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Part B Macroeconomics Chapter 5 Goverment Budget And The Economy Economics Worksheet for Class 12
Class 12 Economics students should refer to the following printable worksheet in Pdf in Class 12. This test paper with questions and solutions for Class 12 Economics will be very useful for tests and exams and help you to score better marks
Class 12 Economics Part B Macroeconomics Chapter 5 Goverment Budget And The Economy Worksheet Pdf
Read the following news report and answer questions on the basis of the same :
For an economy that is undeniably in slowdown mode, it does come as a surprise that the first Budget of the Modi 2.0 government has eschewed any sort of pump priming, instead preferring to leave the job of stepping up investment to the private sector. It is believed, and not without reason, that the fiscal stimulus then administered led to both deficit and inflation going out of gear. An increase of Rs3.3 lakh crore in the projected expenditure of the Centre in 2019-20 over the revised estimates of 2018-19 is insignificant when seen against the Rs3.15 lakh crore increase in 2018-19 over the actuals of 2017-18 — given inflation and nominal GDP growth of 12 per cent projected in 2019-20. The fiscal squeeze is underscored in relation to capital expenditure: it has been slashed to Rs8.7 lakh crore in 2019-20 from Rs9.2 lakh crore in the revised estimates for 2018-19, with Railways bearing the brunt. It would appear that uncertain revenue collections on both the direct taxes and GST fronts have prompted this fiscal conservatism. The Budget is rich in micro details, having proposed several positive steps to galvanize the capital and debt markets, the latter aimed at pushing infrastructure finance. Banks will be recapitalized to the extent of Rs70,000 crore to boost credit. With a view to expanding financing options, mandatory public float level has been raised from 25 per cent to 35 per cent. The transformative potential of Swachh Bharat in recycling waste has received welcome emphasis. But how ‘nal se jal’ for all by 2024 will become a reality is not very clear.
Question. Which among the following can sum up the opinion of the author regarding the budget proposals of the government?
(a) The author is of the opinion that the Budget has not included the finer details of the economy.
(b) The government has not taken into account the details of the macro factors of the economy before going into the details.
(c) The author does not know how to yield to the private sector without making it too obvious.
(d) The author is optimistic regarding certain aspects whereas he has lauded the government in some other as well.
Answer. D
Question. Which among the following is correct regarding the public investments in the economy as per the Union Budget?
(a) The government is going to ensure that there is more public spending in the economy though it is not certain.
(b) The government is going to ensure that the needy sectors are focused properly without any kind of hassle.
(c) The government does not want to see that there is no public spending in the economy in the last year.
(d) The government does not want to invest but it wants the private sector to come forward and invest.
Answer. D
Question. Which among the following is/are correct regarding the ‘nal se jal’ scheme announced by the government in the Union Budget?
I. The scheme will be implemented by the Government of India through the state governments.
II. The government wants to ensure that it is implemented within the next five years i.e. before the end of its term.
III. The author is very much hopeful regarding the scheme that it will do wonders for the country in the years to come.
(a) Both I and II
(b) Both II and III
(c) Both I and III
(d) Only II
Answer. D
Question. Which among the following is/are correct regarding the reforms introduced in the Union Budget by the government?
