Table of Contents
Class 12 Economics Chapter 5 – Government Budget and the Economy Important Questions
Government Budget and the Economy is one of the most scoring chapters in Class 12 Macroeconomics. This chapter covers Government Budget, public goods, revenue and capital receipts, government expenditure, budget deficits, fiscal policy, government debt, GST, FRBM Act, and multiplier concepts. The following question bank includes chapter-wise MCQs, one-word questions, assertion and reason questions, descriptive questions and NCERT-based revision material to help students strengthen conceptual understanding and prepare effectively.
These questions are useful for CBSE Board Exams, CUET, UPSC, SSC, State PSC, Banking, Railway and other competitive examinations where fiscal policy, budgetary concepts and public finance are frequently tested. The questions are extracted from almost every important NCERT heading, definition, table, box, formula and exercise.
These MCQs from Government Budget and the Economy cover all important NCERT concepts including objectives of government budget, public goods, revenue and capital receipts, expenditure classification, budget deficits, fiscal policy, government debt, FRBM Act and GST. They are highly useful for quick revision and competitive exam preparation.
### MCQ 1
Government Budget is primarily a statement of:
A. National Income
B. Government receipts and expenditure
C. Production of goods
D. Money supply
Page Reference: 65
### MCQ 2
The financial year of the Government of India runs from:
A. January to December
B. April to March
C. July to June
D. October to September
Page Reference: 65
### MCQ 3
Under Article 112 of the Constitution, the government presents:
A. Five-Year Plan
B. Economic Survey
C. Annual Financial Statement
D. Monetary Policy
Page Reference: 65
### MCQ 4
Government Budget is divided into:
A. Revenue Budget and Capital Budget
B. Income Budget and Wealth Budget
C. Tax Budget and Loan Budget
D. Fiscal and Monetary Budget
Page Reference: 65
### MCQ 5
Which one is NOT an objective of Government Budget?
A. Allocation
B. Redistribution
C. Stabilisation
D. Maximisation of private profits
Page Reference: 66–68
### MCQ 6
Government provides public goods because they are:
A. Rival and excludable
B. Non-rival and non-excludable
C. Private in nature
D. Produced only by firms
Page Reference: 66
### MCQ 7
Which of the following is a public good?
A. Television
B. Car
C. National Defence
D. Mobile Phone
Page Reference: 66
### MCQ 8
Which characteristic is associated with private goods?
A. Non-rival
B. Non-excludable
C. Rival consumption
D. Collective ownership
Page Reference: 66
### MCQ 9
Individuals who enjoy public goods without paying are known as:
A. Investors
B. Consumers
C. Free Riders
D. Taxpayers
Page Reference: 66
### MCQ 10
Public provision means:
A. Goods produced only by PSUs
B. Goods financed through government budget
C. Goods imported by government
D. Goods produced by private firms
Page Reference: 66
### MCQ 11
When goods are produced directly by the government, it is called:
A. Public Provision
B. Public Production
C. Public Consumption
D. Public Distribution
Page Reference: 66
### MCQ 12
The redistribution function of Government Budget mainly aims at:
A. Increasing exports
B. Fair distribution of income
C. Increasing imports
D. Reducing production
Page Reference: 66–67
### MCQ 13
Government redistributes income mainly through:
A. Advertising
B. Taxes and Transfers
C. Imports
D. Interest Rates
Page Reference: 66–67
### MCQ 14
The stabilisation function of Government Budget mainly helps in controlling:
A. Climate
B. Inflation and Unemployment
C. Population
D. International Trade
Page Reference: 68
### MCQ 15
Revenue receipts are those receipts which:
A. Create liabilities
B. Reduce government assets
C. Do not create liabilities
D. Increase public debt
Page Reference: 68
### MCQ 16
Revenue receipts are classified into:
A. Direct and Indirect Expenditure
B. Tax and Non-tax Revenue
C. Plan and Non-plan Revenue
D. Revenue and Capital Expenditure
Page Reference: 68
### MCQ 17
Which of the following is a direct tax?
