Important MCQs of Government Budget and the Economy chapter Class 12

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Looking for important Multiple Choice Questions (MCQs) of Government Budget and the Economy Chapter of Macroeconomics of Class 12 CBSE Board and other State Board

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Multiple Choice Questions of Government Budget and the Economy units of Macroeconomics Class 12

Following are the MCQs

1. Spot the Capital Receipt:

a) Tax Received
b) External grants received
c) Dividend received
d) Disinvestment

And -d)
capital receipts are those receipts which either reduces assets or increase liabilities. Disinvestment reduces assets

2. Spot the revenue receipt:-

a) Recovery of loans
b) Borrowings
c) External grants
d) Disinvestment

Ans – c)
Revenue receipts are the receipts which doesn not affects assets and liabilities. External grants does not change present status of assets and liabilities.

3. Fiscal deficit in a government budget refers to:-

a) Shortfall in taxes
b) Shortfall in disinvestment
c) Disinvestment requirement
d) Borrowings requirements

Ans – d)
Fiscal deficit shows the total borrowings requirement of a government in a fiscal (fianancial) year.

4. The primary deficit in a government budget refers to:-

a) Borrowing requirements
b) Interest payments requirements
c) (a) less (b)
d) (a) + (b)

Ans – c)
The primary deficit represents the loan requirement of the government to meet only current year excess expenditure exluding the interest payment on accumulated loan.

5. Steps taken through the government budget can influence:-

a) Inequalities
b) Allocation of resources
c) Inflation
d) All the above

Ans – d)
Objective of the government budget is 1) Optimum allocation of resources, 2) Reduce inequilities of the income and 3) economic stability (Price stability)

6. Primary deficit in a government budget will be Zero, When_________

a) revenue deficit is zero
b) net interest payments are Zero
c) fiscal deficit is zero
d) fiscal deficit is equal to interest payment

Ans – d)
Primary deficit is the difference between the fiscal deficit and interest on accumulated loans. If fiscal deficit is equal to the interest payment, The primary deficit is zero

7. Fiscal Deficit equals

a) Interest Payments
b) borrowings
c) interest payments less borrowings
d) borrowings less interest payments

Ans – b)
Fiscal deficit show the borrowings requirements of the government

8. Primary Deficit equals

a) borrowings
b) interest payments
c) borrowings less interest payments
d) both borrowings and interest payments

Ans – c)
Primary deficit is the difference between borrowing (fiscal deficit) and the interest on accumulated profits

9. Primary deficit is the difference between

a) fiscal deficit and revenue deficit
b) revenue deficit and interest payments
c) total expenditure and total revenue receipts
d) fiscal deficit and interest payments

Ans -d)
Primary deficit is the difference between fiscal deficit (borrowing) and the interest payments on accumulated profits.

10. The primary deficit in a government budget is

a) revenue expendiutre – revenue receipts
b) total expenditure – total receipts
c) revenue defict – interest payments
d) fiscal deficit – interest payments

Ans – d)

11. Borrowings in government budget are______

a) revenue deficit
b) fiscal deficit
c) primary deficit
d) deficit in taxes

Ans – b)

12. Which of the following statements is true?

a) Fiscal deficit is the difference between total expenditure and total receipts
b) Primary deficit is the difference between total receipt and interest payments
c) Fiscal deficit is the sum of primary deficit and interest payments
d) Primary deficit is the difference between revenue deficit and interest payments

Ans – c)

13. Which of the following is the correct measure of primary deficit:-

a) Fiscal deficit minus revenue deficit
b) Revenue deficit minus interest payments
c) Fiscal deficit minus interest payments
d) Capital expenditure minus revenue expenditure

Ans -c)

14. Following are the impacts of the government budget on the economy excluding

a) brings better allocation of resources
b) implement government welfare programs
c) brings aggregate fiscal indiscipline level
d) better access to public goods

Ans – c

15. Goods and Service Tax (GST) is an example of________under government receipts

a) Indirect tax
b) direct tax
c) Non-tex revenue
d) income tax

Ans – a)
GST is the Indirect tax as its burden and liabilites lie on different person

