing me with all facilities and also for the constant inspiration and encouragement for the successful competition of this project. I offer my deepest gratitude to my family members whose prayers and blessings guided me in the successful completion of this project. I also owe my gratitude to my classmates whose support was inevitable for the completion of the project.

CERTIFICATE for economics project class 12 cbse

This is to certify that xxx of grade Xl-B roll no. 17 of ROYAL GLOBAL SCHOOL has completed the project on the Government budget and its components for class 12 under my supervision and has submitted the project in practical requirement. Under economics examination 2020-21. The concepts and ideas are original and the project is a bonafide piece of work carried out by her under my supervision.

Dr . xxx                                                                                                  sign of External

Dept . of Economics

ROYAL GLOBAL SCHOOL

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Government Budget and the Economy – CBSE Notes for Class 12 Macro Economics

Introduction

This is a descriptive chapter on government budget of Indian economy, wherein its objectives, importance, types, components, budget deficits and its types (Revenue, Fiscal, Primary Deficit) and their implications are studied. Chapter at a Glance

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Target Exam ---

Government Budget And Its Related Concepts

Components Of Government Budget, Budget Receipts Its Types

Types Of Taxes:

Budget Expenditure & Its Related Concepts

1. Meaning: Budget expenditure refers to the estimated expenditure of the government on its “development and non-development programmes or “plan and non-plan programmes during the fiscal year. 2. Types: (a) Plan and non-plan expenditure (b) Revenue and capital expenditure (c) Developmental and non-developmental Expenditure

(a) Plan and non-plan expenditure: (i) Plan Expenditure: Plan expenditure refers to that expenditure which is incurred by the government to fulfill its planned development programmes. This includes both consumption and investment expenditure by the government or Planning Commission of a country. Expenditure on agriculture, industry, public utilities, health and education etc. are examples of plan expenditure. (ii) Non-Plan Expenditure: This refers to all such government expenditures which are beyond the scope of its planned development programmes. For instance, no government can escape from its basic function of protecting the lives and properties of the people. For this government has to spend on police, judiciary, military etc. In short, expenditure other than expenditure related to current Five-year plan is treated as non-plan expenditure. (b) Revenue and capital expenditure: (i) Revenue Expenditure: An expenditure that (a) Neither creates any assets (b) nor causes any reduction of liability. In revenue expenditure both the conditions should be satisfied. Examples of revenue expenditure are: salaries of government employees, interest : payment on loans taken by the government, pensions etc. (ii) Capital Expenditure: An expenditure that either create assets for the government [equity or shares) of the domestic, or multinational corporations purchased by the government), or cause reduction in liabilities of the government, [repayment of loans reduces liability of the government). In capital expenditure any one of the above conditions must be satisfied. Thus, it refers to expenditure that leads to creation of assets and reduction in liabilities. Such expenditure is incurred on long period development. Conclusion: A basic difference between capital expenditure and revenue expenditure is that the capital expenditure is incurred on creation or acquisition of assets, whereas, the revenue expenditure is incurred on rendering services. For example: Expenditure on construction of a hospital building is capital expenditure, but expenditure on medicines, salaries of doctors etc. for rendering services by the hospital is revenue expenditure. (c) Developmental and non-developmental Expenditure: (i) Developmental Expenditure: Developmental expenditure is the expenditure on activities which are directly related to economic and social development of the country. This includes expenditure on education, health, agriculture, transport, roads, rural development etc. This also includes loans given by the government to enterprises like Sahara for the purpose of development. (ii) Non-developmental Expenditure: Non-developmental expenditure of the government is the expenditure on the essential general services of the government. This includes expenditure on defence, payment of old age pension, collection of taxes, interest on loans, subsidies etc.

Deficits And Implications Of These Deficits

1. Budget deficit: (a) Meaning: (i) Budgetary deficit refers to the excess of total budgeted expenditure (both revenue expenditure and capital expenditure) over total budgetary receipts (both revenue receipt and capital receipt). (ii) In other words, when sum of revenue receipts and capital receipts fall short of the sum of revenue expenditure and capital expenditure, budgetary deficit is said to occur. Symbolically, Budgetary Deficit = Total Expenditure – Total Receipts (b) Types: (i) Revenue deficit, (ii) Fiscal deficit and (iii) Primary deficit 2. Revenue deficit: (a) Meaning: (i) Revenue deficit refers to the excess of revenue expenditure of the government over its revenue receipts. Symbolically, Revenue Deficit = Total Revenue Expenditure – Total Revenue Receipts (ii) The government of India budget for the year 2012-2013, total expenditure is Rs. 12,42,263 crore against total revenue receipts of Rs. 8,78,804 crore. As a result there is revenue deficit of Rs. 3,63,459 (12,42,263-8,78,804) crore, which is 3.6% of GDP. (b) Implications of revenue deficit: (i) Revenue deficit indicates dis-savings on government account because the government has to make up uncovered gap. (ii) Revenue deficit implies that the government has to cover this uncovered gap by drawing upon capital receipts either through borrowing or through sale of its assets. (iii) Since government is using capital receipts to generally meet consumption expenditure of the government, it leads to an inflationary situation in the economy. (c) Measures to reduce revenue deficit are: (i) Government should reduce its unproductive or unnecessary expenditure. (ii) Government should increase its receipts from various sources of tax and non-tax revenue. 3. Fiscal deficit: (a) Meaning: (i) Fiscal deficit is defined as excess of total expenditure over total receipts (revenue and capital receipts) excluding borrowing. In the form of an equation:

