Top 60 Important Questions for Class 12 Macroeconomics Chapter 10 | Government Budget Notes PDF| Economics Class 12 |
Class 12 Macroeconomics
Chapter 10: Government Budget and the Economy
Complete Guide: 60 Important Q&A for Boards
I. Meaning & Objectives of Government Budget
Q1
What is a Government Budget?
Answer: It is an annual financial statement showing item-wise estimates of expected revenue and anticipated expenditure of the government for a fiscal year.
Q2
What is the period of a financial year in India?
Answer: 1st April to 31st March.
Q3
Who presents the Union Budget in the Parliament?
Answer: The Finance Minister of India.
Q4
Are the figures in the budget actual or estimated?
Answer: They are estimated figures for the upcoming financial year, not the actual figures of the past year.
Q5
What is meant by 'Reallocation of Resources' as a budget objective?
Answer: The government directs resources towards sectors that are socially and economically desirable (e.g., heavily taxing harmful goods like tobacco and giving subsidies to khadi).
Q6
How does the budget help in 'Redistribution of Income and Wealth'?
Answer: By imposing higher taxes on the rich and spending more on social welfare schemes for the poor, the government reduces inequalities.
Q7
What is the objective of 'Economic Stability' in the budget?
Answer: The government uses taxes and expenditure to control fluctuations like inflation and deflation to maintain price stability.
Q8
How does the budget promote 'Economic Growth'?
Answer: By spending on infrastructure (roads, bridges) and giving tax concessions to private investors, which increases the production capacity of the economy.
Q9
Why does the government need to manage Public Enterprises through the budget?
Answer: To ensure social welfare and natural monopoly control, the government allocates funds to manage enterprises like Railways and Post Offices.
Q10
What are the two main components of the Government Budget?
Answer: 1. Budget Receipts and 2. Budget Expenditure.
II. Budget Receipts (Revenue Receipts)
Q11
What are Budget Receipts?
Answer: The estimated money receipts of the government from all sources during a given fiscal year.
Q12
Define Revenue Receipts.
Answer: Receipts that neither create any corresponding liability for the government nor lead to any reduction in its assets.
Q13
Give two characteristics of Revenue Receipts.
Answer: 1. They do not create a liability. 2. They do not cause a reduction in assets. They are regular and recurring in nature.
Q14
What are the two sources of Revenue Receipts?
Answer: Tax Revenue and Non-Tax Revenue.
Q15
What is a Tax?
Answer: A tax is a legally compulsory payment imposed by the government on households and firms without any promise of direct return.
Q16
What is a Direct Tax?
Answer: A tax whose liability and burden to pay fall on the same person (e.g., Income Tax, Corporate Tax). It cannot be shifted.
Q17
What is an Indirect Tax?
Answer: A tax whose liability to pay is on one person but the burden is shifted to another person (e.g., GST, Custom Duty).
Q18
Why is GST an indirect tax?
Answer: Because the shopkeeper pays it to the government, but recovers the amount from the final consumer by including it in the price.
Q19
What is Non-Tax Revenue?
Answer: Receipts of the government from all sources other than tax receipts (e.g., fees, fines, interest, dividends).
Q20
What is 'Escheat'?
Answer: It refers to the claim of the government on the property of a person who dies without leaving a legal heir or a will.
Q21
Is 'Income from Public Enterprises' a tax or non-tax revenue?
Answer: It is a non-tax revenue (e.g., profits from Indian Railways, LIC).
Q22
What is a 'Fee' in the context of the budget?
Answer: A payment to the government for the administrative services rendered to the public (e.g., passport fee, court fee).
Q23
What are 'Special Assessments'?
Answer: A payment made by owners of those properties whose value has appreciated due to developmental activities of the government (like a new metro station).
Q24
Why is 'Interest received on loans' a revenue receipt?
Answer: Because receiving interest neither creates any liability for the government nor reduces its assets.
Q25
Are grants and donations received by the government revenue receipts?
Answer: Yes, because they do not create any liability to repay.
III. Capital Receipts
Q26
Define Capital Receipts.
Answer: Receipts that either create a liability for the government or cause a reduction in the assets of the government.
Q27
Give two examples of Capital Receipts.
Answer: 1. Borrowings (creates liability) 2. Disinvestment (reduces assets).
Q28
Why are Borrowings considered a capital receipt?
Answer: Because borrowings create a financial liability for the government to repay the loan amount along with interest in the future.
Q29
What is Disinvestment?
Answer: The process of selling a part or whole of shares of Public Sector Undertakings (PSUs) to the private sector.
Q30
Why is Disinvestment a capital receipt?
Answer: Because it leads to a reduction in the assets of the government.
