Home » MP Board Class 12th Economic Unit 9 Government Budget and Economy Important Questions

MP Board Class 12th Economic Unit 9 Government Budget and Economy Important Questions

MP Board Class 12th Economics Important Questions Unit 9 Government Budget and Economy with pdf file solutions from latest MP Board Book.

Government Budget and Economy Important Questions

Government Budget and Economy Objective Type Questions

Choose the correct answers:

Question 1. The duration of Government budget is :
(a) 5 years
(b) 2 years
(c) 1 year
(d) 10 years.
Answer:
(c) 1 year

Question 2. Budget is presented in the Parliament by :
(a) Prime Minister
(b) Home Minister
(c) Finance Minister
(d) Defence Minister.
Answer:
(c) Finance Minister

MP Board Solutions

Question 3. Budget speech in Lok Sabha is given by :
(a) President
(b) Prime Minister
(c) Finance Minister
(d) Home Minister.
Answer:
(c) Finance Minister

Question 4. Professional tax is imposed by :
(a) Central Government
(b) State Government
(c) Municipal Corporation
(d) Gram Panchayat.
Answers:
(b) State Government

Question 5. From the following which is included in the direct tax :
(a) Income Tax
(b) Gift Tax
(c) Both (a) and (b)
(d) Excise Tax.
Answer:
(c) Both (a) and (b)

Question 6. Who issues 1 rupee note in India :
(a) Reserve Bank of India
(b) Finace Ministry of India
(c) State Bank of India
(d) None of these.
Answer:
(b) Finace Ministry of India

MP Board Solutions

Fill in the blanks:

  1. …………………… is a document containing income and expenditure of the government.
  2. Income tax is …………………… tax.
  3. …………………… tax is levied on the value of the goods.
  4. Service tax is levied by the ……………………
  5. budget is considered good for the country.
  6. Finance bill contains …………………… proposals.
  7. Government budget is presented on the last day of ……………………

Answer:

  1. Budget
  2. Direct
  3. Advalorem
  4. Central
  5. Deficit
  6. Tax
  7. February.

State true or false :

  1. Deficit budget is not considered as a good budget.
  2. Electricity tax is levied by the State Government.
  3. Budget speech is given by the Finance Minister.
  4. Central excise duty is direct tax.
  5. Interest payment is a planned item.
  6. During deflation surplus budget is made.
  7. Rail budget is generally not included in the annual budget.

Answer:

  1. False
  2. True
  3. True
  4. False
  5. False
  6. True
  7. True.

Match the following

  1. Income and expenditure of the government (a) 31st March
  2. First of all finance bill is presented in the (b) Budget
  3. Budget is presented on (c) Details about income and expenditure
  4. Aim or Objective of the budget (d) Loksabha
  5. Main feature of the budget (a) Economic development

Answer:

  1. (b)
  2. (d)
  3. (a)
  4. (e)
  5. (c)

Question 5. Answer the following in one word/sentence :

  1. Write meaning of surplus budget.
  2. Expenditure on education is considered as?
  3. Who passes the budget presented by the Finance Minister every year?
  4. Which tax was levied by the government on July 2017?
  5. For how many years government makes budget?
  6. What is the full form of G.S.T.?
  7. Land Revenue is levied by whom?
  8. What is the name gives to budget?

Answer:

  1. More income and less expenditure
  2. Developmental
  3. Parliament
  4. G. S. T
  5. 1 year
  6. Goods and Service Tax
  7. By State Government
  8. Master Finacial Scheme of Government.

Government Budget and Economy Very Short Answer Type Questions

Question 1. What do you mean by government budget? How many types are there?
Answer:
A budget is the statement of financial plan of the government for a financial year (1st April to 31st March). It indicates the revenue expenditure estimates for the next financial year of the government.

