CBSE Class 12 Economics Government Budget And The Economy VBQs Set 02

Question. Match the following:
Column I | Column II
A Defence system | (i) Market Borrowing
B Food items | (ii) Corporate Borrowing
C Loans taken by govt. from public | (iii) Public Goods
D Loans taken by companies | (iv) Macroeconomics
E General equilibrium | (v) Private Goods
Options :
(a) A - (iii), B - (v), C - (i), D - (ii), E - (iv)
(b) A - (i), B - (ii), C - (iii), D - (iv), E - (v)
(c) A - (ii), B - (iii), C - (v), D - (iv), E - (i)
(d) A - (iv), B - (v), C - (iii), D - (ii), E - (i)
Answer: (a) A - (iii), B - (v), C - (i), D - (ii), E - (iv)

Question. Match the following:
Column I | Column II
A Fines and penalties | (i) Direct tax
B Fiscal deficit – Interest payments | (ii) Neither creates an asset nor reduces liability
C Progressive in nature | (iii) Primary deficit
D Revenue receipts | (iv) Non-tax revenue
Options :
(a) A - (iv), B - (iii), C - (i), D - (ii)
(b) A - (i), B - (ii), C - (iii), D - (iv)
(c) A - (i), B - (iv), C - (ii), D - (iii)
(d) A - (ii), B - (iii), C - (i), D - (iv)
Answer: (a) A - (iv), B - (iii), C - (i), D - (ii)

Question. During the situation of COVID, many economist have agrued that the government could take initiatives that could protect the economy from getting into recession as Indian economy from so long is suffering from the problem of low demand. On this the finance ministry has decided to take loans from the Central Bank to inject money in the economy. You are advised to look into the government accounts book. You will record this transaction as………….
(a) capital receipt
(b) revenue receipt
(c) revenue expenditure
(d) capital expenditure
Answer: (a) capital receipt

Question. Prime Minister Narendra Modi's government outlining measures worth more than 21 trillion rupees ($281 billion) to counter the economic and social fallout of the Covid-19 outbreak. A closer look at the numbers shows the bulk of the spending was directed toward the poor and the farmers, with crucial sectors such as coal, power, shipping and steel receiving less than a third of their annual budget allocation. Allocation of resources in the budget in the six months to September 2020 is directed towards
(a) economic upliftment of the economy
(b) social upliftment of the economy
(c) the poor and the farmers
(d) all of the options
Answer: (d) all of the options

Question. During the situation of COVID, many economist have agrued that the government could take initiatives that could protect the economy from getting into recession as Indian economy from so long is suffering from the problem of low demand. On this the finance ministry has decided to take loans from the Central Bank to inject money in the economy. You are advised to look into the government accounts book. You will record this transaction as ................ receipt.
(a) revenue
(b) capital
(c) purchase
(d) sales
Answer: (b) capital

Read the following news report and answer questions on the basis of the same : For an economy that is undeniably in slowdown mode, it does come as a surprise that the first Budget of the Modi 2.0 government has eschewed any sort of pump priming, instead preferring to leave the job of stepping up investment to the private sector. It is believed, and not without reason, that the fiscal stimulus then administered led to both deficit and inflation going out of gear. An increase of Rs. 3.3 lakh crore in the projected expenditure of the Centre in 2019-20 over the revised estimates of 2018-19 is insignificant when seen against the Rs. 3.15 lakh crore increase in 2018-19 over the actuals of 2017-18 — given inflation and nominal GDP growth of 12 per cent projected in 2019-20. The fiscal squeeze is underscored in relation to capital expenditure: it has been slashed to Rs. 8.7 lakh crore in 2019-20 from Rs. 9.2 lakh crore in the revised estimates for 2018-19, with Railways bearing the brunt. It would appear that uncertain revenue collections on both the direct taxes and GST fronts have prompted this fiscal conservatism. The Budget is rich in micro details, having proposed several positive steps to galvanize the capital and debt markets, the latter aimed at pushing infrastructure finance. Banks will be recapitalized to the extent of Rs. 70,000 crore to boost credit. With a view to expanding financing options, mandatory public float level has been raised from 25 per cent to 35 per cent. The transformative potential of Swachh Bharat in recycling waste has received welcome emphasis. But how ‘nal se jal’ for all by 2024 will become a reality is not very clear.

Question. Which among the following can sum up the opinion of the author regarding the budget proposals of the government?
(a) The author is of the opinion that the Budget has not included the finer details of the economy.
(b) The government has not taken into account the details of the macro factors of the economy before going into the details.
(c) The author does not know how to yield to the private sector without making it too obvious.
(d) The author is optimistic regarding certain aspects whereas he has lauded the government in some other as well.
Answer: (d) The author is optimistic regarding certain aspects whereas he has lauded the government in some other as well.

