Macro CH 10

CHAPTER -16.
GOVERNMENT BUDGET AND THE ECONOMY

MULTIPLE CHOICE QUESTIONS
Question Question Content

No
Q1 Receipts which do not affect asset or liability status of the govt.
(a) Revenue receipts
(b) Capital receipts
(c) Budgetary receipts
(d) None of these
Q2 Amount of fiscal deficit is equal to-
(a) Disinvestment
(b) Borrowings
(c) Recovery of loans
(d) All of these
Q3 It affects the assets and liabilities of the govt.
(a) Taxes
(b) Disinvestment
(c) Fees and fines
(d) Forfeiture of bonds
Q4 Which of the following is not a Revenue Receipt?
(a) Recovery of loans
(b) Foreign grants
(c) Profits of public enterprises
(d) Wealth tax
Q5 Primary deficit equals:
(a) Borrowings
(b) Interest Payments
(c) Borrowings less than interest payments
(d) Borrowings and interest payments both
Q6 Disinvestment by govt. means:
(a) Selling of its fixed capital assets
(b) Selling of shares of public enterprises held by it
(c) Selling of its buildings
(d) All the above
Q7 Borrowing in govt. budget is:
(a) Revenue deficit
(b) Fiscal deficit
(c) Primary deficit
(d) Deficit in taxes
Q8 Which of the following is a correct measure of primary deficit?
(a) Fiscal deficit – Revenue deficit
(b) Revenue deficit – Interest payments
(c) Fiscal deficit – Interest payments
1|Page 8 October 2021,ZIET BHUBANESWAR
(d) Capital expenditure – Revenue expenditure
Q9 Primary deficit in a govt. budget will be zero, when----------
(a) Revenue deficit is zero
(b) Net interest payment is zero
(c) Fiscal deficit is zero
(d) Fiscal deficit is equal to interest payments
Q10 Which one of the following is not a capital expenditure?
(a) Loans advanced by World Bank
(b) Construction of school building
(c) Repayment of loans
(d) Tax receipts
Q11 Who frames govt. budget?
(a) Prime Minister
(b) Finance Ministry
(c) Home Ministry
(d) Any of these
Q12 Govt. budget is related to which of following period---?
(a) Current year’s income and expenditure
(b) Last year’s income and expenditure
(c) Income and expenditure of commencing year
(d) All of these
Q13 Corporate tax is a capital receipt.
(a) True
(b) False
Q14 Which of the following statement is true?
(a) Loans from IMF is a revenue receipt.
(b) Higher revenue deficit necessarily leads to higher fiscal deficit.
(c) Borrowing by a govt. represents a situation of fiscal deficit
(d) Revenue deficit is the excess of capital receipts over the revenue deficit.
Q15 Match the columns and choose the correct alternatives:
A B
1.Interest payments on market loans, (a) Committed expenditure
External loans & from various reserve
fund
2. Defence expenditure (b) Underpricing of public goods & services
like education and health
3. Implicit subsidies (c ) Single largest component of non -plan
revenue expenditure
4. Explicit subsidies (d) Subsidies on items such as exports,
interest on loans, food and fertilizers
(a) (1.) - (a), (2.) - (c), (3.) - (d), (4.) - (b)

(b) (1.) – (a), (2.) – (c), (3.) – (b), (4.) – (d)

