Commerce Exam  >  Commerce Notes  >  Crash Course of Macro Economics -Class 12  >  Reason Based Questions - Government Budget And The Economy

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

The document Reason Based Questions - Government Budget And The Economy | Crash Course of Macro Economics -Class 12 - Commerce is a part of the Commerce Course Crash Course of Macro Economics -Class 12.
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FAQs on Reason Based Questions - Government Budget And The Economy - Crash Course of Macro Economics -Class 12 - Commerce

1. What is a government budget and why is it important for the economy?
Ans. A government budget is a financial plan that outlines the expected revenue and expenditure for a specific period, usually a year. It is important for the economy because it helps allocate resources, set priorities, and manage public finances effectively. The budget enables the government to fund public services, infrastructure development, social welfare programs, and other initiatives that promote economic growth and stability.
2. How does the government budget affect the economy?
Ans. The government budget has a significant impact on the economy. When the government increases spending in its budget, it injects more money into the economy, leading to increased demand and economic activity. On the other hand, if the government reduces spending or increases taxes, it can slow down economic growth by reducing consumer spending and private investment. Therefore, the government budget plays a crucial role in influencing overall economic performance.
3. What are some common sources of revenue for the government budget?
Ans. The government budget typically includes various sources of revenue. Common sources include taxes on income (individual and corporate), sales tax, excise tax, customs duties, fees and fines, and revenue from state-owned enterprises. Additionally, the government may also receive revenue from borrowing through the issuance of bonds or loans from international organizations.
4. How does the government budget address economic inequality?
Ans. The government budget can address economic inequality through various measures. It can allocate funds towards social welfare programs such as healthcare, education, and income support, which aim to uplift the disadvantaged sections of society. The budget can also include progressive taxation policies, where higher-income individuals or corporations are taxed at a higher rate, redistributing wealth from the rich to the poor. Moreover, the government can invest in infrastructure projects and job creation programs to stimulate economic opportunities for all.
5. What are the potential consequences of an imbalanced government budget?
Ans. An imbalanced government budget, where expenditures exceed revenues, can have several consequences. It may lead to increased borrowing, which can result in higher interest payments and debt accumulation. This can strain the economy and limit the government's ability to invest in public services and infrastructure. In extreme cases, it can lead to a financial crisis or inflationary pressures. To avoid such consequences, governments aim to maintain a balanced or sustainable budget by managing revenues and expenditures effectively.
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