Mastermind Academy

SHOP NO : 27 MP MALL PITAMPURA

MCQ OF GOVERNMENT BUDGET

Class 12 - Economics
Time Allowed: 1 hour Maximum Marks: 75

1. Assertion (A): Budget is used as an important policy instrument to correct the situations of deflation and [1]
inflation.
Reason (R): The government tries to achieve a state of economic stability.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

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2. Assertion (A): Loans are either not available or are available only at a higher rate of interest. [1]
Reason (R): When our debt trap tightens our credit rating in the international market is increased.
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a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
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explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

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3. Assertion (A): The Government of India is undertaking disinvestment by selling its shares in the Maruti Udyog. [1]
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Reason (R): It is a revenue receipt of the government.

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a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.
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c) A is true but R is false. d) A is false but R is true.

4. Assertion (A): If fiscal discipline is not maintained the gap between expenditure and revenue starts widening. [1]
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Reason (R): This causes a rise in government borrowing.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

5. Assertion (A): Government earns profit through public sector undertakings like LIC, BHEL, etc. [1]
Reason (R): Non-tax revenue refers to receipts of the government from all sources other than those of tax
receipts.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

6. Assertion (A): Revenue deficit refers to excess of estimated revenue expenditure over estimated revenue [1]
receipts during the given fiscal year.
Reason(R): A high revenue deficit gives a warning signal to the government to either curtail its expenditure or
increase its revenue.

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 a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

7. Assertion (A): A high revenue deficit can cause inflation in the country. [1]
Reason (R): Rising expenditure of the government can cause a rise in the aggregate demand in the country.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

8. Assertion (A): Fiscal deficit indicates the total borrowing requirements of the government. [1]
Reason (R): Government mainly borrows from RBI to meet its fiscal deficit.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

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9. Assertion (A): The fiscal deficit in the economy will be zero if there is no provision for borrowing in the [1]
budget.
Reason (R): Fiscal deficit is equal to total borrowing requirement of the economy.
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a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.
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c) A is true but R is false. d) A is false but R is true.
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10. Assertion (A): Money received through disinvestment is treated as a capital receipt. [1]
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Reason (R): It does not cause a reduction in assets of the government.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
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explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

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11. Assertion (A): Union Budget is an annual statement, showing item wise estimates of receipts and expenditures [1]
of the coming fiscal year.
Reason (R): Through budget, Government aims to reallocate resources in accordance with the economic and
social priorities of the country.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

12. Assertion (A): Fee is not a payment for commercial services. [1]
Reason (R): Fee is a payment for administrative and judicial services provided to the people.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

13. Assertion (A): Scholarships are treated as capital expenditures. [1]
Reason (R): Capital expenditures either create an asset or reduce liability.

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 a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

14. Assertion (A): Capital receipts of the government leads to decrease in assets or increase in liabilities. [1]
Reason (R): Tax and non-tax receipts are the two sources of capital receipts.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

15. Assertion (A): Economy is driven to the state of recession and massive layoffs. [1]
Reason (R): High cost of living reduces aggregate effective demand and which retards inducement to invest.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

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16. Statement I: The government may need to correct fluctuations in income and employment [1]
Statement II: The overall level of employment and prices in the economy depends upon the level of aggregate
demand.
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a) Both the statements are false. b) Statement I is true and statement II is false.
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c) Statement II is true and statement I is false. d) Both the statements are true.
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17. Statement I: Subsidies do not add any burden on the financial health of a nation. [1]
Statement II: Complete removal of subsidies may violate the aim of equitable distribution of income.
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a) Statement I is true and Statement II is false. b) Both the statements are false.

c) Statement II is false and Statement I is true. d) Both the statements are true.
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18. Statement I: Revenue receipts are divided into tax and non-tax revenues. [1]
Statement II: A direct tax is collected directly from the income earners.
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a) Statement I is true and statement II is false. b) Both the statements are true.

c) Statement II is true and statement I is false. d) Both the statements are false.
19. Statement I: In case of public goods, consumption of many people is rivalrous. [1]
Statement II: Public goods are called non-excludable.

a) Both the statements are true. b) Statement I is true and statement II is false.

c) Statement II is true and statement I is false. d) Both the statements are false.
20. Statement 1: Tax is a legally compulsory payment. [1]
Statement 2: Direct taxes are capital receipts of the government.
In light of the given statements, choose the correct alternative from the following:

a) Statement 1 is false and Statement 2 is true. b) Both Statements 1 and 2 are true.

c) Statement 1 is true and Statement 2 is false. d) Both Statements 1 and 2 are false.
21. Statement I: Construction of flyovers is a revenue expenditure of the government. [1]
Statement II: Capital expenditure leads to creation of physical assets of the government.