(c) (1.) – ©, (2.) – (a), (3.) – (d), (4.) – (b)
(d) (1.) – ©, (2.) – (a), (3.) – (b), (4.) – (d)
Q16 Government budget is a:
A) Statement of actual receipts of the government during fiscal year.
B) Statement of actual annual expenditure of the government during fiscal year.
C) Statement of estimated annual receipts and estimated annual expenditure of the
government during fiscal year.
D) none of the above
Q17 Which of the following is the objective of a government budget?
A) to promote economic development
B) balanced regional development
C) redistribution of income and wealth
D) all of these
Q18 Revenue budget includes:
A) Revenue receipts of the government.
B) Revenue expenditure of the government
C) Capital expenditure of the government
D) both (a) and B
Q19 Subsidies are offered by government:
A) to encourage the production of certain goods
B) to encourage the consumption of certain goods
C) to discourage the consumption of certain goods
D) both (a) and (b)
Q20 Expenditure on salaries is an example of
a) Revenue expenditure
b) Capital expenditure
c) Revenue receipts
d) Capital receipts
Q21 GST is an example of:
a) Direct tax
b) Indirect tax
c) Wealth tax
d) Both a and b
Q22 Tax is :
A) A legal payment
B) Compulsory payment
C) An optional payment
D) Both a and b
Q23 Borrowings by the government is a:
a) Revenue receipt
b) Capital receipts
c) Revenue expenditure
d) Capital expenditure
Q24 Those receipts which do not create any corresponding liability for the government are
called:
a) Revenue receipts
b) Capital receipts
c) Revenue expenditure
d) Both b and c
Q25 Which of the following is correct in case of revenue expenditure?
a) it reduces liability of the government
b) it does not create any assets for the government.
c) It creates asset for the government.
d) None of these,
Q26 Fiscal deficit=
a) Total expenditure-total receipt other than borrowing
b) revenue expenditure -revenue receipt
c)Capital expenditure-capital receipt
d) (Revenue expenditure+ Capital expenditure)-revenue receipt
Q27 Which of the following is implication of fiscal deficit?
a) Debt trap
b) Inflationary pressure
c) Erosion of government credibility
d) All of these
Q28 The difference between fiscal deficit and interest payment is called:
A) Fiscal deficit
B) Primary deficit
C) Revenue deficit
D) None of these
Q29 If primary deficit is 3000 and interest payment is 400, then fiscal deficit is
a)3400
b)3000
c)2600
d)1000
Q30 The word “budget” is derived from ……………
a) Greek word
b) French word
c)Latin word
d) none of these
Q31 Which type of expenditure is made in bridge construction?
a. Capital Expenditure
b. Revenue Expenditure
c. Both (a) and (b)
d. None of the above
Q32 Budget is presented by
a. Home Minister
b. Prime Minister
c. Chief Minister
d. Finance Minister
Q33 Tax and Non-Tax receipts are components of
a. Revenue receipts
b. Capital receipts
c. Both (a) & (b)
d. None of these
Q34 The claim of the government on the property of a person who dies without making a will
or leaving behind any legal heir.
a. Penalties
b. Escheat
c. Special Assessment
d. Challan
Q35 The burden of a ______ tax can be shifted i.e impact and incidence is on different persons
a. Direct
b. Indirect
c. Both (a) and (b)
d. None of these
Q36 If the budgetary deficit of the government is Rs. 25000 crore and the borrowings and other
liabilities are Rs. 7000 crore. How much will be fiscal deficit?
a. 25000 crore
b. 32000 crore
c. 18000 crore
d. 7000 crore
Q37 Which of the following is an example of direct tax?
a. VAT
b. Excise duty
c. Entertainment tax
d. Wealth tax
Q38 How many types of revenue receipts are there?
a. 2
b. 3
c. 4
d. 6
Q39 Tax revenue of the Government includes:
a. Income Tax
b. Corporate Tax
c. Excise Duty
d. All of these
Q40 Repayment of loan is
a. Capital expenditure
b. Revenue receipts
c. Revenue expenditure
d. Capital receipts
Q41 Which of the following budget is suitable for developing economies?
a. Deficit Budget
b. Balanced Budget
c. Surplus Budget
d. None of these
Q42 ‘Policies of surplus budget during inflation’ is a part of which objective of government
budget
a. Economic growth
b. Economic stability
c. Reducing regional disparities
d. Reallocation of resources
Q43 Which is not an objective of government budget
a. Redistribution of income and wealth
b. Export promotion
c. Social welfare
d. Economic stability
Q44 _______ is the difference between total receipts and total expenditure:
(a) Fiscal Deficit
(b) Budget Deficit
(c) Revenue Deficit
(a) Capital Deficit
Q45 Revenue deficit in India is:
(a) Positive
(b) Negative
(c) Zero
(a) Balanced
Q46 If borrowing and other liabilities are removed from the budget deficits we get ____:
(a) Fiscal Deficit
(b) Primary Deficit
(c) Capital Deficit
(a) Revenue Deficit
Q47 The expenditures which do not create assets for the government is called:
(a) Revenue Expenditure
(b) Capital Expenditure
(c) Both (a) and (b)
(d) None of the above
Q48 A direct tax is a tax that is imposed on which of the following?
a. Corporation's only
b. Individuals only
c. None of these
d. Individuals and Corporations
Q49 Which of these implements budgetary policies?
a. Foreign sector
b. Corporate sector
c .Government
d. Private sector
Q50 Which of the following is not a source of revenue receipts for the government?
a. Tax revenue
b. Income tax
c. Wealth tax
d. Borrowings
Q51 Disinvestment comes under which category?
a. Capital expenditure
b. Revenue expenditure
c. Capital receipts
d. Revenue receipts
Q52 An annual statement of the estimated receipts and expenditure of the government over
the fiscal year is known as
(A) Budget
