Scanner Chapter 12 - Budget(Macro Economics) Commerce Notes | EduRev

Economics for CBSE Class 12 Board Examinations

Commerce : Scanner Chapter 12 - Budget(Macro Economics) Commerce Notes | EduRev

The document Scanner Chapter 12 - Budget(Macro Economics) Commerce Notes | EduRev is a part of the Commerce Course Economics for CBSE Class 12 Board Examinations.
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C.B.S.E QUESTION’S


(Q1) Why is repayment of loan a capital exp. ?

(Q2) Why is payment of interest or subsidies a revenue exp. ?

(Q3) Distinguish between ‘fiscal deficit’ and ‘revenue deficit’. What does fiscal deficit indicates?

(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) What is FD ? What are the implication of large FD ?

(Q8) Giving reason classify into direct and indirect tax :
(a) Wealth tax (b) Entertainment Tax (c) Income Tax

C.B.S.E’08 + SAMPLE PAPER + C.B.S.E’09


(Q1) Define government budget

(1M) ( C.B.S.E ‘08)

(Q2) Give meaning of capital expenditure and revenue expenditure in a government budget and an example of each.

(3M) ( C.B.S.E ‘08)

(Q3 ) What is revenue deficit? What are its implications?

(4M) ( C.B.S.E ‘08)

OR
What is fiscal deficit? What are its implications?

(Q4) How is primary deficit calculated?

(1M ) (S.P)

(Q5) State any two sources of non-tax revenue receipts

(1M) (S.P)

(Q6) Why is entertainment tax an indirect tax?

(1M) (S.P)

(Q7) Can there be a fiscal deficit in a government budget without a revenue deficit ? Explain.

(Q8) Categorise the following government receipts into revenue and capital receipts
(a) Receipts from sale of shares of a public sector undertaking
(b) Borrowings from public.
(c) Profits of public sector undertaking

(3M) (S.P)

(Q9) 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)

(Q10) What are the implications of a large revenue deficit? Give two measures to reduce this
deficit.

(4M ) (S.P)

(Q11) Why are taxes received by the government not capital receipts ?

(1M) ( C.B.S.E ‘09)

(Q12) Give the meaning of revenue deficit, fiscal deficit and primary deficit.

(3M)

(Q13) Explain any two objectives of a government budget.

(4M)

(Q14) What are the implications of revenue deficit ? State two measures to reduce this deficit.

(4M)

(Q15) How can a govt. budget help in reducing inequalities in fair distribution of income ?
Explain.

SAMPLE PAPER + C.B.S.E 2010


(Q1) What is meant by revenue deficit ?

(1M)

(Q2) Define tax.

(1M)

(Q3) Give two example of direct tax.

(1M)

(Q4) How is primary deficit calculated ?

(1 M)

(Q5) Explain the allocation function of a government budget.

(3M)

(Q7) How can budgetary policy be used
(i) for reducing inequalities in income and wealth ?
(ii) for allocation of resources in the economy?

(3M)

(Q8) Distinguish between :

(4M)

(i) Capital expenditure and Revenue expenditure
(ii) Fiscal deficit and Primary deficit

(Q9) What is a government budget? Give the meaning of :

(4 M)

(a) Revenue deficit (b) Fiscal deficit

(Q10) 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.

(Q11) What are the implications of a large revenue deficit ? Give two measures to reduce this
deficit.

C.B.S.E. 2011 & 2012


(Q1) Explain the ‘redistribution of income’ objective of a government budget.

(4M)

OR
Explain the ‘economic stability’ objective of a government budget.

(4M)

(Q2) From the following data about a government budget find
(a) revenue deficit, (b) fiscal deficit and (c) primary deficit :

(4M)

Scanner Chapter 12 - Budget(Macro Economics) Commerce Notes | EduRev
(Q3) Define a ‘direct tax’.

(1M)

(Q4) Distinguish between revenue receipts and capital receipts in a government budget. Give
example in each case.

(3 marks)

OR
Explain the role of government budget in bringing economic stability.

(Q5) Explain the concept of ‘fiscal deficit’ in a government budget. What does it indicate ?

(4 marks)

C.B.S.E PAPER 2013

(Q1) What one step can be taken through market to reduce the consumption of a product harmful for health ?

(1 M)

(Q2) What is revenue deficit ?

(1 M)

(Q3) Distinguish between revenue receipts and capital receipts. Give an example of each.

(Q4) How can budgetary policy be used to reduce inequalities of income ?

(3 M)

(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)


C. B. S. E PAPER 2014


(Q1) Define 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

(Q3) Tax rates on higher income group have been increased. Which economic value does it reflect ? Explain.

(4 marks each)

Ans:: Reduction of inequalities


(Q4) Govt. raises its expenditure on producing public goods .Which economic value does it reflect ? Explain.