I. The MSME Sector is going to get a boost since the government has decided to buy the highrated assets of the NBFCs.
II. The banks in the country are going to be capitalized by the government so that they can start lending more.
III. The government has decided to decrease the income tax levels for the middle-class population of the country.
(a) Both I and II
(b) Both II and III
(c) Both I and III
(d) Only III
Answer. A
Read the following news report and answer questions on the basis of the same :
According to the traditional definition, Public finance is that branch of Economics which deals with, the income and expenditure of a public sector organization, normally government or federal organization. In the words of Adam Smith “The investment into the nature and principles of state expenditure and state revenue is called public finance“. The sources of revenue have also increased. Taxes are levied not for raising the revenue alone but are used as an important instrument of economic policy. Modern concept of Public finance defines the role of the government in the economy. It is the study of the effects of budgets on the economy, particularly the effect on the achievement of the major economic objects—growth, stability, equity and efficiency. It also deals with fiscal policies which ought to be adopted to achieve certain objectives such as price stability, economic growth, more equal distribution of income etc. Public revenue is exactly income generated from sources of government in order to meet requirements of expenses of public. Public revenue generally refers to government revenue. A license fee is paid in those instances in which the government authority is invoked simply to confer permission or a privilege. The analysis of public finance also includes the concept of public expenditure. Public expenditure studies how the government distributes the resources for the fulfillment of various responsibilities. Modern economies are monetized, that is goods and services are exchanged through a medium of money and both public & private sector create and use financial claims.
Question. According to the passage, what is the largest source of public revenue?
(a) fine and penalties
(b) surplus of public sector undertaking
(c) public borrowing
(d) taxes
Answer. D
Question. According to the passage, which of the following economic instruments helps the government in meeting the budgetary deficit?
(a) public revenue
(b) financial administration
(c) public debt
(d) financial administration
Answer. C
Question. In the passage, according to the traditional concept of public finance, its main work was to
(a) maintain the economic stability
(b) generate the employment
(c) accelerate the economic growth
(d) impose the taxation policy
Answer. D
Question. According to the passage, what does help the government in allocation of resources for the completion of various obligations?
(a) public expenditure
(b) public debt
(c) public revenue
(d) financial administration
Answer. A
Read the following news report and answer Questions on the basis of the same :
Finance Minister Nirmala Sitharaman has presented the Union Budget 2021 on February 1. Nirmala Sitharaman, who was appointed as the finance and corporate affairs minister on May 31, 2019, is the second woman to have presented the Budget on July 5, 2019.
The Budget is an estimate of income and expenditure of the government for a set period of time. It is an annual financial statement of India. According to Article 112 of the Indian Constitution, it is mandatory for the government to present this annual statement. The Union Budget is classified into Capital Budget, Revenue Budget and Expenditure Budget. India's first Budget was presented on February 18, 1860, by James Wilson. R K Shanmukham Chetty, the first finance minister of independent India presented the Union Budget on November 26, 1947. In 2001, the then finance minister Yashwant Sinha broke the colonial practice of presenting the Budget in the evening and started the tradition of reading it out from 11 am. Indira Gandhi became the first woman finance minister to present India's Budget in Parliament in 1970.
Question. According to .................... of the Indian Constitution, it is mandatory for the government to present this annual statement.
(a) Article 122
(b) Article 112
(c) Article 132
(d) Article 152
Answer. D
Question. In which year India's first Budget was presented ?
(a) 1860
(b) 1865
(c) 1885
(d) 1890
Answer. A
Question. The Budget is an estimate of ................... of the government for a set period of time.
(a) Income and GDP
(b) Revenue and expenditure
(c) Income and expenditure
(d) NNP and Expenditure
Answer. C
Question. Which of the following is first woman finance minister to present India's Budget in Parliament?
(a) Mamta Banerjee
(b) Indira Gandhi
(c) Mira Kumar
(d) Nirmala Sitharaman
Answer. B
Read the following article and answer the questions given below:
India has scaled back expenditure, including on productive assets that aid economic growth, as the government is confronted with the risk of its budget deficit blowing out. Capital expenditure - the money spent on creating, maintaining, or improving fixed assets like roads and factories - stood at 40% of the budgeted amount in the six months to September, down from 55.5% in the year-ago period, data from the government's Controller General of Accounts show. The overall spending during the period was 49% of the budget aim compared to 53% last year. That's despite Prime Minister Narendra Modi's government outlining measures worth more than 21 trillion rupees ($281 billion) to counter the economic and social fallout of the Covid-19 outbreak. A closer look at the numbers shows the bulk of the spending was directed toward the poor and the farmers, with crucial sectors such as coal, power, shipping and steel receiving less than a third of their annual budget allocation. Spending on capital assets has so far trailed the so-called revenue expenditure that includes interest payments and overheads such as salaries, the data released last week showed. Modi's government placed spending curbs on some ministries from April through December to manage its cash flow.
