CBSE Class 12 Economics Government Budget And The Economy VBQs

MCQ Questions for NCERT Class 12 Economics Government Budget And The Economy

Question: Which one of the following is not a capital expenditure?
(a) Loans advanced by World Bank
(b) Construction of school building
(c)Repayment of loans
(d) Tax receipts. 

Answer: D

Question: Primary deficit in a government budget will be zero, when.
(a) Revenue deficit is zero
(b) Net interest payment is zero
(c) Fiscal deficit is zero
(d) Fiscal deficit is equal to interest payment. 

Answer: D

Question: Primary Deficit equals:
(a) Borrowings
(b) Interest payments
(c) Borrowing less interest payments
(d) Borrowing and Interest payments both   

Answer: C

Question: Disinvestment by government means
(a) Selling of its fixed capital assets
(b) Selling of shares of Public enterprises held by it
(c) Selling of its building
(d) All of above.   

Answer: D

Question: What is the nature of income tax in India?
(a) Regressive
(b) Proportional
(c) Progressive
(d) None of these. 

Answer: C

Question: 'Subsidy received from World Bank' is a receipt of _________________
(a) Revenue nature
(b) Capital nature
(c) Development charges
(d) None of these. 

Answer: A

Question: Which of following is a non-tax revenue receipt?
(a) GST
(b) Export duty
(c) Development charges
(d) Corporate tax. 

Answer: C

Question: Deficit budget refers to that situation in which government’s budget expenditure is
(a) Less than its budget receipts
(b) More than its budget receipts
(c) Equal to its budget receipts
(d) None of these

Answer: B  

Question: If primary deficit is 3500 and interest payment is 500, then fiscal deficit is
(a) 2900
(b) 4000
(c) 4100
(d) 4200

Answer: B  

Question: Which of the following is a part of the revenue expenditure in the Indian government budget?
(a) Interests’ payments
(b) Defence purchases
(c) Wage bill of the government
(d) All of these

Answer: D

Question: Fiscal deficit=
(a) Total expenditure- total receipts other than borrowing
(b) Revenue expenditure- revenue receipts
(c) Capital expenditure- capital receipts
(d) Revenue expenditure+ capital expenditure- revenue receipts

Answer: A

Question: which of the following is not a non -tax receipt?
(a) fees
(b) fine
(c) gift tax
(d) grants and donations

Answer: C

Question: Which of the following is implication of fiscal deficit?
(a) Crowding- out
(b) Inflationary spiral
(c) Erosion of government credibility
(d) All of these

Answer: D

Question: Surplus budget is that budget where in
(a) Estimated revenue of the government= estimated expenditure of the government
(b) Estimated revenue of the government< estimated expenditure of the government
(c) Estimated revenue of the government> estimated expenditure of the government
(d) None of these

Answer: A

Question: Which one of the following is an indirect tax?
(a) wealth tax
(b) excise duty
(c) income tax
(d) none of these

Answer: B  

Question: In which of the following ways, can deficit in budget be financed
(a) Borrowing from RBI
(b) Borrowing from the public
(c) Both a and b
(d) Neither a nor b

Answer: C

Question: ‘Recovery of loans' is a receipt of which of the following nature ___________________
(a) Revenue
(b) Capital
(c) Either of the two
(d) Neither of two. 

Answer: B  

Case Study Questions Government Budget And The Economy  Class 12 Economics   

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 Modï's government outlining measures worth more than 21 trillion rupees ($ 281billion) to counter the economic and social fallout of the Covid-19 outbreak. A closer look at the numbers show 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: Allocation of resources in the budget in the six months to September 2020 is directed towards _____________ (c)hoose the correct alternative)
(a) economic upliftment of the economy
(b) social upliftment of the economy
(c) (c)the poor and the farmers
(d) all of these

Answer: D

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 (revenue/budget). (c)hoose the correct alternative) 