(ii) Fiscal deficit is a measure of total borrowings required by the government. (iii) Fiscal deficit indicates capacity of a country to borrow in relation to what it produces. In other words, it shows the extent of government dependence on borrowing to meet its budget expenditure. (iv) Another point to be noted here is that as the government borrowing increases, its liability in future to repay loan with interest also increases leading to a higher revenue deficit. Therefore, fiscal deficit should be as low as possible. (v) Fiscal deficit for the year 2012-2013 is 4,89,890 crore which is 4.9% of GDP. (b) Implications of fiscal deficit: (i) Causes Inflation: An important component of government borrowing includes borrowing from the Reserve Bank of India. This invariably implies deficit financing or meeting deficit requirements of the government by way of printing more currency. This is a dangerous practice, though very convenient for the government. It increases circulation of money and causes inflation. (ii) Increase in Foreign Dependence: Government also borrows from rest of the world. It increases our dependence on other countries. Foreign borrowing is often associated with economic and political interference by the lender countries. It increases our economic slavery. (iii) Financial Burden for Future Generation: Borrowing implies accumulation of financial burdens for the future generations. It is for future generations to repay loans as well as the mounting interest thereon. (iv) Deficits Multiply Borrowings: Payment of interest increases revenue expenditure of the government, causing an increase in its revenue deficit. Thus, a vicious circle is set wherein the government takes more loans to repay earlier loans, which is called Debt Trap. 4. Primary deficit: (a) Meaning: (i) Primary deficit is defined as fiscal deficit minus interest payments. Primary Deficit = Fiscal Deficit – Interest Payments (ii) The government of India budget for the year 2012-2013, fiscal deficit is 4,89,890 crore and Interest Payment is 3,11,996 crore. As a result, primary deficit is 1,77,894 crore, which is 1.8% of GDP. (b) Implications of primary deficit: While fiscal deficit shows borrowing requirement of the government for financing the expenditure inclusive of interest payments, primary deficit reflects the borrowing requirements of the government for meeting expenditures other than interest payments on earlier loans.

Words that Matter

1. Government Budget: A government budget is an annual financial statement showing itemwise estimates of expected revenue and anticipated expenditure during a fiscal year. 2. Balanced Budget: If the government revenue is just equal to the government expenditure made by the general government, then it is known as balanced budget. 3. Unbalanced budget: If the government expenditure is either more or less than a government receipts, the budget is known as Unbalanced budget. 4. Surplus Budget: If the revenue received by the general government is more in comparison to expenditure, it is known as surplus budget. 5. Deficit Budget: If the expenditure made by the general government is more than the revenue received, then it is known as deficit budget. 6. Budget receipt: It refers to the estimated receipts of the government from various sources during a fiscal year. 7. Budget expenditure: It refers to the estimated expenditure of the government on its “development and non-development programmes or “plan and non-plan programmes during the fiscal year. 8. Revenue Budget: Revenue Budget contains both types of the revenue receipts of the government, i.e., Tax revenue and Non tax revenue ; and the Revenue expenditure. 9. Revenue Receipts: Government receipts, which (a) Neither create any liabilities for the government; and (b) Nor cause any reduction in assets of the government, are called revenue receipts. 10. Tax Revenue: Tax revenue refers to receipts from all kinds of taxes such as income tax, corporate tax, excise duty etc. 11. Tax: A tax is a legally compulsory payment imposed by the government on income and profit of persons and companies without reference to any benefit. 12. Non-tax revenue: It refers to government revenue from all sources other than taxes called non-tax revenue. 13. Revenue Expenditure: An expenditure that (a) Neither creates any assets (b) nor causes any reduction of liability. 14. Capital Budget: Capital budget contains capital receipts and capital expenditure of the government. 15. Capital Receipts: Government receipts that either creates liabilities (of payment of loan) or reduce assets (on disinvestment) are called capital receipts. 16. Capital Expenditure: Government expenditure of the government which either creates physical or financial assets or reduction of its liability. 17. Direct Tax: When (a) liability to pay a tax (Impact of Tax), and (b) the burden of that tax (Incidence of tax), falls on the same person, it is termed as direct tax. 18. Indirect Tax: When (a) liability to pay a tax (Impact of tax) is on one person; and (b) the burden of that tax (Incidence of tax), falls on the other person, it is termed as indirect tax. 19. Progressive Tax: A tax the rate of which increases with the increase in income and decreases with the fall in income is called a progressive tax. 20. Proportional Taxation: A tax is called proportional when the rate of taxation remains constant as the income of the taxpayer increases. 21. Regressive Tax: In a regressive tax system, the rate of tax falls as the tax base increases. 22. Plan expenditure: It refers to that expenditure which is incurred by the government to fulfill its planned development programmes. 23. Non-Plan Expenditure: This refers to all such government expenditures which are beyond the scope of its planned development programmes. 24. Developmental Expenditure: Developmental expenditure is the expenditure on activities which are directly related to economic and social development of the country. 25. Non-developmental expenditure: Non-developmental expenditure of the government is the expenditure on the essential general services of the government. 26. Budgetary deficit: It refers to the excess of total budgeted expenditure (both revenue expenditure and capital expenditure) over total budgetary receipts (both revenue receipt and capital receipt). 27. Revenue Deficit: Revenue deficit refers to the excess of revenue expenditure of the government over its revenue receipts. 28. Fiscal deficit: It is defined as excess of total expenditure over total receipts (revenue and capital receipts) excluding borrowing. Fiscal deficit indicates capacity of a country to borrow in relation to what it produces. In other words, it shows the extent of government dependence on borrowing to meet its budget expenditure. 29. Debt Trap: A vicious circle set wherein the government takes more loans to repay earlier loans, which is called Debt Trap. 30. Primary deficit: It is defined as fiscal deficit minus interest payments.

