Sample Paper 2014 -15 & 15-16 & 16-17
(Q1) The government budget of a hypothetical economy presents the following information, which of the following value represents Budgetary Deficit. (all fig. in Rs. crores)
A. Revenue Expenditure = 25,000
B. Capital Receipts = 30,000
C. Capital Expenditure = 35,000
D. Revenue Receipts = 20,000
E. Interest Payments = 10,000
F. Borrowings = 20,000
(a) Rs. 12,000 (b) Rs. 10,000 (c) Rs. 20,000 (d) None
(Q2) Which of the following statement is true ? (1M)
(a) Loans from IMF is a Revenue Receipt.
(b) Higher revenue deficit necessarily leads to higher fiscal deficit.
(c) Borrowing by a government represents a situation of fiscal deficit.
(d) Revenue deficit is the excess of capital receipts over the revenue receipts
(Q3) The government budget has a revenue deficit. This gets financed by: (1M)
(C) Tax revenue
(D) Indirect taxes
(a)A and D (b)C and D (c)A and B (d)C and D
(Q4) Which of the following statement is not true for fiscal deficit ?
A fiscal deficit:
(a) Represents the borrowing of the government.
(b) Is the difference between total expenditure and total receipts of the government
(c) Is the difference between total expenditure and total receipts other than borrowing
(d) Increases the future liability of the government
(Q5) Primary deficit is equal to:
(a) Fiscal Deficit less Interest Payments
(b) Revenue Deficit less borrowings
(c) Borrowings less interest payments
(d) Borrowings less Fiscal Deficit.
(Q6) Find (a) fiscal deficit and (b) primary deficit from the following : (4 marks)
Revenue expenditure = 70,000 (Rs. Crore)
Borrowings = 15,000
Revenue receipts = 50,000
Interest payments = 25% of revenue deficit.
Ans: Rs. 10000 crore.
(Q7) From the following data about a government budget find
(a) revenue deficit,
(b) fiscal deficit and
(c) primary deficit : (4M)
(i) Tax revenue 47
(ii) Capital receipts 34
(iii) Non-tax revenue 10
(iv) Borrowings 32
(v) Revenue expenditure 80
(vi) Interest payments 20
(Q8) In the government of India’s budget for the year 2013 14, the Finance Minister proposed to raise the excise duty on cigarettes. He also proposed to increase income tax on individual earning more than Rs. one crore per annum.
Identify and explain the types of taxes proposed by the Finance Minister. Was the objective only to earn revenue for the government? What possible welfare objectives could the Government be considering?
Ans: Excise duty - Indirect tax . Indirect tax is a tax where the payer and the bearer of the tax are different people. (1M)
Income tax - Direct tax . Direct tax is a tax where the payer and bearer of the tax is the same person. (1M)
Besides the objective of raising more revenue, the proposals also serve some welfare objectives.
Firstly, raising excise duty on cigarettes will make cigarettes costlier and discourage smoking. Less smoking will have positive influence on health and raise welfare of the people. Secondly, raising income tax on incomes above Rs. one crore will help in reducing inequalities in income. Thirdly, the extra revenue raised from these proposals, if spent on health and education of the poor will also raise welfare of the poor. (4M)
(Q 9) “Governments across nations are too much worried about the term fiscal deficit”. Do you think that fiscal deficit is necessarily inflationary in nature? Support your answer with valid reasons. (6M)
Ans: The term fiscal deficit is the difference between the government’s total expenditure and its total receipts (excluding borrowing). (2M)
Such borrowings are generally financed by issuing new currency which may lead to inflation, however, if the borrowings are for the infrastructural developmental purposes this may lead to capacity building and may not be inflationary. (4m)
(Q10) (a) “Fiscal deficit is necessarily inflationary in nature”. Do you agree? Support your answer with valid reasons.
(b) Elaborate ‘Economic Growth’ as an objective of government budget. (3+3)
Ans: (b) The term ‘Economic Growth’ refers to a sustained increase in the real GDP of the economy or an absolute/net increase in the total volume of goods and services produced by an economy. This is an essential objective of the government budget as the budget can be a very effective instrument for targeting the economic growth. Can be achieved by providing tax rebates, infrastructural stimulation etc.
(Q11) Name any one step the Govt. can take through its budget to reduce gap between the rich and the poor. (1 mark)
(Q12) State two sources of non-tax revenue receipt. (1 mark)
(Q13) What is the basis of classifying government expenditure into ‘Revenue Expenditure’ and ‘Capital Expenditure’ ? Which of these types is granting of subsidies ?(3 marks)
CBSE paper 2013
(Q1) What one step can be taken through market to reduce the consumption of a product harmful for health ? (1 M)
Ans: Impose heavy tax to make it costlier so that demand comes down (or any other relevant economic step)
(Q2) What is revenue deficit ? (1 M)
Ans: The excess of revenue expenditure over revenue receipts
(Q3) Distinguish between revenue receipts and capital receipts. Give an example of each.