(B) Income estimates
(C) Account
(D) Expenditure
Q53 Which of the following is an indirect tax?
(a) Excise Duty
(b) Sales Tax
(c) Custom Duty
(d) All of these
Q54 Which one of the following is a pair of direct tax?
(a) Excise duty and Wealth Tax
(b) Service Tax and Income Tax
(c) Excise Duty and Service Tax
(d) Wealth Tax and Income Tax
Q55 In the context of government budget which of the following statement is correct
a) It is a statement of expected annual receipts and expenditures of the
government
b) It is detail of actual receipts and expenditure of the government in a financial
year
c) It offers a detailed description of achievements of the government during the
five-year plans
d) It indicates bop status of the domestic economy
Q56 Which of the following is a non-tax receipt?
a) gift tax
b) sales tax
c) donations
d) excise duty
Q57 Progressive tax is a tax which is
a) Charged at a decreasing rate when income of the individual increases
b) Charged at an increasing rate when income of the individual increases
c) A fixed percentage of an individual income
d) None of these
Q58 Revenue earned by the government from the property without any legal heir is called:
a) donation
b) escheat
c) wealth tax
d) none of these
Q59 A tax the burden of which can be shifted on to others, is called:
a) indirect tax
b) direct tax
c) wealth tax
d) none of these
Q60 Which one of the following is an indirect tax?
a) wealth tax
b) excise duty
c) income tax
d) none of these
Q61 Which of the following is a direct tax?
a) income tax
b) excise duty
c) sales tax
d) custom duty
Q62 Tax that imposed on value added at the various stages of production is known as
a) Corporate profit tax
b) Direct personal tax
c) Value added tax
d) None of these
Q63 Gift tax is a paper tax because
a) It is an indirect tax
b) It is a direct tax
c) It does not have significant revenue yield
d) Both b and c
Q64 Which of the following is not a non -tax receipt?
a) Fees
b) Fine
c) Gift tax
d) grants and donations
Q65 Which of the following is a part of the revenue expenditure in the Indian government
budget?
a) Interests’ payments
b) Defence purchases
c) Wage bill of the government
d) All of these
Q66 capital receipt is that receipt of the government which:
a) creates a liability
b) reduces the assets
c) both (a)and (b)
d) neither (a) or (b)
Q67 Which of the following are capital receipts of the government?
a) Recovery of loans
b) Borrowings
c) Disinvestment
d) All of these
Q68 Capital expenditure is that estimated expenditure of the government by which
a) Assets are increased
b) Liabilities are decreased
c) Both a and b
d) Assets and liabilities do not change
Q69 An annual statement of the estimated receipts and expenditure of the government over
the fiscal year is known as
(A) Budget
(B) Income estimates
(C) Account
(D) Expenditure
Q70 What is the period of a fiscal year?
(A) 1 April to 31 March
(B) 1 January to 31 December
(C) 1 March to 28 February
(D) None of these
Q71 When government spends more than it collects by way of revenue, it incurs ______
(A) Budget surplus
(B) Budget deficit
(C) Capital expenditure
(D) Revenue expenditure
Q72 The fiscal deficit is the difference between the government’s total expenditure and its
total receipts excluding ______
(A) Interest
(B) Taxes
(C) Spending
(D) Borrowing
Q73 The amount collected by the government as taxes and duties is known as _______
(A) Capital receipts
(B) Tax revenue receipts
(C) Non-tax revenue receipts
(D) All of these
Q74 The amount collected by the government in the form of interest, fees, and dividends is
known as ________
(A) Tax-revenue receipts
(B) Capital receipts
(C) Non-tax revenue receipts
(D) None of these
Q75 The non-tax revenue in the following is:
(A) Export duty
(B) Import duty
(C) Dividends
(D) Excise
Q76 Direct tax is called direct because it is collected directly from:
(A) The producers on goods produced
(B) The sellers on goods sold
(C) The buyers of goods
(D) The income earners
Q77 Which is a component of Budget?
(a) Budget Receipts
(b) Budget Expenditure
(d) None of the above
Q78 Which is included in Indirect Tax?
(a) Excise Duty
(b) Sales Tax
(d) Wealth Tax
Q79 Which of the following statement is true?
(a) Fiscal deficit is the difference between total expenditure and total receipts
(b) Primary deficit is the difference between total receipt and interest payments
(c) Fiscal deficit is the sum of primary deficit and interest payment
(d) All of these
ANSWER
Question No Answer
Q1 (a)Revenue receipts
Q2 (b)Borrowings
Q3 (b)Disinvestment
Q4 (a)Recovery of loans
Q5 (c) Borrowings less than interest payments
Q6 (b)Selling of shares of public enterprises held by it
Q7 (b)Fiscal deficit
Q8 (c) Fiscal deficit – Interest payments
Q9 (d)Fiscal deficit is equal to interest payments
Q10 (d)Tax receipts
Q11 (b)Finance Ministry
Q12 (c)Income and expenditure of commencing year
Q13 (b)False, because corporate tax is a revenue receipt as it does
not create any liability.
Q14 (c) Borrowing by a govt. represents a situation of fiscal deficit
Q15 (d)(1.) – (c), (2.) – (a), (3.) – (b), (4.) – (d)
Q16 c
Q17 d
10 | P a g e 8 October 2021,ZIET BHUBANESWAR
Q18 d
Q19 d
Q20 a
Q21 b
Q22 d
Q23 b
Q24 a
Q25 b
Q26 a
Q27 d
Q28 b
Q29 a
Q30 b
Q31 a
Q32 d
Q33 b
Q34 b
Q35 b
Q36 b
Q37 d
Q38 a
Q39 d
Q40 a
Q41 a
Q42 b
Q43 b
Q44 (b) Budget Deficit
Q45 (a) Positive
Q46 (a) Fiscal Deficit
Q47 (a) Revenue Expenditure
Q48 (d) Individuals and Corporations
Q49 (c )Government
Q50 (d) Borrowings
Q51 (c) Capital receipts
Q52 (A) Budget
Q53 (d) All of these
Q54 (d) Wealth Tax and Income Tax
Q55 a
Q56 c
Q57 b
Q58 b
Q59 a
Q60 b