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Commerce Aspirant » Economics Class 12 MCQs » Government Budget and the Economy Class 12 MCQs

Government Budget and the Economy Class 12 MCQs

Government Budget and the Economy Class 12 MCQ are covered in this Article. Government Budget and the Economy Class 12 MCQ Test contains 65 questions. Answers to MCQ on Government Budget and the Economy Class 12 Economics are available after clicking on the answer.

Government Budget and the Economy Class 12 MCQ

1. The amount received by the Government in the form of interest, fees, and dividends is known as ________ a) Tax-revenue receipts b) Capital receipts c) Non-tax revenue receipts d) None of these

Answer: (c) Non-tax revenue receipts

2. Financial year runs from a) 1 April to 31 March b) 1 January to 31 December c) 1 March to 28 February d) None of these

Answer: (a) 1 April to 31 March

3. The amount received by the Government in the form of  taxes and duties is known as _______ a) Capital receipts b) Tax revenue receipts c) Non-tax revenue receipts d) All of these

Answer: (b) Tax revenue receipts

4. What is the objective of Government Budget. a) Economic Development b) Balanced Regional Development c) Redistribution of Income and Wealth d) All the above

Answer: (d) All the above

5. The expenditures which neither create an asset, nor reduce any liability  for the Government is called : a) Revenue Expenditure b) Capital Expenditure c) Both (a) and (b) d) None of the above

Answer: (a) Revenue Expenditure

6. Which deficit indicates the borrowing needs of a Government? a) Budgetary deficit b) Revenue deficit c) Primary deficit d) Fiscal deficit

Answer: (d) Fiscal deficit

7. Which of the following is not an objective of Government budget? a) Redistribution of income and wealth b) Export promotion c) Social welfare d) Economic Stability

Answer: (b)Export promotion

8. What is the period for which a Government budget is prepared? a) Two years b) One Year c) Five years d) None of these

Answer: (b)One Year

9. What does a Government budget represent? a) Actual revenue and estimated expenditure b) Estimated revenue and actual receipt c) Estimated receipt and estimated expenditure d) All of these

Answer: (c) Estimated receipt and estimated expenditure

10. Corporate tax and income tax are examples of which tax ? a) Indirect tax b) Direct tax c) Wealth Tax d) None of these

Answer: (b) Direct tax

11. Disinvestment is which type of receipt for the Government? a) Capital Receipt b) Revenue Receipt c) Both a and b d) None of these

Answer: (a)Capital Receipt

12. Tax whose burden cannot be shift is termed as a) Indirect tax b) Direct tax c) Both a and b d) None of these

13. The sources to meet fiscal deficit are a) Borrowings from public b) Borrowings from external sources c) Deficit financing d) All of these

Answer: (d)All of these

14. Which Budget is prepared by the Central Government. a) General Budget b) Zero based Budget c) Union Budget d) None of these

Answer: (c)Union Budget

15. Components of the budget are a) Revenue Budget b) Capital Budget c) Both a and b d) None of these

Answer: (c)Both a and b

16. Which of the following is treated as Capital receipt a) Recovery of Loans b) Interest received on loans c) Gifts and Grants d) Escheats

Answer: (a)Recovery of Loans

17. Receipts from Post Office deposits and Kisan Vikas Patras is treated as a) Capital receipt b) Revenue receipt c) Both a and b d) None of these

Answer: (a)Capital receipt

18. Which expenditure will either create an asset or reduce the liability of the Government? a) Revenue expenditure b) Capital expenditure c) Capital receipt d) Revenue receipt

Answer: (b)Capital expenditure

19. Subsidies and expenditure on scholarship are examples of : a) Revenue expenditure b) Capital expenditure c) Capital receipt d) Revenue receipt

Answer: (a)Revenue expenditure

20. If the Government estimated receipts are less than estimated expenditure, then it is termed as a) Deficit Budget b) Surplus Budget c) Balanced Budget d) All of these

Answer: (a)Deficit Budget

21. Revenue deficit can be reduced by a) Reducing Government expenditure b) Increasing source of revenue c) Reducing tax evasion d) All of these

22. ________ is an annual statement showing estimated receipt and expenditure of the Government, during a fiscal year. a) Government Budget b) Government Receipt c) Government Payment d) None of these

Answer: (a)Government Budget

23. Union Budget is the budget of ________. a) State Government b) Central Government c) Union Territory d) All of these

Answer: (b)Central Government

24. _____ is / are objective of Government budget. a) Economic Stability b) Regional equality c) Reduction of poverty d) Both a and b

