Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part II Chapter 5 The Government: Budget and The Economy.
Kerala Plus Two Macroeconomics Chapter Wise Previous Questions Chapter 5 The Government: Budget and The Economy
Question 1.
Keynes suggested a deficit budget for a developing economy but classical economists supported a surplus budget. (MARCH-2008)
a) Differentiate the two concepts of budget.
b) What is your opinion? Justify your answer.
Answer:
a) Deficit budget and Surplus budget.
When the proposed expenditure is greater than the expected revenue, the budget is said to be deficient. On the other hand, when the proposed expenditure is less than the expected revenue, the budget is said to be a surplus one.
b) I do agree with the opinion of Keynes. Because in a developing economy govt, will have to make so many developmental activities for the welfare of the society. In such a situation, a deficit budget is possible and it will become unavoidable.
Question 2.
discretionary and non-discretionary. (MARCH-2009)
a) Progressive Income Tax
b) Unemployment allowances
c) Public Expenditure programme.
d) Public borrowing
Answer:
| Discretionary | Non-discretionary |
| Public expenditure programme | Progressive income tax |
| Public borrowing | Unemployment allowance |
Question 3.
In the present world, the budget is an important instrument of government policy. One of the objectives of the budget is given below. Supplement the other objectives. (MARCH-2008)
Redistribution of Income and Wealth
Answer:
- Reallocation of resources
- Stabilisation of economy
- Management of public enterprises
- Execution of plans
- Control of public fund
Question 4.
Classify the followings into tax revenue and non-tax revenue: (MARCH-2008)
Personal Income Tax, Excise duty, Import duty, License Fee, Surplus from Public Enterprise, Escheat.
Answer:
| Tax Revenue | Non – Tax Revenue |
| Personal Income Tax | License Fee |
| Excise Duty | Escheat |
| Import Duty | Surplus from public enterprises |
Question 5.
In a developed economy Keynesian budgetary policy is more effective compared to classical budgetary policy. Can you agree with this statement? Justify your answer. (JUNE-2009)
Answer:
Yes. I agree with this statement. Because in the developed economy the role of government and the private sector is more desirable. There will be situations of the business cycle in such economies. General overproduction and underproduction are common features. On such occasions, the classical policy will not properly work. Keynesian ideas will help the proper functioning of the developed economies.
Question 6.
Complete the following chart: (MARCH-2010)
Answer:
Question 7.
A glance at the Union Budget of 2009 reveals that there is a fiscal deficit of 6.8% of GDP as compared to 6% last year. What are the various measures used for deficit reduction? (JUNE-2010)
Answer:
If the government increases taxes or decreases expenditure then the fiscal deficit gets reduced. Indian government is trying to reduce the fiscal deficit by increasing tax revenue by selling the share of PSUs and by reducing the government expenditure. The deficit reduction influences the different sectors of an economy in different ways.
The government is trying to fill the gap of reduced fiscal deficit by making government activities more efficient through better planning of programmes and better administration.
The cutting back government programmes in vital areas like agriculture, education, health, poverty alleviation has adverse effect on the economy.
The same fiscal measures can lead to a large or small deficit government by the state of the economy. During recession period GDP falls which reduces tax revenue which increase the fiscal deficit.
Question 8.
The Government allocates more amount for subsidies in the budget. (MARCH-2011)
a) Give your opinion about its impact on fiscal deficit.
b) Total Expenditure = ₹3,000 crores
Revenue receipts = ₹1,500 crores
Non-debt creating Capital receipts = ₹600 crores
Calculate Gross
c) Define Primary Deficit.
Answer:
a) Increases fiscal deficit.
b) Gross fiscal deficit, = 3000 – (1500 + 600)
= 3000-2100 = 900
c) Primary deficit is fiscal deficit minus the interest payments
ie, Primary deficit = fiscal deficit – Interest payments
Question 9.
