InterviewSolution
Saved Bookmarks
InterviewSolution
This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 51. |
Explain how allocation of resources can be influenced in government budget through taxes, expenditure and subsidies. |
|
Answer» Reallocation of Resources:Through the budgetary policy, Government aims to reallocate resources in accordance with the economic (profit maximisation) and social (public welfare) priorities of the country. Government can influence allocation of resources through: (i) Tax concessions or subsidies:To encourage investment, government can give tax concession, subsidies etc. to the producers. For example, Government discourages the production of harmful consumption goods (like liquor, cigarettes etc.) through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies. (ii) Directly producing goods and services:If private sector does not take interest, government can directly undertake the production. |
|
| 52. |
What are revenue receipts in government budget ? |
| Answer» Receipts which do not result in increase in liabilities of the government are known as revenue receipts. | |
| 53. |
Explain three objectives of government budget. |
|
Answer» 1. Reallocating the resources of the nation. 2. Bringing down inequalities. 3. Paving way for economic stability. |
|
| 54. |
What is difference between revenue receipts and capital receipts ? Describe the various sources of capital receipts . |
| Answer» 1.Capital Receipts - Govt receipts which either create liability or reduce assets are called capital receiptsRevenue Receipts - Govt receipts which neither create liability nor reduce assets are called as revenue receipts.2.Capital Receipts do not frequently occur, as it is non-recurring and irregular. But, revenue receipts do not occur again and again they are recurring and regular.3.Capital Receipts appears on the liabilities side of the Balance Sheet whereas Revenue Receipts appears on the credit side of the Profit and Loss Account as income for the financial year.Sources of capital receipt1. Borrowings2. Repayment of loans | |
| 55. |
Define Government budget. Explain the various objectives of a government budget. |
| Answer» A government budget is a document prepared by the government or other political entity presenting its anticipated revenues and proposed spending for the coming financial year.Objectives1. Reducing inequalities in income and wealth:Economic inequality is an inherent part of every economic system. Government aims to reduce such inequalities of income and wealth, through its budgetary policy. Government aims to influence distribution of income by imposing taxes on the rich and spending more on the welfare of the poor. It will reduce income of the rich and raise standard of living of the poor, thus reducing inequalities in the distribution of income.2. Economic Stability:Government budget is used to prevent business fluctuations of inflation or deflation to achieve the objective of economic stability. The government aims to control the different phases of business fluctuations through its budgetary policy. Policies of surplus budget during inflation and deficit budget during deflation helps to maintain stability of prices in the economy. | |
| 56. |
What is meant by non-tax revenue ? Explain the different sources of non-tax revenue. |
| Answer» Non-Tax Revenue is the recurring income earned by the government from sources other than taxessources of non tax revenue1. fees and fines2. escheat | |
| 57. |
Why are receipts from taxes categorised as revenue receipts ? |
| Answer» Receipts from taxes are categorised as revenue receipts because they neither create any liability nor cause a reduction in the assets of the government . | |
| 58. |
What is meant by budget expenditure ? Distinguish between revenue expenditure and capital expenditure . |
| Answer» Budget Expenditure refers to the estimated expenditure of the government during a given fiscal year.Capital expenditures are for fixed assets, which are expected to be productive assets for a long period of time. Revenue expenditures are for costs that are related to specific revenue transactions or operating periods, such as the cost of goods sold or repairs and maintenance expense. | |
| 59. |
What are indirect taxes ? |
| Answer» It is a tax whose incidence and impact lie on different persons i.e impact of tax can be shifted to others.for example- excise duty | |
| 60. |
Why is recovery of loan treated as capital receipt ? |
| Answer» Becuase it reduces the assets of the government. | |
| 61. |
Distinguish between revenue expenditure and capital expenditure . |