Ans: Revenue receipts are receipts that neither reduce assets nor create a liability whereas capital receipts are receipts that either create a liability or reduce assets.
Example : Revenue receipts : Interest received etc. ½
Capital receipts : Borrowings etc. ½
(Q4) How can budgetary policy be used to reduce inequalities of income ? (3 M)
Ans: Higher rates of taxes can be levied on higher incomes and lower rates of taxes can be levied on lower incomes. More expenditure can be incurred on providing free services like education, health etc. to the poor.
(Q5) Distinguish between revenue expenditure and capital expenditure in government budget. Give an example of each. (3 M)
(Q6) State three sources each of revenue receipts and capital receipts in government budget. (3 M)
Ans: Sources of revenue receipts : (i) Direct taxes (ii) Indirect taxes (iii) Dividend from Public sector undertakings etc. ½×3
Sources of capital receipts :
(i) Recovery of loans
(ii) Sale of shares of public sector undertakings
(iii) Market borrowing etc ½×3
C. b. s. e paper 2014
(Q1) Define fiscal deficit.
Ans: When total government expenditure exceeds total government receipts excluding borrowing , the difference is called fiscal deficit.
(Q2) Is the following a revenue receipt or a capital receipt in the context of government budget and why ? (i) Tax receipts (ii) Disinvestment
(i) Tax Receipts are revenue receipts because these neither create any liability nor reduce asset.
(ii) Disinvestments are capital receipts because it reduces assets.
(Q3) Tax rates on higher income group have been increased. Which economic value does it reflect ? Explain. (4 marks each)
Ans: This will reduce the inequalities of income as the difference between disposable incomes of higher income and lower income groups will fall. This will also provide more resource to the government for spending on welfare of the poor
(Q4) Govt. raises its expenditure on producing public goods .Which economic value does it reflect ? Explain.
Ans: Increased expenditure by government on public goods like defence, maintaining law and order etc. increases their availability to the people of the country. For example more expenditure on maintaining law and order raises the sense of security among the people. Any such expenditure raises welfare of the people. (To be marked as a whole
(Q5) Govt. raises its expenditure on providing free services like education and health to the poor .Which economic value does it reflect ? Explain.
Ans: Raises efficiency and hence production potential .Also improves Welfare of the public
(Q6) Name any one step that the government can take through its budget to check inflation that is causing hardships to the people ?
Ans: Reduce unproductive public expenditure
(Q7) Categorise the following government expenditure into revenue and capital expenditure . Give reasons for your answer. (4 M)
(a) Payment of salaries to government employees
(b) Exp on collection of taxes
(c) Expenditure on purchasing computers
Ans: R , R , C
(Q8) Categorise the following government expenditure into revenue and capital expenditure . Give reasons for your answer. (4 M)
(a) Expenditure on Scholarship
(b) Exp on Building a Bridge
Ans: R , C
(Q1) Primary deficit in a government budget is : (1 M)
(a) Revenue expenditure - Revenue receipts
(b) Total expenditure - Total receipts
(c) Revenue deficit - Interest payments
(d) Fiscal deficit - Interest payments
(Q2) Primary deficit in a government budget is : (1 M)
(a) Interset payment
(b) Interest payment - borrowing
(c) Borrowing - interest payment
(Q3) Direct tax is called direct because it is collected directly from : (1 M)
(a) The producers on goods produced
(b) The sellers on goods sold
(c) The buyers of goods
(d) The income earners
(Q4) Borrowing in a government budget is
(a) Revenue Deficit
(b) Fiscal Deficit
(c) Primary Deficit
(d) deficit in taxes
(Q5) The non - tax revenue in the following is
(a) Export duty
(b) Import Duty
(Q6) Which of these is a revenue expenditure
(a) Purchase of shares
(b) Loans advanced
(d) Expenditure on acquisition of land
(Q7) Which one of the following is a combination of direct taxes ? (1)
(a) Excise duty and Wealth tax
(b) Service tax and Income tax
(c) Excise duty and Service tax
(d) Wealth tax and Income tax
(Q8) Which of the following is a correct measure of primary deficit ?
(a) Fiscal deficit minus revenue deficit
(b) Revenue deficit minus interest payments
(c) Fiscal deficit minus interest payments
(d) Capital exp. minus revenue expenditure
(Q9) Which of the following is not a revenue receipt ? (1)
(a) Recovery of loans
(b) Foreign grants
(c) Profits of public enterprises
(d) Wealth tax
(Q10) Explain how the government can use the budgetary policy in reducing inequalities in incomes.