Budget is of two types:

  1. Capital budget
  2. Revenue budget.

Question 2. What do you mean by primary deficit?
Answer:
Primary deficit is the difference between fiscal deficit and interest payments. It indicates how much government borrowing is going to meet expenses other than interest payments. It is often used as the basic measure of fiscal responsibility.
Primary Deficit = Fiscal Deficit – Interest payments

Question 3. What is tax?
Answer:
A tax is a compulsory contribution which is given by the people to the government in order to meet the expenditure on the welfare of the citizens.

MP Board Solutions

Question 4. What is deficit budget?
Answer:
When the expenditure of the government is more than the income of the government, it is called deficit budget.

Question 5. What do you mean by supplementary budget?
Answer:
Supplementary budget is prepared for the temporary period. It is prepared during the period of emergency like flood, war, earthquake etc.

Question 6. What do you mean by zero primary deficit?
Answer:
When government has to take loan only to fulfill the liability of interest it is called zero primary deficit.

Question 7. What do you mean by vote on account?
Answer:
Special arrangement is made under which special power is vested with lok sabha to sanction some amount as advance till the financial budget is passed for the next year.

Question 8. What is tax evasion?
Answer:
When people do not pay tax by hiding income it is called tax evasion.

Question 9. What do you mean by surplus budget?
Answer:
When the income of the government is more than expenditure of the government in budget, it is called surplus budget.

Question 10. What is a balanced budget?
Answer:
Budget in which income and expenditure of the government is equal is called balanced budget.

Question 11. Write the tax multiplier.
Answer:
Tax multiplier = −c/1–c

Question 12. What do you mean by debt trap?
Answer:
Generally developing countries take loans from foreign countries to fulfill their projects and plans. Developing countries have to pay debt along with the interest on it. To pay this amount again government has to take loan. Thus, principal amount goes on increasing. These countries take loan from one country and pay loan of other country. Thus these countries go in the clutches of debt. This is called debt trap.

Question 13. Write the main revenue sources.
Answer:
Public revenue:
By public revenue we mean all those income of the government which are essential for government expenditure. Public revenue can be divided into two parts :

  1. Revenue receipts
  2. Capital receipts.

1. Revenue receipts (Items of income) are of two types :

(A) Tax revenue : It includes all direct and indirect taxes which are imposed by the central government. For example, Income Tax, Corporation Tax, Production tax.

(B) Non – tax revenue :

  • Interest receipts
  • Dividends and Profits
  • Foreign grants
  • Fiscal services, Economic services, Subsidiary assistance.

Question 14. Give the relationship between the Revenue deficit and the Fiscal deficit.
Answer:
Revenue deficit refers to the excess of Government’s revenue expenditure over revenue receipts whereas fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding borrowings.

Question 15. Explain why public goods must be provided by the government.
Answer:
Public goods must be provided by the government as they cannot be provided through market mechanism i.e., by transactions between individual consumer and producers.

Government Budget and Economy Short Answer Type Questions

Question 1. What is a government budget? Write its objectives. (Delhi, Foreign 2013)
Answer:
“A budget is the statement of the financial plan of the government for a financial year” (1st April to 31st March). It indicates the revenue expenditure estimates for the next financial year of the government. The main objectives of budget are as follows :

  1. Reallocation of financial resources.
  2. Removal of inequality of income and wealth.
  3. Stabilization of price level.
  4. Management of public enterprises.
  5. Expansion of employment opportunities.

Question 2. How inequalities in income can be removed through budget?
Or
What is the role of budget in removing income inequalities? (Delhi, All India 2011, Foreign 2012)
Answer:
Fiscal policy implies the income and expenditure policy or the budgetary policy of the government. It is a branch of public finance which deals with the types of financial statements made by any government about its probable revenue and expenditure during a given year.

Through their fiscal policies government can play a significant role in reducing inequality of income and wealth as well as inequality of opportunity. Both tax and spending policies can alter the distribution of income over both short term and medium term. Government need to reform the policies by imposing more taxes oh riches sections and to reduce the burden of tax on poor with the motive of economic welfare of the poor people.

