VNT- 4

ObjectiveType ouestionsA
Choveannnt Budg, t.
1. Goods and services provided by the market mechanism, i.e. by exchange between individual consumers and producers are
called (Fill in the blank)
Government provides certain goods and services which cannot be provided by the market mechanism such as natíonal
defence, roads, government administration etc, whlch are referred to as (Fll in the blank)
2. Which of the following is not a characteristic of public goods? (Choose the correct alternative)
(a) Public goods are non-excludable.
(b) It is difficult and sometimes impossible to collect fees for the public goods.
(c) The consumption of public goods by several individuals is rivalrous.
(d) None of the above.
3. means that public goods are financed through the budget and can be used without any direct payment.
Public goods may be produced by the government or the private sector. When public goods are produced directly by the
government it is called (Public provision/Public production) (Fill in the blanks with corréct option)
4. The government affects the () of households by making transfers and collectíng taxes. It is through this that
the government can change the distribution of income and bring about a.distribution that is considered 'fair by society.
This is the (i) fünction of government Budget. (Choose the correct alternative)
(a) (i) Private' income, (i) allocation (b) () Personal.iDcome;(i) Stabilisatíon
(c) () Personal disposable income; (ii) redistribution (d)(0)-Public income, (i) Yedistribution
5. The intervention of the government whether to raise. the: level of aggregate demand or reduce it constitutes the
of government budget. (Choose the correct alternative)
(a) Allocation functioD (b) Redistribution function
(c) Stabilisation function (d) None of these.
6. Law and order, national defence, sanitation, etc. are (Choose the correct alternative)
(a) final goods (b) intemediate goods
(c) public goods (d) private goods
7.Ztate giving reason whether the following statement is true or false:
Provision of public goods is the same as public production.
8. State giving reason whether the following statement is true orfalse:
Through changes in its expenditure and t¡xes, the government bringseconomic stability.
9. The government has increased the rate of income tax. The objective of government is to: (Choose the correct alternative)
(a) maintain balanced regional development (b) redistribute income &wealth
(c) reallocate resources (d) ensure economic stability
10. Match the following:
1. Government increases taxes on very rich people (a) 'Reallocation of resoarces
2. Government increases its own expenditureduring (b) Eçonomicstability.
deflation to increase aggregate demand (c). Reducing in equalities in income and wealth

HOTS
Analysing, Evaluating &Creating Type Questions
1. "Through its budgetary policy government allocates resources in accordance with the requireraents of the
country." Do you agree with the given statement? Support your answer with valid reasons.
(CBSE 2019) (3 marks)
Ans. The given statement is true, Reallocation of resources refers to re-distribution of resources from one use to another.
The government reallocates resources wih aview to balance the goals of profic maximisation (by firms) and social
wellare (by government). Production of goods which are injurious to health is discouraged through caxacion. On
the conrary, production of socially useful goods is encouraged through subsidies. If che private sector does not
take initiative in certain acivicies, governmnent directly controls henm like water supply, sanitation etc.
2. What is the role of Government Budget in allocation of resources? (1 mark)
Ans. Government can directly undertake the producion of public goods and services. Alternately, it can encourage
privace secLor by giving tax concessions and subsiclies.
 LAS