(Q11) Explain the need for reduction in inequalities of income and wealth . Explain any two budgetary measure by which it can be done.(c)
Ans: Inequalities of income and wealth reflect a section of society being deprived of even basic necessities. Thus arises the need for reducing them in the society
(a) Progressive taxation.
(b) Increasing government’s expenditure. (Explanation)
(Q12) The Government decides to give budgetary incentives to investors for making investments in backward regions . Explain these possible incentives and reson for the same
Ans: Budgetary incentives refer to concession in taxation and granting subsidies to those production units which set up their units in economically backward areas.
Tax concessions, like lower excise duties aim at reducing cost and thus raising profits.
Subsidies aim at reducing prices of products to encourage sales and earning more profits. Thus both aim at raising profits. (Any other relevant reason)
(Q13) Explain the role of government budget in fighting inflationary and deflationary situations ?
(Q14) Explain the role of government budget in influencing allocation of resources ?
(Q1) What are revenue receipts in a government budget ? (1M)
(Q2) Define fiscal deficit.
(Q3) What are capital receipts in a government budget. (1M)
(Q4) Fiscal deficit equals : (choose the correct alternative) (1M)
(a) Interest payments
(c) Interest payments less borrowings
(d) Borrowings less interest payments
(Q5) Disinvestment by govt. means
(a) selling of its fixed capital assets
(b) selling of shares of public enterprise
(c) selling of its building
(d) all the above
(Q6) What is government budget ? Explain how taxes and subsidies can be used to influence allocation of resources.
Ans:Government budget is a statement showing estimated government exp. and receipts during a financial year Government can encourage production of selected goods and services by providing tax concessions . Eg electricity generation etc. Govt. can also give subsidies to enterprise who are willing to undertake production in backward areas.in this way , government budget can be used to influence allocation of resources in the country. Increasing taxes and reducing subsidies will have the opposite effect.
(Q7) Define revenue receipts in a government budget. Explain how government budget can be used to bring in price stability in the economy.
Ans: Revenue receipts are the receipts which donot create liabilities nor lead to reduction in assets. Stability in the economy means keeping fluctuations in the general price level within limits When there is inflation , government can reduce its own expenditure to bring down the price level When there there is deflation , government can increasae its own expenditure to fight it Government can also use taxes and subsidies to influence personal disposable income and bring in economic stability in the country.
(Q8) What is the difference between revenue expenditure and capital expenditure ? Explain how taxes and government expenditure can be used to influence distribution of income in the society.
(Q9) What is the difference between direct tax and indirect tax ? Explain the role of government budget in influencing allocation of resources. (6M)
(Q1) Define revenue deficit. (1M)
Ans: When Revenue Expenditure of the government is greater than Revenue receipts during a given fiscal year. (1M)
(Q2) Define Government budget.
(Q3) Distinguish between direct taxes and indirect taxes. Give an example of each. (3M)
Ans: When the burden of tax and its liability to pay falls on the same person , it is a direct tax. When the burden of a tax and the liability to pay is on different persons , it is an indirect tax. (2M)
Direct tax :: Income tax, etc. (1/2 M)
Indirect tax :: Sales tax, etc. (1/2 M)
(Q4) What are non-debt creating capital receipts ? Give two examples of such receipts. (4M)
Ans: Capital receipts are those receipts of government which either create liabilities or reduce assets. Capital receipts excluding borrowings are known as non-debt creating capital receipts. (2M)
Example :- Disinvestment , Recovery of loans. (1+1M)
(Q5) Explain how government budget can be helpful in bringing economics stabilization in the economy.
(Q6) State one fiscal measure that can be used to reduce the gap between rich and poor (1M)
Ans: (a) Increasing the investment expenditure which will directly benefit the poor
(b) Increasing the taxes on rich and using the same amount to benefit the poor. (any one or any other relevant measure)
(Q7) Define the capital receipts of a government.
Ans: All money mobilised by government that either creates a liability of repayment on
Government or involves reduction in some of an asset by selling it off.
(Q8) From the following data calculate Fiscal Deficit (1M)
S.No Item (in Billions)
1 Capital Receipt 68
2 Revenue Expenditure 160
3 Interest Payment 20
4 Borrowings 32
5 Tax Revenue 50
6 Non- Tax revenue 10
Ans: Fiscal Deficit = Borrowings = 32 Billion
(Q9) Explain how government budget can be used to influence distribution of income ?
(Q10) Explain how can government budget be useful in influencing allocation of resources in an economy
(Q11) Explain how can government budget be useful in economic stabilisation of resources in an economy?