A. Customs Duty
B. GST
C. Corporation Tax
D. Excise Duty
Page Reference: 68
### MCQ 18
Which tax is imposed on imported goods?
A. Income Tax
B. GST
C. Customs Duty
D. Corporation Tax
Page Reference: 68
### MCQ 19
Excise Duty is levied on:
A. Imported goods
B. Exported goods
C. Goods produced within the country
D. Services only
Page Reference: 68
### MCQ 20
Progressive taxation means:
A. Equal tax for everyone
B. Higher income pays higher tax rate
C. Lower income pays higher tax
D. No taxation
Page Reference: 68
### MCQ 21
Which is an important source of Non-tax Revenue?
A. Income Tax
B. Corporation Tax
C. Interest Receipts
D. GST
Page Reference: 68
### MCQ 22
Capital receipts include:
A. Income Tax
B. Loans received by Government
C. GST
D. Customs Duty
Page Reference: 68–69
### MCQ 23
Capital receipts generally:
A. Never create liabilities
B. Create liabilities or reduce financial assets
C. Are tax revenues
D. Are always grants
Page Reference: 69
### MCQ 24
Sale of shares of Public Sector Undertakings is known as:
A. Monetisation
B. Nationalisation
C. PSU Disinvestment
D. Fiscal Consolidation
Page Reference: 68–69
### MCQ 25
Revenue expenditure is expenditure incurred for:
A. Creation of physical assets
B. Acquisition of machinery
C. Normal functioning of Government
D. Purchase of land
Page Reference: 69
### MCQ 26
Interest payment on government debt is classified as:
A. Capital Expenditure
B. Revenue Expenditure
C. Capital Receipt
D. Revenue Receipt
Page Reference: 69–70
### MCQ 27
Which of the following is Capital Expenditure?
A. Salaries
B. Subsidies
C. Purchase of Machinery
D. Pension
Page Reference: 70
### MCQ 28
Capital expenditure results in:
A. Creation of assets
B. Reduction in GDP
C. Increase in taxes
D. Decrease in imports
Page Reference: 70
### MCQ 29
The Fiscal Responsibility and Budget Management Act (FRBM) was enacted in:
A. 1991
B. 1997
C. 2003
D. 2014
Page Reference: 70, 81–82
### MCQ 30
Which statement is mandatory under FRBM Act?
A. Monetary Policy Statement
B. Medium-term Fiscal Policy Statement
C. Industrial Policy Statement
D. Trade Policy Statement
Page Reference: 70, 82
### MCQ 31
A budget where government expenditure equals revenue is called:
A. Surplus Budget
B. Balanced Budget
C. Deficit Budget
D. Revenue Budget
Page Reference: 70–71
### MCQ 32
If government revenue exceeds expenditure, the budget is called:
A. Balanced Budget
B. Deficit Budget
C. Surplus Budget
D. Capital Budget
Page Reference: 71
### MCQ 33
When government expenditure exceeds revenue, it is called:
A. Surplus Budget
B. Balanced Budget
C. Budget Deficit
D. Capital Budget
Page Reference: 71
### MCQ 34
Revenue Deficit is calculated as:
A. Total Expenditure − Total Receipts
B. Revenue Expenditure − Revenue Receipts
C. Capital Expenditure − Capital Receipts
D. Revenue Receipts − Revenue Expenditure
Page Reference: 71
### MCQ 35
A Revenue Deficit indicates that the government is:
A. Saving more
B. Dissaving and borrowing for consumption expenditure
C. Running a surplus
D. Reducing liabilities
Page Reference: 71–72
These MCQs cover the remaining concepts of the chapter including Revenue Deficit, Fiscal Deficit, Primary Deficit, Government Borrowing, Public Debt, Fiscal Policy, Government Budget Multipliers, GST, FRBM Act and all important NCERT concepts.
