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CBSE Class 12 Economics Notes : Government Budget and Economy

March 10, 2015

Points to Remember

1. Government Budget: A government budget is annual statement showing receipts and expenditures during a fiscal year.

2. Objectives of Government Budget

(i) Economic growth

(ii) Proper allocation of resources

(iii) Generation of Employment

(iv) Economic stability

(v) Economic equality

(vi) Management of public enterprises

3. Public Goods Those goods which can not be provided through the market mechanism and hence, must be provided by the government are called public goods.

4. Revenue Receipts Receipt which neither create liability nor lead to reduction in assets are called revenue receipts. Revenue receipts are further divided under two heads

(i) Receipt form Tax

(a) Direct Tax

(b) Indirect Tax

(ii) Receipts from Non-Tax Revenue

5. Capital Receipts The receipts of government which create liability or reduce financial assets are called capital receipts. These receipts are classified under the followingheads
(i) Market borrowings
(ii) Other borrowings and loans
(iii) Small savings
(iv) Provident fund and other deposits

6. Revenue Expenditure It refers to the expenditure that does not result in the creation of assets reduction of liabilities. The revenue expenditure is also of two types
(i) Plan revenue expenditure
(ii) Non-plan revenue expenditure

7. Capital Expenditure It refers to the expenditure which leads to creation of assets or reduction in liabilities. e.g., defence capital, purchasing land, building etc.

8. Plan Expenditure The expenditure to be incurred during the financial year on the development and investment programmes under the current Five Year Plan is termed as plan expenditure.

9. Non-Plan Expenditure All expenditures of government not included in the current Five-Year Plan is termed as non-plan expenditure.

10. Deficit Budget If government expenditures exceed the government receipts, it is called deficit budget.

(i) Revenue Deficit (RD) = Total Revenue Expenditure – Total Revenue Receipts
(ii) Fiscal Deficit (FD) = Total Budget Expenditure – Total Budget Receipts excluding borrowing Or Fiscal Deficit = Borrowing
(iii) Primary Deficit (PD)=Fiscal Deficit Interest Payment

11. Measures to Reduce Fiscal Deficit
(i) Reduce public expenditure
(ii) Increasing revenue from taxation and other measures

12. Discretionary Fiscal Policy If investment falls and government spending can be raised so that autonomous expenditure and equilibrium remain the same. This deliberate action to stabilise the economy is often referred to as discretionary fiscal policy.

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