case study for government budget class 12

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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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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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3 thoughts on “Class 12 Economics Case Study Questions”

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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 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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• CBSE Class 12 Macro Economics Chapter 5 – Government Budget and the Economy Class 12 Notes 

Government Budget and the Economy Class 12 Revision Notes

In the government budget and the economy class 12 notes, we will study the concept of public and private goods. Also, we will learn the concept of allocation and distribution function. Then, we will learn the differences between public and private goods. Moving ahead, we will present the components of the government budget to bring out the sources of government revenue and the avenues of government spending. Furthermore, we will discuss the issue of government deficit It is a situation when expenditures exceed revenue collection. Moreover, we will deal with fiscal policy and the multiplier process within the income-expenditure approach. We will study the use of fiscal policy in stabilizing the level of output and employment.

Then, we will study the perspectives on the appropriate amount of Government Debt. Moreover, we will study other perspectives on Deficit and debts. We will understand that Government borrowing to cover deficits leads to debt accumulation – what the government owes.

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Sub-topics under Government Budget and the Economy:

• Revenue Account and Capital Account : In this Sub-topic, we will, at first, study Revenue receipts and Expenditure under Revenue Account. Then we will study Capital Receipts and expenditure Under Capital Account.
• Measures of Government Deficit :  In this Sub-topic, we will study the various measures that capture government deficit. Moreover, we will study their implications for the economy.
• Fiscal Policy : In this Sub-topic, we will study the fiscal policy of the Government. We will study its use in stabilizing the level of output and employment.
• Debt : In this Sub-topic, we will study the perspectives on the appropriate amount of Government Debt. Moreover, we will study other perspectives on Deficit and debts and the concept of debt reduction.

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CBSE Class 12 Macro Economics Revision Notes

• CBSE Class 12 Macro Economics Chapter 4 – Income Determination Class 12 Notes
• CBSE Class 12 Macro Economics Chapter 3 – Money and Banking Class 12 Notes
• CBSE Class 12 Macro Economics Chapter 6 – Open Economy Macroeconomics Class 12 Notes
• CBSE Class 12 Macro Economics Chapter 2 – National Income Accounting Class 12 Notes
• CBSE Class 12 Macro Economics Chapter 1 – Introduction to Macro Economics Class 12 Notes

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• Government Budget and the Economy Class 12 Notes CBSE Macro Economics Chapter 5 (Free PDF Download)
• Revision Notes

Revision Notes for CBSE Class 12 Macro Economics Chapter 5 - Free PDF Download

Class 12 Economics Chapter 5 Notes have been prepared by the experts at Vedantu to help the students revise the concepts of the chapter thoroughly before the exams. The experts have used their experience and specialized knowledge to summarise the important concepts of the chapter in a methodical manner. It is very important for students in Class 12 to be clear with the fundamentals of economics as these are used as the base for specialized topics in economics in higher classes. Economics Class 12 Chapter 5 The Government - Functions and Scope is an important chapter and helps the students in learning about the budget.

Download CBSE Class 12 Macro Economics Revision Notes 2023-24 PDF

Also, check CBSE Class 12 Macro Economics revision notes for all chapters:

Related Chapters

Access Class 12 Macroeconomics Chapter 5 - Government Budget and the Economy

Budget: A budget is a year-long financial report that explains how future revenue and expenditure will be calculated item-wise. The budget details a country's revenue and expenditures.

The Main Objectives of the Budget are:

Resource reallocation.

Income and wealth redistribution

Public-sector management

Economic Stability

Economic Development

Employment Creation

Two Components of Budget:

1. Revenue budget: The revenue budget is made up of the government of India's revenue receipts and the expenditures that are met with that revenue.

2. Capital budget: Capital receipts and payments are included in the capital budget. It also includes transactions from the Public Account.

Budget Receipts

1. Revenue Receipts: Revenue receipts are those that do not result in a liability or a decrease in assets. The revenue is then split into two categories.

Receipt from tax

a. Direct tax: A taxpayer pays direct taxes in full to the government. It is also characterised as a tax in which the individual bears both the duty and the burden of payment. According to the type of tax charged, both the central government and state governments collect direct taxes.

b. Indirect tax: The end-consumer of products and services is ultimately responsible for indirect taxes. It is impossible to avoid because taxes are levied on both products and services. It entails lower administrative costs as a result of convenient and regular collections.

Receipt from non-tax: These include interest, commercial revenue, external grants, fines, penalties, and so on.

2. Capital Receipts: Capital receipts are government receipts that create liability or deplete financial assets. The main sources of capital receipts are loans from the public, also known as market borrowings, as well as borrowings from the Reserve Bank, commercial banks, and some other financial institutions through the sale of treasury bills, borrowings from foreign governments and international organizations, and loan recoveries. Small savings, provident funds, and net receipts from the sale of shares in Public Sector Undertakings are among the other items (PSUs).

Budget Expenditure

1. Revenue expenditure: The nature of revenue expenditure is generally current or short-term. They are costs that the government must incur to carry out its daily operations. These costs are fully charged in the year they are incurred and are not depreciated over time. They might either be recurring or non-recurring.

2. Capital Expenditure: Capital expenditures are one-time investments of money or capital made by a government for the aim of expanding in various sectors and businesses in order to create profits. These funds are typically used to acquire fixed assets or assets with a longer lifespan. These include machinery, manufacturing equipment, and infrastructure-improvement equipment. These assets provide value to the government during their entire lifespan and may or may not have a salvage value.

Budget Deficit: The amount by which a budget's expenditures exceed its revenue is referred to as a budget deficit. This deficit is a good indicator of the economy's financial health.

Revenue deficit: Revenue deficit is defined as the difference between total revenue collected and total revenue expenditure. Only current income and current expenses are included in this deficit. A large deficit figure implies that the government should reduce its spending. The government may be able to boost revenue by raising tax revenue.

Revenue deficit = Total revenue expenditure – Total revenue receipts

Implications of Revenue Deficit are:

A significant revenue shortfall indicates budgetary indiscipline.

It indicates that the government is dissaving, i.e., the government is utilizing savings from other sectors of the economy to pay its consumer expenditure.

It demonstrates the government's excessive expenditures on administration. 

It lowers the government's assets owing to disinvestment. 

 A significant revenue deficit sends a warning signal to the government to either cut spending or boost revenue.

Fiscal Deficit: A fiscal deficit occurs when the government's total expenditures exceed its entire revenue produced. The government's borrowings, however, are not included.

Fiscal deficit = Total expenditure – Total receipts excluding borrowings

Implications of Fiscal Deficits are:

A significant drawback or consequence of fiscal deficit is that it may result in a debt trap.

It causes inflationary pressures.

It stifles future advancement.

It increases reliance on foreign resources.

It raises the government's obligation.

Primary Deficit: It is derived by subtracting interest payments from the fiscal deficit.

Primary deficit = Fiscal deficit – Interest payments on previous loans

Implications of Primary Deficit:

It reflects how much of the government's borrowings will be used to cover costs other than interest payments.

Measures to Correct Different Deficits: 

Government subsidy cuts will aid in reducing the deficit.

Where assets are not being used efficiently, disinvestment should be carried out.

Increased emphasis on tax-based revenues, as well as necessary steps to prevent tax evasion.

Borrowing from both domestic and international sources.

A broader tax base could also aid in the reduction of the government's deficit.

Fiscal Policy: Keynesian economics, a theory developed by economist John Maynard Keynes, serves as the foundation for fiscal policy. It is the system by which a government makes changes to its planned expenditure and tax rates in order to monitor and influence the performance of a country's economy. It is implemented in tandem with monetary policy, by which the central bank of the country impacts the country's money supply. This policy influence aids in containing inflation, increasing employment, and, most significantly, maintaining a healthy currency value.

Debt: A quantity of the money borrowed by one entity, the borrower, from another entity, the lenders, is referred to as debt. Governments borrow money to cover their deficits, which allows them to fund regular operations as well as large capital expenditures. This debt might be in the form of a loan or bond issuance. 

Class 12 Macroeconomics Chapter 5 Notes PDF

Class 12 Macroeconomics Chapter 5 Notes will also help the students in framing their answers in the question paper. Most of the time, a concept is explained in detail in the chapter but the same matter cannot be reproduced in the exam as it is difficult to learn and can make the answer unnecessary lengthy. With the help of these revision notes, students can write to the point answers, covering the appropriate matter. Chapter 5 Economy Class 12 Notes PDF by Vedantu can also be accessed by the students online from anywhere, anytime.

Chapter 5 Macroeconomics Class 12 Notes cover all the aspects of the budget, starting from the objectives of the budget and its components. The budget can be classified into revenue budget and capital budget. While the revenue budget consists of the revenue receipts and expenditure met from this revenue, the capital budget includes capital receipts and expenditure.

Budget receipts can be sub-classified into revenue and capital receipts and revenue receipts can be further subdivided into tax and non-tax receipts. These notes will provide ample examples of each category so that the students can understand the concept well. Concepts of receipts and expenditure have been covered well in these notes, complete with examples and the importance of each.

Expenditure and Deficit

Just like receipts, expenditure can also be divided into revenue and capital expenditure. When students are learning about the budget, another important concept that warrants time and attention is the topic of the budget deficit. Economics Chapter 5 Class 12 Notes elaborates on this topic by giving the meaning of deficit and ways to calculate it. In simple words, when the expenditure exceeds the revenues, it leads to a deficit. When revenue expenditure exceeds the revenue receipts, it leads to a revenue deficit. When the total expenditure exceeds the total revenues, it leads to a fiscal deficit.