Objective Type Qucstions 3.4 Objective Type Questions 3.6

1. () Point above the origin 1. (d) none of the above
2. (b) C+I 2. (a) Dccrcase in bank rate
3. (c)
4. () an unplanned inventories decumulaion 3. (6) Incrcasc in government expenditure
4. (a) Fall in Aggregate Demand
5. (a) National income is likely to fall 5. (c)
6. () fall Inflationary gAp
6. (a) Deficient Demand
7. (d) All of the above 7. (c) No change in the levelof employment
8. (a) AlII of the above 8. (d) Both (a) and (b)
Objective Type Questions 3.5 9. (b)Central Bank
10. (b) Incrcascs
1. () Infinity 11. True: The bank rate is the rate of interest at which the
2. (b) 1
3. (6) Infinity, one Central Bank lcnds money to the commercial banks.
4. Tue: Since production capacity will increase with rise During inflation, the Central bank increases the bank
rate, which increases the cost of borrowings from the
investment, therefore national,income will rise multiplier Central bank. Therefore, commercial banks also íncrease
times the iniial rise in investment.
5. 4 their lending rates. This will díscourage people to take
6. False: Investment multiplier, k = loans. This will reduce the money supply and the level of
1/(1-MPC)
Since 0 < MPC < 1, therefore, value aggregate demand in the cconomy to combat inflatíon.
of muliplier ranges 12. False: In situation of deficient demand, the Central bank
between land co,
7. False: Value of investnent multiplier, k= decrcases the cash reserve ratio (CRR). As a rsult,banks
When MPC =0, k= 1/(1-0) = 1/1 =1 1/(1-MPC) are required to hold smaller fraction of their deposits as
8. Investment muliplier cash reserves with the central bank Therefore, he lending
9. () 2.5 capacity of the banks increases. Ir leads to an increase in
10. Truc: Investment muliplier, k = 1/(1 - MPC) Since 0 < money supply. This will raise the level of aggregate demand
and correct the situation of deficient demand.
MPC< 1, the value of multiplierwill be greater than 1 (k> 13. (b) Decrease in output, income, employment and price
1). Therefore, a change in investment will cause a multiple level.
change in incomc. Hence, a decrease in investment will 14. excess demand
cause national income to decrease at lcast by an amount
15. False: The cquilibrium level of output determined by the
equal to decrease in inves tment.
11. Tue: When MPS = 1, k= 1/MPS = 1/1 = 1 cquality of Yand AD does not necessarily signify the full
k= DY/DI= 1 employment level of output. The cquilibrium level of
DY = DI output may be greater than the full employment leved of
output (the situation of excess demand) or less than the
Thus, change in national income will be exactly cqual to full employment leve of output (the siruation of deficient
change in investment. demand).
12. False: MPC = 2MPS ; 16. (c) Rise in the price level and the nominal income but no
MPC+ MPS = 1 ’ 2MPS + MIPS =1
’ 3MPS = 1 MPS = 1/3
change in the output and employment.
Value of investment muliplier, k = 1/MPS =3 Rcason: Since the cconomy is already working at the
full employment, here is no further scope of ceation of
13. Truc: Equaliry between MPC and MPS signifies that both cmployment. So there is no change in the cmployment
of themare equal to 0.5 (as MPC+ MPS =1). Therefore, and hencc, the output (real income).
value of investment muliplier (k) = 1/MPS = 1/0.5 = 2.
It means that incrcase in income in the cconomy will be
However, excess demand gives rise to an inflationary gap:
twice the iniial increase in investment. which causes a rise in the price level or inflation (demand
14. Truc: k= 1/(1- MPC) pull inflation--an aggregate demand induced rise in the
Since k 1, therefore, I = 1/(1 - MPC)
price level).
Nominal income increases due to rise in the price level.
1- MPC=1 17. Full employment level of income
MPC = 0
18. involuntary unemployment
15. MPC; since k= 1/(1- MPC) 19, deficient demand
16. TIue: Because the size of the multiplier (k) depends on the 20. decreased
value of MPC as ke 1/(] -MPC).
There is a directlpositive relation between MPC and value
of muliplier. Thus, as MPC riscs, the value of muluplier
increascs.
 LASSIFICATION OF EXPENDITURE
Revenue Expenditure: Revenue Expenditure is
of the central gOvernment. expenditure incurred for purposes other than the creation of physical or
It relates to those expenses
services, interest payments on debt incurred incurred for the normal functioning of the government financial assels
some of the grants may be meant for by the government, and grants departments
given to state governments and other parties (even and various
creation of assels). though
Budget documents classify total expenditure Into plan and
relales to central Plans (he Five-Year Plans) and non-plan expenditure. According to this classification. plan revenue
the more important component central assistance for Stato and
of revenue expenditure, covers Unlon Territory plans. Non-plan revenue expenditure
main tems of non-plan expenditure are a vast range of general, expenditure,
loans, external loans and from various Interest payments, defence services, subsidies,economic and social services of the government.
salaries and pensions. Interest payments on market The
reserve funds constitute the single
expenditure, is committed expenditure in the sense that glven the national largost component of non-plan revenue expenditure. Defence
Subsidies are an important policy Instrument which aim at Increasing security concerns, there exists little scope for drastic reduction.
public goods and services like education and health, the welfare. Apart from providing implicit subsidies
loans, food and fertilisers. government also extends subsidies explicitly on iterns suchthroughas
under-pricing of
exports, interest on
Capltal Expenditure: There are expenditures of the
government which result in creation of physical or financial assets or reduction in
financial liabilities. This includes expenditure on the acqulsition
and advances by the central government to state and union of land, building, machinery, equipment, investment in shares, and loans
categorised as plan and non-plan in the budget documents. Plan teritory governments, PSUs and other parties. Capital expenditure is also
and central assistance for state and union territory plans. Non-plan capltal expenditure, like its revenue counterpart, relates to central plan
services provided by the government. capital expenditure covers various general, social and economíc