Q61 a
Q62 c
Q63 c
Q64 c
Q65 d
Q66 c
Q67 d
Q68 c
Q69 A
Q70 a
Q71 b
Q72 d
Q73 b
Q74 c
Q75 c
Q76 d
Q77 c
Q78 c
Q79 c
PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI,

KOLKATA, RANCHI, SILCHAR AND TINSIKIA REGION.
VETTED BY : SILCHAR REGION

CHAPTER -16. GOVERNMENT BUDGET AND THE ECONOMY
CASE STUDY BASED QUESTIONS
CBQ NO Question Content
Q1 Case Study :
Read the following article and answer the questions given below:
India has scaled back expenditure, including on productive assets that aid economic
growth, as the govt. is confronted with the risk of its budget deficit blowing out.
Capital expenditure-the money spent on creating, maintaining, or improving fixed
assets like roads and factories-stood at 40 % of the budgeted amount in the six
months to September, down from 55.5 % in the year-ago period, data from the
government’s controller General of Accounts show. The overall spending during the
period was 49 % of the budget aim compared to 53 % last year. That’s despite Prime
Minister Narendra Modi’s govt. outlining measures worth more than 21 trillion rupees
(Dollar 281 billion) to counter the economic and social fallout of the Covid-19
outbreak. A closer look at the numbers shows the bulk of the spending was directed
toward the poor and the farmers, with crucial sectors such as coal, power, shipping
and steel receiving less than a third of their annual budget allocation. Spending on
capital assets has so far trailed the so-called revenue expenditure that includes
interest payments and overheads such as salaries, the data released last week
showed. Modi’s govt. placed spending curbs on some ministries from April through
December to manage its cash flow.
1. A reduction in capital expenditure i.e., the money spent on creating,
maintaining or improving fixed assets is done to reduce the risk of ------- deficit (
revenue/budget).(Choose the correct alternative)
2. Allocation of resources in the budget in the six months to September 2020 is
directed towards ---------(Choose the correct alternative)
(a) Economic upliftment of the economy
(b) Social upliftment of the economy
(c) The poor and the farmers
(d) All of these
3. Capital expenditure refers to the estimated expenditure of the govt. in a fiscal
year which -----------(reduces / increases) liabilities of the govt. (Choose the correct
alternative)
4. Identify which of the following statements is false (Choose the correct
alternative)
(a) The govt. can finance its budgetary deficit through borrowings, disinvestment
and deficit financing
(b) Fiscal deficit equals borrowings
(c) Recovery of loans is a revenue receipt
(d) Interest on loans is a non-tax revenue receipt
Q2 Read the following News Report and answer
10 MAJOR HIGHLIGHTS OF BUDGET 2020
• Empowering people to create wealth and boost purchasing power
• Fundamentals of the economy are strong
• GST brings 60 lakh new taxpayers
• Three pillars of Union Budget 2020- (i) Aspirational India (ii) Economic
Development (iii) Caring society
• Promoting education in India- Finance minister has allocated a total of Rs
99,300 crore to the education sector of India
• National Infrastructure policy to spend Rs 100 lakh crore over the next 5 years
• Building Data center parks and National Quantum Tech Plan
• Developing the structure of tourism
• Governance is key
• Empowering the scheduled class and scheduled tribes- Government has
allocated Rs 85k crore for the scheduled class and other backward classes for the year
2020-21 and Rs 53,700 crore for the scheduled tribes.
1. GST is a --------(direct/indirect) tax
2. GST brings 60 lakh new taxpayers. What will be its likely effect on revenue
deficit in govt. budget?
(a) Increase
(b) Decrease
(c) Constant
(d) None of these
3. National Infrastructure policy to spend Rs 100 lakh crore over the next 5 years.
Building infrastructure facilities is a ------------(revenue/capital) expenditure in a govt.
budget.
4. Govt. has allocated Rs 85 k crore for the scheduled class and other backward
classes for the year 2020-21 and Rs 53,700 crore for the scheduled tribes. What
objective of govt. budget has been highlighted in the above lines?
(a) Reallocation of resources
(b) Reduction in income inequalities
(c) Price stability
(d) Economic growth
Q3 Read the passage given below and answer the following questions.
According to the Budget Estimates of 2019-20, the revenue receipts of the

government are likely to come around Rs 19,62,761 crore. Of this, Rs 16,49,582 crore
is expected to come in the form of tax revenue and the remainder as non-tax revenue.
According to the BE of 2019-20, the corporation tax should generate a revenue of Rs
7,66,000 crore for the government. Income tax, on the other hand, may come close to
Rs 5,69,000 crore. The government can have Rs1,55,904 crore via customs duty. The
revenue through GST collection for Budget estimate 2019-2020 may come around Rs
6,63,343 crore.
According to the budget estimates what will be the amount of non-tax revenue?
a) Rs.313179 cr.