| Answer» Timing. Capital expenditures are charged to expense gradually via depreciation, and over a long period of time. Revenue expenditures are charged to expense in the current period, or shortly thereafter.Consumption. A capital expenditure is assumed to be consumed over the useful life of the related fixed asset. A revenue expenditure is assumed to be consumed within a very short period of time.Size. A more questionable difference is that capital expenditures tend to involve larger monetary amounts than revenue expenditures. This is because an expenditure is only classified as a capital expenditure if it exceeds a certain threshold value; if not, it is automatically designated as a revenue expenditure. However, certain quite large expenditures can still be classified as revenue expenditures, as long they are directly associated with sale transactions or are period costs. | |
| 62. |
Give two examples each of Revenue Expenditure and Capital Expenditure. |
|
Answer» Revenue Expenditure :- Salaries of government employees, interest paid on loans etc. Capital Expenditure :- Purchase of buildings, disbursement of loans to other nations etc. |
|
| 63. |
Give two examples of capital receipts in a government budget. |
| Answer» (i) Borrowings from public , (ii) Receipts from sale of shares of a public sector undertaking . | |
| 64. |
Name any one step the government can take through its budget to reduce the gap between the rich and the poor. |
| Answer» Government can reduce the gap between the rich and the poor by imposing taxes on the rich and spending more on the welfare of the poor. | |
| 65. |
Dr Raghuram Rajan, the Governor of RBI in a speech in july 2015 warned that the world was slipping into recession. The events in Greece justified what he said. The ratio of government debt-to-GDP was very high in case of Greece. (a) What in your opinion led to such an event as in Greece ? (b) Explain the chain effect. (c) What is the remedy for the above situation ? What economic value is highlighted here. |
|
Answer» (a) High fiscal deficit was the root cause of the fallout in Greece - but could be true for other countries as well. (b) The chain effects are as follows `{:(" ""More borrowings"),(" "downarrow),(" ""Higher interest rates and more interest"),(" "downarrow),("Lesser amount with the government to be spent on development projects"),(" "downarrow),(" ""Low income"),(" "downarrow),(" ""Further borrowings/eventual debt-trap"):}` (c) The remedy is to contain/limit the fiscal deficit to a manageable limit (say `3%` to `5%` G.D.P.) The economic value highlighted here is fiscal discipline |
|
| 66. |
Explain why public goosds lie roads, police, parks must be provided by the government. |
| Answer» Public goods such as parks, roads, water supply, bridges, national defence, etc are the goods which people urgently need for their day-to-day living, but . market mechanism cannot produce these goods in sufficient quantities, due to its features of non-rivalrous and non-excludable in consumption. Therefore, these goods need to be provided by the government. | |
| 67. |
Government has started spending more on providing free services like education and health to the poor. Explain the economic value it reflects . |
| Answer» Spending on free services to the poor raises their standard of living and at the same time helps in reduction in income inequalities . It also helps in raising production potential of the country by raising the efficiency level of the working class among the poor. | |
| 68. |
Government raises its expenditure on producing public goods. Which economic value does it serve ? Explain. |
| Answer» If the government raises its expenditure on producing public goods, it reflects that government is serving the objective of social welfare. Public goods are those goods which satisfy collective consumption needs i.e., health, education, fresh air, civic amenities etc. | |
| 69. |
Tax rates on higher income group have been increased. Which economic value does it reflect ? Explain. |
| Answer» The economic value that is reflected in the rise in tax rate for higher income group is the ‘equality and social welfare’. The main objective of the budgetary policy of the government is to reduce inequalities of income and wealth in the country. For this, it performs the function of equal distribution of income and wealth. | |
| 70. |
What is the difference between revenue expenditure and capital expenditure ? Explain how taxes and government can be used to influence distribution of income in the society |