There are implications of a deficit on the economy and by going through these revision notes students can learn them easily as they have been stated in an easy-to-learn format. There are several measures to correct a budgetary deficit which include steps like borrowing from the public, disinvestment among others that have been included in the notes. The easy pointers can be retained by the students and can be elaborated upon in the exam.

By going through the revision notes students can understand the concept of the budget and its components. They will learn about the effects of receipts exceeding expenditure and vice versa. Students often find it difficult to gauge the importance of every concept given in the chapter and the weightage it might carry in the exam. CBSE Class 12 Macroeconomics Chapter wise Notes by Vedantu highlight all the key concepts that students must revise before the exam. This way students can utilize their time wisely.

Conclusion  

The availability of free PDF download notes for CBSE Class 12 Macroeconomics Chapter 5 - "Government Budget and the Economy" is an invaluable resource for students. These notes provide a structured and comprehensive overview of the intricate relationship between government budgets and economic stability. Understanding this topic is not only crucial for academic excellence but also for comprehending the broader economic landscape. These notes simplify complex concepts like fiscal policy, government revenue, and expenditure, making it easier for students to grasp and apply these principles. Ultimately, these downloadable notes empower students to understand the vital role of government budgets in shaping an economy, promoting fiscal responsibility and informed citizenship.

FAQs on Government Budget and the Economy Class 12 Notes CBSE Macro Economics Chapter 5 (Free PDF Download)

1. What is the Difference Between Direct Taxes and Indirect Taxes?

Macroeconomics Class 12 Chapter 5 Notes explain the difference between direct and indirect taxes with the help of examples. Taxes form an important part of the revenue for the government. Direct taxes are the taxes of which the burden cannot be shifted to others. The Impact and incidence of these taxes are on the same person, eg wealth tax. Indirect taxes are the taxes for which the burden can be shifted to others. The impact and incidence of these taxes fall on different people, eg, service tax. Students can refer to the government budget and the economy class 12 notes to understand this difference clearly.

2. How do These Revision Notes Help the Students in Preparing for the Exams?

Budget is an important concept in economics and understanding all its components is vital for students to grasp further knowledge on this topic. The revision notes have been curated by the experts after a careful and thorough study of the chapters. The notes have been prepared, keeping in mind the concepts on which questions are based. The explanations for every concept have been given in a format that can be formulated into answers by the students. Each topic is followed by examples, and equations to help the students revise easily.

3. What is a government budget Class 12?

A government budget is a country's document or yearly financial statement that shows estimated revenue and expenditure of one by one every item during the course of that year. This government budget is presented on the budget day in Lok Sabha. In India, the financial year begins on April 1st and ends on March 31st of the following year. The government develops a budget based on its goals, and then begins to collect the resources and finances needed to complete the investment.

4. What are the objectives of the government budget 12th?

Savings and investments are essential to a nation's overall economic prosperity. As a result, budgetary measures are implemented in order to ensure that different governmental sectors have enough resources. Economic savings and investments are boosted by the government. A number of government-sponsored budgetary programmes are being implemented to close the income gap between the wealthiest and the poor in the country. Financial measures such as subventions or taxes can help attain this goal. It's a top priority for the Budget to reduce the market's pricing fluctuations.

5. How do you measure the government deficit?

There are majorly three ways to measure the government deficit, which are as follows:

Revenue Deficit- The difference between government revenue expenditures and total revenue receipts is known as the revenue deficit.

Fiscal Deficit- It is the difference between government expenses and the total receipts, excluding borrowing, that determines the fiscal deficit.

Primary Deficit- The primary deficit's purpose is to focus on the current fiscal imbalances, which is why it is measured. Basically, it's the budget deficit minus interest payments. 

6. What are the important topics covered in Class 12 Macroeconomics Chapter 5 revision notes?

Vedantu makes sure not to leave a single important topic unnoticed. All the topics are briefly explained in the revision notes provided by Vedantu. Following are the important questions that are covered in Class 12 Macroeconomics Chapter 5 revision notes:

Components of government budget

The revenue account- revenue expenditure and receipts

The capital account- capital expenditure and receipts

Measures of government deficit- revenue, fiscal and primary deficit

Fiscal policy

Changes in government expenditure

Changes in taxes

7. Where can I get the NCERT solutions for Class 12 Macroeconomics Chapter 5 in PDF format?

Vedantu app and Vedantu website both offer the NCERT Solutions for Class 12 Macroeconomics Chapter 5 in PDF format which can be downloaded for free of cost. Every chapter ends with a set of questions which Vedantu answers in-detail in its NCERT Solutions. You can use these solutions to prepare for your exams by going through them and practicing them regularly. It's simple, just visit the page CBSE Class 12 Macro Economics Revision Notes Chapter 5 and you'll be taken to a page with the NCERT Solutions.

REVISION NOTES FOR CLASS 12 MICRO ECONOMICS

Cbse study materials.

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.

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Government Budget and the Economy Case Study Questions for Class 12 Economics Chapter 4

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Table of Contents

Here you will find Case Study Questions for CBSE Class 12 Economics Chapter 4 Government Budget and the Economy.

Government Budget and the Economy Case Study Based Questions

Case Study Question 1:

Units and Chapter List:

PART A: INTRODUCTORY MACROECONOMICS

• National Income and Related Aggregates
• Money and Banking
• Determination of Income and Employment
• Government Budget and the Economy
• Balance of Payment

PART B: INDIAN ECONOMIC DEVELOPMENT

• Development Experience (1947-90) and Economic Reforms Since 1991
• Current Challenges Facing Indian Economy
• Development Experience of India

How to be a Well-prepared Examinee?

Getting prepared for the CBSE Examinations can be a challenging task, but with the right approach, you can be well-prepared. Every student wants to score well in the exams and be among the toppers. They all work hard to achieve this goal. The difference, between those who achieve the goal and those who do not, is not much. Here are a few points that will surely help in covering that difference and achieving the desired goal.

BE UPDATED First, get a clear understanding of the syllabus and the exam pattern of the CBSE Examinations. This will help you know which topics you need to focus on and what to expect in the exam.

DEVISE A STUDY PLAN Create a realistic study plan that covers all the subjects and topics that you need to study. Set realistic study goals for each day.

PRIORITISE THE TOPICS Identify the important topics and prioritise them in your study plan. This will help you focus on the most important concepts and reduce stress.

MAKE NOTES AND SUMMARIES Make concise notes and summaries of all the important topics. This will help you revise the concepts efficiently and effectively.

MNEMONICS Try to remember various concepts using the mnemonics

PRACTISE REGULARLY AND DILIGENTLY Solving previous years’ question papers and sample papers will help you assess your preparation level and identify your weak areas. It will also help you manage your time effectively during the exam.

STAY COMPOSED Try to keep calm and be in control of your feelings. Take a balanced diet, sleep well and do some physical exercise regularly. Spend some time doing the things which you like. Stay fit, calm and focused. It will help you immensely in your preparations and will lead you to success.

PREPARE FOR THE BIG DAY The examination day holds a great significance for the learners. Most of the learners try to assimilate as much as they can, just before the examination. This stressful, last minute preparation should be avoided, as much as possible. The preparation should end a night before the examination. A sound sleep is important for a fresh start in the morning. Avoid over-stressing just before the examination.

MINDSET DURING THE EXAM

In the examination hall, ensure that you have filled your particulars in the answer sheet correctly. Answer the questions according to the given directions. First attempt the questions that you can answer easily. It will create a positive mindset.

EFFECTIVE USE OF TIME

If you have solved the paper before time, don’t leave the examination hall. Revise your answers and look for any correction or improvement. There is always room for improvement. Do utilise your time effectively.

How to Tackle Business Studies Case Studies in Exams

Here’s a tip on how to approach and answer case study questions for Class 12 BST (Business Studies) exams:

1. Understand the Format:

• Case study questions are designed to test your ability to analyze and apply your knowledge to real-world situations.
• These questions are usually longer in length, but your answers should be concise and to the point.

2. Careful Reading:

• Begin by carefully reading the entire case study. Don’t rush; understand the context and details provided.
• Pay attention to any data, statistics, or specific information presented in the case.

3. Examine the Question:

• Before diving into the case study, read the question(s) associated with it. This will help you focus on what to look for while reading the case.
• Identify the key concepts or issues the question is addressing.

4. Highlight Key Information:

• While reading the case, underline or highlight important facts, figures, or statements that seem relevant to the question.
• Make notes if necessary to organize your thoughts.

5. Analyze the Situation:

• Once you have a good grasp of the case and its details, analyze the situation. Consider the cause-and-effect relationships, potential solutions, and any ethical or business principles involved.

6. Structure Your Answer:

• Start your answer with a brief introduction, summarizing the main problem or situation presented in the case.
• Organize your response logically. You can use bullet points or numbered lists for clarity.
• Present your analysis, providing relevant business theories or concepts as appropriate.
• Offer solutions or recommendations based on your analysis. Be clear and concise in your suggestions.

7. Use Simple Language:

• Write your answers in clear and simple language. Avoid unnecessary jargon or complex vocabulary.
• Ensure your answers are easy to understand for the examiner.

8. Practice with Sample Papers:

• Practice case study questions from sample papers and previous year papers to get a feel for the format and types of questions that may be asked.
• Writing practice answers will help you refine your approach.

Remember to practice, and you’ll become more proficient at tackling case study questions effectively.

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Government Budget and Economy Class 12 Economics Important Questions

Students can read the important questions given below for Government Budget and Economy Class 12 Economics. All Government Budget and Economy Class 12 Notes and questions with solutions have been prepared based on the latest syllabus and examination guidelines issued by CBSE, NCERT and KVS. You should read all notes provided by us and Class 12 Economics Important Questions provided for all chapters to get better marks in examinations. Economics Question Bank Class 12 is available on our website for free download in PDF.

