Commerce Exam > Commerce Notes > Economics Class 12 > Frequently Asked Questions - Government Budget and the Economy
Frequently Asked Questions - Government Budget and the Economy | Economics Class 12 - Commerce PDF Download
FREQUENTLY ASKED CBSE BOARD QUESTIONS
1. Define full employment?
2. What do you mean by Aggregate Demand?
3. Write any two components of aggregate demand?
4. Define Aggregate Supply?
5. When APC is 0.6, what is the value of APS?
6. If the rate of MPC is 0.75 find the value of multiplier?
7. Define investment multiplier?
8. What are the conditions for equilibrium level of income and employment?
9. What is meant by excess demand?
10. Define inflationary gap.
11. Define deficient demand?
12. Define underemployment equilibrium?
13. What are the monetary measures to correct excess demand?
14. State the fiscal measures to correct excess demand?
15. Explain any two monetary and fiscal measures to correct deficient demand?
16. Define investment multiplier. What is the relationship between MPC and multiplier?
17. State the components of AD. Explain any one.
18. Explain investment multiplier with the help of an example.
19. Derive saving function from consumption function.
20. State the Keynesian psychological law of consumption function.
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FAQs on Frequently Asked Questions - Government Budget and the Economy - Economics Class 12 - Commerce
| 1. How does the government budget affect the economy? |  |
Ans. The government budget can have a significant impact on the economy. When the government spends more than it collects in taxes, it creates a budget deficit. This deficit can stimulate the economy by injecting more money into circulation, leading to increased consumer spending and business investment. On the other hand, if the government spends less than it collects in taxes, it creates a budget surplus. This can have a contractionary effect on the economy as it reduces the amount of money available for spending and investment.
| 2. What are the main components of a government budget? | |
Ans. The main components of a government budget typically include revenue, expenditure, and the fiscal deficit or surplus. Revenue refers to the money that the government receives through taxes, fees, and other sources. Expenditure refers to the money that the government spends on various sectors like education, healthcare, defense, infrastructure, etc. The fiscal deficit or surplus is the difference between the government's total expenditure and total revenue in a given period.
| 3. How does government spending impact different sectors of the economy? | |
Ans. Government spending can have a significant impact on different sectors of the economy. Increased government spending in sectors like infrastructure, education, and healthcare can create jobs and stimulate economic growth. It can also lead to increased demand for goods and services in those sectors, benefiting businesses and industries associated with them. Additionally, government spending can also influence the supply and demand dynamics, prices, and overall economic stability.
| 4. How does the government budget affect inflation and interest rates? | |
Ans. The government budget can influence inflation and interest rates. When the government spends more than it collects in taxes, it often needs to borrow money to cover the deficit. This increases the demand for loans, leading to higher interest rates. Higher government spending can also increase the money supply, which can contribute to inflationary pressures. Conversely, if the government reduces spending and runs a budget surplus, it can lower interest rates and help control inflation.
| 5. What role does the government budget play in economic stability? | |
Ans. The government budget plays a crucial role in maintaining economic stability. Through its budgetary policies, the government can regulate economic activities and stabilize the business cycle. During periods of recession or economic downturn, the government can increase spending or cut taxes to stimulate economic growth. In times of inflation or economic overheating, the government can reduce spending or increase taxes to cool down the economy. The government budget also allows for the allocation of resources to various sectors, promoting balanced and sustainable economic development.
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