Government Budget And The Economy MCQ | Class 12 | Economics | Chapter 5

Government Budget And The Economy MCQ

Below are some of the very important NCERT MCQ Questions of Government Budget And The Economy Class 12 Economics Chapter 5 with Answers.

These MCQ have been prepared by expert teachers and subject experts based on the latest syllabus and pattern of term 1 and term 2. We have given these Government Budget And The Economy MCQ Class 12 Economics Questions with Answers to help students understand the concept.

MCQ Questions for Class 12 Economics Chapter 5 are very important for the latest CBSE term 1 and term 2 pattern. These MCQs are very important for students who want to score high in CBSE Board.

We have put together these NCERT Questions of Government Budget And The Economy MCQ for Class 12 Economics Chapter 5 with Answers for the practice on a regular basis to score high in exams. Refer to these MCQs Questions with Answers here along with a detailed explanation.


Government Budget and the Economy mcq

MCQ

1. Primary deficit in a government budget will be zero, when ______ 

  1. Revenue deficit is zero     
  2. Net interest payments are zero
  3. Fiscal deficit is zero
  4. Fiscal deficit is equal to interest payment

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

  1. Loans advanced by World Bank
  2. Construction of school buildings
  3. Repayment of loans
  4. Purchase of Metro Coaches from Japan

3. Primary deficit is borrowing requirements of government for making

  1. Interest payments.     
  2. Other than interest payments. 
  3. All types of payments. 
  4. Some specific payments.

4. Fiscal deficit equals

  1. Primary deficit minus interest payments.
  2. Primary deficit plus interest payments. 
  3. Total budget expenditure minus total budget receipts.
  4. None of the above.  

5. Identify the correctly matched pair.   

COLUMN ACOLUMN B
(i) Fiscal Deficit (a) Other than interest payments
(ii) Primary Deficit(b) Borrowings less interest payments
(iii) Revenue Deficit(c) Borrowings
(iv) Tax Deficit(d) Borrowings in government budget
  1. (i) – (a)
  2. (ii) – (b)
  3. (iii) – (c)
  4. (iv) – (d)

6. Which of the following sources of receipts in the government budget increases its liabilities?

  1. Direct taxes
  2. Recovery of loans
  3. Borrowings
  4. Dividend from public sector undertakings

7. Identify the correctly matched pair.

COLUMN ACOLUMN B
(i) Excise Duty(a) Capital reciepts
(ii) Income tax(b) Direct tax
(iii) Earning from PSU(c) Indirect tax
(iv) Old age pensions(d) Non-tax revenue reciepts
  1. (i) – (a)
  2. (ii) – (b)
  3. (iii) – (c)
  4. (iv) – (d)

8. Fiscal Deficit equals 

  1. Interest payments
  2. Borrowings
  3. Interest payments less borrowing
  4. Borrowings less interest payments

9. Primary deficit in a government budget is

  1. Revenue expenditure – Revenue receipts
  2. Total expenditure – Total receipts
  3. Revenue deficit – Interest payments 
  4. Fiscal deficit – Interest payments.

10. Identify the correctly matched pair.

COLUMN ACOLUMN B
(i) Revenue Expenditure(a) Doesn’t cause any reduction in government liability
(ii) Capital Expenditure(b) Which creates corresponding liability for the government
(iii) Revenue receipts(c) Which causes reduction in assets of the government
(iv) Capital receipts(d) Causes reduction in government liability
  1. (i) – (a)
  2. (ii) – (b)
  3. (iii) – (c)
  4. (iv) – (d)

11. Which one of the following is a combination of direct taxes?

  1. Excise duty and Wealth tax
  2. Service tax and Income tax
  3. Excise duty and Service tax
  4. Wealth tax and Income tax

12. Match the following and choose the correct option.

COLUMN ACOLUMN B
(i) GST(a) Indirect tax
(ii) Income tax(b) Burden can be shifted
(iii) Fine(c) Direct tax
(iv) Tax reciepts(d) Capital receipt
  1. (i) – (a)
  2. (ii) – (b)
  3. (iii) – (c)
  4. (iv) – (d)

