Fiscal Policy and Government Budget PDF

QUESTION BANK CLASS XII ECONOMICS UNIT VIII- FISCAL POLICY AND GOVERNMENT BUDGET I) Multiple-choice questions A. Choose the correct answer and write the c...

QUESTION BANK CLASS XII ECONOMICS UNIT VIII- FISCAL POLICY AND GOVERNMENT BUDGET I) Multiple-choice questions A. Choose the correct answer and write the correct option: (All correct answers are highlighted) 1. Which of the following is not a part of the revenue receipt for the Government of India? a. The receipts from the collection of interest amount from its debtors b. The receipts from the collection of corporate taxes c. The dividends and profits received from the public sector units d. The receipts from disinvestment of public sector undertakings 2. A Budget deficit is defined as. a. Excess of the total expenditure over the total receipts minus interest payments and borrowings. b. Excess of the total expenditure over the total receipts minus borrowings. c. Excess of the revenue expenditure over the revenue receipts. d. Excess of the total expenditure over the total receipts. 3. Identify the impact of deficit financing in the economy. a. The rise in inflation within the Indian economy b. The improvement in money supply in the Indian economy c. The increase in government debt d. All of the above 4. is not a part of the development expenditure undertaken by the Governmentof India. a. The grants provided to the state governments. b. The expenditure towards providing economic services. c. The expenditure towards providing economic services. d. The expenditure as a part of the defence budget. 5. identify the correct meaning of the revenue budget. a. It is the difference between revenue expenditure and revenue receipts b. It is the total revenue deficit excluding grants in aid to create assets for states. c. It is the total revenue deficit including grants in aid for developing assets for states d. It is the difference between total expenditure and total receipts. 1|Page  6. The amount received by the Government in the form of interest, fees, and dividends is known as. a. Tax-revenue receipts b. Capital receipts c. Non-tax revenue receipts. d. None of these. 7. neither creates an asset nor reduces any liability for the Government. a. Revenue Expenditure. b. Capital Expenditure. c. Both a. and b. d. None of the above. 8. Corporate Tax and Income Tax are examples of which type of Tax? a. Indirect Tax. b. Direct Tax. c. Wealth Tax. d. None of the above. 9. A tax whose burden cannot be shifted is termed as a. Indirect Tax. b. Direct Tax. c. Both a. and b. d. None of the above. 10. Identify the correct source from the following to meet the fiscal deficit of the Government. a. Borrowings from the public. b. Borrowings from external sources. c. Deficit financing. d. All the above. 11. Which of the following is treated as a Capital receipt? a. Recovery of loans. b. Interest received on loans. c. Gifts and grants. d. Escheats. 12. Which type of expenditure will either create an asset or reduce the liability of the Government? a. Revenue Expenditure. b. Capital Expenditure. c. Capital Receipt. d. Revenue Receipt. 13. Revenue receipts neither create nor reduce the of the Government. a. liability, an asset. 2|Page  b. An Asset, liability. c. Revenue, Expenditure. d. None of these. 14. Capital gains tax is an example of tax. a. Direct tax b. Indirect tax c. Both a and b d. None of these 15. Revenue deficit is computed as _. a. Revenue Deficit = Revenue expenditure – Total receipts b. Revenue Deficit = Revenue expenditure – Revenue receipts c. Revenue Deficit = Revenue expenditure – Revenue receipts d. None of these. 16. Read the following statement given below and choose the correct alternative Statement 1- The government imposes a high rate of income tax on higher-income groupsStatement 2- Low-income groups pay high amounts of tax a. Both are correct b. Both are wrong c. Statement 1 is correct and statement 2 is wrong. d. Statement 2 is correct and statement 1 is wrong. 17. Read the following statement given below and choose the correct alternativeStatement 1- In case of inflation, the government decreases rate of tax Statement 2- In case of deflation, the government increases rate of tax a. Both are correct. b. Both are wrong. c. Statement 1 is correct and statement 2 is wrong. d. Statement 1 is wrong and statement 2 is correct. 18. “Loans recovered by the Central Government from state and local government are capital receipts because.” a. It creates liability. b. Reduce unnecessary expenditure. c. Of fiscal mismanagement. d. It reduces assets. 3|Page 19. Read the following statement given below and choose the correct alternative Assertion (A)- The government imposes high rate of income tax on higher income groups. Reason (R)- Low-income groups are unable to pay high taxes. a. Both assertion and reason are true and Reason is the correct explanation of assertion b. Assertion is true but reason is not c. Both assertion and reason are true and Reason is not the correct explanation of assertion d. Reason is true but assertion is not. 20. Excess of budget expenditure over budget receipts excluding is called fiscal deficit. a. Borrowings. b. Revenue receipts. c. Revenue expenditure. d. Capital expenditure. 