Answer:(d)Both a and b

25. The components of Government budget are_________ a) Revenue Budget b) Capital Budget c) Both A and B d) None of these

Answer: (c)Both A and B

26. _____ receipts are recurring in nature. a) Revenue b) Capital c) Both a and b d) None of these

Answer: (a)Revenue

27. ______receipts are non-recurring in nature. a) Revenue b) Capital c) Both a and b d) None of these

Answer: (b)Capital

28. _____ revenues and ____ revenues are the sources of revenue receipt. a) Tax b) Non- tax c) Both a and b d) None of these

29. Revenue receipts neither create _____ nor reduce, the ___ of the Government. a) liability, An asset b) An Asset, liability c) Revenue, Expenditure d) None of these

Answer: (b)An Asset, liability

30. Capital gains tax is an example of_______tax. a) Direct tax b) Indirect tax c) Both a and b d) None of these

Answer: (a)Direct tax

31. Interest and escheats are examples of ____ receipt. a) Tax revenue b) Non- tax revenue c) Both a and b d) None of these

Answer: (b)Non-tax Revenue

32. ________ either creates a liability, or reduce the Asset of the Government. a) Revenue receipt b) Capital receipt c) Revenue expenditure d) Capital expenditure

Answer: (b)Capital receipt

33. In case of some capital receipts, there is a ________ to return the amount with interest at a future date a) Future obligation b) Contingent obligation c) Past obligation d) None of these

Answer: (a)Future obligation

34. __________ is an example of capital receipt . a) Interest b) Escheats c) Borrowings d) All of these

Answer: (c)Borrowings

35. When the estimated receipt is equal to estimated expenditure, the budget is said to be a _____. a) Surplus b) Deficit c) Balanced d) None of these

Answer: (c)Balanced

36. Revenue expenditure is ___ where as capital expenditure is ____ in nature. a) Non-recurring ,Recuring b) Recurring, Non-recurring c) Both a and b d) None of these

Answer: (b)Recurring, Non-recurring

37. The formula for fiscal deficit is_____. a) Fiscal Deficit = Total expenditure – Total receipts excluding borrowings b) Fiscal Deficit = Total expenditure – Total receipts c) Fiscal Deficit = Total expenditure – Total receipts excluding Capital receipts d) None of these

Answer: (a)Fiscal Deficit = Total expenditure – Total receipts excluding borrowings

38. Revenue deficit is computed as ____. a) Revenue Deficit = Revenue expenditure – Total receipts b) Revenue Deficit = Revenue expenditure – Revenue receipts c) Revenue Deficit = Revenue expenditure – Revenue receipts d) None of these

Answer: (b)Revenue Deficit = Revenue expenditure – Revenue receipts

39. Primary deficit is computed as _____. a) Primary Deficit = Revenue Deficit – Interest payment b) Primary Deficit = Fiscal Deficit – Interest received c) Primary Deficit = Fiscal Deficit – Interest payment d) None of these

Answer: (c)Primary Deficit = Fiscal Deficit – Interest payment

40. A zero primary deficit indicates forced borrowings of the Government , due to interest commitment on _____. a) Earlier Loans b) Future Loans c) Both a and b d) None of these

Answer: (a)Earlier Loans

41. Read the following statement given below and choose the correct alternative Statement 1- Economic stability refers to absence of fluctuation in price of goods and services Statement 2- Economic instability discourages investment a) Both are correct b) Both are wrong c) Statement 1 is correct and statement 2 is wrong d) Statement 2 is correct and statement 1 is wrong

Answer: (a) Both are correct

42. Read the following statement given below and choose the correct alternative Statement 1- Government imposes high rate of income tax on higher income groups Statement 2- Low income groups pay high amount of tax a) Both are correct b) Both are wrong c) Statement 1 is correct and statement 2 is wrong d) Statement 2 is correct and statement 1 is wrong

Answer: (c) Statement 1 is correct and statement 2 is wrong

43. Read the following statement given below and choose the correct alternative Statement 1- In case of inflation, government decreases rate of tax Statement 2- In case of deflation, government increases rate of tax a) Both are correct b) Both are wrong c) Statement 1 is correct and statement 2 is wrong d) Statement 1 is wrong and statement 2 is correct

Answer: (b) Both are wrong

44. Read the following statement given below and choose the correct alternative Statement 1- Revenue deficit occurs when Revenue expenditure is more than revenue receipts Statement 2- Fiscal deficit is the excess of budget expenditure over budget receipts a) Both are correct b) Both are wrong c) Statement 1 is correct and statement 2 is wrong d) Statement 2 is correct and statement 1 is wrong

45. Read the statement given below and choose the correct alternative Statement 1- Fiscal deficit includes borrowings to create loan Statement 2- Fiscal deficit depicts borrowings required to meet current year budget expenditure a) Both are correct b) Both are wrong c) Statement 1 is correct and statement 2 is wrong d) Statement 1 is wrong and statement 2 is correct