Answer: Budget

Question: Identify which of the following statements is false: (c)hoose the correct alternative)
(a) The government can finance its budgetary deficit through borrowings, disinvestment and deficit financing
(b) Fiscal deficit equals borrowings
(c) Recovery of loans is a revenue receipt
(d) Interest on loans is a non-tax revenue receipt

Answer: C

Question: Capital expenditure refers to the estimated expenditure of the government in a fiscal year which ___________ (reduces/increases) liabilities of the government. (c)hoose the correct alternative) 

Answer: Reduces

Read the following article and answer the questions given below In the year 2016-17, the government of Philippines had a budget deficit of $ 7 billion. Its revenue from direct and indirect taxes was not adequate to finance its spending. The Philippine government spent its deficit on infrastructure and education which will help to boost economic growth and will reduce unemployment. Government continued its deficit budget strategy in the year 2017-2018 also. It helped in raising consumer's confidence. Indeed, in an international survey it was claimed that consumer confidence in Philippines ranked highest in the world.
Average household disposable income in Philippines during 2016 was $ 6000 with S 5000 being spent on consumption. Thus, budget deficit proved to be biggest boon for Philippines economic growth.
Besides wages in 2016 varied between different sectors. Wages in tertiary and manufacturing sector Were higher than primary sector. It resulted a fall of Workers in primary sectors. Moreover, the proportion of workers in public sector was also on decline.
Central Bank of Philippines has reduced its bank rate in order to reduce rate of interest. It helped consumers to buy more cars and other consumer durable goods. A fall in rate of interest was also encouraging producers to invest more tor capital formation and economic growth of the country. It has also resulted in fluctuations in the rate of inflation in different sectors of the economy.

Question: Government expenditure on infrastructure and education helped in raising ____Consumer confidence______   

Answer: Consumer confidence

Question: Which of following caused budget deficit in Philippines? (c)hoose correct alternative)
(a) Excess expenditure
(b) Less revenue from taxes
(c) Increase in public expenditure
(d) All of these. 

Answer: D

Question: During the year 2016-17, budget deficit in Philippines was to the extent of ________
(a) $ 7 Billions
(b) S 10 Billion
(c) $ 70 Billions
(d) None of these  A 

Answer: A

Question: Fiscal deficit proved to be a ___________  for Philippines economy. 

Answer: Boon

Read the following article and answer the questions given below Public expenditure has a typical nature of its spending Government plans its annual pending first and then its financing is planned. Whatever excess of annual expenditure is found over annual financing is known as 'Revenue deficit'. Such a deficit does not create any borrowing burden upon the economy. But when Capital expenditure is in excess of Capital receipts, it creates the burden of borrowing upon the economic system. Technically it is known as fiscal deficit. A constant rise in fiscal deficit is worry some for Economists as it becomes inflationary and creates unequal distribution of income. Economists, therefore set a maximum limit of 3% of GDP as fiscal deficits for the developing countries.
We must note that the borrowing requirement of the government includes interest obligation on accumulated debts. To obtain an estimate of borrowing on account of current expenditures exceeding revenues, we need to calculate what has been called the primary deficit. It is simply fiscal deficit minus interest payment. The main goal of calculating primary deficit is to focus on present fiscal-imbalances.

Question: What is present percentage of fiscal deficit in India? 

Answer: 3.5% of GDP

Question: Primary deficit fiscal deficit (is 

Answer: Interest payment

Question: Which of following is the demerit of fiscal deficit?
(a) Inflationary
(b) Creates inequalities of distribution of income
(c) Promotes borrowing burden
(d) All of these.

 Answer: D

Read the following statements Assertion (a) and Reason (R) .Choose one of the correct alternative given below:

Question: Assertion: Equitable distribution of income is a way to social justice
Reason: Monetary policy uses the instruments of taxes and subsidy to establish equitable Distribution
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true. 

Answer: C

Question: Assertion: The government uses fiscal instruments to improve the distribution of income
 Reason: Lower taxes can be imposed on rich people and higher taxes can be imposed on poor people.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true. 