21. Fiscal Policy is defined as the policy under which a. The government uses instruments of taxation. b. The government sets instruments of public borrowing and public spending. c. Government has a predetermined purpose for economic policy. d. All of the above. 22. Identify the correct statement about the Primary deficit in a government budget. a. The Primary deficit is zero when the Revenue Deficit is zero. b. The Primary Deficit is zero when the Fiscal Deficit is zero. c. The Primary Deficit is zero when the net interest payments are zero. d. The Primary Deficit is zero when the Fiscal Deficit is equal to the interest payment. 23. Which of the following is not an implication of fiscal deficit? a. Fiscal deficit leads to increased dependence on foreign countries b. Fiscal deficit helps to determine the total borrowing requirements of any government c. The repayment of loans with interest helps to reduce the fiscal deficit d. The fiscal deficit increases the liability of any government. 24. Capital expenditure undertaken by the government is in the form of. a. Subsidies and defence services expenditure. b. Construction of roads and repayment of loans. c. Both a and b are correct. d. Both a and b are incorrect. 25. Which of the following statements about the capital budget is accurate? a. The capital budget consists of direct and indirect tax b. The capital budget consists of capital expenditure and capital receipts c. The capital budget consists of revenue expenditure and revenue receipts d. The capital budget consists of direct taxes 4|Page 26. is not a component of Revenue receipts of the Union Government. a. Corporate tax receipts b. Interest receipts c. Disinvestment receipts d. Dividend receipts 27. The is a component of the Revenue budget of the country. a. Expenditure on acquisition of fighter aircraft b. Financial assistance received from World Bank c. Loans generated to other nations d. Grants to states and union territories every year. 28. Budget deficit may lead to a. Rise in interest rates b. Rise in the value of money c. Decrease in currency circulation d. Decrease in revenue expenditure 29. Expansionary fiscal policies might include: a. Lower interest rates on Public debt b. Higher Government tax c. Lower Government spending d. Lower deficit budget 30. An increase in National income should automatically lead to a. decrease in income tax b. decrease in corporation tax c. decrease in interest rates d. decrease in budget deficit 31. Assertion(A): The Government Budget is an important monetary policy instrument. Reason (R): The Government budget is a financial statement of planned receipts and proposed expenditures ofthe Government during a fiscal year. a. Both (A) and (R) are correct and (R) is the correct explanation of (A) b. Both (A) and (R) are correct but (R) is not the correct explanation of (A) c. (A) is correct and (R) is incorrect d. (A) is incorrect and (R) is correct 5|Page 32. Assertion(A): The impact and incidence of indirect taxes lie on same person. Reason (R): Indirect taxes can be avoided by not entering into those transactions which call for such taxes. a. Both (A) and (R) are correct and (R) is the correct explanation of (A) b. Both (A) and (R) are correct but (R) is not the correct explanation of (A) c. (A) is correct and (R) is incorrect d. (A) is incorrect and (R) is correct 33. Assertion(A): Expenditure on Ujjwala Yojna launched by the Government is an example of Revenueexpenditure. Reason (R): This expenditure has neither created any assets nor reduced any liabilities of the Government. a. Both (A) and (R) are correct and (R) is the correct explanation of (A) b. Both (A) and (R) are correct but (R) is not the correct explanation of (A) c. (A) is correct and (R) is incorrect d. (A) is incorrect and (R) is correct 34. Assertion (A): Equitable distribution of income and wealth is a sign of social justice: Reason (R): Distribution of income and wealth can be improved by imposing taxes on rich and giving subsidiesto the poor. a. Both (A) and (R) are correct and (R) is the correct explanation of (A) b. Both (A) and (R) are correct but (R) is not the correct explanation of (A) c. (A) is correct and (R) is incorrect d. (A) is incorrect and (R) is correct 35. Assertion (A): Revenue budget impacts asset-liability status of the government. Reason(R): High capital receipts are often related to compulsion of borrowings. a. Both (A) and (R)are correct and (R) is the correct explanation of (A) b. Both (A) and (R) are correct but (R) is not the correct explanation of (A) c. (A) is correct and (R) is incorrect d. (A) is incorrect and (R) is correct 36. Assertion (A): Pension is a revenue expenditure of the Government. Reason (R): Pension does not lead to any type of asset formation. a. Both (A) and (R) are correct and (R) is the correct explanation of (A) b. Both (A) and (R) are correct but (R) is not the correct explanation of (A) c. (A) is correct and (R) is incorrect d. (A) is incorrect and (R) is correct 6|Page 37. Assertion (A): There can be a fiscal