| Answer» Timing. Capital expenditures are charged to expense gradually via depreciation, and over a long period of time. Revenue expenditures are charged to expense in the current period, or shortly thereafter.Consumption. A capital expenditure is assumed to be consumed over the useful life of the related fixed asset. A revenue expenditure is assumed to be consumed within a very short period of time.Size. A more questionable difference is that capital expenditures tend to involve larger monetary amounts than revenue expenditures. This is because an expenditure is only classified as a capital expenditure if it exceeds a certain threshold value; if not, it is automatically designated as a revenue expenditure. However, certain quite large expenditures can still be classified as revenue expenditures, as long they are directly associated with sale transactions or are period costs.Government can influence distribution of income by imposing taxes on the rich and spending more on the welfare of the poor. It will reduce income of the rich and raise standard of living of the poor, thus reducing inequalities in the distribution of income. | |
| 71. |
Explain how the government can use the budgetary policy in reducing inequalities in income. |
| Answer» Economic inequality is an inherent part of every economic system. Government aims to reduce such inequalities of income and wealth, through its budgetary policy. Government aims to influence distribution of income by imposing taxes on the rich and spending more on the welfare of the poor. It will reduce income of the rich and raise standard of living of the poor, thus reducing inequalities in the distribution of income. | |
| 72. |
The government decides to give budgetary incentives to investors for making investments in backward regions . Explain these possible incentives and the reasons for the same . |
| Answer» Government prepares the budget for fulfilling certain economic and social objectives, the government tries to adjust its resource allocation by providing more resources into socially productive sectors where private sector initiative is not forthcoming, for example- public sanitation, rural electrification etc. | |
| 73. |
Explain how the government can use the budgetary policy in reducing inequalities in incomes. |
| Answer» Economic inequality is an inherent part of every economic system. Government aims to reduce such inequalities of income and wealth, through its budgetary policy. Government aims to influence distribution of income by imposing taxes on the rich and spending more on the welfare of the poor. It will reduce income of the rich and raise standard of living of the poor, thus reducing inequalities in the distribution of income. | |
| 74. |
Explain the role, the government can play through the budget in influencing allocation of resources. |
|
Answer» Through the budgetary policy, Government aims to reallocate resources in accordance with the economic (profit maximisation) and social (public welfare) priorities of the country. Government can influence allocation of resources through: (i) Tax concessions or subsidies:To encourage investment, government can give tax concession, subsidies etc. to the producers. For example, Government discourages the production of harmful consumption goods (like liquor, cigarettes etc.) through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies. (ii) Directly producing goods and services:If private sector does not take interest, government can directly undertake the production. |
|
| 75. |
What is the difference between revenue expenditure and capital expenditure in a government budget ? Give two examples of each. |
|
Answer» Simply put, an expenditure which neither creates assets nor reduces liability is called Revenue Expenditure, e.g., salaries of employees, interest payment on past debt, subsidies, pension, etc. An expenditure which either creates an asset (e.g., school building) or reduces liability (e.g., repayment of loan) is called capital expenditure. |
|
| 76. |
Distinguish between tax revenue and non-tax revenue. |
|
Answer» The revenue that is obtained by the government from sources other than the taxes is called as Non-tax revenue. Revenue collected from taxes is known as tax revenue. |
|
| 77. |
Explain the budgetary measures for achieving following objectives : (i) Setting up of production units in backward regions , (ii) Reducing inequalities of income and wealth. |
| Answer» Reducing inequalities in income and wealth:Economic inequality is an inherent part of every economic system. Government aims to reduce such inequalities of income and wealth, through its budgetary policy. Government aims to influence distribution of income by imposing taxes on the rich and spending more on the welfare of the poor. It will reduce income of the rich and raise standard of living of the poor, thus reducing inequalities in the distribution of income.Setting up of production units in backward regions-The government budget aims to reduce regional disparities through its taxation and expenditure policy for encouraging setting up of production units in economically backward regions. | |
