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Whenever the government spends more than it collects through revenue, the resulting imbalance is known as :
  • a)
    Public deficit
  • b)
    Market deficit
  • c)
    Government deficit
  • d)
    Budget deficit
Correct answer is option 'D'. Can you explain this answer?
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Whenever the government spends more than it collects through revenue, ...
 A budget deficit occurs when expenses exceed revenue and indicate the financial health of a country. The government generally uses the term budget deficit when referring to spending rather than businesses or individuals.
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Whenever the government spends more than it collects through revenue, ...
Defict spending is the amount by which spending exceeds revenue over a particular period of a time also called simply defict Or budget defict the opposite of budget surplus. the term may be applied to the budget of a government private company Or individual
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Whenever the government spends more than it collects through revenue, ...
The correct answer is option 'D' - Budget deficit.

The government's spending and revenue are crucial aspects of its fiscal policy. When the government spends more money than it collects through revenue, it results in a budget deficit. This means that the government is spending beyond its means and needs to borrow money to cover the shortfall. Let's explore this concept in more detail.

Understanding a Budget Deficit:
A budget deficit occurs when the government's total spending exceeds its total revenue in a given period, usually a fiscal year. Total spending includes various expenditures like salaries, infrastructure development, defense, healthcare, education, and social welfare programs. Revenue can come from sources such as taxes, fees, tariffs, and other government income.

Causes of a Budget Deficit:
Several factors can contribute to a budget deficit, including:
1. Economic downturn: During a recession or economic slowdown, government revenue may decrease due to reduced economic activity, resulting in a budget deficit.
2. Increased spending: If the government decides to increase spending on public infrastructure projects, social welfare programs, or defense, it may lead to a budget deficit if revenue does not keep pace.
3. Tax cuts: When the government reduces taxes to stimulate economic growth, it may result in lower revenue, potentially leading to a budget deficit.
4. Unforeseen expenses: Natural disasters, emergencies, or unexpected events can require additional government spending, thereby contributing to a budget deficit.

Consequences of a Budget Deficit:
A budget deficit can have both short-term and long-term consequences:
1. Increased borrowing: To cover the deficit, the government may need to borrow money by issuing bonds or taking loans from domestic or foreign sources. This can increase the national debt.
2. Debt interest payments: Borrowing money to cover the deficit leads to interest payments, which can further strain the government's finances and divert funds from other essential areas.
3. Inflationary pressure: If the government prints more money to finance the deficit, it can lead to increased inflation as the money supply exceeds the demand for goods and services.
4. Reduced public investment: A budget deficit may force the government to cut spending in certain areas, such as infrastructure or education, which can hinder long-term economic growth.

Conclusion:
In summary, a budget deficit occurs when the government spends more money than it collects through revenue. It is an imbalance in the government's fiscal position and can have various causes and consequences. Monitoring and managing budget deficits are important for maintaining a stable economy and ensuring the government's financial sustainability.
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Passage 1Any government that runs on a huge fiscal deficit has to, at some point, finance that deficit by creating money through borrowings. When the government does that, there is more money chasing the same number of goods and services in the economy. The result is a hike in prices, or inflation. At 5.1%, Indias fiscal deficit is dangerously high, controlling which should have been the governments highest priority. Raising diesel prices by 14% such that the subsidy bill on the fuel falls will help bring this deficit under control. To put that issue in perspective, at Rs.47,800 crore oil subsidies for the first quarter of the current financial year have already exceeded the full years budgeted figure.For consumers already reeling under a double digit onslaught of food prices, the hike in the diesel prices will hurt, no doubt. Part of this increase can be neutralized, by cutting excise duties on the fuel, for instance. But for successive governments that have been unable to curb spending on vote buying schemes- some of them crucial - or on an inflated and unproductive bureaucracy, the other option is to increase taxes and return to the sky high rates of the coercive 1970s, a regime that is best behind us.This brings us to the next issue: economic growth. With a high fiscal deficit that keeps inflation high, there is no way the RBI will cut interest rates. Even though most ofthe inflationary expectations are coming from goods outside Indias control- crude oil imports, a falling rupee and a globally rising food and commodity prices- RBIs stance has been to keep policy rates high so that thousands cut down on discretionary grounds. In the process, home loan EMIs have been rising and along with inflation on one side, scissoring household targets.Making matters more complex is the fact that today the sovereign has very little control over its finances. Like it or nor, India cant and will not grow at 9% if the rest of the world is contracting, thereby closing business opportunities- there, the UPA government is right. The political power of the sovereign goes down with every move towards globalization, Kaushik Basu said. Economics has become an instrument of global, political and even military strategy. To illustrate, Indian farmers and businesses get affected by WTO negotiations, Indian workers by ILO negotiations, Indian fiscal policy by G20 communities, Indian markets by QE3.Q.Which of the following would help explain the relationship between the interest rates and a high fiscal deficit?