BPEuestions42
1. Match the following:
(i) Revenue receipts
(ii) Capital receipts (a) neither create any asset nor reduces any liability
(b) either creates a liability or reduces an asset
(c) either creates asset or reduces liability
(d) neither creates a liability nor reduces any asset
2. Although the budget document relates to the planned receipts and planned expenditure of the
government fora
financialyear, the impact of it will be there in subsequent years. So there is a need to have two accounts. particular
Those planned receipts and planned expenditures of the government that relate to the current financial year only are
included inthe of the government budget and those that conçern the assets and liabilities of the government
into the (Fill in the blanks)
3.
are non-redeemable.
(Revenue receipts/Capital receipts) are those receipts that do not lead toaclaim on the government. They
(Fill in the blank with correct option)
4. Match the columns and choose the correct alternative:
() Tax on the incomes of firms (A) Paper tax
(i) Duties levied on goods produced within the country (B) Corporation tax
(ii) Tax imposed on goods (C) Excise taxes imported into and exported out of India.
(iv) Wealth tax and gift tax (D) Customs duties
(a) (1)A). (i) D). (ii) -c), (iv) -(e)
(b) ()-(B). (ii) -4C), () -{D), (iv) -A)
(c) (0)-{B), (Ii) -<D), (ii) -{C), (iv)-4)
(d) ()-A), () -B), (i1i) -{C), (iv) -(D)
S. Which of the following is a capital receipt in a government budget? (Choose the correct alternative)
(a) Interest receipts on account of loans by the central government
(b) Dividends and profíts on investments made by the government
(c) Cash grants-in-aid from foreign countrles and internationalorganlsations
(d) None of the above
6. When the government recelves money by way of loans or from the sale of its assets, such receipts are called,
(Fill in the blank)
ina government budget,
7. Sale of shares in public sector undertaings (PSUs), which is referred to as Isa
(Fillin the blanks)
8 (Revenue expenditure/Capital expenditure)ls expenditure incurred for purposes other than creation
(Fll in the blank with correct option)
of physical or financial assets of the central government,
 CLASSIFICATION OF EXPENDITURE
Revenue Expenditure: Revenue Expendture is expenditure incurred for purposes other than the creation of physical or inancial asse
Of the central government. It relates to those expenses incurred for the normal functioning of the government departments and vari
services, interest payments on debt incurred by the government, and grants given to state governments and other parties (even though
some of the grants may be meant for creation of assets).
Budget documents classify total expenditure into plan and non-plan expendilture. According to this classification, plan revenue expenditure
relates to central Plans (the Five-Year Plans) and central assistance for Slale and Unon Territory plan1s. Non-plan revenue expenditure,
the more inportant component of revenue expenditure, covers a vastrange of general, economic and social services of the government. The
main iems of non-plan expenditure are interest payments, defence services, subsidies, salaries and pensions. Interest payments on market
loans, extermal loans and from various reserve funds constiltute the single largest component of non-plYn revenue expenditure. Defence
expenditure, is committed expenditure inthe sense that given the national security concerns, there exists litle scope for drastic reduction.
Subsidies are an important policy instrument whlch aim at increasingwelfare. Apart from providing implicit subsidios through under-pricing of
public goods and services like education and health, the government also extends subsidies explicitly on items such as exports, interest on
loans, fooOd and fertilisers.
Capltal Expenditure: There are expenditures of the government which result in creation of physical or financial assets or reduction in
financial liabilities. This includes expenditure on the acquisition of land, building, machinery, equipment, investment in shares, and loans
and advances by the central government to state and union territory governments, PSUs and other parties. Capital expenditure is also
categorised as plan and non-plan in the budget documents. Plan capltal expenditure, like its revenue counterpart, relates to central plan
and central assistance for state and union territory plans. Non-plan capltal expendituro covers various general, social and economic
services provided by the govemment.

Objective type Questions 4:2

1. Match the following:
(0) Revenue receipts (a) neither create any asset nor reduces any liability
(ii) Capital receipts (b) either creates a liability or reduces an asset
(c) either creates asset or reduces liability
(d) neither creates a liability nor reduces any asset
2. Although the budget document relates to the planned receipts and planned expenditure of the
financial year, the impact of it will be there in subsequent years. So there is a need to have twogovernment
accounts.
for a particular
Those planned receipts and planned expenditures of the government that relate to the current financial
included in the year only are
of the government budget and those that concern the assets and liabilities of the
into th¿ government
(Fill in the blanks)
3. (Revenue receipts/Capital receipts) are those receipts that do not lead to a claim on the
are non-redeemable. government.They
(Fillin the blank with correct option)
4. Match the columns and choose the correct alternative:
(0) Tax on the incomes of firms (A) Paper tax
(i) Duties levied on goods produced within the country (B) Corporation tax
(ii) Tax imposed on goods (C) Excise taxes imported into and exported out of India.
(iv) Wealth tax and gift tax (D) Customs duties
(a) (i)-A), (i) -4D), (i) <c), (iv)-(B)
(b) ()B), (ii) c), (ii)-{D), (iv)A)
(c) ()-4B), (i) -<D), (i) -(C), (iv) -A)
(d) (i)-4A), (i) -(B), (ii) -(C), (v) -(D)
5. Which of the following is a capital recelpt in a government budget?
(a) Interest receipts on account of loans by the central (Choose the correct alternative)
government
(b) Dividends and profits on Investments made by the government
(c) Cash grants-in-aid from foreign countries and international organisations
(d) None of the above
6. When the government receives money by way of loans or from the sale of its
assets, such receipts are called
ín a government budget.
(Fill in the blank)
7. Sale of shares in public sector undertakings (PSUs), whlch is referred to as 0s a
(Fill in the blanks)
8. (Revenue expenditure/Capital expenditure)is expenditure incurred for purposes other than creation
of physical or financial assets of the central government, (Fill in the blank with correct option)
tls

