CBSE Class 12 Economics Government Budget And The Economy Notes Set B

Question: Find primary deficit from the following data:

Answer: Primary Deficit= Fiscal deficit – Interest payment by the government

Question: Calculate Revenue Deficit. Fiscal Deficit and Primary Deficit from the following data

Answer: Revenue Deficit = Revenue expenditure – Revenue receipts

Question: Find borrowing by the government of payment of interest is estimated to be of ₹15,000 crore which is 25 % of primary deficit.

Question: Revenue deficit is estimated to be ₹ 20,000 crore, and borrowing is estimated to be 15,000 crore. expenditure on interest payment is estimated to be 50% of the revenue deficit, find fiscal deficit and primary deficit.
Answer:

Question: Comment on the following statements as true or false, with a reason.
(i) Construction of school-building is a revenue expenditure of the government.
(ii) Gift tax is a capital receipt.
(iii) Dividends on investment made by government is a revenue receipt
Answer: (i) capital expenditure
(ii) revenue receipt.
(iii) revenue receipt

Question: Categories the following government receipts into revenue and capital receipts. Give reasons for your answer.
Answer:
(i) capital receipt
(ii) capital receipt
(iii) revenue receipt.
(iv) revenue receipt

Question: Why should revenue deficit be curbed?
Answer: Revenue deficit often occurs when unproductive expenditure of the government is in excess of the tax and non-tat revenue receipts.

Question: Finance Minister has announced that steps would be taken to rationalize dominate the economy of the nation. What is the economic value of this statement?
Answer: Expenditure on subsidies is mostly unproductive

Question: How the decline in the price of crude oil in the international market helped the government to reduce fiscal deficit?
Answer: It has raised tax revenue of the government. Accordingly, fiscal deficit has reduced.

EVALUATION (VALUE-BASED QUESTIONS)

Question: How can the government impact allocation of resources through its budgetary policy?
Answer: Following observations highlight how the government can impact allocation of resources though its policy:
(a) The government can offer subsidies on such goods like coarse cloth the production of which is essential for poorer sections of the society. So that, the resources are shifted from the production of ‘goods for the rich to the production of goods for the poor’.
(b) The government can grant tax holiday
(c) The government can impact allocation of resources by shifting its own investments from inefficient to efficient units of production.
(d) High taxation can be imposed on such goods ,the production of which is harmful to the society.
(e) The government can make larger budgetary allocations for its ‘Support Price Policy’ in favors of food crops .

Question: Do you approve of disinvestment as a prudent means of financing budgetary deficit?
Answer: Disinvestment occurs when the government chooses to sell its stake in public sector or joint enterprises .To remember-
(i) it should unload shares of only inefficient enterprises.
(ii) Money received through disinvestment should be for productive investment.

Question: How would you distinguish between development and non-development expenditure?
Answer: Development expenditure is related to investment expenditure or productive expenditure.
Non-development expenditure is related to consumption expenditure by the government.