13. The non-tax revenue in the following is

  1. Export duty  
  2. Import duty 
  3. Dividends
  4. Exercise

14. Match the following and choose the correct option.

COLUMN ACOLUMN B
(i) Balanced Budget(a) Total anticipated expenditure < total anticipated revenue
(ii) Surplus Budget(b) Total expenditure > Total revenue
(iii) Capital Budget(c) Capital receipts = capital expenditure
(iv) Deficit Budget(d) Total expenditure = total revenue
  1. (i) – a 
  2. (ii) – b
  3. (iii) – c
  4. (iv) – d

15. Which of the following statements is true?

  1. Expenditure on Ujjwala Yojana launched by the Government is an example of capital expenditure.
  2. Expenditure on Ujjwala Yojana launched by the Government is an example of Revenue Expenditure.
  3. Expenditure on Ujjwala Yojana launched by the Government is an example of Deferred Revenue Expenditure.
  4. None of the statements are correct   

16. Borrowing in government budget is

  1. Revenue deficit
  2. Fiscal deficit
  3. Primary deficit
  4. Deficit in taxes

17. Identify which of the following statements is true. 

  1. The difference between planned revenue expenditure and planned revenue receipts is called fiscal deficit.
  2. The difference between total planned expenditure and total planned receipts is called fiscal deficit.
  3. The difference between total planned receipts and interest payment is called primary deficit.
  4. The sum of primary deficit and interest payment is called fiscal deficit.

18. Which of the following statements is true?

  1. Government Borrowings from the World Bank is a Revenue Receipt.
  2. Higher fiscal deficit is the result of higher revenue deficit.
  3. The loans taken by the government represent a situation of fiscal deficit.
  4. The excess of capital receipts over the revenue receipts is called Revenue deficit.

19. Which of the following is a direct tax?

  1. Corporation tax
  2. Entertainment tax
  3. Excise duty
  4. Service tax

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

  1. Foreign donations
  2. Dividends
  3. Dis-investment
  4. Indirect taxes

21. Direct tax is called direct because it is collected directly from

  1. the producers of goods produced  
  2. the sellers on goods sold 
  3. the buyers of goods
  4. the income earners

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

  1. Recovery of Loans
  2. Foreign Grants
  3. Profits of Public Enterprises
  4. Wealth Tax

23. Purchase of shares is related to

  1. revenue
  2. revenue expenditure
  3. capital receipt
  4. capital expenditure 

24. Revenue budget includes

  1. revenue receipts of the government
  2. revenue expenditure of the government
  3. capital receipts of the government
  4. both 1 and 2

25. The focus of government budget is to

  1. maximise fiscal deficit
  2. minimise fiscal deficit
  3. maximise expenditure
  4. maximise revenue 

MCQ Answers

1. (4)  

Primary deficit indicates borrowing requirements of the government to meet fiscal deficit net of interest payments.

2. (1)

Loan advanced by World Bank is a capital receipt as it raises liability or reduces assets.

3. (2)

Primary deficit indicates borrowing requirements of the govt. to m t fiscal deficit net of interest payments.

4. (2)

Fiscal Deficit refers to the excess of total expenditure over total receipts excluding borrowings.

5. (2)

Primary deficit indicates borrowing requirements of the govt. to meet  fiscal deficit net of interest payments.

6. (3)

Borrowings is a capital receipt as it creates a liability.

7. (2)

A direct tax is a tax, the burden of which is on that very person who is liable to pay it to the government.

8. (2)

Primary deficit indicates borrowing requirements of the government to meet fiscal deficit net of interest payments.

9. (4)

10. (1)

Revenue receipts do not create any liability for the government. For example, taxes received by the government, unlike borrowings, do not create any liabilities for it.

11. (4)

In case of direct tax, the burden of tax and the liability to pay it falls on the same  person.

12. (1)

Indirect fax in tax is a tax goods and services.

13. (3)

Non-Tax Revenue is the recurring income earned by the government from sources other than taxes.

14. (3)

Capital Budget is the statement of estimated capital receipts and estimated capital expenditure during a fiscal year.

15. (1)

16. (2)

Fiscal deficit Is defined as excess of total budget expenditure over total budget receipts excluding borrowings during a fiscal year.

17. (4)

18. (3) 

Fiscal deficit is defined as the amount of borrowing the government has to resort to meet its expenses.

19. (3)

In case of direct tax, the burden of tax and the liability to pay it falls on the same person.

