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study material. Easy Economics for Class XII Make Economics comprehensive Government Budget and Economy Government Budget and t he Economy Contents of the Chapter:- Government Budget Meaning, Objective Components of Government Budget Classif ication of receipts Capital and revenue Classif ication of expenditure - Capital and revenue Balanced budget surplus budget, def icit budget - meaning and implication Revenue deficit, Fiscal deficit, primary deficit - Meaning and implication. Meaning of Government Budget :- A government budget is an annual st atement of the estimat ed receipt s and est imated expenditure of t he government during a fiscal year. Objective of t he Government Budget The objective that are pursued by the government through the budget are- I. Reallocation of resources -:It means managed and proper distribution of resources. As private sector can not provide all t he goods and services t he government has to provide these goods. II. To reduce inequalities in income and wealth-: Through budget government tries to reduce the gap between Rich and poor. This is achieved through taxing t he rich and subsidizing t he needs of poor people. Taxing t he income of rich people reduces t heir purchasing power and subsidies to poor people increases real income of poor people. III. To achieve economic stability -: There may be inflat ion or depression in the economy. Inflation is t he situation of rise in price level whereas depression is lack of demand. Both the situations are undesirable. During depression government reduces rat e of tax and borrowing and increases public expenditure. During inflation government increases the rate of tax and borrowing and decreases public expenditure. IV. Management of Public Enterprises V. To achieve economic growth Components of Government Budget:- 1. Budget Receipts 2. Budget Expenditure Classification of Budget Receipts:- 1. Capital Receipts: - Capital Receipts ref er to t hose receipts of t he government which i) t end t o create a liability or ii) Causes reduction in its assets. All the Capital receipts are broadly classified into three categories. 1) Recovery of loans : - These are Capital receipt s because they reduce financial assets of the government 2) Borrowings: - Funds raised by t he government f orm t he borrowing are treated as capital receipts such receipts creates liabilit y. 3) Other Receipts: - Funds raised t hrough disinvestment are included in this category. By this government assets are reduced. 2. Revenue Receipts:- Any receipts which do not either create a liability or lead to reduct ion in assets is called revenue receipts. Revenue receipts consist of 1) Tax Revenue and 2) Non-Tax Revenue. 1) Tax Revenue: - A tax is a legal compulsory payment imposed by the government on the people. All t axes are broadly classified int o i) Direct Tax and ii) Indirect Tax.
43,756 Total Pageviews 1.Basics Before starting (1) 2.Nature of Data (1) 3.Shapes of diffrent curves (4) 4.Vacations (1) Assignments (4) Balance of payment (1) CBSE Question Paper (1) National Income (4) Labels Home Implication of Perfect Comp. Central Banking Notes Government Budget and Economy Money and Banking Notes Question papers for practice Download Presentations Excel worksheet different curves Links Great News Pages bloggers Arun Sharma - Find me on Bloggers.com Follow by Email 2011 (5) 2012 (9) J anuary (3) Answer of the Question of second pre-board Exam o... Macroeconomics second preboard How to get edge in National Income Accounting February (5) Blog Archive 1 More Next Blog Create Blog Sign In Easy Economics for Class XII: Government Budget and Economy http://ecoarun.blogspot.in/p/government-budget-and-economy.html 1 of 5 10/26/2013 5:17 PM When the liabilit y t o pay a tax and the burden of that tax falls on the same person, the tax is called direct tax. e.g. Income tax, corporation tax, Gif t tax etc. When the liabilit y t o pay a tax falls on one person and burden of t hat tax falls on some other person, t he tax is called an Indirect t ax. e.g. Sales tax, Custom duties, Service tax etc. 2) Non-Tax Revenue: - Non tax revenue consists of all revenue receipts other than taxes. For eg.:- i) Int erest ii) Profit and dividend iii) Fees and f ines iv) External grant-in-aid Meaning of Budget Expenditure:- Budget expenditure refers to the estimated expenditure t o be incurred by the government under diff erent heads in a year. Revenue Expendit ure:- An expendit ure which do not creates assets or reduces