Government Budget and the Economy

The budget is created to estimate revenue and expenses. It differs from that of an account, which seems to be a financial transaction record. The budget is considered to be a critical component of every country’s economy as it aids in the monitoring and planning of its financial dealings. The requirement for a national budget stems from the reality that revenue and spending do not occur concurrently. The receipt of revenue and the flow of expenditures are not time-stamped.

The government budget is created to handle a nation’s demands and concerns. It seems to be an annual financial report that includes a detailed estimate of income and expenses for the fiscal year, which usually extends from April 1st to March 31st of the following year.

MCQs on Government Budget and the Economy

1. Among the following options, which of these is a capital receipt?

1. 1. Tax received
   2. Dividend received
   3. Disinvestment
   4. External grants

Answer – C. 

Capital receipts refer to those receipts that either decrease assets or raise liabilities. Disinvestment causes asset depreciation.

2. Among the following options, which of these is a revenue receipt?

1. 1. Loan recovery
   2. External grants
   3. Disinvestment
   4. Borrowings

Answer – B.

Revenue receipts are those that do not have an impact on liabilities or assets. External grants have no effect on the current asset and liability positions.

3. What does the fiscal deficit relate to under the government budget?

1. 1. Taxes shortfall
   2. Disinvestment shortfall
   3. Borrowings requirement
   4. Disinvestment requirement

Answer – C.

A fiscal deficit represents the overall borrowings required by a government for a fiscal (financial) year.

4. What does the primary deficit in the subcontext of the government budget relate to – 

1. 1. Interest payment requirement
   2. Borrowing requirement
   3. (b) less (a)
   4. (a) plus (b)

Answer – C.

The primary deficit is the government’s credit demand to cover solely current-year excessive spending, excluding interest payments on accumulated loans.

5. The measures taken using the government budget can impact – 

1. 1. Resource allocation
   2. Inequalities
   3. Inflation
   4. All of the above

Answer – D.

The government budget’s goals are as follows: 1) maximise resource allocation, 2) minimize income inequalities, and 3) maintain economic stability 

6. At what point the primary deficit under the government budget tends to be zero?

1. 1. When the revenue deficit tends to be zero.
   2. When the net interest payment is zero.
   3. Fiscal deficit = interest payment.
   4. Zero fiscal deficit.

Answer – C.

The gap here between the interest on borrowing and the fiscal deficit is referred to as the primary deficit. The primary deficit tends to be zero when the fiscal deficit equals the interest payment.

7. What can be said about the fiscal deficit?

1. 1. Interest payments
   2. Borrowings
   3. Borrowings minus interest payments
   4. Interest payments minus borrowings

Answer – B.

The fiscal deficit indicates the state’s borrowing needs.

8. What is referred to as a primary deficit?

1. 1. Interest payments
   2. Borrowings
   3. Both interest payments and borrowings
   4. Borrowings minus interest payments

Answer – D.

The gap between borrowing and interest on accrued earnings is referred to as the primary deficit.

9. The difference between which two factors constitute primary deficit – 

1. 1. Revenue deficit and fiscal deficit
   2. Total expenditure and revenue receipts
   3. Interest payments and revenue deficit
   4. Interest payments and fiscal deficit

Answer – D.

10. The borrowings under the government budget constitute – 

1. 1. Revenue deficit
   2. Primary deficit
   3. Taxes deficit
   4. Fiscal deficit

Answer – D.

11. Mention the statement which is true among the following – 

1. 1. Fiscal deficit refers to the difference between total receipts and total expenditure.
   2. Fiscal deficit refers to the sum of interest payments and primary deficit.
   3. Primary deficit refers to the difference between interest payments and total receipts.
   4. Primary deficit refers to the difference between interest payments and revenue deficit.

Answer – B.

12. Which of these measures primary deficit accurately?

1. 1. Revenue deficit – interest payments
   2. Capital expenditure – revenue expenditure
   3. Fiscal deficit – revenue deficit
   4. Fiscal deficit – interest payments

Answer – D.

13. Which of these can be said as an exception to the consequences of the government budget on the nation’s economy?

1. 1. improves resource allocation
   2. implementation of government assistance programmes
   3. improves access to basic goods
   4. increasing aggregate fiscal discipline problems

Answer – D.

14. What can be said about the GST which comes under the government budget?

1. 1. Indirect tax
   2. Non-tax revenue
   3. Direct tax
   4. Income tax

Answer – A.

GST comes under indirect taxes since the cost and liability are spread among several people.

15. Which type of expenditure is mentioned in five-year economic planning?

1. 1. Revenue expenditure
   2. Plan expenditure
   3. Capital expenditure
   4. Non-plan expenditure

Answer – B.

Planned expenditure, usually mentioned under five-year plans can be of non-recurring or recurring in nature.

 16. Choose the capital expenditures from the following – 

1. 1. Subsidies
   2. Share purchases
   3. Defence purchases
   4. Interest payments

Answer – B.

