Chapter 4 – Government Budget and the Economy
Q1. What is a government budget?
A government budget is an annual statement showing estimated revenue and expenditure during a financial year, presented by the finance minister.
Q2. What are the objectives of a government budget?
Allocation of resources, income redistribution, economic stability, employment generation, economic growth, and reducing regional inequalities.
Q3. What are the components of a budget?
- Revenue budget
- Capital budget
Q4. What is a revenue budget?
It shows revenue receipts and revenue expenditures — regular, recurring transactions like tax income and administrative costs.
Q5. What is a capital budget?
It shows capital receipts and capital expenditures — non-recurring items like loans, asset creation, and investments.
Q6. What are revenue receipts?
Money received by the government without liability or asset reduction — includes tax and non-tax revenues.
Q7. What are capital receipts?
Receipts creating liabilities or reducing assets — like borrowings, disinvestment, and recovery of loans.
Q8. What are revenue expenditures?
Expenses that don’t create assets or reduce liabilities — salaries, pensions, interest payments.
Q9. What are capital expenditures?
Spending that creates assets or reduces liabilities — building infrastructure, loans to states, buying machinery.
Q10. What is fiscal policy?
Government’s use of spending and taxation to influence the economy and achieve macroeconomic objectives.
Q11. What is a fiscal deficit?
Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-debt Capital Receipts).
It shows borrowing needs of the government.
Q12. What is a revenue deficit?
Revenue Deficit = Revenue Expenditure – Revenue Receipts.
Indicates current expenses exceed current income.
Q13. What is primary deficit?
Primary Deficit = Fiscal Deficit – Interest Payments.
It shows actual borrowing excluding interest burden.
Q14. What is budget deficit?
The difference between total expenditure and total receipts (excluding borrowings). It is not commonly used in India’s official documents.
Q15. What are tax revenues?
Money received through compulsory payments like income tax, GST, customs, etc.
Q16. What are non-tax revenues?
Receipts from government enterprises, interest, fees, fines, and grants.
Q17. What is direct tax?
Taxes paid directly by individuals or firms — e.g., income tax, corporate tax.
Q18. What is indirect tax?
Taxes imposed on goods and services — e.g., GST, customs duty — paid indirectly by consumers.
Q19. What is a balanced budget?
When total receipts equal total expenditure — ideal for fiscal discipline, though rarely achieved.
Q20. What is a surplus budget?
When total receipts exceed total expenditure — indicates reduced government spending or high taxation.
Q21. What is a deficit budget?
When total expenditure exceeds receipts — indicates borrowing requirement to bridge the gap.
Q22. What are the types of public expenditure?
Developmental (education, health) and Non-developmental (defense, interest payments), Revenue and Capital Expenditure.
Q23. How does the government reduce income inequality?
Through progressive taxation, subsidies, social welfare schemes, and public sector employment.
Q24. How does government budget promote growth?
By investing in infrastructure, education, healthcare, and creating employment to boost demand and supply.
Q25. What is disinvestment?
Selling public sector shares to private investors to raise capital or reduce government control.
Q26. What is deficit financing?
Meeting budget deficit through borrowing from RBI or issuing new currency — may cause inflation.
Q27. What is debt trap?
When a government borrows excessively to repay past loans and interest, leading to financial crisis.
Q28. What is fiscal discipline?
Maintaining sustainable deficit and debt levels through prudent revenue and expenditure management.
Q29. What is zero-based budgeting?
A method where each expense must be justified from scratch, not just based on past trends.
Q30. Why is budget important for the economy?
It influences aggregate demand, directs resource allocation, ensures social justice, promotes investment, and maintains economic stability.