Class 12 Government Budget and the Economy Mock Test (CBSE)

Topics in Government Budget and the Economy

• Government budget: meaning and its components
• Objectives of government budget
• Classification of receipts
• Classification of expenditure
• Balanced, surplus and deficit budget
• Measures of government deficit
• Fiscal policy

Government Budget and the Economy practice questions with answers

1. Q1Multiple choice·1 mark
   A government budget is termed as a surplus budget when:

   1. (a)Estimated government receipts are greater than estimated government expenditure
   2. (b)Estimated government expenditure is greater than estimated government receipts
   3. (c)Estimated government receipts are equal to estimated government expenditure
   4. (d)Capital receipts are equal to revenue expenditure
   Show answer and step marks

   1. Correct option: (a) Estimated government receipts are greater than estimated government expenditure. A surplus budget occurs when the estimated government receipts exceed estimated government expenditure for a given fiscal year.+1

   Answer: (a)
2. Q2Multiple choice·1 mark
   Which of the following is classified as a capital expenditure in a government budget?

   1. (a)Construction of a new national highway
   2. (b)Interest payment on borrowings
   3. (c)Purchase of stationery for government offices
   4. (d)Payment of salaries to government employees
   Show answer and step marks

   1. Correct option: (a) Construction of a new national highway. Capital expenditures are those expenditures of the government which either create physical or financial assets or reduce financial liabilities. Construction of a new national highway creates a physical asset.+1

   Answer: (a)
3. Q3Short answer·3 marks
   What is a government budget? Briefly explain its two main components.
   Show answer and step marks

   1. Define government budget as an annual financial statement showing estimated receipts and expenditures of the government during a fiscal year.+1
   2. Explain the Revenue Budget component (comprising revenue receipts and revenue expenditure).+1
   3. Explain the Capital Budget component (comprising capital receipts and capital expenditure).+1

   Answer: A government budget is an annual financial statement of the estimated receipts and expenditures of the government for a fiscal year. Revenue budget: revenue receipts (tax and non-tax), which neither create a liability nor reduce an asset, and revenue expenditure (e.g. salaries, interest payments, subsidies), which neither creates an asset nor reduces a liability. Capital budget: capital receipts, which create a liability (borrowings) or reduce an asset (disinvestment, recovery of loans), and capital expenditure (e.g. building roads, buying machinery, repaying loans), which creates an asset or reduces a liability.

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