Answer: (d) Statement 1 is wrong and statement 2 is correct

46. Choose the correctly matched pair from the given alternative

a) A-1 b) B-2 c) C-3

Answer: (c) C-3

47. Choose the correctly matched pair from the given alternative

a) A-3 b) B-2 c) C-4 d) D-1

Answer: (d) D-1

48. Choose the correctly matched pair from the given alternative

a) A-1 b) B-2 c) C-3 d) D-4

Answer: (a) A-1

49. “Prior to 1991, the central government owned 100% of the shares of public sector undertakings. Consequently it started selling its shares to general public and financial institutions”. This situation is known as a) Plan expenditure b) Disinvestment of PSUs c) Borrowing d) Mismanagement

Answer: (b) Disinvestment of PSUs

50. “Loans recovered by the Central Government from state and local government are capital receipts because” a) It creates liability b) Reduce unnecessary expenditure c) Of fiscal mismanagement d) It reduces assets

Answer: (d) It reduces assets

51. Read the following statement given below and choose the correct alternative Assertion (A) – To increase the rate of investment the government makes Direct investment in public sector units. Reason (R ) – Investment by the government induces the private sector to make investment. a) Both assertion and reason are true. Reason is the correct explanation of assertion b) Both assertion and reason are true. Reason is not the correct explanation of assertion c) Assertion is true but reason is not d) Reason is true but assertion is false

Answer: (a) Both assertion and reason are true. Reason is the correct explanation of assertion

52. Read the following statement given below and choose the correct alternative Assertion (A)- Private sector is not interested to enter in production areas such as free education and health facilities Reason ( R)- Production areas incurs huge investment and low profit a) Both assertion and reason are true. Reason is not the correct explanation of assertion b) Both assertion and reason are true. Reason is the correct explanation of assertion c) Assertion is true but reason is not d) Reason is true but assertion is not

Answer: (b) Both assertion and reason are true. Reason is the correct explanation of assertion

53. Read the following statement given below and choose the correct alternative Assertion (A)- Tax receipt from production of unsocial goods is used to grant subsidy for production of necessary goods. Reason (R )- Government offers various types of concession on these products a) Both assertion and reason are true. Reason is not the correct explanation of assertion b) Both assertion and reason are true. Reason is the correct explanation of assertion c) Assertion is true but reason is not d) Reason is true but assertion is not

Answer: (c) Assertion is true but reason is not

54. Read the following statement given below and choose the correct alternative Assertion (A)- Government imposes high rate of income tax on higher income groups. Reason ( R)- Low income groups are unable to pay high taxes a) Both assertion and reason are true. Reason is the correct explanation of assertion b) Assertion is true but reason is not c) Both assertion and reason are true. Reason is not the correct explanation of assertion d) Reason is true but assertion is not

Answer: (c) Both assertion and reason are true. Reason is not the correct explanation of assertion

55. Read the following statement given below and choose the correct alternative Assertion (A)- Government increases rate of tax and imposes new taxes and reduces expenditure. Reason ( R)- Government take resort of deficit budget to solve the problem of deflation a) Both assertion and reason are true. Reason is the correct explanation of assertion b) Both assertion and reason are true. Reason is not the correct explanation of assertion c) Assertion is true but reason is not d) Reason is true but assertion is not

Answer: (b) Both assertion and reason are true. Reason is not the correct explanation of assertion

56. Excess of budget expenditure over budget receipts excluding_______ is called fiscal deficit. ( Fill in the blank with correct alternative) a) Borrowings b) Revenue receipts c) Revenue expenditure d) Capital expenditure

Answer: (a) Borrowings

57. Read the following statement given below and choose the correct alternative Statement 1- Fiscal deficit indicates requirement of borrowing to meet budget expenditure Statement 2- Fiscal deficit indicates management and discipline of government a) Both are correct b) Both are correct c) Statement 1 is correct and statement 2 is wrong d) Statement 1 is wrong and statement 2 is correct

58. Choose the correctly matched pair from the following

59. Read the following statement given below and choose the correct alternative Assertion (A)- As a result of fiscal deficit, government gets caught in an unending cycle of debt trap Reason (R )- To meet its expenses government increases their borrowing which eventually increases the fiscal deficit a) Both assertion and reason are true. Reason is the correct explanation of assertion b) Both assertion and reason are true. Reason is not the correct explanation of assertion c) Assertion is true but reason is not d) Reason is true but assertion is not

60. Fiscal deficit is the sum of ( Choose the correct alternative) a) Primary deficit and Interest payment b) Borrowings and disinvestment c) Expenditure and receipts d) Capital and revenue expenditure

Answer: (a) Primary deficit and Interest payment

Read the given case study and answer the questions given below.

1. Revenue Budget: Revenue Budget contains the two sorts of the income receipts of the public authority, i.e., Tax income and Non duty income ; and the Revenue use.

(I) Revenue Receipts: These are the receipts that neither make any obligation nor decrease in resources of the public authority. It incorporates charge incomes like personal duty, company charge and non-charge income like fines and punishments, unique appraisal, escheat and so forth

(ii) Revenue Expenditure: A consumption that neither makes any resources nor causes decrease of obligation is called income use.

(b) Capital Budget: Capital financial plan contains capital receipts and capital consumption of the public authority.

(I) Capital Receipts: Government receipts that either make liabilities (of installment of advance) or decrease resources (on disinvestment) are called capital receipts. Capital receipts incorporate things, which are non-dreary and non-everyday practice in nature.