Question. A reduction in capital expenditure i.e., the money spent on creating, maintaining or improving fixed assets is done to reduce the risk of ................... deficit.
(a) revenue
(b) budget
(c) both (a) and (b)
(d) None of the above
Answer. B
Question. Allocation of resources in the budget in the six months to September 2020 is directed towards
(a) economic upliftment of the economy
(b) social upliftment of the economy
(c) the poor and the farmers
(d) all of these
Answer. D
Question. Capital expenditure refers to the estimated expenditure of the government in a fiscal year which .................... liabilities of the government.
(a) reduces
(b) increases
(c) Changes
(d) None of the above
Answer. A
Directions: In the following questions, a statement of assertion is followed by a statement of reason.
Mark the correct choice as:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Question. Assertion (A): The intervention of the government whether to expand demand or reduce it constitutes the stabilisation function.
Reason (R): The government may need to correct fluctuations in income and employment.
Answer. B
Question. Assertion (A): Capital receipts are those receipts that do not lead to a claim on the government.
Reason (R): All those receipts of the government which create liability or reduce financial assets are termed as capital receipts.
Answer. D
Question. Assertion (A): The government may spend an amount equal to the revenue it collects.
Reason (R): When tax collection exceeds the required expenditure, the budget is said to be in surplus.
Answer. B
Question. Assertion (A): When a government spends more than it collects by way of revenue, it incurs a budget deficit.
Reason (R): There are various measures that capture government deficit and they have their own implications for the economy.
Answer. B
Question. Assertion (A): The proportional income tax acts as an automatic stabiliser – a shock absorber.
Reason (R): it makes disposable income, and thus consumer spending, less sensitive to fluctuations in GDP.
Answer. A
Question. Assertion (A): By borrowing, the government transfers the burden of reduced consumption on future generations.
Reason (R): the government can raise resources through taxation and printing money.
Answer. B
Question. Assertion (A): When government increases spending or cuts taxes, aggregate demand decreases.
Reason (R): A high fiscal deficit is accompanied by higher demand and greater output and, therefore, need not be inflationary.
Answer. D
Question. Assertion (A): if the government invests in infrastructure, future generations may be better off, provided the return on such investments is greater than the rate of interest.
Reason (R): The actual debt could be paid off by the growth in output.
Answer. A
Question. Assertion (A): Government deficit can be reduced by an increase in taxes or reduction in expenditure.
Reason (R): In India, the government has been trying to increase tax revenue with greater reliance on direct taxes.
Answer. B
Question. Assertion (A): Proportional taxes reduce the autonomous expenditure multiplier.
Reason (R): Taxes reduce the marginal propensity to consume out of income.
Answer. B
Question. Assertion (A): In government budget production of goods which are injurious to health (like cigarettes) is discouraged through heavy taxation and production of socially useful goods (like khadi) is encouraged through subsidies. If private sector does not take initiative in certain activities,government directly controls them like water supply, sanitation etc.
Reason (R): The government seeks to allocate resources with a view to balance the goals of profit maximisation and social welfare. It is allocation function in government budget as government. attempts to provide certain goods and services which cannot be provided through the market mechanism.
Answer. A
Question. Assertion (A): Borrowings by the government from general public, RBI and ROW are capital receipts. Recovery of loans by government and sale of shares of public sector enterprises to private sector are treated as capital receipts in government budget.
Reason (R): Capital receipts are those estimated receipts of the government during the fiscal year which affect asset or liability status of the government. These receipts create a corresponding liability for the government or lead to reduction in assets of the government.
Answer. A
CBSE Class 12 Economics Chapter 5 Goverment Budget And The Economy Very Short Answer Type Questions
Question. What is revenue budget?
Answer: Revenue budget contains the details of the current receipts (or called revenue receipts) and current expenditure (also known as revenue expenditure) of the government.
Question. Give example of non-tax revenue receipts?
Answer: Fees, License and Permit, special assessment, escheat etc.
Question. What is tax?
