CBSE Class 12 Economics HOTs Government Budget the Economy Set 04

True or False

State whether the following statements are True or False:

Question. Revenue budget focuses on GDP growth by way of public investment.
Answer: False

Question. Expenditure on old-age pensions is an example of revenue expenditure.
Answer: True

Question. A constant rate of taxation on the rich and the poor is a progressive tax.
Answer: False

Question. Greater fiscal deficit implies greater borrowings by the government.
Answer: True

Question. Revenue deficit leads to national debt.
Answer: False

Question. Balanced budget offers the solution to the problem of unemployment.
Answer: False

Question. Surplus budget is a budget in which government receipts are greater than government expenditures.
Answer: True

Question. Primary deficit reflects the need for borrowings by the government to manage its budgetary expenditure.
Answer: False

Question. Deficit budget is desired during periods of inflation.
Answer: False

Question. Capital receipts impact asset-liability status of the government.
Answer: True

Matching the Correct Statements

I. From the set of statements given in Column I and Column II, choose the correct pair of statements:

Answer: (d) Revenue deficit—(iv) Revenue expenditure – Revenue receipts

II. Identify the correct sequence of alternatives given in Column II by matching them with respective items in Column I:

Answer: (a)—(v), (b)—(iv), (c)—(ii), (d)—(i), (e)—(iii)

‘Very Short Answer’ Objective Type Questions

Question. What is government budget?
Answer: Government budget is a statement of estimated receipts and expenditure of the government during a financial year.

Question. What is meant by fiscal year in India?
Answer: In India, fiscal year is the year which begins on April 1 and ends on March 31 of the following year.

Question. Define revenue budget.
Answer: Revenue budget is the statement of estimated revenue receipts and estimated revenue expenditure during a fiscal year.

Question. Define revenue receipts.
Answer: Revenue receipts are those receipts which neither create any liability nor lead to any reduction in assets.

Question. Define revenue expenditure.
Answer: Revenue expenditure is that expenditure of the government which neither creates assets for the government nor causes a reduction in liabilities of the government.

Question. Define tax.
Answer: A tax is compulsory payment made by an individual, household or a firm to the government without reference to anything in return.

Question. What is a direct tax?
Answer: A direct tax is that tax the final burden of which falls on that very person who is liable to pay it to the government.

Question. What is an indirect tax?
Answer: Indirect tax is a tax on goods and services. Those who are liable to pay this tax need not bear the final burden of this tax.

Question. What is a progressive tax?
Answer: Progressive tax is a tax that causes relatively less real burden on the poor and more on the rich.

Question. Define regressive tax.
Answer: Regressive tax is a tax that causes relatively more real burden on the poor and less on the rich.

Question. What is value added tax?
Answer: Value added tax is an indirect tax which is imposed on ‘value added’ at the various stages of production. GST is an important form of value added tax.

Question. Define capital budget.
Answer: Capital budget is the statement of estimated capital receipts and estimated capital expenditure during a fiscal year.

Question. Define capital receipts.
Answer: Capital receipts are those receipts which either create a liability or lead to reduction in assets.

Question. Define capital expenditure.
Answer: Capital expenditure is an expenditure which leads to creation of assets or reduction in liabilities.

Question. Give two examples of capital receipts.
Answer: (i) Recovery of loans, and (ii) Borrowings.

Question. Give two examples of capital expenditure.
Answer: (i) Expenditure on the purchase of land by the government. (ii) Loans granted by the central government to state governments.

Question. Define plan expenditure.
Answer: Plan expenditure is the expenditure which is related to some specified plan for the year.

Question. Define non-plan expenditure.
Answer: Non-plan expenditure is the expenditure which is not related to any specified plan for the year.

Question. Why is payment of interest a revenue expenditure?
Answer: Payment of interest is treated as a revenue expenditure, because it neither reduces liability of the payer nor adds to his assets.

Question. Why are subsidies treated as revenue expenditure?
Answer: Subsidies are treated as revenue expenditure by the government, because this expenditure:
(i) does not reduce liability of the government, nor
(ii) adds to assets of the government.

Question. Why is recovery of loans treated as a capital receipt?
Answer: Recovery of loans is a capital receipt because it leads to reduction in assets.

Question. How is disinvestment by the government a capital receipt?
Answer: Disinvestment by the government is a capital receipt, as it leads to a reduction in assets.

Question. Define balanced budget.
Answer: Balanced budget is that budget in which government receipts are equal to government expenditure.

Question. Define surplus budget.
Answer: Surplus budget is that budget in which government receipts are more than government expenditure.

Question. What is budgetary deficit?
Answer: Budgetary deficit is the excess of total expenditure over total receipts of the government.

Question. What is meant by revenue deficit?
Answer: Revenue deficit is equal to the excess of total revenue expenditure over the total revenue receipts.
Revenue deficit = Revenue expenditure – Revenue receipts

Question. Define fiscal deficit.
Answer: Fiscal deficit is equal to the excess of total expenditure over the sum of revenue receipts and capital receipts excluding borrowing.
Fiscal deficit = (Revenue expenditure + Capital expenditure) – (Revenue receipts + Capital receipts other than borrowing)

Question. What is the significance of measuring fiscal deficit?
Answer: The significance of measuring fiscal deficit is that it reflects total borrowings of the government during the financial year. Accumulated borrowings over the year reflect accumulated burden of national debt which is to be borne by the future generations.

Question. Define primary deficit.
Answer: Primary deficit is the difference between fiscal deficit and interest payment.
Primary deficit = Fiscal deficit – Interest payment

Question. What is the significance of primary deficit?
Answer: The significance of primary deficit is that it reflects borrowings on account of current year expenditure exceeding the current year receipts of the government. Interest payment on the accumulated borrowings is not accounted for.