Short Answer Questions - Government Budget and the Economy | Economics Class 12 - Commerce PDF Download

1 MARK QUESTIONS AND ANSWERS

 1. Define a Budget.
Ans:   It is an annual statement of the estimated Receipts and Expenditures of the Government over the fiscal year which runs from April –I  to March 31.

 2. Name the two broad divisions of the Budget.
Ans: 
i) Revenue Budget
ii)  Capital Budget

 3. What are the two Budget Receipts?
Ans: 
i) Revenue Receipts
ii)  Capital Receipts

 4. Name the two types of Revenue Receipts.
Ans: 
i) Tax Revenue
ii)  Non-tax Revenue

 5. What are the two types of taxes?
Ans:  
a) Direct Taxes:         
i) Income Tax,
ii) Interest Tax,
iii) Wealth Tax
b) Indirect Taxes:      
i) Customs duties,
ii) Excise duties,
iii) Sales Tax

6. What are the main items of Capital Receipts?
Ans:  
a) Market Loans (loans raised by the government from the public)
b) Borrowings by the Government
c)  Loans received from foreign governments and International financial Institutions.

 7. Give two examples of Developmental Expenditure.
 Ans:  Plan expenditure of Railways and Posts

 8. Give two examples of Non-Developmental expenditures.
Ans: 
i) Expenditure on defence
ii)  Interest payments

9. Define Surplus Budget.
Ans:  A Surplus Budget is one where the estimated revenues are greater than the Estimated expenditures.

10. What are the four different concepts of Budget Deficits?
Ans:  
a) Budget Deficit
b)  Revenue Deficit
c)  Primary Deficit and
d)  Fiscal Deficit

3 AND 4 MARK QUESTIONS AND ANSWERS

 1. Explain the objectives of the Government Budget.
Ans:  These below are the main objectives of the Government Budget.
Activities to secure reallocation of resources: - The Government has to reallocate resources with social and economic considerations.
Redistributive Activities: - The Government redistributes income and wealth to reduce inequalities.
Stabilizing Activities: - The Government tries to prevent business fluctuations and maintain economic stability.
Management of Public Enterprises: - Government undertakes commercial activities that are of the nature of natural Monopolies, heavy manufacturing etc., through its public enterprises.

2. What are the components of the Budget?
Ans:  These below are the main components of the Government Budget.
They are---
a. Budget Receipts
b. Budget Expenditure

Budget receipts may be classified as:
a. Revenue Receipts and
b. Capital Receipts

Revenue Receipts may be classified as:
a. Tax Revenue and
b. Non-tax Revenue

Budget Expenditure may be classified as -------
a. Revenue Expenditure and Capital Expenditure

3. Define Direct Taxes and Indirect taxes and give two examples each.
Ans. Direct Tax: - These are those taxes levied immediately on the property and Income of persons, and those that are paid directly by the consumers to the state.
Examples: Income Tax, Wealth Tax, Corporation Tax etc.
Indirect Taxes: These are those taxes that affect the income and property of persons through their consumption expenditure.  
Indirect taxes are those taxes levied on one person but paid by another person.
Examples:  Customs duties, excise duties, sales tax, service tax etc.

4. What are the Non-Tax Revenue receipts?
Ans:  These below are the Non-tax revenue receipts:
a. Commercial Revenue: Examples-Payments for postage, toll, interest on funds borrowed from government credit corporations, electricity, Railway services.
b. Interest and dividends
c. Administrative revenue: Examples: Fees, fines, penalties etc.,

5. What are the three major ways of Public Expenditure?
Ans:  These below are the three ways of Public Expenditure----
a. Revenue Expenditure and Capital Expenditure
b. Plan Expenditure and Non-Plan Expenditure
c. Development and Non-developmental Expenditure.

6. What do you mean by Revenue Expenditure and Capital Expenditure?
Ans:  
i) Revenue Expenditure:-  It is the expenditure incurred for the normal running of government departments and provision of various services like interest charges on debt, subsidies etc.,
ii)Capital Expenditure:-  It consists mainly of expenditure on acquisition of assets like land, building, machinery, equipment etc., and loans and advances granted by the Central Government to States & Union Territories.

7. Define Balanced, Surplus and Deficit Budgets.
Ans: 
a) Balanced Budget:-  It is one where the estimated revenue  EQUALS  the estimated expenditure.
b)  Surplus Budget:- It is one where the estimated revenue is  GREATER THAN the estimated expenditures.
c) Deficit Budget:-  It is one where the estimated revenue is  LESS THAN the estimated expenditure.

8. Explain the four different concepts of Budget deficit.
Ans:  These are the four different concepts of Budget Deficit.
a. Budget Deficit:-  It is the difference between the total expenditure, current revenue and net internal and external capital receipts of the government.
Formulae:   B.D = B.E >   B.R (B.D= Budget Deficit, B.E. Budget Expenditure B.R= Budget Revenue
b. Fiscal Deficit:-  It is the difference between the total expenditure of the government, the revenue receipts PLUS those capital receipts which finally accrue to the government.
Formulae:  F.D = B.E - B.R (B.E > B.R. other than borrowings) F.D=Fiscal Deficit,
B.E= Budget Expenditure, B.R. = Budget Receipts.
c. Revenue Deficit: -  It is the excess of governments revenue expenditures over revenue receipts.
Formulae:  R.D= R.E – R.R., When R.E > R.R., R.D= Revenue Deficit, R.E= Revenue Expenditure, R.R. = Revenue Receipts.
d. Primary Deficit: - It is the fiscal deficit MINUS Interest payments.
Formulae: P.D= F.D – I.P, P.D= Primary Deficit, F.D= Fiscal Deficit, I.P= Interest Payment.