MP Board Solutions

Question 3. Differentiate between Revenue Expenditure and Capital Expenditure.
Answer: Differences between Revenue Expenditure and Capital Expenditure :

Revenue Expenditure:

  • Revenue expenditure is a current expenditure incured on civil administrations, defence forces, public health and education.
  • It is of recurring type of expenditure. It is incurred regularly.
  • It is called non – developmental expenditure.

Capital Expenditure:

  • It refers to expenditure which leads to creation of assets or reduces liabilities.
  • It is a non – recurring type of expenditure.
  • It is called developmental expenditure.

Question 4. Differentiate between Developmental and Non – Developmental Expenditure.
Answer:
Differences between Developmental and Non – Developmental Expenditure:

Developmental Expenditure:

  • It is incurred on economic and social development of the country.
  • Expenditure on agriculture, industries, transport, etc. are included in it.

Non – Developmental Expenditure:

  • Its nature is non – developmental type.
  • Expenditure on administrative services like police defence, grants to government, etc. are included in it.

Question 5. Differentiate between Progressive Tax and Regressive Tax.
Answer: Differences between Progressive Tax and Regressive Tax :

Progressive Tax:

  • In progressive tax the rate of the tax increses as the taxable income increases.
  • The burden of it is more on rich people.
  • They are justified because they reduce inequalities of income.

Regressive Tax:

  • In regressive tax the rate of the tax decreases as the taxable incomes increases.
  • The burden of it is on poor people.
  • These are not justified because they increase inequalities.

Question 6. Does public debt impose a burden? Explain.
Answer:
Public debt does not impose a burden all the times. Only in the following situation, it imposes a burden. When government sectors to public debt, the government transfers the burden to reduce consumption on future generation, because the government may decide to pay off deut in future by raising taxes. Taxes reduce the savings and capital formation and growth. Thus, the debt acts as a burden on future generation.

Question 7. What do you understand by Goods and Service Tax (G.S.T.)? How is G.S.T. better than old system of taxation? Explain its types.
Answer:
(a) The Goods and Services Tax (G.S.T.) is a value Added Tax (VAT) levied on most goods and services sold for domestic consumption. The G.S.T. is paid by consumers, but it is remitted to the government by the businesses selling the goods and services:

G.S.T. in comparison with old taxation system :

  1. In place of old taxation system, G.S.T. will become one tax economy.
  2. The tax structure will be simplified with G.S.T.
  3. G.S.T. will save both time and money.
  4. The growth rate of economy will show a rapid increase with G.S.T.
  5. But for the time being, the G.S.T. would be expected to increase the inflation rate in comparison to the old tax system.

For Goods and Services Tax, G.S.T., U.T.G.S.T. Act and S.G.S.T. tax are passed.

Government Budget and Economy Long Answer Type Questions

Question 1. Explain the types of budget.
Answer:
The types of budget are as follows :
1. Central budget:
Central budget is prepared by Central Government. It is the numerical statement of income and expenditure done by central government. In India Central budget is presented in two parts:

  • General budget
  • Railway budget.

2. State budget:
State budget is prepared by State Government. State Government takes the help from Central Government.

3. Revenue budget and Capital budget:
In revenue budget we include the expenditure and income related to revenue of the government. On the other hand in capital budget the capital expenditure and capital income is included.

4. Supplementary budget:
Supplementary budget is prepared for the temporary period. It is prepared during the period of emergency like flood, earthquake and war etc. There is no fixed time for it.

5. Balanced budget and Imbalanced budget:
Balance budget is that budget where income and expenditure of the government is equal. Imbalanced budget is that budget where expenditure is more or less than income of the government. If the expenditure is more than income it is called deficit budget and if the income is more than the expenditure it is called surplus budget.