### MCQ 36
Fiscal Deficit is equal to:
A. Revenue Expenditure – Revenue Receipts
B. Total Expenditure – Total Receipts excluding Borrowings
C. Capital Expenditure – Capital Receipts
D. Revenue Receipts – Revenue Expenditure
Page Reference: 72
### MCQ 37
Fiscal Deficit indicates:
A. Total Borrowing Requirement of Government
B. Government Profit
C. National Income
D. Private Investment
Page Reference: 72
### MCQ 38
Primary Deficit is calculated as:
A. Fiscal Deficit – Interest Payments
B. Revenue Deficit – Fiscal Deficit
C. Fiscal Deficit + Interest Payments
D. Revenue Receipts – Revenue Expenditure
Page Reference: 72
### MCQ 39
Primary Deficit measures:
A. Current year’s borrowing excluding interest burden
B. Total Government Assets
C. Public Revenue
D. Capital Receipts
Page Reference: 72
### MCQ 40
Which deficit ignores interest payments on previous borrowings?
A. Fiscal Deficit
B. Revenue Deficit
C. Primary Deficit
D. Budget Deficit
Page Reference: 72
### MCQ 41
Government borrowing mainly increases:
A. Revenue Receipts
B. Capital Receipts
C. Tax Revenue
D. Non-tax Revenue
Page Reference: 69
### MCQ 42
Which of the following is NOT a Capital Receipt?
A. Recovery of Loans
B. Borrowings
C. GST Collection
D. Disinvestment
Page Reference: 68–69
### MCQ 43
Disinvestment means:
A. Selling Government securities
B. Selling Government ownership in PSUs
C. Borrowing from RBI
D. Collecting taxes
Page Reference: 69
### MCQ 44
Recovery of loans granted earlier by the Government is treated as:
A. Revenue Receipt
B. Capital Receipt
C. Revenue Expenditure
D. Capital Expenditure
Page Reference: 69
### MCQ 45
Which of the following is Revenue Expenditure?
A. Construction of Highway
B. Purchase of Equipment
C. Pension Payment
D. Construction of Dam
Page Reference: 69
### MCQ 46
Construction of a National Highway is:
A. Revenue Expenditure
B. Capital Expenditure
C. Revenue Receipt
D. Capital Receipt
Page Reference: 70
### MCQ 47
Loans given by Government to States are classified as:
A. Revenue Expenditure
B. Capital Expenditure
C. Revenue Receipt
D. Tax Expenditure
Page Reference: 70
### MCQ 48
Fiscal Policy mainly deals with:
A. Money Supply
B. Government Revenue and Expenditure
C. Interest Rate only
D. Exchange Rate
Page Reference: 73
### MCQ 49
Expansionary Fiscal Policy generally involves:
A. Increasing Taxes and Reducing Expenditure
B. Reducing Government Expenditure
C. Increasing Government Expenditure and/or Reducing Taxes
D. Increasing Interest Rates
Page Reference: 73
### MCQ 50
Contractionary Fiscal Policy aims to:
A. Reduce Inflation
B. Increase Inflation
C. Increase Imports
D. Reduce Exports
Page Reference: 73
### MCQ 51
Government expenditure multiplier measures:
A. Effect of Government Spending on National Income
B. Effect of Taxes on Imports
C. Effect of Inflation
D. Effect of Public Debt
Page Reference: 75
### MCQ 52
An increase in Government Expenditure generally:
A. Decreases Aggregate Demand
B. Increases Aggregate Demand
C. Reduces Employment
D. Reduces Income
Page Reference: 75
### MCQ 53
Tax Multiplier is generally:
A. Positive
B. Zero
C. Negative
D. Infinite
Page Reference: 76
### MCQ 54
Balanced Budget Multiplier is generally equal to:
A. Zero
B. One
C. Two
D. Three
Page Reference: 76
### MCQ 55
Balanced Budget Multiplier indicates that equal increases in Government expenditure and taxes:
A. Have no effect
B. Increase National Income by the same amount
C. Reduce National Income
D. Double National Income
Page Reference: 76
### MCQ 56
Which type of tax increases automatically as income rises?