Ans :: Sense of Security and Welfare of the public

(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

(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

SAMPLE PAPER

(Q1) Find (a) fiscal deficit and (b) primary deficit from the following : (4 marks)


Scanner Chapter 12 - Budget(Macro Economics) Commerce Notes | EduRev


(Q2) 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 individuals earning more than Rs. one crore per annum. Is the objective only to earn revenue for the government ? What possible welfare objective can you think of from these proposals ? Explain.

(4 marks)

Ans. 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.

(Q3) Name any one step the Govt. can take through its budget to reduce gap between the rich
and the poor.

(1 mark)

(Q4) State two sources of non-tax revenue receipt.

(1 mark)

(Q5) Distinguish between revenue deficit and fiscal deficit.

(3 marks)

OR
Distinguish between revenue receipt and capital receipt in government budget. Give an example of each.

(Q6) 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 2015 & SAMPLE PAPER


(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

Ans :: (d)

(Q2) Primary deficit in a government budget is :

(1 M)

(a) Interset payment (b) Interest payment - borrowing
(c) Borrowing - interest payment (d) none
Ans :: (c)

(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
Ans :: (d)

(Q4) Borrowing in a government budget is
(a) Revenue Deficit     (b) Fiscal Deficit
(c) Primary Deficit      (d) deficit in taxes
Ans :: (b)

(Q5) The non - tax revenue in the following is
(a) Export duty         (b) Import Duty
(c) dividends           (d) Excise
Ans :: (c)

(a) Purchase of shares     (b) Loans advanced
(c) Subsidies            (d) Expenditure on acquisition of land
Ans : (c)

(Q7) Explain how the government can use the budgetary policy in reducing inequalities in
incomes.

(6 M)

Ans :: Government can reduce inequalities through its tax and expenditure policy. Government can charge higher rate of tax from higher income groups by imposing higher rate of income tax and higher rate on goods and services purchased by the rich. The money so collected can be spent on the poor in the form of free education, free medical facilities, cheaper housing etc. in order to raise their disposable income.

(Q8) Explain the need for reduction in inequalities of income and wealth . Explain any two
budgetary measure by which it can be done

(c)

(Q9) The Government decides to give budgetary incentives to investors for making investments in backward regions . Explain these possible incentives and reson for the same

(Q10) Explain the role of government budget in fighting inflationary and deflationary situations ?

(Q11) Explain the role of government budget in influencing allocation of resources ?

(Q12) The government budget of a hypothetical economy presents the following information,
which of the following value represents Budgetary Deficit. (all fig. in Rs. crores)
Scanner Chapter 12 - Budget(Macro Economics) Commerce Notes | EduRev

(Q13) Which of the following statement is true?

(1M)

(i) Loans from IMF is a Revenue Receipt.
(ii) Higher revenue deficit necessarily leads to higher fiscal deficit.
(iii) Borrowing by a government represents a situation of fiscal deficit.
(iv) Revenue deficit is the excess of capital receipts over the revenue receipts
Ans :: (iii)

(Q14) The government budget has a revenue deficit. This gets financed by:

(1M)

(A) Borrowing   (B) Disinvestment   (C) Tax revenue   (D) Indirect taxes
(a) A and D   (b) C and D   (c) A and B   (d) C and D
Ans ::(c)

(Q15) Which of the following statement is not true for fiscal deficit ?

(1M)

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

Ans :: (d)


(Q16) “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.

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)

(Q17) 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 them more expensive. The price rise is expected to discourage cigarette smoking, which will positively impact the health of people and raise their welfare.

Secondly, raising income tax on income above Rs. one core will reduce the gap between the rich and poor people. In other words, income inequalities will reduce.

Thirdly, the extra revenue raised from these proposals could be spent on health education and other welfare enhancing schemes to improve the welfare of the public

CBSE 2016


(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 (b) Borrowings
(c) Interest payments less borrowings (d) Borrowings less interest payments

(Q5) 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. OR
What is the difference between direct tax and indirect tax ? Explain the role of government
budget in influencing allocation of resources.

(6M)

(Q6) What is government budget ? Explain how taxes and subsidies can be used to influence
allocation of resources.

OR

Define revenue receipts in a government budget. Explain how government budget can be used
to bring in price stability in the economy.

EXTRA QUESTION’S

(Q1) Name the budget where estimated revenue falls short of estimated expenditure ?

(Q2) Is fiscal deficit a part of Budgetary deficit ? Is fiscal deficit necessary inflationary

(Q3) Is fiscal deficit a wider concept than revenue deficit

(Q4) Define FD ? If fiscal deficit is high , why does the govt , tries to reduce it ?

(Q5) What is meant by domestic or internal borrowing ? Mention its three sources ?

(Q6) How is disinvestment by the government helpful in capital receipts ?

(Q7) Explain two components of government budget.

(Q8) The Fiscal deficit gves the borrowing requirement of govt. “ Elucidate

(Q9) Differentiate between balanced and unbalanced budget. Is balanced budget an achievement of govt.

(Q10) State two items each of

(a) debt creating capital receipt and
(b) non-debt creating capital receipts

(Q11) India is a highly taxed economy . Some economists have suggested that if the government decides to cut tax rates , the government would actually receive more tax revenue . Explain ?