“Fiscal deficits are inflationary.” Do you agree with this statement? Comment. (MARCH-2012)
Answer:
Fiscal deficits are generally treated as inflationary. Increase in govt, expenditure and cuts in taxes both leads to government deficit. Increased govt, expenditure and reduced taxes tend to increase the aggregate demand. Generally firms are not able to produce higher quantities that are demanded at the going prices. This leads to inflationary pressure. However, there is a solution to this inflationary pressure. The economy can utilize the unutilized resources and raise production. Therefore, the deficit cannot be inflationary when an economy has unutilized resources.
Question 10.
The following are some of the fiscal policy measures. Complete the table appropriately.(MARCH-2012)
| Fiscal policy measures | At the time of Excess demand | At the time of Deficit demand |
| Taxation | ||
| Public borrowing | ||
| Public expenditure |
Answer:
| Fiscal policy measures | At the time of Excess demand | At the time of Deficit demand |
| Taxation | Increase | Decrease |
| Public borrowing | Increase | Decrease |
| Public expenditure | Decrease | Increase |
Question 11.
Below are given the relative size of the budget. Mention the type of budget. (MARCH-2013)
Relative size of Budget
i) Revenue > Expenditure
ii) Revenue = Expenditure
iii) Revenue < Expenditure
Type of Budget?
Answer:
i) surplus budget
ii) balanced budget
iii) deficit budget
Question 12.
Schematically represent the components of a government budget. (JUNE-2014)
Answer:
Question 13.
Which of the following is a transfer payment? (MARCH-2015)
a) Rent
b) Wages
c) Interest
d) Old age pension
Answer:
old age pension
Question 14.
Distinguish between revenue deficit and fiscal deficit. (MAY-2015)
Answer:
When a government spends more than it collects by way of revenue, it incurs a budget deficit. There are various measures that capture government deficit and they have their own implications for the economy. The important concepts of deficits are discussed below.
Revenue Deficit: The revenue deficit refers to the excess of government’s revenue expenditure over revenue receipts.
Fiscal Deficit: Fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding borrowing.
Primary Deficit: We must note that the borrowing requirement of the government includes interest obligations on accumulated debt. To obtain an estimate of borrowing on account of current expenditures exceeding revenues, we need to calculate what has been called the primary deficit. It is simply the fiscal deficit minus the interest payments.
Gross primary deficit = Gross fiscal deficit – net interest liabilities.
Question 15.
Should current account deficit be a cause for alarm? (MARCH-2016)
Answer:
Yes, current account deficit is a cause for alarm because it will create inflationary pressures in the economy. Inflation will badly affect all classes of society. Hence current account deficit should be reduced by taking effective fiscal measures.
Question 16.
Complete the following equations: (MAY-2016)
a) Revenue Deficit = Revenue Expenditure – ( ___________ )
b) Gross Fiscal Deficit = Total Expenditure – (_________ )
c) Gross Primary Deficit = Gross Fiscal Deficit – ( _________)
d) 1 – MPC = (_________)
Answer:
a) Revenue receipts
b) Revenue receipts + non-debt creating capital receipts
c) Net investment liabilities
d) MPS
Question 17.
Are Fiscal deficit inflationary? Substantiate your answer.(MAY-2016)
Answer:
Yes. An increase in government expenditure beyond certain limits leads to a fiscal deficit increased spending thus pumps too much money into the economy. It increases the purchasing power of the public. The ultimate result of this overspending or fiscal deficit is an increase in the price level. Thus, fiscal deficits are inflationary in nature.
Question 18.
Fill in the blanks:
i) _______ = Revenue Expenditure – Revenue Receipts (MARCH-2017)
ii) Primary Deficit = _______ – Net Interest Liabilities
Answer:
i) Revenue Deficit
ii) Gross fiscal deficit
Question 19.
Distinguish between Revenue Expenditure and Capital Expenditure. (MARCH-2017)
Answer:
Revenue expenditure: Revenue expenditure is expenditure incurred for the normal functioning of the government. Which does not create liabilities or reduce the assets of the govt.
It can be further classified into plan revenue expenditure and non-plan revenue expenditure.
Capital expenditure: This expenditure creates physical or financial assets or decreases the liability of the government. Capital expenditure can be further classified into plan capital expenditure and non-plan capital expenditure.