Important Questions of Government Budget and Economy Class 12

Question. What is Govt. Budget? Ans : The term budget has been derived from the French word ‘Bougett’ which refers to ‘a small bag’. A govt. budget is an annual statement of estimated receipts & expenditure of the govt. during a financial year. Question. Explain the objectives of Govt. Budget. Ans : The govt. prepares budget with the following objectives: 1. Proper Allocation/Reallocation of resources is one of the important objectives of govt. budget. The govt. makes a proper allocation of resources through its budgetary policy so as to make a balance between the goals of profit maximization & social welfare. In other words, there is a justifiable allocation of resources which can promote the welfare of the common mass. 2. Economic Stability is another objective of budgetary policy of the govt. During the period of depression & inflation, govt. adopts the policy of deficit & surplus budgeting respectively. The govt. adopts certain policies through budget to save the economy from the clutches of business cycles. The economic stability is indispensable for the stimulation of savings & investment which further raises the level of economic growth & development. 3. Economic Growth is one of the important objectives of the govt. budget. Government prepares such a favorable budget which can create conducive  onditions to raise the level of savings & investment on which the economic growth of a country depends. 4. Economic Equality is another important objective of govt. budget as economic disparity is inherent in any economic system which is politically &bsocially   undesirable for a healthy nation. In order to curb the economic inequality to a socially acceptable level, fiscal policy play as an effective instrument through which the govt. exercise, with the help of taxation & expenditure, in redistribution of income & wealth in the economy. This helps to bring social & economic justice which is an important element of any welfare state. 

Question. Define the term Deficit Financing & state its sources. Ans :  It refers to the financing of the budgetary deficits. The sources are expansion in money supply, i.e. the Central Bank may print money equal to the deficit against of treasury bills of the govt., & secondly by borrowing from the public through market loans. It is a very common instrument to finance the deficit if the govt. budget. Usually it is used by the govt. in India, as every year the budgetary deficit is on rise. The deficit financing can be also done by borrowing from the abroad, which may be burdensome in the future. It is used as the best alternative in the less developed countries because in these countries the people cannot be highly taxed.

Question. There has been constant rise in price of sugar overtime. What measure would you support to bring down the prices? Ans.  Using measures of budgetary policy, government can try to fix prices at a lower level by incurring expenditure through subsides which would reduce cost of production and hence the prices. If the government does not want to add to its expenditure on subsidies, then it should ensure availability of sugar at reasonable prices through its fair price shops. In the situations of emergency, buffer stocks may also be used.

Question. How can government budget be a useful instrument in reducing inequalities in the distribution of income and wealth? Ans.  Government uses budgetary policies to reduce inequalities in the distribution of income and wealth by: i). Imposing new taxes and increasing the rates of existence taxes; ii) Spending more on education, health care and housing for the poor; iii) Strengthening public distribution system(through fair price shops)

Question. What is the relationship between the revenue deficit and the fiscal deficit? Ans.  Fiscal deficit is a wider concept than revenue deficit. Revenue deficit is defined as the excess of government’s revenue expenditure over revenue receipt. Thus, Revenue deficit=Revenue expenditure (RE)-Revenue receipt(RR). Where as fiscal deficit is defined as the excess of total expenditure over total receipts excluding borrowings. It does not take into account borrowings. Fiscal deficit= (total budgetary expenditure)-(total budgetary receiptborrowings)

Question. Explain the sources of Public Expenditure. Ans : This refers to the expenditure to be incurred on various heads during the fiscal year. Public Expenditure is been classified into Plan & Non-Plan  xpenditure since 1987-88 budget which are further classified into Revenue & Capital Expenditure. Further this Plan revenue & capital, and Non- Plan revenue & capital expenditure are classified into Developmental & Non-Developmental Expenditure. This can be understood by the help of the above flow chart. Plan expenditure refers to the amount to be spent on the heads which are prescribed under the current five year plan. Thus it shows the central plan outlay for various projects, programmes schemes & the central assistance for the state & union territories. Plan Revenue expenditure includes the expenditure on central plans viz. agriculture, rural development, irrigation & flood control, energy, industry & minerals, transport, communication, science & technology, environment & others, and the central assistance for state and union territories. Plan Capital Expenditure includes the expenditure on economic development, social & communal development, defence & general services etc., and loans to states and union territories for financing plan projects. Non-Plan expenditure includes the expenditure on the items which are not included in the current five year plan but are included in the current fiscal year budget. Non-Plan Revenue Expenditure includes interest payments; defence revenue expenditure; subsidies in food, sugar, export promotion, market development, interest subsidy etc; grants to states and UTs; pensions and economic services, social services, general services; postal deficit; grants to foreign govt. & others. Non- Plan Capital Expenditure includes defence capital; loans to states, UTs & foreign govts. Revenue expenditure includes the expenditure on those heads which do not create any assets or reduce the liabilities. These expenditures are incurred on the normal functioning of the govt. and the maintenance of the law & order. For example, compensation of employees, pensions, interest payments, subsidies, grants expenditure on central plans etc. Capital expenditure refers to the amount to be spent on those heads which leads to the creation of the assets or reduction in liabilities. For example, expenditure on defence capital; purchase of assets viz. land, buildings & shares; loans to state govt. & union territories etc. Developmental expenditure refers to the expenditure on those items which are directly related to economic and social development of the economy. For  xample, expenditure on capital assets, infrastructure, railways, posts, telecommunication, education, health, social welfare, scientific research etc. This  xpenditure directly contributes to the flow of goods and services. Non-Developmental expenditure includes the expenditure on those heads which are not productive & give any returns to the economy viz. defence &  dministrations, natural calamity, interest payments, tax collections, old age pensions & unemployed allowances etc. Although, it does not contribute to the national income but it is not to be considered as unimportant as it lubricates the wheels of economic development i.e. it creates the conducive conditions in the functioning of the process of economic development.

Question. Explain different types of Budget. Ans : Govt. budget can be classified into Balanced, Surplus & Deficit Budget. Balanced budget refers to the budget when the public receipts are equal to the public expenditure. Surplus budget is the one in which public receipts exceeds the public expenditure. Deficit budget is the one in which the govt. expenditure exceeds its receipts.

Question. Explain different types of budgetary deficit. Ans : The budgetary deficit is classified into Revenue, Fiscal & Primary deficit. Revenue deficit refers to the excess of revenue expenditure over revenue receipts. It is the difference between the (Plan revenue expenditure and Non-Plan revenue expenditure) and (Tax revenue + Non-tax revenue). Fiscal deficit refers to the excess of total expenditure over the sum of revenue receipts and capital receipts excluding borrowings. Thus, Fiscal Deficit =total Expenditure – Total Receipts (net of Borrowings).Primary deficit is defined as fiscal deficit less interest payments. Thus, Primary Deficit = Fiscal Deficit – Interest Payments.

Question. What is capital budget? Ans.  Capital budget contains the details of the capital receipts and capital expenditure of the government.

Question. What is tax? Ans.  A tax is a compulsory payment imposed by the government on public or firms.

Question. Define a direct tax. Give two example of direct tax? Ans.  When liability to pay a tax and the burden of that tax lies on the same person, it is called direct tax. e.g., income tax and corporate tax.

Question. Define indirect tax. Give two examples of indirect taxes? Ans.  When liability to pay a tax is on one person and the burden of the tax falls on same other person, it is called indirect tax e.g., sales tax and excise duties.

Question. Find borrowing by Government if payments of interest is estimated to be of 15,000 crores which is 25% of primary deficit. Ans.  Here, Interest payment = 25% of primary deficit; Primary deficit = 100/25 x 15,000 = 60,000 We know, Primary deficit – Interest payment; Fiscal deficit = Primary deficit + Interest payment = 60,000 crore + 15,000 crore; = 75,000 crore Question. What is revenue budget? Ans.  Revenue budget contains the details of the current receipts (or called revenue receipts) and current expenditure (also known as revenue expenditure) of the government.

Question. Give example of non-tax revenue receipts? Ans.  Fees, License and Permit, special assessment, escheat etc.

Question. What does zero primary deficit mean? Ans.  Zero primary deficit means that the government has to resort to borrowings only to make interest payments of previous years.

Question. Are fiscal deficits necessarily inflationary? Ans.  Fiscal deficits are not necessarily inflationary. However, if output is less because of lack of demand and high fiscal deficit is accompanied by higher demand and greater output and therefore if would not be inflationary as it is covering the gap required for smooth functioning of the economy by raising the level of aggregate demand.

Question. There carefully planned, government budget reflects deficit because its expenditure exceeds revenue. How can this deficit be reduced? Ans.  Government should increase its revenue by controlling tax evasion; ii. Government should reduce unproductive expenditure like subsidies, financial assistance to all even when some of them may not require it.

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The Government: Budget and the Economy Class 12 Notes Economics Part B Chapter 5

Lesson at a glance.

• Government Budget: Government budget is an annual statement, showing itemwise estimates of receipts and expenditures during a fiscal year. In other words, a government budget is a statement showing estimated receipts and estimated expenditure for a financial year i.e. 1 April to 31 March. In the beginning of every year, government presents before the Lok Sabha an estimate of its receipts and expenditure for the coming financial year. The government plans expenditure according to its objectives and then tries to raise resources to meet the proposed expenditure.

• Objectives of Government Budget:

1. Redistribution of Income and Wealth / Reduction of inequalities: Government through fiscal tools of taxation, subsidies and transfer payments makes an effort to make income distribution equitable in the economy. Equitable distribution of income and wealth is a way to bring social justice. Government levies high rate of tax on rich people reducing their disposable income and lowers the rate on lower income group. Government also provides subsidies and amenities to people whose income level is low.

