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UNIT – IX
GOVT BUDGET AND THE ECONOMY
QUESTIONS BASED ON HOTS WITH MODEL ANSWERS
Q. 1 Which type of revenue receipts are treated as legally compulsory payment imposed on the people by the govt.? Give example also.
Ans. Taxes imposed on the people by the govt. such as income tax, sales tax.
Q.2 When the liability to pay a tax is on one person and the burden of tax falls on some other person, state the type of tax?
Ans: These are indirect taxes such as sales tax.
Q.3 What happens to aggregate demand when the govt. budget is in deficit?
Ans: A deficit budget increases the aggregate demand because the deficit budget means that the amount of expenditure is more than the amount of tax.
Q.4 Classify the borrowings and recovery of loans into revenue and capital receipts of govt. budget. Give reason also.
Ans. Borrowings are capital receipts because the government is under obligation to return the amount along with interest so it creates liability for the government. Recovery of loans are also capital receipts because these reduce assets of the govt.
Q.5 How tax revenue is different from administrative revenue?
Ans: Tax revenue is the revenue that arises on account of taxes levied by the government. Taxes are of two types: direct taxes and indirect taxes. Direct taxes are those taxes levied immediately on the property and income of persons income tax, corporate tax, wealth tax whereas indirect taxes are the taxes levied on the production and sale of goods like sales taxes, excise duty etc. Administrative revenue is revenue that arises on account of the administrative function of the government. It includes(a)Fees(college/school)(b) License fees paid to get permission to perform a service (c) Fines and penalties etc.
Ans. Revenue receipts are those which neither create a liability for the govt nor reduce the assets of govt such as income tax, sales tax, fees, profits etc. Capital receipts are those which either create a liability for the govt or reduce assets such as borrowings, disinvestment, recovery of loans etc.
Q.7 Why is tax treated as revenue receipt?
Ans. Because tax neither create a liability for the govt nor reduces assets of the govt.
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