deficit without revenue deficit. Reason (R): High fiscal deficit leads to crowding-out in an economy. a. Both (A) and (R) are correct and (R) is the correct explanation of (A) b. Both (A) and (R) are correct but (R) is not the correct explanation of (A) c. (A) is correct and (R) is incorrect d. (A) is incorrect and (R) is correct 38. Assertion (A): Fiscal deficit is zero in case there is no provision for borrowing in the government budget. Reason (R): Higher revenue deficit always lead to higher fiscal deficit. a. Both (A) and (R) are correct and (R) is the correct explanation of (A) b. Both (A) and (R) are correct but (R) is not the correct explanation of (A) c. (A) is correct and (R) is incorrect d. (A) is incorrect and (R) is correct 39. Assertion (A): When tax rate remains constant at any level of income it is called proportional tax. Reason (R): Income tax is an example of proportional tax. a. Both (A) and (R) are correct and (R) is the correct explanation of (A) b. Both (A) and (R) are correct but (R) is not the correct explanation of (A) c. (A) is correct and (R) is incorrect d. (A) is incorrect and (R) is correct 40. Assertion (A): Goods and service tax (GST) is an indirect tax. Reason (R): Indirect taxes are those tax whose money burden cannot be shifted to any other person. a. Both (A) and (R) are correct and (R) is the correct explanation of (A) b. Both (A) and (R) are correct but (R) is not the correct explanation of (A) c. (A) is correct and (R) is incorrect d. (A) is incorrect and (R) is correct II) Descriptive answer questions (Short/long) : 1) “Corporation taxes cannot be shifted.” Justify the given statement. Ans: Corporation tax is a tax levied on companies. It is imposed on the net profit of the corporation or joint stock companies. It is a type of Direct tax where the initial burden (impact) and final burden (incidence) lie on the same entity in this case the firm. Thus, they cannot be shifted and have to be paid by the company on which it is imposed. 7|Page 2) Distinguish between Capital gains tax and Service tax Ans: Capital gains Tax Service Tax It is a type of Direct tax It is a type of Indirect tax Impact and incidence of tax lie on the same Impact and incidence of tax lie on different person persons It cannot be shifted It can be shifted It's levied on the wealth and property of an It is levied on service receivers or providers individual 3) Explain how Public expenditure can be used as a compensatory expenditure device or an anti- cyclicalinstrument of fiscal policy. Ans: Government expenditure can be used to compensate for deficiency or excess of private aggregate demand in the economy, i.e. it can be used to maintain economic stability. During Depression, the Government is expected to increase its expenditure mainly in the form of massive direct public investment that would increase the money supply, thereby aggregate demand in the economy resulting in increase in output and employment. This brings the economy out of the depressionary phase. During Inflation such expenditure has to be reduced as there is a need to curb excess demand in the economy which leads to an inflationary rise in the general price level. 4) “Public expenditure provides security from future uncertainties.” Explain this statement. Ans: Public expenditure incurred on social security schemes like old age pensions, sickness benefits, free education, medical facilities, etc increases the purchasing capacity of the people as it provides security to the people from unforeseen uncertainties in future. This also increases their productive capacity. 5) “Shortfalls in Private investment can be compensated by Public expenditure”. Explain how it is applicable. Ans: Public investment expenditure is usually autonomous in nature, that does not depend on income or profit. Public expenditure can thus promote investment in the following ways: a) The creation of social overheads like schools, colleges, universities, hospitals, etc. results in the formation of human capital. b) Expenditure on law and order creates an environment conducive to private investors undertaking investment activities. c) Creation of economic overheads like power generation, irrigation, transport and communication etc. are directly productive and in addition promote private investment as well. d) Expenditure on financial subsidies to the private sector e.g. on fertilizers, electricity, etc. also stimulates private investment. Investment. 8|Page 6) “Equitable distribution of income is one of the important social objectives of the Government.” Discuss how this objective can be achieved using the instrument of public expenditure. Ans: Public expenditure is an important instrument in the hands of the Government for bringing about equitable distribution of income and wealth in the country. a) Expenditure on social security measures like free education, medical facilities, etc. for the economically weak section of society reduces this inequality. b) Expenditure on providing subsidies on food grains and other essentials also improves the conditions of the poor. c) Subsidies and financial assistance given to producers for setting up industries in economically backward regions help in reducing regional inequalities. 