2. Reallocation of resources: the government through budgetary policy reallocates resources so as to achieve social and economic objectives. Government produces those goods which may not be economically beneficial but are extremely useful in terms of social benefits like public sanitation, rural electrification, education, health etc. It also levies high taxes on commodities that are undesirable socially or ethically. It provides essential goods to the poor at subsidized rates. Government draws away resources from some other areas to promote balanced economic growth of regions by allocating more funds to production of socially useful goods.

3. Economic Stability/Price Stability: The government tries to prevent business fluctuations and to maintain price and employment stability through taxes, subsidies and expenditure. Economic stability increases the inducement to invest and increase the rate of growth and development.

4. Managing Public Enterprise: The budgetary policy of the government shows interest of the government to increase the rate of growth through public enterprises. Often, government undertakes such activities which are of utmost importance or which have monopoly advantage. Budget is prepared with the objective of making various provisions for managing such enterprises and providing them financial help.

5. Economic growth: Economic growth implies a sustained increase in real GDP of the economy, i.e., a sustained increase in volume of goods & services. For this purpose,budgetary policy aims to mobilize sufficient resources for investment in the public sector. •Revenue Budget: It consists of revenue receipts and revenue expenditure of the government. •Capital Budget: It consists of capital receipts and capital expenditure •Revenue Receipts: Revenue receipts are those receipts which does not create a liability or lead to reduction in asset. Revenue receipts are of recurring nature. Revenue receipts can be further classified into tax revenue and non tax revenue.

• Tax Revenue: Tax revenue refers to sum total of receipts from taxes and other duties imposed by the government. A tax is a legally compulsory payment imposed by the government. Government imposes tax on income, manufacturing, services, wealth etc. Tax revenue is the main source of regular receipts of the government. Taxes are of two types:

• Direct Tax: These refer to taxes that are imposed by the government on property & income of individuals & companies and are paid directly to the government. The liability to pay a tax and the burden of that tax cannot be shifted and the burden of the tax is borne by the same person on whom the tax is levied. Examples are Income tax, Wealth tax, Gift tax,corporation tax, Death duty etc.

• Indirect tax: When the burden of a tax can be shifted on other persons, it is called an indirect tax. They are imposed on goods & services. Examples are Sales Tax, Service Tax, Entertainment tax, Excise duty etc.

• Direct Taxes: A tax is a direct tax, if its burden can’t be shifted. Its liability to pay and burden falls on the same person. For example: income tax, corporate tax, wealth tax, gift tax, estate duty etc.

• Indirect Taxes: A tax is an indirect tax, if its burden can be shifted. Its liability to pay and burden falls on different persons. For example: sales tax (paid by the shopkeeper but recovered from the customer), excise duty (paid by the producer but recovered from wholesalers & retailers), custom duty (paid by the importer but recovered from retailers & customers), entertainment tax (paid by cinema owners but recovered from customers) etc.

• Non Tax Revenue: Non Tax revenue refers to receipts of the government from sources other than tax. Its main sources are:

I. Fees: It refers to the charges imposed by the government to cover the cost of recurring services provided by it. It gives a special advantage to the fee payer. Example college fee, license fee, registration fee.

II. Fines and penalties: A payment for the violation of law. It is levied to maintain law and order. For example: fine for jumping red light etc.

III. Forfeitures: A penalty imposed by the court for non compliance with orders or non-fulfillment of contracts.

IV. Escheat: A claim of the government on the property of a person who dies without having a legal heir or without leaving a will.

V. Interest: Government receives interest on the funds advanced to states, union territories, railways, post & telegraph etc.

VI. Profits & Dividends: The government earns profits through public sector undertakings like Indian Railways, LIC, and BHEL etc. It also gets dividend from its investment in other companies.

VII. License Fee: It is a payment charged by the government to grant permission for something. For example: license fee paid for permission of keeping gun or to obtain permission for driving.

VIII.Gifts & Grants: Government received gifts and grants from foreign governments and international organizations like World Bank. These are generally received during national crisis such as war, flood etc.

• Revenue Expenditure: Revenue expenditure is an expenditure which does not result in creation of an asset or reduction in a liability. Such expenses are incurred on running of government departments and maintenance of public services. These are financed out of revenue receipts. It is recurring in nature which is incurred every year. For example, salaries, pensions, interest payments, subsidies, grants, education & health services etc.

• Capital Receipts: Those receipts which either create a liability or reduce an asset are called capital receipts. Capital receipts are receipts under capital account. When government raises funds either by incurring a liability or by disposing off its assets, it is called a capital receipt. These include market borrowings, external loans and advances made by the government and provident fund. The main sources of capital receipts are:

(a) Recoveries of loans: Loans offered by government to others are government assets because it owns money that it lends. Recovery of such loan is capital receipt as it reduces the assets of the government.

(b) Borrowings and other liabilities: These are the funds raised by government to meet excess expenditure. These are treated as capital receipts because they create a liability of returning loans. These funds are borrowed from (i) open market, (ii) RBI, (iii) foreign governments and (iv) international organizations like World Bank, IMF etc.

(c) Disinvestment: It is withdrawal of government investment. It refers to selling whole or a part of the shares of selected PSUs held by the government to private sector. As a result of this, government assets are reduced. Disinvestment is also termed as privatization because it involves transfer of ownership from public sector to private sector.

(d) Small Savings: It refers to the funds raised from the public in the form of post office deposits, NSC, Kisan Vikas Patras etc.

• Capital expenditure : An expenditure which leads to either creation of assets or reduction in liability is a part of capital expenditure. These expenditures are met out of capital receipts.Its main sources are: (a)Expenditure on purchase of assets like land, buildings,machinery etc. (b)Investment in shares (c)Repayment of loan

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• Chapter 10 Government Budget And The Economy

Sandeep Garg Macroeconomics Class 12- Chapter 10: Government Budget and the Economy

Sandeep Garg Class 12 Macroeconomics Solutions Chapter 10: Government Budget and the Economy are explained by the expert economics teachers from the latest edition of Sandeep Garg Macroeconomics Class 12 textbook solutions.

At BYJU’S, we provide Sandeep Garg economics class 12 solutions to give a comprehensive insight about the subject to the students. These insights act as a priceless benefit to students while completing their homework or while studying for their exams.

There are numerous concepts in economics, but here we provide you the solutions from, Government Budget and the Economy, which will be useful for the students to score well in the board exams.

Sandeep Garg Solutions Class 12: Chapter 10: Part B

In a government budget, the revenue deficit is ₹35 crores. If the revenue receipts are ₹70 crores and capital expenditure is ₹120 crores, then how much is the revenue expenditure?

Revenue deficit = Revenue expenditure – Revenue receipt

₹35 crores = Revenue expenditure – ₹70 crores

Revenue Expenditure = ₹35 crores + ₹70 crores

= ₹105 crores

The interest requirement as per the government budget during a year is ₹1,40,000 crores. If the total borrowing requirements of the government are estimated at ₹2,70,000 crores, then how much is the primary deficit?

Total borrowing requirements of the government are estimated at ₹2,70,000 crores. It means,

Fiscal deficit = ₹2,70,000

• Primary deficit = Fiscal deficit – Interest payment

Primary deficit = ₹2,70,000 crores – ₹1,40,000 crores

= ₹1,30,000 crores

In a government budget, the primary deficit is ₹12,000 crores and interest payment is ₹7,000 crores. How much is the fiscal deficit?

₹12,000 crores = Fiscal deficit – ₹7,000 crores

Fiscal deficit = ₹12,000 crores + ₹7,000 crores

= ₹19,000 crores

As per the government budget, the interest payments are estimated at ₹10,000 crores, which is 40% of the primary deficit. Calculated the fiscal deficit.

Let primary deficit = x

₹10,000 crores = 40% of x = 0.40 x

x= ₹10,000 crores/0.40 = ₹25,000 crores

₹25,000 crores = Fiscal deficit – ₹10,000 crores

Fiscal deficit = ₹25,000 crores + ₹10,000 crores

= ₹35,000 crores

Explore link: Excess Demand and Deficient Demand

From the given table, Find the following:

(a) Fiscal deficit

(b) Primary deficit

Revenue deficit = ₹70,000 crores – ₹50,000 crores = ₹20,000 crores

Interest payment = 25% of revenue deficit = ₹20,000 crores x 25/100 [1] 

= ₹5,000 crores

• Fiscal deficit = Borrowings = ₹15,000 crores

Primary deficit = ₹15,000 crores – ₹5,000 crores

= ₹10,000 crores

From the given information, determine the following:

(a) Capital expenditure

(b) Total expenditure

(c) Interest payments

(a) Fiscal deficit = Revenue deficit + (Capital expenditure – Non-debt creating capital receipts)

₹12,000 crores = ₹9,000 + (Capital expenditure – ₹10,000

Capital expenditure = ₹12,000 crores – ₹9,000 crores + ₹10,000 crores

= ₹13,000 crores

(b) Total expenditure = Revenue expenditure + Capital expenditure

Revenue expenditure = Revenue deficit + Revenue receipt

= ₹9,000 crores + ₹6,000 crores

= ₹15,000 crores

Total expenditure = Revenue expenditure + Capital expenditure

= ₹15,000 crores + ₹13,000 crores

= ₹28,000 crores

(c) Primary deficit = Fiscal deficit – Interest payments

₹5,000 crores = ₹12,000 crores – Interest payments

Interest payments = ₹12,000 crores – ₹5,000 crores

= ₹7,000 crores

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GOVERNMENT BUDGET

• CBSE Class 12
• Chapter 4: GOVERNMENT BUDGET
• GOVERNMENT BUDGET Notes

• MacroEconomics & Indian Economy Book Class-12
• Publication
• PathSet Publications

Government Budget

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

• Budget prepared by central government, is known as ‘Union Budget’.
• Budget is required to be approved by the parliament, before it can be implemented.

