CBSE Class 12 Economics Goverment Budget And The Economy Worksheet Set A

Question. Which one of the following is a combination of direct taxes ?
(a) Excise duty and Wealth tax
(b) Service tax and Income tax
(c) Excise duty and Service tax
(d) Wealth tax and Income tax.
Answer: D

Question. Direct tax is called direct because it is collected directly from :
(a) The producers on goods produced
(b) The sellers on goods sold
(c) The buyers of goods
(d) The income earners.
Answer: D

Question. The Non-tax revenue in the following is :
(a) Export duty
(b) Import duty
(c) Dividends
(d) Excise
Answer: C

Question. Which of the following is not a revenue receipt? Recovery of Loans
(a) Foreign Grants
(b) Profits of Public Enterprises
(c) Wealth Tax
Answer: A

Question. Which of the following sources of receipts in government budget increases its liabilities ?
(a) Direct taxes
(b) Recovery of loans
(c) Borrowings
(d) Dividend from public sector undertakings.
Answer: C

Question. Which of the following is a source of capital receipt?
(a) Foreign donations
(b) Dividends
(c) Disinvestment
(d) Indirect taxes.
Answer: C

Question. Fiscal Deficit equals
(a) Interest payments
(b) Borrowings
(c) Interest payments less borrowing
(d) Borrowings less interest payments
Answer: D

Question. Fiscal deficit equals:
(a) Primary deficit minus interest payments.
(b) Primary deficit plus interest payments.
(c) Total budget expenditure minus total budget receipts.
(d) None of the above.
Answer: D

Question. Primary deficit is the difference between........... .
                             OR
Primary deficit in a government budget is :
(a) Revenue expenditure – Revenue receipts
(b) Total expenditure – Total receipts
(c) Revenue deficit – Interest payments
(d) Fiscal deficit – Interest payments.
Answer: D

Question. is a revenue receipt of the government
(a) Funds raised by the government by issuing National Saving Certificates
(b) Sale of 40% shares of a public sector undertaking to a private enterprise
(c) Profits of LIC, a public enterprise
(d) Amount borrowed from Japan for construction of Bullet Train.
Answer: C

Question. Which of the following is a correct measure of primary deficit ?
(a) Fiscal deficit minus Revenue deficit
(b) Revenue deficit minus Interest Payments
(c) Fiscal deficit minus Interest Payments
(d) Capital expenditure minus Revenue Expenditure
Answer: C

Question. Primary deficit equals :
(a) Borrowings
(b) Interest payments
(c) Borrowings less interest payments
(d) Borrowings and interest payments both
Answer: C

Question. Borrowing in government budget is :
(a) Revenue deficit
(b) Fiscal deficit
(c) Primary deficit
(d) Deficit in taxes
Answer: D

Question. Which of the following statements is true ?
(a) Fiscal deficit is the difference between total expenditure and total receipts.
(b) Primary deficit is the difference between total receipt and interest payments.
(c) Fiscal deficit is the sum of primary deficit and interest payment.
(d) None of the above.
Answer: C

Question. Identify which of the following statements is true?
(a) Fiscal deficit is difference between planned revenue expenditure and planned revenue receipts
(b) Fiscal deficit is difference between total planned expenditure and total planned receipts
(c) Primary deficit is the difference between total planned receipt and interest payments.
(d) Fiscal deficit is the sum of primary deficit and interest payment.
Answer: D

Question. Which of the following statement is true ?
(a) Loans from IMF is a Revenue Receipt.
(b) Higher revenue deficit necessarily leads to higher fiscal deficit.
(c) Borrowing by a government represents a situation of fiscal deficit.
(d) Revenue deficit is the excess of capital receipts over the revenue receipts. 
Answer: C

Question. Which of following is a direct tax ?
(a) Corporation tax
(b) Entertainment tax
(c) Excise duty
(d) Service tax
Answer: A

Question. Primary deficit is borrowing requirements of government for making
(a) Interest payments
(b) Other than interest payments
(c) All types of payments
(d) Some specific payments 
Answer: B

Fill in the blanks:

Question. _________are receipts of the government which neither create any liabilities nor reduce any assets.
Answer: Revenue receipts

Question. _________is a tax whose impact and incidence fall on the same person.
Answer: Direct tax

Question. Excess of revenue expenditure over the revenue receipts is called __________.
Answer: revenue deficit

Question. ___________is the excess of total expenditure over the sum of revenue receipts and non-debt capital receipts.
Answer: Fiscal deficitIII

Question. Match the following :

Answer: 1. (c) Indirect Tax, 2. (d) Non Tax Revenue Receipt, 3. (b) Revenue Expenditure, 4. (e) Direct Tax, 5. (a) Capital Receipt

True or False :

Question. Revenue deficit includes capital receipts and capital expenditure.
Answer: False.

