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Capital budget is a financial proposal of the government which contains items that either lead to a change in the assets or liabilities of the government. Capital budget of the government can be decomposed into the following two categories:

i. Capital receipts - It refers to those receipts of the government which either create a liability or causes a reduction in the assets of the government. These receipts can be classified into the following three categories:

a. Borrowings - Borrowing of funds by the government creates a liability on it. Therefore, the receipts from the borrowing activities of the government are treated as capital receipts.

b. Recovery of loans - The central government often offers loans to the state government and union territories for various purposes. The recovery of such loans forms a part of the receipts for the government.

c. Other receipts - These include disinvestment and small savings. Disinvestment refers to selling a part or whole of the shares of the enterprises that are owned by the government. As disinvestment results in the reduction of government assets, it is treated as capital receipts. Similarly, small savings lead to an increase in the government liabilities as they include the money of the public deposited in post offices, national savings certificates etc

ii. Capital expenditure - It refers to that government expenditure, which causes a reduction in the government liabilities as well as creates assets for the government. These receipts can be classified into the following three categories:

a. Expenditure on purchasing shares or bonds.

b. Expenditure on buying buildings or machinery

c. Loans granted to the state government, union territories or the public companies.

Capital expenditure refers to that government expenditure which causes a reduction in the government liabilities as well as creates assets for the government. For example - expenditure on purchasing land or buildings, expenditure on purchasing bonds etc.

Revenue receipts are those receipts of the government which neither creates any liability nor any reduction in the assets of the government. These comprise of tax and non-tax receipts, duties and fines, interest and dividends receipts on government investments and assets. These receipts can be classified into the following two categories:

a. Tax revenue

b. Non-tax revenue

When government revenue is more than its expenditure, it is called a surplus budget. In other words, it refers to the excess of government revenue over its expenditure. That is, Surplus budget = Government revenue – Government expenditure.

Income collected from taxes forms a main part of the government revenue as a tax is a legally compulsory monetary contribution to the government by different economic units, such as households, firms and other economic units. Taxes are imposed by the government on different activities like income, property, production, occupation etc.

Recovery of debt implies taking back the money lent by the government to others (state government, union territories, public sector undertakings etc.). It is a part of the capital receipts of the government budget. The government can use the recovered debt to purchase assets, leading to an increase in the assets of the government.

Budget is a financial statement showing item-wise expected government receipts and government payments during a financial year. It also presents the government's report on the financial performance during the previous fiscal year. A government budget is not only a financial statement, but also a reflection of the government objectives, policies and their expected effects.

Yes, the above mentioned statement is correct. Inflation refers to the continuous increase in the general price level of the economy. This rise in the price level must be controlled by the government in order to safeguard the interest of the people. This can be done by increasing taxes and lowering the government expenditure, thereby causing a reduction in the effective demand in the country. An increase in taxes and reduction in expenditure of the government will lead to a surplus budget. That is why we say that surplus budget is advisable during the period of inflation.

No, the above statement is not correct. A capital budget is mainly concerned with the capital items in the government budget, such as loans, borrowings, land, buildings etc., It consists of capital receipts and capital expenditure. On the other hand, revenue receipts and revenues expenditure form a part of the revenue budget.

Wealth tax is an example of direct tax.

Explanation:

Direct taxes are those taxes which are borne by the person on whom they are imposed. Since a wealth tax is directly imposed on the wealth of an individual, and the burden of this tax cannot be shifted to other, it is an example of direct tax.

Explanations:

1. Deficit budget refers to the excess of the total budgeted expenditure over the total budgeted receipts. In other words, budget deficit implies a situation where the total budget receipts of the government fall short of the total budget expenditure of the government. That is, Deficit budget = Government expenditure > Government revenue

2. A government budget is a financial statement showing item-wise expected government receipts and government payments during a financial year. A financial year is typically for one year. Hence, it can be concluded that the government budget is for one year.

3. Non-tax revenue refers to the revenue received by the government from sources other than the taxes. Fees and license fee are imposed by the government for providing various services to people. Since they are not a part of taxes, the revenue generated from them is classified as non-tax revenue

4. Capital receipts are those receipts of the government which either create a liability or cause a reduction in the assets of the government. Since the borrowing of funds by the government creates a liability on it, receipts from the borrowing activities are treated as capital receipts

5. Plan expenditure refers to that budget expenditure which is incurred by the government on the planned programmes as per five year plan. As the expenditure of the government on irrigation is a planned one, it is plan expenditure.

