Class 12 Macroeconomics Chapter 5 MCQ and Important Question answers. The NCERT Solutions, multiple choice questions, and extra important case based question answers of 12th Economics lesson 5 Government Budget and the Economy are given her to prepare board exams 2023-24.

Class 12 Macroeconomics Chapter 5 MCQ


Which of these are the revenue expenditure of the government

[A]. Interest payment
[B]. Purchase of house
[C]. Expenses on machinery
[D]. All of the above

Which of the following statements are true:

[A]. Fiscal deficit is the difference between total expenditure and total receipts
[B]. Primary deficit is the difference between total receipts and interest payments
[C]. Fiscal deficit is the sum of primary deficits and interest payments
[D]. All of the above

Budget speech in Lok Sabha is given by

[A]. President
[B]. Prime minister
[C]. Home minister
[D]. Finance minister

What is the period of a fiscal year

[A]. 1st January to 31st December
[B]. 1st March to 28th February
[C]. 1st July to 30th June
[D]. 1st April to 31st March

Class 12 Economics Topic – Debt

Budgetary deficits should be supported by either taxation, borrowing or printing money. Governments have principally relied on borrowing, giving rise to what’s referred to as government debt. The ideas of deficits and debt are closely connected. Deficits are often thought of as a flow that boost the stock of debt. If the government. continues to borrow year by year, it ends up in the buildup of debt and therefore the government needs to pay lots and lots by means of interest. These interest payments themselves contribute to the debt.

There are two interlinked aspects of the problem. One is whether or not government debt could be burden and two, the problem of funding the debt. The burden of debt should be mentioned keeping in mind that what’s true of one tiny trader’s debt might not be true for the government’s debt, and one should alter the ‘whole’ otherwise from the ‘part’.

Class 12 Macroeconomics Chapter 5 Important Question answers

Why public goods must be provided by government?

The benefits of public goods are available to everyone. Roads, parks, measures to take down pollution etc., are some examples. Benefits of these are enjoyed by everyone. No one is excluded from it. As this does not apply for private goods, public goods must be provided by the government so that anyone could get benefit of it.

Distinguish between revenue expenditure and capital expenditure.

Revenue expenditure is an expenditure incurred for purposes other than the creation of physical or financial assets of the central government. It relates to those expenses incurred for the normal functioning of the government departments and various services, interest payment on debt incurred by the government, and grants given to state government and other parties. Whereas, Capital expenditure of the government. are those expenditure which result in creation of physical or financial assets or reduction in financial liabilities. This includes expenditure on the acquisition of land, building, machinery, and equipment, investment in shares, and loan and advances by the central government to state and union territory governments, PSUs and other parties.

How can the government deficit be reduced?

Government deficit can be reduced by an increase in taxes or reduction in expenditure. This could be achieved through making government activities more efficient through better planning of programmes and better administration.

What are revenue receipts and capital receipts?

Revenue receipts are those which does not lead to a claim on the government. They’re thus termed non-redeemable. They’re divided into tax and non-tax revenues. Capital receipts are those receipts in which government additionally receives cash by means of loans or from the sale of its assets. Loans can need to be returned to the agencies from that they have been borrowed. Thus, they produce liability.

What is redistribution function?

The government sector affects the personal disposable income of households by making transfer and collecting taxes. It is through this that the government can change the distribution of income and bring about a distribution that is considered ‘fair’ by the society. This is called the redistribution process.

Taxation and Printing Cash

In contrast to any one trader, the government will raise resources through taxation and printing cash. It’s been argued that once a government cuts taxes and runs a deficit, consumers answer to their after-tax financial gain by disbursement a lot of its potential. It is possible that these people are short-sighted and don’t perceive the implications of budget deficits. They’ll not notice that at some purpose in future, the government can have to be compelled to raise taxes to pay off the debt and accumulated interest.

Although they comprehend this, they’ll expect the longer-term taxes to fall not on them however on future generations. A counter argument is that buyers are forward-looking and can base their disbursement not solely on their current financial gain however conjointly on their future expected financial gain. They will understand that borrowing today means higher taxes in the future. Further, the consumer will be concerned about future generations because they are children and grand-children of the present generation and the family which is the relevant decision-making unit, continues living.

Class 12 Macroeconomics Chapter 5 Multiple Choice Questions


Which type of expenditure is made in bridge construction

[A]. Revenue expenditure
[B]. Capital expenditure
[C]. Both of them
[D]. None of them.

Professional tax is imposed by

[A]. Central government
[B]. State government
[C]. Municipal corporation
[D]. Gram panchayat

Which of the following budget is suitable for developing economies

[A]. Deficit budget
[B]. Surplus budget
[C]. Balanced budget
[D]. None of these

What is the duration of a budget?

[A]. Annual
[B]. Two years
[C]. Five years
[D]. Ten years
Fiscal Policy

Fiscal policy refers to the employment of state defrayment and tax policies to influence economic conditions, particularly macroeconomic conditions. These embody combination demand for merchandise and services, employment, inflation, and economic process. Throughout a recession, the government. could lower tax rates or increase defrayment to encourage demand and spur economic activity. Conversely, to combat inflation, it should raise rates or cut defrayment to cool down the economy. Fiscal policy is commonly contrasted with financial policy that is enacted by central bankers and not electoral administration.

Economist believed that governments may stabilize the variations and regulate economic output by adjusting defrayment and tax policies to create up for the shortfalls of the non-public sector. His theories were developed in response to the Great Depression that defied classical economics’ assumptions that economic swings were self-correcting. Keynes’s concepts were extremely influential and led to the New Deal within the U.S. that concerned large defrayment on public works projects and welfare programs.

Psychological and Emotional Factors

In line with the economists, the non-public sector parts of aggregate demand are too variable and too obsessed on psychological and emotional factors to keep up sustained growth within the economy. Pessimism, fear, and uncertainty among customers and businesses will result in economic recessions and depressions. What’s lot, excessive public sector exuberance throughout good times will result in an overheated economy and inflation. However, Keynesians believe that government taxation and defrayment is managed rationally and accustomed counteract the excesses and deficiencies of personal sector consumption and investment defrayment so as to stabilize the economy.

Once non-public sector defrayment decreases, the government will pay a lot of and/or tax less so as to directly increase combination demand. Once the non-public sector is to a fault optimistic and spends an excessive amount of, too quick on consumption and new investment projects, the government can spend less and/or tax more in order to decrease aggregate demand. This suggest that to assist stabilize the economy, the government ought to run giant budget deficits throughout economic downturns and run budget surpluses once the economy is growing.

Last Edited: October 25, 2022