Government Budget and Economy (Test Questions)

Read this article to learn about the top thirty-five frequently asked questions on Government Budget and Economy.

Q.1. What is a Government Budget.

OR

Define government budget.

Ans. A statement that shows estimated government receipts and estimated government expenditure under various heads during a given year.

OR

A government budget shows financial accounts of the previous year along with revised estimates for current year and the budgeted estimates of government’s revenues and expenditure for the upcoming year.

Q.2. What are budget receipts?

Ans. The estimated receipts of the government from all sources in an accounting year are called budget receipts.

Q.3. What are revenue receipts?

Ans. The receipts which neither create any liability nor reduce any asset are called revenue receipts.

Q.4. What are capital receipts?

Ans. The receipts which create a liability or reduce assets are called capital receipts.

Q.5. Define tax.

OR

What is a tax?

Ans. A tax is a compulsory legal & unilateral payment to the government.

Q.6. Define direct tax. Give two examples of direct taxes.

OR

Give two examples of Direct Tax.

OR

Define Direct Tax.

Ans. A tax is called a direct tax when its final burden falls on a person who has to pay for it himself. Income tax and wealth tax are examples of direct taxes.

Q.7. Define indirect tax. Give two examples of indirect taxes.

OR

Give two examples of indirect taxes.

Ans. A tax is called an indirect tax when the final burden of the tax falls on someone other than the person who is liable to pay the tax or taxes. Sales tax and excise duty are examples of indirect taxes.

Q.8. Why are the borrowings by the government called capital receipts?

Ans. Borrowings by the government are capital receipts since they create a liability for government.

Q.9. What is a balanced government budget?

Ans. A balanced budget is one in which estimated revenues are equal to estimated expenditure.

Q.10. Define a surplus government budget.

Ans. A surplus government budget is one in which estimated revenues are more than the estimated expenditure.

Q.11. Define a deficit government budget.

Ans. A deficit government budget is one in which estimated government revenues are less than the estimated government expenditure.

Q.12. What is budgetary deficit?

Ans. The excess of total expenditure over total receipts of a government in an accounting year is called budgetary deficit.

Q.13. What is deficit financing?

Ans. Printing new currency notes by central bank to meet the budgetary deficit is called deficit financing.

Q.14. What is fiscal deficit?

Ans. Fiscal deficit is the excess of total expenditure over total receipts excluding borrowings.

Q.15. What is meant by revenue deficit.

Ans. Revenue deficit means excess of revenue expenditure over revenue receipts.

Q.16. What is primary deficit.

Ans. Primary deficit is equal to the fiscal deficit reduced by the amount of interest payments paid by the government.

Q.17.Why is repayment of loan a capital expenditure?

Ans. Repayment of loan reduces liability thus, it is a capital expenditure.

Q.18. Why is payment of interest a revenue expenditure?

Ans. Payment of interest does not change the assets and liabilities position of the government, thus it is treated as revenue expenditure.

Q.19. Why are subsidies treated as revenue expenditure?

Ans. Payment of subsidies neither create any asset nor reduce any liability of the government, thus it is treated as revenue expenditure.

Q.20. Why is recovery of loan treated as capital receipts?

Ans. Recovery of loan reduces assets of the government to the extent of the amount of loan recovered, it is thus treated as capital receipt.

Q.21. Why is interest received categorized as revenue receipts?

Ans. Receipt of interest does not cause any reduction in assets nor create any liability, it is thus categorized as revenue receipt.

Q.22. Why are borrowings a capital Receipt?

Ans. Because it leads to increase in liability.

Q.23. Why are receipts from taxes categorized as revenue receipts?

Ans. Government incurs no liability in receipts of taxes collected by it, therefore these are categorized as revenue receipts.

Q.24. What are Non-tax revenue receipts?

Ans. The revenue receipts from sources other than tax termed as non-tax revenue receipts.

Q.25. State any two sources of Non-tax revenue receipts.

Ans. (i) Interest,

(ii) Dividends,

(iii) Profits,

(iv) External grants.

Q.26. What is a debt trap?

Ans. It is a vicious circle in which the government takes new loans to repay its earlier loans/interest.

Q.27. What is a balanced budget multiplier?

Ans. It is the ratio of increase in income to increase in government expenditure financed by taxes.

Q.28. How is Primary Deficit Calculated?

OR

What is primary deficit?

Ans. Primary deficit = Fiscal deficit – Interest payment

Q.29. What does zero primary deficit mean?

Ans. Zero primary deficit means the government has to borrow only to make payment of interest.

Q.30. What does primary deficit indicate?

Ans. Primary deficit indicates borrowing requirement of a government to meet deficit excluding interest payments.

Q.31. What are the consequences of deficit financing?

Ans. Deficit financing involves printing of more currency which increases the money supply and leads to inflation.

Q.32. What is developmental expenditure?

Ans. Expenditure on the activities related to economic and social development of the country is called developmental expenditure.

Q.33. What is non-developmental expenditure?

Ans. Expenditure on non essential general services of the government is called non development expenditure.

Q.34. Give an example of non developmental expenditure.

Ans. Expenditure on defence.

Q.35. Give an example of developmental expenditure.

Ans. Expenditure on health.