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The government budget is a statement of the estimates of government receipts and government ______ during the financial year.
The government budget is a statement of the estimates of government receipts and government ______ during the financial year.
expenditure
The government uses fiscal instruments like taxation and subsidies to improve the distribution of income and ______.
The government uses fiscal instruments like taxation and subsidies to improve the distribution of income and ______.
wealth
The government's budgetary policy aims to direct the allocation of resources to balance profit maximisation and social ______.
The government's budgetary policy aims to direct the allocation of resources to balance profit maximisation and social ______.
welfare
The budgetary policy helps to correct situations of deflation and inflation and strives for economic ______.
The budgetary policy helps to correct situations of deflation and inflation and strives for economic ______.
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Budget receipts refer to estimated money ______ of the government from all sources during the fiscal year.
Budget receipts refer to estimated money ______ of the government from all sources during the fiscal year.
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Revenue receipts do not create any corresponding ______ for the government.
Revenue receipts do not create any corresponding ______ for the government.
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Progressive tax rates increase with an increase in ______.
Progressive tax rates increase with an increase in ______.
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A regressive tax implies that the rate of tax ______ with an increase in income.
A regressive tax implies that the rate of tax ______ with an increase in income.
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Disinvestment occurs when the government sells off its shares of public sector ______ to private sector.
Disinvestment occurs when the government sells off its shares of public sector ______ to private sector.
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Money received through disinvestment is treated as ______ receipts.
Money received through disinvestment is treated as ______ receipts.
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Revenue expenditure does not create assets or cause a reduction in ______ for the government.
Revenue expenditure does not create assets or cause a reduction in ______ for the government.
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Important items of capital expenditure include expenditure on land and building, machinery, and purchase of ______.
Important items of capital expenditure include expenditure on land and building, machinery, and purchase of ______.
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Development expenditure relates to growth and ______ activities of the government.
Development expenditure relates to growth and ______ activities of the government.
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Non-Development expenditure includes activities like administration, defence, and payment of old age ______.
Non-Development expenditure includes activities like administration, defence, and payment of old age ______.
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______ expenditure refers to that expenditure which is related to programmes under Five Year Plans.
______ expenditure refers to that expenditure which is related to programmes under Five Year Plans.
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Expenditure on defence and subsidies are examples of ______ expenditure.
Expenditure on defence and subsidies are examples of ______ expenditure.
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Value Added Tax or VAT is an indirect tax imposed on the value added at various stages of ______.
Value Added Tax or VAT is an indirect tax imposed on the value added at various stages of ______.
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Direct taxes are taxes whose burden is borne by the person on whom it is ______.
Direct taxes are taxes whose burden is borne by the person on whom it is ______.
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Fees are payments made to the government for the ______ it renders to the people.
Fees are payments made to the government for the ______ it renders to the people.
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Fines are payments made by law ______ to the government as a form of economic punishment.
Fines are payments made by law ______ to the government as a form of economic punishment.
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Escheat refers to income that arises from property left by people without a legal ______.
Escheat refers to income that arises from property left by people without a legal ______.
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Income from public enterprises is a source of revenue for the ______.
Income from public enterprises is a source of revenue for the ______.
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A budget deficit occurs when budget expenditures are greater than budget __________.
A budget deficit occurs when budget expenditures are greater than budget __________.
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The excess of revenue expenditure over revenue __________ is known as revenue deficit.
The excess of revenue expenditure over revenue __________ is known as revenue deficit.
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Capital receipts create a liability for the government or cause a reduction in its ______.
Capital receipts create a liability for the government or cause a reduction in its ______.
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Fiscal deficit is expressed as a percentage of __________.
Fiscal deficit is expressed as a percentage of __________.
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Borrowings create a ______, and thus are treated as capital receipts.
Borrowings create a ______, and thus are treated as capital receipts.
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A balanced budget occurs when government receipts are __________ to government expenditure.
A balanced budget occurs when government receipts are __________ to government expenditure.
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A budget in which government receipts exceed government __________ is known as a surplus budget.
A budget in which government receipts exceed government __________ is known as a surplus budget.
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Government receipts can be raised through taxation and __________.
Government receipts can be raised through taxation and __________.
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Direct taxation is generally __________ in nature, while indirect taxation is regressive.