Question. Fiscal deficit is the difference between primary deficit and interest payment.
Answer: False.

Question. Fiscal Deficit = Total expenditure - Total receipts.
Answer: False.

Question. Borrowing from the general public leads to increase in revenue deficit.
Answer: False.

Question. Fiscal deficit is measured in terms of disinvestment.
Answer: False.

Question. Revenue deficit is met only through borrowings by the government.
Answer: False.

Short Answer Type Questions

Question. State three objectives of a government budget.
Answer: Objectives of a government budget are as follows:
(a) Redistribution of income and wealth, with a view to increase equality.
(b) Redistribution of resources with a view to maintain balance between the goods of profit maximization and social welfare. (c) Achieving economic stability.

Question. Explain any one objective of Government Budget.
Answer: Economic Stability is an objective of Government budget : Government tries to establish economic stability with its budgetary policies. It refers to a situation where there is no fluctuation in price level in an economy. Government tries to control the aggregate demand by imposing high taxation at the time of high inflation. On the other hand, in deflationary situations the government increases its expenditure and lowers the tax rates.

Question. There carefully planned, government budget reflects deficit because its expenditure exceeds revenue. How can this deficit be reduced?
Answer: Government should increase its revenue by controlling tax evasion; ii. Government should reduce unproductive expenditure like subsidies, financial assistance to all even when some of them may not require it.

Question. What is the relationship between the revenue deficit and the fiscal deficit?
Answer: Fiscal deficit is a wider concept than revenue deficit. Revenue deficit is defined as the excess of government's revenue expenditure over revenue receipt. Thus, Revenue deficit= Revenue expenditure (RE)-Revenue receipt(RR). Where as fiscal deficit is defined as the excess of total expenditure over total receipts excluding borrowings. It does not take into account borrowings. Fiscal deficit= (total budgetary expenditure)-(total budgetary receiptborrowings)

Question. Are fiscal deficits necessarily inflationary?
Answer: Fiscal deficits are not necessarily inflationary. However, if output is less because of lack of demand and high fiscal deficit is accompanied by higher demand and greater output and therefore if would not be inflationary as it is covering the gap required for smooth functioning of the economy by raising the level of aggregate demand.

Question. How can government budget be a useful instrument in reducing inequalities in the distribution of income and wealth?
Answer: Government uses budgetary policies to reduce inequalities in the distribution of income and wealth by:
i). Imposing new taxes and increasing the rates of existence taxes;
ii) Spending more on education, health care and housing for the poor;
iii) Strengthening public distribution system(through fair price shops)

Question. There has been constant rise in price of sugar overtime. What measure would you support to bring down the prices?
Answer: Using measures of budgetary policy, government can try to fix prices at a lower level by incurring expenditure through subsides which would reduce cost of production and hence the prices. If the government does not want to add to its expenditure on subsidies, then it should ensure availability of sugar at reasonable prices through its fair price shops. In the situations of emergency, buffer stocks may also be used.

Question. How can Budgetary Policy be used to reduce inequalities of income ? 
                                                        OR
Explain ‘reducing inequalities’ objective of a government budget.
Answer: Higher rates of taxes can be levied on higher incomes and lower rates of taxes can be levied on lower incomes. More expenditure can be incurred on providing free services like education, health care facilities etc. to the poor.

Question. Distinguish between Revenue Receipts and Capital Receipts. Give an example of each.
                                              OR
Distinguish between Capital Receipts and Revenue Receipts. 
Answer: For distinction between Revenue Receipts and Capital Receipt of this section.
Example of Revenue Receipts—Interest received.
Example of Capital Receipts—Borrowings.

Question. Elaborate ‘economic growth’ as objective of government budget.
Answer: Economic Growth implies a sustainable increase in real GDP of an economy, i.e. an increase in volume of goods and services produced in an economy. Budget can be an effective tool to ensure the economic growth in a country. (a) If the government provides tax rebates and other incentives for productive ventures and projects, it can stimulate savings and Investments in an economy. (b) Spending on infrastructure of an economy enhances the production activity in different sectors of an economy. Government expenditure. is a major factor that generates demand for different types of goods and services in an economy which induces growth in private sector too.