budget Chooseethecomectolternative)
Which ofthe fölloWing isa revenüe expenditure ina government variousservices.
govetnmentdepartments and
al Expensesincured for the inormal functioning ofthe
gOVernment
b nterest payments on debt incurred by the o f assets
creation
c Grants given toa state government för
a Al ofthe above ofthe
itens of
10,Interest payments, defence services expenditure, subsidies, salaties and penslonsare main
FiI jnthe blankwith cortect option)
gOvernmenta (plan expenditure/non plan expenditure)
Match the columns andchoose the correctalternative (A) Committed'expenditure
0 oterest payments on market loans,external
loans and from variousreserve funds (B) Under-pricing of public goods andsernvices like education
0 Defence Expenditure and health
expenditure
(0 Implicit subsidies C single largest componentof non-plan revenue
(vExplct subsidies O sU6idls on items such as exports interest on oans
tob8 andfértilisers

(Choose the correct piternatve

12 Which orthe followineis an exanple ot capita exptnditure othe goverminent?
Expenditure ong he attisiion dfand buildingamachinery ardequlbnent.
b nvestment in shaies
PSUsand other pardes
9 Loansand advances by thie central government to state and Union, tertitory tovernments
a ALDithe above Ghoosethe coIet altenatve
aa
BI toansSsto State Governments andUnioiTetritory GOVernrnentsare ipart
a Revenüe receipt nb) capital reteiptt
9Optal expenditure d) Platüteveriie nendifüre
Choose the coteCt otenove
L9 Whidhofthe folowng isacapitafteceptin the context of goverimentbüdgt
a Interest Tecelpts Brternalgrants
Provident funds d PerspnalIncom tak
The non-tak revenue in the folowing. iS (dSE 201i5) Choase the corred alternave
a xpon duty b mporduty
C Dividends
1Choose tie cuTect iitenove
16Which one of the folowing is a conbination ofdirect taxes?
a Excise duty and Wealth tax bSeeice taxand Income tax
GEXase duty andService ta d corporationtaxand Personatincome tax
1Whch of the folowing is not a revenue receipt? Choose the core alenatre
1a Recovery ofloans b Forelgn grants
Profits of public enterprises d Wealthtax
18 Diret taxis caled direct beaise itis collected directly trom Choase the core aternaote
a The producers on goods produced B The sellers on gaads sold
C The buyers of goods O Theincome carners
19Whchone of theseis arevenue expenditüre? Choose the coret atecnabve
e Purchaseofshares b Loatsadvanced
1C Subsidies d Expenditure on acquisttion of land
20,State giving reason whether the following statement istrue ontase
Constrúcion of1voers i ende expeni e ofthe governient
21State gving reason wihether the followingstatement lstrue orfalse
DeenceSPNCeSexpenditure isP capitafexpenditure.
22 Staeevngreason whether thetolowing statement lsFtue or falses
Receipts of Pos-ofeSavinps Accounts) National savings Certificates etc ate capltal reçelpts
23.State EYnEreason hetherthe folowing staternent istrue or false:
Personal3ocome ta ang corporationtax arelndirect taxes
 AR

24. State giving reason whether the following statement is true or false:
PSU disinvestment Is an example of non-debt creattng capital recelpts.
25. Loans to state government are a part of: (Choose the correct alternative)
(a) revenue recelpts (b) capital receipts
(c) capital expenditure (d) plan revenue expenditure
26. Which one of these is revenue
(a) purchase of shares
expenditure? (Choose the correct alternative)
(b) loan advanced
(c) subsidies (d) expenditure on acquisition of land
27. ldentify the tax whose burden can't be shlfted. (Choose the correct alternative)
(a) GST (b) Income Tax
(c) Sales tax (d) VAT
28. Which of the following is a direct tax? (Choose the correct alternatíve)
(a) Income Tax (b) GST
(c) excise duty (d) custom Duty
29. Which of the following is a source of capital receipt? (Choose the correct alternatíve)
(a) foreign donations (b) dividends
(c) disinvestment (d) indirect taxes
30. Gift tax is a paper tax because
(Choose the correct alternotive)
(a) it is an indirect tax (b) it isa direct tax
(c) it does not have significant revenue yield (d) it does not have significant capital yield
31. Which one of the following statement is incorrect? (Choose the correct alternative)
(a) Revenue receipts are regular in nature
(b) There is no future obligation to return the amount in case of revenue receipts.
(c) Capital receipts either create an asset or cause areduction in the liabilities of the government.
(d) Borrowings are treated as capital receipts as they lead to an increase in liability.
32. Fees of the government college is a revenue receipt because: (Choose the correct alternative)
(a) it creates liability of the government
(b) it neither creates any liability nor reduces any asset of the government.
(c) it neither creates any asset nor reduces any liability of the government.
(d) it increases assets of the government.
33. Which one of the following is a combination of capital expenditure? (Choose the correct alternative)
(a) Grants and interest payments (b) Subsidies and construction of roads
(c) Construction of roads and repayment of loans (d) Defense services expenditure and construction of schooB building
34. Match the following:
(i) Purchase of metro coaches from Japan (a) revenue expenditure
(ii) Dividend received by government from a company (b) capital receipts
(ii) Sale of 40% shares of a PSUtoa private company (c) capital expenditure
(iv) Pension paid to retired government employees (d) revenue receipts