Objectives of Government Budget

• Reallocation of resources:
• Private enterprises always desire to allocate resources to those areas of production where profits are high.
• However, it is possible that such areas of production (like production of alcohol) may not promote social welfare.
• Through its budgetary policy, the government of a country directs the allocation of resources in a manner such that there is a balance between the goals of profit maximisation and social welfare.
• Production of goods which are injurious to health (like cigarettes) are discouraged through heavy taxation.
• On the other hand, production of “socially useful goods” (like khaadi) is encouraged through subsidies.
• Therefore, the government has to reallocate resources in accordance to social and economic considerations in case the free market fails to do or does so inefficiently.

2. Redistributive activities:

• Budget of a government shows its comprehensive exercise on the taxation and subsidies.
• A government uses fiscal instruments of taxation and subsidies with a view of improving the distribution of income and wealth in the economy.
• A government reduces the inequality in the distribution of income and wealth by imposing taxes on the rich and giving subsidies to the poor, or spending more on welfare of the poor.
• It reduces income of the rich and raises the living standard of the poor, thus, leads to equitable distribution of income.
• Expenditure on special anti-poverty and employment schemes will be increased to bring more people above poverty line.
• Public distribution system should be inferred so that the poor could get foodgrains and other essential items at subsidised prices.
• Therefore, equitable distribution of income and wealth is a sign of social justice, which is the principal objective of any welfare state in India.

3. Stabilising activities:

• Free play of market forces (or the forces of supply and demand) are bound to generate trade cycles, also called business cycles.
• These refer to the phases of recession, depression, recovery and boom in the economy. The government of a country is always committed to save the economy from business cycles. Budget is used as an important policy instrument to combat the situations of deflation and inflation.
• By doing it the government tries to achieve the state of economic stability.
• Economic stability leads to more investment and increases the rate of growth and development.

4. Management of Public Enterprises:

• A government undertakes commercial activities that are of natural monopolies; and which are established and managed for social welfare of the public.
• A natural monopoly is a situation where there are economies of scale over a large range of output.
• Industries, which are potentially natural monopolies, are railways etc.

5. Economic Growth

• The growth rate of a country depends on rate of saving and investment.
• For this purpose, budgetary policy aims to mobilise sufficient resources for investment in the public sector.
• Therefore, the government makes various provisions in the budget to raise overall rate of savings and investments in the economy.

 6. Reducing Regional Disparities

• The government budget aims to reduce regional disparities through its taxation and expenditure policy for encouraging setting up of production units in economically backward regions.

 Importance of a budget:

• Today every country aims at Economic Growth to improve the living standard of its people. There are many issues such as poverty, unemployment, inequalities in incomes, wealth etc. Government strives hard to solve these problems through budgetary measures.
• The budget shows the fiscal policy, item wise estimates of expenditure discloses how much and on what items the government is going to spend. Similarly, item wise details of government receipts indicate the sources from where the government intends to get money to finance the expenditure.
• In this way, budget is the most important instrument in hands of government. To achieve their objectives is the most important goal of the government budget.
• Note: Fiscal year is the year in which country’s budget is prepared. Its duration is from 1 April to 31 March.

Types of Budget:

• Balanced Budget
• Unbalanced Budget

Balanced Budget : If in a fiscal year, the government revenue is equal to the government expenditure, it is known as balanced budget.

Balanced Budget = Estimated Govt. Receipts = Estimated Govt. Expenditure Unbalanced Budget : If in a fiscal year, the government expenditure is either more or less than the government receipts, the budget is known as Unbalanced budget.

It may be of two types:

• Surplus budget
• Deficit budget

Surplus Budget : If the revenue received by the general government is more in comparison to expenditure, it is known as surplus budget. In other words, surplus budget implies a situation where government income is in excess of government expenditure.

Deficit Budget : If the expenditure made by the general government is more than the revenue received, then it is known as deficit budget. In other words, in deficit budget, government expenditure is in excess of government income.

Components of Budget

Revenue Budget: It deals with the revenue aspect of the government budget. It explains how revenue is generated, collected ad allocated among various expenditure heads. It consists of Revenue receipts and Revenue expenditure.

Capital Budget: It deals with the capital aspect of the government budget. It consists of Capital receipts and Capital expenditure.

Related Topic Name

Budget receipts, budget expenditure, measurement of government deficit, enter your mobile number to sign up in edumple, enter your mobile number.

Government Budget and the Economy Class 12 Important Questions and Answers Macroeconomics Chapter 5

We have given these Economics Class 12 Important Questions Macroeconomics Chapter 5 Government Budget and the Economy to solve different types of questions in the exam. Go through these Government Budget and the Economy Class 12 Important Questions and Answers Solutions & Previous Year Questions to score good marks in the board examination.

Important Questions of Government Budget and the Economy Class 12 Macroeconomics Chapter 5

Question 1. What do you mean by direct tax? (All India 2019) Or What is a direct tax? (Delhi (C) 2014) Or Define a direct tax. (All India 2012) Answer: Direct taxes are those taxes for which the incidence and impact of tax falls on the same person, i.e. actual burden of these taxes cannot be shifted, e.g. income tax, corporation tax etc.

Question 2. State any two examples of non-tax revenue receipts of the government. (All India 2019) Or Give two examples of non-tax revenue receipts. (All India (C) 2014) Or State any two sources of non-tax revenue receipts. (Delhi (C) 2011) Answer: Two sources of non-tax revenue receipts are

• Grants/donations

Question 3. What do you mean by an indirect tax? (All India 2019) Or Define an indirect tax. (All India (C) 2014) Answer: An indirect tax is one in which the burden of the tax can be shifted to another person.

Question 4. Define the term ‘tax’. (Delhi 2019) Or What is a tax? (All India (C) 2014; Delhi (C) 2012) Or Define tax. (Delhi 2012: All India 2010) Answer: Tax is a compulsory payment made by an individual, household or a firm to the government without reference to anything in return.

Question 5. Define government budget. (All India (C) 2017,2014; Delhi 2014) Or What is government budget? (Delhi 2014,2013, All India (C) 2012) Answer: Government budget is a statement of expected receipts and expenditures of the government over the period of a financial year, i.e. from 1st April to 31st March.

Question 6. What are revenue receipts in a government budget? (Delhi, All India 2016) Or Define revenue receipts in a government budget. (All India 2010) Answer: The receipts which neither create any corresponding liability for the government nor create any reduction in assets, are termed as revenue receipts, e.g. tax receipts of government.

Question 7. What is revenue expenditure? (Delhi 2016) Or What is revenue expenditure in government budget? (Delhi (C) 2010) Answer: The expenditure of the government which neither cause any increase in the government assets nor cause any reduction in government liabilities, are termed as revenue expenditures, e.g. expenditure on old age pensions, salaries etc.

Question 8. Give two examples of indirect taxes. (Delhi (C) 2014, 2013) Answer: Sales Tax and Value Added Tax

Question 9. Give two examples of revenue expenditure. (All Indio (C) 2014) Answer: Salaries of government employees and administration expenses.

Question 10. Give two examples of capital receipts in a government budget. (All India 2012) Answer: Two examples of capital receipts are

• Proceeds from disinvestment of public sector units.
• Loan from World Bank.

Question 11. Give two examples of direct tax.AII India 2010 Answer: Two examples of direct tax are

• Corporation tax

Question 12. Define capital expenditure. (Delhi (C) 2010) Answer: The expenditure of the government which leads to an increase in government assets or reduction in government liabilities, is termed as capital expenditure, e.g. expenses on the construction of national highways, dams and re-payment of loans etc.

Question 13. Explain the basis of classifying taxes into direct and indirect tax. Give examples. (Delhi 2017) Or Explain the basis of classifying taxes into direct and indirect tax. Give two examples of each. (All India (C) 2016) Answer: The basis of classifying taxes into direct and indirect taxes is ‘shifting the impact of tax’. Direct taxes are those taxes for which the incidence and impact of tax falls on the same person, i.e. actual burden of taxes cannot be shifted, e.g. income tax, corporation tax etc. Whereas indirect taxes are those taxes for which the incidence and impact fall on separate persons, i.e. burden of these taxes can be shifted to others, e.g. service tax, entertainment tax etc.

Question 14. Distinguish between direct taxes and indirect taxes. Give an example of each. (All India 2017) Or Distinguish between direct tax and indirect tax. (All India 2011) Or Explain the distinction between direct tax and indirect tax. Give one example of each. (Delhi (C) 2012) Answer: Differences between direct tax and indirect tax are

Question 15. Is the following a revenue receipt or a capital receipt in the context of government budget and why? (i) Tax receipts (ii) Disinvestment (All India 2014) Answer: (i) Tax receipts are revenue receipts for the government because neither they create a liability nor they lead to reduction in any assets.

(ii) Disinvestment refers to the withdrawal of existing investment, e.g. the government of ‘ India is undertaking disinvestment by selling its shares in Maruti Udyog Ltd. It is a capital receipt for the governments as it reduces the assets of the government.

Question 16. Is the following revenue expenditure or capital expenditure in the context of government budget? Give reason. (i) Expenditure on collection of taxes. (ii) Expenditure on purchasing computers. (Delhi 2014) Answer: (i) Expenditure on collection of taxes is a revenue expenditure for the government as it neither adds to the assets nor reduces the liabilities.

