Government Budget and the Economy (12 Economics)
Practise chapter-wise MCQs for Class 12 Economics — Government Budget and the Economy. Every question comes with the correct answer and an explanation.
TL;DR: Practise chapter-wise MCQs for Class 12 Economics — Government Budget and the Economy. Every question comes with the correct answer and an explanation…
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Practise chapter-wise MCQs for Class 12 Economics — Government Budget and the Economy. Every question comes with the correct answer and an explanation.
Government Budget and the Economy MCQs with Answers & Explanations
Q1. Which of the following is a primary objective of a government budget in India?
- Minimizing government expenditure
- Ensuring equitable distribution of income and wealth ✓ (correct)
- Maximizing corporate profits
- Reducing the role of the public sector
Explanation: A key objective of government budgeting is to address income inequalities and promote social justice, which is achieved through measures like progressive taxation and social welfare programs.
Q2. Which of the following is considered a 'capital receipt' in the Indian government budget?
- Income tax collected by the government
- Profits from public sector undertakings
- Disinvestment of shares of public sector undertakings ✓ (correct)
- Interest received from loans given to states
Explanation: Disinvestment is the sale of government assets, which results in a reduction of its assets and is therefore a capital receipt, not a recurring revenue source.
Q3. Revenue deficit in a government budget refers to:
- The difference between fiscal deficit and interest payments
- The excess of capital expenditure over capital receipts
- The excess of total expenditure over total receipts
- The excess of revenue expenditure over revenue receipts ✓ (correct)
Explanation: Revenue deficit specifically measures the shortfall in the government's revenue earnings compared to its revenue spending, excluding capital transactions.
Q4. A balanced budget implies:
- Government receipts are equal to government expenditure ✓ (correct)
- Government receipts are greater than government expenditure
- Government expenditure is greater than government receipts
- Fiscal deficit is zero
Explanation: A balanced budget occurs when the total revenue of the government exactly matches its total expenditure. While related to fiscal deficit being zero, the definition directly compares receipts and expenditure.
Q5. Fiscal deficit represents:
- The gap between government's revenue receipts and its total expenditure
- The gap between government's total expenditure and its revenue receipts, excluding borrowings ✓ (correct)
- The gap between government's total receipts and its total borrowings
- The gap between government's total receipts and its revenue expenditure
Explanation: Fiscal deficit is the difference between the government's total expenditure and its total receipts, excluding borrowings. It indicates the extent to which the government needs to borrow to finance its operations.
Q6. Which of the following accounts for the largest component of revenue expenditure for the Indian government?
- Subsidies
- Salaries and pensions of government employees
- Interest payments on public debt ✓ (correct)
- Defence expenditure
Explanation: Interest payments on past borrowings form a significant and often the largest portion of the Indian government's revenue expenditure, representing the cost of servicing its debt.
Q7. The primary deficit is calculated as:
- Fiscal Deficit + Interest Payments
- Revenue Deficit - Capital Receipts
- Total Receipts - Revenue Expenditure
- Fiscal Deficit - Interest Payments ✓ (correct)
Explanation: Primary deficit measures the government's borrowing requirement excluding interest payments on past debts. It shows the extent to which the government is borrowing to finance its current activities, excluding the cost of servicing old debt.
Q8. Which of the following is a tool of fiscal policy?
- Government borrowing ✓ (correct)
- Bank rate
- Cash reserve ratio
- Open market operations
Explanation: Government borrowing is a direct way for the government to finance its deficit and influence the money supply and interest rates, making it a tool of fiscal policy. Bank rate, OMO, and CRR are tools of monetary policy.
Q9. Which of the following would lead to an increase in the fiscal deficit?
- Increase in disinvestment proceeds
- Increase in government expenditure ✓ (correct)
- Increase in tax revenue
- Decrease in borrowings
Explanation: An increase in government expenditure, assuming other factors remain constant, will widen the gap between total expenditure and total receipts, thus increasing the fiscal deficit.
Q10. If the government aims to stimulate economic activity during a recession, it is likely to increase:
- Both taxes and public expenditure
- Taxes and decrease public expenditure
- Public expenditure and decrease taxes ✓ (correct)
- Both taxes and decrease public expenditure
Explanation: During a recession, the government typically uses expansionary fiscal policy. Increasing public expenditure injects money into the economy, while decreasing taxes leaves more disposable income with individuals and businesses, both boosting demand.
More 12 Economics MCQs
- Introduction to Microeconomics
- Theory of Consumer Behaviour
- Production and Costs
- The Theory of the Firm under Perfect Competition
- Market Equilibrium
- Non-competitive Markets
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