Question 2. Explain the procedure of the budget.
Answer:
Under the budgetary procedure in India we can study the following heads:

1. Preparation of budget : The preparation of budget involves the following steps :

  • Sending estimate forms by finance minister to all ministers and their department’s heads to get the estimates of revenue and expenditure required for the next financial year.
  • Preparation of estimates by departmental heads : It includes revenue and expenditure of previous year budgetary estimate for next coming year.
  • Preparation of consolidated estimate by the various ministers and sending them to finance minister.
    Scruting report estimates by A.G. of India and sending the same to finance ministry.

2. Presentation of the budget : In India the budget is presented in two parts :

  • General budget and
  • Rail budget.

Rail budget is always present before the general budget. General budget presented on the last day of the month of February at 5 p.m. generally 28th in February.

3. Discussion on the budget:
Budget is put before the Parliament for discussion. In the processes of passing the budget, the discussions on various items continues for 3 – 4 days. Presently different committees are formed. For the discussion and finance minister gives his final reply on the budget.

4. Voting on budget:
After the general discussion the budget is put for voting. The members of parliament give their speeches for and against the budget before voting. There after voting is held for passing the budget.

5. Appropriation bill:
The finance minister presents appropriation bill. According to the constitution no amount from the Reserve fund of India can be withdrawn without passing the appropriation bill in the Parliament.

6. Financial bill:
All the financial proposals for the coming year are included in a bill which is known as financial bill. This bill is generally presented immediately after the presentation of budget in the Lok Sabha. If this bill is not passed by the Parliament f ur government L not supposed to spend any amount.

7. Vote on account:
Special arrangement is made under which special power is vested with Lok shabha to snetion some amount as advance till the final budget is passed for the next year.

8. Implementation of budget:
After the budget is passed, it is implemented by the government for which the following steps are taken :

  • Collection of revenue
  • Preparation of accounts in
  • Audit by A.G. (Auditor General).

Audit by comptroller and Auditor General of India presents their report before the Parliament which comprise the receipt of revenue, expenditure, loans taken.

Question 3. Consider an economy described by the following functions. C = 20 + 0.80 Y, I = 30, G = 50, TR = 100.
(a) Find the equilibrium level of income and the autonomous expenditure multiplier in the model,
(b) If the government expenditure increases by 30, what is the impact on equilibrium income?
(c) If a lump sum tax of 30 added to pay for increase in government purchases, how will equilibrium income change?
Answer:
C = 20 + 0.80y
I = 30
G = 50
TR = 100
(a)
Y = C¯¯¯¯ + CY – (T – TR)
Y = 20 + 0.80 (Y + TR) + I + G
Y = 20 + 0.80 (Y + 100) + 30 + 50
Y = 0.8Y + 180
Y = 180×100200
= 900
The equilibrium level of income is 900. Autonomous expenditure multiplier.
= 11–C
= 11−0.08
= 10.20
= 5
Increase in equilibrium income = AG x Expenditure multiplier = 30 x 5 = 150
Tax multiplier = −C1–C = −0.081−0.08 = −800−20 = -4
Decrease in equilibrium income = ∆T x Tax Multiplier
= 30 x 4 = 120.
or
Y = 10.20(180)
Y = 5 x 180 = 900
autonomus multiplier ΔYΔG= 11–C
or
ΔYΔG = 11−0.80 = 10.20 = 5

(b) Expenditure of govt, increase by 30 :
(∆Y) = 11–C ∆G
or
∆Y = 11−0.80 x 30
= 10.20 x 30 = 5 x30 = 150
New income = 900 + 150 = 1,050
So, it is clear that by 30 it become 150 to 1,050.

(c) Lump sum 30 is added then :
Change in balance income (∆Y) = −C1–C ∆T
or
∆Y = −0.081−0.08 x 30
= −0.080.20 x 30 = -4 x 30
= 1 – 120

= 900 – 120 = 780

for more MP Board Solutions follow on (Google News) and share with your friends.