(ii) Capital Expenditure: This consumption of the public authority either makes physical or monetary resources or decrease of its risk. Securing of resources like land, hardware, gear, its advances and advances to state governments and so on are its models.

2. Budget receipts (government receipt): Budget receipt alludes to the assessed receipts of the public authority from different sources during a monetary year. It shows the sources from where the public authority expects to get cash to back the consumption.

61. Which of the following statements are correct. ( Choose the correct alternative) a) Budget receipts are government receipts b) Capital expenditure creates assets c) Revenue expenditure doesn’t causes reduction in liability d) All of the above

Answer: (d) All of the above

62. _______ either creates liabilities or reduces assets. ( Fill in the blank with correct alternative) a) Capital receipts b) Revenue receipts c) Capital expenditure d) Revenue expenditure

Answer: (a) Capital receipts

63. _______ are the estimated receipts of the government from various sources during a fiscal year. ( Fill in the blank with correct alternative) a) Budget expenditure b) Capital expenditure c) Budget receipts d) Revenue receipts

Answer: (c) Budget receipts

64. Which of the following are true for revenue expenditure. ( Choose the correct alternative) a) Creates assets b) Reduces liability c) Do not reduce liability d) All of the above

Answer: (c) Do not reduce liability

65. Which of the following are examples of revenue receipts. ( Choose the correct alternative) a) Income tax b) Corporation tax c) Escheats d) All of the above

CBSE Class 12 Economics Term 1 MCQ Based Questions

Part A: Introductory Macroeconomics

• Money and Banking Class 12 MCQs – 6 Marks
• Government Budget and the Economy – 6 Marks
• Balance of Payments Class 12 MCQs – 6 Marks
• Foreign Exchange Rate MCQs

Part B: Indian Economic Development

Development Experience (1947-90) and Economic Reforms since 1991:- 12 Marks

• Indian Economy on the eve of Independence MCQs
• Indian Economy (1950-90) MCQs
• Economic Reforms since 1991 MCQs

Current challenges facing Indian Economy – 10 Marks

• Poverty MCQs
• Human Capital Formation MCQs
• Rural development MCQs

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• Important Questions for CBSE Class 12 Macro Economics Chapter 5 - Government Budget and the Economy

CBSE Class 12 Macro Economics Chapter-5 Important Questions - Free PDF Download

Class 12 Macro Economics Chapter 5 Government Budget and the Economy is an important part of the syllabus of this subject. It explains the various aspects of the formation of a government and how it is run. To understand how to use these crucial concepts to formulate answers, download and solve CBSE Class 12 Macro Economics Chapter 5 Government Budget and the Economy Important Questions. Compare your answers to the solutions given to find out where you need to focus more to prepare this chapter well.

Free PDF download of Important Questions with Answers for CBSE Class 12 Macro Economics Chapter 5 - Government Budget and the Economy prepared by expert Economics teachers from latest edition of CBSE(NCERT) books. Register for Online tuition on Vedantu.com to score more marks in CBSE board examination.

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Study Important Questions for Class 12 Macro Economics Chapter 5 – The Government: Functions & Scope

Very short answer questions (1 mark).

1. Direct tax is a tax which is imposed on

a) Corporations only

b) None of these

c) Individuals only

d) Individuals and corporations

Ans: d) Individuals and corporations

2. An example of a direct tax is

a) Entertainment tax

b) Sales tax

d) Income tax

Ans: d) Income tax

3. The major source of Revenue receipts for the government is not

a) Tax Revenue

b) Income tax

c) Wealth tax

Ans: d) Profits

4. The policies useful to reduce inequalities of income are the

a) Monetary policies

b) Public distribution policies

c) Budgetary policies

d) Foreign policies

Ans: c) Budgetary policies

5. Budgetary policies are implemented by the

a) Foreign sector

b) Finance Ministry

c) Government

d) Private sector

Ans: c) Government

6. Capital Receipts

a) Create liability for the private sector

b) Create liability for the government

c) Do not create liability for the private sector

d) Do not create liability for the government

Ans: b) Create liability for the government

7. Disinvestment is a

a) Capital Expenditure

b) Revenue Expenditure

c) Capital Receipts

d) Revenue Receipts

Ans: c) Capital Receipts

8. Define a Budget.

Ans: The budget is a statement of the government's expected receipts and expenditures for the fiscal year. A fiscal year in a country (most notably India) goes from April 1 to March 31.

9. What are the two types of taxes?

Ans : Direct and indirect taxes are the two most common types of taxes.

1. Income tax, interest tax, and wealth tax are all examples of direct taxes.

2. Indirect taxes include items like customs duties, excise duties, and sales taxes, among others.

10. What are the main items of Capital Receipt?

Ans: The primary items are: 

1. Market Loans raised by the government from the general population.

2. Government Borrowings.

3. Loans from foreign governments and international financial institutions.

11. What are the four different concepts of Deficits?

Ans: Budget deficit, revenue deficit, primary deficit, and fiscal deficit are the four main types of deficits.

12. Give two examples of Developmental Expenditure.

Ans: Economic services provided by railways and postal services, as well as grants to states and union territories, are two examples.

13. Define Surplus Budget.

Ans : When expected revenues exceed estimated expenditures in a given year, the result is a surplus budget.