b) Rs.312179 cr.
c) Rs.313189 cr.
d) none of these
Q4 Finance Minister Nirmala Sitharaman presented the Union Budget 2021 on February
1. The Budget is an estimate of income and expenditure of the government for a set
period of time. It is an annual financial statement of India. The Budget also documents
how much money the Centre could expect to raise in the coming fiscal and how and
where it would spend the money. The Budget is prepared by the Ministry of Finance in
consultation with other ministries, states and experts.
According to Article 112 of the Indian Constitution, it is mandatory for the
government to present this annual statement.
Which of the following article deals with annual financial statement?

a) Article 111
b) Article 112
c) Article 121
d) Article 119
Q5
In the government of India’s budget for the year 2013-14, the Finance Minister
proposed to raise the goods and services tax (GST) on cigarettes. He also proposed to
increase income tax on individual earning more than rupee 1 Crore per annum.
1.Identify the taxes proposed to be increased by the budget 2013-14the tax proposed
are:
a. Goods and services tax on cigarettes
b. Income tax on individual earning 1 Crore or above
c. Both a and b
2.What was the objectives behind the proposals put forth in the budget 2013-14:
a. Revenue generation
b. Social welfare
c. Both a and b
d. None of these
3. What welfare objective the government wishes to achieve by increasing GST on
cigarettes
a. this will discourage their cigarettes
b. this will encourage their cigarettes
c. both a and b
4.What would be the effect of increase indirect tax on the rich
a. it will reduce the gap between rich and poor thereby reducing inequalities in
income
b. it will increase the gap between rich and poor

c. both a and b
Q6 GOVERNMENT BUDGET
First, certain goods, referred to as public goods (such as national defence, roads,
government administration), as distinct from private goods (like clothes, cars, food
items), cannot be provided through the market mechanism, i.e. by transactions
between individual consumers and producers and must be provided by the
government. This is the allocation function.
Second, through its tax and expenditure policy, the government attempts to bring
about a distribution of income that is considered ‘fair’ by society. The government
affects the personal disposable income of households by making transfer payments
and collecting taxes and, therefore, can alter the income distribution. This is the
distribution function.
Third, the economy tends to be subject to substantial fluctuations and may suffer
from prolonged periods of unemployment or inflation. The overall level of
employment and prices in the economy depends upon the level of aggregate demand
which is a function of the spending decisions of millions of private economic agents
apart from the government. These decisions, in turn, depend on many factors such as
income and credit availability. In any period, the level of expenditures may not be
sufficient for full utilisation of labour and other resources of the economy. Since
wages and prices are generally rigid downwards (they do not fall below a level),
employment cannot be restored automatically. Hence, policy measures are needed to
raise aggregate demand. On the other hand, there may be times when expenditures
exceed the available output under conditions of high employment and thus may cause
inflation. In such situations, restrictive conditions are needed to reduce demand.
These constitute the stabilisation requirements of the domestic economy.
1. What among the following is not an example of public goods?

(a) National income
(b) Roads
(c) Cars
(d) National forest
2. Which among the following is NOT an example of 'private goods'?
(a) Clothes
(b) Military
(c) Cars
(d) Food items
3. The function of a government to provide goods that cannot normally be provided
by market mechanisms between individual customers and producers, is known as:
a) Distribution function
b) Allocation function
c) Stabilization
d) Protection
4. The function of a government to fairly share the public's resources is known as

(a) Distribution function
(b) Allocation function
(c) Stabilization
(d) Protection
5. The function of a government by which it seeks to seek a balance of employment,
demand-supply, and inflation, is known as:
(a) Distribution function
(b) Allocation function
(c) Stabilization
(d) Protection
Q7 There is a constitutional requirement in India (Article 112) to present before the
Parliament a statement of estimated receipts and expenditures of the government in
respect of every financial year which runs from 1 April to 31 March. This ‘Annual
Financial Statement’ constitutes the main budget document. Further, the budget must
distinguish expenditure on the revenue account from other expenditures.
Therefore, the budget comprises of the (a) Revenue Budget and the (b) Capital
Budget.
1. An annual statement of the estimated receipts and expenditure of the government

over the fiscal year is known as
(a) Budget
(b) Income estimates
(c) Account
(d) Expenditure
2. What is the period of a fiscal year?
(a) 1 April to 31 March
(b) 1 January to 31 December
(c) 1 March to 28 February
(d) None of these
3. Which of the following is the component of a budget?
(a) Revenue budget
(b) Capital budget
(c) Both of these
(d) None of these
4. What is the duration of a Budget?
(a) One Year
(b) Two Years
(c) Five Years
(d) Ten Years
Q8 Read the following hypothetical text and answer the given questions: -
Public expenditure accelerates the pace of GDP growth. Higher rate of GDP growth is
achieved through (a) investment expenditure in public sector enterprises, (b) capital
grants by the government for the purchase of capital equipment, (c) subsidies for the
purchase of inputs, and (d) purchase of farm output at the minimum support price.