7) “Increase in Real per capita income over a period of time contributes to the economic growth of the nation.” Discuss how Government spending can help in achieving the said objective. Ans: Public expenditure is an important tool in the hands of the Government that helps in promoting growth in Real per capita income leading to economic growth in the following ways. a) Expenditure on economic overheads and infrastructure and setting up of capital goods industries. b) Expenditure on education, research and training facilities, health, and social security increases the productive capacity of the people. c) Subsidies stimulate agricultural and industrial development. 8) “Repudiation of Debt is not an ideal method of debt redemption”. Justify the statement. Ans: Repudiation of debt denotes refusal of the Government to pay its debt, interest as well as the principal amount because of financial constraints in extreme situation. This leads to loss of confidence in people’s mind for the Government that is considered to be dishonest and immoral. Such a situation makes it difficult for the Government to remain in power as well. Thus, it is not an ideal method of debt repayment. 9) Can the debt burden of the Government be reduced in installments? Discuss how. Ans: The government follows the practice of paying off the debt on the basis of terminal annuity. By using this method, the government pays off its debt (which includes both interest and the principal) in equal annual installments. Thus, the debt burden is reduced each year until it is fully paid off. 10) What is a sinking fund? Ans: The government of a country establishes a separate fund known as the ‘Sinking Fund’ for the purpose of repaying its debt. Under this system, the government goes on crediting a fixed amount of money to this fund every year. By the time the debt matures, sufficient money gets accumulated in the fund so as to enable the government to repay the debt along with interest. 9|Page 11) Discuss Budgetary surplus as a method of debt redemption. Ans: Sometimes, a government is able to generate a surplus in the budget. In such a situation, the government can repay some of its old debt. In general, the government makes use of the budgetary surplus to buy back from the market (the people) its own bonds and securities. As a result, there is an automatic liquidation of the debt liability of the government. 12) Explain why the Government reduces the rate of interest on Public debt. Ans: Sometimes, the government passes ordinances to reduce the rate of interest payable on its debt. This happens when the government suffers from financial crisis and when there is a huge deficit in its budget. There are so many instances of such compulsory reduction in the rate of interest. However, this practice is not followed under normal circumstances. Instead, the government is forced to adopt this method of debt management (repayment) only when the situation so demands. 13) How does Debt conversion help in repayment of Government debt? Ans: Sometimes, a high-interest debt is converted into a low-interest one. The government may contracts the debt when the existing rate of interest is quite high. But after some time the market rate of interest may fall. This allows the government to convert its high-interest debt into a low-interest one. And, thegovernment is enabled to reduce the burden of public debt. If the interest burden of public debt falls the government is not required to raise huge revenue through taxes to service the debt. 14) Explain Refunding and Capital levy as methods of debt redemption. Ans: Refunding- The government often issues new bonds for raising new loans in order to pay-off the matured loans (i.e., an old debt). Thus, the government takes a fresh loan in order to repay an old debt. When the government uses this method of refunding there is no liquidation of the money burden of the public debt. Instead, the debt-servicing (i.e., repayment of the interest along with the principal) burden gets accumulated on account of the postponement of the debt-repayment to some future date. Capital levy- In times of war or emergency most governments follow the usual practice of repaying its debt by imposing a capital levy on its citizens. A capital levy is just like a wealth tax in as much as it is imposed on capital assets. 15) Explain the method to repay external debt. Ans: If a country is able to generate export surplus or balance of trade surplus there will be net inflow of foreign exchange into the country. This will enable the debtor country to repay its external (foreign) debt. 16) What is deficit financing? Ans: Deficit financing means generating funds to finance the deficit which results from excess of Government expenditure over revenue. The gap being covered by the Government borrowing from the RBI either by running down its accumulated cash balances or printing of new money by the Central bank. 10 | P a g e  17) What is meant by the term Primary deficit? State its implications. Ans: Primary deficit refers to difference between fiscal deficit of the current year and interest payments on the previous borrowings. Primary Deficit = Fiscal Deficit – Interest Payments Implications of Primary Deficit: It indicates, how much of the government borrowings are going to meet expenses other than the interest payments. The difference between fiscal deficit and primary deficit shows the amount of interest payments on the borrowings made in the past. So, a low or zero primary deficit indicates that interest commitments (on earlier loans) have forced the government to borrow. 