Q1: State any one objective of government budget.
Ans: One of the primary objectives of the government budget is to mobilise resources for the purpose of rapid development.
Q2: Define a balanced budget.
Ans: A balanced budget is the one where the estimated revenue of the government equals the estimated expenditure.
Q3: What is revenue expenditure?
Ans: Revenue expenditure refers to that expenditure by the government, which neither creates assets for the government nor reduces its liabilities. For example, old-age pension.
Q4: Define a tax.
Ans: Tax is a compulsory payment made by an individual or an institution to the government without anything in exchange.
Q5: Why is the entertainment tax an indirect tax?
Ans: The entertainment tax is an indirect tax because the seller of the service passes the burden of tax on to the buyer of the service.
Q6: Define fiscal discipline.
Answ: Fiscal discipline means having control over expenditures, given the quantum of revenues.
Q7: Give Area examples of direct taxes.
Ans: Following are the three examples of direct tax-
Q8: Define GST.
Ans: GST’ is a value-added tax paid by the consumers and remitted to the government by the seller of various goods and service.
Q9: What are the objectives of a budget?
Ans: The objectives of a budget are as follows:
Q10: Explain the allocation function of a government budget.
Ans: The government aims to reallocate resources in a way so that its economic (profit maximisation) and social objectives (public welfare) are fulfilled. The government can influence allocation of resources through implementation of appropriate fiscal policy. Production of goods, which are injurious to health is discouraged through heavy taxation. On the other hand, production of goods which are beneficial for society is encouraged through subsidies.
Q11: Explain the ‘economic stability’ objective of a government budget.
Ans: Free play of the market forces are bound to generate trade cycles, also called business cycles. These refer to the phases of recession and depression, recovery and boom in the economy. The government of a country is always committed to save the economy from business cycles. The government budget plays a significant role in preventing business fluctuations due to inflation or deflation and hence, maintains economic stability. Economic stability stimulates investment, consequently, increasing the rate of growth and development.
Q12: Define externalities. Give an example of negative externality. What is its impact on welfare?
Ans: Externalities refer to the harms (or benefits) a firm or an individual causes to another for which they are not penalised (or paid for). Externalities may be positive or negative. For example, increase in GDP may be at the cost of considerable pains and sacrifices in the form of environment pollution. As a result, increase in GDP may mean less economic welfare. If increase in GDP has been brought about by making wokers work in bad working conditions, increase in GDP will not raise the level of economic welfare.
Q13: Distinguish between direct tax and indirect tax? Give an example of each.
Ans: Direct tax is a tax levied on the property and the income of persons. These are paid directly to the state by the consumers. Its burden cannot be shifted by the tax payer on someone else.
For Example: Income tax. Indirect tax is a tax collected by an intermediary (seller) from the person who bears the ultimate economic burden of the tax (buyer). Its burden can be shifted by the tax payer or someone else. For example: Excise duty.
Q14: Describe the importance of the government budget.
Ans: The importance of budget can be explained with the help of following points:
Q15: What is the meaning of revenue deficit? What problems does it create?
Ans: The concept of revenue deficit is simple and straight. The revenue deficit is defined as the excess of revenue expenditure over revenue receipts. Mathematically
Revenue Deficit = Revenue Expenditure – Revenue Receipts
For example, according to the government of India, Budget for the year 2005-2006 states:
Total Revenue Receipts = ₹ 3,09,322 crores Total Revenue Expenditure = ₹ 3,85,493 crores
Revenue Deficit = ₹ 3,85,493 – 3,09,322 = ₹ 76,171 crores In other words, there should be revenue surplus, which should be used for building projects or building assets that yield return. In fact, revenue surplus represents government savings, which can be used for financing development.
Revenue deficit represents a critical situation in the economy. Revenue deficit indicates the amount of current expenditure which cannot be met by revenue receipts. It implies that government is spending beyond its means. The government should either increase its tax/non-tax receipts or should cut its expenditure.
In poor countries, in the initial stages of economic development, often the situation arises when the government has to incur large expenditure on administration and maintenance (particularly on defence, police and law and order) but it is difficult to compel the poor people to pay high taxes. In such situations, the government meets its revenue deficit either through borrowing or through disinvestment. Borrowing by the government, on the other hand, creates the problem of repayment of debt. Disinvestment reduces the asset of the government.
Q16: Explain the importance of public expenditure.
Ans: Importance of public expenditure has been increased due to the following reasons: –
Q17: What is a government budget? Discuss its objectives.
Ans: The budget is a government’s annual statement of estimated receipts and payments over the fiscal year, which runs from April I to March 31.
The main objectives of the government budget are:
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