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Questions and Answers
A balanced budget occurs when the government spends more than the revenue it collects.
A balanced budget occurs when the government spends more than the revenue it collects.
False
The Medium-term Fiscal Policy Statement evaluates whether revenue expenditure can be financed sustainably.
The Medium-term Fiscal Policy Statement evaluates whether revenue expenditure can be financed sustainably.
True
A budget surplus occurs when government expenditures are higher than its revenues.
A budget surplus occurs when government expenditures are higher than its revenues.
False
The Fiscal Policy Strategy Statement sets the priorities of the government in fiscal matters.
The Fiscal Policy Strategy Statement sets the priorities of the government in fiscal matters.
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Gender budgeting aims to empower men through budget allocations.
Gender budgeting aims to empower men through budget allocations.
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When tax collections do not meet the government's expenditures, it results in a budget deficit.
When tax collections do not meet the government's expenditures, it results in a budget deficit.
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The Macroeconomic Framework Statement provides predictions about GDP growth and fiscal balance.
The Macroeconomic Framework Statement provides predictions about GDP growth and fiscal balance.
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The 2005-06 Indian Budget first introduced gender budgeting as a concept.
The 2005-06 Indian Budget first introduced gender budgeting as a concept.
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A budget deficit occurs when a government collects more revenue than it spends.
A budget deficit occurs when a government collects more revenue than it spends.
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Revenue deficit is calculated as revenue expenditure minus revenue receipts.
Revenue deficit is calculated as revenue expenditure minus revenue receipts.
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The revenue receipts of the central government for 2022-23 are 8.5% of GDP.
The revenue receipts of the central government for 2022-23 are 8.5% of GDP.
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The revenue expenditure of the central government in 2022-23 is lower than its revenue receipts.
The revenue expenditure of the central government in 2022-23 is lower than its revenue receipts.
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The capital receipts of the government for the given period are more than the capital expenditure.
The capital receipts of the government for the given period are more than the capital expenditure.
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Non-debt receipts of the government amount to 8.9% of GDP for 2022-23.
Non-debt receipts of the government amount to 8.9% of GDP for 2022-23.
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The fiscal deficit for the central government in 2022-23 is 3.8% of GDP.
The fiscal deficit for the central government in 2022-23 is 3.8% of GDP.
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Interest payments constitute the largest portion of the revenue expenditure for the central government.
Interest payments constitute the largest portion of the revenue expenditure for the central government.
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Revenue Expenditure is primarily spent on the creation of physical or financial assets.
Revenue Expenditure is primarily spent on the creation of physical or financial assets.
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Non-plan expenditure includes interest payments, defense services, and subsidies.
Non-plan expenditure includes interest payments, defense services, and subsidies.
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Plan revenue expenditure is associated with the implementation of Five-Year Plans.
Plan revenue expenditure is associated with the implementation of Five-Year Plans.
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The largest component of non-plan revenue expenditure is subsidies.
The largest component of non-plan revenue expenditure is subsidies.
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Non-plan expenditure is considered a wasteful use of resources according to some arguments.
Non-plan expenditure is considered a wasteful use of resources according to some arguments.
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Defence expenditure is described as discretionary in nature.
Defence expenditure is described as discretionary in nature.
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Grants given to state governments and other parties are excluded from revenue expenditure.
Grants given to state governments and other parties are excluded from revenue expenditure.
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Salaries and pensions are components of non-plan expenditure.
Salaries and pensions are components of non-plan expenditure.
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Public goods can be provided by market mechanisms without government intervention.
Public goods can be provided by market mechanisms without government intervention.
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Private goods are characterized by consumption that is rivalrous.
Private goods are characterized by consumption that is rivalrous.
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All public goods are excludable regardless of whether individuals pay for them.
All public goods are excludable regardless of whether individuals pay for them.
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National defense is an example of a public good.
National defense is an example of a public good.
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Consumers are more likely to pay for public goods because of their exclusive properties.
Consumers are more likely to pay for public goods because of their exclusive properties.
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A public park provides benefits that are considered rivalrous.
A public park provides benefits that are considered rivalrous.
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Private goods include items like roads and government administration.
Private goods include items like roads and government administration.
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Free-riders are individuals who benefit from public goods without paying for them.
Free-riders are individuals who benefit from public goods without paying for them.
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An increase in government spending by $100 increases output by $500.
An increase in government spending by $100 increases output by $500.