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 a) Both the statements are true. b) Both the statements are false.

c) Statement I is true and statement II is false. d) Statement II is true and statement I is false.
22. Statement 1: Indirect Taxes have a wide coverage as they reach all the sections of the society. [1]
Statement 2: Indirect Taxes are levied on goods and services.

a) Both the Statements are false. b) Statement 2 is true and Statement 1 is false.

c) Statement 1 is true and Statement 2 is false. d) Both the Statements are true.
23. Statement I: The main items of non-plan expenditure are interest payments, defence services, subsidies, salaries [1]
and pensions.
Statement II: Interest payments on market loans, external loans and from various reserve funds constitute the
single largest component of plan revenue expenditure.

a) Statement II is true and statement I is false. b) Statement I is true and statement II is false.

c) Both the statements are true. d) Both the statements are false.
24. Statement I: Recovery of loans given to state governments is an example of debt creating capital receipts in a [1]

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government budget.
Statement II: Defence services expenditure is a revenue expenditure in a government budget.
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a) Statement I is true and statement II is false. b) Statement II is true and statement I is false.
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c) Both the statements are true. d) Both the statements are false.
25. Statement I: Increasing government expenditure which will directly benefit the poor is a fiscal measure that [1]
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can be used to reduce the gap between rich and poor.
Statement II: To check inflation that is causing hardships to the people, government can reduce its own
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expenditure to leave less disposable income in the hands of people.

a) Both the statements are true. b) Both the statements are false.
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c) Statement I is true and statement II is false. d) Statement II is true and statement I is false.
26. Statement I: Revenue deficit implies that government is dissaving and borrowing to meet consumption [1]
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expenditure.
Statement II: Primary deficit indicates borrowing requirements of the government other than to make interest
payments.

a) Both the statements are false. b) Both the statements are true.

c) Statement II is true and statement I is false. d) Statement I is true and statement II is false.
27. Statement I: Revenue Budget includes those receipts and expenditure that relate to the current financial year [1]
only.
Statement II: Capital Budget includes those receipts and expenditure that concern the assets and liabilities of
the government.

a) Both the statements are true. b) Both the statements are false.

c) Statement II is true and statement I is false. d) Statement I is true and statement II is false.
28. Statement I: Fiscal deficit is always greater than primary deficit. [1]
Statement II: Fiscal deficit indicates borrowing requirements of the government.

a) Both the statements are true. b) Both the statements are false.

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 c) Statement II is false, but statement I is true. d) Statement I is false, but statement II is true.
29. Statement 1: Equality in distribution of income and wealth is a sign of social justice and one of the objective of [1]
Government Budget.
Statement 2: Government aims to reduce inequalities of income and wealth by imposing taxes on rich and
giving subsidies to the poor.

a) Both the Statements are false. b) Statement 1 is true and Statement 2 is false.

c) Both the Statements are true. d) Statement 2 is true and Statement 1 is false.
30. Statement I: The government sector affects the personal disposable income of households by making transfers [1]
and collecting taxes.
Statement II: The central bank may need to correct fluctuations in income and employment.

a) Statement I is true and statement II is false. b) Both the statements are true.

c) Statement II is true and statement I is false. d) Both the statements are false.
31. Statement I: Public goods are non-excludable. [1]

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Statement II: Consumption of public goods by people is of rivalous nature.

a) Statement II is false and statement I is true. b) Statement I is true and statement II is false.
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c) Both the statements are true. d) Both the statements are false.
32. Statement I: The government reallocates resources with a view to balance the goals of profit maximisation (by [1]
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firms) and social welfare (by government).
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Statement II: Government may directly undertake production of certain goods and services in the areas where
private sector may not be willing to participate in production activities due to lack of enough profits and huge
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investment expenditure involved.

a) Statement I is true and statement II is false. b) Both the statements are false.
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c) Both the statements are true. d) Statement II is true and statement I is false.
33. Statement I: Debt creating capital receipts are borrowings made by the government. [1]
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Statement II: Non-debt creating capital receipts are those capital receipts which are not borrowings and
therefore, do not give rise to debt.