16. An expenditure which is of recurring or non-recurring in nature, and which is based on five-year economic plans is called

a) revenue expenditure
b) capital expenditure
c) Plan expenditure
d) non-plan expenditure

Ans – c)
planned expenditure are mentioned in five year plan

17. Which of the following is capital expenditures

a) Subsidies
b) Interest Payments
c) Purchase of shares
d) Defence purchases

Ans – c)
Capital expendiutres results in either increase of assets or reduce of liabilities

18. The expenditure incurred for smooth functioning of government departments and for day to day expenses of the government is called……..

a) Capital expenditure
b) Non-plan expenditure
c) revenue expenditure
d) All of the above

Ans – c)
The government day to day expenses are called revenue expenditure.

19. Which of the following does not form the part of capital receipts of the Union Government?

a) Non-Tax Revenue
b) Loan recoveries
c) Net Market borrowings
d) None of the above

Ans – a)

20. Cost of tax collection, cost of the audit and printing notes, pension, expenditure on defense, and law and order are treated as_______of the government.

a) Government expenditure
b) Revenue Expenditure
c) Non-Development Expenditure
d) All of the above

Ans – d)

21. Which of the following budget is more suitable for developing economies like India?

a) Deficit budget
b) Balanced Budget
c) Surplus Budget
d) None of these

Ans – a)
developing countries incur more expenses on infrastructure and on administration for future growth. Thus total expenditure of the government are always more than the receipts.

22. Zero primary deficit means that the government has to resort to borrowings only to make

a) Interest Payment
b) fiscal payment
c) Capital payment
d) Primary payment

Ans – a)
Primary deficit = Borrowing – Interest Payments. When borrowing are just equal to pay the interest on accumulated loans, the primary deficit is zero.

23. From the following, which is not an implication of fiscal deficit?

a) It determine total borrowing requirements to the government
b) It increases the liability of the government
c) It increase foreign dependence
d) Repayment of the loan together with interest further decreases the fiscal
deficit

Ans – d)
repayment of the loan is the solution of the fiscal deficit not the implication.

24. The government starts selling its securities to the private sector. What is the process called?

a) Open market operation
b) Disinvestment
c) Monetary expansion
d) All of the above

Ans – b)
When government sells its government own company’s share to private owners. This process is called disinvestment.

25. If the fiscal deficit is ₹ 550 crore and interest payment is ₹ 200 crore, then primary deficit.

a) ₹ 200 crore
b) ₹ 550 crore
c) ₹ 765 crore
d) ₹ 350 crore

Ans – d)
Primary Deficit = Fiscal Deficit – Interest Payments

26. If government borrowings = ₹ 800 crore and interest payments = ₹ 155 crores, then find fiscal deficit and primary deficit.

a) Fiscal deficit = ₹ 155 crore and Primary deficit = ₹ 800 crore
b) Fiscal Deficit = ₹ 800 crore and Primary deficit = ₹ 155 crore
c) Fiscal deficit = ₹ 155 crore and Primary Deficit = ₹ 645 crore
d) Fiscal Deficit = ₹ 800 crore and Primary Deficit = ₹ 645 crore

Ans – d)
Fiscal deficit = Borrowings, Primary Deficit = Borrwoings – Interest payments

27. Primary Deficit = Fiscal Deficit – ______________

a) Borrowings
b) Subsidies
c) Interset Payments
d) Transfer Payments

Ans – c)
Primary Deficit = Fiscal Deficit (Borrowings) – Interest Payments

28. Which one of the following is not a capital expenditure?

a) Loans advanced by World Bank
b) Construction of School buildings
c) Repayment of loans
d) Purchase of Metro Coaches from Japan

Ans – a)
Capital expenditure either increases assets or reduces the liabilities. But loans advanced by world bank increases the liabilities. Thus it is not the capital expenditure

29. Primary deficit is borrowing requirement of government for making:

a) Interest Payments
b) Other than interest payments
c) All types of Payments
d) Some specific payments

Ans – b)
Primary deficit = Borrowing – Interest Payments

30. Fiscal deficit equals:-

a) Primary deficit minus interest payments
b) Primary deficit plus interest payments
c) Total budget expenditure minus total budget receipts
d) None of the above.