Question. Which among the following is correct regarding the public investments in the economy as per the Union Budget?
(a) The government is going to ensure that there is more public spending in the economy though it is not certain.
(b) The government is going to ensure that the needy sectors are focused properly without any kind of hassle.
(c) The government does not want to see that there is no public spending in the economy in the last year.
(d) The government does not want to invest but it wants the private sector to come forward and invest.
Answer: (d) The government does not want to invest but it wants the private sector to come forward and invest.

Question. Which among the following is/are correct regarding the ‘nal se jal’ scheme announced by the government in the Union Budget?
I. The scheme will be implemented by the Government of India through the state governments.
II. The government wants to ensure that it is implemented within the next five years i.e. before the end of its term.
III. The author is very much hopeful regarding the scheme that it will do wonders for the country in the years to come.
(a) Both I and II
(b) Both II and III
(c) Both I and III
(d) Only II
Answer: (d) Only II

Question. Which among the following is/are correct regarding the reforms introduced in the Union Budget by the government?
I. The MSME Sector is going to get a boost since the government has decided to buy the high rated assets of the NBFCs.
II. The banks in the country are going to be capitalized by the government so that they can start lending more.
III. The government has decided to decrease the income tax levels for the middle-class population of the country.
(a) Both I and II
(b) Both II and III
(c) Both I and III
(d) Only III
Answer: (a) Both I and II

Read the following news report and answer questions on the basis of the same : According to the traditional definition, Public finance is that branch of Economics which deals with, the income and expenditure of a public sector organization, normally government or federal organization. In the words of Adam Smith “The investment into the nature and principles of state expenditure and state revenue is called public finance“. The sources of revenue have also increased. Taxes are levied not for raising the revenue alone but are used as an important instrument of economic policy. Modern concept of Public finance defines the role of the government in the economy. It is the study of the effects of budgets on the economy, particularly the effect on the achievement of the major economic objects—growth, stability, equity and efficiency. It also deals with fiscal policies which ought to be adopted to achieve certain objectives such as price stability, economic growth, more equal distribution of income etc. Public revenue is exactly income generated from sources of government in order to meet requirements of expenses of public. Public revenue generally refers to government revenue. A license fee is paid in those instances in which the government authority is invoked simply to confer permission or a privilege. The analysis of public finance also includes the concept of public expenditure. Public expenditure studies how the government distributes the resources for the fulfillment of various responsibilities. Modern economies are monetized, that is goods and services are exchanged through a medium of money and both public & private sector create and use financial claims.

Question. According to the passage, what is the largest source of public revenue?
(a) fine and penalties
(b) surplus of public sector undertaking
(c) public borrowing
(d) taxes
Answer: (d) taxes

Question. According to the passage, which of the following economic instruments helps the government in meeting the budgetary deficit?
(a) public revenue
(b) financial administration
(c) public debt
(d) financial administration
Answer: (c) public debt

Question. In the passage, according to the traditional concept of public finance, its main work was to
(a) maintain the economic stability
(b) generate the employment
(c) accelerate the economic growth
(d) impose the taxation policy
Answer: (d) impose the taxation policy

Question. According to the passage, what does help the government in allocation of resources for the completion of various obligations?
(a) public expenditure
(b) public debt
(c) public revenue
(d) financial administration
Answer: (a) public expenditure

Read the following news report and answer Questions on the basis of the same : Finance Minister Nirmala Sitharaman has presented the Union Budget 2021 on February 1. Nirmala Sitharaman, who was appointed as the finance and corporate affairs minister on May 31, 2019, is the second woman to have presented the Budget on July 5, 2019. The Budget is an estimate of income and expenditure of the government for a set period of time. It is an annual financial statement of India. According to Article 112 of the Indian Constitution, it is mandatory for the government to present this annual statement. The Union Budget is classified into Capital Budget, Revenue Budget and Expenditure Budget. India's first Budget was presented on February 18, 1860, by James Wilson. R K Shanmukham Chetty, the first finance minister of independent India presented the Union Budget on November 26, 1947. In 2001, the then finance minister Yashwant Sinha broke the colonial practice of presenting the Budget in the evening and started the tradition of reading it out from 11 am. Indira Gandhi became the first woman finance minister to present India's Budget in Parliament in 1970.