| 78. |
What is the basis of classifying taxes into direct taxes and indirect taxes ? Give two examples of each. |
|
Answer» Whether the liability of tax falls on the entity on which it is imposed. Direct tax :- Income tax, wealth tax. Indirect Tax :- Excise duty, GST. |
|
| 79. |
What is deficit financing ? Describe its three advantages and three disadvantages. |
|
Answer» Deficit financing in advanced countries is used to mean an excess of expenditure over revenue—the gap being covered by borrowing from the public by the sale of bonds and by creating new money. Advantages of Deficit Financing:When the Government resorts to deficit financing, it usually borrows from the Reserve Bank. The interest paid to the Reserve Bank actually comes back to the Government in the form of profits.Through deficit financing, resources are used much earlier than they can be otherwise. The development is accelerated. This technique enables the Government to get resources without much opposition. Disadvantages :- (i) It leads to increase in inflationary rise of prices of goods and services in the country. (ii) Inflationary forces created by deficit financing are reinforced by increased credit credition by banks. (iii) Investment caused by inflation may not be of the pattern sought under the plan. It normally changed. (iv) If as a result of deficit financing inflation goes too far, it becomes self-defeating. |
|
| 80. |
What is the difference between direct tax and indirect tax ? Explain the role of government budget in influencing allocation of resources. |
| Answer» Difference between Direct and Indirect Taxes. Direct taxes are non-transferable taxes paid by the tax payer to the government and indirect taxes are transferable taxes where the liability to pay can be shifted to others. Income Tax is a direct tax while Value Added Tax (VAT) is an indirect tax.Through the budgetary policy, Government aims to reallocate resources in accordance with the economic (profit maximisation) and social (public welfare) priorities of the country. Government can influence allocation of resources through:(i) Tax concessions or subsidies:To encourage investment, government can give tax concession, subsidies etc. to the producers. For example, Government discourages the production of harmful consumption goods (like liquor, cigarettes etc.) through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies. | |
| 81. |
Identify the following as revenue receipts and capital receipts . Give reasons . (i) Loans recovered from Public sector enterprises. (ii) License and court fees received by the Government in the year 2014 - 15. (iii) Loan taken from USA for the infrastrustural developments . (iv) Sale of shares held by Government in a PSU. (v) Financial help from Microsoft for the victims of flood affected areas. (vi) Amount borrowed from Japan for construction of Metro. (vii) Dividend received by Goverment from a company. (viii) Funds raised from public in the form of National Saving Certificates. (ix) Sale of `40%` shares of a public sector undertaking to a private enterprise. (x) Profits of LIC , a public enterprise. |
|
Answer» (i) It is a capital receipts as it reduces assets of the government . (ii) It is revenue receipt as it neither creates any liability nor reduces any asset of the government . (iii) It is a capital receipt as it creates liability for the government . (iv) It is capital receipt as it reduces assets of the government . (v) It is a revenue receipt as it neither creates any liability nor reduces any asset of the government . (vi) It is a capital receipt as it creates liability for the government . (vii) It is revenue receipt as it neither creates any liability nor reduces any assets of the government . (viii) It is a capital receipt as it creates liability for the government . (ix) It is a capital receipt as it reduces assists of the government . (x) It is revenue receipt as it neither creates any liability nor reduces any asset of the government. |
|
| 82. |
Fiscal deficit gives the borrowings requirement of the government. Elucidate. |
|
Answer» Fiscal deficit refers to the excess of total expenditure over total receipts excluding borrowings. Hence it indicates the total borrowing requirement of the government including interest. 1. It indicates the inability of the government to meet its regular and recurring expenditure in the proposed budget. 2. It implies that government is dissaving, i.e. government is using up savings of other sectors of the economy to finance its consumption expenditure. 3. It also implies that the government has to make up this deficit from capital receipts, i.e. through borrowings or disinvestments. It means, revenue deficit either leads to an increase in liability in the form of borrowings or reduces the assets through disinvestment. |