a) Statement II is true and statement I is false. b) Statement I is true and statement II is false.

c) Both the statements are true. d) Both the statements are false.
34. Statement I: Public goods are those goods and services that are collectively consumed by the public. [1]
Statement II: Public goods are excludable and rivalrous in nature.

a) Both the statements are false. b) Statement II is False and Statement I is true.

c) Both the statements are true. d) Statement I is true and Statement II is false.
35. Statement I: The government puts a higher rates of taxation on incomes of the rich people and lower rates of [1]
taxation on lower income groups to bring economic stability.
Statement II: During inflationary situation, government can reduce taxes and increase its own expenditure to
bring price stability.

a) Both the statements are true. b) Both the statements are false.

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 c) Statement II is true and statement I is false. d) Statement I is true and statement II is false.
36. Statement 1: Through the budgetary policy, Government can influence allocation of resources through tax [1]
concessions or subsidies.
Statement 2: Government aims to reallocate resources to maximize social welfare.

a) Both the Statements are false. b) Statement 1 is true and Statement 2 is false.

c) Both the Statements are true. d) Statement 2 is true and Statement 1 is false.
37. Statement 1: Fiscal Deficit is zero if there is no provision for borrowings in the union budget. [1]
Statement 2: Tax payments to the government do not provide any direct benefit to the tax payer.

a) Both the Statements are true. b) Statement 2 is true and Statement 1 is false.

c) Statement 1 is true and Statement 2 is false. d) Both the Statements are false.
38. Statement 1: Primary Deficit is borrowing requirements of government for making interest payments. [1]
Statement 2: Primary Deficit is zero when fiscal deficit is equal to interest payment.

a) Statement 2 is true and Statement 1 is false. b) Both the Statements are true.

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c) Both the Statements are false. d) Statement 1 is true and Statement 2 is false.
39.
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Statement I: Non-tax revenue of the central government mainly consists of interest receipts on account of loans [1]

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by the central government, dividends and profits on investments made by the government, fees and other
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receipts for services rendered by the government.
Statement II: Firms are taxed on a proportional basis, where the tax rate is a particular proportion of profits.
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a) Both the statements are false. b) Statement II is true and statement I is false.
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c) Both the statements are true. d) Statement I is true and statement II is false.
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40. Statement I: Grants given to state governments and other parties for creation of assets is an example of [1]
capital expenditure.
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Statement II: Dividends and profits on investments made by the Central Government are non-tax revenues.

a) Statement I is true and statement II is false. b) Statement II is true and statement I is false.
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c) Both the statements are false. d) Both the statements are true.
41. Statement 1: The impact and incidence of direct taxes is on the same person. [1]
Statement 2: Direct taxes are generally proportional in nature.

a) Statement 1 is true and Statement 2 is false. b) Both the Statements are true.

c) Statement 2 is true and Statement 1 is false. d) Both the Statements are false.
42. Statement I: Recovery of loans is a non-debt creating capital receipt. [1]
Statement II: Recovery of loans cause a reduction in assets of the government.

a) Both statements are false. b) Both statements are true.

c) Statement II is true and statement I is false. d) Statement I is true and statement II is false.
43. Statement 1: Budget prepared by the state government is termed as Union Budget. [1]
Statement 2: Budget always represents actual values of receipts and expenditures for the previous year.

a) Both the Statements are false. b) Both the Statements are true.

c) Statement 1 is true and Statement 2 is false. d) Statement 2 is true and Statement 1 is false.

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44. Statement I: Government Budget is a detailed economic statement presented by Finance Minister. [1]
Statement II: Government Budget consists of financial programmes and policies of the government for the next
year.

a) Statement I is true and statement II is false. b) Both the statements are true.

c) Statement II is true and statement I is false. d) Both the statements are false.
45. Statement I: Budgetary incentives (tax concessions, subsidies, etc.) can be used to influence allocation of [1]
resources in the country.
Statement II: Reallocation of Resources objective is sought to be achieved through progressive income
taxation, in which higher the income, higher is the tax rate.

a) Statement I is true and statement II is false. b) Statement II is true and statement I is false.

c) Both the statements are false. d) Both the statements are true.
46. Statement I: Plan revenue expenditure relates to central Plans (the Five-Year Plans) and central assistance for [1]
State and Union Territory plans.