Answer: A tax is a compulsory payment imposed by the government on public or firms.
Question. Define indirect tax. Give two examples of indirect taxes?
Answer: When liability to pay a tax is on one person and the burden of the tax falls on same other person, it is called indirect tax e.g., sales tax and excise duties.
Question. What is capital budget?
Answer: Capital budget contains the details of the capital receipts and capital expenditure of the government.
Question. What does zero primary deficit mean?
Answer: Zero primary deficit means that the government has to resort to borrowings only to make interest payments of previous years.
Question. Define a direct tax. Give two example of direct tax?
Answer: When liability to pay a tax and the burden of that tax lies on the same person, it is called direct tax. e.g., income tax and corporate tax.
CBSE Class 12 Economics Chapter 5 Goverment Budget And The Economy Short Answer Type Questions
Question. Giving reasons, classify the following into revenue receipts and capital receipts :
(a) Recovery of loans
(b) Profits of public sector undertakings
(c) Borrowings.
Answer: (a) It is capital receipt as it reduces assets.
(b) It is revenue receipt as it neither reduces an asset nor creates a liability.
(c) Borrowings is a capital receipt as it creates a liability.
Question. Classify the following into capital receipts and revenue receipts. Give reasons for your answers.
(a) Recovery of loans
(b) Interest received on loans.
Answer: Recovery of Loans : It is a Capital Receipt, it leads to decline in the financial assets of the government. Interest received on Loans : It is a Revenue Receipts because it neither creates a liability nor reduces the assets.
Question. Explain the distinction between Fiscal Deficit and Primary Deficit.
Answer:
S.No. | Fiscal Deficit | Primary Deficit |
(i) | It is an excess of all anticipated government expenditure over the anticipated government receipts in the year. | It is the difference between the fiscal deficit and interest payments. |
(ii) | It increases the liability of the government in the form of repayment of loans with interest. | It indicates the borrowing requirements of the government to meet fiscal deficit excluding interest payments. |
(iii) | Fiscal Deficit = Total expenditure – Revenue receipts – Capital receipts excluding borrowing. | (a) Gross Primary Deficit = Fiscal Deficit – Interest payment.(b) Net Primary Deficit = Gross Primary Deficit – Interest receipt. |
Question. What is the basis of classifying government expenditure into Revenue Expenditure and Capital Expenditure ? Which of these types of expenditure is payment of salaries to government employees and why ?
Answer: Revenue Expenditure : Expenditure that neither creates an assets nor reduces a liability is called Revenue Expenditure. Capital Expenditure : Expenditure that either creates an asset or reduces a liability is called Capital Expenditure.
Expenditure on Payment of Salaries to Government Employees : It is a revenue expenditure as it neither creates any liability nor it reduces the assets.
Question. Giving reason, state whether the following is a Revenue Expenditure or a Capital Expenditure in a government budget : (a) Expenditure on Scholarships. (b) Expenditure on building a bridge.
Answer: (a) Expenditure on Scholarships : It is a revenue expenditure because it neither creates any assets nor reduces liability. 1½ (b) Expenditure on building a bridge : It is a capital expenditure because it leads to creation of assets.
Question. Is the following a Revenue Expenditure or Capital Expenditure in the context of government budget? Give reasons. (a) Expenditure on collection of taxes. (b) Expenditure on purchasing computers.
Answer: (a) Expenditure on Collection of Taxes : It is a revenue expenditure because it neither creates any assets nor reduces any liability. (b) Expenditure on Purchasing Computers : It is a capital expenditure because it creates assets.
Question. Distinguish between Revenue Deficit and Fiscal Deficit.