20. (3)

Disinvestment is a capital receipt as it reduces assets.

21. (4)

In case of direct tax, the burden of tax and the liability to pay it falls on the same person. The liability to pay the tax cannot be shifted on to another person.

22. (1)

Recovery of loan is a capital receipt because it reduces assets of the government.

23. (4)

Purchase of shares is an investment for the government and increases assets.

24. (4)

Revenue budget is the statement of estimated revenue receipts and estimated revenue expenditure during a fiscal year.

25. (2)


Assertion and Reasoning MCQs 

Code

  1. Both assertion and reason are true and reason is the correct explanation of assertion.
  2. Both assertion and reason are true but reason is not the correct explanation of assertion.  
  3. Assertion is true but reason is false.
  4. Assertion is false but reason is true. 

1. Assertion Revenue deficit includes capital receipts and capital expenditure.

Reason Revenue deficit is related to revenue expenditure and revenue receipts of the government.

2. Assertion Fiscal deficit is the difference between primary deficit and interest payment.

Reason Fiscal deficit is the sum total of primary deficit and interest payment. 

3. Assertion Fiscal deficit is measured in terms of borrowings. 

Reason External borrowings increase the  Fiscal deficit.

4. Assertion Budget shows monetary policy of the government.

Reason Policy adopted by the Central Bank of an economy in the direction of credit control or money supply is known as Monetary policy. 

Assertion-Reasoning Based MCQ Answers 

1. (4)

Revenue Deficit refers to the excess of total revenue expenditure over total revenue receipts. It means that government will not be able to meet its revenue expenditure from its revenue receipts.

2. (4)

Fiscal Deficit refers to the excess of total expenditure over total receipts excluding borrowings. It indicates borrowing requirements of the government.

3. (2)

Fiscal Deficit refers to the excess of total expenditure over total receipts excluding borrowings. It indicates borrowing requirements of the government.

4. (4)

Budget shows fiscal policy of the government for the year to come.


Case-Study Based MCQ 

1. Read the following passage and answer accordingly.

MUMBAI: Investors were relieved as the finance minister Nirmala Sitharaman avoided an increase in the long-term capital gains tax on equity investments and securities transaction tax in the Union Budget for 2021-22 announced today.

Heading into the Budget, most investors were concerned that the government may look at increasing the long-term capital gains tax or the securities transaction tax in order to boost its revenues, especially as the stock market has witnessed a breakneck rally since the beginning of April.

In her Budget speech in July 2019, the finance minister had reintroduced the long-term capital gains tax after 15 years. Currently, individuals who make capital gains of more than lakh on their equity investment after a holding period of more than one year have to pay a tax of 10 per cent on the capital gains.

However, the capital gains tax for individuals in the highest bracket of earnings comes around 15 % inclusive of a cess.

Money managers had said that the government needed to bring out an equity friendly budget, implying no changes in taxations related to the stock market, in order to ensure that its  plans went smoothly in the next fiscal year.

(i) What type of tax is the Capital Gains Tax?

(a) Direct Tax
(b) Indirect Tax
(c) It is a cess
(d) It is a fine

(ii) What is the reason for the government to increase taxes?

(a) To extract money from the people
(b) To use the money for themselves
(c) To achieve the objective of equality in income distribution
(d) To get their salary

(iii) Why didn’t the government say anything about the capital gains tax?

(a) To stabilize the economic growth
(b) To help the economy for economic growth
(c) Rectify the losses that happened due to Covid-19
(d) All of the above

(iv) The capital gains come in the highest bracket of earning comes around _______

(a) 10%
(b) 15%
(c) 20%
(d) None of the above 

2. Read the following passage and answer accordingly.

The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 % hike in capital expenditure to ₹ 5.54 lakh in financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional 2 lakh crore to states for capital expenditure over and above its own commitment. “We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure,” Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year’s budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and “minimum government, maximum governance,” the finance minister had asserted. And capital expenditure is an important component that drives the growth 

(i) Why has the finance minister hiked the capital expenditure?

(a) To recover from the Covid pandemic
(b) bring the economy back on track
(c) both (a) and (b)
(d) neither (a) nor (b) 

(ii) _________ is an important component that driven the growth  

(a) Capital Expenditure
(b) Revenue Expenditure
(c) Capital Receipts
(d) Revenue Receipts 

(iii) Which objective of the government budget does the increase in capital expenditure serve? 