A. Lump-sum Tax
B. Progressive Tax
C. Customs Duty
D. Excise Duty
Page Reference: 68
### MCQ 57
Automatic stabilisers mainly work through:
A. Monetary Policy
B. Progressive Taxes and Transfers
C. Imports
D. Exports
Page Reference: 77
### MCQ 58
Public Debt refers to:
A. Household Borrowing
B. Government Borrowing
C. Corporate Loans
D. Bank Deposits
Page Reference: 78
### MCQ 59
Internal Debt is borrowed from:
A. IMF
B. World Bank
C. Residents of the Country
D. Foreign Governments
Page Reference: 78
### MCQ 60
External Debt is borrowed from:
A. Domestic Banks
B. Indian Citizens
C. Foreign Sources
D. RBI Only
Page Reference: 78
### MCQ 61
Excessive Government Borrowing may lead to:
A. Crowding Out of Private Investment
B. Higher Exports
C. Lower Inflation Always
D. Higher Revenue Receipts
Page Reference: 79
### MCQ 62
Crowding Out occurs when:
A. Government borrowing reduces private investment
B. Imports exceed exports
C. Taxes increase
D. Inflation falls
Page Reference: 79
### MCQ 63
Ricardian Equivalence suggests that:
A. Government borrowing always increases consumption
B. Consumers anticipate future taxes due to borrowing
C. Fiscal Deficit has no effect on debt
D. Taxes always reduce GDP
Page Reference: 79
### MCQ 64
GST stands for:
A. General Sales Tax
B. Goods and Services Tax
C. Government Service Tax
D. Gross Service Tax
Page Reference: 80
### MCQ 65
GST was introduced in India on:
A. 1 April 2016
B. 1 July 2017
C. 1 January 2018
D. 15 August 2017
Page Reference: 80
### MCQ 66
GST is an example of:
A. Direct Tax
B. Indirect Tax
C. Wealth Tax
D. Capital Tax
Page Reference: 80
### MCQ 67
One major objective of GST is to:
A. Increase Fiscal Deficit
B. Eliminate Cascading Effect of Taxes
C. Reduce Exports
D. Increase Public Debt
Page Reference: 80
### MCQ 68
FRBM Act was enacted to promote:
A. Fiscal Discipline
B. Monetary Expansion
C. Export Promotion
D. Population Control
Page Reference: 81–82
### MCQ 69
FRBM mainly aims to reduce:
A. Fiscal Imbalance
B. Imports
C. Population
D. Inflation only
Page Reference: 81–82
### MCQ 70
Which statement is TRUE regarding Revenue Deficit?
A. It creates physical assets
B. It indicates Government Dissaving
C. It measures Capital Formation
D. It is always desirable
Page Reference: 71
### MCQ 71
Which deficit is considered the broadest measure of Government borrowing?
A. Revenue Deficit
B. Primary Deficit
C. Fiscal Deficit
D. Budget Surplus
Page Reference: 72
### MCQ 72
Which of the following is a Non-tax Revenue?
A. GST
B. Income Tax
C. Dividend from Public Enterprises
D. Corporation Tax
Page Reference: 68
### MCQ 73
Subsidies provided by Government are classified as:
A. Revenue Expenditure
B. Capital Expenditure
C. Revenue Receipt
D. Capital Receipt
Page Reference: 69
### MCQ 74
Which of the following creates Government liabilities?
A. Tax Revenue
B. Borrowings
C. Fees
D. Fines
Page Reference: 69
### MCQ 75
The primary objective of a Government Budget is to:
A. Maximise Private Profit
B. Achieve Economic Welfare through Allocation, Redistribution and Stabilisation
C. Increase Imports
D. Maximise Corporate Income
Page Reference: 66–68
One-Word / Very Short Answer Questions
Designed for quick NCERT revision and competitive exam preparation.
Assertion & Reason Questions
Strictly based on exam patterns evaluating conceptual understanding and analytical reasoning.
- A: Both A and R are true and R is the correct explanation of A.