(ii) Expenditure on purchasing computers is a capital expenditure for the government as it results in increase in assets.

Question 16. Giving reason, state whether the following is a revenue expenditure or a capital expenditure in a government budget (i) Expenditure on scholarships (ii) Expenditure on building a bridge (Foreign 2014) Answer: (i) Expenditure on scholarships is a revenue expenditure because neither it leads to decrease in liabilities nor leads to an increase in assets.

(ii) Expenditure on building a bridge is a capital expenditure because it increases the assets of the country.

Question 17. State three sources each of revenue receipts and capital receipts in government budget. (All India 2013) Answer: Sources of revenue receipts are

• Income from public enterprises
• Tax revenue
• Fees and fines

Sources of capital receipts are

• Recovery of loans
• Disinvestment

Question 18. Explain any one objective of government budget. (Delhi 2013) Answer: One of the objectives of government budget is ‘Generation of Employment’. Government takes steps to promote labour intensive technology, public works programme like construction of roads, dams, canals, bridges etc. to promote employment generation in the economy. Several programmes are initiated through budget to reduce the problem of poverty and unemployment. MNREGA is one such example.

Question 19. Distinguish between revenue expenditure and capital expenditure in a government budget. Give an example of each. (Delhi 2013; All India 2013) Or Distinguish between revenue expenditure and capital expenditure in a budget. Give examples. (Delhi 2012) Or Distinguish between revenue expenditure and capital expenditure. (All India 2010) Or Distinguish between the following Revenue receipts and capital receipts. Answer: Differences between revenue expenditure and capital expenditure are

Question 20. Distinguish between revenue receipts and capital receipts in a government budget. (All India 2013, Delhi (C) 2010) Or Distinguish between revenue receipts and capital receipts in a government budget. Give example in each case. (All India 2012) Or How are capital receipts different from revenue receipts? Discuss briefly. (Delhi 2019) Or Distinguish between revenue receipts and capital receipts. Give two examples of each. (All India 2011) Answer: Differences between revenue receipts and capital receipts are

Question 21. Explain the basis of classifying government receipts into revenue receipts and capital receipts. Which type of these receipts are ‘borrowings by government’ and why? (All India 2013) Answer: The basis of classifying government receipts into capital and revenue receipts is ‘reduction in assets’ or ‘increase in liabilities’. The receipts which result in reducing the assets of the government or increasing its liabilities are referred to as capital receipts. The receipts which neither reduce government’s assets or increase it’s liabilities are revenue receipts. Borrowings by government are capital receipts as they increase the liability of the government.

Question 22. State three objectives of a government budget. (Delhi (C) 2011) Answer: Objectives of a government budget are as follows

• Re-distribution of income and wealth.
• Re-allocation of resources.
• Economic stability.

Question 23. On what basis is government expenditure classified into capital expenditure and revenue expenditure? Give an example of each. (Delhi (C) 2011) Answer: Government expenditures are aimed at providing benefits to the people and enhancing the development of the country. On the basis of causing a change in the assets and liabilities position of the country, these expenditures can be classified as (i) Capital expenditure: The expenditure of the government which leads to an increase in government assets or reduction in government liabilities, is termed as capital expenditure, e.g. expenses on the construction of national highways, dams and re-payment of loans etc.

(ii) Revenue expenditure: The expenditure of the government which neither cause any increase in the government assets nor cause any reduction in government liabilities, are termed as revenue expenditures, e.g. expenditure on old age pensions, salaries etc. Payment of salaries to government employees is revenue expenditure as it neither results in increase in assets or reduction in liabilities.

Question 24. Explain how the government can use the budgetary policy in reducing inequality of income in the economy? (All India 2019) Answer: Reducing inequality is a major objective of government’s budget especially in developing country like India, where inequality of income and wealth is very high. Government uses its financial tools of taxation and subsidies to enhance equal distribution of income and wealth. In order to ensure equity of income, progressive tax structure is followed in India, which imposes higher burden of taxes on higher income group and lesser burden on lower income group. Also, those who earn below a substantial limit are exempted from payment of taxes. The additional income generated from higher income group is re-distributed by the government in the form of subsidies to the poor sections of the society, to ensure the objective of welfare. LPG subsidy is a good example of such re-distribution of income.

Question 25. Discuss briefly the role of the government budget in influencing “allocation of resources” in the economy. (All India 2019) Answer: The government of a country, through its budgetary policy, directs the allocation of resources in a manner such that there is a balance between the goals of profit maximisation and social welfare by ensuring that there should be production of necessity goods as well .as comfort and luxury goods and the goods which cannot be provided through market mechanism e.g. roads, parks, street lights (public goods) etc are provided by the government.

So, the government levies tax on the richer sections of society. The money collected from taxes is spent on providing public goods and giving subsidies on necessary goods to the poorer section of society.

So, the government re-allocates resources by collecting taxes from the rich and giving subsidies to the poor, and tries to achieve equitable distribution of income.

Question 26. (a) How are tax receipts different from non-tax receipts? Discuss briefly. (b) State any two items of revenue expenditure in a Government budget. (Delhi 2019) Answer: (a) Differences between tax receipts and non-tax receipts are

(b) Two items of revenue expenditure in a government budget are as follows

• Salaries of government officials
• Expenditure on defence.

Question 27. Explain the basis of classifying government expenditure into revenue and capital expenditures. (All India (C) 2012) Answer: The basis of classifying government expenditure into revenue and capital is as follows:

• If an expenditure results in increase in the value of assets or decrease in the value of liability, then it is classified as capital expenditure.
• If an expenditure results neither in increase in the value of assets, nor in decrease in the value of liability, then it is classified as revenue expenditure.

Question 28. Classify the following receipts into revenue receipts and capital receipts. Give reasons in support of your answer. (i) Recovery of loans. (ii) Interest received on loans. (Delhi (C) 2012) Answer: (i) Recovery of loans is a capital receipt as it will lead to decline in financial assets of government.

(ii) On the other hand, interest received on loans are revenue receipts as they neither create liability nor any reduction in assets of the government.

Question 29. Giving reasons, classify the following into direct and indirect tax. (Delhi 2010) (i) Wealth tax (ii) Value added tax Answer: (i) Wealth tax It is a kind of direct tax as it is paid by the same person on which it is levied or imposed, i.e. burden of this tax is not possible to shift to the other person.

(ii) Value added tax It is a kind of indirect tax as it is imposed on one person and its burden shifts to other person.

Question 30. Explain the following objectives of government budget: (a) Allocation of resources (b) Reducing income inequalities (March 2018) Answer: (a) The government of a country, through its budgetary policy, directs the allocation of resources in a manner such that there is a balance between the goals of profit maximisation and social welfare by ensuring that there should be production of necessity goods as well .as comfort and luxury goods and the goods which cannot be provided through market mechanism e.g. roads, parks, street lights (public goods) etc are provided by the government.

(b) Reducing income inequalities Reducing inequality is a major objective of government’s budget especially in developing country like India, where inequality of income and wealth is very high.

Government uses its financial tools of taxation and subsidies to enhance equal distribution of income and wealth. In order to ensure equity of income, progressive tax structure is followed in India, which imposes higher burden of taxes on higher income group and lesser burden on lower income group. Also, those who earn below a substantial limit are exempted from payment of taxes. The additional income generated from higher income group is re-distributed by the government in the form of subsidies to the poor sections of the society, to ensure the objective of welfare. LPG subsidy is a good example of such re-distribution of income.

Question 31. What is government budget? Explain its major components. (April re-exam 2018) Or Explain the role of government budget in influencing allocation of resources. (All India 2016) Answer: Government budget is a financial statement of estimated receipts and expenditure of the government during a financial year (i.e. 1st April to 31st March).

Components of government budget: 1. Budget receipts It refers to estimated money receipts of the government from all sources during the fiscal year. These are classified as (i) Revenue receipts Government receipts which neither create liabilities nor reduce assets are known as revenue receipts. Constituents of revenue receipts

• Tax receipts, i.e. income tax, GST, etc.
• Non-tax receipts, i.e. fees, grants, fines, etc.

(ii) Capital receipts Government receipts which either create liabilities or reduce assets are called capital receipts. Constituents of capital receipts

• Recovery of loan
• Dis-investment

2. Budget payment/expenditure: It refers to estimated expenditure of the government during the fiscal year. These are classified as: (i) Revenue expenditure Government expenditure which does not create assets or causes a reduction in liabilities, e.g. interest payment, defence purchases, subsidies, etc.

(ii) Capital expenditure Government’s expenditure which creates assets or causes a reduction in liabilities, e.g. purchase of machine, loans to state government, etc.

(iii) Plan and non-plan expenditure: Government’s expenditure can be planned or non-planned. These are as follows

• Planned expenditure Refers to the expenditure on planned programmes.
• Non-planned expenditure Refers to the expenditure which is not related to specific plan or programmes, e.g. relief funds given to rail accident victims.

Question 32. Explain (a) allocation of resources and (b) economic stability as objectives of government budget. (April re-exam 2018) Answer: (a) The government of a country, through its budgetary policy, directs the allocation of resources in a manner such that there is a balance between the goals of profit maximisation and social welfare by ensuring that there should be production of necessity goods as well .as comfort and luxury goods and the goods which cannot be provided through market mechanism e.g. roads, parks, street lights (public goods) etc are provided by the government.

