NCERT Solutions for Class 12 Economics II Chapter 5 Government Budget And The Economy

Ans : Public goods are refer to certain goods such as national defence, roads, government administration which cannot be provided through the market mechanism must be provided by the government. These goods are necessary for life and national development. Presence and supply of these goods can not be ignored An private sector enterprises do not take Interest In It because these goods are not more prolnable. So, government supplied the public goods. 

Ans : Fiscal deficit refers to excess 01 government expenditure over its receipts exclusive of borrowing Thus, fiscal deficit points to borrowings requirement of the government to cope with its expenditure of he year Higher borrowing implies higher burden of repayments of loans and of Interest on the future genera lion As this burden mounts up, year after year, resource base future generation tends to shrink. This will definitely retard the process of future growth. Particularly, when borrowings by the government are used for non-productive purpose 

Ans : Revenue deficit is the excess 01 revenue expenditure of the government over Its revenue receipts fiscal deficit IS the excess of total budget expenditure over total budget receipts excluding borrowing, Fiscal deficit points to borrowing requirement of the government. As fiscal deficit mount up, increasingly larger part of GOP siphoned off to pay the existing loans. 
Accordingly, resources available for revenue expenditure are reduced. Growth process is hindered The government is once again compelled to take loans adding to its fiscal deficit. 
Thus revenue deficit and fiscal deficit tend to push up each other. 

Ans : \(\begin{array}{l}{\text { Given, }} \\ {1=200} \\ {G=150} \\ {T=100} \\ {C=100+0.75 Y} \\ {\overline{C}=100} \\ {C=0.75}\end{array}\)
(i) Equilibrium level of income
\(\begin{aligned} Y &=\frac{1}{1-c}(\overline{C}-c T+I+G) \\ &=\frac{1}{1-0.75}(100-0.75 \times 100+200+150) \\ &=\frac{1}{0.25}(375) \\ &=\frac{375}{25} \times 100= ₹1500 \end{aligned}\)
(ii) Government expenditure multiplier
\(\begin{aligned} \frac{\Delta Y}{\Delta G} &=\frac{1}{1-c}=\frac{1}{1-0.75}=\frac{1}{025} \\ \frac{1}{25} \times 100=4 & \\ \text { Tax multiplier } &=\frac{\Delta Y}{\Delta T}=\frac{-c}{1-c} \\ \frac{-0.75}{1-0.75} &=\frac{-0.75}{0.25}=\frac{-75}{25}=-3 \end{aligned}\)
(iii) New equilibrium income
\(\begin{aligned} \frac{1}{1-c} &[\overline{C}-c T+l+G+\Delta G] \\ &=\frac{1}{1-075}[100-075 \times 100+200+150+200] \\ &=\frac{1}{025} \times 575=\frac{575}{25} \times 100=2300 \end{aligned}\)
Change in equilibrium income = 2300—1500 = 800 

Ans : (i) Equilibrium level of income


\(\begin{aligned} Y &=\frac{1}{1-c}[\overline{C}-C T+I+G] \\ &=\frac{1}{1-0.80}[20+0.80 \times 100+30+50\} \\ &=\frac{1}{020}[180] \\ &=\frac{180}{20} \times 100 \\ &=900 \end{aligned}\)
Expenditure multiplier


\(\begin{aligned} \frac{1}{1-c} &=\frac{1}{1-0.80} \\ &=\frac{1}{020} \\ &=\frac{100}{20}=5 \end{aligned}\)
(ii) Increase in government expenditure


\(\begin{aligned} &=\frac{1}{1-c}[\overline{C}+c T+I+G+\Delta G] \\ &=\frac{1}{1-0.80}[20+0.80 \times 100+30+50+50+30] \\ &=\frac{1}{020}[210]=\frac{210}{20} \times 100=1050 \end{aligned}\)
(iii) Tax multiplier = \(\frac{-C}{1-c}\)
\(\begin{aligned} \frac{\Delta Y}{\Delta T} &=\frac{-c}{1-c} \\ \Delta Y &=\frac{-C}{1-C} \times \Delta T \\ &=\frac{-0.80}{1-0.80} \times 30 \\ &=\frac{-80}{20} \times 30 \\ &=-120 \end{aligned}\)
New equilibrium level of income 
\(\begin{array}{l}{=Y+\Delta Y} \\ {=900+(-120)} \\ {=780}\end{array}\)