Question. According to .................... of the Indian Constitution, it is mandatory for the government to present this annual statement.
(a) Article 122
(b) Article 112
(c) Article 132
(d) Article 152
Answer: (d) Article 152

Question. In which year India's first Budget was presented ?
(a) 1860
(b) 1865
(c) 1885
(d) 1890
Answer: (a) 1860

Question. The Budget is an estimate of ................... of the government for a set period of time.
(a) Income and GDP
(b) Revenue and expenditure
(c) Income and expenditure
(d) NNP and Expenditure
Answer: (c) Income and expenditure

Question. Which of the following is first woman finance minister to present India's Budget in Parliament?
(a) Mamta Banerjee
(b) Indira Gandhi
(c) Mira Kumar
(d) Nirmala Sitharaman
Answer: (b) Indira Gandhi

Read the following article and answer the questions given below: India has scaled back expenditure, including on productive assets that aid economic growth, as the government is confronted with the risk of its budget deficit blowing out. Capital expenditure - the money spent on creating, maintaining, or improving fixed assets like roads and factories - stood at 40% of the budgeted amount in the six months to September, down from 55.5% in the year-ago period, data from the government's Controller General of Accounts show. The overall spending during the period was 49% of the budget aim compared to 53% last year. That's despite Prime Minister Narendra Modi's government outlining measures worth more than 21 trillion rupees ($281 billion) to counter the economic and social fallout of the Covid-19 outbreak. A closer look at the numbers shows the bulk of the spending was directed toward the poor and the farmers, with crucial sectors such as coal, power, shipping and steel receiving less than a third of their annual budget allocation. Spending on capital assets has so far trailed the so-called revenue expenditure that includes interest payments and overheads such as salaries, the data released last week showed. Modi's government placed spending curbs on some ministries from April through December to manage its cash flow.

Question. A reduction in capital expenditure i.e., the money spent on creating, maintaining orimproving fixed assets is done to reduce the risk of ................... deficit.
(a) revenue
(b) budget
(c) both (a) and (b)
(d) None of the options
Answer: (b) budget

Question. Allocation of resources in the budget in the six months to September 2020 is directed towards
(a) economic upliftment of the economy
(b) social upliftment of the economy
(c) the poor and the farmers
(d) all of the options
Answer: (d) all of the options

Question. Capital expenditure refers to the estimated expenditure of the government in a fiscal year which .................... liabilities of the government.
(a) reduces
(b) increases
(c) Changes
(d) None of the options
Answer: (a) reduces

Directions: In the following questions, a statement of assertion is followed by a statement of reason. Mark the correct choice as:

(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

(c) Assertion (A) is true but Reason (R) is false.

(d) Assertion (A) is false but Reason (R) is true.

Question. Assertion (A): The intervention of the government whether to expand demand or reduce it constitutes the stabilisation function.
Reason (R): The government may need to correct fluctuations in income and employment.
Answer: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Question. Assertion (A): Capital receipts are those receipts that do not lead to a claim on the government.
Reason (R): All those receipts of the government which create liability or reduce financial assets are termed as capital receipts.
Answer: (d) Assertion (A) is false but Reason (R) is true.

Question. Assertion (A): The government may spend an amount equal to the revenue it collects.
Reason (R): When tax collection exceeds the required expenditure, the budget is said to be in surplus.
Answer: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Question. Assertion (A): When a government spends more than it collects by way of revenue, it incurs a budget deficit.
Reason (R): There are various measures that capture governmentdeficit andtheyhave theirownimplications for the economy.
Answer: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Question. Assertion (A): The proportional income tax acts as an automatic stabiliser – a shock absorber.
Reason (R): it makes disposable income, and thus consumer spending, less sensitive to fluctuations in GDP.
Answer: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Question. Assertion (A): By borrowing, the government transfers the burden of reduced consumption on future generations.
Reason (R): the government can raise resources through taxation and printing money.
Answer: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Question. Assertion (A): When government increases spending or cuts taxes, aggregate demand decreases.
Reason (R): A high fiscal deficit is accompanied by higher demand and greater output and, therefore, need not be inflationary.
Answer: (d) Assertion (A) is false but Reason (R) is true.

Question. Assertion (A): if the government invests in infrastructure, future generations may be better off, provided the return on such investments is greater than the rate of interest.
Reason (R): The actual debt could be paid off by the growth in output.
Answer: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Question. Assertion (A): Government deficit can be reduced by an increase in taxes or reduction in expenditure.
Reason (R): In India, the government has been trying to increase tax revenue with greater reliance on direct taxes.
Answer: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Question. Assertion (A): Proportional taxes reduce the autonomous expenditure multiplier.
Reason (R): Taxes reduce the marginal propensity to consume out of income.
Answer: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Question. Assertion (A): In government budget production of goods which are injurious to health (like cigarettes) is discouraged through heavy taxation and production of socially useful goods (like khadi) is encouraged through subsidies. If private sector does not take initiative in certain activities,government directly controls them like water supply, sanitation etc.
Reason (R): The government seeks to allocate resources with a view to balance the goals of profit maximisation and social welfare. It is allocation function in government budget as government. attempts to provide certain goods and services which cannot be provided through the market mechanism.
Answer: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Question. Assertion (A): Borrowings by the government from general public, RBI and ROW are capital receipts. Recovery of loans by government and sale of shares of public sector enterprises to private sector are treated as capital receipts in government budget.
Reason (R): Capital receipts are those estimated receipts of the government during the fiscal year which affect asset or liability status of the government. These receipts create a corresponding liability for the government or lead to reduction in assets of the government.
Answer: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).