HOTS Analysing, Evaluating &Creating Type Questions

1. Why are borrowings a capitalreceipt? (CBSE 2009) (1 mark)
Ans. Because it leads to increase in liabiliy of repayment on government.
2. Why are taxes received by the government not capital receipts? (CBSE 2009) (1 mark)
Ans. Because (axes neither crcate any liability nor reduce any asset of the governmenc.
3. Giving reasons classify the following into digect and indirect tax1 (CBSE 2010) (3 amarks)
(i) Personal incone tax (1t) Goods and services tax
(ii) Corporation tax
Ans. (0) It is a direct tax bccause it falls directly on individuals. Is inpact (liabiliuy to pay) and incidence (actual
burden) Salls on the same person, i.c., is burden cannot be slhified.
t

Kevenue Deficit
Revenue deficit refers to excess of goernment's revenue expenditure over Its revenue receipts.
Revenue deficit Revenue expenditure -Revenue recelipts
indicates that government will not be able to meet Its revenue expenditure from its revenue receipts. It implies that
government is dissaving and borrowing to meet consumption expenditure. The government may have to cut productive capital
expenditure or welfare expenditure, which could have lower growth and adverse welfare implications.
Fiscal Deficit
Fiscal deficit is the difference between the Government's budgetary expenditure and its budgetary receipts excluding
borrowings.
Fiscal deficit =Total expenditure -Total receipts net of borrowings
=(Revenue expenditure +Capital expenditure) - (Revenue receipts +Non-debt creating capital receipts)
=Revenue deficit +Capital expenditure- Non debt creating capital receipts
Clearly, revenue deficit isa part of fiscal deficit. So, alarge share of revenue deficit in fiscal deficit indicates that a large part of
borrowings is being used to meet the government's consumption expenditure needs rather than investment.
Fiscal deficit indicates total borrowing requirements of the government from all sources. From the financing side:
Fiscal Deficit =Net borrowing at home +Borrowing from RBI +Borrowing from abroad.
Primary Deficit
Primary deficit is the ifference between fiscal deficit and the interest payments made by the government.
Primary deficit =Fiscal deficit -Interest payments
Since fiscal deficit is nothing but total borrowings of the government, therefore, prímary deficit indicates borovings other
than to make interest payments.