Public expenditure promotes equality in the distribution of income and wealth. This is
achieved by offering old-age pensions, as well as by providing free food, education,
and health services to the Below Poverty Line Population.
Public expenditure plays a significant role in restoring economic
stability. Particularly, when the economy is battling economic recession. The
government expenditure (consumption expenditure as well as investment
expenditure) raises the level of AD. Only when AD is raised that the vicious circle of
economic recession is broken. Public expenditure generates investment-friendly
environment in the economy. The government spends money on infrastructural
development. It constructs roads, dams, bridges. It introduces faster and convenient
means of transportation. Such facilities promote inducement to investment. Briefly,
public expenditure is indispensable in any welfare state like India. It not only
promotes GDP growth, but also promotes social welfare.
1. The construction of roads, dams, bridges is called
a. Social development
b. Infrastructure development
c. Industrial development
d. Agrarian development
2. The government expenditure does not raise the level of AD
a. True
b. False
3. Read the following statement
Assertion (A): Public expenditure generates investment-friendly environment in the
economy.
Reason (R): It raises the infrastructural development in the economy.
a. Both Assertion (A) and Reason (R) are true.
b. Both Assertion (A) and Reason (R) are false.
c. Assertion (A) is true and Reason (R) is false.
d. Assertion (A) is false and Reason (R) is true.
4. Which is included in the non- transfer income
a. Old age pension
b. Subsidies
c. Retirement pension
d. Scholarship
Q9 Read the following hypothetical text and answer the given questions: -
GDP growth is the central objective of government budgetary policy. It is achieved in
two ways: (i) by making public investment expenditure, and (ii) by inducing private
investment expenditure (through tax rebates and subsidies).
Allocation of Resources: Private enterprises will always desire to allocate resources to
those areas of production where profits are high. However, it is possible that such
areas of production (like production of alcohol) may not promote social welfare.
Through its budgetary policy, the government of a country directs the allocation of
resources in a manner such that there is a balance between the goals of profit
maximisation and social welfare. Production of goods which are injurious to health

(like Cigarettes and Whisky) is discouraged through heavy taxation. On the other
hand, production of 'socially useful goods' (like, 'Khadi') is encouraged through
subsidies.
1. Public enterprises will always desire to allocate resources to those areas of
production, where: -
a. Profits are high
b. Cost is low
c. Social welfare is high
d. Revenue is high
2. GDP growth is the central objective of government budgetary policy.
a. True
b. False
3. Suitable title for the passage
a. GDP
b. Private enterprises
c. Subsidies
d. Government Budget
Q10 (Read the following case study carefully and answer the question numbers given
below).
Budget document classify total expenditure into plan and non plan expenditure
.According to this classification, plan revenue expenditure relates to central plans (five
year plans)and central assistance for the state and union territory plans. Non plan
revenue expenditure the more important component of revenue expenditure covers a
vast range of general, economic and social services of the government .The main
items of non-plan expenditure are interest payments, defence services , subsidies,
salaries and pensions .Interest payments on market loans , external loans and from
various reserve funds constitute the single largest component of non-plan revenue
expenditure. Defence expenditure ,is committed expenditure in the sense that given
the national security concerns , there exist little scope for drastic reduction .Subsidies
are an important policy instruments which aim at increasing welfare.
1.Planned expenditure in the budget document includes
A. planned revenue expenditure
B. planned capital expenditure
C. Both A and B
D. None of these
2. Modern day governments incur huge non plan expenditures for various economic
and social services. In this context which of the following statement is true.
A. Governments should reduce these expenditures as they create huge budgetary
deficit
B . Governments should continue these expenditures as they fulfill constitutional
obligations.
C. Governments should continue these expenditures as they can be offset by proper
fiscal management
D. both B and C

3. Loans to state government and union territories are a part of
A. revenue expenditure
B. capital expenditure
C. planned revenue expenditure
D. None of these
Q11 The government budget is not merely a statement of estimated receipts and
expenditures of the government .The budget reflects and shapes and in turn is shaped
by the country’s economic life. There is a constitutional requirement in India (Article
112) to present before the Parliament a statement of estimated receipts and
expenditures of the government in respect of every financial year which runs from 1
April to 31 March. This ‘Annual Financial Statement’ constitutes the main budget
document of the government. Although it relates to the budgetary receipts and
budgetary expenditures for a particular year , its impact will be there in subsequent
years also. Revenue budget and capital budget are two components of the
government budget which records possible means of receiving and spending with or
without creating assets or liabilities.
1. Government Budget is a:
A. Statement of actual receipts of the govt. during a fiscal year
B. statement of expenditure of the govt. during a fiscal year .
C. statement of estimated receipt and estimated expenditure of the govt. during a
fiscal year.
D. Both A and B
2. The objective of the budget is to:
A. Provide private goods
B. Ensure higher GDP growth
C. Increase revenue of the govt.
D. Maximize profit of the PSUs.
3. Which of the following affects the liability of the govt.?
A. revenue receipt
B. capital receipts
C. Revenue expenditure.
D. Capital expenditure.