Answer: Difference between Revenue Deficit and Fiscal Deficit
S.No | Revenue Deficit | Fiscal Deficit |
(i) | When revenue receipts are less than the reve-nue expenditures in a government budget, this short fall is termed as Revenue Deficit | The excess of the total expenditure (revenue and capital expenditure) over the total receipts exclud-ing borrowings over a period of one accounting year. |
(ii) | Revenue Deficit = Revenue Expenditure — Revenue ReceiptsFiscal | Fiscal deficit = Total Budget Expenditure - Total Budget Receipts (excluding borrowings) |
Question. Giving reasons, classify the following as Revenue Expenditure and Capital Expenditure (a) Subsidies (b) Repayment of loans (c) Expenditure on collection of taxes (d) Expenditure on building a bridge
Answer: (a) Subsidies- Revenue Expenditure, as it neither lead to any reduction in liabilities nor any increase in assets.
(b) Repayment of Loans- Capital Expenditure, as it leads to reduction in liabilities.
(c) Expenditure on collection of taxes- Revenue Expenditure, as it neither lead to any reduction in liabilities nor any increase in assets.
(d) Expenditure on building a bridge- Capital Expenditure, as it leads to creation of an asset.
CBSE Class 12 Economics Chapter 5 Goverment Budget And The Economy Long Answer Type Questions
Question. What is government budget? Explain its major components.
Answer: Government Budget is defined as a statement of planned receipts and planned expenditure of the government during a fiscal year. Its major components are: (a) Revenue Receipts: the receipts which neither create a liability not lead to reduction in assets. (b) Capital Receipts: the receipts which either create a liability or lead to reduction in assets. (c) Revenue Expenditures: the expenditure which does not lead to any creation of assets or reduction in liabilities. (d) Capital expenditures: the expenditure which leads to creation of assets or reduction in liabilities.
Question. What is Government Budget? Explain how taxes and subsidies can be used to influence allocation of resources.
OR
What is Government Budget ? Explain the role of government budget in influencing allocation of resources in the economy.
Answer: Government Budget is an annual statement, showing item-wise estimates of receipts and expenditures during a fiscal year. Reallocation of Resources : (a) The government aims to reallocate resources according to economic and social priorities through its budgetary policy. (b) Government encourages the production of certain commodities by giving subsidies or tax reliefs. For e.g. government encourages the use of ‘khadi products’ by providing subsidies. (c) Government can discourage the production of harmful goods like liquor or cigarettes, by imposing heavy excise duties or taxes. In India, we use progressive taxation, i.e., higher taxes from rich people and distribute these receipts through various welfare activities.
Question. Explain how the allocation of resources can be influenced in the government budget through taxes, expenditure and subsidies.
Answer: Through the budgetary policy, Government aims to reallocate resources in accordance with the economic (profit maximisation) and social (public welfare) priorities of the country. Government can influence allocation of resources through:
(a) Tax concessions or subsidies : To encourage investment, government can give tax concession, subsidies etc. to the producers. For example, Government discourages the production of harmful consumption goods (like liquor, cigarettes etc.) through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies.
(b) Directly producing goods and services : If private sector does not take interest, government can directly undertake the production.
Question. Explain how the government can use the budgetary policy to reduce inequalities in incomes.
OR
Explain the need for reduction in inequalities of income and wealth. Explain any two budgetary measures by which it can be done.
Answer: Reducing inequality and poverty and promoting equity are important macroeconomic objectives. The widening income gap between the rich and poor has highlighted the need to understand the causes of relative inequality and poverty and to construct suitable policies to reduce poverty and the income gap narrow. The budgetary measures by which it can be reduced are :
(a) Progressive taxation.
(b) Increasing government’s expenditure.
(a) Progressive Taxation : Government can intervene to promote equity and reduce inequality and poverty, through the tax and benefits system, progressive tax system means more tax from those on higher levels of income and redistributes welfare benefits to those on lower incomes.
(b) Increasing Government’s Expenditure : Government increases its expenditure by spending on development projects like on health and education. By doing this, the government reduces the gap between rich and poor.
Question. Define Revenue Receipts in a government budget. Explain how government budget can be used to bring in price stability in the economy.
OR
What are Revenue Receipts ? Explain the role of government budget in bringing stability in the economy.
OR
Explain how the economic stabilization objective can be fulfilled through government budget.
