Test: Government Budget And Economy - 1 - UPSC MCQ

A government budget is a document prepared by the government and/or other political entity presenting its anticipated tax revenues (Inheritance tax, income tax, corporation tax, import taxes) and proposed spending / expenditure (Health care, Education, Defence, Roads, State Benefit) for the coming financial year.

Government budget shows estimated receipt and expenditure. With this budget government do all that work that have been declared for the year. Actually all the budget for any firm or even a home, money limit is decided for the expected works during the year. Budget is common concept for all.

One of the objectives of the government budget is: Redistribution of income and wealth. This objective aims to reduce economic inequalities by reallocating resources through taxation and public spending.

Public goods are non-rivalrous (one person's consumption does not reduce availability for others) and non-excludable (impossible to prevent non-payers from benefiting), leading to free-riders who do not voluntarily pay, breaking the producer-consumer link. Thus, government intervention is required for provision.

Progressive income taxation imposes higher tax rates on higher incomes, aiming to redistribute income from richer to poorer sections, making the distribution fairer as perceived by society.

A large revenue deficit within the fiscal deficit implies the government is using borrowings to meet consumption needs (dissaving), leading to reduced productive capital expenditure, higher debt buildup, and adverse growth implications.

From the formula Y* = [1/(1-c)] (C̅ - cT + cTR̅ + I + G), an increase in T reduces Y by c/(1-c) * ΔT. With c=0.8, multiplier = 0.8/0.2 = 4, so ΔY = -4 * 100 = -₹400 (decrease).

Public provision means goods are financed via the budget and available without direct payment, but they may be produced by the private sector. Public production refers to direct government manufacturing.

When demand exceeds output under high employment, causing inflation, the government intervenes with restrictive conditions (e.g., higher taxes or lower spending) to reduce aggregate demand and stabilise prices.

Primary deficit is gross fiscal deficit minus net interest liabilities, highlighting borrowing needs for current expenditures exceeding revenues, without considering accumulated debt interest. It focuses on present fiscal imbalances, as per the PDF's explanation.