Reason Based Questions - Government Budget And The Economy | Crash Course of Macro Economics -Class 12 - Commerce PDF Download

Reason Based Question’s

(Q1) Fiscal deficit is always greater than revenue deficit 

Ans: True , Fiscal deficit is the difference of overall expenditure (revenue and capital expenditure) and overall receipts (revenue and capital receipts).  Clearly this makes fiscal deficit greater than revenue deficit

(Q2)  Increase in fiscal deficit does not affect primary deficit

Ans: True  , because primary deficit is equal to fiscal deficit minus interest payment

(Q3) Fiscal deficit in the economy will be zero if there is no provision for borrowing in the budget

Ans: True , Fiscal deficit is equal to borrowing.

(Q4) A government can live beyond its means.

Ans: True ,   This can be done by way of borrowing.

(Q5) A government should cut its capital expenditure to meet fiscal deficit

Ans: False ,   If it does so, capital formation will slow down & economic growth 

(Q6) Government budget is a statement of actual receipts and payments of the government.

Ans: False , it is a statement of ‘Estimated’  receipts and payments of the government’.

(Q7)  Indirect taxes cannot be avoided in any circumstances

Ans: False .  Indirect taxes can be avoided in certain circumstances, by not entering into those transactions, which call for such taxes.

(Q8)  Construction of flyover is a revenue expenditure of the government

Ans: False ,  It is a capital expenditure as it leads to creation of asset

(Q9)  Tax paid by a person to the government does not provide any direct benefit to the tax payer.

Ans: True , Government spends tax receipts for common benefit of the society. Tax payer cannot expect that the tax amount will be used for his direct benefit

(Q10) Inclusive growth is not within the ambit of budgetary policy of the government.

Ans:  False ,  Inclusive growth implies that the benefits of growth accrue to all sections of the society.  Taxes and subsidies’ are an important element of budgetary policy, and these are meant to promote inclusive growth.

(Q11) Deficit budget a sign of government inefficiency 

Ans: False , In fact, budgetary deficit may be a planned strategy of the govt. during periods of depression when the government needs to increase expenditure.  It is only when expenditure increases that there is an increase in AD which is required to combat depression.

(Q12) GST is a direct tax.

Ans: False . GST is an indirect tax because it is levied on goods and services, and its burden can be shifted from sellers to the buyers

(Q13) Fiscal deficit is only a part of primary deficit.

Ans: False , Primary deficit is only a part of fiscal deficit.  Fiscal deficit = Primary deficit + Interest payment.

(Q14) Higher revenue deficit always leads to higher fiscal deficit.

Ans: False , Because fiscal deficit also depends on capital receipts and expenditures of the government.

(Q15) Fiscal deficit is zero in case there is no provision for borrowing in the government budget.

Ans:  True ,  Because fiscal deficit is equal to total borrowing by the government.

(Q16) Revenue deficit can be managed through borrowing or disinvestment. But fiscal deficit can be managed only through borrowing.

Ans: True ,  Because disinvestment is already included as an item of capital receipt in the estimation of fiscal deficit. So that, borrowing is the only window available to manage fiscal deficit. 

(Q17) If revenue budget balances, capital budget also balances.

Ans: False ,  Because revenue budget shows revenue receipts and revenue expenditure while capital budget shows capital receipts and capital expenditure.

(Q18) Budgetary deficit points to failure of the government to manage its budget

Ans: False, Budgetary deficit reflecting borrowing by the government may in fact be a part of designed strategy of the government to accelerate the pace of growth 

(Q19) Revenue deficit increases when the government fails to recover its loans

Ans: False , Revenue deficit is the excess of revenue expenditure over revenue receipts. While the recovery of loans by the government is a capital receipt.

(Q20) ‘Capital expenditure results into capital formation’

Ans: True , because capital expenditure either creates an asset or reduces a liability.

(Q21) State with valid reasons which of the following are true / false 

(a) Revenue Expenditures leave assets and liabilities of the government unaffected.
Ans: T

(b) Taxes are voluntary payments from household/firms to government.
Ans: F

(c) Disinvestment is a revenue budget related item.
Ans: F

(d) Zero primary deficit is beneficial for an economy.
Ans: F

(e) Income Tax rate in India is progressive in nature.
Ans: T

(f) Governments should cut expenditure to control deficits in an underdeveloped/developing nation.
Ans: T

(g) At the time of inflation , Government should opt for surplus budget.

(h)  In India, the government budget does not relate itself to the problem of economic divide.
Ans: F

(i)  In India, SEZ promotes development of backward regions.
Ans: T

(j) Borrowing from the central bank by the government leads to inflation as it increases the supply  of money in the economy   
Ans:  T