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The equilibrium income is defined as the temporary income before all multiplier effects have fully taken place.
The equilibrium income is defined as the temporary income before all multiplier effects have fully taken place.
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The balanced budget multiplier is greater than 1.
The balanced budget multiplier is greater than 1.
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An increase in taxes does not have any direct effect on income.
An increase in taxes does not have any direct effect on income.
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The net increase in income due to a $100 tax increase is $100.
The net increase in income due to a $100 tax increase is $100.
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In the case of proportional taxes, the government collects a constant fraction of total income.
In the case of proportional taxes, the government collects a constant fraction of total income.
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The multiplier process can be simplified to an equation of the form ∆Y = ∆G + c∆G + c2∆G +... .
The multiplier process can be simplified to an equation of the form ∆Y = ∆G + c∆G + c2∆G +... .
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In the formula ∆Y = ∆G + c (∆Y – ∆T), the term (∆Y – ∆T) represents the change in disposable income.
In the formula ∆Y = ∆G + c (∆Y – ∆T), the term (∆Y – ∆T) represents the change in disposable income.
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The central government is allowed to borrow from the Reserve Bank of India without restrictions.
The central government is allowed to borrow from the Reserve Bank of India without restrictions.
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Measures have been proposed to ensure greater transparency in fiscal operations.
Measures have been proposed to ensure greater transparency in fiscal operations.
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The Fiscal Responsibility and Budget Management Act (FRBMA) was designed to allow for unrestricted welfare expenditure.
The Fiscal Responsibility and Budget Management Act (FRBMA) was designed to allow for unrestricted welfare expenditure.
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All 28 states have enacted fiscal responsibility legislations.
All 28 states have enacted fiscal responsibility legislations.
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The actual deficits can exceed specified targets for reasons related to national security.
The actual deficits can exceed specified targets for reasons related to national security.
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The Reserve Bank of India must subscribe to the primary issues of central government securities starting from 2006-07.
The Reserve Bank of India must subscribe to the primary issues of central government securities starting from 2006-07.
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The central government is required to present three statements to both Houses of Parliament along with the Annual Financial Statement.
The central government is required to present three statements to both Houses of Parliament along with the Annual Financial Statement.
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The fiscal responsibility legislations of the states do not affect the central government's fiscal reform program.
The fiscal responsibility legislations of the states do not affect the central government's fiscal reform program.
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If government expenditure increases by 30, the impact on equilibrium ______ will be significant.
If government expenditure increases by 30, the impact on equilibrium ______ will be significant.
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The equilibrium level of income is represented by the equation Y * = 1 – c(1 – t) ______
The equilibrium level of income is represented by the equation Y * = 1 – c(1 – t) ______
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A lump-sum tax of 30 may ______ equilibrium income depending on other economic factors.
A lump-sum tax of 30 may ______ equilibrium income depending on other economic factors.
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When considering changes in G, the equation for the multiplier is given by ∆Y = ∆G + c(1 – t)∆Y, leading to ∆Y = ∆G + c ______∆G.
When considering changes in G, the equation for the multiplier is given by ∆Y = ∆G + c(1 – t)∆Y, leading to ∆Y = ∆G + c ______∆G.
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With proportional taxes, consumption will rise by less, represented as c(1 – t) ______.
With proportional taxes, consumption will rise by less, represented as c(1 – t) ______.
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When C = 70 + 0.70Y D, the ______ at equilibrium income can be determined based on consumer spending.
When C = 70 + 0.70Y D, the ______ at equilibrium income can be determined based on consumer spending.
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The AD curve shifts up due to a tax reduction, indicating that aggregate demand for goods exceeds ______.
The AD curve shifts up due to a tax reduction, indicating that aggregate demand for goods exceeds ______.
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The marginal propensity to ______ is essential for understanding how changes in government purchases affect income.
The marginal propensity to ______ is essential for understanding how changes in government purchases affect income.
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A ______ in transfers can also affect the equilibrium income negatively.
A ______ in transfers can also affect the equilibrium income negatively.
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The formula for the multiplier given is ∆Y/∆A = 1/(1 – c(1 – t)), thus the multiplier becomes ______.
The formula for the multiplier given is ∆Y/∆A = 1/(1 – c(1 – t)), thus the multiplier becomes ______.
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The tax multiplier is generally ______ in absolute value than the government expenditure multiplier.
The tax multiplier is generally ______ in absolute value than the government expenditure multiplier.