Question. Explain how government budget can be helpful in bringing economic stabilization in the economy.
Answer: Economic stability means stability of prices. Too much fluctuation in prices is not good for the economy. Government uses taxation policy and expenditure policy in controlling the prices. For example in an inflationary situation, government can reduce its expenditure and this would reduce aggregate demand. During deflationary situation, government can reduce taxes and increase its expenditure.

Question. Explain how government budget can be used to influence distribution of income ?
Answer: Government can impose higher rate of tax on income of the rich and on the goods consumed by the rich. This will bring down disposable income of the rich. The amount so collected can be spent on providing free services, like education, subsidized food to the poor people, e.g., this will raise disposable income of the poor reducing the gap between rich and poor.

Question. State three sources each of Revenue Receipts and Capital Receipts in government budget.
Answer: Three Sources of Revenue Receipts :
(a) Direct Taxes,
(b) Indirect taxes,
(c) Dividend from public sector undertakings, etc.
Three Sources of Capital Receipts :
(a) Recovery of loans,
(b) Sale of shares of public sector undertaking,
(c) Market borrowings.

Question. Define a Government Budget. Give meaning of revenue deficit, fiscal deficit and primary deficit.
                                                                     OR
What is a Government Budget ? Explain the meanings of Fiscal Deficit and Primary Deficit ?
Answer: Government budget is a statement of expected/estimated receipts and expenditure of the government over a period of one financial year. Revenue Deficit : When revenue receipts are less than the revenue expenditures in a government budget, this shortfall is termed as Revenue Deficit. Revenue Deficit = Revenue Expenditure – Revenue Receipts Fiscal Deficit : The excess of the total expenditure (revenue and capital expenditure) over the total receipts excluding borrowings (revenue and capital receipts) over a period of one accounting year, is termed as Fiscal Deficit. Fiscal Deficit = Total Budget Expenditure – Total Budget Receipts (Excluding Borrowing) Primary Deficit : The difference between the fiscal deficit and interest payment is termed as Primary Deficit. Primary Deficit = Fiscal Deficit – Interest Payments.

Question. Explain “Revenue Deficit” in a Government budget ? What does it indicate.
                                              OR
What is Revenue Deficit ? Explain its implications. 
Answer: Revenue Deficit : It refers to the excess of total revenue expenditure of the government over its total receipts. Revenue Deficit = Revenue Expenditure – Revenue Receipts. Implications : (a) It signifies that the government’s current expenses are greater than current income. The bulk of these expenses is interest payment, wages for government employees and defence. (b) Government makes up this deficit from capital receipts, i.e. through borrowing or disinvestment. It means revenue deficit either leads to an increase in liability or reduce assets. (c) Use of Capital receipts for meeting the extra consumption expenditure leads to an inflationary situation in the economy. Higher borrowing increase the future burden in terms of loan amount and interest payments.

Question. Explain the concept of “Fiscal Deficit” in a government budget. What does it indicates ?
Answer: The excess of the total expenditure (i.e. revenue and capital expenditure), over the total receipts excluding borrowings (i.e. revenue and capital receipts) of the government, over a period of one accounting year is termed as Fiscal Deficit. Fiscal Deficit = Total Budget Expenditure–Total Budget Receipts (Excluding Borrowing). Fiscal Deficit is met by the borrowings of the government.
It indicates :
(a) High borrowings of the Government.
(b) High interest payments by Government.
(c) High level inflation due to high Government expenditure.
(d) Increased foreign dependency of the Government.
(v) Increased future financial burden on citizens.

Question. Explain the basis of classifying government receipts into revenue receipts and capital receipts.
Which type of these receipts are borrowings by government and why ?
Answer: Revenue Receipts : The receipts which neither create any liability nor lead to any reduction in assets are called Revenue Receipts.
Capital Receipts : Capital receipts are receipts that either create liability or reduce assets.
Borrowings by Government : It is a capital receipts as it creates liability.

Question. Explain the basis of classifying taxes into direct and indirect tax. Give examples.
                                                                     OR
Distinguish between direct taxes and indirect taxes. Give an example of each. 
Answer: When the burden of a tax and the liability to pay it falls on the same person,then it is a direct tax. When burden
of tax and liability to pay it fall on different persons,then it is indirect tax. 
Example, Direct tax-Income tax etc. (Any other example) Indirect tax-Service tax,etc.

Question. Is the following, a revenue receipt or a capital receipt in the context of government budget and why ?
(a) Tax receipts,
(b) Disinvestment. 
Answer:  (a) Tax Receipts : These are revenue receipts because these neither create any liability nor reduce asset.
(b) Disinvestment : These are capital receipts because it reduces assets.