The budget is a monthly statement. - False

Explanation: The above statement is incorrect. In fact, the budget is an annual financial statement showing item-wise expected government receipts and government payments during a financial year.

Explanations:

1. Deficit budget refers to the excess of the total budgeted expenditure over the total budgeted receipts. In other words, budget deficit implies a situation where the total budget receipts of the government fall short of the total budget expenditure of the government. That is, Deficit budget = Government expenditure > Government revenue

2. A government budget is a financial statement showing item-wise expected government receipts and government payments during a financial year. A financial year is typically for one year. Hence, it can be concluded that the government budget is for one year

3. Non-tax revenue refers to the revenue received by the government from sources other than the taxes. Fees and license fee are imposed by the government for providing various services to people. Since they are not a part of taxes, the revenue generated from them is classified as non-tax revenue.

4. Capital receipts are those receipts of the government which either create a liability or cause a reduction in the assets of the government. Since the borrowing of funds by the government creates a liability on it, receipts from the borrowing activities are treated as capital receipts.

5. Plan expenditure refers to that budget expenditure which is incurred by the government on the planned programmes as per five year plan. As the expenditure of the government on irrigation is a planned one, it is plan expenditure.

During depression, deficit budget is preferable.

Explanation:

Deficit budget is a situation where the government expenditure exceeds its receipts. This kind of budget is preferable at the time of depression as during depression, the output and economic activities are low causing unemployment in the country. In order to solve this problem, the government can increase expenditure for productive purposes and and use it for generating employment opportunities. This will help in increasing demand for goods and services and lowering unemployment.

The term budget is derived from French word Bougette.

Explanation: ‘Bougette’ is a french word meaning a bag, or a wallet containing financial proposals. The term budget has been derived from this. A budget is a financial statement showing item-wise expected government receipts and government payments during a financial year.

When Government revenue exceeds, government expenditure it is known as surplus budget.

Explanation:

Surplus budget refers to the excess of government revenue over the expenditure. In other words, when the government revenue is greater than its expenditure, it is called a surplus budget.

That is, Surplus budget = Government revenue – Government expenditure

Fiscal policy is related to public revenue and public expenditure. - True

Explanation: Yes. The above statement is correct. Fiscal policy refers to the policy undertaken by the government to influence the economy through the process of public expenditure (government expenditure, subsidies and transfer payments) and public revenue collection (taxation). In other words, fiscal policy refers to a policy whereby the government alters its expenditure and revenue receipts.

Indirect taxes are paid directly by people to the government. - False

Explanation: The above statement is incorrect. Indirect taxes are not paid directly the by people to the government. In fact, indirect taxes are paid indirectly by the people to the government. Example, sales tax, VAT

Development expenditure - This refers to the budget expenditure which is incurred by the government on economic growth and development activities. For example, expenditure on education, development of infrastructures etc.

Non-development expenditure- This refers to the budget expenditure which is incurred on the non-developmental activities. This expenditure does not directly contribute to the national income but accelerates the process of economic growth and development. For example, expenditure on administration, law and order, transfer of payments etc.

The following are some of the main sources of non-tax revenue:

i. Fees and license fee - The government receives fees in return of various services provided to the people. For example college fees, passport fees, registration fees etc.

ii. Gifts and grants - Gifts, grants and donations received by the government in the event of a natural calamity, war etc. also form a source of revenue for the government.

iii. Fines and penalties - Fines and penalties are imposed by the government on those who boycott law.

iv. Escheat - It refers to the income from a property of a person who dies without legal heirs.

v. Income from public enterprises - Income and profits from various enterprises owned by the government such as railways, SAIL etc. form an important source of revenue for the government.

A balanced budget refers to the budget when the total budget expenditure is equal to the total budget receipts.

Balanced budget = Total budget revenue – Total budget expenditure = 0

Adam Smith and other classical economists advocated the concept of balanced budget. They said that a balanced budget is the best since it has a neutral effect on the economy. However, it was argued by the modern economists that a balanced budget is not always suitable for the economy. For instance, during depression, the output and economic activities are low, causing unemployment in the country.

In order to solve the problem of unemployment, the government must step in. The government can borrow money and use it for generating employment opportunities, thereby increasing demand and lowering unemployment. Thus, during depression, only a deficit budget is useful, while the balanced budget fails to correct the situation.