(b) Economic stability Government budget can be helpful in bringing economic stabilisation in the economy by checking inflationary and deflationary tendencies. To curb the inflationary tendency, the government can prepare a surplus budget. Such a budget reduces the money supply in the economy. With a fall in the money supply, the purchasing power of people also fall, leading to a fall in the level of aggregate demand. As aggregate demand falls, the price level or the rate of inflation also falls. To curb the deflationary tendency, the government can prepare a deficit budget. Such a budget increases the money supply in the economy. With increase in money supply, the purchasing power of people also rise, leading to an increase in the level of aggregate demand. As aggregate demand rises, the price level also rises and rate of deflation begins to fall.

Question 33. Define revenue receipts in a Government Budget. Explain how Government Budget can used to bring in price stability in the economy? (Delhi 2016) Answer: Receipts which do not create a liability for the government or do not lead to reduction in assets, are known as revenue receipts. Revenue receipts are receipts of the government which are non-redeemable, i.e. they cannot be re-claimed from the government. These are divided into tax and non-tax revenues (i) Tax revenue It consists of the proceeds of taxes and other duties levied by the Central and the State Governments. Tax revenues comprise of direct taxes and indirect taxes.

(ii) Non-tax revenue Non-tax revenue of the government mainly consists of interest receipts on account of loans by the government, dividends and profits on investments made by the government, fees and other receipts for services rendered by the government. Grants-in-aid from foreign countries and international organisations are also a part of non-tax revenue.

The Government Budget is a statement of estimated receipts and expenditures of the government during the financial year. One of the objective of the Government Budget is to achieve ‘economic stability’. Government tries to establish economic stability by its budgetary policies related to income and expenditure. Economic stability refers to a situation without fluctuations in price levels and stability of exchange rate in an economy. Economic stability is achieved by protecting the economy from harmful effects of various trade cycles and its phases, i.e. boom, recession, depression and recovery.

Question 34. What is government budget? Explain how taxes and subsidies can be used to influence allocation of resources? (Delhi 2016) Answer: Government budget is a statement of the estimates of the government’s expected receipts and government’s expected expenditure during the financial year or fiscal year which runs from 1st April to 31st March. One of the important objective of the government budget is ‘re-allocation of resources’.

Allocation of resources: The government of a country, through its budgetary policy, directs the allocation of resources in a manner such that there is a balance between the goals of profit maximisation and social welfare by ensuring that there should be production of necessity goods as well .as comfort and luxury goods and the goods which cannot be provided through market mechanism e.g. roads, parks, street lights (public goods) etc are provided by the government.

Question 35. What is the difference between revenue expenditure and capital expenditure? Explain how taxes and government expenditure can be used to influence distribution of income in the society? (All India 2016) Answer: Difference between revenue expenditure and capital expenditure:

Distribution of income in society: Reducing income inequalities Reducing inequality is a major objective of government’s budget especially in developing country like India, where inequality of income and wealth is very high.

Question 36. Explain the budgetary measures for achieving the following objectives (i) Setting up of production units in backward regions. (ii) Reducing inequalities of income and wealth. (Delhi 2016) Answer: (i) The possible budgetary incentives that a government might decide to give to investors for making investments in backward region are as follows: (a) The government might give a tax-holiday for a stipulated period for such investors The reason behind this is that the incentive of tax-holiday might motivate the investors to invest in backward region.

(b) The government may offer subsidy on loans for such investors The provision of subsidy implies that the investors will not be required to pay back a certain percentage of the loan taken by them. This might induce them to invest.

(c) The government might waive-off the excise duty on goods manufactured by investors in these regions Excise duty is levied on goods manufactured or produced in India. Waiving of the excise duty will ensure that the price of the good is less and this will increase the demand for the good and ensure a ready market for the product. This will motivate the investors to invest in backward region.

(ii) For reducing inequalities of income and wealth, the government can initiate the following budgetary measures: (a) High taxes on higher income: The government may levy higher taxes on people with higher incomes.

(b) Providing subsidies to lower income groups: To reduce inequalities, the government may provide subsidies on necessary consumption items to lower income groups.

(c) Improving social infrastructure: The government can increase it’s expenditure on social infrastructure, such as construction of schools and hospitals, so that the lower income group can avail of such facilities and improve their standard of living.

Question 37. Classify the following taxes into direct and indirect tax. Give reasons for your answer. (i) Corporation tax (ii) Entertainment tax (iii) Excise duty (iv) Income tax (All India (C) 2016) Answer: (i) Corporation tax It is a direct tax as its impact and incidence is on the same person (Company). (ii) Entertainment tax It is an indirect tax as its impact and incidence are on different people. (iii) Excise duty It is an indirect tax as the burden of its payment can be shifted to another person. (iv) Income tax It is a direct tax as its impact and incidence are on the same person.

Question 38. Suppose you are a member of the “Advisory Committee of the Finance Minister of India”. The Finance Minister is concerned about the rising revenue deficit in the budget. Suggest any one measure to control the rising revenue deficit of the government. (All India 2019) Answer: Measures to control revenue deficit are (any one)

• Increased emphasis on tax-based revenues and appropriate measures to reduce tax evasion.
• Disinvestment should be done where assets are not being used effectively.

Question 39. What is meant by fiscal deficit? (Delhi 2019) Or What is fiscal deficit? (Delhi (c) 2017,2012) Or Define fiscal deficit. (All India 2016,2014) Answer: Fiscal deficit is the difference between the government’s total expenditure and total receipts excluding borrowings. Fiscal deficit = Total Budget Expenditure – Total Budget Receipts (Excluding borrowings) Or Fiscal Deficit = Borrowings

Question 40. What is meant by primary deficit? (Delhi 2019) Or What is ‘primary deficit’? (Delhi (C) 2017,2012; Foreign 2014) Or How is primary deficit calculated? (Delhi (C) 2010) Answer: The difference between fiscal deficit and interest payment is known as primary deficit. Primary Deficit = Fiscal Deficit – Interest Payments

Question 41. What is ‘revenue deficit’? (Delhi 2017: All India 2013) Or What is meant by revenue deficit? (All India 2010) Answer: When the revenue receipts are less than the revenue expenditures in a government budget, this shortfall is termed as revenue deficit. Revenue Deficit = Revenue Expenditure – Revenue Receipts

Question 42. What is revenue deficit in government budget? (Delhi 2016) Answer: Revenue deficit is defined as the excess of government’s revenue expenditure over revenue receipts. The revenue deficit includes only such transactions that affect the current income and expenditure of the government. It is calculated as Revenue Deficit = Revenue Expenditure – Revenue Receipts

Question 43. Distinguish between fiscal deficit and revenue deficit. (Delhi 2013: All India (C) 2012) Or Explain the distinction between fiscal deficit and primary deficit. Delhi to 2013 Answer: Differences between fiscal deficit and revenue deficit are

Question 44. Explain the meaning and implications of revenue deficit. (All India 2011) Answer: When the revenue receipts are less than the revenue expenditures in the government budget, this short-fall of receipts is known as revenue deficit. Implications of revenue deficit are as follows:

• High revenue deficit shows accumulated and recurring expenses of government such as expenses on defence, payment of interest etc.
• The revenue deficit is managed by borrowing or by disinvestment. Hence, high revenue deficit either increases government liability or reduces government assets.
• High revenue deficit leads to inflationary situation in the economy, as high government expenditure increases the aggregate demand of the economy.
• High revenue deficit implies high future burden of loan and interest payments on the government.

Question 45. Distinguish between fiscal deficit and primary deficit. (All India 2010) Or Revenue deficit and fiscal deficit. (All India (C) 2014: Delhi (C) 2014) Answer: Differences between fiscal deficit and primary deficit are

Question 46. Explain revenue deficit in a government budget. What does it indicate? (Delhi 2012) Or What is revenue deficit? Explain its implications. (Delhi 2012) Answer: When the revenue receipts are less than the revenue expenditures in the government budget, this short-fall of receipts is known as revenue deficit. Implications of revenue deficit are as follows:

Two measures to reduce revenue deficit are as follows

• Reduction in expenditure The government should take measures to reduce unnecessary and wasteful expenditure.
• Increase in revenue The government should try to increase its revenue by expanding its tax base.

Question 47. Explain the concept of fiscal deficit in a government budget. What does it indicate? (All India 2012) Answer: Fiscal deficit is the difference between the government’s total expenditure and total receipts excluding borrowings. Fiscal deficit = Total Budget Expenditure – Total Budget Receipts (Excluding borrowings) Or Fiscal Deficit = Borrowings

Implications of fiscal deficit are:

• Borrowing requirements of government.
• High interest payments by government.
• High level of inflation due to high government expenditure.
• Increased foreign dependence of the economy.