18) State the differences between Primary deficit and Fiscal deficit: Primary deficit Fiscal deficit It shows the difference between fiscal deficit and It shows the excess of total expenditure over interest payment. total receipts excluding borrowings. It indicates the total borrowing requirements of It indicates the total borrowing requirements of the government, excluding interest. the government, including interest. 19) Can there be a Fiscal deficit without a revenue deficit? Ans: Yes, there can be a Fiscal deficit without a revenue deficit. This is possible because the fiscal deficit is calculated by accounting for both the revenue and capital receipts and expenditures of the government. So, even when revenue receipts and revenue expenditure are in a state of balance, there could be excess capital expenditure over capital receipts causing a fiscal deficit. 20) Give the relationship between the revenue deficit and the fiscal deficit. Ans: Revenue deficit is the excess of revenue expenditure of the government over its revenue receipts. Fiscal deficit is the excess of total budget expenditure over total budget receipts excluding borrowings. Fiscal deficit points to the borrowing requirements of the government. As fiscal deficit mounts, an increasingly larger part of GDP is used to pay the existing loans. Accordingly, resources available for revenue expenditure are reduced. The growth process is hindered. The government is once again compelled to take loans adding to its fiscal deficit. Thus, revenue deficit and fiscal deficit tend to push up each other. III) Case Study based questions: 1) Read the given paragraph and answer the following questions Public expenditure accelerates the pace of GDP growth. A higher rate of GDP growth is achieved through(a) Investment expenditure in public sector enterprises, (b) capital grants by the government for the purchase of capital equipment, (c) subsidies for the purchase of inputs (d) Purchase of farm outputs at the minimum support 11 | P a g e price. Public expenditure promotes equality in the distribution of income and wealth. This is achieved by offering old age pensions, as well as by providing food, education, and health services to the below poverty line people. Public expenditure plays a significant role in restoring economic stability. Particularly when the economy is battling economic recession. The government expenditure (consumption expenditure as well as investment expenditure) raises the level of AD and when the AD is raised the vicious circle of economic recession is broken. Public expenditure generates an investment-friendly environment in the economy. The government spends money on infrastructure development. It constructs roads, dams, and bridges. It introduces faster and more convenient means of transportation. Such facilities promote inducement to investment. Briefly, public expenditure is indispensable in any welfare state like India. It not only promotes GDP growth but also promotes social welfare. 1. The construction of roads, dams, and bridges is called.. a. Social development. b. Infrastructure development. c. Industrial development. d. Agrarian development. 2. The government expenditure does not raise the level of AD a. True. b. False. 3. Which of the following is included in the non-transferable income? a. Old age pension. b. Subsidies. c. Retirement pension. d. Scholarship. 4. Assertion [A]: Public expenditure generates an investment-friendly environment in the economy. Reason [R] : It raises the infrastructural development in the economy. a. Both Assertion [A] and Reason [R] are true. b. Both Assertion [A] and Reason [R] are false. c. Assertion[A] is true and Reason [R] is false. d. Assertion [A] is false and Reason [R] is true. 2) Read the given passage and answer the questions that follow: The major contours of the 2023-24 Union Budget have already been analyzed. To recap, the government proposes to reduce the fiscal deficit substantially from 6.4 percent of GDP to 5.9 percent, while continuing to shift the composition of expenditures away from revenue towards capital. An increase in the share of capital expenditure in total expenditures (from 19 percent to 22 percent) while reducing the fiscal deficit is being achieved by reducing or freezing expenditures on key social sector programs such as NFSA, ICDS, MGNREGA, and other areas. 