EObjective Type 43
1 Match the following:
1. Fiscal deficit (a) Total expenditure Total receipts.
2. Primary deficit (6) ReveDue expenditurë- Revenue receipts
3. Revenue deficit (c) Tötal.expendituYeTotal receipts excluding borrowings
(d)Fiscal'deficit Intërest payment
Matchi the columns:
)When government expenditure equals (A) Deficit Budget
the revenue it collets. (B) Surplus Budget
() Tax collection exceéds the required expenditúre: () Balanced Budget:
(i) When governmenteexpenditure exceeds the revenue.
taxes in order to keep the budget balanced.
3.-Ifthe goyernment needs toincur higher expenditure, it willhave to (Fillin the blank with corect option)
(increase/decrease):
-includes only such transactions that affect the current income and expenditure of the government.
4; The (Choose the correct alterñative)
(a) Budget deficit (b) Revenue deficit
(c) Fiscal deficit (d) Primary deficit
5 Which of the following is not true for revenue deficit?
(ChÍose the correct alternotive)
.Arevenue deficit:
other sectors of th economy.
(a) implies that the government is dissaving and is using up the savings of the but also [ts consumption expenditure
(b) means that the government will have to borrow not only to finance its Investment
requirements.
(c) focuses on present fiscal imba<ances. the government, eventually, to cut productive
(d) leads to build up of stok of debt and interest'llablites; and forcesgrowth and adverse welfare implications.
capital expenditure or welfare expenditure. This would mean lower
6. Which of the following Is not true for fiscal deficlt? debt creating capital receipts
(a) Fiscal defícit = Total expenditure -Revenue receipts -Non
(b) Fiscal deficit =Net borrowing at home+ Borrowlng from RB| +Borrowing from abroad
accumulated debt
(c) Fiscaldeficit = Primary deficit + Interest payments on
(d) None of the above
 the
of (6) (c)
Fise
Priöm.
Which
a)
7, Fillin the blankS:
Flscal deficit Totalcxpenditure-(Revenue recclpts +
8, Flscal daficlt will have to be financed through (Choose the correct alternativej
(a) Primary deficlt (b) Revenue deficit
(c) Borrowing (d) Taxes
9. Flscal deficit Indicates the total borrowing requirements of the government from al sources. True/False? Give reason.
10. Is a key variable n judging the financial health of the public sector and the stability of the economy.
(Choose the correct alternative)
(a) Revenue deficlt (b) Fiscal deficit
(c) Primary dcficit (d) None of the above.
11, Revenue deficit Is a part of fiscal deficit. TruefFalse? Give reason.
12. Alarge share of In fiscal deficit Indicates that alarge part of borrowing is being used to meet the government's
consumption expenditure necds rather than Investment. (Fllin the blank)
13. The goal of measuring is to focus on present fiscal imbalances. (Choose the correct alternative)
(a) Revenue deficit (b) Fiscal deficit
(c) Primary deficit (d) None of the above
14. To obtain an estimate of borrowing on account of current expenditure exceeding revenues, we need to calculate
(Choose the correct alternotive)
(a) Revenue deficit (b) Fiscal deficit
(c) Primary deficit (d) None of the above
15. Primary deficit = Fiscal deficit -Net interest liabilities. True/False? Give reason.
16. Fiscaldeficits are always inflationary. True/False? Give reason.
17. Primary deficit in a government budget will be zero, when (Choose the correct aternative)
(a) Revenue deficit is zero (b) Fiscal deficit is zero
(c) Total borrowing is equal to interest payments (d) Net interest payments is zero.
18. Which of the folowing is a revenue receipt? (Choose the correct alternative)
{a) Sale of shares of a public sector undertaking (PSU) to a private company, YLtd.
(b) Financial help from a multinational corporation for victims in a flood affected area.
(c) Dividends paid to the government by the State Bank of India.
Kd) Both (b) and (c)
Fiscal Deficit- Interest payments = (Choose the correct aiternative)
19 (a) Revenue Deficit (b) Budget Deficit
(c) Primary Deficit (d) None of these
20. indicates that the government willhave to borrow not only to finance its investrments but also its consumption
expenditure. (Choose the correct alternative)
(a) Revenue deficit (b) Fiscal deficit
(c) Primary deficit (d) Budget deficit
21. Fiscal deficit is financed through (Choose the correct aternative)
(a) market borrowings (b) borrowings from the Central Bank
(c) borrowings from forelgn governments (d) Allof these
22. Which of the following statement is not true for fiscaldeficlt?
(CBSE Sample Question Paper 2015) (Choose the correct alternative)
Afiscal deficit:
(a) represents the borrowing of the government.
(b) is the difference between total expenditure and total recelpts of the government
ic is the difference between total cxpenditure and total recelpts other than borrowing
(d) Increases the future llability of the government
23, Borrowing in government budget is: (CBSE Sample Question Paper 2016) (Choose the correct alternative)
(a) Revenue deficlt (b) Fiscal deficit
(c) Primary deficit (d) Defict in taxes
 Which of the following statements is true? (Choose the correct alternative)
(a) Fiscal deficit is the difference between total expenditure andtotal recelpts.
(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) None of the above
alternative)
25. -Whích of the following statement is true? (CBSE Sample Question Paper 2016) (Choose the correct
(a) Loans from. IMF is a Revenue Receipt.
(b) Higher revenue deficit necessarily leads to higher fiscal deficlt.
(c) Borrowing by a government represents a situation of fiscal deficit.
(d) Revenue deficit is the excess of capital receipts over the revenue receipts. (Choose the.correct alternative)
26. Primary deficit in agovernment budget equals:
(a) Interest payments (b) Interest payments less borrowings
(c) Borrowings less interest payments (d) None of these
27. State giving reason whether the following statement is true or false:
Increase in revenue deficit will always lead to higher fiscal deficit.
28. State giving reason whether the following statement. is true or falae:
Primary deficit equals revenue deficit less interest payments.
(Choose thecorrect alternative)
of government for.making :
29. Primary deficit is borrowing requirement.of (b) other than interest payment
(a)' interest paymnt RBI
e) payments off públicdbts (d) päyment off borrowing from (Choose the correct alternativel
30. Zero primary deficit means:
(a) no liabilities with government
(b) the government has to resort to borrowing only to meet interest payments
(c)no interest payments
(dno current liabilities
(Choose the torrect alternative):
31-/n asituation of Inflation, the government shöuld adopt: (b) -Deficit budget
(a) Balanced Budget (d)-None óf these
(c). Surplus Budget