Passage 1Any government that runs on a huge fiscal deficit has to, at some point, finance that deficit by creating money through borrowings. When the government does that, there is more money chasing the same number of goods and services in the economy. The result is a hike in prices, or inflation. At 5.1%, Indias fiscal deficit is dangerously high, controlling which should have been the governments highest priority. Raising diesel prices by 14% such that the subsidy bill on the fuel falls will help bring this deficit under control. To put that issue in perspective, at Rs.47,800 crore oil subsidies for the first quarter of the current financial year have already exceeded the full years budgeted figure.For consumers already reeling under a double digit onslaught of food prices, the hike in the diesel prices will hurt, no doubt. Part of this increase can be neutralized, by cutting excise duties on the fuel, for instance. But for successive governments that have been unable to curb spending on vote buying schemes- some of them crucial - or on an inflated and unproductive bureaucracy, the other option is to increase taxes and return to the sky high rates of the coercive 1970s, a regime that is best behind us.This brings us to the next issue: economic growth. With a high fiscal deficit that keeps inflation high, there is no way the RBI will cut interest rates. Even though most ofthe inflationary expectations are coming from goods outside Indias control- crude oil imports, a falling rupee and a globally rising food and commodity prices- RBIs stance has been to keep policy rates high so that thousands cut down on discretionary grounds. In the process, home loan EMIs have been rising and along with inflation on one side, scissoring household targets.Making matters more complex is the fact that today the sovereign has very little control over its finances. Like it or nor, India cant and will not grow at 9% if the rest of the world is contracting, thereby closing business opportunities- there, the UPA government is right. The political power of the sovereign goes down with every move towards globalization, Kaushik Basu said. Economics has become an instrument of global, political and even military strategy. To illustrate, Indian farmers and businesses get affected by WTO negotiations, Indian workers by ILO negotiations, Indian fiscal policy by G20 communities, Indian markets by QE3.Q.Which of the following best explains why raising diesel prices will control the fiscal deficit?

Directions forthe following 11 (eleven) items:Read the following three passages and answer the items that follow each passage. Your answers to these items should be based on these passages only. Passage 1Any government that runs on a huge fiscal deficit has to, at some point, finance that deficit by creating money through borrowings. When the government does that, there is more money chasing the same number of goods and services in the economy. The result is a hike in prices, or inflation. At 5.1%, Indias fiscal deficit is dangerously high, controlling which should have been the governments highest priority. Raising diesel prices by 14% such that the subsidy bill on the fuel falls will help bring this deficit under control. To put that issue in perspective, at Rs.47,800 crore oil subsidies for the first quarter of the current financial year have already exceeded the full years budgeted figure.For consumers already reeling under a double digit onslaught of food prices, the hike in the diesel prices will hurt, no doubt. Part of this increase can be neutralized, by cutting excise duties on the fuel, for instance. But for successive governments that have been unable to curb spending on vote buying schemes- some of them crucial - or on an inflated and unproductive bureaucracy, the other option is to increase taxes and return to the sky high rates of the coercive 1970s, a regime that is best behind us.This brings us to the next issue: economic growth. With a high fiscal deficit that keeps inflation high, there is no way the RBI will cut interest rates. Even though most ofthe inflationary expectations are coming from goods outside Indias control- crude oil imports, a falling rupee and a globally rising food and commodity prices- RBIs stance has been to keep policy rates high so that thousands cut down on discretionary grounds. In the process, home loan EMIs have been rising and along with inflation on one side, scissoring household targets.Making matters more complex is the fact that today the sovereign has very little control over its finances. Like it or nor, India cant and will not grow at 9% if the rest of the world is contracting, thereby closing business opportunities- there, the UPA government is right. The political power of the sovereign goes down with every move towards globalization, Kaushik Basu said. Economics has become an instrument of global, political and even military strategy. To illustrate, Indian farmers and businesses get affected by WTO negotiations, Indian workers by ILO negotiations, Indian fiscal policy by G20 communities, Indian markets by QE3.Q.From the passage, it can be inferred that the main aim of the author is

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Whenever the government spends more than it collects through revenue, the resulting imbalance is known as :a)Public deficitb)Market deficitc)Government deficitd)Budget deficitCorrect answer is option 'D'. Can you explain this answer?
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