(Q12) Elaborate ‘economic growth’ as objective of government budget (4M)
Ans: Economic Growth implies a sustainable increase in real GDP of an economy, i.e. an increase in volume of goods and services produced in an economy. Budget can be an effective tool to ensure the economic growth in a country.
(a) If the government provides tax rebates and other incentives for productive ventures and projects, it can stimulate savings and Investments in an economy.
(b) Spending on infrastructure of an economy enhances the production activity in different sectors of an economy. Government expenditure is a major factor that generates demand for different types of goods and services in an economy which induces growth in private sector too. However, before planning such expenditure, rebates and subsidies government should check the rate of inflation and tax rates. Also there may be the risk of debt trap if loans are too high to finance the expenditure.
(Q13) What is primary deficit ?
(Q14) Giving reasons, classify the following into revenue receipts and capital receipts :
(a) Recovery of loans
(b) Profits of public sector undertakings
Ans: Capital , Revenue , Capital
(Q15) Which one of the following is an indirect tax ? (choose the correct alternative)
(a) Profit Tax
(b) Wealth Tax
(c) Customs duty
(d) Gift Tax
(Q16) Government provides essential items of food grains almost free to the families below the poverty line. Which objective the government is trying to fulfil through the government budget and how ? Explain.
Ans: Reducing income inequalities
(Q17) The Government, under Ujjwala Yojana, is providing free LPG kitchen gas connections to the families ‘below the poverty line’. What objective the government is trying to fulfil through the government budget and how ? Explain.
(Q1) Explain the meaning of the following : (6M)
(a) Revenue deficit
(b) Fiscal deficit
(c) Primary deficit
(Q2) Explain the following objectives of government budget :
(a) Allocation of resources
(b) Reducing income inequalities
(Q3) What is government budget ? Explain its major components. (6M)
Ans: Government Budget is defined as a statement of planned receipts and planned expenditure of the government during a fiscal year. (2)
Its major components are:
(a) Revenue Receipts : the receipts which neither create a liability nor lead to reduction in assets.
(b) Capital Receipts : the receipts which either create a liability or lead to reduction in assets.
(c) Revenue Expenditures : the expenditure which does not lead to any creation of assets or reduction in liabilities.
(d) Capital expenditures : the expenditure which leads to creation of assets or reduction in liabilities. (1 * 4)
(Q4) Explain (a) Allocation of resources (b) economic stability as objectives of government budget.
Ans: (a) Allocation of resources in the economy :: There are many non-profitable economic activities which are not undertaken by the private sector like, water supply , sanitation, etc., but are necessarily undertaken by government in public interest. So Government can undertake these activities in order to create social welfare.
In addition, government can encourage the private sector through tax concessions, subsidies , etc., to undertake certain production in public interest.
(b) Economic stability :: Economic stability means absence of large-scale fluctuation in prices . Such fluctuations create uncertainties in the economy. Government can exercise control over these fluctuations through taxes and expenditure.
For example, under inflationary situations, government may discourage spending by increasing taxes or reducing its own expenditure whereas, under deflationary conditions, government may encourage spending by giving tax concession, subsidies, etc.
(Q5) Fiscal deficit equals : (Choose the correct alternative)
(a) Primary deficit minus interest payments
(b) P.D plus interest payments
(c) Total budget expenditure minus total budget receipts
(d) None of the above
Previous C.B.S.E & N.C.E.R.T QUESTION ’S
(Q1) Why is repayment of loan a capital exp. ?
(Q2) Why is payment of interest or subsidies a revenue exp. ?
(Q3) State any two sources of non-tax revenue receipts. (1M) (S.P)
(Q4) Is Borrowing a revenue receipt ?
(Q5) Why Tax is not a capital receipt ?
(Q6) Why recovery of loan is treated as capital receipt ?
(Q7) Can there be a fiscal deficit in a government budget without a revenue deficit ? Explain.
(Q8) Giving reason classify into direct and indirect tax :
(a) Wealth tax
(b) Entertainment Tax
(c) Income Tax
Ans: Direct , Indirect , Direct
(Q9) Categorise the following government receipts into revenue and capital receipts. Give reasons for your answer. (4 M)
(a) Receipts from sale of shares of a public sector undertaking.
(b) Borrowings from public.
(c) Profits of public sector undertakings.
(d) Income tax received by government.
Ans: C , C , R , R
(Q10) What is the basis of classifying government expenditure into :
(a) Plan expenditure and non-plan expenditure
(b) Developmental expenditure and non-developmental expenditure. (3M) (S.P)
(Q11) What are the implications of a large revenue deficit? Give two measures to reduce this deficit. (4M ) (S.P)