HOTS Analysing, Evaluating &Creating Type Questions

the Finance Minister of India". The fnance
1. Suppose you are a member of the "Advisory Committee to budget.
Minister is concerned about the rising Revenue Deficit in the
govermment. (CBSE 2019) (1 mark)
Suggest any one measureto control the rising Revenue deficit of the
Ans. Measure to Control Revenue deficit: (any one)
(a) To reduce government administrative expenses.
(6) To reduce the burden of subsidy.
(c) To increase taxation.
eason, (CBSE 2019) (1 mark
2. State whether the following statement is true or false. Support your answer with
different nations,
Revenue deficit increase when government fails to recover loans forwarded to
revenuc receipts.
Ans. The given statement is false, because recovery of loans is a capltal receipt. It does not affect the
sources." Elucidate.
3. "Fiscal deficit indicates the total borrowing requirements of the goverament from all (NCERT) (4 marks)
Ans. iscal deficit is the difference between the Government's budgetary expenditure and is budgetary receipts
excluding borrowings.
The fiscal deficit will have to be financed through borrowings. Therefore, Fiscal Deficit = Borrowings
From the financing side:
Fiscal Deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad
Thus, it indicates che total borrowing requirements of the government from all sources.
 delicit

iscal
12.
Iuc:
Reve
ide
Fis
(6)
10.
CheckHst to Objective lyPeu
Questionss

Objective Type Questions 4.1 21. False: Defence services xpendirure is arevenue expenditure
because it neither crcates any asset nor rcduces any liabilicy
1. () Private goods (i) Public goods of the government.
2. (c) The consumpion of public goods by several individuals 2. Truc: Smallsavings of people (Post-office Savings Acounts,
is rivalrous.
3. () Public provision
National Savings Ccrtificates, etc) are capital receipts for
the government because these receipts create a liability of
(i) Public production repayment on government.
4. () () Personal disposable income, (i) redistribuion 23. Falsc: These are diredt taxes which fll direcaly on
5. (c) Stabilisation function individuals (personal income tax) and irms (corporation
6. () public goods ta). The liability to pay and burden of the tax lie on the
7. Ealse: Provision of public goods means that ehe public goods sane person, i.c., burden cannot be shifted.
like law and order, defence, parks, roads, etc. arc financcd 24. Truc: PSU disinvestmen, i.c., net procceds from sale of
chrough the budget. These goods may be produced direcly shares in PSUs is acapital receipt that reduces the financial
by the government or it can encourage the pivate sector by assets of the government. However, it does not give rise to
giving them tax concesions and subsides. debt. So, it is anon-debt crcating capital reccipt.
8. Truc: In case of deflation (or 25. (c) capital expenditure
unemployment), the
government can give tax concession or increase expenditure 26. (c) subsidies
to leave more disposable income in the hands of people.
27. (6) Income Tax
In case of inflation, government can reduoe its own
xpenditure or incease tax, 28. (a) Income Tax
9. (6) redistribute income & wealth 29. (c) disinvestment
10. 1-(c, 2- (6) 30. (c) it does not have significant revenuc yield
31. () Capital receipts cither create an asset or cause 2
|Objective Type Questions 4.2 reduction in the liabilities of the government.
1. ) -d, (i) -b 32. (b) it neither cTcates any liability nor reduces any 2sset of
2. () Revenue Account (also called Revenue Budger) the government.
33. (c) construcion of roads and repayment of loans
(t) Capiral Account (also called Capital Budget)
34. (1) , (ii)-d, (üi)b, (tv) -1
3. Revenue receipts
4. (6) ()-B),(1) -<C), (i) D), (iv) -(A) Objective Type Questions 4.3
5. () None of the above 1. ()-G, (ü) -d, (m) -b
6. Capital receipts 2. () {C), () -(B), (ii) -<A)
7. () PSU disinyestment 3. incrcase
() non- debt creating capital reccipt. 4. (6)Revenue defidt
8. Revenuc cxpenditure S. (c) focuses on present fiscal imbalances.
9. (d) Al of the above 6. (d) None of the above
10. non-plan expenditure 7. Non debt creating capital
11. (d) ()C), (1) -(A), (ii) -(B), (iv) -(D) receipts.
(Those capiral receipts which are not
12. (d) Al of the ab¡ve borrowings and
therefore, do not give rise to debs, eg. proceeds
of PSUs, and recovery of loans i.c. PSU from sale
13. () Capital cxpenditure disinvestnen)
14. () Provident funds 8. (c) Borrowings
15. () Dividends 9. Tue: Fiscal deficit is financed chrough
From the financing side:
borowings.
16. (d) Corporation tax and Personal income tax
17. (a) Recovery of loans Fiscal deficit =Net borrowing at home° +Borrowing from
18. (d)The income carners RBI +Borrowing from abroad
19. (c) Subsidies "Net botrowing at home includes hat directy borrowed
from the public through debe instruments (for eample, he
20. False: It is acapial expenditure since it leads to creation of various small savings schemes) and directly from commercial
plhysical assets of the government. banks through statutory Liquidiy Ratio (SLR).
 18. (d) Both (b) and (c)
10, (b) Fiscal deicit
Fiscal deficit = Toral expenditure -(Revenue receipts
11. Tuc: Revenue deficit is a part of fiscal deficit Non debt creating capital receipts)
Fiscal deficit Total cxpenditure - Total receipts cxcluding ((iv)+()1-()+(i1))-G)
bortrowings (1500 + 480)-(1,000 + 150)-50