(a) Encouragement of economic growth
(b) Stability in the economy
(c) Generation of employment
(d) All of the above

(iv) What problem can the increase in this Capital Expenditure create?

(a) Fiscal Deficit
(b) Revenue Deficit
(c) Primary Deficit
(d) Budgetary Deficit 

3. Read the following passage and answer accordingly.

NEW DELHI: Finance Minister Nirmala Sitharaman on Monday announced plans to sell stake in LIC as part of her disinvestment plans for F/Y 22. In her Budget speech, the FM said her government will complete divestment of BPCL, CONCOR and SCI in F/Y 22. 

She said that her government will privatise two public sector banks (PSBs) and one general insurance company as well. “LIC IPO may see the light of day soon,” said Jiger Saiya, Partner and Leader – Tax & Regulatory Services at BDO India.

Earlier, in an interview with ET LIC Chairman M R Kumar had said the IPO is very much likely “The point is that it is going to be big and we want to get the valuations right,” he had said adding that the listing of an insurance company requires determining the embedded value of the business. 

LIC has started the process and will soon announce the software, which will assist it determine the right valuation.

“We have floated an RFP for the actuarial firm that will undertake the exercise. This calculation will take some time. Once this process is done, we will be ready,” Kumar said on January 11.

Last week, a Reuters report quoting sources suggested that the government was looking to sell 10-15% in the country’s biggest insurer to improve public finances.

To facilitate the sale of the LIC stake, the government will need Parliament approval to amend the LIC.

As part of its divestment drive, four CPSEs — HAL, SAIL, Bharat Dynamics and IRCPC —have come out with offers for sale (OFSs) this financial year. They garnered crore to the exchequer In addition, IPOs of IRFC and Mazagon Dock Shipbuilders together fetched crore.

Also, this year, the government sold shares worth about crore in private companies, in which it holds stakes through SUUII

Four state-owned companies, NTPC, RITES, NMDC and KOCL, completed share buybacks, adding crore to the exchequer.

The government is also looking to sell its entire 26.12 per cent stake in Tau Communications (TCL), erstwhile VSNL, through an OFS and strategic sale this financial year The process of privatisation of Air India, BPCL, Pawan Hans, BEML, Shipping Corp, Neelachal Ispat Nigam Limited and Ferro Scrap Nigam Limited (FSNL) is currently underway.

(i) The government will privatise________ Public Sector Banks 

(a) One
(b) Two
(c) Three
(d) None of the above

(ii) What is the main reason for this disinvestment?

(a) To reduce the fiscal deficit
(b) To revive the economy
(c) To create monopoly of industrialists
(d) To earn revenue

(iii) According to Reuters, why is the government looking to sell the country’s insurer?

(a) To reduce revenue deficit
(b) To reduce fiscal deficit
(c) To improve public finances
(d) To get money other than taxes. 

(iv) What other things can the government do to improve the deficit with respect to the current Covid situation?

(a) Borrowing from public
(b) Lowering government expenditure
(c) Raising government revenue 
(d) None of the above 

Case-Study Based MCQ Answers 

1.

(i) (a)

A capital gains tax is a type of tax applied to the profits earned on the sale of an asset

(ii) (c)

Government can collect from the rich and exempt the poor from income tax. Money so collected can be spent on providing free service to the poor. It will reduce disposable income of the rich and increase that of the poor.

(iii) (b)

(iv) (b)

2.

(i) (c)

(ii) (a)

Capital expenditure is the money spent by the government on the development of machinery, equipment, building, health facilities, education, etc.

(iii) (4)

(iv) (1)

Fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure.

3.

(i) (b)

Finance Minister Nirmala Sitharaman on Monday announced that her government will privatise two public sector banks (PSBs) and one general insurance company as well.

(ii) (a)

Dis-investment reduces the financial burden of the government. 

(iii) (c)

(iv) (4)


Final Words

From the above article, you have practiced Government Budget And The Economy MCQ of class 12 Economics Chapter 5. We hope that the above-mentioned MCQs for term 1 of chapter 5 Government Budget And The Economy will surely help you in your exam. 

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