Answer: Revenue Receipts refer to those receipts which neither create any liability nor cause reduction in the assets of the government. Revenue Receipts are classified under two heads,
(a) Tax Revenue,
(b) Non-Tax Revenue. Government budget can be used to bring in price stability in the economy are :
(a) Government budget is used to prevent business fluctuations and to maintain economic stability.
(b) During excess demand, the government imposes higher taxes and reduces its expenditure to correct excess demand. This implies that government follows the policy of surplus budget during inflation.
(c) During deficient demand, the government increases its expenditure and reduces taxes. This implies that the government follows the policy of deficit budget during deflation. Thus, the government through its budgetary policy tries to achieve price stability in the economy.
Question. Explain the budgetary measures for achieving following objectives.
(a) Setting up of production units in backward regions.
(b) Reducing inequalities of income and wealth.
Answer: (a) Government can start units in the public sector. It can give tax concessions to private producers. It can also give subsidies or any other incentives.
(b) Government can collect tax the rich and exempt the poor from income tax. Money so collected from the rich can be spent on providing free services to the poor. It will reduce disposable income of the rich and increase that of the poor.
(a) Setting up production units in Backward Areas : Government may provide the following facilities through budget : (a) Tax Holiday : Government may adopt the policy of Tax Holiday. The government has adopted this policy is case of Daman, etc. (b) Economic Subsidy : The government may provide economic subsidy when production units are established in backward areas.
Question. Explain the basis of classifying taxes into direct and indirect tax. Give two examples of each.
Answer: A tax is a legally compulsory payment imposed by the government. The basis of classifying taxes into direct and indirect tax are as follows : (a) Final Burden : Direct taxes are those taxes the final burden of which falls on that very person who makes the payment to the government. On the other hand, indirect taxes are those which are paid to the government by one person but their burden is borne by another person. (b) Shifting of Tax : Direct taxes cannot be shifted to other persons whereas the indirect taxes can be shifted. (c) Progressiveness : Direct taxes are generally progressive. Their real burden is more on the rich. On the other hand, indirect taxes are generally regressive. Their real burden is more on the poor. Example : A shopkeeper pays GST to the government but usually recovers it from the customers as a part of price of the commodity sold. So, impact of GST (an indirect tax) is ultimately shifted to the consumers. But the impact of income tax is to be finally borne by the tax payer himself. He cannot shift its burden onto others. Direct Tax : Income Tax, Corporate Tax. Indirect Tax : Service Tax, Excise Duty.
Question. Classify the following taxes into Direct and Indirect tax. Give reasons for your answer. (a) Corporation tax (b) Entertainment tax (c) Excise duty (d) Income tax.
Answer: (a) It is direct tax as its impact and incidence is on the same person. (b) It is indirect tax as its impact and incidence are on different persons. (c) It is indirect tax as its impact and incidence are on different persons. (d) It is a direct tax as its impact and incidence are on the same person.
Question. Distinguish between the following. Also give an example of each. (a) Direct tax and Indirect tax (b) Revenue Expenditure and Capital Expenditure.
Answer: (a) An expenditure that neither creates an asset nor reduces a liability is a revenue expenditure and an expenditure that either creates an assets or reduces a liability is called capital expenditure. (b) A tax whose impact and incidence is on same person is a direct tax and tax whose impact and incident can be on a different person is an indirect tax.
Question. (a) “Fiscal deficit is necessarily inflationary in nature”. Do you agree? Support your answer with valid reasons. (b) Elaborate ‘Economic Growth’ as an objective of government budget.
Answer: (a) The term fiscal deficit is the difference between the government’s total expenditure and its total receipts (excluding borrowing). Such borrowings are generally financed by issuing new currency which may lead to inflation. However, if the borrowings are for infrastructural development this may lead to capacity building and may not be inflationary. (b) The term ‘Economic Growth’ refers to a sustained increase in the real GDP of the economy OR an absolute/net increase in the total volume of goods and services produced by an economy. This is an essential objective of the government budget as the budget can be a very effective instrument for targeting the economic growth. This can be achieved by providing tax rebates, infrastructural stimulation etc.