Question 48. From the following data about a government budget, find out the following: (i) Revenue deficit (ii) Fiscal deficit (iii) Primary deficit (Delhi 2011)

Answer: (i) Revenue Deficit = Revenue Expenditure – Revenue Receipts = 100 – 80 = ₹ 20 Arab

(ii) Fiscal Deficit = (Revenue Expenditure + Capital Expenditure) – (Revenue Receipt + Capital Receipt Net of Borrowing) = (100 + 110) – (80 + 95) = 210 – 175 = ₹ 35 Arab

(iii) Primary Deficit = Fiscal Deficit – Interest Payments = 35 – 10 = ₹ 25 Arab

Question 49. From the following data about a government budget, find (i) Revenue deficit (ii) Fiscal deficit (iii) Primary deficit (All India 2011)

Answer: (i) Revenue Deficit = Revenue Expenditure – (Tax Revenue + Non-tax Revenue) = 80 – [47 + 10] = 80 – 57 = ₹ 23 Arab (ii) Fiscal Deficit = Borrowings Borrowings = ₹ 32 Arab So, Fiscal Deficit = ₹ 32 Arab

(iii) Primary Deficit = Fiscal Deficit – Interest Payments = 32 – 20 = ₹ 12 Arab

Question 50. Define a government budget. Give meanings of revenue deficit, fiscal deficit and primary deficit. (Delhi 2011) Or What is a government budget? Explain the meanings of fiscal deficit and primary deficit. (All India (C) 2010) Answer: Government budget is a statement of expected/estimated receipts and expenditure of the government over a period of one financial year, i.e. from 1st April to 31st March. (1) Revenue deficit: When the revenue receipts are less than the revenue expenditures in a government budget, this shortfall is termed as revenue deficit. Revenue Deficit = Revenue Expenditure – Revenue Receipts

fiscal deficit: Fiscal deficit is the difference between the government’s total expenditure and total receipts excluding borrowings. Fiscal deficit = Total Budget Expenditure – Total Budget Receipts (Excluding borrowings) Or Fiscal Deficit = Borrowings

primary deficit: The difference between fiscal deficit and interest payment is known as primary deficit. Primary Deficit = Fiscal Deficit – Interest Payments

Question 51. Explain the meaning of the following: (a) Revenue deficit (b) Fiscal deficit (c) Primary deficit (March 2018) Answer: (a) Revenue deficit: When the revenue receipts are less than the revenue expenditures in a government budget, this shortfall is termed as revenue deficit. Revenue Deficit = Revenue Expenditure – Revenue Receipts

(b) Fiscal deficit: Fiscal deficit is the difference between the government’s total expenditure and total receipts excluding borrowings. Fiscal deficit = Total Budget Expenditure – Total Budget Receipts (Excluding borrowings) Or Fiscal Deficit = Borrowings

(c) Primary deficit: The difference between fiscal deficit and interest payment is known as primary deficit. Primary Deficit = Fiscal Deficit – Interest Payments

Question 52. Distinguish between Primary deficit and revenue deficit (All India (C) 2014) Answer: Differences between primary deficit and revenue deficit are:

Multiple Choice Questions

Question 1. Dividends received from Public Sector Undertakings (PSUs) are a part of the governmental (Choose the correct alternative) (All India 2019) (a) non-tax revenue receipts (b) tax receipts (c) capital receipts (d) capital expenditure Answer: (a) non-tax revenue receipts

Question 2. Which of the following sources of receipts in government budget increases its liabilities? (Delhi (C) 2016) (a) Direct taxes (b) Recovery of loans (c) Borrowings (d) Dividend from public sector undertakings Answer: (c) Borrowings

Question 3. Which of the following is a direct tax? (Delhi (C) 2016) (a) Corporation tax (b) Entertainment tax (c) Excise duty (d) Service tax Answer: (a) Corporation tax

Question 4. Which of the following is a source of capital receipt? (All India (C) 2016) (a) Foreign donations (b) Dividends (c) Disinvestment (d) Indirect taxes Answer: (c) Disinvestment

Question 5. Direct tax is called direct because it is collected directly from ………. (All India 2015) (a) the producers on goods produced (b) the sellers on goods sold (c) the buyers of goods (d) the income earners Answer: (d) the income earners

Question 6. The non-tax revenue in the following is…….. (Delhi 2015) (a) export duty (b) import duty (c) dividends (d) excise Answer: (c) dividends

Question 7. Which one of these is a revenue expenditure? (Foreign 2015) (a) Purchase of shares (b) Loans advanced (c) Subsidies (d) Expenditure on acquisition of land Answer: (c) Subsidies

Question 8. Which of the following is not a revenue receipt? (Choose the correct alternative) (All India (C) 2015) (a) Recovery of loans (b) Foreign grants (c) Profits of public enterprises (d) Wealth tax Answer: (a) Recovery of loans

Question 9. Which one of the following is a combination of direct taxes? (Choose the correct alternative) (Delhi (C) 2015) (a) Excise duty and Wealth tax (b) Service tax and Income tax (c) Excise duty and Service tax (d) Wealth tax and Income tax Answer: (d) Wealth tax and Income tax

Question 10. Primary deficit in a government budget will be zero, when ………………….. (All India 2019) (Choose the correct alternative) (a) revenue deficit is zero (b) net interest payments are zero (c) fiscal deficit is zero (d) fiscal deficit is equal to interest payment Answer: (d) fiscal deficit is equal to interest payment

Question 11. Fiscal deficit equals (Delhi 2016) (Choose the correct alternative) (a) interest payments (b) borrowings (c) interest payments less borrowings (d) borrowings less interest payments Answer: (b) Borrowings

Question 12. Primary deficit equals (Choose the correct alternative) (All India 2016) (a) borrowings (b) interest payments (c) borrowings less interest payments (d) both borrowings and interest payments Answer: (c) Borrowings less interest payments

Question 13. Primary deficit is the difference between _________. (All India (C) 2016) (a) fiscal deficit and revenue deficit (b) revenue deficit and interest payments (c) total expenditure and total revenue receipts (d) fiscal deficit and interest payments Answer: (d) Fiscal deficit and interest payments

Question 14. Primary deficit in a government budget is _________ (All India 2015) (a) revenue expenditure – revenue receipts (b) total expenditure – total receipts (c) revenue deficit – interest payments (d) fiscal deficit – interest payments Answer: (d) fiscal deficit – interest payments

Question 15. Borrowings in government budget are _________ (Delhi 2015) (a) revenue deficit (b) fiscal deficit (c) primary deficit (d) deficit in taxes Answer: (b) Fiscal deficit

Question 16. Primary deficit in a government budget equals (Choose the correct alternative) (Foreign 2015) (a) interest payments (b) interest payments less borrowings (c) borrowings less interest payments (d) None of these Answer: (c) Borrowings less interest payments

Question 17. Which of the following is a correct measure of primary deficit? (All India (C) 2015) (a) Fiscal deficit minus revenue deficit (b) Revenue deficit minus interest payments (c) Fiscal deficit minus interest payments (d) Capital expenditure minus revenue expenditure Answer: (c) Fiscal deficit minus interest payments

Question 18. Which of the following statements is true? (Delhi (C) 2015) (a) Fiscal deficit is the difference between total expenditure and total receipts (b) Primary deficit is the difference between total receipt and interest payments (c) Fiscal deficit is the sum of primary deficit and interest payments (d) Primary deficit is the difference between revenue deficit and interest payments Answer: (c) Fiscal deficit is the sum of primary deficit and interest payments.

Question 19. Following are the impacts of government budget on the economy excluding (a) brings better allocation of resources (b) implement government welfare programmes (c) brings aggregate fiscal indiscipline level (d) better access of public goods Answer: (c) brings aggregate fiscal indiscipline level

Question 20. Goods and Service Tax (GST) is an example of under government receipts. (a) indirect tax (b) direct tax (c) non-tax revenue (d) income tax Answer: (a) indirect tax

Question 21. An expenditure which is of recurring or non-recurring in nature, and which is based on five year economic plan is called (a) revenue expenditure (b) capital expenditure (c) plan expenditure (d) non-plan expenditure Answer: (c) plan expenditure

Question 22. Which of the following is capital expenditures? (a) Subsidies (b) Interest payments (c) Purchase of shares (d) Defince purchases Answer: (c) Purchase of shares

Question 23. The expenditure incurred for smooth functioning of government departments and for day-to-day expenses of the government is called (a) capital expenditure (b) non-plan expenditure (c) revenue expenditure (d) All of the above Answer: (c) revenue expenditure

Question 24. Which of the following does not form the part of capital receipts of the Union Government? (a) Non-tax revenue (b) Loan recoveries (c) Net external assistance (d) Net market borrowings Answer: (a) Non-tax revenue

Question 25. Cost of tax collection, cost of audit and printing notes, pension, expenditure on defence and law and order are treated as of the government. (a) government expenditure (b) revenue expenditure (c) non-development expenditure (d) plan expenditure Answer: (c) non-development expenditure

Question 26. Which of the following budget is more suitable for developing economies like India? (a) Deficit Budget (b) Balanced Budget (c) Surplus Budget (d) None of these Answer: (a) Deficit Budget

Question 27. Zero primary deficit means that the government has to resort to borrowings only to make (a) interest payment (b) fiscal payment (c) capital payment (d) primary payment Answer: (a) interest payment

Question 28. From the following, which is not an implication of fiscal deficit? (a) It determine total borrowing requirements to the government (b) It increase liability of the government (c) It increase foreign dependence (d) Repayment of loan together with interest further decreases the fiscal deficit Answer: (d) Repayment of loan together with interest further decreases the fiscal deficit

Question 29. The government starts selling its securities to private sector. What is this process called? (a) Open market operation (b) Disinvestment (c) Monetary expansion (d) All of the above Answer: (b) Disinvestment

Question 30. If fiscal deficit is ₹ 550 crore and interest payment is ₹ 200 crore, then primary deficit. (a) ₹ 200 crore (b) ₹ 550 crore (c) ₹ 765 crore (d) ₹ 350 crore Answer: (d) ₹ 350 crore

Question 31. If government borrowings = ₹ 800 crore and interest payments = ₹ 155 crore, then find fiscal deficit and primary deficit. (a) Fiscal deficit = ₹ 155 crore and Primary deficit = ₹ 800 crore (b) Fiscal deficit = ₹ 800 crore and Primary deficit = ₹ 155 crore (c) Fiscal deficit = ₹ 155 crore and Primary deficit = ₹ 645 crore (d) Fiscal deficit = ₹ 800 crore and Primary deficit = ₹ 645 crore Answer: (d) Fiscal deficit = ₹ 800 crore and Primary deficit = ₹ 645 crore

Question 32. Primary Deficit = Fiscal Deficit- (a) Borrowings (b) Subsidies (c) Interest payments (d) Transfer payments Answer: (c) Interest payments

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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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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