CBSE Class 12 Economics HOTs Government Budget the Economy

MULTIPLE CHOICE QUESTIONS

Question. tax that imposed on value added at the various stages of production is known as
a) Corporate profit tax
b) Direct personal tax
c) Value added tax
d) None of these
Answer : C

Question. Progressive tax is a tax which is
a) Charged at a decreasing rate when income of the individual increases
b) Charged at an increasing rate when income of the individual increases
c) A fixed percentage of an individual income
d) None of these
Answer : B

Question. In the context of government budget which of the following statement is correct
a) It is a statement of expected annual receipts and expenditures of the government
b) It is detail of actual receipts and expenditure of the government in a financial year
c) It offers a detailed description of achievements of the government during the five-year plans
d) It indicates bop status of the domestic economy
Answer : A

Question. A tax the burden of which can be shifted on to others, is called:
a) indirect tax
b) direct tax
c) wealth tax
d) none of these
Answer : A

Question. capital receipt is that receipt of the government which:
a) creates a liability
b) reduces the assets
c) both (a)and (b)
d) neither (a) or (b)
Answer : C

Question. Revenue earned by the government from the property without any legal heir is called:
a) donation
b) escheat
c) wealth tax
d) none of these
Answer : B

Question. which of the following is a direct tax?
a) income tax
b) excise duty
c) sales tax
d) custom duty
Answer : A

Question. Which of the following are capital receipts of the government?
a) Recovery of loans
b) Borrowings
c) Disinvestment
d) All of these
Answer : D

Question. Gift tax is a paper tax because
a) It is an indirect tax
b) It is a direct tax
c) It does not have significant revenue yield
d) Both b and c
Answer : C

Question. which of the following are the objective of government budget?
a) distribution of income and wealth
b) economics stability
c) GDP growth
d) all of these
Answer : D

Question. the difference between fiscal deficit and interest payment is called:
a) revenue deficit
b) primary deficit
c) budget deficit
d) capital deficit
Answer : B

Question. Capital expenditure is that estimated expenditure of the government by which
a) Assets are increased
b) Liabilities are decreased
c) Both a and b
d) Assets and liabilities do not change
Answer : C

Question. which of the following is a non-tax receipt?
a) gift tax
b) sales tax
c) donations
d) excise duty
Answer : C

Question. A budget is a balanced one when
a) Total expenditure= total receipts
b) Total expenditure<total receipts
c) Total expenditure>total receipts
d) None of these
Answer : A

Question. Find primary deficit from the following data:
Items                                                    (₹ in crore)
(i) Revenue deficit                                     8,800
(ii) Fiscal deficit                                         11,600
(iii) Interest payment by the government   1,600
Answer. Primary Deficit= Fiscal deficit - Interest payment by the government

Question. Calculate Revenue Deficit. Fiscal Deficit and Primary Deficit from the following data
Items                                                 (₹ in crore)
(i)Revenue expenditure                           22,250
(ii) Capital expenditure                            28,000
(iii) Revenue receipts                              17,750
(iv) Capital receipts (net of borrowing)    20,000
(v )Interest payments                              5,000
(vi) Borrowings                                      12,500
Answer. Revenue Deficit = Revenue expenditure - Revenue receipts
Fiscal deficit =Revenue expenditure+Capital expenditure - Revenue receipts - Capital receipts (net of borrowing)
=Borrowings
Primary Deficit= fiscal deficit - Interest payments

Question. Find borrowing by the government of payment of interest is estimated to be of ₹15,000 crore which is 25 % of primary deficit.
Answer. Here, Primary Deficit =Fiscal deficit- interest payment
Or, Focal Deficit= Primary deficit + interestpayment
Borrowing =Fiscal 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, findfiscal deficit andprimary deficit.
Answer. Fiscal Deficit = Borrowing
Primary Deficit = Fiscal deficit - Interest payment

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. Categorise the following government receipts into revenue and capital receipts. Give reasons for your answer. 
(i) Receipt from sale of shares of a public sector undertaking,
(ii) Borrowing from public.
(iii) Profit of public sector undertakings.
(iv) Income tax received by government.
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 rationalise 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.

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 toefficient 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 favour 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.

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.
Answer : 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?
Answer : These are indirect taxes such as sales tax.

Q.3 What happens to aggregate demand when the govt. budget is in deficit?
Answer : 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.
Answer : 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?
Answer : 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. 

Q.7 Why is tax treated as revenue receipt?
Answer : Because tax neither create a liability for the govt nor reduces assets of the govt.

Q.1 Explain the ‘redistribution of income’ objective of a government budget.