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In the case of proportional taxes, the increase in income is reflected as ______ Y to Y′.
In the case of proportional taxes, the increase in income is reflected as ______ Y to Y′.
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The relationship between government ______ and debt is critical in understanding fiscal sustainability.
The relationship between government ______ and debt is critical in understanding fiscal sustainability.
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When income rises due to an increase in government spending, consumption increases by c times the increase in ______.
When income rises due to an increase in government spending, consumption increases by c times the increase in ______.
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Goods and Services Tax (G.S.T) is considered ______ than the old tax system for its efficiency in tax collection.
Goods and Services Tax (G.S.T) is considered ______ than the old tax system for its efficiency in tax collection.
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The reduction in the proportional tax rate affects the ______ to consume, shifting the AD curve upwards.
The reduction in the proportional tax rate affects the ______ to consume, shifting the AD curve upwards.
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This view is called Ricardian equivalence after one of the greatest economists, David ______.
This view is called Ricardian equivalence after one of the greatest economists, David ______.
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It argues that taxation and borrowing are equivalent means of financing ______.
It argues that taxation and borrowing are equivalent means of financing ______.
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When the government increases spending by borrowing today, it will have the same impact as an increase in government expenditure financed by a ______ increase today.
When the government increases spending by borrowing today, it will have the same impact as an increase in government expenditure financed by a ______ increase today.
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Any debt that is owed to foreigners involves a ______ since we have to send goods abroad corresponding to the interest payments.
Any debt that is owed to foreigners involves a ______ since we have to send goods abroad corresponding to the interest payments.
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One of the main criticisms of deficits is that they are ______.
One of the main criticisms of deficits is that they are ______.
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If some private savers decide to buy bonds, the funds remaining to be invested in private hands will be ______.
If some private savers decide to buy bonds, the funds remaining to be invested in private hands will be ______.
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A high fiscal deficit is accompanied by higher demand and greater output and, therefore, need not be ______.
A high fiscal deficit is accompanied by higher demand and greater output and, therefore, need not be ______.
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The economy’s flow of savings is not really fixed unless we assume that income cannot be ______.
The economy’s flow of savings is not really fixed unless we assume that income cannot be ______.
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Governments in many countries run huge ______, forcing them to eventually put in place self-imposed constraints.
Governments in many countries run huge ______, forcing them to eventually put in place self-imposed constraints.
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Public goods are ______ consumed and are known for being non-rivalrous.
Public goods are ______ consumed and are known for being non-rivalrous.
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Larger deficits do not always signify a more ______ fiscal policy.
Larger deficits do not always signify a more ______ fiscal policy.
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The budget is divided into the revenue budget and ______ budget to distinguish between current and investment needs.
The budget is divided into the revenue budget and ______ budget to distinguish between current and investment needs.
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Public goods are non-excludable, meaning there is no feasible way of excluding anyone from enjoying the ______ of the good.
Public goods are non-excludable, meaning there is no feasible way of excluding anyone from enjoying the ______ of the good.
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Tax revenues fall during a recession because firms and households pay ______ taxes when they earn less.
Tax revenues fall during a recession because firms and households pay ______ taxes when they earn less.
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The functions of allocation, redistribution, and stabilisation operate through the ______ and receipts of the government.
The functions of allocation, redistribution, and stabilisation operate through the ______ and receipts of the government.
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An increase in government spending can impact output even in the absence of changes in ______ policy.
An increase in government spending can impact output even in the absence of changes in ______ policy.
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Public provision means that goods are financed through the ______ and can be used without any direct payment.
Public provision means that goods are financed through the ______ and can be used without any direct payment.
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The redistribution function of government budget affects the personal disposable ______ of households.
The redistribution function of government budget affects the personal disposable ______ of households.
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When goods are produced directly by the government, it is referred to as public ______.
When goods are produced directly by the government, it is referred to as public ______.
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The government needs to intervene to raise the aggregate ______ when it is insufficient for full utilization of labor.
The government needs to intervene to raise the aggregate ______ when it is insufficient for full utilization of labor.
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In economics, the total national income can be classified as either private income or ______ income.
In economics, the total national income can be classified as either private income or ______ income.
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The stabilization function of the government budget may be needed to correct fluctuations in income and ______.
The stabilization function of the government budget may be needed to correct fluctuations in income and ______.
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High levels of employment may lead to a situation where demand exceeds available ______.
High levels of employment may lead to a situation where demand exceeds available ______.