ANSWER
CBQ NO Answer
Q1 (1) budget
(2) ( d ) All of these
(3) Reduces
(4) ( c ) Recovery of loans is a revenue receipt
Q2 (1) indirect
(2) ( b ) Decrease
(3) capital
(4) ( b ) Reduction in income inequalities
Q3 a) Rs.313179 cr.
Q4 b) Article 112
Q5 1. C
2. C
3. A
4. A
Q6 1. Cars
2. Military
3. Allocation function
4. Distribution function
5. Stabilization
Q7 1. Budget
2. 1 April to 31 March
3. C) Both of these
4. Annual
Q8 1. b
2. b
3. a
4. c
Q9 1. c
2. a
3. c
Q10 1. c
2. d
3. b
Q11 1. c
2. b
3. b
TRUE AND FALSE QUESTIONS
No
Q1 Balanced budget is that budget in revenue receipt = Revenue expenditure.
A.True
B.False
Q2 Revenue receipts tend to reduce liability of the government.
A.True
B.False
Q3 Revenue expenditure reduces assets of the governments.
A.True
B.False
Q4 Capital receipts add to liabilities of the government.
A.True
B.False
Q5 GST is a direct tax.
A.True
B.False
Q6 Income tax is an indirect tax.
A.True
B.False
Q7 Revenue deficit indicates the government’s inability to meet its regular and recurring
expenditure.
A.True
B.False
Q8 Expenditure on pension by the government is an example of capital expenditure.
A.True
B.False
Q9 If the revenue receipts are Rs1500 crores and revenue expenditure is Rs 2000cr then
revenue deficit will be 2000.
A.True
B.False
Q10 Capital expenditure increases the liabilities of the government.
A.True
B.False
Q11 Government budget is a statement of actual receipts and expenditure of the
government.
A.True
B.False
Q12 Revenue budget is an account of assets and liabilities of the government.
A.True
B.False
Q13 Fiscal deficit in the economy will be zero if there is no provision for borrowing in the
budget.
A.True
B.False
Q14 Keeping a check on inflation is entirely a monetary policy discretion.
A.True
B.False
Q15 Tax rebates can ensure stimulation of savings and investment in an economy.
A.True
B.False
Q16 Public goods are collectively consumed.
A.True
B.False
Q17 The three functions of allocation, redistribution, and stabilization are operated
through the expenditure and receipts of the government.
A.True
B.False
Q18 Payment of salaries to the government employees is a capital payment.
A.True
B.False
Q19 Public borrowing is a capital receipt.
A.True
B.False
Q20 Recovery of loan is a revenue receipt.
A.True
B.False
Q21 Education is a good example of Public good.
A.True
B.False
Q22 Payment of salaries to the government employees is a capital payment.
A.True
B.False
Q23 Expenditure made on the establishment of the metro rail line in Delhi is a capital
expenditure.
A.True
B.False
Q24 A deficit budget is not considered a good budget.
A.True
B.False
Q25 During deflation surplus budget is made
A.True
B.False

ANSWER
Question No Answer
Q1 False
Q2 False
Q3 False
Q4 True
Q5 False
Q6 False
Q7 True
Q8 False
Q9 False
Q10 False
Q11 False. Government budget is a statement of expected receipts
and expenditure of the government.
Q12 False. Revenue budget comprises current revenue receipts and
expenditure met from such revenue
Q13 True. Fiscal deficit is, in fact, equal to borrowing.
Q14 False. Controlling inflation is a key feature of fiscal policy as well
monetary policy. Government has to ensure the objective of
stabilizing the prices prevailing in the economy.
Q15 True. Tax rebates generally stimulates savings and investments in
an economy as it leads to increase in purchasing power.
Q16 True
Q17 True
Q18 False
Q19 True
Q20 False
Q21 True
Q22 False
Q23 True
Q24 False
Q25 True


ASSERTION- REASON QUESTIONS
No
Q1 Assertion (A). Borrowings by the govt. from general public, RBI and ROW are capital
receipts. Recovery of loans by govt. and sale of shares of public sector enterprises to
private sector are treated as capital receipts in govt. budget.
Reason (R). Capital receipts are those estimated receipts of the govt. during the fiscal
year which affect asset or liability status of the govt. These receipts create a
corresponding liability for the govt. or lead to reduction in assets of the govt.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q2 Assertion (A). In govt. budget production of goods which are injurious to health (like
cigarettes) is discouraged through heavy taxation and production of socially useful
goods (like khadi) is encouraged through subsidies. If private sector does not take
initiative in certain activities, govt. directly controls them like water supply, sanitation
etc.
Reason (R). The govt. seeks to allocate resources with a view to balance the goals of
profit maximization and social welfare. It is allocation function in govt. budget as govt.
attempts to provide certain goods and services which cannot be provided through the
market mechanism.
Alternatives:
of Assertion (A)
Q3 Assertion (A). Recovery of loans is Capital receipt.
Reason (R). Revenue receipts of the govt. are those money receipts which do not create
a liability for the govt. and as well do not lead to reduction in assets of the govt.
Alternatives:
of Assertion (A)
Q4 Assertion (A). Capital receipts often leave burden on future generations.
Reason (R). Borrowings leave the burden on future generations for the repayment of
loans.
Alternatives:
of Assertion (A)
Q5 Assertion (A). There are three ways of managing Revenue deficit-
(i) Borrowing from the general public, RBI or rest of the world
(ii) Disinvestment by way of selling its ownership of public enterprises.
(iii) Cut in govt. expenditure (subsidies vin particular)
Reason (R). The govt. in India has cut its expenditure on subsidies by restricting the
supply of subsidized LPG cylinders to 9 per family during a year. This might cause
hardship to people with low income. Second, the govt. resorts to borrowing from the
general public, RBI and ROW. This raises liabilities of the govt. Third, the govt.
undertakes disinvestment. This causes a reduction in its assets.
Alternatives:
of Assertion (A)
Q6 Assertion (A): Fiscal deficit refers to total borrowings of government during a financial
year.
Reason (R): fiscal deficit creates burden on future generations
Alternatives:
of Assertion (A)
Q7 Assertion (A): The budget is also referred to as Annual financial statement in Article 112
of the constitution.
Reason (R): budget is a statement of actual income and actual expenditure of the
government.
Alternatives:
of Assertion (A)