- B: Both A and R are true but R is NOT the correct explanation of A.
- C: A is true but R is false.
- D: A is false but R is true.
Assertion (A): Government Budget is an Annual Financial Statement.
Reason (R): It contains estimated receipts and expenditure of the Government for the coming financial year.
Assertion (A): Allocation is an important objective of Government Budget.
Reason (R): Government allocates resources towards public welfare and public goods.
Assertion (A): Redistribution function helps reduce income inequalities.
Reason (R): Government uses progressive taxation and transfer payments.
Assertion (A): Stabilisation function helps maintain economic stability.
Reason (R): Government attempts to control inflation and unemployment.
Assertion (A): Public goods are non-rival and non-excludable.
Reason (R): Individuals cannot easily be excluded from consuming them.
Assertion (A): Revenue Receipts create liabilities for the Government.
Reason (R): Revenue Receipts mainly consist of taxes and non-tax income.
Assertion (A): Capital Receipts either create liabilities or reduce Government assets.
Reason (R): Borrowings increase Government liabilities.
Assertion (A): Revenue Expenditure creates physical assets.
Reason (R): It mainly meets day-to-day administrative expenses.
Assertion (A): Capital Expenditure results in creation of assets.
Reason (R): It includes expenditure on roads, dams and machinery.
Assertion (A): Revenue Deficit indicates Government dissaving.
Reason (R): Revenue expenditure exceeds revenue receipts.
Assertion (A): Fiscal Deficit indicates total borrowing requirements.
Reason (R): Government expenditure exceeds receipts excluding borrowings.
Assertion (A): Primary Deficit excludes interest payments.
Reason (R): It measures current year’s fiscal imbalance.
Assertion (A): Expansionary Fiscal Policy increases aggregate demand.
Reason (R): Government expenditure increases and taxes may decrease.
Assertion (A): Contractionary Fiscal Policy helps reduce inflation.
Reason (R): Government reduces expenditure or increases taxes.
Assertion (A): Government Expenditure Multiplier is positive.
Reason (R): Increase in Government spending increases aggregate demand.
Assertion (A): Tax Multiplier is negative.
Reason (R): Higher taxes reduce disposable income and consumption.
Assertion (A): Balanced Budget Multiplier is equal to one.
Reason (R): Equal increase in Government expenditure and taxes raises income by the same amount.
Assertion (A): Public Debt includes both internal and external borrowings.
Reason (R): Government borrows from domestic as well as foreign sources.
Assertion (A): Excessive Government borrowing may crowd out private investment.
Reason (R): Increased Government borrowing can raise interest rates.
Assertion (A): Ricardian Equivalence assumes consumers expect future taxes.
Reason (R): Government borrowing today may require higher taxes in future.
Assertion (A): GST is an indirect tax.
Reason (R): It is levied on the supply of goods and services.
Assertion (A): GST was introduced to eliminate cascading taxation.
Reason (R): Input Tax Credit reduces tax-on-tax.
Assertion (A): FRBM Act promotes fiscal discipline.
Reason (R): It seeks to reduce fiscal deficit and improve transparency.
Assertion (A): A Balanced Budget always causes inflation.
Reason (R): Government expenditure equals Government receipts.
Assertion (A): Capital Receipts are recurring in nature.
Reason (R): They usually arise from borrowings and disinvestment.
Higher-Level Assertion & Reason (CUET / Board / UPSC)
Assertion (A): Progressive taxation promotes equity.
Reason (R): Higher-income groups pay taxes at higher rates.
Assertion (A): Revenue Deficit is considered undesirable.
Reason (R): It implies borrowing is being used to finance current consumption.
Assertion (A): Fiscal Deficit is broader than Revenue Deficit.
Reason (R): It includes both revenue and capital expenditure.
Assertion (A): Government borrowing always increases national income permanently.
Reason (R): Borrowed funds may create future debt obligations.
Assertion (A): Government Budget is an important instrument of fiscal policy.
Reason (R): It influences allocation, distribution and macroeconomic stability.