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Key notes for class 12 Economics Ch-5 Government Budget and Economy. CBSE Class 12 economics Revision Notes Macro Economics chapter-5 Government Budget and Economy as per latest syllabus prescribed by CBSE.
CBSE Class 12 Macro Economics
Quick Revision Notes
CHAPTER 5: Government Budget and Economy
CBSE Class 12 economics Revision Notes Macro Economics chapter-8 Government Budget and Economy
Budget is a financial statement showing the expected receipt and expenditure of Govt. for the coming fiscal or financial year.
Main objectives of budget are:
- Reallocation of resources.
- Redistribution of income and wealth
- Economic Stability
- Management of public Enterprises.
- Economic Growth
- Generation of employment
There are two components of budget:
- Revenue budget
- Capital budget
Revenue Budget consists of revenue receipts of govt. and expenditure met from such revenue.
Capital budget consists of capital receipts and capital expenditure.
- Revenue Receipts
- Direct Tax
- Income tax
- Corporate Tax
- Wealth and Property Tax
- Indirect Tax
- Value added Tax
- Service Tax
- Excise Duty
- Custom Duty
- Entertainment Tax
- Commercial Revenue
- Dividend, Profits
- External Grants
- Administrative Revenues
- License Fee
- Fines, Penalties
- Cash grants-in-aid from foreign countries and international organization.
- Direct Tax
- Capital Receipts
- Borrowing and Other liabilities
- Recovery of Loans
- Other receipts(Disinvestments)
- Revenue Receipts
Direct Tax: A direct tax is one whose burden cannot be shifted to others I.e. the impact and incidence of the tax is on the same person.ex- income tax, wealth tax, gift tax.
Indirect Tax: An indirect tax is one whose burden can be shifted to others or the impact and incidence of an indirect tax falls on different people. ex- excise duty, VAT, service tax.
- Neither creates liabilities for govt.
- Nor causes any reduction in Assets.
- It creates liabilities or
- It reduces financial Assets.
- Revenue Expenditure
- Neither creates assets
- Nor reduces Liabilities.
e.g., Interest Payment, subsidies etc.
- It creates assets
- It reduces Liabilities.
e.g., Construction of school building Repayment of loans etc.
Budget Deficit:- It refers to a situation when budget expenditure of a govt. are greater than the govt. receipts.
Budgetary Deficit: Total Expenditure > Total Receipts.
Revenue deficit: It is the excess of govt. revenue expenditure over revenue receipts.
Revenue Deficit: Total revenue expenditure > Total revenue receipts
Implications of Revenue Deficit are:
- A high revenue deficit shows fiscal indiscipline.
- It shows wasteful expenditures of Govt. on administration.
- It implies that government is dis-saving, i.e. government is using up savings of other sectors of the economy to finance its consumption expenditure.
- It reduces the assets of the govt. due to disinvestment.
- A high revenue deficit gives a warning signal to the government to either curtail its expenditure or increase its revenue.
Fiscal Deficit: When total expenditure exceeds total receipts excluding borrowing.
Fiscal Deficit: Total expenditures > Total Receipts excluding borrowing.
Implications of Fiscal Deficits are:
- It leads to inflationary pressure.
- A country has to face debt trap
- It reduces future growth and development.
- It increases liability of the government.
- It increases foreign dependence.
Primary Deficit: By deducting Interest payment from fiscal deficit we get primary deficit.
Primary Deficit: Fiscal deficit – Interest payments.
Implications of Primary Deficits are:
It indicates, how much of the government borrowings are going to meet expenses other than the interest payments.
Measures to correct different deficits:-
- Monetary expansion or deficit financing.
- Borrowing from public.
- Borrowing from international monetary institution and other countries.
- Lowering govt. expenditure.
- Increasing govt. revenue.