(Q12) For the following objectives identify the type of tax which govt. can use
(a) To place the burden of tax on seller not buyer
(b) To protect domestic industries from foreign competition
(c) To raise revenue without affecting the number of hours employees work
(d) To redistribute incomes from rich to poor.


(Q13) In India, there is inequality of income, rich persons are becoming richer, the poor are becoming poorer. What changes should be introduced to reduce the inequality of income ?

(Q14) India’s total revenue expenditure is Rs. 1000 crore and total revenue receipts are
Rs. 800 crore. What is this situation called in an economy ?

Ans. Revenue deficit = Total revenue expenditure - total revenue receipts
= 1000 - 800 = 200 crore.

(Q15) In India a majority of population is below the poverty line due to inequalities of ‘Income
and Wealth’. How does budgetary policy help in solving this problem?
 

(Q16) India’s total expenditure is Rs. 6,00,000 crore and total receipts are Rs. 4,00,000 crore. Here borrowing is not included in total receipts. What is the difference between these two called ? Suppose the country takes a loan of Rs. 2,00,000 crore for meeting the expenditure in excess of its revenue receipt. Find out the exact amount required to meet the excessive expenditure ? Total payment on past borrowing is Rs. 1,20,000 crore. What amount is available for government to meet excessive expenditure ?

Ans. Rs. 2,00,000 crore is the fiscal deficit which indicates borrowing requirements of the country. However, if the government takes a loan of Rs. 2,00,000 crore, it is nothing but a fiscal receipts deficit. On the other hand Rs. 1,20,000 crore is just payment for past borrowings. Thus, a primary deficit of only Rs. 80,000 crore (2,00,000 - 120,000) will be available to meet current excessive expenditure over its revenue receipts.

(Q17) Budgetary deficit creates disequilibrium in every economy. However, developing countries like India are forced to depend on it. Why ?
Ans. In developing countries like India, receipts of the government from tax and non-tax revenue are not sufficient. On the other hand, government has to incur heavy public expenditure for the development of economy. So, government is compelled to depend on the budgetary deficit.

(Q18) Subsidy on diesel oil is a wasteful expenditure by the government. Write one point in
support of this observation and one against it.

Ans. It is wasteful expenditure : Because the benefit of subsidy (or diesel oil) is unduly reaped by a richer section of the society who get cheaper oil t run their luxury cars. It is not wasteful expenditure :Because, farmers need to be given diesel at the low price. So that, the cost of farming does not rise and farming remains a profitable occupation.

(Q19) Give the relationship between the revenue deficit and the fiscal deficit.

(Q20) If you were to be appointed the finance minister of India which taxes would you prefer :
direct taxes or indirect taxes ?
Ans. Both of them have their relative merits and demerits.It is necessary to strike a balance between direct taxes and indirect taxes as a source of tax revenue.

(Q21) All non-plan expenditures are non-developmental. Do you agree ?

Ans. No. Non-plan expenditure is a generic term. It includes both developmental and non -developmental expenditure.

(Q22) From the point of view of economic growth in a developing economy what will you prefer : surplus budget or a deficit budget ?

(Q23) Is balanced budget good for India ?
 

(Q24) Revenue deficit can be managed through borrowing or disinvestment. But fiscal deficit can be managed only through borrowing. Do you agree ? State reason in support of your answer.
 

Ans. True, because disinvestment is already hmoincluded as an item0 of capital receipt in the estimation of fiscal deficit. So that, borrowing is the only window available to manage fiscal deficit.

(Q25) Other things remaining constant, fiscal deficit increases when the government revises
salary structure of its employees, but the primary deficit remains the same. Comment.
 

Ans. Revision of salary structure enhances revenue expenditure of the government. Other things remaining constant, it would mean a rise in fiscal deficit of the government.

(Q26) Do you agree that revenue deficit increases when the government fails to recover its
loans?
Ans. No, it is incorrect. Revenue deficit is the excess of revenue expenditure over revenue receipts. While the recovery of loans by the government is a capital receipt.

(Q27) Revenue deficit is estimated to be Rs. 20,000 crore, and borrowing is estimated to be
Rs.15,000 crore. If expenditure on interest payment is estimated to be 50% of the revenue
deficit, find fiscal deficit and primary deficit.

(Q28) Finance Minister has announced that steps would be taken to rationalise subsidies which
presently dominate the economy of the nation. What is the economic value of this statement ?

Ans. The statement comes in the wake of consistently high fiscal deficit arising out of high expenditure of the government on subsidies. To the extent money is spent on subsidies, it is not available for investment in strategic sectors of economy like infrastructure.

(Q29) How has the decline in the price of crude oil in the international market helped the government to increase its tax revenue (and reduce fiscal deficit) ?
 

Ans. Prompted the government to increase excise duty on crude oil without passing the impact of it on to the consumers.

(Q30) Why should revenue deficit be curbed ?

(Q31) Subsidy on diesel oil is a wasteful expenditure by the government. Write one point in support of this observation and one against it.

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