14. Give two examples of Non – Developmental expenditures.

Ans: Defence expenditure and interest on payments are two examples of such expenditures.

15. What are the two types of Revenue Receipts?

Ans: Tax revenue and non-tax revenue are the two types of revenue received.

Short Answer Questions (3/4 Marks)

16. Define Direct taxes and Indirect taxes. Also give two examples of each. Ans: Direct taxes are those that are imposed immediately on a person's property or income. The public pays these taxes directly to the government. Income tax, wealth tax, corporate tax, and other taxes are examples.

Indirect taxes are levied on people's income and assets as a result of their consumer spending. These taxes are imposed on one individual, but they are paid by another. Customs duties, excise duties, sales tax, service tax, and other taxes are examples.

17. What are the three major ways of Public Expenditure?

Ans: The following are the three major methods in which the government spends money:

1. Revenue and capital expenditures are the first two items on the list.

2. Planned and unplanned expenses

3. Expenditures for development and non-developmental purposes.

18. Explain the four different concepts of Budget deficit.

Ans: The following are the four different types of budget deficits:

1. Budget deficit: The difference between the state's total expenditure, current revenue, and net internal and foreign capital receipts is known as the budget deficit. B.D = B.E. >B.R. is the formula for calculating it.

Where B.D = Budget deficit, 

B.E = Budget expenditure, and 

B.R = Budget revenue.

2. Fiscal deficit: The difference between the government's total expenditure, revenue revenues, and accrued capital receipts is known as the fiscal deficit. 

F.D = B.E – B.R (B.E > B.R except for borrowings) is the formula. 

Where F.D. stands for fiscal deficit, B.E. stands for budget expenditure, and B.R. is for budget receipts.

3. Revenue deficit: The difference between government revenue expenditures and revenue revenues is known as the revenue deficit. 

R.D = R.E – R.R. 

Where R.D denotes revenue deficit, R.E denotes revenue expenditure, and R.R denotes revenue receipts.

4. Primary deficit: The fiscal deficit that is removed from interest payments is known as the primary deficit. 

P.D = F.D. – I.P. is the formula 

Where P.D = Primary deficit, 

F.D = Fiscal deficit, and 

I.P = Interest payment.

19. Explain the objectives of the Government Budget.

Ans: The key goals of the government budget are listed below.

1. Activities to ensure resource reallocation - The government must reallocate resources while taking social and economic factors into account.

2. Redistribution activities - To eliminate inequities, the government redistributes income and wealth.

3. Stabilizing actions - The government seeks to keep the economy stable by preventing business swings.

4. Management of public enterprises - Through its public enterprises, the government engages in commercial activities such as natural monopolies, heavy manufacturing, and so on.

20. What are the Non-Tax Revenue receipts?

Ans: The following are non-tax revenue receipts:

1. Postage payments, tolls, interest on funds borrowed from the government, credit corporations, railways, and postal department, as well as electrical services, are all examples of commercial revenue.

2. Dividends and interest

3. Fees, penalties, fines, and other administrative revenue

Long Answer Questions (6 Marks)

21. The following figures are based on budget estimates of Govt. of India for

the year 2016-17. Calculate

1. Fiscal deficit

2. Revenue deficit

3. Primary deficit

Ans: 1. Fiscal deficit = Total expenditure – Revenue receipts – Non debt receipts

= 3, 75,223 - 2,31,745-(15,164+12,000)

= Rs. 1, 16,314 billion

2. Revenue deficit = Revenue expenditure – Revenue receipts

= 3, 10,566-2, 31,745

= Rs. 78,821 billion

3. Primary deficit = Fiscal deficit – Interest payments

= 1, 16, 314-1, 12, 300

= Rs. 4014 billion

22. What is a balanced government budget? Explain the multiplier effect of a balanced budget.

Ans: The overall difference between government receipts and spending is known as the government budget balance, also known as general government balance, public budget balance, or public fiscal balance. Simply said, a balanced budget is one in which spending does not exceed earnings. This term can be applied to any budget, including that of a company, a non-profit organisation, or even a family. The term is, however, most commonly linked with a government budget. An effectively balanced budget displays fiscal health by demonstrating that expenditure remains in line with costs.

The following are the multiplier effects of a balanced budget:

1. The balanced-budget multiplier is a metric that estimates the change in aggregate production caused by a change in government taxation on its own.

2. This multiplier comes in handy for analysing fiscal policy changes that include both government purchases and taxes.

3. The multiplier for a balanced budget is one. The "good" impact of a change in government purchases on aggregate production is large, although not entirely, countered by the "negative" impact of a change in taxes.

4. The first injection's purchase of aggregate production is the only element of the impact of the change in government purchases that is not compensated by the rise in taxes. As a result, the initial change in government purchases is equal to the change in aggregate production.

23. Explain the objectives of resource allocation and income distribution in a government budget.

Ans: The budget is prepared by the government to achieve specific objectives. The government's economic, social, and political policies are directly responsible for these objectives.

1. Resource reallocation: The government's budgetary policy attempts to reallocate resources in accordance with the country's economic i.e., profit maximisation and social interests i.e., public welfare. To stimulate investment, the government might provide tax breaks, subsidies, and other incentives to producers. 