12 | P a g e  i) What is meant by Fiscal deficit? How is it different from Revenue Deficit? Ans: The difference between total government expenditure (capital receipts and revenue receipts) and total revenue of the government excluding its borrowing is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. The difference between Fiscal deficit and Revenue deficit is expressed as: Fiscal deficit Revenue deficit Revenue Deficit is the excess of Fiscal Deficit is the excess of the total government estimated government expenditure expenditure over receipts from both tax and non-tax over receipts during a fiscal year in the sources excluding borrowings, during a fiscal year in revenue account. both current and capital account. Shows the need for borrowing by the Shows the extent of borrowings by the government government for the purpose of when interest payment is accounted for. managing budgetary expenditure. It represents the dissaving of the It represents an additional requirement of financial government and the intertemporal resources to meet government expenditure. shift to present consumption. It implies Insufficient funds with the It implies an increase in future liabilities of the government to finance the functioning government on interest payment and loan of government departments. repayment. ii) Discuss the components of a Government budget. Ans: The government budget is an annual financial statement depicting the expected revenues and proposed expenditures of the Government for a given financial year. There are two main components of the Government Budget. They are as follows: a) Revenue Budget: b) Capital Budget: 13 | P a g e Revenue Budget comprises of the Revenue receipts and revenue expenditures of the government. Revenue receipts are those that are non-redeemable in nature and these neither create any liabilities nor lead to any reduction in Govt. assets. These include income from tax and non-tax sources. Revenue expenditure relate to day to day expenditures of the Govt. that are related to normal Govt. functioning and interest payment. These neither create any physical or financial assets nor reduce any liability of the Govt. Components of Revenue Budget Capital Budget comprises of Capital receipts and Capital expenditure Capital receipts are receipts that either create liabilities or reduce assets of the government. These are usually redeemable in nature. Examples: Market borrowings by the government from the public, Borrowings from the RBI, Borrowings from commercial banks or financial institutions through the sale of T-BILLS, loans received from foreign governments or international financial institutions, post office savings, post office saving certificates, recovery of loans and PSU’s Disinvestment. Capital expenditures are those Govt. expenditures that either create physical or financial assets or lead to reduction in liabilities of the Government. Examples: Purchase of land, machinery, building, and equipment; investment in shares; loans and advances by the central government to state governments and UTs, creation of assets like schools, colleges, hospitals, roads, bridges, dams, railway lines, airports and seaports. Capital expenditure also covers the acquisition of equipment and machinery by the government, including those for defence purposes. Capital expenditure also includes investment by the government that yields profits or dividend in future. 14 | P a g e iii) Classify the following into Revenue receipts/Capital receipts. Give reasons in each case: a) Loans taken from European union for infrastructural development. b) Dividend received by the Government from MTNL c) Proceeds from sale shares of Air India to TATA group d) Profits earned by Indian Railways e) Financial help Bill & Melinda Gates foundation for the victims of the flood affected areas. Ans: a) Capital receipts as it leads to the creation of assets for the Govt. b) Revenue receipts as they do not create assets nor reduce liabilities of the Govt and are non- redeemable in nature. c) Capital receipts as they lead to a reduction in Govt. assets. d) Revenue receipts as they do not create assets nor reduce liabilities of the Govt and are non- redeemable in nature. e) Revenue receipts as they do not create assets nor reduce liabilities of the Govt and are non- redeemable in nature. iv) Classify the following into Revenue expenditure /Capital expenditure. Give reasons in each case: a) Salary paid to the commandos of Indian Air Force. b) Expenditure incurred on the construction of East west metro project in Kolkata. c) Pension paid to the retired employees of SBI d) Interest on loan from IMF e) 10% Government investment in equity of a private sector unit f) Repayment of loans taken from World Bank. Ans: a) Revenue expenditure as it is a part of day-to-day expenses made by the Govt. that neither creates any assets nor reduces any liabilities of the Govt. b) Capital expenditure as it leads to the creation of assets for the Govt. c) Revenue expenditure as it is a part of day-to-day expenses made by the Govt. that neither creates any assets nor reduces any liabilities of the Govt. d) Revenue expenditure as it is a part of day-to-day expense made by the Govt. that neither creates any assets nor reduces any liabilities of the Govt. e) Capital expenditure as it leads to creation of assets for the Govt. f) Capital expenditure as it reduces the liabilities of the Govt. 15 | P a g e