Question. Explain the meaning of the following: (a) Revenue deficit (b) Fiscal deficit (c) Primary deficit
Answer: (a) Revenue Deficit refers to the excess of total revenue expenditure over total revenue receipts. It means that govt. will not be able to meet its revenue expenditure from its revenue receipts. 2 (b) Fiscal Deficit refers to the excess o ftotal expenditure over total receipts excluding borrowings. It indicates borrowing requirements of the government. 2 (c) Primary Deficit is defined as fiscal deficit less interest payments. It indicates borrowing requirements of the govt. to meet fiscal deficit net of interest payments.
Question. What is the difference between Revenue Expenditure and Capital Expenditure ? Explain how taxes and government expenditure can be used to influence distribution of income in the society.
Answer: Revenue Expenditure refers to the expenditure which neither creates any asset nor causes reduction in any liability of the government. For example, payment of salaries.
On the other hand, capital expenditure, refers to the expenditure which either creates an asset or causes a reduction in the liabilities of the government. For example, construction of Metro etc. Influence of Taxes and Government Expenditure on distribution of Income.
Question. Distinguish between : (a) Direct tax and Indirect tax (b) Primary deficit and Revenue deficit.
Answer: (a) (a) Direct Tax : A tax which is paid by the same person on whom it has been levied is termed as Direct Tax. In case of direct tax, burden can not be shifted on other party, e.g., Income Tax. 1½ (b) Indirect Tax : It is a tax which is paid by one person and levied on other person. In case of indirect tax, burden is generally shifted on other party, e.g., Excise Duty. 1½ (b) (a) Primary Deficit : The difference between the fiscal deficit and interest payment is termed as Primary Deficit. Primary Deficit = Fiscal Deficit – Interest Payments. 1½ (b) Revenue Deficit : When revenue receipts are less than the revenue expenditures in a government budget, this short fall is termed as Revenue Deficit. Revenue Deficit = Revenue Expenditure – Revenue Receipts.
Question. “Governments across nations are too much worried about the term fiscal deficit”. Do you think that fiscal deficit is necessarily inflationary in nature ? Support your answer with valid reasons.
Answer: Fiscal deficits are not necessarily inflationary; though they are generally regarded as inflationary. When the government expenditure increases and tax reduces, there is a government deficit and there will be a corresponding increase in the Aggregate Demand. However, the firms might not be able to meet the growing demands, forcing the price to rise. Hence, fiscal deficits are inflationary in this sense. 3 But on the other hand, initially, if the resources are under utilized (due to insufficient demand) and output is below full employment level, then with the increase in government expenditure, more factor resources will be employed to cater to the increasing demand without exerting much pressure on price to rise. In this situation, a high fiscal deficit is accompanied by high demand, greater output level and lesser inflationary situation. Hence, whether the fiscal deficits are inflationary or not depends on how close is the original output level to the full employment level.
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CBSE Class 12 Economics Part B Macroeconomics Chapter 5 Goverment Budget And The Economy Worksheet
The above practice worksheet for Part B Macroeconomics Chapter 5 Goverment Budget And The Economy has been designed as per the current syllabus for Class 12 Economics released by CBSE. Students studying in Class 12 can easily download in Pdf format and practice the questions and answers given in the above practice worksheet for Class 12 Economics on a daily basis. All the latest practice worksheets with solutions have been developed for Economics by referring to the most important and regularly asked topics that the students should learn and practice to get better scores in their examinations. Studiestoday is the best portal for Printable Worksheets for Class 12 Economics students to get all the latest study material free of cost.
Worksheet for Economics CBSE Class 12 Part B Macroeconomics Chapter 5 Goverment Budget And The Economy
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Part B Macroeconomics Chapter 5 Goverment Budget And The Economy worksheet Economics CBSE Class 12
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Part B Macroeconomics Chapter 5 Goverment Budget And The Economy CBSE Class 12 Economics Worksheet
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Worksheet for CBSE Economics Class 12 Part B Macroeconomics Chapter 5 Goverment Budget And The Economy
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