2. Reducing income and wealth disparities: The government's fiscal policy strives to reduce income and wealth disparities. The government seeks to impact income distribution by imposing taxes on the wealthy and spending more on the poor's welfare.

3. Economic Growth: A country's growth rate is determined by its savings and investment rates. Budgetary policy tries to achieve this by mobilising adequate resources for public sector investment.

4. Reducing regional disparities: The government budget attempts to eliminate regional inequalities by supporting the establishment of manufacturing units in economically underdeveloped regions through its taxes and expenditure policies.

5. Public Enterprise Management: There are a big number of public sector industries that are developed and managed for the public's social welfare. The budget is created with the goal of establishing various provisions for operating such businesses and giving financial assistance.

24. How is tax revenue different from administrative revenue?

Ans: The term "public income" or "public revenue" refers to the government's total income from all sources.

Tax Revenue: Taxes are mandatory contributions placed on citizens by the government to cover its general expenses for the common good, with no commensurate benefits to the taxpayer. A tax is levied to cover the government's public spending in the national interest. It is remuneration for a government-provided indirect service to the entire population. In today's public finance, taxes account for a major portion of revenue. Taxation has a macroeconomic impact. The amount and style of consumption, the pattern of production, and the distribution of income and wealth can all be influenced by taxes.

Administrative Revenue: Public authorities can raise funds through fees, fines and penalties, and specific assessments under public administration. Fees are levied by the government or public bodies in exchange for providing a service to the public. This includes court fees, passport fees, and so on. Similarly, licence fees are levied by the regulating authorities to confer authorization for anything, such as a driving licence price, an import licence fee, a liquor permit fee, and so on. As a form of punishment, lawbreakers are subjected to fines and penalties, which are assessed and collected. The major goal of these levies is to prevent the commission of crimes and violations of the country's laws, rather than to generate revenue.

25. Explain the concept of fiscal deficit in a government budget. What does it indicate?

Ans: When a government's entire expenditures exceed its total revenue, excluding money borrowed, it has a fiscal deficit. The deficit is distinct from debt, which is the result of a series of annual deficits. The fiscal deficit is said to be the difference between the total revenue and total spending of the government. It's a figure that sums up the government's total borrowing requirements. Borrowings are not taken into account when calculating total revenue. The budget deficit in India for the fiscal year ended March 2018 was 3.53 percent of GDP. In February, India raised its fiscal deficit target for the 2017-18 fiscal year from 3.2 percent to 3.5 percent of GDP. The government of the country expects to reduce the deficit to 3.3% of GDP this fiscal year.

The following are the consequences of a fiscal deficit:

1. It denotes the government's borrowing needs. 

2. It also denotes the government's high interest payments. 

3. It denotes a high level of inflation due to high government spending.

4. It suggests that the economy is becoming more reliant on overseas markets.

Importance of CBSE Class 12 Macro Economics Chapter 5 Government Budget and the Economy Important Questions

The formation of a government for a democratic country is probably the biggest step for the people. It is not easy to form a government and run a country unless there is a proper budgetary aspect designed. This chapter explains what a government is and how it can run on the money of common people.

Students will study this chapter and will focus on understanding the crucial macroeconomic concepts well. This is where the important questions designed by the experts will come in very handy. Solve these questions and compare your answers to the solutions to find out where you need to study more.

Benefits of CBSE Class 12 Macro Economics Chapter 5 Government Budget and the Economy Important Questions

Solving these questions will make your concepts stronger for this chapter.

You can easily diagnose the gaps in your preparation for this chapter and fill them with proper studying.

Resolve doubts related to the important questions by using the solutions given.

Download Class 12 Macro Economics Chapter 5 Important Questions PDF

Get the free PDF version of the important questions and solve them at your convenience. Check the answers given in the solution to assess hour preparation. Learn how to formulate precise answers and score more in exams.

Conclusion 

The compilation of important questions for CBSE Class 12 Macroeconomics Chapter 5 - "Government Budget and the Economy" is a valuable resource for students. These questions have been thoughtfully curated to encompass critical concepts, fiscal policies, and economic principles associated with government budgets. They provide students with a focused and strategic approach to exam preparation, enabling them to evaluate their comprehension and problem-solving skills effectively. These important questions align closely with the examination pattern, ensuring that students are well-prepared to tackle macroeconomic challenges and contribute to their understanding of government budgeting's crucial role in economic stability and growth. Overall, they serve as an indispensable tool for Class 12 Macro Economics students, promoting both academic excellence and a deeper understanding of fiscal responsibility.

FAQs on Important Questions for CBSE Class 12 Macro Economics Chapter 5 - Government Budget and the Economy

1. Where will I get the solutions to these important questions?

The solutions come in the same file for all these questions. You can download and refer to them.

2. How can I learn to answer questions related to Government Budget and the Economy?

Study and follow the concepts taught in this chapter. Revise and solve the exercises.  Check your preparation by solving the important questions and learning how to answer them.

3. What is a government?

A public body elected by the common people to run a state is called a government.

4. Who has the power to choose a government?

The common people have the electoral power to choose a government in a democratic country.

5. What is the budget of a government?

The financial calculation done by a government to identify the money required to run a country is called the budget of a government.

CBSE Class 12 Macro Economics Important Questions

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