Capital expenditures may enhance assets or decrease liabilities.

17. Which type of expenditure is incurred for everyday expenses and smooth functioning of various governmental departments?

1. 1. Revenue expenditure
   2. Capital expenditure
   3. Non-plan expenditure
   4. All of the above

Answer – A.

The everyday expenses of the government are referred to as the revenue expenditure.

18. Which of these is not included under capital receipts of the central government?

1. 1. Loan recoveries
   2. Non-tax revenue
   3. Market borrowings
   4. None of these

Answer – B.

19. The cost incurred from the tax collection, printing notes and audit, pension, etc. are treated as what type of expenditure by the government – 

1. 1. Government expenditure
   2. Non-development expenditure
   3. Revenue expenditure
   4. All of these

Answer – D.

20. Which of these budgets suits developing economies including India?

1. 1. Deficit budget
   2. Surplus budget
   3. Balanced budget
   4. None of these

Answer – A.

For future prosperity, emerging nations must spend more on infrastructure as well as administration. As a result, the government’s total expenditures will always be more than its total earnings.

21. When the primary deficit is zero, the government opts for borrowing due to –

1. 1. Fiscal payment
   2. Interest payment
   3. Primary payment
   4. Capital payment

Answer – B.

Borrowing minus interest payments equals primary deficit. The primary deficit tends to be zero whenever borrowing is just enough to cover the amount of accumulated debts.

22. Which of the following is not a fiscal deficit implication?

1. 1. It determines the entire borrowing needs of the government
   2. It raises the government’s obligation
   3. It raises foreign dependency
   4. Repayments of various loans, coupled with an interest, significantly reduce the fiscal deficit.

Answer – D.

The repayment of various loans comes as a remedy to the fiscal imbalance, instead of the implication.

23. Name the process wherein the government sells its securities to private owners.

1. 1. Monetary expansion
   2. Disinvestment
   3. Both a and b
   4. None of these

Answer – B.

When the government offers a stake in its enterprise to private investors, it is known as disinvestment.

24. If the interest payment is Rs. 200 crores and the fiscal deficit is Rs. 500 crores, what is the primary deficit?

1. 1. Rs. 350 crores
   2. Rs. 550 crores
   3. Rs. 765 crores
   4. Rs. 200 crores

Answer – A.

Primary deficit refers to fiscal deficit minus interest payments.

25. Which of the below does not fall under capital expenditures?

1. 1. Loans made by the World Bank
   2. School building construction
   3. Loan repayment
   4. Buying Metro Coach from Japan

Answer – A.

Capital spending either builds assets or decreases liabilities. However, loans issued by the World Bank raise obligations. As a result, it does not come under capital expenditures.

26. Fiscal deficit refers to – 

1. 1. Primary deficit – interest payments
   2. Aggregate budget expenditure – aggregate budget receipts
   3. Primary deficit + interest payments
   4. None of these

Answer – C.

The primary deficit is the difference between fiscal deficit and interest payments. Hence, the fiscal deficit is the sum of the two.

27. Mention the direct tax from the following – 

1. 1. Corporation tax
   2. Excise duty
   3. Entertainment tax
   4. Service tax

Answer –A.

28. Which of these increases liabilities in the government budget?

1. 1. Direct taxes
   2. Borrowings
   3. Loan recovery
   4. Dividends from PSUs

Answer – B.

The government’s borrowing raises its liabilities.

29. Mention the capital receipt source from the following – 

1. 1. Foreign donations
   2. Indirect taxes
   3. Dividends
   4. Disinvestment

Answer –D.

Disinvestment reduces the government’s assets and hence comes under capital receipts.

30. Pick out the direct taxes combination from the following – 

1. 1. Wealth tax and excise duty
   2. Service tax and excise duty
   3. Income tax and service tax
   4. Income tax and wealth tax

Answer –D.

The burden of income and wealth taxation, as well as the liability, are both borne by the same individual.

31. Pick out the non-tax revenue from the following – 

1. 1. Export duty
   2. Dividends
   3. Excise duty
   4. Import duty

Answer – B.

32. Which of these receipts is an example of non-tax revenue?

1. 1. Fines and fees
   2. Profits and dividends on investment
   3. Interest receipts
   4. All of the above

Answer – D.

Fines and fees, dividends and interest receipts, and earnings from investments do not produce liabilities or assets. As a result, these come under revenue receipts.

33. Which statement is correct for the government budget from the below-given option?

1. 1. The budget is the estimated statement for the expected annual expenses and income
   2. The detail of expenditure and revenue for a financial year.
   3. According to 5-year plan, it is the complete detail of achievements received by the government
   4. Economy’s BoP status

Answer –A.

34. Define regressive tax:

1. 1. When the income increases for the individual at that time charged at increased rate
   2. When the income increases for the individual at that time charged at decreasing rate
   3. Individual’s Low percentage of income
   4. Individuals’ income has to pay the charge at a decided percentage.

Answer – B.