liabilit y is called Revenue Expendit ure. Examples are Salaries of government employees, interest payment on loan taken by the government, pension, subsidies, grants etc. Capital Expenditure:- It ref ers to t he expenditure which leads t o creation of asset s and reduction in liabilities eg. Expenditure incurred on construct ion of building, roads, bridges et c. Balanced Budget:- A Government budget is said to be a balanced in which government receipts are shown equal to government expenditure Surplus Budget :- When government receipts are more than government expendit ure in the budget , the budget is called a surplus budget . Budget Deficit Deficit Budget:- When government expenditure exceeds government receipts in the budget is said t o be a def icit budget . Types:- Revenue Deficit:- Revenue deficit refers t o the excess of revenue expenditure of the government over its revenue receipts. Revenue deficit = Total revenue expenditure Total revenue receipts. Importance: - Since it is largely related with t he recurring expenditure. Therefore, high revenue deficit gives a warning to t he government either to cut expenditure or to increase revenue receipt s. It also implies requirement burden in future. Fiscal Deficit:- Fiscal deficit is defined as excess of tot al expenditure over tot al receipts excluding borrowings. Fiscal Deficit = Total budget expenditure - Total budget receipts net of borrowings. Importance: - Fiscal deficit is a measure of total borrowings required by the government. Greater f iscal deficit implies, greater borrowings by the government. This creates a large burden of interst payments in the f uture that leads to increase in revenue expenditure, causing an increase in revenue deficit. Thus a vicious circle set s in. In the present , a large fiscal def icit may also lead to inflationary pressures. Primary Deficit:- Primary deficit is def ined as fiscal deficit minus interest payment. It is equal to f iscal def icit reduced by interest payment. Primary deficit = Fiscal deficit interest payment. Importance: - Primary deficit signifies borrowing requirements of the government. A low or zero primary deficit means that while government s int erest requirement on earlier loans have compelled t he government t o borrow but it is aware of the need to tight er it s belt. Government Budget and t he Economy Very Short Answer Question ( 1 Mark) J uly (1) 2013 (18) Arun Sharma Passionate , Articulate, Humane View my complete profile About Me Balance of Payment Gross National Disposable Income GNDI & NNDI Concept of Private Income, Personal Income and Personal Disposable Income. Diffrent total curves-:Total Utility,Total variable cost,Total product and Total revenue curves 6 Marks Questions from Microeconomics How to get edge in National Income Accounting Download Marking Scheme of CBSE 2011 commerce Examination. Prepare yourself for Boards -: Microeconomics Question paper of 2011 Delhi,All India,Foreign set Marking scheme First pre-Board 2011-2012 Popular Posts with Google Friend Connect Members (21) More Already a member? Sign in Followers Easy Economics for Class XII: Government Budget and Economy http://ecoarun.blogspot.in/p/government-budget-and-economy.html 2 of 5 10/26/2013 5:17 PM Q1. Give the meaning of budget. Ans. A budget is an annual statement of the estimated receipts and Expenditure of the government over the fiscal year. Q2. Name the two component s of budget. Ans. 1) Budget Receipts 2) Budget Expenditure. Q3. Why is borrowings considered as Capital receipt? Ans. It increases the liabilit y of the government, so it is considered as Capital receipt . Q4. Define t ax Ans. Tax is legal compulsory payment imposed by the government on t he people. Q5. Give two example of direct t ax. Ans. 1) Income tax 2) Gift tax Q6. Give two example of indirect tax. Ans. 1) Sales t ax 2) Cust om duty Q7. Give two example of non-tax revenue. Ans. 1) dividend 2) Fees and fines Q8. When Budget is normally presented in the Parliament? Ans. On 28th February. Q9. Why is t ax not a Capital receipt? Ans. Tax neither creat es liabilit y nor reduces asset s, so it is not Considered as capital receipt. Q10. Give two example of revenue expendit ure. Ans. 1) Payment of Salaries 2) Interest payment Q11. Give two example of Capital expenditure. Ans. 1) Loan to public 2) Acquiring land, building, machine and invest ment in shares et c. Q12. What is balanced budget? Ans. A Government budget is said to be a balanced in which government receipts are shown equal to government expendit ure