Direct taxation is generally __________ in nature, while indirect taxation is regressive.
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Disinvestment is a process of __________ of public sector enterprises.
Disinvestment is a process of __________ of public sector enterprises.
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The foreign exchange rate is the rate at which one unit of currency can be exchanged for the number of units of another country's ______.
The foreign exchange rate is the rate at which one unit of currency can be exchanged for the number of units of another country's ______.
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A fixed exchange rate system is determined by the ______.
A fixed exchange rate system is determined by the ______.
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The gold standard system defines the value of a currency in terms of ______.
The gold standard system defines the value of a currency in terms of ______.
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In the Bretton Woods system, different currencies were pegged to the US ______.
In the Bretton Woods system, different currencies were pegged to the US ______.
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A flexible exchange rate is determined by the demand for and supply of different currencies in the ______ market.
A flexible exchange rate is determined by the demand for and supply of different currencies in the ______ market.
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If the demand for foreign exchange rises, its ______ will also rise.
If the demand for foreign exchange rises, its ______ will also rise.
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Foreign exchange is demanded for international loans, gifts, investments, and direct ______ abroad.
Foreign exchange is demanded for international loans, gifts, investments, and direct ______ abroad.
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Speculative trading in foreign exchange by residents can also impact the ______ of the exchange rate.
Speculative trading in foreign exchange by residents can also impact the ______ of the exchange rate.
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Supply of foreign exchange depends on exports of the country to the rest of the ______.
Supply of foreign exchange depends on exports of the country to the rest of the ______.
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The supply curve for foreign currency is an upward sloping ______.
The supply curve for foreign currency is an upward sloping ______.
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Demand for foreign currency and the rate of exchange are negatively related, forming a downward sloping ______.
Demand for foreign currency and the rate of exchange are negatively related, forming a downward sloping ______.
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The equilibrium point in the foreign exchange market is where the supply curve SS intersects the demand curve ______.
The equilibrium point in the foreign exchange market is where the supply curve SS intersects the demand curve ______.
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Foreign exchange market refers to the market for national ______ of different countries.
Foreign exchange market refers to the market for national ______ of different countries.
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Hedging function in the foreign exchange market implies protection against risk related to variation in foreign exchange ______.
Hedging function in the foreign exchange market implies protection against risk related to variation in foreign exchange ______.
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Appreciation of the domestic currency occurs when its value increases in relation to the value of other ______.
Appreciation of the domestic currency occurs when its value increases in relation to the value of other ______.
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Remittances by the non-residents living in foreign ______ contribute to the supply of foreign exchange.
Remittances by the non-residents living in foreign ______ contribute to the supply of foreign exchange.
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Study Notes
Government Budget
- A government budget is a statement of estimated government receipts and expenditure for a financial year.
Objectives of Government Budget
- Redistribution of Income and Wealth: The government uses taxation and subsidies to improve income and wealth distribution across the economy. Equitable distribution signifies social justice.
- Reallocation of Resources: Budgetary policy directs resource allocation to balance profit maximization and social welfare goals. Goods harmful to health are discouraged through heavy taxation.
- Economic Stability: The government's budgetary policy manages deflation and inflation, stabilizing the economy. Addressing trade cycles is also part of this objective.
- Managing Public Enterprises: The budget supports public sector enterprise growth focused on social welfare rather than profit.
Structure of Budget
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Budget Receipts: These refer to the total estimated money received by the government from all sources during a fiscal year.
- Revenue Receipts: These receipts don't create government liability or reduce assets. Examples include tax receipts.
- Capital Receipts: These receipts either create government liability or reduce government assets. Examples include recovering loans, borrowing, and disinvestment.
Tax Receipts
- A tax is a compulsory payment to the government by households, firms, or organizations.
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Types of Taxes:
- Progressive Taxes: Tax rates increase with income (burden mostly on high-income earners).
- Regressive Taxes: Tax rates decrease with income (burden equally shared by low and high-income earners).
- Indirect Taxes: These taxes are levied on goods, services, and other activities. Some indirect taxes are VAT and specific taxes.
Non-Tax Receipts
- These receipts are from sources other than taxes. Examples are:
- Fees: Payments for government services (e.g., birth registration or passport fees).
- Fines: Penalties for violations of laws.