|
| 83. |
Explain objective of stability of prices of government budget OR Explain the economic stability objective of a government budget . |
| Answer» Government budget is used to prevent business fluctuations of inflation or deflation to achieve the objective of economic stability. The government aims to control the different phases of business fluctuations through its budgetary policy. Policies of surplus budget during inflation and deficit budget during deflation helps to maintain stability of prices in the economy. | |
| 84. |
Explain : (a) Allocation of Resources , and (b) Economic Stability as objectives of Government Budget . |
| Answer» Reallocation of Resources:Through the budgetary policy, Government aims to reallocate resources in accordance with the economic (profit maximisation) and social (public welfare) priorities of the country. Government can influence allocation of resources through:(i) Tax concessions or subsidies:To encourage investment, government can give tax concession, subsidies etc. to the producers. For example, Government discourages the production of harmful consumption goods (like liquor, cigarettes etc.) through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies2. Economic Stability:Government budget is used to prevent business fluctuations of inflation or deflation to achieve the objective of economic stability. The government aims to control the different phases of business fluctuations through its budgetary policy. Policies of surplus budget during inflation and deficit budget during deflation helps to maintain stability of prices in the economy. | |
| 85. |
Define revenue receipts in a government budget . Explain how government budget can be used to bring price stability in the economy. |
| Answer» Government receipts which neither create asset nor reduce any liability are called Revenue Receipts. Essentially, these are current income receipts for the government from all sources. Revenue Receipts are further classified into tax revenue and non-tax revenue.(i) Government budget is used to prevent business fluctuations and to maintain economic stability. (ii) During excess demand, the government imposes higher taxes and reduces its expenditure to correct excess demand. This implies that government follows the policy of surplus budget during inflation. (iii) During deficient demand, the government increases its expenditure and reduces taxes. This implies that the government follows the policy of deficit budget during deflation. Thus, the government through its budgetary policy tries to achieve price stability in the economy. | |
| 86. |
Explain the objectives of resource allocation and income distribution in a government budget . |
| Answer» Reallocation of Resources:Through the budgetary policy, Government aims to reallocate resources in accordance with the economic (profit maximisation) and social (public welfare) priorities of the country. Government can influence allocation of resources through:(i) Tax concessions or subsidies:To encourage investment, government can give tax concession, subsidies etc. to the producers. For example, Government discourages the production of harmful consumption goods (like liquor, cigarettes etc.) through heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies. | |
| 87. |
Explain the basis of classifying taxes into direct and indirect tax . Give two examples of each . |
| Answer» Difference between Direct and Indirect Taxes. Direct taxes are non-transferable taxes paid by the tax payer to the government and indirect taxes are transferable taxes where the liability to pay can be shifted to others. Income Tax is a direct tax while Value Added Tax (VAT) is an indirect tax. | |
| 88. |
Giving reasons classify the following into direct tax and indirect tax: (i) Wealth tax, (ii) Entertainment tax and (iii) Income tax, (iv) Capital gain tax. |
|
Answer» (i) Wealth tax is a direct tax because its liability to pay tax and burden of tax falls on the same person. (ii) Entertainment tax (like the one included in cinema ticket) is an indirect tax because its burden can be shifted. (iii) Income tax is a direct tax because its liability to pay and its burden falls on the same person. (iv) Capital gain tax is a direct tax because its impact and incidence lie on the same person. |
|
| 89. |
Giving reasons classify the following into direct tax and indirect tax: (i) Wealth tax, (ii) Entertainment tax and (iii) Sales tax |
|