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Statement II: Non-plan revenue expenditure, the more important component of revenue expenditure, covers a
vast range of general, economic and social services of the government.

a) Both the statements are false. b) Statement I is true and statement II is false.
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c) Both the statements are true. d) Statement II is true and statement I is false.
47. Statement I: A large share of revenue deficit in fiscal deficit indicates that a large part of borrowings is being [1]
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used to meet the government s consumption expenditure needs rather than investment.
Statement II: If primary deficit in a government budget is zero, it means fiscal deficit is equal to interest
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payment.

a) Statement II is true and statement I is false. b) Statement I is true and statement II is false.
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c) Both the statements are false. d) Both the statements are true.
48. Statement I: Revenue receipts are those receipts of government which neither lead to increase in its liabilities [1]
nor reduction in its assets.
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Statement II: Direct taxes are those taxes in which the impact and incidence of the tax lie on different entities.

a) Both the statements are true. b) Both the statements are false.

c) Statement I is true and statement II is false. d) Statement II is true and statement I is false.
49. Statement I: The goal of measuring Fiscal deficit is to focus on present fiscal imbalances. [1]
Statement II: To obtain an estimate of borrowing on account of current expenditures exceeding revenues, we
need to calculate the primary deficit.

a) Both the statements are false b) Statement II is true and statement I is false.

c) Statement I is true and statement II is false. d) Both the statements are true.
50. Statement 1: Revenue receipts neither create any liability nor cause any reduction in the assets of the [1]
government.
Statement 2: There is a future obligation to return the amount in case of revenue receipts.

a) Statement 1 is true and Statement 2 is false. b) Both the Statements are true.

c) Both the Statements are false. d) Statement 2 is true and Statement 1 is false.

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51. Statement I: During periods of inflation government may discourage spending by increasing taxes and reducing [1]
its own expenditure.
Statement II: Government expenditure is a major factor that generates demand for different types of goods and
services, which induces economic growth in the country.

a) Both the statements are false. b) Statement I is true and statement II is false.

c) Statement II is true and statement I is false. d) Both the statements are true.
52. Statement I: Wealth tax and gift tax are the direct taxes which have insignificant contribution to tax revenues; [1]
so called paper taxes.
Statement II: Repayment of loans is an example of revenue expenditure in a government budget.

a) Both the statements are false. b) Statement II is true and statement I is false.

c) Both the statements are true. d) Statement I is true and statement II is false.
53. Statement I: All those receipts of the government which create liability or reduce financial assets are termed as [1]
capital receipts.

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Statement II: Revenue Expenditure relates to those expenses incurred for the normal functioning of the
government departments and various services, interest payments on debt incurred by the government, and grants
given to state governments and other parties (even though some o f the grants may be meant for creation of
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assets).

a) Statement I is true and statement II is false. b) Statement II is true and statement I is false.
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c) Both the statements are true. d) Both the statements are false.
54. Statement 1: Capital receipts of the government do not create any liability. [1]
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Statement 2: Revenue receipts of the government are regular in nature.
In light of the given statements, choose the correct alternative from the following:
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a) Both Statements 1 and 2 are true. b) Statement 1 is true and Statement 2 is false.
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c) Both Statements 1 and 2 are false. d) Statement 1 is false and Statement 2 is true.
55. Statement I: Government Budget is an accounting statement showing actual receipts and expenditure of the [1]
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government during a fiscal year.

Statement II: Two main components of Government Budget are : Revenue Budget and Capital Budget.

a) Statement II is true, but statement I is false. b) Statement I is true, but statement II is false.

c) Both the statements are true. d) Both the statements are false.
56. Statement 1: Fiscal Deficit gives borrowing requirements of the government. [1]
Statement 2: High interest payments on past borrowings have greatly increased the fiscal deficit.

a) Both the Statements are false. b) Statement 1 is true and Statement 2 is false.

c) Both the Statements are true. d) Statement 2 is true and Statement 1 is false.
57. Statement 1: Interest and fees received by the government are part of non-tax revenue. [1]
Statement 2: Non-tax revenue is the major source of revenue receipts for the government.

a) Both the Statements are true. b) Both the Statements are false.

c) Statement 1 is true and Statement 2 is false. d) Statement 2 is true and Statement 1 is false.
58. Read the text carefully and answer the questions: [6]

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Read the following case:
Budget 2021 -22 → From Where The Rupee Comes?