Ans – b)
Primary deficit = Fiscal Deficit – Interest Payments

31. Which of the following is a direct tax?

a) Corporation tax
b) Entertainment tax
c) Excise duty
d) Service tax

Ans – a)
corporation tax are charged by company. As company is an artifical individual. The tax burden and the liabilities both on the same person that is company

32. Which of the following sources of receipts in government budget increases its liabilities:-

a) Direct taxes
b) Recovery of loans
c) Borrowings
d) Dividend from public sector undertakings

Ans – c
raising loan by the government increases its liabilities.

33. Which of the following is a source of capital receipt?

a) Foreign donations
b) Dividends
c) Dis-investment
d) Indirect taxes

Ans – c)
Disinvestment decreases the assets of the government hence it is a capital receipt

34. Fiscal Deficit equals:-

a) Interest payments
b) Borrowings
c) Interest payments less borrowing
d) Borrowings less interest payments

Ans – b)
Fiscal deficit shows the total borrowing requirement of the government during fiscal year.

35. The primary deficit in a government budget is:-

a) Revenue expenditure – Revenue Receipts
b) Total Expenditure – Total Receipts
c) Revenue deficit – Interest payments
d) Fiscal deficit – Interest Payments

Ans – d)
Primary deficit is the difference between the fiscal deficit and the interest payments on accumulated borrowings

36. Primary deficit equals:-

a) Borrowings
b) Interest payments
c) Borrowings less interest payments
d) Borrowings and interest payments both

Ans:- c)

Ans – c)

37. Which one of the following is a combination of direct taxes:-

a) Excise duty and wealth tax
b) Service tax and Income tax
c) Excise duty and Service tax
d) Wealth tax and Income tax

Ans – d)
Wealth and income tax burden and the liability both lie on same person.

38. Direct tax is called direct because it is collected directly from:-

a) The producers on goods produced
b) The seller on goods sold
c) The buyers of goods
d) The income earners

And – d)
Direct are the tax, The burden and the liability of which lie on the same person.

39. The Non-tax revenue in the following is:-

a) Export duty
b) Import duty
c) Dividends
d) Excise

Ans – c)
dividends is received by the government if it investment in shares

40. Which of the following is not a revenue receipt?

a) Recovery of Loans
b) Foreign Grants
c) Profits from Public Enterprises
d) Wealth Tax

Ans – a)
Recovery of loans reduces the assets of the government. Thus it is a capital Receipt.

41. Borrowing in government budget is:-

a) Revenue deficit
b) Fiscal deficit
c) Primary Deficit
d) Deficit in taxes

Ans – b)

42. Identify which of the following statements is true:-

a) The difference between planned revenue expenditure and planned
revenue receipts are called fiscal deficit
b) The difference between total planned expenditure and total planned receipts
is called a fiscal deficit.
c) The difference between total planned receipts and interest payment is
called a primary deficit.
d) The sum of primary deficit and interest payment is called a fiscal deficit.

Ans – d)
Primary Deficit = Fiscal Deficit – Interest Payments

43. Which of the following statements is true?

a) Government Borrowings from the World Bank is a Revenue Receipts.
b)Higher Fiscal deficit is the result of a higher revenue deficit.
c) The loans taken by the government represent a situation of fiscal deficit.
d) The excess of capital receipts over the revenue receipts is called
Revenue deficit.

Ans – c)
Fiscal Deficit = Borrowing

44. Which of the following statements is true?

a) Expenditure on Ujjwala Yojana launched by the government is an example of
capital expenditure
b) Expenditure on Ujjwala Yojana launched by the government is an example
of Revenue Expenditure
c) Expenditure on Ujjwala Yojana launched by the Government is an example of
Deferred Revenue Expenditure
d) None of the Statements are correct

Ans – b)
Expenditure on Ujjwala Yojana does not result in creation of an assets nor decrease the liabilities. Thus it is an revenue expenditure

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Anurag Pathak
Anurag Pathak is an academic teacher. He has been teaching Accountancy and Economics for CBSE students for the last 18 years. In his guidance, thousands of students have secured good marks in their board exams and legacy is still going on. You can subscribe his youtube channel and can download the Android & ios app for free lectures.
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