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The government can bring about a distribution of income that is considered 'fair' by society through its ______ function.
The government can bring about a distribution of income that is considered 'fair' by society through its ______ function.
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An increase in government spending by 100 increases output by _____.
An increase in government spending by 100 increases output by _____.
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The equilibrium income is the final income that one arrives at after all rounds of the ______ have been accounted for.
The equilibrium income is the final income that one arrives at after all rounds of the ______ have been accounted for.
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In the unique case of a balanced budget, the multiplier is equal to _____.
In the unique case of a balanced budget, the multiplier is equal to _____.
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The process of government spending increasing income directly and through the multiplier chain is represented by the equation ∆Y = ∆G + c∆G + c2∆G +.... This is often abbreviated as ∆Y = ∆G (1 + c + c2 +...). Here, c represents the _____.
The process of government spending increasing income directly and through the multiplier chain is represented by the equation ∆Y = ∆G + c∆G + c2∆G +.... This is often abbreviated as ∆Y = ∆G (1 + c + c2 +...). Here, c represents the _____.
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The tax increase's effect on income is calculated as ∆Y = – ∆T(c + c2 +...), showing that it has a ____ effect on income.
The tax increase's effect on income is calculated as ∆Y = – ∆T(c + c2 +...), showing that it has a ____ effect on income.
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When government spending (∆G) is equal to tax changes (∆T), the net change in income is given by ∆Y = ∆G, indicating that government spending directly influences _____.
When government spending (∆G) is equal to tax changes (∆T), the net change in income is given by ∆Y = ∆G, indicating that government spending directly influences _____.
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In a scenario where investment remains unchanged (∆I = 0), the equation ∆Y = ∆G + c (∆Y – ∆T) can help explain how changes in G affect _____.
In a scenario where investment remains unchanged (∆I = 0), the equation ∆Y = ∆G + c (∆Y – ∆T) can help explain how changes in G affect _____.
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Governments often collect a constant fraction, denoted as 't', of income through taxes, which leads to the relationship T = tY, where T stands for ____.
Governments often collect a constant fraction, denoted as 't', of income through taxes, which leads to the relationship T = tY, where T stands for ____.
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Study Notes
Government Budget and the Economy
- Government plays a crucial role in a mixed economy, influencing economic life through its budget.
- The government budget details estimated receipts and expenditures for a financial year (April 1 to March 31).
- The budget document focuses on the current financial year, but its impact extends to subsequent years.
- Two accounts exist: the revenue account (deals with the current financial year) and the capital account (deals with assets and liabilities).
Objectives of Government Budget
- Allocation function: The government provides public goods (national defence, roads, etc.) that the market cannot, facilitating economic activity.
- Redistribution function: By adjusting taxation and transfers, the government aims to achieve a fairer distribution of national income.
- Stabilisation function: Intervening to correct fluctuations in income and employment levels, for example by increasing demand in a recession.
Classification of Government Receipts
- Revenue receipts: Non-redeemable receipts that do not create a claim on the government (e.g., taxes, non-tax revenue).
- Capital receipts: Receipts that create a liability or reduce financial assets (e.g., loans, sale of assets).
Classification of Government Expenditure
- Revenue expenditure: Expenditure for normal government functioning, interest on debt, grants to states.
- Capital expenditure: Expenditure incurred to create physical or financial assets, including purchase of land, machinery, etc.
Balanced, Surplus and Deficit Budget
- Balanced budget: When government expenditure equals revenue.
- Surplus budget: When government revenue exceeds expenditure.
- Deficit budget: When government expenditure exceeds revenue.
Measures of Government Deficit
- Revenue deficit: Excess of government revenue expenditure over revenue receipts.
- Fiscal deficit: Difference between government total expenditure and total receipts (excluding borrowing).
- Primary deficit: Fiscal deficit minus interest payments.
Role of Government Budget in the Economy
- Stabilisation: The government plays a critical role in minimising fluctuations in income and employment.
- The government aims to keep output and prices stable.
- The government can adjust its expenditure to stabilise the economy.
Fiscal Policy
- Fiscal policy uses government spending and taxes to stabilise the economy.
- The goal of fiscal policy is to stabilise output and employment.
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Description
Explore the essential role of government budgets in a mixed economy. This quiz examines how government spending and revenue influence economic activity, the functions of budget allocation, redistribution, and stabilization, as well as the different accounts involved in budgeting. Dive into the intricacies of fiscal policy and its effects on the economy.