S.No. Items Amount (Paisa/Rupee)

(i) Corporation Tax 13

(ii) Income Tax 14

(iii) Customs 3

(iv) Union Excise Duties 8

(v) Goods and Service Tax 15

(vi) Non-tax Revenue 6

(vii) Non-debt Capital Receipts 5

(viii) Borrowing and other liabilities 36

(a) What is the percentage share of total tax revenue in governments total receipts?

a) 45%

c) 53% sal b) 50%

d) 59%
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(b) Identify which of the following is not an example of non-tax revenue?
i. Fees And Fines
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ii. Income Tax

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iii. Borrowings
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iv. Grants
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a) Only (ii) b) (i) and (iv)

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c) (ii), (iii) and (iv) d) (ii) and (iii)

(c) If government borrowing increases, which of the following statements will be incorrect for the current
fiscal year?
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a) Primary deficit will increase. b) Fiscal deficit will increase.

c) Revenue deficit will decrease. d) Government burden for future payment

will increase.
(d) Which among the following is an example of indirect tax?

a) Corporation Tax b) Gift Tax

c) Income Tax d) Excise Duties

(e) If government borrowing for the fiscal year is 35,000 crores and interest payments are 5,000 crores then
the value of fiscal deficit will be

a) 7,000 crores b) 35,000 crores

c) 30,000 crores d) 40,000 crores

(f) Match the items of Column I with Column II and choose the correct pair:

Column I Column II

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 (a) Revenue Receipt (i) Interest paid

(b) Capital Receipt (ii) Grants received

(c) Revenue Expenditure (iii) Profits of PSU

(d) Capital Expenditure (iv) Loan repaid

a) (c) - (iii) b) (a) - (i)

c) (d) - (iv) d) (b) - (ii)

Question No. 59 to 64 are based on the given text. Read the text carefully and answer the questions: [6]
Budget 2021-22: From Where The Rupee Comes?

S.No. Content ₹ (in crores)

1. Revenue Expenditure 100

2. Capital Receipts 40

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3. Net Borrowings 38

4. Net Interest Payments 27

5. Tax Revenue 50
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6. Non-Tax Revenue 15
B
59. What is the revenue deficit?
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a) ₹ 30 cr b) ₹ 35 cr
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c) ₹ 50 cr d) ₹ 45 cr
60. Which of the following shows fiscal deficit?
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a) ₹ 50 cr b) ₹ 38 cr

c) ₹ 40 cr d) ₹ 45 cr
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61. What will be the primary deficit?

a) ₹ 11 cr b) ₹ 17 cr

c) ₹ 20 cr d) ₹ 23 cr
62. Which of the following is a non-tax revenue for the government?

a) return on assets b) service tax

c) excise duties d) customs

63. Which of the following is the formula for revenue deficit?

a) revenue expenditure-revenue receipts b) borrowings-revenue receipts

c) revenue expenditure-non tax revenue d) revenue receipts-interest payments

64. Which of the following is MOST LIKELY to be the main contributor to the fiscal deficit in this case?

a) high revenue expenditure b) high tax revenue

c) high capital receipts d) low interest payments

Question No. 65 to 70 are based on the given text. Read the text carefully and answer the questions: [6]

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 S.No. Items Budget Expenditure 2020-21 (percentage of GDP)

(i) Revenue Receipts 20.21

(ii) Gross Tax Receipts 24.23

(iii) Net Tax Receipts 16.36

(iv) Non-Tax Receipts 3.85

(v) Non-debt Capital Receipts 2.25

(vi) Non-debt Receipts 22.46

(vii) Total Expenditure 30.42

(viii) Revenue Expenditure 26.30

(ix) Capital Expenditure 4.12

65. Identify the value of fiscal deficit:

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a) 6.09 b) 7.96

c) 4.12 d) 3.85
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66. If primary deficit is 0.88, the value of interest payment would be ________.

a) 3.85 b) 7.96
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c) 7.08
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67. Revenue deficit in the government budget is:
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a) Revenue Expenditure - Revenue Receipts b) Fiscal deficit + Interest Payments

c) Total Expenditure - Total Receipts d) Total Receipts - Total Expenditure

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68. Which of the following is a non-tax receipt?

a) Gift Tax b) Excise duty

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c) Sales Tax d) Dividend

69. Expenditure on old-age pensions is an example of ________ expenditure.

a) capital b) debt creating

c) revenue d) asset creation

70. ________ is/are debt creating capital receipts for the Government.

a) Borrowings from World Bank b) Partial sale of government shares in a

company.

c) Recovery of loans from State government d) Sale of Public Sector Undertakings

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