Q13. What is Surplus budget? Ans. When government receipts are more than government expenditure in the budget , the budget is called a surplus budget. Q14. What is deficit budget? Ans. When government expenditure exceeds government receipts in the budget is said to be a deficit budget. Q15. Give the formula to calculate revenue deficit . Ans. Revenue deficit = Total revenue expenditure Total revenue receipts. Q16. Give the formula to calculate fiscal deficit . Ans. Fiscal Deficit = Total budget expenditure = Total budget receipts net of borrowings. Q17. Give the formula to calculate primary deficit . Ans. Primary deficit = Fiscal deficit interest payment. Q18. Define Capital receipts. Ans. Capital Receipts refer t o those receipt s of the government which i) t end t o create a liabilit y or ii) Causes reduction in its asset s. Q19. Define revenue receipts. Ans. A revenue receipts are those receipts which neither create a liabilit y nor reduce asset s of the government. eg. Tax and non-t ax receipts. Q20. Define revenue expenditure. Ans. It does not result in creation of assets or reduct ion in liabilities eg. Payment of salaries. Q21. Define Capital expenditure. Ans. It ref ers to t he expenditure which leads t o creation of asset s and reduction in liabilities eg. Expenditure incurred on construction of building, roads, bridges etc. Q22. Give two sources of Capital receipts. Ans. 1) Recovery of loans 2) Borrowings. Q23. Give one objective of budget. Ans. To reduce inequalities of income and wealth. Q24. Define direct tax. Ans. These taxes are those tax in which liability to pay and burden of tax f alls on same person. Q25. Define indirect tax. Ans. Liability to pay and burden of indirect tax falls on diff erent persons. Short Answer Question (3/4 Mark) Q1. Write any three objective of government Budget. 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Ans. The objective that are pursued by the government through the budget are- i) To achieve economic growth. ii) To reduce in equalit ies in income and wealth. iii) To achieve economic stability. Q2. Explain the basis of classifying government receipts into revenue receipts and capital receipt s. Ans. Revenue Receipts :-A government revenue receipts are those receipts i) which neither create liability ii) nor reduce assets of the government eg. Dividend. Capital Receipts :- Capital Receipts refer t o those receipt s of the government which i) tend to create a liability or ii) Causes reduction in its assets of the government. eg. Borrowings Q3. Distinguish between direct tax and indirect tax Ans. Direct Tax Indirect Tax 1. Liability to pay and burden of direct tax falls on same person. 2. Levied on income and property of person. 3. eg. Income tax 1. Liability to pay and burden of direct t ax f alls on some other person. 2. Levied on goods and services on their sale, production, import and export. 3. eg. Sales tax Q4. Define revenue receipts. Write the groups in which they are classified. Ans. Any receipts which does not either create a liability or lead to Reduction in assets is called revenue receipts. Revenue receipt s consist of 1) Tax Revenue and 2) Non-Tax Revenue. Q5. Distinguish between Revenue and Capital expenditure. Ans. Revenue Expendit ure Capital Expenditure 1. It does not result in creation of assets 2. It is for short period and recurring in nature 3. eg. Expenditure on salaries of employees 1. It result in creation of assets 2. It for long period and non- recurring in nature 3. eg. Expenditure on acquisition of assets like land, building etc. Primary Deficit is the diff erence between Fiscal deficit and interest payments. It det ermines whether t he fiscal deficit in government budget has arisen due to int erest payment or any other activity of the government. A large primary deficit indicates that the difference between fiscal def icit and interest payment is more. It means government is spending more than its receipt on other activities. The government may be spendthrift. A zero primary deficit indicates that interest payment s and fiscal def icit is equal. The fiscal def icit has arisen due t o interest payment . +1 Recommend this on Google Easy Economics for Class XII: Government Budget and Economy http://ecoarun.blogspot.in/p/government-budget-and-economy.html 4 of 5 10/26/2013 5:17 PM Home Subscribe to: Posts (Atom) Watermark template. Powered by Blogger. Easy Economics for Class XII: Government Budget and Economy http://ecoarun.blogspot.in/p/government-budget-and-economy.html 5 of 5 10/26/2013 5:17 PM