Answer» (i) Wealth tax is a direct tax because its liability to pay tax and burden of tax falls on the same person. (ii) Entertainment tax (like the one included in cinema ticket) is an indirect tax because the liability to deposit tax lies with the owners of cinema-house but the burden falls on the viewers. (iii) Sales tax is an indirect tax because the liability lies with the seller but the burden falls on the buyers. |
|
| 90. |
Giving reasons , classify the following as direct and Indirect taxes : (i) Income Tax (ii) Goods and Services Tax (iii) Corporate Tax (iv) Capital Gains Tax |
|
Answer» (i) It is a direct tax as its impact and incidence lie on the same person. (ii) It is an indirect tax as its impact and incidence lie on different persons. (iii) It is direct tax as its impact and incidence lie on the same person. (iv) It is a direct tax as its impact and incidence lie on the same person . |
|
| 91. |
The government budget of a hypothetical economy presents the following information . Which of the following value represents . Budgetary Deficit . (all fig . In ₹ crores ) A . Revenue Expenditure = 25 , 000 B . Capital Receipts = 30 , 000 C . Capital Expenditure = 35 , 000 D. Revenue Receipts = 20 , 000 E. Interest Payments = 10 , 000 F. Borrowing = 20, 000A. ₹ 12, 000B. ₹ 10 , 000C. ₹ 20 , 000D. None of the above |
|
Answer» (ii) ₹ 10 , 000 Budgetary Deficit = Revenue Expenditure + Capital Expenditure - (Revenue Receipts + Capital Receipts) = 25, 000 + 35 , 000 - (20 ,000 + 30 , 000) = ₹ 10 , 000 crores . |
|
| 92. |
Which one of the following is not an objective of government budget ?A. Reduction of poverty and unemploymentB. Reallocation of resourcesC. Economic growthD. maintaining law and order |
| Answer» Correct Answer - D | |
| 93. |
Distinguish between (a) Direct tax and indirect tax (b) Primary deficit and Revenue Deficit . |
| Answer» Direct taxes are non-transferable taxes paid by the tax payer to the government and indirect taxes are transferable taxes where the liability to pay can be shifted to others. Income Tax is a direct tax while Value Added Tax (VAT) is an indirect tax.Primary deficit is one of the parts of fiscal deficit. While fiscal deficit is the difference between total revenue and expenditure, primary deficit can be arrived by deducting interest payment from fiscal deficit.whereas A revenue deficit occurs when realized net income is less than the projected net income. This happens when the actual amount of revenue and/or the actual amount of expenditures do not correspond with budgeted revenue and expenditures | |
| 94. |
Which one of the following is not an objective of government budget ?A. Reallocation of resourcesB. Economic StabilityC. Increasing regional disparitiesD. Economic Growth |
|
Answer» Correct Answer - C |
|
| 95. |
Explain the economic stability objective of a government budget . |
| Answer» Using its revenue and expenditure policy, the government ensures economic stability in the economy. Free interaction of market forces, i.e the forces of demand and supply are bound to generate business cycles. Budget is an important tool to combat the situation of inflation and deflation. Government reduces its expenditure and increases its taxes to combat inflation. Government increases its expenditure and reduce taxes to combat deflation. | |
| 96. |
State any one objective of a government budget . |
| Answer» Budget helps to reduce inequalities in income and wealth by uses fiscal instrument of taxation and government expenditure. | |
| 97. |
Which of the two - primary deficit or fiscal deficit-indicates borrowing requirement of the government ? |
| Answer» Correct Answer - Fiscal defecit. | |
| 98. |
Discuss the meaning of following deficits : (i) Revenue Deficit , (ii) Fiscal Deficit , and (iii) Primary Deficit. |
| Answer» Fiscal deficit-The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowingsRevenue deficit-A revenue deficit occurs when realized net income is less than the projected net income. This happens when the actual amount of revenue and/or the actual amount of expenditures do not correspond with budgeted revenue and expenditures.Primary deficit-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 | |
| 99. |
Discuss the two sources to finance fiscal deficit . |
| Answer» Fiscal deficit can be met by borrowings from the internal sources (public, commercial banks etc.) or the external sources (foreign governments, international organisations etc.). 2. Deficit Financing (Printing of new currency): Government may borrow from RBI against its securities to meet the fiscal deficit. | |
| 100. |
What are capital receipts Or Define the capital receipts of a government . |
|
Answer» Capital receipts refer to those receipts of the government which (i) create a liability for the government e.g. , loans (ii) cause reduction in its assets e.g., disinvestment . |
|