- Escheat: Income from property left by individuals without legal heirs.
- Special Assessment: Payments by property owners for development activities.
- Income from Public Enterprises: Profits of government-owned enterprises.
- Income from Sale of Spectrum: Revenue from the sale of radio frequencies.
- Grants/Donations: Receipts received from citizens or other entities in times of need.
Budget Expenditure
- Revenue Expenditure: Government expenditures that don't create assets or reduce liabilities. Examples include wages, interest payments, subsidies, and defense spending.
- Capital Expenditure: Government expenditures that create assets or reduce liabilities. Examples include land acquisition, machinery purchases, and loans provided to other entities.
Development and Non-Development Expenditure
- Development Expenditure: Expenditures for growth-related activities like education, health, agriculture, and infrastructure projects.
- Non-Development Expenditure: Expenditures on non-development activities such as administration, defense, subsidies, and interest payments.
Plan and Non-Plan Expenditure
- Plan Expenditure: Expenditure related to programs under five-year plans.
- Non-Plan Expenditure: Expenditure not associated with five-year plans.
Budget Deficit
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Budget Deficit: Occurs when expenditure exceeds receipts.
- Revenue Deficit: Excess of revenue expenditure over revenue receipts.
- Fiscal Deficit: Excess of total expenditure over total receipts (excluding borrowings).
- Primary Deficit: Difference between fiscal deficit and interest payments.
Balanced & Unbalanced Budget
- Balanced Budget: Government receipts equal government expenditure.
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Unbalanced Budget: Government receipts and expenditure do not match.
- Surplus Budget: Receipts exceed expenditure.
- Deficit Budget: Expenditure exceeds receipts.
Measures to Curtail Budgetary Deficits
- Lowering Government Expenditure: Reducing spending on development and non-development programs, and increasing private sector involvement.
- Raising Government Receipts: Increasing tax revenue and encouraging disinvestment of inefficient public enterprises.
Foreign Exchange Rate
- The price of one currency in terms of another currency.
-
Types of Exchange Rate Systems
- Fixed Exchange Rate Systems: Government-set exchange rates. Can have variants like the Gold Standard and Bretton Woods.
- Flexible/Floating Exchange Rate Systems: Exchange rates determined by demand and supply forces.
Determination of Exchange Rate in a Free Market
- The market rate is determined by the demand and supply of the currency.
- Increased demand, other things equal, leads to higher prices.
- Increased supply, other things equal, leads to lower prices.
Foreign Exchange Market
- The market for national currencies of different countries.
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Functions:
- Transfers purchasing power between countries.
- Provides credit for international trade and investment.
- Manages risk related to changes in exchange rates.
Appreciation & Depreciation of Domestic Currency
- Appreciation: Increase in the value of domestic currency relative to other currencies.
- Depreciation: Decrease in the value of domestic currency relative to other currencies.
Managed Floating & Dirty Floating
- Managed Floating: Adjustment in exchange rate based on declared rules and regulations in the market.
- Dirty Floating: Manipulating exchange rates to benefit one country's economic goals, even at the expense of other countries.
Fixed Exchange Rate Systems Variations
- Wider Bands: Slight band allowed for fluctuations around a fixed exchange rate and an exchange rate parity between two currencies.
- Crawling Peg: Allows small, gradual adjustments in the exchange rate for different currencies within a certain range.
Purchasing Power Parity (PPP)
- The ratio of purchasing power of different currencies. The ratio of price levels in different countries determine the exchange rate between these countries.
Balance of Payments (BoP)
- The record of all economic transactions between a country and the rest of the world.
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Components:
- Current Account: Imports, exports, services, and unilateral transfers; invisible trade accounts.
- Capital Account: Financial transactions such as investments, loans, and purchases of assets; foreign investment.
Capital Account
- Records transactions that change the asset/liability status of a country or its government.
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Components:
- Foreign Investment (FDI & Portfolio): Direct purchase of assets in another country vs. purchasing assets without control
- Loans/Borrowings: Country's borrowing from other entities and international assistance.
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Description
Test your knowledge on government budgeting concepts, including fiscal instruments, budgetary policy, and types of receipts. This quiz covers key terms and principles related to how the government manages its financial resources. Perfect for students studying economics or public finance.