Revenue cxpenditute + Capital cxpenditurc 1,980 -1,150 -50 780 crore
-(Revenue reccipts +Non debt creating capital reccipts) 19. (c) Primary Dcficit
Revenue cxpenditure -Revenue receipts 20, (a) Revenue deficit
+Capital expenditure -Non debt creating capital receipts 21. (d) AIl of these
- Revenue deficit +capital expenditure 22. (b)
- Non debt creating capital reccipts 23. (b) Fiscal deficit
12. revenue deficit
24. (c) Fiscal dficit is the sum of primarydeidt and interst payment.
13. () Primary deficit 25. (c) Borrowing by a government represents a situation of
14. (c) Primary deficit fiscal deficit.
15. Tç: Primary deficit = Fiscal deficit -Net interest liabilities 26. (c) Borrowings less interest payments
Net interest liabilities consist of interest payments minus 27. Falsc: Fiscal deficit = Revenuc deficit + Capiral xpenditure
interest receipts by the governmcnt on net domestic -Non-debc creating capital receipts. Therefore, increase in
lending. revenue dcficit may not lead to higher fiscal deficic because
fiscal deficit is also influenced by non-debt creating capical
16. False: Fiscal deficit equals borrowings of the government.
Such borrowings are generally financed by issuing new receipts and capital expenditure of che government in
addition to revenue deficit.
currency which may lead to inflation. However, if the
borrowings are for infrastructure development, this may 28. False: Primary deficit cquals fiscal deficit less intereSt paymens.
Iead to capacity building and may not be inflationary. 29. (b) other than interest payment
17. () Total borrowing is equal tointerest payments. 30. (b) the government has to resort to borrowing only to
mect interest payments
31. () Surplus Budget
 Account
Capital Current to trànsters
thanConcept Balance
Current 2. Components
L.
2 1. Deficit Surplus
companies) 2. 1.Capital
Balance 3.components: of
Which of
5. 4, 3. Institutional
Investments
External
Extermal Forelgn
(FIls). trade Balance " Balance
the time. merchandise
the
Tradeduring the "
Trade
Acount)
(Current
(a) Which (d) (c) (b) *3 (a)
(a)
(d) (c) (b) "Domestic (d) (c) (b) Account/Capital What Account deficit.Account Account merchandise
Transactions
in in value as on during
They Transfer
Theygoods None
Transactions
Inflows on
Investments:
Over Invisibles ondeficit surplus of
Remlttances
None Net Expots All during does capital capital
Borrowings, compared Current
of of areAssistance,
Capital Trade/Trade of
international the consist and the of CAD ofpaynments Invisibles:
of demand thesecould the accountgreater records imports Deficit Surplus wil Balance
the and
following payments following and.outflows. these fiscal a account
services of Balance signifies include wil
be of Balanceof in in Account toAccount arise arise
above given imports year. than e.g. e.g. all (CAD) trade The
for given gifts, foreign goods; arises ())' of r
fo(CAS) on
is is Government Direct
arises External international visible value services, year. a
if Balance:
year.
Income by goods Inare of.payments capital that difference the athe if
Current
ofnot remlttançes by return. true of services arises
surplus. refers
private the the excharige when total
foreign when Investment, the of total The
from component
goods aand payments
for Items,
government receiptsTransfer outflows
capital Commercial nation when import transfers
to
citizens and demand 'and
CAS value diference
valueAccount
compensation (BoP) capital Aid, transactions invisible excess between
and exchangeasses the
services which .(BoP) assetsbetween inflows
Inter-governmental, is s0gnifies of of of
living of grants. Payments Qüestions51
Objective
Type (like
inflows e.g. a value of and country' s
the for or and accounts borrower visible the country' s
between
Borrowings, items recelpts flows
domestic
abroad current bY the during repaymentare Foreign that
isliabilities of of value
of private residents assets, exports titems,
he
in thé record? lesser (like and of Imports exports
employees account from from income. of the
the record fiscal aresidents receipt Direct unllateral nation
goods cltizen
Current during than of Short-term e.g., the invistble exports value
of value of of
of loans,Multilateral
of are of year. capital of Investments money, rest visible is merchandise merchandise of
Balance living the a of and
one Account trade fiscal a of loans transfers.of lender Items exports
country a purchase Debt. export
country.with stocks, the Items, imports
and abroad. In year. outflows. from
of and toand
world. and
Payments? the (FDIs) invisible
It the of
get Balanceof goods abroad,
of Bilateral bonds, isunllateralvisible (goods) (goods)
of imports
same for relatively rest
and assets (i) invisibles
free, (Fill the, items ofitems,
thing. of government
Portfolio
e.g.
sale Loans.Investment, is is
(Choose services rest
(Choose or the
trartsfers.
(Choosethe Payments? in
without more moregoodsof
the of shares of broader andworld.
invisible of
the assets a than
True/False?
reason.
Give blank and unilateral country
than of
having the world the in debt, It a
with correct concept is
items value value
country
alternative)
corect correct transfer foreign or
shares etc.
relatively
to correct transfers in of of
provide
alternative) alternative) as and a its its
payments. countries). in It given during
has compared unilateral exports imports of
option) foreign Foreign broader
any three is period a
less year.
of