Q31
Is 'Recovery of Loans' a revenue or capital receipt?
Answer: It is a capital receipt because recovering a loan reduces the financial assets of the government.
Q32
What are 'Small Savings' in capital receipts?
Answer: Funds raised from the public in the form of Post Office deposits, National Saving Certificates, etc., which create a liability to repay.
Q33
Distinguish between debt-creating and non-debt creating capital receipts.
Answer: Borrowings are debt-creating because they must be repaid. Disinvestment and recovery of loans are non-debt creating because they just reduce assets.
Q34
Is financial help from the World Bank a revenue or capital receipt?
Answer: If it is a grant, it's a revenue receipt. If it is a loan, it's a capital receipt (creates liability).
Q35
Classify: Income Tax vs. Recovery of Loans.
Answer: Income tax is a Revenue Receipt. Recovery of Loans is a Capital Receipt.
IV. Budget Expenditure
Q36
What is Budget Expenditure?
Answer: The estimated expenditure of the government during a given fiscal year under different heads.
Q37
Define Revenue Expenditure.
Answer: Expenditure that neither creates any asset nor causes a reduction in any liability of the government.
Q38
Give two examples of Revenue Expenditure.
Answer: Payment of salaries to govt employees, payment of interest on loans, and subsidies.
Q39
Why is 'payment of interest' a revenue expenditure?
Answer: Because paying interest does not reduce the principal loan amount (no reduction in liability) and creates no asset.
Q40
Define Capital Expenditure.
Answer: Expenditure that either creates an asset for the government or causes a reduction in its liabilities.
Q41
Give two examples of Capital Expenditure.
Answer: Construction of highways/schools (creates assets) and repayment of loans (reduces liability).
Q42
Why is 'Repayment of Loan' a capital expenditure?
Answer: Because it directly leads to a reduction in the financial liability of the government.
Q43
Classify: Expenditure on Defense Machinery.
Answer: Capital expenditure (as it creates an asset for the country). Note: Routine defense expenses like salaries are revenue expenditure.
Q44
What is Plan Expenditure?
Answer: Expenditure incurred on the programs detailed in the current five-year plan (now NITI Aayog plans).
Q45
What is Non-Plan Expenditure?
Answer: Expenditure on routine functioning of the government, like defense, interest payments, and subsidies.
V. Budget Deficits
Q46
What is a Balanced Budget?
Answer: A budget in which estimated government receipts are exactly equal to estimated government expenditure.
Q47
What is a Deficit Budget?
Answer: A budget in which estimated government expenditure is greater than estimated government receipts.
Q48
What are the three types of budget deficits?
Answer: 1. Revenue Deficit 2. Fiscal Deficit 3. Primary Deficit.
Q49
Define Revenue Deficit.
Answer: It is the excess of total revenue expenditure over total revenue receipts. (RD = RE - RR).
Q50
What does Revenue Deficit imply?
Answer: It implies that the government is not earning enough to cover its day-to-day routine expenses and will have to borrow or sell assets to survive.
Q51
Define Fiscal Deficit.
Answer: It is the excess of total budget expenditure over total budget receipts excluding borrowings.
Q52
What is the formula for Fiscal Deficit?
Answer: Fiscal Deficit = Total Expenditure - (Revenue Receipts + Non-debt creating Capital Receipts).
Q53
What does Fiscal Deficit indicate?
Answer: It indicates the total borrowing requirements of the government from all sources during the year.
Q54
Define Primary Deficit.
Answer: It is the difference between the Fiscal Deficit of the current year and the interest payments on previous borrowings.
Q55
What is the formula for Primary Deficit?
Answer: Primary Deficit = Fiscal Deficit - Interest Payments.
VI. Logical & Numerical Concepts
Q56
What does a Zero Primary Deficit mean?
Answer: It means the government is borrowing money *only* to pay the interest on its past debts. It has no other deficit for the current year.
Q57
Can there be a Fiscal Deficit without a Revenue Deficit?
Answer: Yes, if revenue receipts are equal to revenue expenditure, but the government does massive capital expenditure (like building bridges) funded by borrowing.
Q58
If Total Borrowings = ₹50,000 Cr, what is the Fiscal Deficit?
Answer: ₹50,000 Cr. (Since Fiscal Deficit is exactly equal to the total borrowing requirements).
Q59
If Fiscal Deficit is ₹80,000 Cr and Interest Payments are ₹30,000 Cr, find Primary Deficit.
Answer: Primary Deficit = 80,000 - 30,000 = ₹50,000 Cr.
Q60
Why are Borrowings a 'Debt-creating' capital receipt?
Answer: Because the principal amount borrowed has to be paid back in the future, thus adding to the national debt burden.
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