Answer: C

Question: Assertion: Budget is used as an instrument an economic stability
Reason : Budget controls the level of aggregate demand
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true. 

Answer: C

Question: Assertion: Budget is used as an instrument to combat deflation and inflation
Reason: Budget plays a vital role in establishing economic stability
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true. 

Answer: A

Question: Assertion: Government initiative to increase the level of aggregate of demand by increasing money supply in the economy
 Reason : Government increase the taxation and reduced the public expenditure during the pandemic
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true. 

Answer: C

Question: Assertion: Continuation of covid -19 pandemic will affect union budget
Reason: The Revenue expenditure of government increases
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true. 

Answer: B

Question: Assertion: International prices of crude oil are continuously falling
Reason : India subsidises domestic consumers of petroleum products
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true. 

Answer: A

Question: Assertion: In the process of development , construction of dams ,new schools new plants,and repayment of loans is essential
Reason: Capital expenditure creates the assets of the government and causes reduction in the liabilities of the government
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true. 

Answer: A

Question: Assertion: Budget is presented every year in lok sabha by finance minister of India
Reason: Monetary policy of India is prepared every quarter by the RBI
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true. 

Answer: B

Question: Assertion: High Fiscal deficit throws a country into the debt trap and enhances foreign dependence.
Reason: Fiscal discipline of any country establishes the credibility of country’s creditworthiness.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true. 

Answer: A 

Question: Assertion: Taxes reforms helped Indian economy to meet the fiscal target.
Reason: The government plans a significant cut in its expenditure and aiming at better tax Compliance.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.

Answer: A

Question: Assertion: Dividends on Investments made by government is revenue receipt
Reason: Capital receipt adds to the assets of the government
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.

Answer: A

Question: Assertion: Borrowing from the rest of the world is a capital receipt
Reason: Revenue receipt either creates liability or reduces the assets
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.

Answer: C

Question: Assertion: Highway and road works are announced in Kerala ,Tamilnadu and Westbengal in budget 2021.
Reason: Such announcement will increase the revenue expenditure of the governmeent
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.

Answer: C

Question: Assertion: The Government may borrow from RBI against its securities to meet the fiscal deficit
Reason: Borrowing from public is better than deficit financing because it does not increase the money supply..
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.

Answer: A

Question: Assertion: Income tax is great source of the revenue of the government
Reason: Income tax is a direct tax and the burden can be shifted.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.

Answer: C

Question: Assertion: Fines and penalties are a source of nontax revenue for the government
Reason: A fine of Rs 500 was imposed on not wearing a mask.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.

Answer: A 

Question: Assertion: Strategic sale of Air India and IDBI to be completed in the fiscal year
Reason: Strategic sale leads to loss of Revenue to the government.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.

Answer: C

Question: Assertion: Fiscal deficit shows a better position of the government expenditure in Comparison to budget deficit
Reason: Fiscal deficit means borrowings of the government.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.

Answer: A

Question: Assertion: Fiscal deficit may rise but primary deficit may or may not rise
Reason: No relation between fiscal deficit and primary deficit
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.

Answer: C

Question: Between direct and indirect tax, which should be used more for equitable distribution of income and why?

Answer:- Direct tax as it is progressive in nature

Question: What is a Zero PRIMARY deficit budget?

Answer: - It means that the Government has to borrow only for making interest payments of the previous years, and that there are no fresh borrowings.

Question: What will be the effect of reduction of subsidies on fiscal deficit?

Answer:- It will reduce the Revenue expenditure and hence fiscal deficit will also be reduced

Question: There has been a consistent rise in the price of fruits and vegetables in India. Which measure of the budget will help to reduce the price

Answer:- Public Distribution system, measures against hoarding

Question: Public goods are provided by the government, is it necessary?

Answer:- Public goods are those goods and services for which consumption by some individuals, do not reduce the amount available to others. Example parks, roads. People receive benefits from public good