Q8 Assertion (A): Direct tax have limited coverage.
Reason (R): direct tax do not reach all section of the economy
Alternatives:
of Assertion (A)
Q9 Assertion (A): revenue receipts are those receipts which neither creates any liability nor
cause any reduction in assets of the government.
Reason (R): These receipts are regular and recurring in nature.
Alternatives:
of Assertion (A)
Q10 Assertion (A): Direct tax is a type of tax where the incidence and impact of taxation fall
on same person.
Reason (R): income tax is an example of direct tax.
Alternatives:
of Assertion (A)
Q11 Assertion: Fiscal deficit = total expenditure > total receipts excluding borrowings and
other liabilities of the government.
Reason: because fiscal deficit reflects the borrowing requirements of the government
Alternatives:
of Assertion (A)
Q12 Assertion: Primary deficit= Fiscal deficit –Interest of payments
Reason: because primary deficit reflects the borrowing requirements of the
government other than interest payments
Alternatives:

of Assertion (A)
Q13 Assertion: Budget is prepared at centre, state and local level
Reason: State budget is known as Union budget
Alternatives:
of Assertion (A)
Q14 Assertion: Disinvestment is a capital expenditure of the government
Reason: because disinvestment decreases the assets of the government
Alternatives:
of Assertion (A)
Q15 Assertion: Public expenditure generates investment-friendly environment in the
economy
Reason: It raises the infrastructural development in the economy.
Alternatives:
of Assertion (A)
Q16 Assertion (A): Cigarettes and Whisky are discouraged through heavy taxation.
Reason (R): These are ‘socially useful goods'
Alternatives:
of Assertion (A)
Q17 Assertion (A): GST is an indirect tax.
Reason (R): because it is imposed on goods and services.
Alternatives:

of Assertion (A)
Q18 Assertion (A): borrowings are capital receipts but payment of interest on borrowings
are revenue expenditure.
Reason (R): borrowings creates liability but payment of interest does not reduce
liability.
Alternatives:
of Assertion (A)
Q19 ASSERTION (A): Fiscal deficit is greater than budgetary deficit.
REASON(R): Fiscal deficit is the borrowing from the RBI of India plus other liabilities of
the government to meet its expenditure.
Alternatives:
of Assertion (A)
Q20 ASSERTION (A): Fiscal deficit compels the government to issue new currency to finance
its borrowings.
REASON(R): Borrowings are always inflationary in nature.
Alternatives:
of Assertion (A)
Q21 ASSERTION (A): Indirect tax is good source of revenue for the government.
REASON(R): The final consumer bear the entire burden as the impact and incident of
Indirect tax falls on him.
Alternatives:
of Assertion (A)

Q22 ASSERTION (A): Fiscal deficit shows a better position of the government expenditure in
comparison to the budget deficit.
REASON(R): Fiscal deficit means the borrowing of the government.
Alternatives:
of Assertion (A)
Q23 ASSERTION (A): Deficit budget is a good strategy to deals with economic slowdown.
REASON(R): Deficit budget raise the aggregate demand of the economy.
Alternatives:
of Assertion (A)
ANSWER
Question No Answer
Q1 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is
the correct explanation of Assertion (A )
the correct explanation of Assertion (A)
Q3 (b) Both Assertion (A) and Reason (R) are true and Reason (R) is
not the correct explanation of Assertion (A)
Q4 (a) Both Assertion (A) and Reason (R) are true and Reason (R)
is the correct explanation of Assertion (A)
Q7 (c) Assertion (A) is true but Reason (R) is false.
Q14 (d) Assertion (A) is false but Reason (R) is true.
Q19 (d) Assertion (A) is false but Reason (R) is true.
Q21 (b) Both Assertion (A) and Reason (R) are true and Reason (R) is
not the correct explanation of Assertion (A)


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CHAPTER -16.

GOVERNMENT BUDGET AND THE ECONOMY

Question Question Content

(a) (1.) - (a), (2.) - (c), (3.) - (d), (4.) - (b)

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PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI,

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According to the Budget Estimates of 2019-20, the revenue receipts of the

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Which of the following article deals with annual financial statement?

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1. What among the following is not an example of public goods?

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1. An annual statement of the estimated receipts and expenditure of the government

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PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI,

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